CHAPTER-1

WORKING CAPITAL

INTRODUCTION

In financial management, two important decisions are very vital and crucial. They are
decision regarding fixed assets/fixed capital and decision regarding working capital/current
assets. Both are important and a firm always analyzes their effect to final impact upon
profitability and risk. Fixed capital refers to the funds invested in such fixed or permanent
assets as land, building, and machinery etc. Whereas working capital refers to the funds
locked up in materials, work in progress, finished goods, receivables, and cash etc. Thus, in
very simple words, working capital may be defined as “capital invested in current
assets.” Here current assets are those assets, which can be converted into cash within a
short period of time and the cash received is again invested into these assets. Thus, it is
constantly receiving or circulating. Hence, working capital is also known as circulating
capital or floating capital.

MEANING OF WORKING CAPITAL

Working Capital, also known as met working capital, is a financial metric which represents
operating liquidity available to a business. Along with fixed assets such as plant and
equipment, working capital is considered a part of operating capital. It is calculated as current
asset minus current liabilities. If current assets are less than current liabilities, an entity has a
working capital deficiency, also called a working capital deficit.

Every business needs funds for two purposes – for the establishment and to carry out its day to
day operations. Funds needed for short term purposes for the purchase of raw materials,
payment of wages and other day to day expenses etc are known as working capital. In simple
words, working capital refers to that part of the firm’s capital which is required for finding
short term or current assets such as cash, marketable securities, debtors and inventories.

More precisely working capital means capital invested in current assets. The composition of
current assets keeps on changing. In other words, current assets have a tendency to move
towards cash. Thus, the size of working capital will keep on changing ever now and then. It
can be optionally compared with rives which remain there every time but the worth in it is
constantly changing.

DEFINITIONS

According to Genestenberg, “Circulating capital means current assets of a company that are
changed in the ordinary course of business from one firm to another, as for example, form cash
to inventories, receivables into cash.”

I the words of Shubin, “Working Capital is the amount of funds necessary to cover the cost of
operating the enterprises”.

CONCEPT OF WORKING CAPITAL

1. Gross working capital: (Total Current Assets)
The gross working capital, simply called as working capital refers to the firm’s investment in
current assets. Current assets are the assets, which can be converted into cash within an
accounting year or operating cycle. Thus, Gross working capital, is the total of all current
assets. It includes
1. Inventories (Raw materials and Components, Work-in-Progress, Finished Goods, Others)
2. Trade Debtors
3. Loans and Advance
4. Cash and Bank Balances
5. Bills Receivables.
6. Short-term Investment

2. Net Working Capital: (Total Current Assets – Total Current Liabilities):

Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders, which are expected to mature for payment
within an accounting year. Net working capital may be positive or negative. A positive net
working capital will arise when current assets exceed current liabilities and a negative net
working capital will arise when current liabilities exceed current assets i.e. there is no
working capital, but there is a working capital deficit.

It includes:
1. Trade Creditors.
2. Bills Payable.
3. Accrued or Outstanding Expenses.
4. Trade Advances
5. Short Term Borrowings (Commercial Banks and Others)
6. Provisions

NEED OR OBJECTS OF WORKING CAPITAL

The need for working capital arises due to time gap between production and realization of
cash from sales. There is an operating cycle involved in sales and realization of cash. There
are time gaps in purchase of raw materials and production, production and sales, and sales
and realization of cash. Thus, working capital is needed for following purposes:
 For purchase of raw materials, components and spares.
 To pay wages and salaries.
 To incur day-to-day expenses and overhead costs such as fuel, power etc.
 To meet selling cost as packing, advertisement.
 To provide credit facilities to customers.
 To maintain inventories of raw materials, work in progress, stores and spares and
finished stocks.

The greater size of business unit the larger will be requirements of working capital. The amount
of working capital needed goes on increasing with growth and expansion of business till it
attains maturity. At maturity the amount of working capital needed is called normal working
capital.

ESSENTIALS OF WORKING CAPITAL

The essentials of Working Capital Management covers the main components of Working
Capital. These are as described:
  Covers the latest trends around working capital.
 Discusses a range of working capital topics, including cash management, banking
relations, accounts receivable, inventory accounts payable and foreign exchange.
 Analyzes the efficient utilization of current assets and liabilities of a business through
each phase of the operating cycle.
 Examines the planning, monitoring, management of the company’s collections,
disbursements and concentration banking.
 Explores the gathering and management of information and forecast data to effectively
use funds and identify risk.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

There are no set rules or formula to determine the working capital requirements of the firms. A
large number of factors influence the working capital need of the firms. All factors are of
different importance and also Importance change for the firm over time. Therefore, an analysis of
the relevant factors should be made in order to determine the total investment in working capital.
Generally the following factors influence the working capital requirements of the firm:
1. Nature of the business: The working capital requirements of firm depend upon nature of
its business. Public utility undertakings like electricity, water supply need very limited
working capital because they offer cash sales only and supply services. Whereas trading
and financial firms requires less investments in fixed assets but have to large invest in
current assets so they need large amount of working capital.
2. Size of business: The greater the size of a business unit, the larger will be the
requirement of working capital and vice-versa.
3. Production policy: The requirements of working capital depend upon production policy.
If the policy is to keep production steady by accumulating inventories it will require
higher working capital. The production could be kept either steady by accumulating
inventories during slack periods with view to meet high demand during peak season or
production could be curtailed during slack season and increased during peak season.
4. Manufacturing Process: The longer the process period of manufacture, the larger is the
amount of working capital required. The shorter the process period of manufacture, the
shorter is the amount of working capital required.
5. Credit policy: A concern that purchases its requirements on credit and sells its products!
services on cash requires lesser amount of working capital. On other hand a concern
buying its requirements for cash and allowing credit to its customers, shall need larger
amount of working capital as very huge amount of funds are bound to be tied up in
debtors or bills receivables. -
6. Business cycles: In period of boom i.e.; when business is prosperous, there is need for
larger amount of working capital due to increase in sales, rise in prices etc. On contrary in
times of depression the business contracts, sales decline, difficulties are faced in
collections from debtors and firms may have large amount of working capital lying idle.
7. Rate of growth of business: The working capital requirements of a concern with growth
and expansion of its business activities. In fast growing concerns large amount of
working capital is required.
8. Price level changes: Changes in price level affect the working capital requirements.
Generally, the rising prices will required the firm to maintain large amount of working
capital as more funds will be required to maintain the same current assets .The effect of
rising prices may be different for different firms.

WORKING CAPITAL RATIO

The Working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm’s
ability to pay off its current liabilities with current assets. The working capital ratio is important
creditors because it shows the liquidity of the company. The reason this ratio is called the
working capital ratio comes from the working capital calculation. When current assets exceed
current liabilities, the firm has enough capital to run its day to day operations. The working
capital ratio transforms the working capital calculation into a comparison between current assets
and current liabilities. A Working Capital ratio of less than 1.0 is a strong indicator that there
will be liquidity problems in the future, while a ratio in the vicinity of 2.0 is considered, to
represent good short term liquidity.
To calculate the Working Capital ratio, divide all current assets by current liabilities. The

formula is: Current Assets

Current Liabilities
WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between a company’s paying for materials,
entering into stock and receiving the cash from sales of finished goods. It can be determined by
adding the number of days required for each stage in the cycle. For example, a company holds
raw materials on an average for 60 days, it gets credit from the supplier for 15 days, production
process needs 15 days, finished goods are held for 30 days and 30 days credit is extended to
debtors. The total of all these, 120 days, i.e.; 60 - 15 + 15 + 30 + 30 days are the total working
capital cycle.

WORKING CAPITAL MANAGEMENT

Decision relating to working capital and short term financing are referred to as working capital
management. These involve managing the relationship between a firm’s short term assets and its
short term liabilities. The goad of working capital management is to ensure that the firm is able
to continue its operations and that it has sufficient cash flow to satisfy both maturing short term
debt and upcoming operational expenses and to manage the current assets and current liabilities
of a firm in such a way that a satisfactory level of working capital is maintained i.e. it is neither
inadequate nor excess.
Working capital management policies of a firm have a great effect on its profitability, liquidity
and structural health of the organization. In this context, working capital management is three
dimensional in nature: -
i) Dimension I is concerned with the formulation of policies with regards to
profitability, risk and liquidity.
ii) Dimension II is concerned with the decisions about the composition and level of
current liabilities.
iii) Dimension Ill is concerned with the decisions about the composition and level of
current liabilities.

DECISION CRITERIA
By definition, working capital management entails short term decisions generally, relating to the
next one year period which is “reversible”. These decisions are therefore not taken on the some
basis as capital investment. Decisions (NPV or related, as above) rather they will be based on
cash flows and) or profitability.

One measure of cash flow is provided by the cash conversion cycle — the net number of days
from the outlay of cash for raw material to receiving payment from the customer. As a
management tool, this metric makes explicit the interrelatedness of decisions relating to
inventories, accounts receivable and payable, and cash because this number effectively
corresponds to the time that the firm’s cash is tied up in operations and unavailable for other
activities, management generally aims at a low net count.
In this context, the most useful measure of profitability to return on Capital (ROC). The result is
shown as a percentage, determined by dividing relevant income for the 12 months by Capital
employed; Return on equity (ROE) shows this result for the firm’s shareholders. Firm value is
enhanced when, and if, the return on capital, which results from working capital management,
exceeds the cost of capital, which results from capital investment decisions as above. ROC
measures are therefore useful as a management tool, in that they link short term policy with long
term decisions.

MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies and techniques for
the management of working capital. These policies aim at managing the current assets (generally
cash and cash equivalents, inventories and debtors) and the short term financing, such that cash
flows and returns are acceptable.

Inventory Management
Identify the level of inventory which allows for uninterrupted production but reduces the.
investment in raw materials and minimizes reordering cats and hence increases cash flows
In Vardhman General & Spinning Mill (a) Finished Goods are valued at cost or net realizable
value whichever is lower (b) Raw Material & Components, loose tools, stores and spares,
Packing Material and Work in progress are valued at cost on FIFO basis except scrap, which is
valued at realizable value.

Short term Financing

Identify the appropriate source of financing, the inventory is ideally financed by credit granted
by the supplier in Vardhman General & Spinning Mill. Though Vardhman General & Spinning
Mill also depends upon the Banks for their short term credit financing.

Debtors Management
For debtor’s management Vardhman General & Spinning Mill depends upon the policy of
discounts and allowances. The company follows such credit terms which attracts the customers,
such that any impact on cash flows and the cash conversion cycle will be offset by increased
revenue and hence return on capital.

Cash Management
For the cash management Vardhman General & Spinning Mill accepts all the receivables on the
beginning of every month. Some policies followed for making the payments.

Principles of Working Capital Management

The Principles of working capital management are as follows:
1. Principle of Risk variation: Risk refers to inability of firm to meet its obligation as and
when they become due for payment. Larger investment in current assets with less
dependence on short-term borrowings increases liquidity reduces risk and thereby
decreases opportunity for gain or loss. On other hand less investment in current assets
with greater dependence on short-term borrowing increases risk, reduces liquidity and
increases profitability.
2. Principle of cost of capital: The various sources of raising working capital finance have
different cost of capital and degree of risk involved .Generally, higher the risk, lower is
cost and lower the risk, higher is the cost. A sound working capital management should
always try to achieve proper balance between these two.
3. Principle of equity position: This principle is concerned with planning the total
investment in current assets. According to this principle, the amount of working capital
invested in each component should be adequately justified by firm’s equity position.
4. Principle of Maturity of Payment: This Principle is concerned with planning the
sources of finance for working capital. According to this principle, a firm should make
every effort to relate maturities of payment to its flow of internally generated funds.
Generally, shorter the maturity schedule of current liabilities in relation to expected cash
in flows, the greater inability to meet its obligations in time.
 KINDS OF WORKING CAPITAL

There are 2 kinds of Working capital:

(a) Balance Sheet Concept
(b) Operating Cycle
Or Circular flow Concept.

a) Balance sheet Concept

There are two interpretations under the balance sheet concept

i) Gross Working Capital

In the broad sense, the term working capital refers to the gross working capital and
represents the amount of funds invested in current assets. Thus, the gross working capital
is the capital invested in total current assets of the enterprise. Current assets are the assets
which can be converted into cash within an accounting year and include cash, short term
securities, debtors, bills receivable and stock.

ii) Net Working Capital

In a narrow sense, the term working capital refers to the net working capital. Net working
capital is the excess of current assets over current liabilities or say;
Net Working Capital = Current Assets — Current Liabilities
 It may be positive or negative. When the current assets exceed the current liabilities the
working capital is positive and the negative working capital results when the current
liabilities are more than the current assets.

(b) Operating Cycle Concept

As discussed earlier working capital refers to that part of firm’s capital which is required
for financing short term or current assets such as cash, marketable securities, debtors and
inventories fund thus invested in current assets keep revolving fast and are being
constantly converted into cash and this cash flows out again in exchange for other current
assets. Hence it is also knows as revolving or circulating capital. The cycled starts with
the purchase of raw material san other resources and ends with the realization of cash
from the sale of finished goods. It involves purchase of raw material and stores, its
conversion into stock of finished goods through work in progress with progressive
incensement of labor service costs, conversion of finished goods into sales, debtors and
receivable and ultimately realization of cash and this cycle continues again form
purchases and so on.
Operating Cycle in the time duration required to convert sales, after the conversion of
resources into inventories, into cash. The operating cycle of a manufacturing company
involves three phases: -
Acquisition of resources such as raw material, labor, power and fuel etc.
ii) Manufacture of the product which includes conversion of raw material into work in
progress into finished goods.
iii) Sales of the product either for cash or on credit. Credit sales create account receivable for
collection. The speed I time duration required to complete one cycle determines the
requirement of working capital longer the period of cycle, longer is the requirement of
working capital.
Fig: Operating cycle of a Manufacturing Firm
The gross operating cycle of a firm is equal to the length of the inventories and receivable
conversion period.
Gross Operating Cycle — RMCP + WIPCP + FGCP + RCP
Where
RMCP = Raw Material conversion Period
WICP Work-in-progress conversion Period
FGCP = Finished Goods conversion Period
RCP = Receivable Conversion Period.
However, a firm may acquire some resources on credit and thus defers payments for certain
period. In that case, net operating cycle can be calculated as below: -

Net Operating Cycle = Gross Operating Cycle — Payable defer Period

Further, following formula can be used to determine the conversion periods:

ADVANTAGES OF ADEQUATE WORKING CAPITAL
Working Capital is the life blood and nerve centre of a business. Just as circulation of blood is
essential in the human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an adequate amount of
working capital. The main advantages are:

1. Solvency of the Business

Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.

2. Goodwill
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.

3. Easy Loans
A concern having adequate working capital, high solvency and good credit standing can
arrange loans from banks and other on easy and favorable terms.

4. Cash discounts
Adequate working capital also enables a concern to avail cash discounts on the purchases
and hence it reduces costs.
5. Regular Supply of raw materials
Sufficient working capital ensures regular supply of raw materials and continuous
production.

6. Regular payment of salaries, wages and other day to day commitments

A company which has ample working capital can make regular payment of salaries,
wages and other day to day commitments which raises the morale of its employees,
increases their efficiency, reduces wastages and costs.

7. Ability to face Crisis

Adequate working capital enables a concern to face business crisis in emergencies such
as depression because during such periods, generally, there is much pressure on working
capital.

8. High Morale
Adequacy of working capital creates an environment of security, high morale and creates
overall efficiency in a business

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL

1. Excessive Working Capital means idle funds which earn no profits for the business and
hence the business cannot earn a proper rate of return on its investments.
2. When there is a redundant W.C., it may lead to unnecessary purchasing and accumulation
of inventories causing more chances of theft, waste & losses.
3. Excessive Working Capital implies excessive debtors and defective credit policy which
may cause incidence of bad debts.
4. It may results into overall inefficiency in the organization.
5. When there is excessive working capital, relations with banks other financial institutions
may not be maintained.
6. Due to low rate of return of investments, the value of shares may also fall.
7. The redundant working capital gives rise to speculative transactions.
DISADVANTAGES OF INADEQUATE WORKING CAPITAL
1. A concern which has inadequate working capital can pay its short term liabilities in
time. Thus, it will lose its reputation shall not be able to get good credit facilities.
2. It cannot buy it requirements in bulk and cannot avail of discounts etc.
3. It becomes difficult for the firm to exploit favourable market conditions & undertake
profitable projects due to lack of working capital.
4. The firm cannot pay day to day expense of its operations. It creates inefficiencies,
increase costs and reduces the profits of the business.
5. It becomes impossible to utilize efficiently the fixed assets due to non — availability
of liquid funds.
6. The rate of return on investments also falls with the shortage of working capital.
 INTRODUCTION TO THE VARDHMAN GROUP

BRIEF HISTORY OF THE ORGANISATION:

VARDHMAN, today a leading group in India in the core sector of textiles, started in 1965 by
Lala Rattan Chand Oswal - a pioneer industrialist of Ludhiana. He set up The VARDHMAN
with an installed capacity of just 14000 spindles. During those initial years, he worked hard to
achieve his objective of continuous perfection of his business, which helped him to obtain a firm
footing. Currently the group has 17 operational plants with the installed capacity of about 5,
00,000 spindles, 248 shuttleless looms and 57 tons per day dyeing capacity. The Group achieved
sales during the period 2003-04 of about Rupee 21.00 Billion (USD 465 million). During the
same period the exports was about rupees 4.40 billion (USD 100 million).
The major diversification came in 1973, with the setting up of Oswal Steels at Faridabad with the
capacity of 35000 metric tons per annum. Later in 1986, VARDHMAN SPECIAL STEELS took
over it, and today VARDHMAN Group has a steel melting shop with a capacity of 65000 tons
per annum. In 1982, VARDHMAN undertook a forward integration project by entering into
thread market and due to its performance and quality standards, VARDHMAN threads became
the second largest selling sewing threads brand in the country.
In 1992, under its other integrated diversification project, it installed a new unit named as AURO
WEAVING and entered into weaving of Grey fabric at Baddi (H. P.), with the capacity of 20000
Mts. per day. It has already been marked as a quality producer of Grey poplin / sheeting/ shirting
in home market. It has also penetrated the highly competitive export market in a very short span,
now exporting 90 % of its production.
In 1994, VARDHMAN THREADS LIMITED at Baddi (HP).

In 1998, VMT SPINNING CO. LIMITED at Baddi (HP).

In 1999, The Group has added another feather to its cap with setting up of VARDHMAN
ACRYLIC LIMITED at Bharuch (Gujarat), keeping in line with its expansion spree. The
company also has a strong presence in various countries like Japan, Hong Kong, Korea, UK and
EU in addition to the domestic market. Yet another forward integration project on Ready-made
garments is in the offing and is to be realized soon.
Vardhman is earning laurels by exporting yarn and fabrics of international quality to several
countries in the West, Africa and the Far East earning valuable foreign currency for the country.
Vardhman is the first company among the Textile industry to receive the ISO 9002 / ISO 14002
quality awards in India.
The uniqueness of the Vardhman Group lies in the fact that not only has it excelled in all its
endeavors but has also established a firm footing through its deep rooted culture that imparts the
group an unassailable strength and confidence to face the future.
GROUP PROFILE:
The group includes five public limited companies:

1. VARDHMAN SPINNING AND GENERAL MILLS LIMITED

a) Vardhman Spinning and General Mills Ltd., Ludhiana.
b) Auro Spinning Mills, Baddi.
c) Auro Dyeing Mills, Baddi.
d) Auro Weaving Mills, Baddi.

2. MAHAVIR SPINING MILLS LTD.

a) Mahavir Spinning Mills Ltd., Hoshiarpur.
b) Arihant Spinning Mills, Malerkotla.
c) Anant Mills, Bhopal.
d) Vardhman Special Steels, Ludhiana.
e) Vardhman Special Steels, Faridabad.
f) Arisht Mills, Baddi.

3. VARDHMAN THREADS LTD., BADDI

4. VMT SPINING COMPANY LTD., BADDI

5. VARDHMAN ACRYLICS LTD., BHARUCH (GUJARAT)

VARDHMAN’S BUSINESS PORTFOLIO: PRODUCT RANGE

VARDHMAN GROUP

YARN FABRIC STEEL SEWING THREAD FIBRE

PERCENTAGE
YARN

FABRIC
18%
6%
FIBRE
8%
65%
9% STEEL

SEWING
THREAD
YARNS
Yarn Manufacturing is the major activity of the group accounting for 65 percent of the group
turnover. Vardhman is virtually a supermarket of yarns, producing the widest range of cotton,
synthetics and blended, Grey and Dyed yarns and Hand Knitting Yarns, in which Vardhman is
the market leader in India. The group has nine production plants with a total capacity of over 5.5
lacs spindles, spread all over the country. In many of the yarn market segments, Vardhman holds
the largest market share. Vardhman is also the largest exporters of yarn from India, exporting
yarns worth more than USD 90 million.

1994 was another milestone towards its mission to supply quality products.Vardhman further
improved the value addition to its existing range of tops, fibre dyed and cone dyed yarns.

This was a result of new phenomena that emerged on the horizons of Vardhman and also of
Indian Textiles. A fully integrated dyeing plant was commissioned with technology from Nihon
Sanmo Dyeing Co. Ltd, Japan, the leader in dyeing technology in the world. It has a capacity of
processing 22-tonnes fibre/tops and 10-tonnes of yarns per day.

Today Vardhman Group has over 50 tonnes of dyeing capacity per day, spread over various
plants.

Products End Uses

Cotton hosiery yarn All kinds of knitted garments for
kids,ladies,gents,t-shirts,socks and lingeries
Woven yarns Shirts & trousers
Tyre cord yarn Manufacturing of tyres
Acrylic Yarn Sweater & shawls
Hand knitting yarn Knitting
SEWING THREAD
Vardhman is the second largest producer of sewing thread in the country. The sewing thread
manufacturing capacity is being expanded from present 17 tons per day to 22 tons per day in its
sewing thread plants located at Hoshiarpur, Baddi and Ludhiana. Sewing threads contributes 12
percent of the group turnover.

Vardhman’s journey into sewing threads dates back to the year 1982.Vardhman Threads
launched a range of sewing threads in a highly competitive market dominated by transnationals.
Within a short span of decade, Vardhman threads became the second largest brand of specialized
threads in the country. It clocked a turnover of about US $ 50 million in the year 2001-02.Its
product portfolio includes high quality threads of various types like 100% Polyester/cotton Spun
yarn, Bonded Nylon, Polyester braids core spun and Embroidery Threads.

Through a superior logistic and information network, Vardhman provides the best service levels
desired by its customers. Keeping in tandem with the times, Vardhman was among the first to
relinquish the use of environmentally hazardous dyes. Vardhman threads are now made of 100%
Azo-free dyes that are accepted the world over.
The company has a licensing agreement with American & Efird, Inc.USA, for manufacturing
and distribution of the famous A&E branded sewing threads like Perma Spun, Perma Core and
D-core in India and Nepal.
SEGMENTS BRANDS APPLICATIONS
Apparel Sewing Threads Tora, Challenge, Hammer, Clothing, Tailoring, RMG,
Duro, Super-Seam Hosiery
Textile Crafts Magika, Rangoli, Eureka and Embroidery, Tapestry, Crochet
Pride and Knitting and Leisure work
Kite Flying Panda and Kalachand Kite Flying
Specialty Threads Mox, Ranger, Taurus, Leather Garments, Footwear,
Master, Linker, Teacher, Sports Goods, Leather Goods,
Cowboy Gloves, Automotive, Jeans,
Upholstery, Canvas Goods,
Travel Bags, Mattresses,
Quilting, Outdoor and camping
goods and Parachutes etc.
 FABRICS
The group has created state-of-the-art fabric weaving and processing facilities in its plant at
Baddi, Northern India. The group has installed 208 shuttle less looms and a fabric processing
capacity of 30 million meters per annum in collaboration of Tokai Senko of Japan. Fabrics
business contributes 8 percent to the group turnover.

FIBRE
The group has recently set up an Acrylic Staple Fibre plant at Bharuch in Gujarat in
collaboration with Marubeni and Japan Exlan of Japan. The plant has annual capacity of 18000
tons per annum. Fibre contributes 8 percent to the total turnover of the group.

STEEL
The Group is also present in upper-end of the steel industry. The group has manufacturing capacity
of 100000 tons of special and alloy steel. The group supplies its steel products to some of the
most stringent quality steel buyers like Maruti and Telco. It contributes 6 percent to the total
turnover of the group.

Special Steels: Vardhman Special steels was established in the year 1972 to manufacture special
and alloy steel. The true impetus came with the upgrading of the plant located in Ludhiana to an
ultra modern plant. Today it has an installed capacity of 1, 00, 000 MT per annum.

The state –of-the-art steel mill has oneUHP 30MT electric arc furnace, ladle furnace, vacuum
degassing station, 9/16 metres bloom caster and a bar mill to roll a large range of shapes & sizes.
The contemporary technologies like electromagnetic stirrers, auto mould level control and auto
controlled cooling etc. in the bloom caster have been deployed to produce high and consistent
quality special and alloy steels. The quality products find applications in automotive
components, forging, ball bearings, engineering applications, railway, and defence. Continuous
research and development efforts, focussed on customer satisfaction, have enabled Vardhman
special steels to meet the stringent quality requirements of producers of all types of commercial
vehicles, tractors, cars, two wheelers, defence applications, railway components, capital goods
and other engineering products. The company has received approval for its products from
leading OEMs like Telco, Ashok Leyland, Maruti, Hindustan Motors, Yamaha, LML, Kinetic,
M&M, Punjab Tractors &Escorts among others.

1. Plain Carbon steel

2. Case hardening steel
3. Through hardening steel
4. Free /semi free cutting steel
5. Spring steel
6. Ball bearing steel
7. Round corner squares
8. Round bars

MISSION STATEMENT
Vardhman aims to be world-class textile organisation producing diverse range of products for the
global textile market. Vardhman seeks to achieve customer delight through excellence in
manufacturing and customer service based on creative combination of state-of-the-art technology
and human resources.Vardhman is committed to be responsible corporate citizen.

S.P.Oswal
Chairman Vardhman Group

GROUP MISSION

 To be committed to keep business topping.

 To provide conduit for top-line growth.

 To add variants in our repertoire.

 To have a work-style that emphasizes on running a clean organization with delegation.

 Creating a purpose to engage people.

 Creating an atmosphere where people can renew themselves.

GROUP PHILOSOPHY
The Vardhman group has always emphasized on total customer focus in all operational areas. It
has continuously and nurtured relationship with all the customers and its focus is on service-
orientation. Vardhman believes in:

 Absolute customer orientation for a quick and positive response to the customer’s needs.
 Timely delivery with consistent standards.
 Product to be of the best available quality for premium market segment through TQM
and zero defect implementation.
 An uncompromising commitment to a flexible, professional and personalized service
from within a stimulating result-oriented environment.
 Response approach to the benefits of R&D and modern technology.
 For achieving excellence in all functional areas, encouraging innovations for constant
improvement of the product and services.
 Having faith in individual potential and respect for human values.
 Being a responsible corporate citizen with strong respect to the laws of the land and its
environment.
 Faster mutually beneficial relations with al business partners/dealers.
 Employer-employee relationship built on trust is the foundation of Vardhman’s growth.
 Believing that every employee should derive the satisfaction of worthwhile contribution
to the growth & prosperity of the organization.
 Accepts that “change” is a way of life.
BUSINESS PHILOSOPHY

 Faith in bright future of Indian textiles and hence continued expansion in areas which are

best.

 Total customer focus in all operational areas.

 Products to be of best available quality for premium market segment through TQM and

zero defect implementation.

  Global orientation targeting at least 20% production for exports.

 Integrated diversification and product range expansion.

 World class manufacturing facilities with most modern R&D and process technology.

 Faith in individual potential and respect for human values.

 Encouraging innovation for constant improvement to achieve excellence in all functional

areas.

 Accepting change as a way of life.

 Appreciating its role as a responsible corporate citizen.

HUMAN RESOURCE PHILOSOPHY

Human resources play a pivotal role in the success of any organization. Performance or more
specifically of an organization is directly proportional to the quality and quantity of its people
out of a large many other factors.

With manpower strength of 3,100 officers and staff and about 15,000 workers, the Vardhman
Group is well aware of the importance of human assets and this is evident in its human resource
philosophy which is woven around the following principles:

 People/Human resources are not merely assets to the organization but are stakeholders
who have a positive interest and involvement in the growth and prosperity of the
organization.
 Every employee is special and unique in his own field and has infinite potential to make
significant contribution to the organization.
 Merit is the most important criteria for recruitment and reward.
 Creativity and innovation in technology and management through our people is our
competitive edge.
 HR processes facilitate consistent improvement in performance, productivity and
effectiveness through mutually agreed stretched targets.
  Continuously strive to improve quality of work life for total job satisfaction and social
harmony for the employees.
 HR prepares people to accept and adapt to change and learning as a way of life.
 HR promotes high standards of discipline at the work place and compliance with the laws
of the land.
 Prepare youth for executive role in business as a major social responsibility.

HUMAN RESOURCES

To face the challenges of the New World order, Vardhman attaches great importance to the
development of its main resource – PEOPLE. At its core lies the recognition and respect for
individual dignity and human values. It is the caliber and professionalism of its people that has
helped Vardhman maintain its leadership in a competitive environment.

At Vardhman, people understand the market expectations and competitive challenges. The
emphasis is on fostering innovation and creativity at work so that the employees can translate
uncertainty into opportunities and opportunities into accomplishments.

Training: The Ultimate Tool

With a view to enhance their skills, Vardhman continuously trains its people across all functions,
levels and disciplines of the organisation. It has designed elaborate training and development
programmes that encompass the technical, managerial, behavioral and spiritual growth of its
employees. Vardhman Training and Development Centre, Manav Vikas Kendras and Quality
Circles are some of the steps in this direction. Apart from this, managers participate in training
programmes at some of the best institutes like the Harvard Business School (USA), Institute of
Management Development (Switzerland) and IIM’s in India.Vardhman sincerely believes that
when technology converges, people will make all the difference.

PERSONNEL POLICY
 Optimum utilization of human resource.

 Creating and environment which is conducive to higher quality and better performance.
  Implementation of human resource management policy.

 To train and develop the employees of the company in relation to HRM policy and ISO-

9002 and IS-14002.

 To operate with the system, procedure and rules of the organization and yet provide

lateral as well as nautical freedom to think beyond system.

GROUP QUALITY POLICY

Quality shall be built into the Company’s products to not only meet customer requirements
continuously but exceed them. The Company shall achieve this through an interface with the
market place, access to state-of-the-art technology, R&D, Process Development and adoption of
innovative manufacturing and marketing strategies.

The quality policy shall be implemented through a network of systems and procedures
understood and followed throughout the company.

The quality policy shall be integrated with the company’s mail objectives:

i.To remain the market leader in quality.

ii.Increase market share with focus on niche segments.
iii.Improve productivity.
iv.Cost reduction.
v.Reduction in percentage of seconds.

The management shall be committed to provide capital and human resources to achieve above
objectives. A company wide quality culture shall be created through training and motivation of
people at all levels in the organization.

For its efforts to remain ahead of others in quality it was awarded with First ISO 9002
accreditation for any Textile Manufacturing Unit in India in the year 1993 and OKO TEX
certification from Switzerland.
LOGO OF THE VARDHMAN GROUP

The “flame” signifies growth, i.e., growth of the company along with the growth of each and
every individual associated with it whether he or she is a worker, an employee, employer,
shareholders and customers.

The “stick” symbolizes cotton that is the basic raw material of the core product of Vardhman.
The “V” stands for the Vardhman group.
 GLOBAL ALLIANCES

Vardhman’s International Alliances:

Fabric Dyeing & Finishing Tokai Senko, Japan

Fibre & Yarn Dyeing Nihon Sanmo Dyeing Co. Ltd.,Japan

Gassed Mercerized Yarns Kiyung Bang, South Korea

Cotton Yarn Toho Rayon and Marubeni Corp;Japan

Sewing Thread American & Efird Inc.,U.S.A

Acrylic Fibre Marubani Corp & Japan

Exlan of Japan
Enterprise Resource Planning System IBM

AWARDS AND ACHIEVEMENTS:

2013-14

Textiles Export Promotion Council (Texprocil) Awards 2013-14

Gold Trophy for the Highest Exports of Processed Yarns
Gold - Won Special Achievement Award in Yarns Category
Bronze Trophy for Exports in Counts 50's & Below
Bronze Trophy for Exports in Counts 51's & Above
2012-13

Textiles Export Promotion Council (Texprocil) Awards 2012-13

Gold Trophy for the Highest Exports of Processed Yarns
Silver Trophy for Exports in Counts 50's & Below
Bronze Trophy for Exports in Counts 51's & Above

2011-12

Textiles Export Promotion Council (Texprocil) Awards 2011-12

Gold Trophy in Yarn Counts 51's & Above
Gold - Won Special Achievement Award in Yarns Category
Silver Trophy in Processed Yarns
Silver Trophy in Yarn Counts 50's & Below

2010-11

Textiles Export Promotion Council (Texprocil) Awards 2010-11

Silver Trophy in Processed Yarns
Silver Trophy in Yarn Counts 50's & Below

2009-10

FIEO Awards 2009-10

Niryat Shree Bronze Trophy

Textiles Export Promotion Council (Texprocil) Awards 2009-10

Gold Trophy in Processed Yarns Category
Silver Trophy in Yarn Counts 50's & Below
MAJOR ACHIEVEMENTS OF THE GROUP:

 Largest spinning capacity in India.

 First Indian Textile Company to get ISO-9002 and ISO-14002 certification in 1992-
1993.

 Largest manufacturing exporter of cotton yarn in the country.

 Exports to high quality conscious countries like Japan, Hong Kong, Korea, Italy,
Germany, U.K, and Switzerland.

 Winner of ‘OUTSTANDING EXPORT ACHIEVEMENT AWARD’ of the year

1996-97.

 Recipient of ‘TRADING HOUSE STATUS’ in 1994.

 Largest producer of hosiery yarns.

 Largest producer and exporter of cotton yarns.

 Largest producer of dyed yarns.

 Largest producer of hand knitted yarns.

 Second largest producer of sewing threads in the country.

 Recipient of “STATE EXPORT AWARD” for five successive years.

 Largest range of textile products.
 SWOT ANALYSIS OF THE GROUP:

STRENGTHS
 Good Brand Equity
 Good technological base with foreign collaboration
 High quality standards
 High production capacity
 Have its own Research and Development

WEAKNESSES
 Comparatively high prices
 Long hierarchy

OPPORTUNITIES
 As quality is good and prices are too high, comparatively it can easily liquidate stock
pressure by slight reduction in prices.
 As brand equity is very good and production base is too wide, Vardhman should make some
good customers with whom direct business can be established, with this Vardhman will have
better quantity and regularity of sales
 Strict payments are strength at times as well as weakness at times. If a moderate rate as per
the present conditions are adopted the dealers and customers shall be attracted to buy more
and regularly.
 Shortened hierarchy shall provide better scope for better customer service.

THREATS
 Small players in the market are using Vardhman’s prices as an established shield to push
their products at lower prices.
 Companies from south are entering into Ludhiana market.
 Capacity of yarn spinning is increasing rapidly in comparison to the increase in market size,
resulting into the addition of new players with added capacities in the same market. This
would result in price cuts, liberalization of payment terms and conditions etc. This shall
disturb an honest, sincere and growth oriented group like Vardhman.
BUSINESS WISE CLASSIFICATION

BUSINESS BRANCHES

Ludhiana, Delhi, Calcutta, Tripur, Bangalore, Mumbai

Yarn

Ludhiana, Delhi, Noida, Patna, Kanpur, Ahmedabad, Jaipur, Pune, Mumbai,

Sewing
Bangalore, Tripur, Indore, Chennai, Ernakulam, Hyderabad, Calcutta
Threads

Faridabad, Mumbai, Chennai

Steel

Delhi, Mumbai, Bangalore

Fabrics

TECHNOLOGICAL COLLABORATIONS

UNIT COLLABORATING COMPANY YEAR

Fibre/Yarn Dyeing House, Baddi (HP)

Nihon-Sane Dyeing Co Ltd., Japan 1994

Vardhman Threads Ltd., Baddi (HP)

Barbour Campbell, UK 1994

VMT Spinning Company Ltd., Baddi

(HP) Marubeni and Toho Rayon, Japan 1995

Gas-Mercerized Dyeing of Yarn,

Hoshiarpur (Punjab) Kyung Bang Ltd., South Korea 1996

Acrylic Fibre Plant, Jhagadia, Distt-

Bharuch (Gujarat) Marubeni Corp. and Exlan, Japan 1998

Fabric Processing Plant, Baddi (HP)

Tokai Senko, Japan 1999

Vardhman Threads
American and Efird Inc. 2000
GLOBAL ORIENTATION

Vardhman is well on its way towards becoming a truly international company .As part of its
strategy to internationalise its operations, Vardhman embarked upon an ambitious plan to reap
the benefits of large-scale production and diversification of its markets. In 1986, realising that
global presence will be the key to survival in the age of open markets, Vardhman looked
outwards.

EXPORT LEAD GROWTH

Vardhman’s consistent efforts to enhance its presence in the international markets have begun to
show impressive results. From a meagre 10 million Rupees (US $0.2 million) in 1986 to a figure
of 4400 million Rupees (US $92 million) in the year 2002, the growth has been impressive.

Vardhman has an edge over its competitors in the world’s most quality conscious and price
sensitive markets. The reason is its trusted, tested and reliable workforce, together with latest
technology, quality conciousness, customer oriented services and strong logistics. Vardhman is a
truly global organisation in terms of sourcing raw materials and technology as well as marketing
its products in the world markets.
Vardhman exports 40% of its yarn production and has a strong presence in all
continents of the world.

MAJOR EXPORTS ARE AS FOLLOWS:

 Cotton Yarn Europe, Far East.

 Cotton Grey Fabrics Europe, Japan, Hong Kong.

 Gas Mercerized Ital y, Korea, Japan.

 Melange Yarn Mauritius, Hong Kong, Europe.

 Pol yester Cotton Bangladesh, Far East, Mauritius.

 Blended A.C. Hong Kong, Bangladesh.

 EXPORT DESTINATION

Australia Mauritius

Bangladesh New Zealand

Belgium Russia

Canada Saudi Arabia

China Singapore

Columbia Spain

Egypt Sri Lanka

Indonesia Ukraine

Germany Switzerland

Greece Syria

Japan Uruguay

Italy USA

Israel U.K.

Hong Kong Thailand

Indonesia Ukraine

Korea Venezuela

Lebanon Vietnam

Malaysia
 GROUP TURNOVER

Vardhman Group, one of the largest textile groups in the country, is confident of achieving a
total turnover of Rs 3500 crore per annum once the ongoing expansion projects in Madhya
Pradesh and Himachal Pradesh are completed."At present, Vardhman Group has an annual
turnover of Rs 2200 crore and we are expecting that it will touch the Rs 3500 crore mark, after
the completion of our expansion projects," Vardhman Group Chief Financial Officer, Neeraj Jain
told PTI here. The group had earlier announced to invest close to Rs 2000 crore in Madhya
Pardesh for setting up a new plant and increasing the production capacity in Himachal Pardesh.
The company would invest about Rs 1500 crore in Madhya Pardesh for installing two lakh
spindles and setting up a 50 MW captive power generation plant. By March 2008, the plant
would be ready for production, Jain said.As far as the capacity expansion in Himachal Pardesh is
concerned, the company is investing Rs 500 crore for installing 50,000 spindles and it will start
production within this fiscal, he said. After the completion of proposed investments, the total
spindle capacity of Vardhman Group would reach 7.5 lakh from five lakh at present. The fabric
production capacity would jump by 50 million meters to 90 million meters.Moreover the
production capacity of yarn would also rise by 125 tonnes per day to 350 tonnes per day. The
total fabric looms would also increase to 800 looms from 432 looms at present.
 INTRODUCTION TO VARDHMAN

HISTORICAL BACKGROUND
The industrial city of Ludhiana, located in the fertile Malwa region of Central Punjab is
otherwise known as the “Manchester of India”. Within the precincts of this city is located the
Corporate headquarters of the Vardhman Group, a household name in Northern India. The
Vardhman Group, born in 1965, under the entrepreneurship of Late Lala Rattan Chand Oswal
has today blossomed into one of the largest business houses in India.

At its inception, Vardhman had an installed capacity of 14,000 spindles. Today, its capacity has
increased multifold to over 500,000 spindles. In 1986 the Group entered the sewing thread
market in the country, which was a forward integration of the business. Today with 19m/day
processing capacity, Vardhman threads at Hoshiarpur is the second largest selling brand. In
1992, it undertook yet another diversification - this time into the weaving business. The grey
fabric weaving division at Baddi (HP), commissioned in 1992 with a capacity of 20,000 meters
per day, has already made its mark as a quality producer of Grey poplin/sheeting/shirting in the
domestic as well as foreign market. This was followed by entry into fabric processing by setting
up Auro Textiles at Baddi, which currently has a processing capacity of 45,000 m/day.

The Group has recently added yet another feather to its cap with the setting up of Vardhman
Acrylic Ltd., Bharuch (Gujarat) which is joint venture undertaken with Marubeni and Exlan of
Japan. The company also has a strong presence in the markets of Japan, Hong Kong, Korea, UK
and EU in addition to the domestic market. A true dedication to quality has resulted in obtaining
the coveted ISO 9002/ISO 14002 quality awards which is the first in Textile industry in India
and yet another laurel to its credit.

Today the Group has 17 operational plants with an installed capacity of 5,00,000 spindles, 216
shuttle less looms, 19 mt/day processing facility for sewing thread and 1.5 mt/day industrial
threads, 45 tons per day dyeing capacity, 45,000 m/day fabric processing facilities and 50
tons/day production capacity for acrylic fiber and tow.
COMPANY PROFILE: DIVISIONS/UNITS
VARIOUS MEMBER UNITS OF VARDHMAN SPINNING AND GENERAL MILLS
LIMITED INCLUDE:
 Vardhman Spinning and General Mills Ltd., Ludhiana
 Auro Spinning Mills, Baddi
 Auro Dyeing Mills, Baddi
 Auro Weaving Mills, Baddi

DETAILED OPERATIONS
MANUFACTURING PROCESS FOR P/C YARN AND 100% POLYESTER YARN IS AS
FOLLOWS:
Process of manufacturing Polyester/Cotton (P/C) yarn and 100% polyester is almost same. In
manufacturing of P/C yarn blending of cotton and polyester is done according to the blend
desired. But, in case of 100% polyester yarn no blending is done as it is made of polyester only.
There is a dyeing house also.
Manufacturing Process of these Yarns involves six basic steps:
Blow room section

Carding section

Combing section

Draw frame section

Speed frame section

Ring frame section

Before sending the material to blow room section Manual mixing of cotton is done to make the
material homogeneous. Mixing is done as material is taken from different sources.

In Blow Room Section, task performed are:

1. To open the material.
2. To clean the material.
3. To prepare the material for further process.

In carding section, tasks performed are:

1. Further opening and cleaning of fibre.
2. Individualization of the fibre material is done, i.e., nap is removed.
3. Silver formation
4. Stretching of silver in rollers.
In Combing Section, tasks performed are:
1. Combing of lap is done to make the convenient package with Unilap machine.
2. Noil, i.e., rashes and other undesirable material is removed.
Material passed through this process is costly. In case of carded yarn manufacturing after carding
material is directly put in draw frame section.

In Draw frame section, tasks performed are:

1. To draw /stretch the material. Here weight/length is made even.
2. Mixing of both the silvers in case of P/C yarn.

Step-2 is not included in manufacturing of 100% polyester yarn.

In Speed Frame section, tasks performed are:

Speed Frame is used for drawing and parallelisation of fibres obtained from the draw frame.
Spinning process of yarn is started from this section. Product formed after spinning is called card
roving.
In Ring Frame section, tasks performed are:
1. Roving are converted into yarn.
2. Yarn is rolled in the bobins which are inserted into the spindles.
Manufacturing process of yarn is completed at this section.
Tasks performed after Manufacturing of yarn are:
1. Winding-Winding of the yarn around cones is done through automatic cone winding
machines called Autoconers or manual winders.
2. Conditioning-Yarn is conditioned and moisture content is maintained through the
machine-Xorella.
3. Packaging of yarn is done in 42-50 kg cartons.
Now, Yarn is ready to sell in the market.

MARKETS SERVED: DOMESTIC & FOREIGN

The company has primarily concentrated on the major markets of the country for its hosiery
yarns. The market segmentation is done on the basis of the product and geographical area. Its
main target markets in India are Mumbai, Delhi, Kanpur, Ludhiana and Calcutta. Market
segmentation is also done on the basis of social strata or income group.Vardhman’s endeavor has
been to satisfy the requirements of the upper and middle income groups of the society.
In addition to the domestic market, Vardhman is exporting in all major yarn markets all over the
world like:
Europe U.K., Gremany, Sweden, Spain, Italy, Belgium, Hungary, Switzerland,
Slovenia
Far-East Japan, Hong Kong, Korea, Taiwan, Singapore, Malaysia.
Near-East Sri Lanka, Bangladesh
Africa Egypt
Oceania New Zealand

TURNOVER
During the year 2001-02, company registered a turnover of Rs. 59307.16 lacs as compared to Rs.
56351.15 lacs in 2000-01.In 2002-03,company has registered a turnover Rs. 63000.92 lacs as
compared to Rs. 59307.16 lacs in 2001-02.
 ORGANISATION CHART

CHAIRMAN – CUM – MANAGING DIRECTOR


CORPORATE GENERAL MANAGERS

VICE PRESIDENTS

MANGERS (M1 TO M4)


EXECUTIVES (E1 TO E2)

OFFICERS (O1 TO O2)

STAFF (S1 TO S4)

SUB-STAFF
 VARDHMAN’S CORPORATE CHART :

Mr. I.J. Dhuria

(CGM-RM, COMM)

Col. N. K. Jain
(CGM-HRD,PER)

Mr. Kuldeep Jain

(VP Exports)

Mr. Rajiv Thappar

(CM-Tax, IA, Sect)

BOARD OF Mr. S.P. OSWAL Mr. Mahesh Arora

DIRECTORS TYPING HOUSE (VP CYM)
(Chairman cum MD)

Mr. Neeraj Jain

(VP F & A, MIS)

Mr. Z.S. Chaudhry

(CGM-IT)

Mr. Mehra
(VP LAW)

Mr. A.K. Bucher

(VP AMO)

Mr. Updeep Singh

(CM Projects)
 GROUP CORPORATE OFFICE

Vardhman has a modern, centrally air-conditioned, multistoried corporate building at Ludhiana

which serves as the original place from where all strategies policies, programmes, rules
regulations take shape, that are implemented in each group company. The Corporate building
houses the offices of the top bosses including managing director, executive directors, corporate
general managers and corporate vice presidents of the various functional areas. The other
facilities at the corporate office include meeting rooms, boardrooms, conference hall etc.

Study To Various Departments:

PERSONNEL AND HUMAN RESOURCE DEPARTMENT
Vardhman has responded its faith in professional management since the early stages of growth.
The philosophy of the organization has been to promote a culture conducive to a professional
style of the decision-making in business and also to ensure that young executives having the
right attitude and facilities are suitably trained in the organization so that they are able to
contribute to its success.
The organization continuously emphasis the following:
 Decentralization of authority to the functional departments with accountability for
 Performance.
 Promoting a style that permits people to have initiative.
 Building of an atmosphere conducive to good team-work.
 Rewarding Talent and Skill on merit as Motto is, “WE HONOUR MERIT”
 Providing necessary feedback systems to employees to help rationalize the
organisation’s policies.
  Pursuing the goal of job enrichment by creating involvement through Quality
Circles and company wide quality control and cross functional group activities.

THE MAIN FUNCTIONS OF THIS DEPARTMENT ARE AS FOLLOWS:

 Attendance
 Grievance Handling
 Salary Administration
 Performance Appraisal
 Recruitment
 Training
 Maintaining Record Of Employees

CENTRAL MARKETING YARNS DEPARTMENT

The corporate Marketing Departments for yarn is set up at VSGM, Ludhiana which controls and
records all the activities of the various units, which come under the Vardhman Group. It consists
of the Central Yarn Marketing office and the Acrylic Marketing Office. It takes up and carries all
the activities which lead to the Conversion of a Firm output into cash revenue. The Marketing
Department performs the following activities:
 Production Planning
 Sales & Dispatch
 Budgeting
 Marketing Strategies
 Market Research
 Product Development
 Advertisement & Sales Promotion
 Interaction with units or branches

The Marketing Department endeavors to sense the needs of customers and satisfy them. It is also
responsible for meeting the statutory requirements and fulfills its social obligations effectively. A
brief description is given as below:
a) PLANNING OF SALES
Sales are planned on day-to-day basis. This is short term planning in response to immediate
changes that take place or are envisaged to take place in the market conditions. Planning of sales
is done regarding:
 Quantum of sales to be made on a day, keeping in view the demand of the market
 Production plans and programmes
 Pending contracts
 Finished stock inventory

b) PROMOTION
Publicity budgets are strategic decisions taken at the top level along with other consultations to
the marketing departments. Advertising is done through:
 T.V. slots
 roadside hoarding
 insertions in periodicals and newspapers
 Posters, printed bags & boxes for packing.

c) PRODUCTION PLANNING
Production department considers its strengths and limitations towards what it can provide. This
involves balancing of:
 Machines and overall capacity
 Efficiency level
 Quality level
 Other production parameters

RAW MATERIAL & COMMERCIAL DEPARTMENT

The two main functions of this department are:
1. Procurement of raw materials.
2.Dealing with various governmental and non-governmental agencies for the smooth functioning
of the company.
The commercial functions of this department are as follows:
 Formulation of import and export policies of the company
 Considering benefits against imports
 Incentives from the government
 Excise and Subsidies
 Licensing
 Foreign exchange and RBI related activities

EXPORT DEPARTMENT
After establishing a dominating place in the domestic market, Vardhman Group for the first
time in 1980’s set its foot in the export market. In order to meet the increasing international
market demand, major plans and expansions were made and existing plants were also updated so
that they could meet the international standards.
Export product range includes:
 100% Cotton Yarn.
 100% Acrylic Yarn.
 Polyester/Cotton Yarn.
 Acrylic/Cotton Yarn.
 Grey, Bleached, Dyed and Gassed Mercerized.
 Single and Multifold.
 100 % Cotton Melange, Cotton Viscose Melange, Polyester Cotton Melange Yarn.
 100% Polyester Spun Yarn.

FINANCE DEPARTMENT
The main function of corporate finance department in Vardhman, as prescribed in a typical
financial management book, is to arrange funds for the whole group that should be utilized in
such a way so as to enhance the shareholders’ wealth. The core activities of this department
include arranging short term funds in the best and effective way.

PROJECTS DEPARTMENT
The Corporate Projects and Purchase Department has various functions like:
  Civil Section
 Planning Section
 Purchase Section
 Insurance Section
 Technical Section

The Civil Section deals with all the infrastructural constructions like sheds in case of the Mill,
Utilities like Compressor, Sub-station, Boilers, Manav Vikas Kendra etc.They also go in for
negotiations with the contractor and also do the physical checking at the site and of the material.

The Planning Section prepares reports of any new project undertaken, co-ordination with civil
and purchases. It generally deals with co-coordinating all the new projects.

The Purchase Section gets offers for machines, does the comparisons, calls the parties that suit
the requirements most, and does the necessary negotiations.

There is an Insurance Section as well looking after the Group’s insurance. The Technical
Section deals with specifications of all machinery.

MIS DEPARTMENT
This department is the hub of all information regarding all the units of the Group. It gathers
information from various departments and units of the Group, processes it, and provides it to the
management for decision making process.
This department formulates the daily profitability reports of all units and sends them to the
CMD. The role of this department has widened now. It deals with generating reports on cost
reduction; manpower deployment etc. It sets standards of performance, gives reasons for
deviation if any and also suggests corrective measures. Inter-unit comparison reports are also
generated regularly to monitor the Group’s performance.
SECRETARIAL DEPARTMENT
The Corporate Secretarial Department deals with compliance of all the statutory laws under
Company’s Act. The filing of returns, assessment of shareholder’s wealth as well as listing of the
shares in the stock exchange is all done by this department. The Annual General Meetings and
the Board Meetings are also conducted. The dividend disbursement is done according to the rules
also. It is responsible for the all the legal compliance of Company’s Act.

RESEARCH AND DEVELOPMENT

The research and development laboratories in each unit are equipped with some of the best and
most sophisticated equipments such as:
 Spin Lab-900 for cotton fibre characteristics analysis from Switzerland.
 Computerized Shade control.
 UT3 and UTR and classmate yarn testing equipment; thread thickness checking from
Switzerland.

Major activities include process control, quality control, defect control and process
development.
 CHAPTER-2
OBJECTIVES

The objectives of the study are as follows:

 To evaluate the financial performance of Vardhman.
 To analyze the effect of working capital management of the company on profitability.
 To study the working capital management of Vardhman.
 CHAPTER-3
RESEARCH METHODOLOGY

The term research refers to the systematic method consisting of enunciating the problem,
formulating a hypothesis collecting the data, analyzing the facts and reaching the certain
conclusions either in the form of solution towards the concern problem or in certain
generalization for some theoretical formulation .
Research Methodology is a way to solve systematically the research problem. It may be
understood as a science of studying how research is done scientifically.

Research Design:
Descriptive research procedure is used for describing the recent situations in the organization and
analytical research to analyze the results by using research tools.

Data Source & Collection Methods:

There are two types for collecting data
1. Primary data
2. Secondary data

Secondary Data
Secondary data are those which have already been collected by someone else and which have
already been passed through the statistical process. The Secondary data consist of reality
available compendices already complied statistical statements. Secondary data consists of not
only published records and reports but also unpublished records.
Here we done the analysis on basis of secondary data, which included-
 Balance sheet of company
 Profit and loss A/C of Vardhman.
 Cost sheets
Purpose
The purpose of this paper is to properly analysis of the working capital management of
Vardhman, Ludhiana over the period 2013-2015.

Tools used
I used the different tools to analyze the working capital management of Vardhman.
 Analysis through Working capital ratios
 Analysis through Schedule change in working capital
 Analysis through Gross operating cycle & Net operating cycle
 Analysis through Various components of working capital

Population
The population of this study was carried for a single company, i.e., Vardhman. Sample
involved the working capital structure of the company.

STATISTICAL TOOLS & TECHNIQUES

The statistical techniques like ratios have been in the study. These have been very useful in doing
the interpretation and analysis of the data collected through secondary sources.
 Current ratio
 Quick ratio
 Inventory to sales ratio
 Debtor turnover ratio
 Average payment period
 Debt equity ratio
 Gross profit ratio
 Total asset turnover ratio
 Net profit ratio
 Cash to current ratio
 Raw material to turnover ratio
 Work in progress turnover ratio
 Cash turnover ratio
 Creditors to inventory
 CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
1. Current ratio:
It is also known as Working Capital ratio. It is a measure of liquidity and used in making analysis of
short term financial position.
Current Ratio: Current assets / Current liabilities
Table No. 1

Year 2012- 2013 2013-2014 2014-2015

Current assets 2157.99 2659.86 2489.10
Current liabilities 851.18 1183.63 1346.81
Current Ratio 1.26 1.24 1.36

Figure No. 1

Current Ratio
1.38
1.36
1.36

1.34

1.32

1.3
(in time)

1.28
1.26
1.26
1.24
1.24

1.22

1.2

1.18
2012-13 2013-14 2014-15

Interpretation
It is increasing in the year 2014-15 because current liabilities are decreased this year as compare to 2013-
14.It is increasing in year 2012-13 i.e 1.36 because current assets are increasing.. Overall this ratio is
satisfactory as it is nearest to the thumb rule i.e. 2:1.
2. Liquid Ratio:
Liquid Ratio is more rigors test of liquidity than the current ratio. It is the ratio between quick
ratio & current liabilities. Quick ratio refers to all current assets except Inventory & prepaid
expenses.
Liquid Ratio = Liquid assets / Current Liabilities
Table No. 2

Year 2012- 2013 2013-2014 2014-2015

Quick Ratio 989.66 617.56 852.37

Current liabilities 851.18 1183.63 1346.81

Liquid Ratio 1.44 1.14 0.98

Figure No. 2
1.6
1.44 Liquid Ratio
1.4

1.2 1.14

0.98
1
(in time)

0.8

0.6

0.4

0.2

0
2012-13 2013-14 2014-15

Interpretation
Liquid Ratio is more rigors test of liquidity than the current ratio. It is the ratio between quick
ratio & current liabilities. Quick ratio refers to all current assets except Inventory & prepaid
expenses. Idol ratio 1:1 we calculated 1.44 in 2012-13 which decreased from 1.44 to 1.14 to 0.98
in 2014-15.
3. Inventory to sales ratio
The Inventory to Sales Ratio metric measures the amount of inventory you are carrying
compared to the number of sales orders being fulfilled. Calculate inventory to sales using the
following formula:
Inventory to sales ratio = cost of goods sold/ average inventory

Year 2012- 2013 2013-2014 2014-2015

Cost of goods sold 3704.99 4291.94 5252.77

Average inventory 1636.73 1636.73 1636.73

Inventory to sales ratio 2.79 2.81 3.56

Figure No. 3

Inventory to sales ratio

4
3.56
3.5

3 2.79 2.81

2.5
(in time)

1.5

0.5

0
2012-13 2013-14 2014-15

Interpretation
Viewing the trend of inventory sales ratio we calculated 2.79 in 2012-13 and 2.81 in 2013-14
which leads to increase in the trend i.e. 3.56 in 2014-15. It is increasing as compared to last year.
4. Debtor Turnover Ratio :
This ratio indicates the velocity of debt collection generally higher the ratio means the more efficient
management of debtors or more liquid are debtors and vice versa.
Debtor Turnover Ratio = Net credit sales / Average receivables

Table No. 4

Year 2012- 2013 2013-2014 2014-2015

Net credit sales 4159.74 5171.13 5742.04

Average receivables 220.87 264.13 397.16

Debtors Turnover Ratio 7.22 7.64 8.09

Figure No. 4

Debtor Turnover Ratio

8.2 8.09

7.8
7.64
7.6
(in time)

7.4
7.22
7.2

6.8

6.6
2012-13 2013-14 2014-15

Interpretation
Generally the higher the value of debtor turnover, the more efficient is the management of debtors/sale or
more liquid is the debtor’s similarly low debtors turnover implies inefficient management of debtors/sale
and less liquid debtor. In 2012-13 d.t.r was 7.22 and further it got increased in 2013-14 from 7.64 to 8.09
because of increase in sales and debtors in 2013-14 and again in 2014-15 it is 8.09.
5. Average Payment Period ratio
The average payment period ratio represents the average no. of days taken by the firms to pay its
creditors.
Average Payment Period = Total Trade Creditors / Net Credit Annual Purchase x No. of days.

Table No.5
Year 2012- 2013 2013-2014 2014-2015

Total Trade Creditors 851.18 1183.63 1346.81

Net credit annual purchase 2345.63 2670.36 3084.04

Average Payment Period ratio 132.45 161.78 159.39

Figure No. 5

Average Payment Period

180
161.78 159.39
160

140 132.45

120
(in days)

100

80

60

40

20

0
2012-13 2013-14 2014-15

Interpretation
Average payment period represent the average no. of days taken by the firm to pay its creditors.
Generally higher the payment period the better it is as it implies the greater credit period by the
firm and consequently the larger the benefit reaped from credit suppliers. In 2012-13 it was
132.45 and in 2013-2014 it increased to 161.78 and then again decreased to 159.39.
6. Debt equity ratio:
It shows the relationship between external and internal equities & it is calculated to
measure the claim of outsiders and owners against company’s assets.
Debt Equity Ratio = Long term Debts / Shareholders Funds
Table No. 6
Year 2012- 2013 2013-2014 2014-2015

Long term Debts 2742.61 2760.56 1785.81

Shareholders’ Funds 2276.57 2848.32 3083.38
Debt Equity Ratio 1.15 0.92 0.56

Figure No. 6

1.4
Debt Equity Ratio
1.2 1.15

1 0.92
(in times)

0.8
0.56
0.6

0.4

0.2

0
2012-13 2013-14 2014-15

Interpretation
The debt equity ratio is calculated to measure the extent to which debt financing has been used in
business. The ratio indicates the proportionate clamed of owners and the outsiders engaged the
firm assets. The purpose is to get in an idea of the cushion available to outsiders fund I order to
pay lesser risk of share investment and to in increase their share earnings by paying a lower fixed
rate of interest to outsider. The outsider of the other hand want that share holder should invest
and share holder should invest and share their risk with their proportionate investment. It has
been decreased from 1.15 to 0.92 to 0.56 in 2014-2015.
7. Gross Profit Ratio
Gross profit ratio measures the relationship of gross profit to net sales and is usually represented
as a percentage. Thus it is calculated by dividing the gross profit by sales.
Gross Profit Ratio = Gross Profit / Sales * 100
Table No. 7
Year 2012- 2013 2013-2014 2014-2015

Gross Profit 828.14 1260.75 941.59

Sales 4159.74 5171.31 5742.04
Gross Profit Ratio 19.90 24.37 16.39

Figure No.7

Gross Profit Ratio

30

24.37
25

19.90
20
16.39
(in times)

15

10

0
2012-13 2013-14 2014-15

Interpretation
Gross profit ratio establishes a relationship between gross profit and sales and this indicates the
efficiency of the management in manufacturing, selling and other activities of firm. The two
basis element of ratio is gross profit and sale of the company. Gross profit ratio is changing per
year in 2012-13 from 19.90 increased to 24.37 in 2013-2014 and finally decreased 16.39 in
2014-15.
8. Total assets turnover ratio
The ratio of the value of a company’s sales or revenues generated relative to the value of
its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which
a company is deploying its assets in generating revenue.
Total Asset Turnover ratio = Total assets / credit sales * 100
Table No. 8
Year 2012- 2013 2013-2014 2014-2015

Total assets 2335.52 2774.68 2496.27

Credit sales 4159.74 5171.31 5742.04

Total assets turnover ratio 56.14 53.65 43.47

Figure No. 8

Total assets turnover ratio

60 56.14
53.65

50
43.47

40
(in time)

30

20

10

0
2012-13 2013-14 2014-15

Interpretation

The higher the asset turnover ratio, the better the company is performing, since higher ratios
imply that the company is generating more revenue. In 2012-13 it is 56.14 and in 2013-14 it
is 53.65 and ultimately decreased to 43.47 in 2014-15.
9. Net Profit Ratio
Net profit ratio established a relationship between net profit and sales. This ratio is the
overall measure of firms profitability and is calculated as :
Net Profit Ratio = Net profit after tax / Net Sales * 100
Table No.9
Year 2012- 2013 2013-2014 2014-2015

Net profit after tax 323.73 651.88 359.11

Net sales 4159.74 5171.31 5742.04
Net Profit Ratio 7.7 12.60 6.25

Figure No. 9

Net Profit Ratio

14
12.60
12

10

7.7
(in times)

8
6.25
6

0
2012-13 2013-14 2014-15

Interpretation
Net profit ratio establishes a relationship between net profit and sales and this indicates the
efficiency of the management in manufacturing, selling and other activities of firm. The two
basis element of ratio is net profit and sale of the company. Net profit ratio is 7.7 in 2012-13 and
increasing to 12.60 in 2013-14 and finally decreased 6.25 in 2014-15.
10. Cash to current asset ratio
Cash asset ratio, is a company’s ratio which is calculated by dividing cash by current assets *
100.
Cash to current asset ratio = cash / current assets * 100
Table No.10
Year 2012- 2013 2013-2014 2014-2015

Cash 26.63 52.75 175.55

Current assets 2157.99 2659.86 2489.10
Cash to current ratio 1.23 1.98 7.05

Figure No.10

Cash to current asset ratio

8
7.05
7

5
(in times)

3
1.98
2
1.23
1

0
2012-13 2013-14 2014-15

Interpretation
Under this cash to current asset ratio in 2012-13 it is 1.23 in 2013-14 it is 12.60 and leads to
tremendous increase in 2014-15 i.e. 7.05.
11. Raw material turnover ratio
The raw material turnover formula measures the rate at which raw material is used over a
measurement period. One can use the formula to see if a business has an excessive raw
material turnover in comparison to its sales level.
Raw material turnover ratio = raw material / sales * 100
Table No.11
Year 2012- 2013 2013-2014 2014-2015

Raw material 2345.63 2670.36 3084.04

Sales 4159.74 5171.31 5742.04
Raw material turnover ratio 56.38 51.63 53.70

Figure No.11

Raw material turnover ratio

57
56.38

56

55

54 53.7
(in times)

53

52 1.98

51

50

49
2012-13 2013-14 2014-15

Interpretation

Under this raw material turnover ratio, this ratio is calculated as 56.38 in 2012-13 which
ultimately leads to fall in the ratio 1.98 in 2013-14 and afterward started increasing i.e. 53.7 in
2014-15.
12. Work in progress turnover ratios

Work in progress (WIP) refers to material that has entered the production process but is not yet a
finished product. Work in progress (WIP) therefore refers to all materials and partly finished
products that are at various stages of the production process.
Work in progress turnover ratio = work in progress / sales * 100
Table No. 12

Year 2012- 2013 2013-2014 2014-2015

Work in progress 212.90 84.58 76.78

Sales 4159.79 5171.31 5742.04

Work in progress turnover 5.11 1.63 1.33

ratio
Figure No. 12

Work in progress turnover ratio

6

5.11
5

4
(in time)

2 1.63
1.33

0
2012-13 2013-14 2014-15

Interpretation
As seen from the analysis-there has been tremendous decrease in the ratio. Being a
manufacturing concern company has to maintain large amount; of work in progress in 2012-13 it
is calculated as 5.11 and further there is tremendous decrease in the ratio i.e. 1.63 in 2013-14 and
in 2014-15 1.33
13. Cash turnover ratios

Indicates a firm's efficiency in its use of cash for generation of sales revenue. It is the inverse of
cash-to-sales ratio
Cash turnover ratio = Sales / Cash
Table No. 13

Year 2012- 2013 2013-2014 2014-2015

Sales 4159.74 5171.31 5742.04

Cash 26.63 52.75 175.55

Cash turnover ratio 156.20 98.03 32.70

Figure No. 13

Cash turnover ratio

180
156.20
160

140

120
98.03
(in time)

100

80

60

40 32.70

20

0
2012-13 2013-14 2014-15

Interpretation
As seen from the analysis-there has been tremendous decrease in the ratio. Being a
manufacturing concern company has to maintain cash. In 2012-13 ratio is calculated as 156.20
and in 2013-14, ratio is decreased to 98.03 and in 2014-15 ratio is 32.70.
14. Operating Profit ratio
Operating ratio establish the relationship between the cost of goods sold and other operating
expenses in on hand and sales on the other. In further words, it measures the cost of operations
per rupee of sales. The ratio is calculated by dividing operation cost with the net sales and it’s
generally represented as percentage.
Operating Profit Ratio = Operating profit / Net Sales * 100
Table No.14

Year 2012- 2013 2013-2014 2014-2015

Operating profit 708.69 1173.50 978.12
Net sales 4159.74 5171.31 5742.04

Operating profit ratio 17.03 22.69 17.03

Figure No. 14

25 Operating Profit
22.69
Ratio
20
17.03 17.03

15
(in days)

10

0
2012-13 2013-14 2014-15

Interpretation
This ratio is calculated to assess operational efficiency of the business. A decline in operating profit ratio,
is better because it means higher margin and thus more profits. In 2012-13 the ratio is 17.03 in 2013-14
ratio is 22.69 and in 2014-15 17.03.
15. Creditors to inventory

Creditors to inventory = Creditors / Inventory

Table No.15

Year 2012- 2013 2013-2014 2014-2015

Creditors 851.18 1183.63 1346.81
Inventory 1499.44 1871.54 1636.73

Creditors to inventory 0.53 0.63 0.82

Figure No. 15

1 Creditors to inventory
0.82
0.8
0.63
0.6 0.53
(in days)

0.4

0.2

0
2012-13 2013-14 2014-15

Interpretation
Under this creditors to inventory there is slightest change in the ratio. In 2012-13 the ratio is 0.53 and in
2013-14 the ratio is 0.63 in 2014-15 there is slightest increase in the ratio i.e. 0.82.
 CHAPTER-5
FINDINGS

 It is increasing in year 2012-13 i.e 1.36 because current assets are increasing.. Overall this ratio is
satisfactory as it is nearest to the thumb rule i.e. 2:1.
 Quick ratio refers to all current assets except Inventory & prepaid expenses. Idol ratio 1:1
we calculated 1.44 in 2012-13 which decreased from 1.44 to 1.14 to 0.98 in 2014-15.
 Viewing the trend of inventory sales ratio we calculated 2.79 in 2012-13 and 2.81 in
2013-14 which leads to increase in the trend i.e. 3.56 in 2014-15. It is increasing as
compared to last year.
 In 2012-13 d.t.r was 7.22 and further it got increased in 2013-14 from 7.64 to 8.09 because of
increase in sales and debtors in 2013-14 and again in 2014-15 it is 8.09.

 In 2012-13 it was 132.45 and in 2013-2014 it increased to 161.78 and then again
decreased to 159.39.
 The ratio indicates the proportionate clamed of owners and the outsiders engaged the firm
assets. The purpose is to get in an idea of the cushion available to outsiders fund I order
to pay lesser risk of share investment and to in increase their share earnings by paying a
lower fixed rate of interest to outsider. The outsider of the other hand want that share
holder should invest and share holder should invest and share their risk with their
proportionate investment. It has been decreased from 1.15 to 0.92 to 0.56 in 2014-2015.
 Gross profit ratio is changing per year in 2012-13 from 19.90 increased to 24.37 in
2013-2014 and finally decreased 16.39 in 2014-15.
 The higher the asset turnover ratio, the better the company is performing, since
higher ratios imply that the company is generating more revenue. In 2012-13 it is
56.14 and in 2013-14 it is 53.65 and ultimately decreased to 43.47 in 2014-15.
 Net profit ratio establishes a relationship between net profit and sales and this indicates
the efficiency of the management in manufacturing, selling and other activities of firm.
The two basis element of ratio is net profit and sale of the company. Net profit ratio is
7.7 in 2012-13 and increasing to 12.60 in 2013-14 and finally decreased 6.25 in 2014-15.
 Under this cash to current asset ratio in 2012-13 it is 1.23 in 2013-14 it is 12.60 and
 leads to tremendous increase in 2014-15 i.e. 7.05.
 Under this raw material turnover ratio, this ratio is calculated as 56.38 in 2012-13 which
ultimately leads to fall in the ratio 1.98 in 2013-14 and afterward started increasing i.e.
53.7 in 2014-15.
 Being a manufacturing concern company has to maintain large amount; of work in
progress in 2012-13 it is calculated as 5.11 and further there is tremendous decrease in
the ratio i.e. 1.63 in 2013-14 and in 2014-15 1.33
 Being a manufacturing concern company has to maintain cash. In 2012-13 ratio is
calculated as 156.20 and in 2013-14, ratio is decreased to 98.03 and in 2014-15 ratio is
32.70.
 A decline in operating profit ratio, is better because it means higher margin and thus more profits.
In 2012-13 the ratio is 17.03 in 2013-14 ratio is 22.69 and in 2014-15 17.03.
 In 2012-13 the ratio is 0.53 and in 2013-14 the ratio is 0.63 in 2014-15 there is slightest increase
in the ratio i.e. 0.82.
 CHAPTER-6
SUGGESTIONS

 The company should focus on reducing cash conversion cycles and try to collect
receivables as soon as possible because it is better to receive inflows sooner than later.
 Managers should reduce inventory periods and try to delay payables because it will
provide them opportunities to invest in different profitable areas thus increasing the
firm’s profitability.
 Proper training should be given to all the employees.
 Current ratio is more than the ideal ratio i.e. 2:1, it signifies Company’s funds are
remaining idle & company should invest them. .
 The ideal Quick ratio is 1:1 but we calculated 0.98 in 2015 and 1.14 in 14, 1.44 in 2013.
 Vardhman should take control on Finished Goods Conversion Period which is on higher
side.
 Vardhman has to take control on cash balance because cash is non earning asset and
increasing cost of funds.
 Large amounts of funds are blocked in debtors. Company should reduce its debtors so
that the blocked amount is properly utilized.
 Gross profit ratio of the Vardhman firm is changing in 2013 it is calculated as 19.90 an
increasing in 2014 i.e. 24.37 and finally decreased to 16.39.

Overall the company has good liquidity position and sufficient funds to repayment of its
liabilities. Company has accepted conservative financial policy and thus maintaining
more current assets balance. Company is increasing sales volume per year which
supported the company to sustain.
 CHAPTER-7
LIMITATIONS

 Due to resources and time constraints the study was limited to Ludhiana city only.
 The financial managers of company studied were not willing to provide all the financial
records that formed the main data sources for the study.
 Data is provided only to do calculations not to record it because of confidentiality.
 This project is based on five years data. Conclusions and recommendations are based on such
limited data. The trend of last five years may or may not reflect the real working capital
position of the plant.
 Also it was difficult to collect data regarding the competitors and their financial information.
Industry figures are also difficult to get.
 CHAPTER-8
CONCLUSION

This study is concerned with working capital management of Vardhman.

The study involves practical and conceptual over view of decisions concerning current assets
like cash and bank balance, inventories (like raw materials ,work-in-progress, finished goods),
sundry debtors, loans and advances, other current assets and current liabilities like sundry
creditors, securities and other deposits, other current liabilities and provisions of Vardhman was
with the objective of maximizing the overall net profit. And complete synchronization and co
ordination among the working capital components which shall contribute to optimum level of
operations. Mismanagement of each or any of these components shall be detrimental to the
objectives of efficient operation, profitability and maximization of overall value of the firm.

The working capital limits would be considered only after the project nearing completion and
after ensuring control over the inventory. The inventory is a great concern for Vardhman and it
need proper procurement and management.

Safety measures for inventories are also quiet sufficient in Vardhman. Overall the working
capital management of Vardhman is very much efficient.
 BIBLIOGRAPHY:

With the help of various books and articles, I have benefited to complete my project
study. I have given here a list of books.

(1). I. M. Pandey --- Financial Management

(2). R. K. Sharma & --- Management Accounting

Shashi K. Gupta

(3). Prof. Nirmal Jain --- Management Accounting

(4). Shashi k. Gupta , r. K. Sharma “financial management” – kalyani publishers

(5). Introduction to Vardhman- http://www.scribd.com/doc/vardhman

 ANNEXURE

Balance Sheet of Vardhman

------------------- in Rs. Cr. -------------------
Textiles
Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds
Total Share Capital 63.65 63.65 63.65 63.65 63.65
Equity Share Capital 63.65 63.65 63.65 63.65 63.65
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 3,019.73 2,784.67 2,212.92 1,932.37 1,854.61
Networth 3,083.38 2,848.32 2,276.57 1,996.02 1,918.26
Secured Loans 1,772.23 2,722.57 2,741.13 2,402.89 2,616.35
Unsecured Loans 13.58 37.99 1.48 35.68 66.30
Total Debt 1,785.81 2,760.56 2,742.61 2,438.57 2,682.65
Total Liabilities 4,869.19 5,608.88 5,019.18 4,434.59 4,600.91
Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 5,274.92 5,018.49 4,317.17 3,956.35 3,670.17
Less: Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Less: Accum. Depreciation 2,778.65 2,243.81 1,981.65 1,761.19 1,544.52
Net Block 2,496.27 2,774.68 2,335.52 2,195.16 2,125.65
Capital Work in Progress 76.78 84.58 212.90 181.91 114.09
Investments 674.17 712.34 559.30 514.72 352.65
Inventories 1,636.73 1,871.54 1,499.44 1,315.23 1,598.39
Sundry Debtors 676.82 735.57 631.92 536.83 489.58
Cash and Bank Balance 175.55 52.75 26.63 58.42 48.74
Total Current Assets 2,489.10 2,659.86 2,157.99 1,910.48 2,136.71
Loans and Advances 568.50 648.72 657.62 377.75 502.39
Fixed Deposits 0.00 0.00 0.00 0.00 0.00
Total CA, Loans & Advances 3,057.60 3,308.58 2,815.61 2,288.23 2,639.10
Deferred Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 1,346.81 1,183.63 851.18 704.59 589.01
Provisions 88.82 87.68 52.96 40.84 41.57
Total CL & Provisions 1,435.63 1,271.31 904.14 745.43 630.58
Net Current Assets 1,621.97 2,037.27 1,911.47 1,542.80 2,008.52
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 4,869.19 5,608.87 5,019.19 4,434.59 4,600.91

Contingent Liabilities 1,879.32 308.97 595.33 735.87 730.02

Book Value (Rs) 484.41 447.48 357.66 313.58 299.95
Vardhman Textiles
Standalone Profit & Loss
------------------- in Rs. Cr. -------------------
account
Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths 12 mths 12 mths

Income
Sales Turnover 5,742.64 5,171.31 4,159.74 3,918.00 3,606.81
Excise Duty 0.60 0.00 0.00 0.00 0.00
Net Sales 5,742.04 5,171.31 4,159.74 3,918.00 3,606.81
Other Income 158.07 64.58 54.90 60.57 31.70
Stock Adjustments -131.03 229.47 89.81 -126.90 215.18
Total Income 5,769.08 5,465.36 4,304.45 3,851.67 3,853.69
Expenditure
Raw Materials 3,084.04 2,670.36 2,345.63 2,415.32 2,061.34
Power & Fuel Cost 607.83 544.88 467.00 382.95 376.12
Employee Cost 350.83 320.17 268.34 221.13 207.93
Other Manufacturing Expenses 0.00 0.00 0.00 0.00 0.00
Selling and Admin Expenses 0.00 0.00 0.00 0.00 0.00
Miscellaneous Expenses 626.72 604.62 340.44 278.90 275.39
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Total Expenses 4,669.42 4,140.03 3,421.41 3,298.30 2,920.78
Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 941.59 1,260.75 828.14 492.80 901.21

PBDIT 1,099.66 1,325.33 883.04 553.37 932.91
Interest 121.54 151.83 174.35 173.22 109.81
PBDT 978.12 1,173.50 708.69 380.15 823.10
Depreciation 488.85 294.13 253.86 234.67 226.02
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 489.27 879.37 454.83 145.48 597.08
Extra-ordinary items 0.00 0.00 0.00 0.00 0.00
PBT (Post Extra-ord Items) 489.27 879.37 454.83 145.48 597.08
Tax 130.16 227.50 131.11 35.79 127.36
Reported Net Profit 359.11 651.88 323.73 109.67 469.70
Total Value Addition 1,585.38 1,469.67 1,075.79 882.99 859.44
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 63.65 70.02 38.19 28.64 28.64
Corporate Dividend Tax 13.32 10.11 6.49 4.65 4.65
Per share data (annualised)
Shares in issue (lakhs) 636.52 636.52 636.52 636.52 639.52
Earning Per Share (Rs) 56.42 102.41 50.86 17.23 73.45
Equity Dividend (%) 100.00 110.00 60.00 45.00 45.00
Book Value (Rs) 484.41 447.48 357.66 313.58 299.9
 ------------------- in Rs. Cr. -------------------

Ratios Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share -- -- -- -- --
Operating Profit Per Share (Rs) 178.03 233.58 155.90 98.50 174.89
Net Operating Profit Per Share (Rs) 1,085.44 986.35 795.30 742.30 706.75
Free Reserves Per Share (Rs) -- -- -- -- --
Bonus in Equity Capital 56.06 56.06 56.06 56.06 56.06
Profitability Ratios
Operating Profit Margin(%) 16.40 23.68 19.60 13.26 24.74
Profit Before Interest And Tax
8.35 18.02 13.52 7.27 18.61
Margin(%)
Gross Profit Margin(%) 8.55 18.24 13.66 7.37 18.75
Cash Profit Margin(%) 14.06 17.64 13.53 9.38 18.94
Adjusted Cash Margin(%) 14.06 17.64 13.53 9.38 18.94
Net Profit Margin(%) 5.89 11.64 7.16 3.04 11.88
Adjusted Net Profit Margin(%) 5.75 11.51 7.09 3.00 11.79
Return On Capital Employed(%) 14.18 19.88 13.55 8.58 17.09
Return On Net Worth(%) 11.85 22.93 14.21 6.40 23.19
Adjusted Return on Net Worth(%) 13.20 24.44 15.34 7.62 25.57
Return on Assets Excluding
539.89 500.98 400.92 352.96 362.16
Revaluations
Return on Assets Including
539.89 500.98 400.92 352.96 362.16
Revaluations
Return on Long Term Funds(%) 15.58 23.10 15.84 9.60 20.61
Liquidity And Solvency Ratios
Current Ratio 1.36 1.24 1.26 1.45 1.31
Quick Ratio 0.98 1.14 1.44 1.33 1.70
Debt Equity Ratio 0.56 0.92 1.15 1.16 1.23
Long Term Debt Equity Ratio 0.42 0.66 0.84 0.93 0.85
Debt Coverage Ratios
Interest Cover 5.98 7.93 4.12 2.35 8.01
Total Debt to Owners Fund 0.56 0.92 1.15 1.16 1.23
Financial Charges Coverage Ratio 10.24 10.15 5.79 3.93 10.47
Financial Charges Coverage Ratio
8.47 7.97 4.68 3.39 8.33
Post Tax
Management Efficiency Ratios
Inventory Turnover Ratio 3.56 2.81 2.79 3.02 2.29
Debtors Turnover Ratio 8.09 7.64 7.22 7.15 7.73
Investments Turnover Ratio 3.56 2.81 2.79 3.02 2.29
Fixed Assets Turnover Ratio 1.13 1.08 1.00 1.01 1.01
Total Assets Turnover Ratio 1.20 0.97 0.87 0.91 0.83
Asset Turnover Ratio 1.12 1.01 0.92 0.89 0.89

Average Raw Material Holding -- -- -- -- --

Average Finished Goods Held -- -- -- -- --
Number of Days In Working
105.38 155.78 177.86 159.61 220.86
Capital
Profit & Loss Account Ratios
Material Cost Composition 52.00 50.23 51.81 56.67 53.23
Imported Composition of Raw
-- -- -- -- --
Materials Consumed
Selling Distribution Cost
-- -- -- -- --
Composition
Expenses as Composition of Total
-- -- -- -- --
Sales
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 26.25 13.11 15.76 29.55 8.16
Dividend Payout Ratio Cash Profit 11.26 8.93 8.62 10.06 5.43
Earning Retention Ratio 76.43 87.70 85.39 75.19 92.60
Cash Earning Retention Ratio 89.26 91.45 91.74 90.55 94.92
AdjustedCash Flow Times 1.93 2.63 4.23 5.77 3.30
 WORKING CAPITAL MANAGEMENT
IN
VARDHMAN

SUBMITTED TO PANJAB UNIVERSITY, CHANDIGARH

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR
THE DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION

SUBMITTED TO: SUBMITTED BY:

MS. PRERNA JAIN AAKRITI SHARMA
(ASST. PROFESSOR) PUPIN NO.14313000605
BBA (3RD YEAR)

KHALSA COLLEGE FOR WOMEN

CIVIL LINES, LUDHIANA
Session : 2015-16
 PREFACE

BBA is a stepping stone to the management career and to develop good manager it is necessary
that the theoretical must be supplemented with exposure to the real environment. Theoretical
knowledge just provide base and it is not just sufficient to produce a good manager that is why
practical knowledge is needed. Therefore the research product is an essential requirement for the
students of BBA.
This research project not only help the students to utilize his skills properly learn field realities
but also provide a chance to the organization to find our talent among the building manager in
the very beginning.
A project work is a mandatory requirement for the degree of BBA. In order to achieve tangible,
positive and concrete result, the classroom knowledge needs to be effectively wedded to the
realities of the situation existing outside the classroom. On this analogy, the student of the
management Panjab University is given research project so that they can be trained in well
effective manner. I have been given a research project on ‘Working Capital Management in
Vardhman’. This research project not only broader horizons but also helps to grasp the various
inerrancies of the business. This project reports the knowledge and experience gained by me
during my project research.
 ACKNOWLEDGEMENT

If words are considered as a symbol of token and appreciation then let words play their
heralding role of expressing my sincerest gratitude and thanks.

Foremost of all I express my sincere gratitude to almighty for bestowing upon me favors and
keeping me in high spirit.

I wish to express my deep gratitude to Ms. Prerna Jain for acting as a guide and providing
me with continuous support and guidance. This report could not have been completed
without the inputs and the words of advice from her for which I shall always remain grateful
to her.

I am highly thankful to all the directly related and the students for being cooperative without
whose help this project would not have been proven meaningful.

AAKRITI SHARMA
BBA-III
 CERTIFICATE-I

I certify that this project report ”WORKING CAPITAL MANAGEMENT IN VARDHMAN”

has been undertaken by me for the partial fulfillment of the requirement of the degree of
BACHELOR OF BUSINESS ADMINISTRATION and is an original place of work done and
that no part of this project has been submitted for any other degree, diploma, fellowship or
similar title in this university.
I express my sincere gratitude to my advisor, Ms. PRERNA JAIN for her valuable guidance,
support and co-operation extended for completion of this project.

Aakriti Sharma
BBA-III
Roll No.14313000605
 CERTIFICATE II

This is to certify that this project report entitled ‘WORKING CAPITAL MANAGEMENT IN
VARDHMAN, submitted in the partial fulfillment of requirement of the award of
BBA(bachelor of business administration) at KHALSA COLLEGE FOR WOMEN,
affiliated to PANJAB UNIVERSITY is a bonafide research carried by AAKRITI SHARMA;
UNIVERSITY ROL.NO. 14313000605 under my supervision and no part of this project has
been submitted for any other degree.

Ms. PRERNA JAIN

ADVISOR
 TABLE OF CONTENTS

S. No. Topics Page No.

1. INTRODUCTION 1-47

2. OBJECTIVES 48

3. RESEARCH METHODOLOGY 49-51

4. DATA ANALYSIS AND INTERPRETATION 52-66

5. FINDINGS 67-68

6. SUGGESTIONS 69

7. LIMITATIONS 70

8. CONCLUSIONS 71

9. BIBLIOGRAPHY 72

10. ANNEXURE 73-78