SURVEY OF WOLLEN INDUSTRY FINANCES

Table of Contents

Chapter Particular

1. INTRODUCTION

1. Introduction to woollen industry in India
2. Introduction to Laxmi Woollens


2. PROJECT PROFILE

1. Title of the Study
2. Objectives of the Study
3. Significance of the Study
4. Research Methodology
5. Limitations of the Study


3. CONCISED CONCEPTS


4. FACTS – FINDINGS & RATIOS ANALYSIS


5. INTERPRETATION & RECOMMENDATION


BIBLIOGRAPHY


ANNEXURE


















CHAPTER - 1
INTRODUCTION












Introduction to the Woollen industry
India’s name has always been synonymous with its Cotton Textile Industry. But few know about the deep roots of a thriving Woolen Industry way back from the era of Indian Royalty and Mugal Emperors who have been patrons of Exquisite work of arts, from finely embroidered, breathtaking jamavar shawls, to pure wool product, garments and carpets.

Traditionally, home run handlooms and skilled artisans have formed the basic backbone of Textiles Industry in India. Manufacture of fine woolen textile products in India has been forte of artisan skills of handloom weaver’s right from Kashmir in the North to various manufacturing centers in Rajasthan, Punjab, Uttar Pradesh for centuries. Various kinds of animal hair obtained from hilly terrain were processed and used to make fine products like shawls, carpets, rugs etc.

During the British regime in second half of the 17th century, large amounts of cotton goods were exported regularly from India. Soon the modern structure of mechanized Manufacturing of Cotton Textile Industry was followed by the Woolen Textile Industry consecutively.

However, establishment of mechanized mill in Woollen Sector was relatively late and perhaps the first mill was ‘Lallmli’ of British India Corporation set up in Kanpur.

The modern industry followed growth in centers like Thane, Mumbai, Jamnagar, Vadodara in West and Dhariwal, Amritsar, Panipat, Ludhiana in the North.

In the early stage of development, production was confined for coarse to medium qualities mostly for the requirement of defense department. Requirement for fine variety of wool and worsted fabrics were met through imports chiefly from U.K.

Post independence, economics policies led to rapid growth of woolen textile manufacture in the organized sector and mushrooming of small to medium sized units all over India producing all kinds of wool products, knitwear, hosiery and woolen blazer fabrics followed by blankets.

The middle of 20th century, eventually saw imports being virtually stopped and domestic production keeping pace with local demand followed by product innovation and instroduction of latest technology for processing of greasy wool from Australia to finished products.
Today in this new century the woollen sector of the Indian Textile Indutry has many big brands names on its horizon. The woollen industry deserves a special mention for creating the concept of brand marketing on the national scale in the textile field.




The woolen industry in the country is small in size and is widely scattered. It is primarily located in Punjab, Haryana, Rajasthan, Uttar Pradesh, Maharashtra and Gujarat, with 40% of units located in Punjab, 27% in Haryana, 10% in Rajasthan, while the rest of the States account for the remaining 23% of the units. The industry provides employment to approximately 1.2 million workforce and contributes significantly to industrial production.

The Woolen Industry in India broadly falls under two sectors -

i) Organized Sector
a) Composite Mills
b) Combing Units
c) Worsted and Non-worsted Spinning Units
d) Machine made Carpet-manufacturing Units

ii) Decentralized Sector
a) Hosiery and Knitting
b) Powerloom
c) Hand-knotted Carpets, Druggets and Namdahs
d) Independent Dyeing and Processing Houses

Table 1.1
Overview of Woollen Industry(Source:WWEPC,New Delhi)

(a)

Total number of registered units.

718


(b)
Total number of persons employed in the woollen industry
2007-2008

14 lakh (approx.)


(c)
Total exports* (excluding handmade carpets, rugs, durries, etc.)
2001-02.
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08


Rs. 1379.00 cr
Rs. 1303.52 cr.
Rs. 1553.06 cr.
Rs. 1873.00 cr.
Rs. 2098.27 cr.
Rs. 2360.55 cr.
Rs. 2651.54 cr.




The indigenous production of fine quality wool required by the organized mills and the decentralized hosiery sector is very limited; the country depends largely on import, Australia being the major supplier. The New-Zealand wool, rich in luster is being imported mainly for carpet sector for blending it with indigenous wool. Similarly, for the shoddy sector, import of premutilated woollen/synthetic rags is also allowed under OGL.



INDIGENOUS PRODUCTION
The production of indigenous wool in the country during the last five years is at Table 1.2.

Table 1.2
Year Quantity in million kg
2002-2003 50.5
2003-2004 48.0
2004-2005 55.0
2005-2006 55.0
2006-2007 57.2
2007-2008
58.3
(Source : Ministry of Agriculture/CWDB)

IMPORT OF RAW WOOL & RAGS
The figures of import of Raw Wool and Rags for the last five years are at Table 1.3 and 1.4.
Table 1.3
Raw Wool(Merino/New Zealand-Greasy/
Scoured)
Year Quantity in million kg
2002-2003 73.66
2003-2004 84.61
2004-2005 84.75
2005-2006 90.70
2006-2007 95.00
2007-2008 99.45
(Source: Ministry of Agriculture/CWDB)

Table 1.4
Rags (Woolen/Synthetic)
Year Quantity in million kg
2002-2003 52.39
2003-2004 82.81
2004-2005 73.61
2005-2006 126.82
2006-2007 158.52
2007-2008 180.65
(Source: Statistics Published by DGCI&S, Calcutta)



The details of woollen industry installed capacity as on 31.10.2007are at Table 1.5.
Table 1.5
i)a)Wool Combing
b) Synthetic Fibre Combing 29.28 Mn. Kg.
03.57 Mn. Kg.
ii) Worsted Spindles (No.) 05.98 Lakh Nos.
iii) Non-Worsted Spindles (No.) 04.26 Lakh Nos.
iv) Machine-Made &
Handmade Carpet Sector 08.00 Lakh sq. mtr.
00.50 Mn. Kg.




















The production details of woollen items are at Table 1.6
Table 1.6
(Quantity in millions)
Item Unit 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
Worsted Yarn Mn. (Kgs) 43.0 44.00 44.00 44.00 45.00 45.33 45.67
Woollen Yarn Mn. (Kgs) 33.0 33.0 34.00 34.00 34.00 34.34 34.68
Wool Tops Mn. (Kgs) 27.00 28.00 28.00 28.00 29.00 29.51 30.02
Fabric (Woollen/ Worsted) Mn. (Mtrs.) 64.0 68.00 66.00 66.00 66.00 66.00 66.00
Shoddy Yarn Mn. (Kgs) 27.00 26.00 24.00 25.00 26.00 26.00 26.00
Blankets (Shoddy/woollen) Mn. (Pcs) 13.00 12.00 11.00 11.00 12.00 12.00 12.00
Shoddy Fabric Mn. (Mtrs.) 18.00 18.00 17.00 17.50 18.00 18.00 18.00
RMG (Knitwear/Woven wear and goods) Mn. (Kgs.) 14.00 13.00 13.00 13.00 14.00 14.00 14.00
Hand Knotted Carpets Mn. (Sq.Mt) 07.50 07.50 08.00 08.00 08.00 08.17 08.34
Machine made Carpets Mn. (Sq.Mt) 00.50 00.50 00.50 00.50 00.50 00.50 00.50
(Source: Indian Woollen Mills Federation, Mumbai)













Central Wool Development Board, Jodhpur
The Central Wool Development Board (CWDB), Jodhpur was constituted by the Government of India in 1987. The Board is supported through grants-in-aid, for promoting growth and development of wool and woolens, and it pursues its objectives through various activities- market intelligence, improvement of wool and woolens, price stabilization, and quality control.

In the Xth Plan, the Board is implementing ‘Integrated Wool Improvement Programme (IWIP)’ for growth and development of wool and woolens in the country. There are two main components of the Programme
(I) Improvement of Wool Fibre and
(II) Quality Processing of wool.

The component “Improvement of Wool Fibre’ has been taken up for improving the quality and quantity of sheep wool and increasing the production of specialty wool from Pashmina goats and Angora rabbits. The component ‘Quality Processing of Wool’ involves setting up of Common Facility Centres for Carpet Finishing and Shawl Processing, Technical Consultancy Services, Human Resource Development and Research and Development etc. The Planning Commission and Ministry of Textiles have allocated Rs. 35 cr. for implementation of Integrated Wool Improvement Programme during the Xth Plan period. The Board has utilized Rs. 23.50 cr. upto December, 2005.

During 2005-06, the Government has approved an Annual Plan outlay of Rs. 590 .00 lakhs of the Board. (Plan Rs. 500 lakhs and Non-Plan Rs. 90 Lakhs).

India now has an estimated sheep population of more than 45 million, producing around 40 million kilograms of raw wool. It is the sixth largest sheep rearing country possessing approximately 4.1 per cent of the world’s sheep population and producing about 1.1 per cent of the world’s wool. The Indian wools are generally known for their resilience as carpet wools. Until recently the wools was mostly used for producing coarse varieties of woolen goods like blankets. In recent times efforts were made both in Rajasthan and the Kashmir valley for improvement of the quality of wool by selective cross breeding. Around 20 per cent of the wool is now being used for producing apparel goods.














Future of Woollen Industry
The future of woolen industry is bright in India and with the development in technology and adoption of new machines by big houses gives an estimation of high turnover of profits. The raw wool import is increasing at high speed because we are not able to generate raw wool in our country but if efforts will be done we will be able to produce much of raw wool in India itself. As we can see from the past, present and estimated trends of woolen industry in exports we are on a progressive rate and to maintain that trend we need to work much harder.

The decentralized woollen industry located in various clusters such as Amritsar, Ludhiana, Bikaner & Panipat have some of the problems relating to Fiscal Duty structure and Exim Policy and also about improvement in quality & growth of various forums & meetings held with individual groups from time to time. The biggest drawback in case of Disorganized Woollen Industry is that unlike the organized sector, the decentralized Woollen sector doesn’t have anyone body that can represent its different segment and facets. There is a plethora of associations and bodies with insufficient interaction between them. Initiatives taken in concert with one segment do not spread to the others. It is also one of the main reasons that different associations that have emerged in decentralized sector are looking at their own interest rather than working collectively. This is a very big problem and steps are being taken by people to work collectively yet the rate is slow but some day this problem will also be solved because every problem has its solution.



























Introduction to Laxmi Woolen Mills Pvt. Ltd.

Woolen Mills is an independent family concern with second generation already in business, established in 1981 to serve quality. It is producer of quality carpet yarn. Early 1981, they were in partnership business with other concerns for the purpose of manufacturing yarn. The yarn was manufactured from outsiders and they use to deliver the yarn to the required concerns. The whole work was done under their guidance but at that time they were not having their own particular area to work. Later 1981, they started their own factory named Laxmi Woollens Mills. The soul behind starting the factory was Mr. Chetan Lal Kalla. Today there are five partners of this concern namely, Mr. Jagan kalla, Kanhaiya Lal Kalla, Vikram Kalla,Manmohan Chandak, Jagmohan Chandak.

All the partners have managed a high profile workshop of their group and know minute details of woolen machine engineering. They have thorough knowledge of woolen yarn manufacturing operations. Mr. J.N.Kalla looks after the entire accounts, finance and purchase department. Mr. Vikram kalla looks after the Production department. He is having thorough knowledge of all machines and equipments used. Mr. Manmohan Chandak is sales head, who looks after the finished product and daily affairs of production.

Laxmi woollens produce all type of yarns suitable for handmade carpets be it high tensile yarn for tufting or a soft look yarn for hand knotted carpets. You share the idea, they will create tailor made speciality yarn for you and that too with 100% confidentiality.

Laxmi woollens is having well trained management and staffs who works to increase quantity but quality is always maintained. The yarn pass through a proper laboratory test before its departure.


Process of manufacturing yarn

The raw wool is imported from Middle-east countries, China, New Zealand, etc. The imported wool is in various colours like black, grey, brown, cream and white. First task is to separate these wool with different colours. This process is done to improve the quality of wool available and to produce quality yarn. This stage is called grading stage where the wool is graded according to its colour.

Good woollen yarn starts with careful mixing of the different fibres, the better the preparation the better the final quality of the yarn will be. The next process after grading is blending. In this different types of wool are mixed.

After blending the wool pass through a machine which is called opener. This machine helps to separate soil from wool.
Levelled applications of the fibre lubricant are essential for a level yarn. Oil and water is applied to the blend to reduce fibre breakage & friction in carding and to assist in drafting during spinning. The oil also helps to maintain the moisture in wool. The oil should of a type that can be easily removed in later wet processing. Generally the oil is non-eatable oil or Bashing oil. The wool is now passed from a machine called teasuer. This machine mixes the oil and water properly in the wool and the wool is now ready to pass through the next process.

The next process is carding, this is done on a carding machine which is basically a collection of large and small rollers covered in card clothing which due to the spikes in the clothing and the different directions and speeds of the rollers, combs the wool straight much as you would comb your hair.

At the end of the machine a flat web of wool is produced this is divided by tapes, which act like scissors to cut the wool into strips, which are rubbed to produce a round thread, which at this stage has no strength. The strength is given to the thread by the next process on a spinning frame, which literally spins the thread round to put in a pre-determined number of turns per inch there by making a strong level yarn.

Yarns are produced in single or multiple-ply construction. To make a multiple-ply yarn two or more bobbins are taken from the spinning frame and twisted together on a Ring Twisting machine again to a pre-determined number of turns per inch. The yarn is then put onto hanks, which form a loose package suitable for dyeing.

In a semi worsted-spinning system the wool is collected in front of machine in a Can like a worsted mill. This carded sliver is passed to intersecting gill box machine. Conventionally there are three intersecting gill boxes and one auto leveller. The theory of semi worsted lies behind drafting of this carded sliver.

The auto leveller is a machine which regulates the sliver output by varying the speed of drafting shafts. The sliver before feeding into gill box is being passed through sensor rollers which are linked with a delayed mechanism properly configured to increase or decrease the draft of the sliver. Normally 15% plus and 15% minus variation is controlled in an Auto leveller.

After Auto leveller the next process is Pin-roving machine, which not only reduces the sliver but also rubs the sliver to provide it some strength to ease at spinning frame. This is also called as apron drafting roving machine.

The sliver of pin roving machine is then passed to spinning frame, which is further drafted into required count of woollen yarn. After spinning the yarn is converted to hanks or passed to twisting frame as per requirement of customer. In high speed system the sliver is directly fed into spinning frame of high drafting ratios eliminating need of roving frames to reduce the sliver
After spinning, the yarn is passed to twisting frames when two or more folds are desired. A good carpet yarn would always be in two/three folds to give finer look to final carpet. Our twisting frame is equipped with individual end detector for broken ends and automatic braking device for individual spindles ensuring even twisting.

The yarn is then passed to winding machine to wind yarn on cones/tubes as per customer specifications. For the customer desiring scoured/dyed yarns, the scoured/dyed hanks are passed to hank to cone winder to wind yarn back on cones.

The Reeling is done after twisting/Winding to wrap yarn carefully for unwinding it later. The reeled yarn is carefully tie-banded to control during handling, scouring, Dyeing and unwinding.

After spinning, if required, the finished yarn is forwarded to scouring department. The yarn is then washed through a conveyor based scouring machine. The conveyors pass through 6 tanks of water, soap and chemicals. Each tank is equipped with a pair of pneumatic squeezing rollers at exit end of the tank and three submarine rollers. These rollers squeeze dirt, oil, soap and water out of the yarn. The process is a six- stage process one stage in each tank.

After scouring the yarn is kept in sunlight to make it dry. The dry hanks are collected and packed as per customer requirement. Currently they offer only 100Kgs standard packing wrapped in polythene and sewed in jute cloth.


Future plans of Laxmi woollens

Since inception of their factory it was basic philosophy of management to get the best machines available for the processes of mill from leading manufacturers. They also believe in providing maximum facilities and benefits to our employees along with healthy working environment.

The future plan includs further modernization of factory to meet following norms and make working environment more eco friendly and operator friendly.

ISO 9000:2000

ISO 14001

SA 8000



















CHAPTER – 2

PROJECT PROFILE






















Title of the study

Financial Performance Analysis :
Laxmi Woollens., Bikaner

Objectives of the study

 To evaluate the financial health and performance of Laxmi Woollens with the help of financial ratios and working capital management.

 To gain practical knowledge with the help of the theoretical concepts.



Significance of the study

To Laxmi Woollens:

 This project helps the firm in determining its strength and weaknesses as well as its past performance and current financial conditions.

 The financial performance analysis helps the management in further decisions.


To the researcher:

 The project supplements the theoretical knowledge of the researcher by providing an opportunity to understand the system and working of finance field practically.

 Researcher came to know about the various tools of financial management can be used to increase profitability.

 The researcher had not only fulfilled his requirement of the BBA degree program but also gained a significant knowledge about the petroleum industry, which may prove useful in future.

 Researcher came to know about the limitations of theoretical study.






Research Methodology
Research type

The research conducted is analytical.

Data Type

The researcher has taken the help of secondary data available from the finance department of Laxmi Woollens.

Data Source

Balance sheets, Profit & Loss accounts, annual reports and experts of the finance department.

Analytical Tools Used

 Ratios of various types, i.e., Financial (Liquidity and Stability) ratio, Coverage ratios, Turnover ratios and Profitability ratios are used.

 Operating Cycle Management approach is used to determine the projected working capital management.


Limitations of the study

 Results of the study will be valid if in the future the similar conditions do prevail as these were in the past.

 Certain calculations have been taken as per static view, which might not match with real situations.

 Research has been conducted on the basis of secondary data so any misinterpretation from these data might effect on research.

 Lack of experience on the part of the researcher.

 Limited information, on the part of inventories, has been adversely affected the analysis of working capital management.










CHAPTER - 3
CONCISED CONCEPTS












Financial Analysis

Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project.

It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may:

• Continue or discontinue its main operation or part of its business;
• Make or purchase certain materials in the manufacture of its product;
• Acquire or rent/lease certain machineries and equipments in the production
of its goods;
• Issue stocks or negotiate for a bank loan to increase its working capital.
• Other decisions that allow management to make an informed selection on
various alternatives in the conduct of its busines.

Financial analysts often assess the firm's:

1. Profitability- its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations;

2. Solvency- its ability to pay its obligation to creditors and other third parties in the long-term;

3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations;

4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.
Financial analysis can be done on past, present or future basis.










Ratio Analysis

Ratio analysis is one fo the techniques of financial analysis where ratios are used as a yardstick for evaluating the financial condition and performance of a firm. Ratios are relationships expressed in mathematical terms between figures which are connected with each other in some manner.

We can use ratio analysis to try to tell us whether the business :
1. is profitable
2. has enough money to pay its bills
3. could be paying its employees higher wages
4. is paying its share of tax
5. is using its assets efficiently
6. has a gearing problem
7. is a candidate for being bought by another company or investor

Ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standards, i.e., past, projected, competition or industry ratio standards.

Ratios can be grouped into various classes according to financial activity or function to be evaluated. The four important classes of ratios are as follows: -

1. Profitability Ratios: - Profitability is an indication of the efficiency with which the operations of the business are carried on. Owners are interested to know the profitability as it indicated the return, which they can get on their investments.

2. Coverage Ratios: - These ratios indicate the extent to which the interests of the persons entitled to get a fixed return (interest or dividend) or a scheduled repayment as per the agreed terms, are safe. The higher the cover, the better it is.

3. Turnover Ratios: - These indicate the efficiency with which the capital employed is rotated in the business.

4. Financial Ratios: - These indicate about the financial position of the company. Liquidity and Stability ratios are part of financial ratios.






Working Capital Management

Working capital means that part of the total assets of the business that change from one form to another form in the ordinary course of business operations. It is required for financing short-term or current assets such as inventories, debtors, marketable securities and cash. Funds invested in these current assets deep revolving with relative rapidity and are being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence, working capital is also known as ‘circulating or revolving capital’ or ‘short-term capital’ or ‘liquid capital’.

There is no unanimity with the interpretation of working capital. There is a lot of difference of opinions among accountants, financial experts, entrepreneurs and economists. Therefore, it is essential to understand the different concepts of working capital, important among them are-

• Traditional or Balance Sheet Concept
• Operating Cycle Concept

According to traditional concept, working capital depicts the position of the firm at certain point of time. It is calculated on the balance sheet prepared at a specific date. With this point of view, working capital is of two types, i.e. (i) gross working capital, and (ii) net working capital.

Operating cycle concept is a new concept of working capital which is becoming popular day-by-day. According to this concept, “working capital is represented by the excess of current assets over current liabilities identifying the relatively liquid portion of the total enterprise capital which constitutes a margin for meting obligations within the ordinary operating cycle of the business.”

The actual amount of working capital required in a firm depends upon the length of net operating cycle and the operating expenses needed for the period. The duration or time required to complete the sequence of events right from purchase of raw materials/goods for cash to the realization of sales in cash is called the operating cycle or working capital cycle.

During this cycle, the capital is converted from one form to another such as Cash to Raw Material → Finished Goods → Debtors or Bills Receivable → Cash.

The net duration of operating cycle is calculated by adding the number of days involved in the different stages of operation commencing from purchase of raw materials and ending with collection of sale proceeds from debtors after adjusting the number of days’ credit allowed by suppliers.



Estimation of Working Capital Requirements

Following methods are adopted in estimation working capital for the future period:
• Operating Cycle Method
• Net Current Assets Forecasting Method
• Projected Balance Sheet Method
• Adjusted Profit and Loss Method
• Cash Flow Forecast Method

Operating cycle method has been followed for estimating future cash working capital of a firm. Under this method, total operating expenses for a period are divided by the number of operating cycles in the relevant period to find out the cash cost of working capital.



























CHAPTER – 4

FACTS – FINDINGS,

RATIOS ANALYSIS &

WORKING CAPITAL MANAGEMENT













FINANCIAL RATIOS

1. Liquidity Ratios

1) Current Ratio
This ratio is an indicator of the firm’ commitment to meet its short-term liabilities. It is expressed as follows:
Current Assets
Current Liabilities

Particulars 2006-07 2007-08
Current Assets 146468254 149225223
Current Liabilities 27071682 31801246
CA/CL 5.4 4.7

The ratio is decreasing. An ideal current ratio is 2. In the year 2006-07 the ratio is very high which is not desirable since it means there was less efficient use of funds which was lowering down the profitability of the concern. In year 2007-08, the ratio has quite improved and is coming closer to the ideal ratio.




2) Quick Ratio
Quick Ratio is a refined measure of the short-term debt paying ability by measuring short-term liquidity. It is also known as Liquid Ratio or Acid Test Ratio. The ratio is expressed as follows:
Liquid Assets
Current Liabilities

Particulars 2006-07 2007-08
Quick Assets 118913076 11228731
Current Liabilities 27071682 31801246
QA/CL 4.4 5.5

An ideal quick ratio is 1. This ratio implies unsound liquidity position of the company.Company must work on it.








3) Super Quick Ratio
The ratio is the most vigorous measure of the firm’s liquidity position. This is a variation of quick ratio. The ratio is calculated as:
Cash and Marketable Securities
Current Liabilities

Particulars 2006-07 2007-08
Cash & Marketable Securities 611782 567004
Current Liabilities 27071682 31801246
CMS/CL 0.022 0.017

An ideal ratio is 0.5. This year the performance of the company is far decreasing as compared to previous year. This year the company is even not able to maintain the cash balance properly as compare to previous year which was also low.




2. Stability Ratio

1) Fixed Assets Ratio
This ratio explains whether the firm has raised adequate long-term funds to meet its fixed assets requirements. It is expressed as follows:
Fixed Assets
Long-term Funds

Particulars 2006-07 2007-08
Fixed Assets 16016328 16742494
Long-term Funds 108864633 104566015
FA/LtF 1.47 0.16

The ratio should not be more than 1. An ideal ratio is 0.67. Less than 1 shows that a part of working capital has been financed through long-term funds. But the ratio here is declined a lot which is not a good symbol to the company.















TURNOVER RATIO

1) Fixed Assets Turnover Ratio
This ratio indicates the extent to which the investments in fixed assets contribute towards sales. If compared with a previous period, it indicates whether the investment in fixed assets has been judicious or not. The ratio is calculated as follows:
Net Sales
Fixed Assets(net)


Particulars 2006-07 2007-08
Net Sales 186540512 134494984
Fixed Assets(net) 16016328 16742494
NS/FA 11.6 8.03

There has been a decline in the Fixed Assets Turnover Ratio. With decline in net sales the ratio has also decreased.


2) Working Capital Turnover Ratio
This ratio indicates whether or not working capital has been effectively utilized in making sales. The ratio is calculated as follows:
Net Sales
Working Capital

Particulars 2006-07 2007-08
Net Sales 186540512 134494984.00
Working Capital 119396572 117423977
NS/WC 1.56 1.14

The ratio is declining. The company is not able to generate as much working capital as desired and the sales of company is also very low.





3) Debtors Turnover Ratio
This ratio indicates the velocity of debt collection of a firm or the number of times the debtors are turned over during a year. It is calculated as:
Credit Sales
Average Accounts Receivable

Particulars 2006-07 2007-08
Credit Sales 186540512 134494984
Average Accounts Receivable 111942570 116062751
CS/AAR 1.20 1.60

Higher the debtors turnover ratio higher the firms liquidity. But here the ratio is increasing which means that the debts are collected promptly but the liquidity position of the company is not sound because ratio is not high.











4) Debt Collection Period Ratio
The ratio indicates the extent to which the debts have been collected in time. It is calculated as:
Months(or days) in a year
Debtors Turnover

Particulars 2006-07 2007-08
Months 12 12
Debtors Turnover 1.6 1.2
M/DT 7.5 10

The ratio is increasing which implies too liberal and inefficient credit collection performance.





5) Creditors Turnover Ratio (Creditors’ Velocity)
It indicates the speed with which the payments for credit purchases are made to the creditors. The ratio can be computed as follows:
Credit Purchases
Average Accounts Payable

Particulars 2006-07 2007-08
Credit Purchases 280575 142737
Average Accounts Payable 24820294 26813457
CP/AAP .011 .005

Low ratio implies that the creditors are not being paid promptly. But the trend here is increasing which shows that company is improving.













6) Stock Turnover Ratio
This ratio indicates whether investment in inventory is efficiently used or not. The ratio is calculated as follows:
Cost of goods sold during the year
Average Inventory

Particulars 2006-07 2007-08
Cost of goods sold during the year 155277484 117874217
Average Inventory 13064239 17820220
CoGS/AI 11.8 6.61

The ratio is declining. A low inventory turnover ratio results in blocking of funds in inventory which may ultimately result in heavy losses due to inventory becoming obsolete or deteriorate in quality.











7) Current Assets Turnover Ratio
This ratio expresses the relationship between current assets and net sales or cost of goods sold. It is expressed as:
Sales/Cost of Goods Sold
Current Assets

Particulars 2006-07 2007-08
Cost of goods sold during the year 155277484 117874217
Current Assets 186540512 149225223
CoGS/CA 0.83 0.78

The ratio is declining. As compared to previous year increment in value of stock is less but the debtors have increased. There have been over investment in current assets.





8) Total Assets Turnover Ratio
This ratio shows the firm’s ability in generating sales from all financial resources committed to total assets. It is expressed as:
Net Sales or Cost of Goods Sold
Total Assets

Particulars 2006-07 2007-08
Cost of goods sold during the year 155277484 117874217
Total Assets 175337045 178960134
CoGS/TA 0.88 0.65

The ratio has declined. A lower total assets turnover ratio indicates that assets are not properly utilized in comparison to sales.











PROFITABILITY RATIO
1) Return on Investment/Return on Capital Employed
It indicates the percentage of return on the total capital employed in the business.
Operating Profit/PBIT * 100
Capital Employeddfgdf

Particulars 2006-07 2007-08
PBIT 6914943 2363521
Capital Employed 107201240 104475655
PBIT/Capital Employed 6.4 2.26

Decrease in ratio implies that the capital of the company is not efficiently utilized.


2) Return on Total Assets
This ratio is computed to know the productivity of the Total Assets. It is calculated as:
(a) NP after Tax * 100
Total Assets

Particulars 2006-07 2007-08
Net Profit after Tax 3399628 2266190
Total Assets 175337045 178960134
NPT/TA 1.93 1.26


Return on total assets is in decreasing state. There has been an increment in total assets but the company is not able to increase its profits.

3) Gross Profit Ratio
This ratio indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm.
Gross Profit * 100
Net Sales

Particulars 2006-07 2007-08
Gross Profit 43008460 29935240
Net Sales 186540512 134494984
GP/NS 23.05 22.25

The GP ratio has decreased. The gross profit of the company has been decreased which may be due to low selling price of the product.





4) Net Profit Ratio
This ratio helps in determining the efficiency with which affairs of the business are being managed.
Net Profit * 100
Net Sales

Particulars 2006-07 2007-08
Net Profit 6914943 2363521
Net Sales 186540512 134494984
OC/NS 3.70 1.75

Decline in this ratio implies net margin earned on sales is low as compared to previous year. Low net profit also indicates inadequate returns to the owners.




























MANAGEMENT OF WORKING CAPITAL

Computation of Operating Cycle

1. Material Storage Period (M) = Average Stock of Raw Materials
Daily Average Consumption

= 11944515 = 32 days
376147
2. Work-in-Progress or Conversion Period (W) = Av. Stock of Work-in-process
Daily Average Production Cost
There is on WIP in the accounts of the company.

3. Finished Goods Storage Period (F) = Average Stock of Finished Goods
Daily Average Cost of Goods Sold

= 17850220 = 53 days
337844

4. Debtors Collection Period (D) = Average Debtors + B/R
Credit sales per day

= 111942569 = 304 days
368479
5. Creditors Payment Period (C) = Average Creditors + B/P
Credit Purchases per day

= 26813457 = 103 days
360423

Operating Cycle Period = M + W + F + D - C
= 32+ 53+ 304 – 103 = 286 days

Number of Operating Cycle per Year = 365 Net Operating Cycle Period

= 365 = 1.276 days
286
Working Capital Required = Total Operating Expenses*
No. of Operating Cycles in a year

= 133363263 = Rs.104498337
1.276
*Total Operating Exp. = Total Cost of Production + Factory & Gen. Exp. + Office Exp .+ Selling & Administrative Exp.
= 123313060+1173823+2788248+6088132 = Rs.133363263









CHAPTER - 5
INTERPRETATION AND RECOMMENDATIONS


INTERPRETATION AND RECOMMENDATIONS
The object of the financial study is to find out the profitability and to provide information regarding the financial position of the firm. Management of working capital is done to know the availability of sufficient funds to run the day-to-day business activities.

The basic financial statements reveal the net effect of the various transactions on the operational and financial position of the firm.

The role of financial analysis has changed radically in recent times. From a near estimation of cost and revenue it has changed to one of active help to management in the discharge of its functions. Financial analysis is at best only for a sort of postmortem of the affairs of the business in the past. What is needed, then, is a constant flow of relevant information, so those problems are satisfactorily solved and action taken.

Being a private concern Laxmi Woollens is answerable to its shareholders as well as government.

Laxmi Woollens is providing valuable information and has built a good relation with its suppliers, customers and lenders. But in the year 2005-06 it is not able to maintain good sales as compared to previous year because of the low selling price of woolen products. The prices are set by the industry. Due to low selling price of the yarn, production as well as the sale of the company was low.

Interpreting the financial position of Laxmi Woollens:-
• IOCL has an aggressive policy of finance assuming other factors constant.
• If there is any increment in sales then also the profits will not be so good because of low and poor leverage.
• Short-term solvency of Laxmi Woollens is stronger as far as liquidity is concerned, as its current ratio and liquid ratio are near to rule of thumb.
• Laxmi Woollens has sufficient funds or liquid assets to finance its operations.
• There is greater blockage of funds in debtors because the debtors are increasing and the collection is still low.
• Stock turnover ratio of the company has gone down which results in blocking of funds in inventory. Laxmi Woollens maintain inventory to meet out the future stock-outs. In year 2005-06 the value of inventory got down due the price trends of the industry.
• Unsecured Loans of the company has increased which result in increment in creditors of the company. Therefore, the creditors turnover ratio is not good.
• Laxmi Woollens lower working capital turnover indicates that the working capital has not been utilized efficiently.
• In management of working capital the material storage period of company is very high as compared to other periods. The company is keeping huge stock of raw materials which can cause loss to company because the stock readily becomes obsolete and with time its quality also starts deteriorating.
• Efforts should be made to reduce the debtors’ collection period so that company has little fear from the risk of bad debts.


RECOMMENDATIOS

• Laxmi Woollens must maintain its present liquidity position and should make efforts to enhance it.
• Laxmi Woollens should have to increase its sales, as its assets turnover ratios are not much satisfactory.
• Laxmi Woollens must control its operating expenses as they lead to the losses.
• Laxmi Woollens should take steps towards efficient utilization of working capital as well as funds available.













BIBLIOGRAPHY
BOOKS
 Principles of Management Accounting by Dr. S.N. Maheshwari
 Research Methodology by C.R. Kothari
REPORTS
 Annual Reports of Laxmi Woollens.
WEBSITES
 http://www.wooltexpro.com/woolindustryprofile.html
 http://woolboard.nic.in/html/iwi.htm








ANNEXURE
BALANCE SHEET OF LAXMI WOOLLEN MILL AS ON 31 MARCH,2008.
PARTICULARS 2007-08 2006-07
Sources of Fund
Partner’s capital
104475655.10
107201240.18

Loan Funds
Secured Loan
Unsecured Loan
90360.31
42592870.66
1663393.35
39400729.6
Total I 147158886.07 148265363.13
Application of Fund
Fixed Assets
16742494
16016328.27

Investment 13036933 12017207
Current Assets, Loans & Advances
Less:- Current Liabilities, Loan & Advances 149180707.23
31801248.16 147303510.38
hjhjhjkh jhjkhjkh hjhjk h jh j hjhjhjhjhj 27071682.52

Total II 147158886.07 148265363.13

DATE: 19.09.2008

PLACE: BIKANER