PROJECT

ON
WORKING CAPITAL MANAGEMENT
OF OSWAL DENIMS-LALRU
IN
OSWAL WOOLLEN MILLS LIMITED

OSWAL DENIMS
A UNIT OF
OSWAL WOOLLEN MILLS
LIMITED
(CAPACITY - 34 MILLION MTRS./ ANNUM.)

AT VILLAGE LALRU,
P.O. DAPPAR,
CHANDIGARH-AMBALA ROAD,
DISTRICT MOHALI,
PUNJAB

Oswal put up a denim textile unit with a turnover of 200 crores. The new
unit is located at Lalru in Mohali in an area of 50 acres and commenced
production by February 2008.
The company produces denim fibre, largely meant for export. With this unit,
Oswal Woollen Mills started production of denim textile that would be
sold in domestic (40 per cent of the production) and international (60 per
cent of the total output) markets. "This is going to be a big project with
large investments and so it may take some time," said Oswal.

Unit Name
Oswal Denim
Unit (Lalru)

Spindles
114048

Rotors

Location

Lalru near
2160
Chandigarh

OBJECTIVES

To analyze the working capital management of

the company.
To determine the operating cycle of the unit.

NET WORKING CAPITAL

=Current Assets-Current Liabilities
Particulars
CURRENT
ASSETS
CURRENT
LIABILITIES

NET WORKING
CAPITAL

2008-09 2009-10

2010-11

2011-12

2012-13

2853.29

8970.69

14160.08

18992.82

23788.04

164.75

2365.13

2982.41

2998.97

3012.65

2688.54

6605.56

11177.67

16010.85

20805.69

CURRENT RATIO
= Current Assets
Current Liabilities
Particulars

2008-09 2009-10 2010-11 2011-12 2012-13

CURRENT
ASSETS

2853.29

CURRENT
LIABILITIES
CURRENT
RATIO

8970.69 14160.08 18992.82 23788.04

164.75

2365.13

2982.41

17.32

3.79

4.75

2998.97 3012.65

6.37

7.98

ACID TEST RATIO

= Quick Assets
Current Liabilities
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13
QUICK
ASSETS
945.23 5,758.51 10,284.87 15,117.61 19,912.83
CURRENT
LIABILITIES 164.75 2365.13 2982.41 2998.97 3012.65
ACID TEST
RATIO

5.74

2.43

3.45

5.07

6.68

Creditors Turnover Ratio

=Net Credit Purchases
Average Creditors

Net Credit Purchases = Opening Creditors + Purchases Closing Creditors

PARTICULARS 2008-09 2009-10 2010-11 2011-12 2012-13

NET CREDIT
PURCHASES
4076.12 5258.08 6471.51 7107.73 6993.37
AVERAGE
CREDITORS
778.42 833.451,054.92 820.23
502.50
CREDITOR
TURNOVER
RATIO
3.86
4.98
6.13
6.74
6.63

CREDITORS PAYMENT PERIOD(in days)

=
365
CREDITORS TURNOVER RATIO
PARTICULARS 2008-09 2009-10 2010-11 2011-12 2012-13
CREDITORS
TURNOVER
RATIO
3.86
4.98
6.13
6.74
6.63
CREDITORS
PAYMENT
PERIOD
94
73
59
54
55

RAW MATERIALS TURNOVER

=
Cost of Raw Materials Used
Average Raw Materials Inventory
PARTICULARS
COST OF RAW
MATERIALS USED
AVERAGE RAW
MATERIALS
INVENTORY
RAW MATERIALS
TURNOVER

2008-09 2009-10

2010-11

9743.63 13902.88 19019.17

568.91
17.13

666.96 1880.47
20.85

10.11

2011-12

2012-13

21134.76.
21078.03
03

2305.86 2435.65
9.14

9.10

RAW MATERIAL HOLDING PERIOD (in days)

=
PARTICULARS
RAW MATERIALS
TURNOVER
RAW MATERIAL
HOLDING
PERIOD

365
RAW MATERIALS TURNOVER
2008-09 2009-10
17.13

21

20.85

18

2010-11 2011-12 2012-13

10.11

9.14

36

40

9.10

40

WORK IN PROCESSTURNOVER
= Cost of goods manufactured
Average Inventory
COGM = Opening stock(R.M.+WIP) + purchases + direct exp. - closing
stock(R.M.+WIP)

PARTICULARS
COGM
Average WIP
inventory
WIP Turnover Ratio

2008-09 2009-10
12331.42

2010-11

2011-12

2012-13

16511.51 23297.83 25884.38 25996.94

617.94

1,273.71

2,093.16

19.96

12.96

11.13

2,305.86 2,316.79
11.23

11.27

WIP HOLDING PERIOD(in days)

=
365
AVERAGE WIP TURNOVER RATIO
PARTICULARS
WIP Turnover
Ratio
WIP Holding
Period

2008-09 2009-10

2010-11

2011-12

2012-13

20.79

13.45

11.45

11.52

11.57

18

28

33

33

32

DEBT EQUITY RATIO

= Long Term Debt
Shareholders Equity
PARTICULARS
LONG TERM
DEBT

2008-09 2009-10 2010-11 2011-12 2012-13

TOTAL EQUITY
DEBT EQUITY
RATIO

6505.43 10535.62 15250.26 20582.50 25877.25

5700.00 9019.75 8509.75 6889.75 5269.75

0.88

0.86

0.56

0.33

0.20

PROPRIETORY RATIO
=
Proprietors Fund
Total Assets
PARTICULARS

2008-09

2009-10 2010-11

2011-12

2012-13

Proprietory Fund

6505.43 10535.62 15250.26

20582.50

25877.25

Total Assets
11,980.49 22,571.94 29,248.57
PROPRIETORY
RATIO
0.54
0.47
0.52

34,291.32 39,086.53
0.60

0.66

INTEREST COVERAGE RATIO

=
EBIT
INTEREST
PARTICULARS
EBIT

2008-09 2009-10 2010-11 2011-12 2012-13

2713.51 4410.83

5212.26 5811.17 5696.86

INTEREST
INTEREST
COVERAGE

282.94

380.63

497.62

478.93

402.11

9.59

11.59

10.47

12.13

14.17

GROSS PROFIT MARGIN

= Gross Profit X 100
Sales
Gross Profit = Net Sales - COGS

PARTICULARS
GROSS PROFIT
Sales
GROSS PROFIT
MARGIN

2008-09 2009-10
3613.40

5661.85

16091.46 22394.45
22.46

25.28

2010-11
6834.42

2011-12
7470.65

2012-13
7356.29

30448.30 33672.82 33789.93

22.45

22.19

21.85

OPERATING PROFIT RATIO

=
EBIT Other incomes
Net Sales
PARTICULARS
EBIT-Other
Incomes
Net Sales
Operating Profit
Ratio

2008-09 2009-10
2,657.37

2010-11 2011-12 2012-13

4,350.83 5,142.26 5,741.17 5,626.86

15,634.33 21,834.59 29,839.33 33,063.86 33,083.97

0.17

0.20

0.17

0.17

0.17

NET PROFIT RATIO

=
EAT
Net Sales
PARTICULARS
EAT

2008-09 2009-10
2430.57

4030.20

2010-11
4714.64

2011-12

2012-13

5332.24 5294.75

Net Sales
15,634.33 21,834.59 29,839.33 33,063.86 33,083.97
Net Profit Ratio

0.16

0.18

0.16

0.16

0.16

RETURN ON ASSETS(ROA)
= Net profit after Taxes + Interest
Average total assets
PARTICULARS
AVERAGE
TOTAL ASSETS

NET PROFIT
AFTER
TAX+INTEREST
ROA

2008-09 2009-10

2010-11

2011-12

2012-13

4256.72 10664.10 16624.99 21667.74 26462.95

2,713.51
0.64

4,410.83 5,212.26 5,811.17 5,696.86

1.04

1.22

1.37

1.34

Meaning Of Working Capital

Management
In simple words working capital means that
which is issued to carry out the day to day
operations of a business.

Working Capital
=Current Asset Current Liability

Concept of Working Capital

Gross Working Capital = Total of Current Asset
Net Working Capital = Excess of Current Asset
over Current Liability

NET WORKING CAPITAL

PARTICULARS

2008-09 2009-10

INVENTORIES
SUNDRY
DEBTORS
CASH & BANK
BAL.

1369.76

2658.88

3296.91 3341.52 3410.63

2338.10

1840.64

2502.60 2603.23 2723.53

1000.56

5611.28 10247.18 15289.93 20085.14

LOAN & ADV.

538.30

SUB-TOTAL
LESS:
CURRENT
ASSETS (A)
CURRENT
LIABILITIES (B)
NET WORKING
CAPITAL(A-B)

553.30

2010-11 2011-12 2012-13

578.30

581.30

593.30

4256.72 10664.10 16624.99 21667.74 26462.95

1403.43

1693.41

2853.29

8970.69 14160.08 18992.82 23788.04

164.75
2688.54

2365.13

2464.91 2671.32 2687.11

2982.41 2991.25 3001.34

6605.56 11177.67 16010.41 20805.63

11177.67

2012-13

2011-12

NET WORKING
CAPITAL

2010-11

0.00

2009-10

5000.00

2008-09

10000.00

2688.54

15000.00

6605.56

20000.00

20805.63

25000.00

16010.41

NET WORKING CAPITAL

CURRENT ASSETS
25000.00

24008.97

20000.00

19093.45

15000.00
10000.00

5000.00
0.00

14160.08
8970.69
2853.29

CURRENT
ASSETS

COMPOSITION OF CURRENT ASSETS

COMPOSITION OF CURRENT ASSETS
30000.00
25000.00
20000.00
15000.00

10000.00
5000.00

0.00

INVENTORIES
SUNDRY DEBTORS
CASH & BANK BAL.
LOAN & ADV.
SUB-TOTAL

2500.00

3001.34

3000.00

2991.25

2365.13

3500.00

2982.41

CURRENT LIABILITIES

2000.00

CURRENT
LIABILITIES

1000.00

500.00

164.75

1500.00

0.00
2008-09

2010-11

2012-13

665.65

496.27

314.40

900.00
800.00
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00

100.00

W.C. INDICES

833.71

WORKING CAPITAL TREND ANALYSIS

W.C. INDICES

Changes in working capital

Changes in W.C.
PARTICULARS

2009-10

2010-11

Increase

INVENTORIES
SUNDRY
DEBTORS
CASH & BANK
BAL.

2658.88

3296.91

638.03

1840.64

2502.60

661.96

5611.28

10247.18

4,635.90

LOAN & ADV.

553.30

578.30

25.00

SUB-TOTAL

10664.10

16624.99

5,960.89

LESS:

1693.41

2464.91

771.50

CURRENT ASSETS
CURRENT
LIABILITIES
NET WORKING
CAPITAL

8970.69

14160.08

5,189.39

2365.13

2982.41

617.28

6605.56

11177.67

4,572.11

Decrease

OPERATING CYCLE
The duration of time required for completing the following
sequences of events in case of manufacturing firm is called the
operating cycle.
Conversion of cash into raw
material.
Conversion of raw material into
work in progress.
Conversion of work in progress
into finished goods.
Conversion of finished goods
into debtors & bills receivable
through sale.
Conversion of debtors & bills
receivable into cash.

Cash
Debtors
& Bills
Receivables

Raw
Material

Operating
Cycle

Sales

Finished
Goods

Work
In
Process

Operating Cycle
PARTICULARS 2008-09 2009-10 2010-11 2011-12 2012-13
ADD
1. Inventory Conversion Period
Raw mat.
Holding period
21
18
36
40
40
WIP period
21
28
33
33
32
Finished goods
holding period
18
17
23
25
25
2.Debtors
collection period
55
43
31
21
19
3.Gross operating
115
106
123
119
116
cycle
LESS.
4.Creditors
payment period
94
73
59
54
55
Net operating
21
33
64
65
61
cycle

Net operating cycle

70
64

65

61

60
50
40

33

Net operating cycle

30
21

20
10
0
2008-09

2010-11

2012-13

OPERATING CYCLE COMPONENTS

100
90
80
70
60
50
40
30
20
10
0

Raw mat. Holding

period
WIP period
Finished goods
holding period
2.Debtors collection
period
4.Creditors payment
period

WORKING CAPITAL TURNOVER RATIO

=
COGS
Net Working Capital
COGS = Opening stock + purchases + direct expenses - closing stock

PARTICULARS 2008-09 2009-10 2010-11 2011-12 2012-13

COGS
12429.47 17725.01 23723.22 25884.38 25996.94
Net W.C.
2688.54 6605.56 11177.67 16010.41 20805.63
W.C.
TURNOVER
RATIO
4.62
2.68
2.12
1.62
1.25

Working capital turnover ratio

5.00

4.62

4.50

4.00
3.50
3.00
2.50

2.68
2.12

Working capital turnover

ratio

2.00
1.25

1.50
1.00
0.50
-

1.62

INVENTORY TURNOVER RATIO

= Cost of goods sold
Average Inventory
PARTICULARS

2008-09 2009-10

COGS
12429.47 17725.01
Average inventory
1,988.91 2,747.67
Inventory Turnover
Ratio

6.25

6.45

2010-11

2011-12

2012-13

23723.22 25884.38 25996.94

5,450.63
4.35

6,388.72 6,221.72
4.05

4.18

INVENTORY HOLDING PERIOD(in days)

=
365
AVERAGE TURNOVER RATIO
PARTICULARS
Inventory
Turnover Ratio
Inventory Holding
Period

2008-09 2009-10

2010-11

2011-12

2012-13

17.37

13.92

11.33

11.23

11.27

58

57

82

87

86

Debtors Turnover Ratio

=Net Credit Sales
Average Debtors
PARTICULARS
Net Credit Sales
AVERAGE
DEBTORS
DEBTOR
TURNOVER
RATIO

2008-09 2009-10

2010-11

2011-12

15,634.33 21,834.59 29,839.33 33,063.86

2340.64

6.68

2,560.64

8.53

2,502.60

11.92

2012-13
33,083.97

1,930.25 1,750.36

17.13

18.89

DEBTOR COLLECTION PERIOD(in days)

=
365 days
Debtor Turnover Ratio
PARTICULARS 2008-09 2009-10 2010-11 2011-12
DEBTOR
TURNOVER
RATIO
6.68
8.53
11.92
17.13
DEBTOR
COLLECTION
PERIOD
55 43
31
21

2012-13

18.89

19

WORKING CAPITAL MANGEMENT

COMPONENTS
Receivables Management
Inventory Management
Cash Management

RECEIVABLES MANAGEMENT
PARTICULARS
SUNDRY
DEBTORS
SUNDRY
DEBTORS
INDICES

2008-09 2009-10

2010-11

2338.10

1840.64

2502.60

100.00

78.72

107.04

2011-12

2012-13

2603.23 2723.53

111.34

116.48

SUNDRY DEBTORS INDICES

120.00
100.00

107.04

100.00

111.34

116.48

78.72

80.00
60.00

SUNDRY DEBTORS INDICES

40.00
20.00
2008-09

2009-10

2010-11

2011-12

2012-13

AVERAGE COLLECTION PERIOD

(in days)
=
365 days
Debtor Turnover Ratio
PARTICULARS
DEBTOR
TURNOVER
RATIO
DEBTOR
COLLECTION
PERIOD

2008-09 2009-10

6.68

55

8.53

43

2010-11

2011-12

2012-13

11.92

17.13

18.89

31

21

19

INVENTORY MANAGEMENT
PARTICULARS
RAW MATERIAL
(YARN)
WORK IN
PROCESS
FINISHED
GOODS
STORES &
SPARES
TOTAL

INDICES

2008-09 2009-10

2010-11

2011-12

2012-13

705.44

743.61

913.39

834.81

736.22

722.41

672.41

892.19

840.64

864.34

1,158.06 1,150.36 1,413.67

34.81

34.81

77.65

2,620.72 2,601.19 3,296.90

100.00

99.25

125.80

1,560.00 1,642.62
60.31

52.86

3,295.76 3,296.04

125.76

125.77

INDICES
140.00
125.80

120.00
100.00

100.00

125.76

125.77

99.25

80.00
INDICES
60.00
40.00
20.00
2008-09 2009-10 2010-11 2011-12 2012-13

COMPONENTS OF INVENTORY
1,800.00
1,600.00
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00
-

RAW MATERIAL
(YARN)
WORK IN PROCESS
FINISHED GOODS
STORES & SPARES

MANAGEMENT OF CASH
2008-09 2009-10

PARTICULARS
CASH & BANK
BAL.

1000.56

INDICES

100.00

2010-11

2011-12

2012-13

5611.28 10247.18 15289.93 20085.14

560.81 1,024.14

1,528.14 2,007.39

INDICES
2,007.39

3,000.00
1,528.14

2,000.00
1,000.00

560.81

1,024.14

100.00

2008-09 2009-10 2010-11 2011-12 2012-13

INDICES

LIMITATION OF THE STUDY

1. Limited Data
2. Limited Period

FINDINGS
The Net Working Capital of the company is
increasing so the company is able to pay-off
its short-term liabilities.
The creditor turnover ratio increases , it shows
company is increasing its efficiency in
collecting its sales on credit.
The raw material holding period is increasing
as the company is new and expanding its
production.

The net operating cycle is increasing but it

may start decline from next year as the
company is improving its debtor and creditor
collection period.
The working capital turnover ratio is declining
because of relative high increase in net
working capital.
The inventory turnover ratio is decreasing.

SUGGESTIONS
Company has surplus owner funds , it must
increase its debt to enjoy the benefits of trading
on equity.
The company should adopt proper inventory
control. Proper inventory management technique
will help the unit to decide upon the quantity of
inventory to be kept.
The company should increase its current liabilities
in order to make full use of its current borrowing
capacity.

 Company should stretch the credit period

given by the suppliers.
Company has to take control on cash & bank
balance because cash is non earning assets

THANK
YOU