Final Report

A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL

REFERENCE TO COIMBATORE MURUGAN MILLS, COIMBTORE.

PROJECT REPORT

Submitted by

R.KOKILA

Register No: 108001140021

In partial fulfillment for the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

In

Department of Management Studies

PPG INSTITUTE OF TECHNOLOGY

COIMBATORE -641 035.

JUNE 2012

PPG INSTITUTE OF TECHNOLOGY

COIMBATORE -35

Department of Management Studies

PROJECT WORK

JUNE 2012

This is to certify that the project report entitled

A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL

REFERENCE TO COIMBATORE MURUGAN MILLS, COIMBATORE.

Is the bonafide record of project work done by

R.KOKILA


of MBA during the year of 2010-2012.

---------------- -----------------------------

Project guide Head of the Department

Submitted for the Project Viva-voce examination held on _______

------------------------- ---------------------

Internal examiner External Examiner

DECLERATION

I affirm that the project work titled ‘A STUDY ON WORKING CAPITAL MANAGEMENT

WITH SPECIAL REFERENCE TO COIMBATORE MURUGAN MILLS, COIMBATORE’

being submitted in practical fulfillment for the award of MASTER OF BUSINESS

ADMINISTRATION is the original work carried out by me. It has not formed the part of any

other project work submitted for award of any degree or diploma, either in this any other

university.

(Signature of the candidate)

R.KOKILA


I certify that the declaration made above by the candidate is true.

(Signature of the Guide)

With Name & Designation

ACKNOWLEDGEMENT

My first and foremost acknowledgement is to my beloved Parents who extended all

guidance, encouragements and cooperation throughout my education career.

I would go to my profound gratitude to our Chariman, Dr.L.P.Thangavelu and

Correspondent, Mrs.Shanthi Thangavelu for providing encouragement to undertake this project.

I wish to express my warmest appreciation of the courtesy and assistance, freely given by

the Head of the Department of Department of Management Studies, PPG Institute of

Technology, Mr.T.Devasenathipathi during this period.

I wish to place a record my profound feelings of gratitude to my faculty guide

Mr.S.Rajkumar for his cooperation, valuable guidance and assistance for completing this project

work successfully.

I owe my sincere thanks to the management of Coimbatore Murugan Mills, Coimbatore

for providing me the opportunity to carry out this project study. I also thank all the members of

staff of the organization who cooperated with me for the successful completion of this project.

I wish to express my deep gratitude to all other faculty members of the department.

R.KOKILA


CONTENTSChapter No. Particulars Page No.

List of tablesList of chartsAbstract

IIIIV

11.11.21.31.41.5

Working Capital ManagementIntroduction to the studyKinds of working capitalDeterminants of working capitalAdvantages of working capitalSources of working capital

11456

2

2.12.2

2.32.42.52.6

Industry profile & company profileIndustry profileStructure of Indian textile industryCompany profileHistory of Coimbatore Murugan MillsObjectives of the millProduct profileManufacturing process

79

10111213

3

3.13.23.33.43.53.63.7

Research methodologyResearch designData collectionAnalysis of dataTools for analysisObjectives of the studyLimitations of the studyReview of literature

17171717181819

4

4.14.24.34.4

Analysis and interpretationRatio analysisTrend analysisComparative balance sheetMotaal’s comprehensive test

22576774

5 5.15.25.3

Findings and suggestionsFindingsSuggestionsConclusions

767879

6 AppendicesBibliography 80

LIST OF TABLES

Table no Description /Name of the table Page No.

1Current ratio

24

2Liquid ratio 26

3Absolute Liquid ratio 28

4Inventory turnover ratio 30

5Debtors turnover ratio 32

6Creditors turnover ratio 34

7Working capital turnover ratio 36

8Fixed assets turnover ratio 38

9Total assets turnover ratio 40

10Gross profit ratio 42

11Net profit ratio 44

12Expenses ratio 46

13Return on share holders investment ratio 48

14Return on equity capital 50

15Fixed assets to net worth ratio 52

16Current assets to proprietors fund 54

17Proprietory ratio 56

18Sales percentage 58

19Inventory percentage 59

20Sundry debtors percentage 60

21 Bank loans percentage 61

22Fixed assets percentage 62

23Loans & advances percentage

63

24 Cash & bank balance percentage 64

25 Current liabilities percentage 65

26 Current assets percentage 66

27 Comparative balance sheet 2007-2008 68



30 Motaal’s comprehensive test 75

LIST OF CHARTS

Chart no. Description/name of the chart Page no.

1 Current ratio 24

2 Liquid ratio 26

3 Absolute liquid ratio 28

4 Inventory turnover ratio 30

5 Debtors turnover ratio 32

6 Creditors turnover ratio 34

7 Working capital turnover ratio 36

8 Fixed assets turnover ratio 38

9 Total assets turnover ratio 40

10 Gross profit ratio 42

11 Net profit ratio 44

12 Expenses ratio 46

13 Return on share holders investment ratio 48

14 Return on equity capital 50

15 Fixed assets to networth 52

16 Current assets to proprietors fund 54

17 Proprietory fund ratio 56

18 Sales percentage 58

19 Inventory percentage 59

20 Sundry debtors percentage 60

21 Bank loans percentage 61

22 Fixed assets percentage 62

23 Loans & advances percentage 63

24 Cash & bank balance percentage 64

25 Current liabilities percentage 65

26 Current assets percentage 66

ABSTRACT

In partial fulfillment of the requirements for Master degree in Business Administration,

researcher has undertaken a project work titled “A study on working capital management with

special reference to Coimbatore Murugan Mills, Coimbatore”.

The present study deals with to know how efficiently the Working Capital is managed in

the company as it is the key and significant part of the every business.

The study was designed in analytical in nature. The sources of data for the study are

primary data and secondary data. Primary data collected through discussions with the staffs of

the Mill and secondary data in the form of annual reports and reports. The data analyses through

1] Ratio Analysis

2] Trend Analysis

3] Comparative balance sheet

4] Motaal’s comprehensive test

The project was focused on making a financial overview of the company by conducting a

Working Capital Management analysis of Coimbatore Murugan Mills,for the years 2007 to

2011.The working capital management refers to the management of working capital, or

precisely to the management of current assets. A firm’s working capital consists of its

investments in current assets, which includes short-term assets— cash and bank balance, inventories,

receivable and marketable securities. This project tries to evaluate how the management of working capital is done

in Coimbatore Murugan Mills.

CHAPTER-I

INTRODUCTION

1.1 INTRODUCTION TO THE STUDY

Finance is an important function of any business, as money is required to meet the

various activities of it. It has given birth to “Financial Management” as a separate subject. The

subject is of recent origin. It draws heavily on “Economics” for its theoretical concepts. In the

early half of the 20th century the job of financial management was largely confined to the

acquisition of funds. But as business firms continued to expand their markets and became larger

and more diversified, greater control of financial operation became highly essential. Thus the

scope of financial management is very wide and it is not merely restricted to raising of capital. It

also covers other aspects of financing such as assessing the needs of capital, raising sufficient

amount of funds, cost of financing, budgeting, maintaining liquidity, lending and borrowing

policies, dividend policy, and so on.

WORKING CAPITAL MANAGEMENT

Working capital may be regarded as the lifeblood of business. It inefficient

management can lead not only to loss of profit but also to the downfall of business. Every

business needs funds for two purposes. Long term funds are required to create production

facilities through purchase of fixed assets, such as plant, machinery, land, building etc, funds are

also needed for short term purpose for the purchase of raw materials, payment of wages and

other day to day expense etc. These funds are also known as working capital. Working capital is

also revolving or circulating capital or short-term capital.

1.2 KINDS OF WORKING CAPITAL

Working capital may be classified into two ways:

On the basis of concepts

On the basis of time

GROSS WORKING CAPITAL

It represents the amount of funds invested in current assets. Thus, working capital is the

capital invested in the total current assets of the gross. Current assets are those assets which in

the ordinary course of business can be converted into cash within a short period of normally one

accounting year.

NET WORKING CAPITAL

It is the excess of current assets over current liabilities. Net working capital may be

positive or negative. When the current assets exceed the current liabilities the working capital is

positive & the negative working capital results when the current liabilities are more than the

current assets. Current liabilities are those liabilities which are intended to be paid in the ordinary

course of business within the short period of normally one accounting year out of the current

assets or the income of the business.

PERMANENT OR FIXED WORKING CAPITAL

It is the minimum amount which is required to ensure effective utilization of fixed

facilities & for maintaining the circulation of current assets. There is always a minimum level of

current assets which is continuously required by the enterprise to carry out its normal business

operations. The minimum level of current assets is called fixed or permanent working capital as

this part of working capital is permanently blocked in current assets.

REGULAR WORKING CAPITAL

It is the minimum amount of working capital required to ensure circulation of current

assets.

RESERVE WORKING CAPITAL

It is the excess amount over the requirement for regular working capital, which may be

provided for contingencies that may arise at unstated periods such as strikes, rise in price etc.

TEMPORARY OR VARIABLE WORKING CAPITAL

It is that amount of working capital which is required to meet the seasonal demand &

some special exigencies. Variable working capital can further be classified as seasonal working

capital & special working capital.

SEASONAL WORKING CAPITAL

It is the capital required to meet the seasonal needs of the enterprise.

SPECIAL WORKING CAPITAL

It is required to meet special exigencies such as launching of extensive marketing

campaigns for conducting research etc.

1.3 FACTORS DETERMINING THE WORKING CAPITAL

Determination of working capital requirements is not so easy because it requires careful

analysis of various factors. Some importance factors, which influence working capital, are given

below.

1. Nature of Business

Working capital requirement is considerably influenced by the nature of business.

Trading, manufacturing, publicity service requires more, moderate less working capital

respectively.

2. Volume of Business

For a small-scale business the working capital requirement is less whereas for large scale

operation the working capital requirement is more.

3. Length of Manufacturing Process

It is the gap between the input of raw materials and output of finished goods. Longer the

length of manufacturing cycle, working capital requirement is more and vice versa.

4. Condition of supply of raw materials

Regular supply of raw materials reduces the working capital Requirement and irregular

supply increases the working capital requirement.

5. Speed and stock turnover

If the inventory or stock turnover is high the working capital requirement is less and vice

versa.

6. Market conditions

If the degree of competition is more, credit terms are to be extended; the requirement of

working capital will be more if the degree competition is less working capital requirement is also

less.

1.4 ADVANTAGES OF ADEQUATE WORKING CAPITAL

1. It helps for continuous supply of raw materials, which leads for uninterrupted

production

2. It helps for prompt payment of wages, salaries and other day-to-day expenses and

it also increase the goodwill of the firm

3. It helps to utilize the favorable market conditions i.e., by purchasing in bulk at

cheaper price

4. It helps for reduction of cost i.e. ,purchase at cheaper rate reduces the cost of

production

5. It helps for maintaining the solvency of business

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

The importance of working capital management can be judged from the following facts.

1. There is direct and positive correlation between Sales and working capital needs of the

firm. An increase in the sale of product requires a corresponding increase in current assets.

Hence current assets are to be managed properly and efficiently.

2. Fixed assets can be required on lease but there is no alternative for current assets.

Investment in current assets can in no way be avoided.

3. Working capital needs are generally financed through outside sources. So continuous care

is necessary to utilize them in the best way.

1.5 SOURCES OF WORKING CAPITAL

The financial managers are always interested in obtaining the working capital at the right

time, at a reasonable cost and at the best favorable terms. A part of the working capital

investment is permanent investment in fixed asset. The valuable source of working capital

available to a firm is:

Source of Working Capital

Short Term SourceLong Term Source

1. Issue of share.

2. Issue of debentures

3. Retained earnings

4. Sale of fixed assets

5. Security from employee and from customers.

6. Term loans.

1. Depreciation of funds.

2. Provision for taxation.

3. Accrued expenses.

4. Customer credit.

1. Trade credit.

2. Credit paper.

3. Bank credit.

4. Public deposits.

5. Government assistance

.

CHAPTER-II

INDUSTRY PROFILE AND COMPANY PROFILE

2.1 INDUSTRY PROFILE

A short History of Textile Industry in India

1700- Cotton buying and selling from Mumbai to china

1853- Rail link to Thana

1854- Mumbai gets its first mill referred to as Bombay Spinning Mill famous for

Producing cotton textile to be exported to Britain.

1870- There were about 13 mills

1875- Total count of mills in Mumbai was about 70

1915-Total count of mills in Mumbai goes up to 138

1982- About 2.5 lacks mill employees went on work stoppage opposed to Bombay Mill

Owner Association demanding wage increase.

1991- State government announced Development Control Rule 58 which Confirmed, mill

Lands could be sold to others with some terms and conditions applied

2005- National Textile Corporation (NTC) who owned 25 mills in the city started selling few

Mills to private businesses.

2006- NTC made decision to start 3 of the old mills.

Textile mill

A textile mill is a factory producing textiles of one or more kinds. Types include:

1. Cotton mill

2. Silk mill

3. Mill for spinning worsted yarn.

Textile refers to a flexible material comprising of a network of natural or artificial fibers

known as yarn. Textiles are formed after the process of spinning, weaving, knitting, crocheting,

knotting and pressing fibers together. Textile mill refers to manufacturing plants for making

textile fabric and products. Textile mill industry is one of the largest industries in India textile

mill industries went through a process of phenomenal growth for the past four decades.

A factory in which woven fabrics are manufactured, many early mills were located near a

source of power for operating the machinery; most were of timber construction and in constant

danger of being consumed by fire. In 1832, a significant advance in fire safety occurred with the

construction of a mill in Rhode Island that was especially designed to resist fire (and to burn

slowly if ignited) by using thick floor planking by minimizing the number of timber beams and

by maximizing the cross sectional area of each beam. These design criteria, are widely applied

and greatly improved in the fire safety of the mills.

Few leading Indian textile mills

1. Adarsh textile mill- manufacturer and exporter of good quality woolen and synthetic

Blankets.

2. Amritsar swadeshi woolen mill- pioneer in manufacturing the heavy woolen yarn and

Largest manufacture of fabric.

3. Aroon mill- manufacturer of textile auxiliaries

4. Mohan thread mill- manufacturer of high quality embroidery yarn and threads.

2.2 Structure of the Indian textile industry

The textile sector in India is one of the worlds largest. The textile industry today is

divided into three segments:

1. Cotton textiles

2. Synthetic textiles

3. Other textiles like wool, silk and jute etc.

All segments have their own place but today cotton textile continue to dominate with

73% share. The structure of cotton textile industry is very complex with co- existence of oldest

technologies of hand spinning and hand weaving with the most sophisticated automatic spindles

and looms. The structure of the textile industry is extremely complex with the modern,

sophisticated and highly mechanized mill sector on one hand spinning and hand

weaving(handloom sector) on the other which in between falls the decentralized small scale

power loom sector.

Conditions in the Indian textile mills

For the past few years the sickness and consequent closure of textile mills has been a

matter of great concern in our country. The primary reasons behind this are:

1. The sickness is due to inadequate structural transformation leading to composite units losing

ground to specialized units.

2. Power looms in decentralized sector have greater cost effectiveness than the composite units.

3. Low productivity due to lack of adequate modernization.

4. Stagnation in demand for traditional products. Inability to produce newer products as per

market requirements

5. Increase in cost of inputs

6. Inadequate working capital.

COMPANY PROFILE

Coimbatore Murugan Mills,Coimbatore.

(A unit of National Textile Corporation Ltd, New Delhi.)

2.3 History of Coimbatore Murugan Mills, Coimbatore

CMM was established in the year 1936 by Angappa chettiyar with a spindle age of

11480. Sakomoto Automatic Looms were added during the 1952. The mill was making good

progress until it was caught in the vicious cycle of higher Raw Material Cost, Lower Yarn Prices

and higher cost of Production resulting in huge loss. Continuous losses are the main reasons of

closure of the mills in the year 1968. The mill remained closed for 3 year from May 1968 and it

was taken over by the government of Tamil Nadu with effect from 1971 under Industrial

development and regulation Act, 1951. Subsequently, the mill was nationalized under the sick

textile undertaking (Nationalization) Act 1974 and became one of the units of National Textile

Corporation Limited, New Delhi. This is the only composite mill in Tamil Nadu which is having

Spinning and Weaving. The progress of the unit since nationalization in different spheres is

enumerated. The mill is running with 3 shift based. The mill provide the economic and

facilitating benefits to the employee like Canteen, ESI, PF, Medical benefits, Insurance.

The mills have obtained ISO 9001-2000 certification from TUV RHEINLAND (INDIA)

Pvt Limited, during the year 2004. The well trained employee alone permitted to operate the

machinery. The installed capacity of spindles at the time of Nationalization was 28680 and all

these spindles were renovated under the approved modernization scheme. Were during the

beginning stage of mill totally 1500employees worked, after Modernization it reduced to 500.

The installed capacity of looms machines are import from Japan, Germany, Belgium. The mills

have adequate self- generating capacity to the tune of 2720 KVA to meet out power requirement

to the extent of 100% and hence achievement of maximum utilization is possible even during

100% power-cut. The mill which was once considered a sick mill has now recovered from the

initial sickness and poised for growth. Coimbatore Murugan mill is a composite textile mill

situated in Mettupalayam Road Coimbatore. The labor strength of this mill is 674 workers.

2.4 Objectives of the company

To provide employment to thousands of workers who were rendered of

unemployed due to the closure of the textile mills.

Reorganize and rehabilitees such undertaking with a view to protect the interest

of the general public.

Augmentation of production of different varieties of yarn and cloth

Distributors of the yarn and cloth at fair prices to consumers power loom

manufactures defence personnel and uniform materials to employees of other

public sector units.

National textile corporation ltd. (NTC)

National textile corporation (NTC) is the single largest textile central public sector and

enterprise under ministry of textiles managing 52 textile mill through its subsidiary companies

spread all over India. The headquarters of the holding company is at New Delhi. The strength of

the group is around 22,000 employees. The annual turnover of the company in the year 2004-05

was approximately Rs. 638 crores. NTC is modernizing 22mill with the latest state of art

technology on its own. As on 30-09-2007 there are 16,818 employed in 52 textile mill (after

closure of 67mills), with 9.55lakh spindles, 577 looms producing 400lakh kgs of yarn and

185lakh meters of cloth annually. So far 55,642 employees have opted for voluntary retirement

under the Modified Voluntary Retirement Scheme (MVRS) and Rs.1951.13crores have been

paid as VRS compensation to all the employees of closed unviable mill and surplus employees of

viable mill. As per the approved Modified Voluntary Retirement Scheme, the total cost of

modernization of 22 mills was estimated at Rs. 530crores. Out of these 22 mill modernization

Scheme is being implemented in 15 mills.

2.5 PRODUCT PROFILE

100% Cotton Yarn

Cotton is a soft, staple fiber that grows in a form known as a boll around the seeds of the

cotton plant, a shrub native to the tropical and subtropical regions of Europe and America. The

fiber is not spun into thread and used to make a soft, absorbent and breathable textile used for

making clothing, sheets and towel. Each fiber is made up of twenty to thirty layers of cellulose

coiled in a neat series of natural springs. This interlocked form is ideal for spinning it into a fine

year. Cotton is used to make a number of textile products. These include terrycloth, used to make

highly absorbent bath towels and robes; denim, used to make blue jeans; chambray, popularly

used in the manufacture of blue work shirts (from which we get the term “blue – collar”); and

corduroy, seersucker, and cotton twill. Socks, underwear, and most T-shirts are made from

cotton. Bed sheets often as made from cotton. Cotton also is used to make yarn used in crochet

and knitting. Count Range: Ne 2/1 to Ne 140/1, in single, double and multiple ply.

Grey Fabric

Fabric or cloth is a flexible artificial material that is made by a network of natural or

artificial fibers. The example is tread or yarn which is formed by weaving or knitting as in

textiles. Cloth is mostly used in the manufacturing of clothing and household furnishing etc.

Cloth is made in many varying strengths and degrees of durability, from the finest gossamer

fabrics to study canvas sail cloths. Fabric has several definitions. Some of them are discussed

below.

Due to its cost effectiveness, exquisiteness and longevity, grey fabric has been widely

used for cloth manufacturing. Uniquely woven grey fabric has become increasingly popular in

appreciation of increased market demand. Clothes made out of grey fabric can simply be termed

as stunning in each and every aspect. Showcasing immense aesthetics and revealing a tendency

of glamour, clothes made using grey fabric are ruling the international market.

100% Polyester

It is a type of fabric which is a synthetic, man-made fiber produced. Some of its features

crease resistance, ability to dry quickly, shape retention in garments, high strength, abrasion

resistance, and minimum care requirement. It is very important fiber in upholstery fabrics, which

is often used in warps due to its strength and inexpensiveness.

Polyester is a durable, easy-care synthetic fabric made from petroleum by products. It can

be manufactured in variety of weights and textures. Polyester is used for a wide range of

applications, including clothing, home furnishings and industrial fabrics. Application: Knitting,

weaving and sewing yarns. Count Range: Ne 6/1 to Ne 80/1 in single double and multiple ply.

Polyester Cotton Blend

For satisfactory was and wear purposes, fabrics for rainwear, tailored clothing, dress

shirts, and sport shirts usually have a blended of at least 65 percent polyester with the cotton.

Polyester will provide wrinkle resistance and shape retention. Cotton will provide absorbency

and consequent comfort.

However, unless properly constructed and properly cared for, a fabric of a polyester and

cotton blend may pucker and lose its shape if the cotton should shrink or if cotton thread is used

in sewing. Polyester and cotton blends are well suited for fabrics to be given a permanent press

resin finish.

Where greater absorbency and softer hand are desired, a 50/50 blend is preferable, but

there will be a corresponding strength loss of as much as 20 percent as well as a slight loss in

resilience. A 50/50 blend of polyester and cotton is also satisfactory for effective permanent

press finishes. On the other hand, blends of as much as 80/20 of polyester and cotton,

respectively, will have a somewhat stiffer, slicker hand. Strength, wrinkle resistance, and shape

retention will be increased but absorbency will be reduced.

2.6 Manufacturing Process

Spinning process

Mixing

Cottons of different varieties in different proportion are hand opened and laid into

different layers according to the quality of cotton and depending on the end use ( yarn quality

requirement). In best varieties of there will be a lot o differences, in the quality within cotton

bale a well as from bale to bale in lot of cotton. Hence it is the practice to mix several bale,

before feeding it to the blow room.

Blow room

The cotton is well opened and cleaned to remove the foreign matter such as seed, its, leaf

bits etc., and a thin uniform sheet of 40 ° width and rolled in length of about 40 meters known as

Lap. It is a machine which is used to clean and improve the cotton and it gives the output in the

lap form.

Carding

The laps received from Blow Room is further opened and cleaned and a clean rope like

material, known as card Silver is produced and stored in cans. Before the raw stock can be made

into yarn, the remaining impurities must be disentangled and they must be straightened. This is

necessary for all staple fibers; otherwise it would be impossible to produce fine yarns from what

is originally a tangled mass.

Combing

It is an optional special process to remove short fibers, neps etc, from the card silver to

improve the quality of yarn in order to produce combed yarn. The machine which converts lap

form into silver form is known as combing. It is an optional special process to remove short

fibers, neps, etc, from the card silver to improve the quality of yarn in order to produce combed

yarn. In this operation, fine combs continue straightening the fibers until they are arranged with

such a high degree of parallelism that short fibers called noils are combed out and completely

separated from the long fiber.

Drawing

The card silvers or combed silvers (8 to 8 nos) are passed through this machine to make

the fibers in the silver parallel and more even, in order to improve the quality of yarn. The

combining of several slivers for drawing or drafting, process eliminates irregularities that would

cause too much variation if the silvers were put through singly.

Simplex

The drawing silver is thinned and made to a strand of required size known as ROVE and

wound into bobbins of 1 to 1.5 kg weight. The thinning process is known as drafting. These

bobbins are placed on the placed on the roving frame, where further drawing out and twisting

take places until the cotton stock is about the diameter of a pencil lead. Roving is the final

product of several drawing out operations.

Spinning

The roving bobbins received from the simplex is fed in Ring Spinning frames where the

material is further thinned down, twisted and yarn is formed which is wound on small cops of 50

to 60 gms. The roving on bobbins is placed in the spinning frame, where it passes through

several sets of rollers running at successively higher rates of speed and is finally drawn out to

yarn of the size desired. Spinning machines are of two kinds: ring frame and mule frame. The

ring frame is faster process but produces a relatively coarse yarn. For very fine yarns, such as

worsted yarn, the mule frame is required because of its slow intermittent operation. The ring

spinning frame completes the manufacture of yarn

Cone winding

The yarn in small cops is wound into bigger packages known as cones of required weight

(1.25kg) after cleaning the impurities from Ring Spinning Yarn.

Weaving process

Warping

Warping is the initial process of weaving; it helps to improve the cotton quality. Warping

contain covert the more than 500 cones into one babin with the help of warping machine. The

warping Machines are having the various forms like 450 cones, 500 cones, and 750 cones

converter.

Sizing

Sizing is the process of improve the cotton threat quality with the help of starch and

straighten. The starching is helps to improve the threat straightness and it dry. Finally the threats

are fold into babin again.

Weaving

Weaving is the process of weave the threat into cloth from the looms. The loom machines

are available at two types there are: automatic looms and hand loom machines. The automatic

looms are not having the human need while the looms are broken but in hand loom machines are

need the human while broken the looms to rectify the looms broken.

CHAPTER-III

RESEARCH METHODOLOGY

3.1 Research design

The research design is a pattern or an outline of research project working. It is a

statement of only essential elements of study, those that provide basic guidelines for the details

of the project. The present study is being conducted followed by analytical Research Design.

3.2 Data Collection

Primary as well as secondary data is used for the project. The research vehicle for

primary data collection is unstructured interview with the managers to get information regarding

all variables for working capital management.

Secondary data is collected from Annual Report, relevant files & records of Coimbatore

Murugan Mills,Coimbatore.

3.3 Analysis of Data

The information gathered are the policies & practices regarding management of the

working capital. Analysis is done in terms of theoretical concepts. Analysis of working capital

performance is done with the help of percentages by showing graphs, ratios etc.

3.4 Tools for analysis

The main tools and techniques used were:-

Ratio Analysis,

Trend analysis

Comparitive balance sheet

Motaal’s comprehensive test

It is found that liquidity position and debtor’s collection of the company was satisfactory

and the working capital requirement of the company was increasing which showed the firm is

expanding its activities.

3.5 Objectives of the study

Working capital management is very important in modern business. Analysis and

interpretation of financial statement and working capital is very useful for short-term

management of funds. The following are the main objectives of the study:

1. To analyze and evaluate liquidity position of the company.

2. To analyze the components of working capital of the company.

3. To assess the impact of working capital on profitability.

4. To determine the amount of working capital of the company for another two

years.

5. To understand the solvency position of the company.

3.6 Limitations of the study

The study is restricted for a period of two months.

Due to inadequate time it is not possible to analyze all aspects relevant to the study.

The findings of the study cannot be generalized.

The analysis is based on annual reports of the company.

3.7 Review Of Literature

Cherian Joseph (1998) conducted “A study on Working Capital Management in

textile industry in India under taken by Cherian Joseph for a period of ten years from 1978

– 1988”. The objective of the study was to find the structure and utilizations of Working Capital

in textile mills around twenty mills were taken for study. The conclusion was it blocked amount

of cash in current asset was utilized at right time to purchase the inventory shortage won’t affect

the day to day production process will increase the profit and reduced risk in 1978 -1987.

N.Nandhini (1997) in her study attempted to analyze the working capital management

in Siv industries Ltd., Coimbatore”. The main objectives of the study were to analyze the

liquidity position of the company, to find out the management of each component of working

capital in respect of inventories, receivables and cash balance. The major findings of the study

were the return on capital of the company was satisfactory. The decreasing Working Capital ratio

indicates the effective utilization funds.

Santhosh. K (2000) attempted to analyze the “Working Capital Management of

Hosiery Industries of Tirupur Knitting Units”. The major findings of the unit were as follows.

They are the current ratio of those companies stood below the standard norm 2:1. The quick ratio

was also not satisfying the norm. The cash and bank balance of those companies were very

meager. The Working Capital of the two companies was very low and another stands low during

his study period.

Byju. V.T (2002) made an analysis of “Working Capital Management with special

reference to Elgi Ltd.” for the period of six years from 1995-1996 to 2000-2001 with the

following objectives. To evaluate and compare the inventory receivables and cash management

performance of the company. The major findings from his analysis say that in the year 1995-

1996, the Working Capital was effectively used and overall it is satisfactory.

Anisha Lashmy Sam. K.A (2003) made “A study on the Working Capital

Management with reference to Steel Industries Kerala Ltd.” from 1997-1998 to 2001-2002.

The objective of the study was to analyze and evaluate the Working Capital Management. The

conclusion from his analysis is Working Capital Management was very poor and below average.

R.Swaminathan (1998) made “A study on Working Capital Management of the

Lakshmi Mills Company Limited, Coimbatore” for the period of six years from 1990-91 to

1995-96. The main objectives of the study were to examine the impact of Working Capital on

liquidity and profitability of the company. It is found that liquidity position, debtors collection of

the company was satisfactory, and the working capital requirement of the company was

increasing which showed the firm is expanding its activities.

B. Uma Maheshwari (1996-1997) made “A study on Working Capital Management

in Raja Lakshmi Mills” for a period of ten years from 1996-1997 to 1999-2000. The tools and

techniques of ratio analysis and least square test are used to know the Working Capital

forecasting of Raja Lakshmi Mills.. He suggested that the mill have to reduce its investment in

receivables as well as inventories.

Hema Priya (1998) made “A study on Working Capital Management of M/s.Veejay

Lakshmi Engineering Company” for a period of nine years from 1988-89 to 1996-97 with the

objective of examining the solvency position, profitability, to measure the efficiency and

performance and to analyze the source and uses of the funds of the company. The study found

that the solvency position was better in the year 1992 and during the last three years, the

company had enjoyed payment period for creditors and it did not find any difficulty in collecting

the debts from the customer.

Amit .K. Mallik, Debasish Sur (1999) made a case study on “Working Capital

Management of Hindustan Lever Limited” for the period of ten years from 1987-1996. For

the analysis of the data, ratio analysis, simple mathematical tools like percentages, averages etc.,

and statistical techniques like Pearson’s simple correlation analysis, Spearman’s rank correlation

analysis, and multiple regression analysis were used. The general performance regarding the

Working Capital Management in HLL was very much encouraging during the study period.

Vijayakumar and A. Venkatachalam (1996) in the study made an attempt to

“Estimate the demand for working capital in Private Sector Sugar Industries of Tamil

Nadu”. This study is attempted to measure the performance of Working Capital with reference

to Sri Sarada Mills, Coimbatore. The regression results of the study suggested strongly that the

demand for working capital and their hiding costs. The coefficients are also highly significant.

Kent John Chabotar(1989),Financial Ratio Analysis Comes to Nonprofits. To

evaluate their financial health, a growing number of colleges, universities, and other non-profit

organizations are using financial ratio analysis, a technique used in business for many years.

Primarily through a review of the literature and a case study, this article assesses the strengths

and weaknesses of ratio analysis and suggests how nonprofits can use it most effectively.

Marc Orlitzky,Frank L. Schmidt,Sara L. Rynes(2003), Corporate Social And

Financial Performance. Most theorizing on the relationship between corporate

social/environmental performances (CSP) and corporate financial performance (CFP) assumes

that the current evidence is too fractured or too variable to draw any generalizable conclusions.

This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP

relationship than is currently assumed to exist by many business scholars.

Doron Nissim and Stephen H. Penman (2001), Ratio Analysis and Equity Valuation.

Financial statement analysis has traditionally been seen as part of the fundamental analysis

required for equity valuation. To provide historical benchmarks for forecasting, typical values for

ratios are documented for the period 1963–1999, along with their cross-sectional variation and

correlation.

Michael J. Peel,Nicholas Wilson(1996),Working Capital and Financial Management

Practices in the Small Firm Sector . In general, the results of the survey indicated that a

relatively high proportion of small firms in the sample claimed to use quantitative capital

budgeting and working capital techniques and to review various aspects of their companies'

working capital.

Shin H.-H., Soenen L., (1998), Efficiency of Working Capital Management and

Corporate Profitability. Investigates the relationship between the firm's efficiency of working

capital management and its profitability. Background on efficient working capital; Measures of

working capital management efficiency; Association between the net trade cycle and corporate

profitability.

http://isb.sagepub.com/search?author1=Nicholas+Wilson&sortspec=date&submit=Submit

http://isb.sagepub.com/search?author1=Michael+J.+Peel&sortspec=date&submit=Submit

http://www.springerlink.com/content/?Author=Stephen+H.+Penman

http://www.springerlink.com/content/?Author=Doron+Nissim

http://oss.sagepub.com/search?author1=Sara+L.+Rynes&sortspec=date&submit=Submit

http://oss.sagepub.com/search?author1=Frank+L.+Schmidt&sortspec=date&submit=Submit

http://oss.sagepub.com/search?author1=Marc+Orlitzky&sortspec=date&submit=Submit

CHAPTER-IV

ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS

Ratio analysis is widely used tool for financial analysis. It is defined as the systematic use

of ratio to interpret the financial statements so that the strengths and weakness of a firm as well

as its historical performance and current financial condition can be determined. The term ratio

refers to the numerical or quantitative relationship between two items.

DEFINITION

According to Kennedy, ratio may be defined as “the indicated quotient of two

mathematical expressions and as the relationship between two or more things”

TYPES OF RATIOS

Financial ratios are useful indicators of a firm's performance and financial situation.

Financial ratios can be used to analyze trends and to compare the firm's financials to those of

other firms. In some cases, ratio analysis can predict future bankruptcy. The following types of

ratios frequently are used:

Liquidity ratio

Activity ratio

Solvency ratio

Profitability ratios

LIQUIDITY RATIOS

Liquidity ratios provide information about a firm's ability to meet its short-term financial

obligations. They are of particular interest to those extending short-term credit to the firm.

Current ratio

Quick or Liquid ratio

Absolute liquid ratio.

CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current

liabilities. This ratio is the One of the most universally known ratios, which reflects the Working

Capital situation, indicates the ability of a company to pay its short-term creditors from the

realization of its current assets and without having to resort to selling its fixed assets to do so.

A ratio equal or near to the rule of thumb of 2:1, that is current assets double the current

liabilities is considered as satisfactory.

Current Assets

Current Ratio = ----------------------

Current Liabilities

TABLE NO: 1

TABLE SHOWING CURRENT RATIO

Year Current Assets Current Liabilities Ratio

2007 245912771.4 137200613.1 1.79

2008 266774351.9 138652496.2 1.92

2009 232646852 152522085.8 1.53

2010 313558130.2 158368476.4 1.98

2011 446152569.2 360867293.6 1.24

Arithmetic Mean 1.69

(Source: Annual Reports)

The current ratio of the Murugan Mills in the year 2007,2008,2009,2010 is more than

1.50. It is less than the standard norm of 2:1; this shows that the mill’s liquidity position is not

good. In the year 2011 the current ratio was not satisfactory in the mill because it was too low

compare to previous years.

CHART NO: 1

CHART SHOWING CURRENT RATIO

LIQUID RATIO

This ratio indicates the ability of a company to pay its debts as they fall due. It is

generally considered a more accurate assessment of a company's financial health than the current

ratio as it excludes stock, thus reducing the risk of relying on a ratio that may include slow

moving or redundant stock. The liquid assets are bills receivable, sundry debtors, marketable

securities and the short term or temporary investments.

Liquid or Quick assets

Liquid ratio = -------------------------------

Current liabilities

The rule of thumb for liquid ratio is 1:1, that is Liquid assets equal to the current

liabilities is considered as satisfactory.

TABLE NO: 2

TABLE SHOWING LIQUID RATIO

Year Quick Assets Current Liabilities Ratio

2007 87610322.43 137200613.1 0.64

2008 139879453.1 138652496.2 1.01

2009 87602892.79 152522085.8 0.57

2010 88622542.38 158368476.4 0.56

2011 74579547.73 360867293.6 0.21



In the year 2008 the liquid of the company is equal to the rule of thumb that is 1:1, so the

liquid ratio was satisfactory in this year. In 2007,2009,2010,2011 the liquid ratio was not

satisfactory in the mill because it is less than the standard norm.

CHART NO: 2

CHART SHOWING LIQUID RATIO

ABSOLUTE LIQUID RATIO

Absolute liquid assets exclude sundry debtors from liquid assets it includes cash in hand,

cash at bank and short term investments.

Absolute liquid assets

Absolute liquid ratio = ------------------------------

Current liabilities

The standard norm of this ratio is 0.5:1 that is double the Current liability than Absolute

liquid assets.

TABLE NO: 3

TABLE SHOWING ABSOLUTE LIQUID RATIO

Year Absolute Liquid Assets Current Liabilities Ratio

2007 5866874.49 137200613.1 0.04

2008 35446357.15 138652496.2 0.26

2009 3469216.9 152522085.8 0.02

2010 6809474.76 158368476.4 0.04

2011 1502516.14 360867293.6 0.00



The standard norm of this ratio is 0.5:1, in the year 2008 it was nearer to the standard

norm so it was satisfactory. In the other years 2007, 2009, 2010 and in 2011 the ratio was not

satisfactory in the mill.

CHART NO: 3

CHART SHOWING ABSOLUTE LIQUID RATIO

ACTIVITY RATIOS OR TURNOVER RATIOS

Activity ratios measure the effectiveness of the firm’s use of resources or assets. These

ratios are also called as turn over ratios because they indicate the speed with assets are converted

or turned into sales. The various types of activity ratios are:

Inventory/ stock turnover ratio

Debtors turnover ratio

Creditors turnover ratio

Working capital turnover ratio

Fixed assets turnover ratio

Total assets turnover ratio

INVENTORY TURN OVER RATIO

This ratio indicates the number of times stock is turned over during a year. The high

ratio indicates quick movement of stock and vice versa.

Cost of goods sold

Inventory turnover ratio = -------------------------

Average inventory

Usually high inventory turnover ratio indicates the efficient management of inventory

because more frequently the stocks are sold; the lesser amount of money is required to finance

the inventory.

TABLE NO: 4

TABLE SHOWING INVENTORY TURN OVER RATIO

Year Cost Of Goods Sold Average Inventory Ratio

2007 348790279.5 118682914.5 2.94

2008 339755870.2 110576719.6 3.07

2009 314931857.5 118890973.5 2.65

2010 543137730.1 125599392.1 4.32

2011 413379369.1 200261287.1 2.06



The inventory turnover ratio was high in the years 2010, 2008 this shows

that the sales are great extent than the stock. In the years 2007, 2009 and 2011 the ratio was not

satisfactory.

CHART NO: 4

CHART SHOWING INVENTORY TURNOVER RATIO

DEBTORS TURNOVER RATIO

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple words,

it indicates the number of times average debtor’s are turned over during a year.

Net annual credit sales

Debtors Turnover Ratio = -------------------------------

Average trade debtor’s

Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times

the debtors are turned over a year. The higher the value of debtors turnover the more efficient is

the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio

implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the

time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to

interpret the ratio as it may be different from firm to firm.

TABLE NO: 5

TABLE SHOWING DEBTOR’S TURNOVER RATIO

Year Net Annual Credit Sales Average Trade Debtors Ratio

2007 292086224.1 81743447.94 3.57

2008 302330088.1 104433096 2.89

2009 270834342.8 84133675.89 3.22

2010 500281853.3 81813067.62 6.11

2011 336804641.4 73077031.59 4.61



This table shows the fluctuating trend in debtor’s turnover ratio. In the year 2010 the

debtor’s turnover ratio was high; in 2011, 2007 and 2009 it was decreased. The ratio was very

low in the year 2008. This shows the firm has very less chance for bad debts.

CHART NO: 5

CHART SHOWING DEBTOR’S TURNOVER RATIO

CREDITORS TURNOVER RATIO

Creditors turnover ratio is used to find out how much time the firm is taken to repay its

trade creditors.

Net Credit Annual Purchases

Trade creditors = -----------------------------------------

Average Trade Creditors

This ratio shows, on an average, the number of times creditors are turned over during a

year. A higher ratio indicates quick settlement of dues and lower ratio reflects liberal credit terms

granted by suppliers. The average payment period ratio represents the number of days by the

firm to pay its creditors. A high creditor’s turnover ratio or a lower credit period ratio signifies

that the creditors are being paid promptly. This situation enhances the credit worthiness of the

company. However a very favorable ratio to this effect also shows that the business is not taking

the full advantage of credit facilities allowed by the creditors.

TABLE NO: 6

TABLE SHOWING CREDITORS TURNOVER RATIO

Year

Net Annual Credit

Purchases Average Trade Creditors Ratio

2007 67180430.41 44417051.83 1.51

2008 158330069.3 74674704.4 2.12

2009 83251122.92 75952393.01 1.10

2010 238062455.6 42144862.71 5.65

2011 249483050.4 89647582.8 2.78



The creditor turnover ratio was fluctuating over the years of the study. In the years 2008

and 2010 the firm had utilize the credit period effectively. The ratio has decreased in the

remaining years.

CHART NO: 6

CHART SHOWING CREDITORS TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the number of times the working capital is turned

over in the course of a year. This ratio measures the efficiency with which the working capital is

being used by a firm. A higher ratio indicates efficient utilization of working capital.

Sales

Working Capital Turnover Ratio = ----------------------------

Net Working Capital

Interpretation of this ratio should be done when inter-firm or inter-period comparison is

being done. Increasing ratio indicates that working capital is more active; it is supporting,

comparatively, higher level of production and sales; it is being used more intensively.

TABLE NO: 7

TABLE SHOWING WORKING CAPITAL TURNOVER RATIO

Year Sales Net Working Capital Ratio

2007 292086224.1 108712158.4 2.69

2008 302330088.1 128121855.7 2.36

2009 270834342.8 80124766.22 3.38

2010 500281853.3 155189653.8 3.22

2011 336804641.4 85285275.51 3.95



In the years 2007 and 2010 the ratio was very low so there is no better utilization of the

working capital. In the year 2011 the working capital turnover ratio was high, there is a better

utilization of working capital.

CHART NO: 7

CHART SHOWING WORKING CAPITAL TURNOVER RATIO

FIXED ASSETS TURNOVER RATIO

This ratio shows how well the fixed assets are being used in the business. This ratio is

important in case of manufacturing concern because sales are produced not only by use of

current assets but also by amount invested in fixed assets. The higher is the ratio the better is the

performance. On the other hand a low ratio indicates that fixed assets are not being efficiently

utilized.

Net sales

Fixed Assets Turnover Ratio = -----------------

Fixed assets

TABLE NO: 8

TABLE SHOWING FIXED ASSETS TURNOVER RATIO

Year Net Sales Fixed Assets Ratio

2007 292086224.1 285535710.4 1.02

2008 302330088.1 361556752.7 0.84

2009 270834342.8 386733705.1 0.70

2010 500281853.3 371278680.1 1.35

2011 336804641.4 365785416.5 0.92



In the years 2007 and 2010 the ratio was very high so the company has been more

effective in using the investment in fixed assets to generate revenues. In the year 2008, 2009 and

2011 the fixed assets turnover ratio was low, there is no better utilization of investments in fixed

assets.

CHART NO: 8

CHART SHOWING FIXED ASSETS TURNOVER RATIO

TOTAL ASSETS TURNOVER RATIO

This ratio shows how well the fixed assets are being used in the business. This ratio is

important in case of manufacturing concern because sales are produced by the use of current

assets and also amount invested in fixed assets i.e total assets. The higher is the ratio the better is

the performance. On the other hand a low ratio indicates that assets are not being efficiently

utilized.

Net sales

Total Assets Turnover Ratio = -----------------

Total assets

TABLE NO: 9

TABLE SHOWING TOTAL ASSETS TURNOVER RATIO

Year Net Sales Total Assets Ratio

2007 292086224.1 606504698.7 0.48

2008 302330088.1 628495626.8 0.48

2009 270834342.8 619380557.1 0.44

2010 500281853.3 684836810.3 0.73

2011 336804641.4 811937985.6 0.41



In the years 2010 the ratio was very high so the company has been more effective in using

the investment in total assets to generate revenues. In the year 2007, 2008, 2009 and 2011 the

total assets turnover ratio was low, there is no better utilization of investments in total assets.

CHART NO: 9

CHART SHOWING TOTAL ASSETS TURNOVER RATIO

PROFITABILITY RATIOS

Profitability ratios measure the company's use of its assets and control of its expenses to

generate an acceptable rate of return. These financial ratios measure the return earned on a

company’s capital and the financial cushion relative to each dollar of sales. A firm that has high

gross profit margins, for instance, is going to be much harder to put out of business when the

economy turns down than one that has razor-thin margins. Likewise, a company with high

returns on capital, even with smaller margins, is going to have a better chance of survival

because it is so much more profitable relative to the shareholders’ contributed investment. The

types are:

I. General profitability ratio

Gross profit ratio

Net profit ratio

Expenses ratio

II. Overall profitability ratio

Return on share holders investment

Return on equity capital

GENERAL PROFITABILITY RATIO

GROSS PROFIT RATIO

Gross profit ratio measures the relationship of gross profit to net sales and is usually

represented as a percentage.

Gross Profit

Gross Profit Ratio = ------------------------- ×100

Net Sales

There is no standard norm of gross profit ratio it differs from the business to business but

gross profit should adequate to cover the operating expenses.

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http://beginnersinvest.about.com/od/investstrategiesstyles/a/aa101805_2.htm

http://beginnersinvest.about.com/cs/investinglessons/l/blgrossmargin.htm

TABLE NO: 10

TABLE SHOWING GROSS PROFIT RATIO

Year Gross Profit Net Sales Ratio

2007 -56704055.38 292086224.1 -0.19

2008 -37425782.06 302330088.1 -0.12

2009 -44097514.81 270834342.8 -0.16

2010 -42855876.81 500281853.3 -0.09

2011 -76574727.84 336804641.4 -0.23

Arithmetic Mean -0.31


From 2007-2011 the gross profit ratio was low and it is not adequate to cover all the

operating expenses, the gross profit ratio was not satisfactory in the Coimbatore Murugan Mills.

CHART NO: 10

CHART SHOWING GROSS PROFIT RATIO

NET PROFIT RATIO

Net profit ratio measures the relationship of net profit to net sales and is usually

represented as a percentage.

Net Profit

Net Profit Ratio = ------------------------- ×100

Net Sales

Net profit ratio is used to measure the overall profitability and hence it is very useful to

proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able

to achieve a satisfactory return on its investment. This ratio also indicates the firm's capacity to

face adverse economic conditions such as price competition, low demand, etc. Obviously, higher

the ratio the better is the profitability. But while interpreting the ratio it should be kept in minds

that the performance of profits also is seen in relation to investments or capital of the firm and

not only in relation to sales.

TABLE NO: 11

TABLE SHOWING NET PROFIT RATIO

Year Net Profit After Tax Net Sales Ratio

2007 -263581429.1 292086224.1 -0.90

2008 -28967966.03 302330088.1 -0.10

2009 -47625854.26 270834342.8 -0.18

2010 -13503728.18 500281853.3 -0.03

2011 -78511342.23 336804641.4 -0.23



The mill was suffered by a loss in the years 2007, 2008, 2009, 2010 and 2011. The

average of the net profit ratio is -0. 29 still it is negative.

CHART NO: 11

CHART SHOWING NET PROFIT RATIO

EXPENSES RATIO

Expense ratios indicate the relationship of various expenses to net sales. The operating

ratio reveals the average total variations in expenses. But some of the expenses may be

increasing while some may be falling. Hence, expense ratios are calculated by dividing each item

of expenses or group of expense with the net sales to analyze the cause of variation of the

operating ratio. The ratio can be calculated for individual items of expense or a group of items of

a particular type of expense like cost of sales ratio, administrative expense ratio, selling expense

ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability

and higher the operating ratio, lower is the profitability.

Particular expenses

Expenses Ratio = -----------------------------×100

Net Sales

.While interpreting expense ratio, it must be remembered that for a fixed expense like

rent, the ratio will fall if the sales increase and for a variable expense, the ratio in proportion to

sales shall remain nearly the same.

http://www.accountingformanagement.com/operating_ratio.htm

http://www.accountingformanagement.com/operating_ratio.htm

TABLE NO: 12

TABLE SHOWING EXPENSES RATIO

Year

Manufacturing, Administrative, Selling &

Distribution Expenses Net Sales Ratio

2007 102172857 292086224.1 0.35

2008 112761865 302330088.1 0.37

2009 142321447.1 270834342.8 0.53

2010 157667806.9 500281853.3 0.32

2011 162787806.8 336804641.4 0.48



In the year 2009 and 2011 the expenses ratio is high. But the sales volume is very low

compare to remaining years. It indicates the Mill invest more funds in the manufacturing,

administrative, selling & distribution expenses. In the remaining three years the expenses ratio is

normal level and the sales volume also in good position.

CHART NO: 12

CHART SHOWING EXPENSES RATIO

RETURN ON SHARE HOLDERS INVESTMENT RATIO

It is the ratio of net profit to share holder's investment. It is the relationship between net

profit (after interest and tax) and share holder's/proprietor's fund. This ratio is one of the most

important ratios used for measuring the overall efficiency of a firm. As the primary objective of

business is to maximize its earnings, this ratio indicates the extent to which this primary

objective of businesses being achieved. This ratio is of great importance to the present and

prospective shareholders as well as the management of the company. As the ratio reveals how

well the resources of the firm are being used, higher the ratio, better are the results. The inter

firm comparison of this ratio determines whether the investments in the firm are attractive or not

as the investors would like to invest only where the return is higher.

Net profit

Return on share holders investment ratio = ------------------------------×100

Share holders investment

TABLE NO: 13

TABLE SHOWING RETURN ON SHARE HOLDERS INVESTMENT RATIO

Year

Net Profit (After

Interest &Tax) Share Holders Fund Ratio

2007 -263581429.1 732890964.8 -0.36

2008 -28967966.03 749710396.3 -0.04

2009 -47625854.26 860131233 -0.06

2010 -13503728.18 853220181.7 -0.02

2011 -78511342.23 856507988.1 -0.09



Return on share holders investment was negative in all the years 2007, 2008, 2009, 2010

and 2011. It was negative in all the years because the company is suffered from loss. Still the

average returns was negative that is -0.11.

CHART NO: 13

CHART SHOWING RETURN ON SHARE HOLDERS INVESTMENT RATIO

RETURN ON EQUITY CAPITAL

This ratio is more meaningful to the equity shareholders who are interested to know

profits earned by the company and those profits which can be made available to pay dividends to

them. Return on equity capital which is the relationship between profits of a company and its

equity.

Net Profit

Return on equity capital = ---------------------------------

Equity Share Capital

TABLE NO: 14

TABLE SHOWING RETURN ON EQUITY CAPITAL

Year

Net Profit (After

Interest &Tax) Equity Share Capital Ratio

2007 -263581429.1 305251000 -0.86

2008 -28967966.03 305251000 -0.09

2009 -47625854.26 305251000 -0.16

2010 -13503728.18 305251000 -0.04

2011 -78511342.23 305251000 -0.26



Return on equity capital was negative in the years 2007, 2008, 2009, 2010 and 2011

because the company was suffered from loss. Still the average returns was negative that is -0.28.

CHART NO: 14

CHART SHOWING RETURN ON EQUITY CAPITAL RATIO

SOLVENCY RATIO

The term ‘solvency’ refers to the ability of a concern to meet its longterm obligations.

This ratio measures if the total liabilities of a business (both secured and unsecured) are too high,

indicating a possible over dependency on outside sources for long-term financial support. By

comparing shareholders funds to total assets we can produce a confidence factor for unsecured

creditors to the business.

The long term creditors of a firm are primarily interested in knowing the firms ability to

pay regularly interest on long term borrowings, repayment of the principal amount at the

maturity and the security of their loans.

FIXED ASSETS TO NETWORTH RATIO

The ratio is calculated by dividing the total fixed assets by the amount of shareholders

fund.

Fixed Assets

Fixed Assets to net worth ratio = --------------------------

Shareholders Fund

The ratio of fixed assets to net worth indicates the extent to which shareholder's funds are

sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by

shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less than

100%, it implies that owners funds are more than fixed assets and a part of the working capital is

provide by the shareholders. When the ratio is more than the 100%, it implies that owners funds

are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance

the fixed assets. There is no rule of thumb to interpret this ratio by 60 to 65 percent is considered

to be a satisfactory ratio in case of industrial undertakings.

TABLE NO: 15

TABLE SHOWING RATIO OF FIXED ASSETS TO NETWORTH RATIO

Year

Fixed Assets(After

Depreciation) Share Holders Fund Ratio

2007 285535710.4 732890964.8 0.39

2008 361556752.7 749710396.3 0.48

2009 386733705.1 860131233 0.45

2010 371278680.1 853220181.7 0.44

2011 365785416.5 856507988.1 0.43



From the year 20007-11 the ratio was 0.44, so we can identify the outsiders fund is not

properly utilized for fixed assets.

CHART NO: 15

CHART SHOWING RATIO OF FIXED ASSETS TO NETWORTH RATIO

RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

The ratio is calculated by dividing the total current assets by the amount of shareholders

fund.

Current Assets

Ratio of Current Assets to Proprietors Fund = ---------------------------

Shareholders Fund

Current Assets to Proprietors' Fund Ratio establish the relationship between current assets

and shareholder's funds. The purpose of this ratio is to calculate the percentage of shareholders

funds invested in current assets. Different industries have different norms and therefore, this ratio

should be studied carefully taking the history of industrial concern into consideration before

relying too much on this ratio.

TABLE NO: 16

TABLE SHOWING RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

Year Current Assets Share Holders Fund Ratio

2007 245912771.4 732890964.8 0.34

2008 266774351.9 749710396.3 0.36

2009 232646852 860131233 0.27

2010 313558130.2 853220181.7 0.37

2011 446152569.2 856507988.1 0.52



From the year 20007-11 the ratio was 0.37, so we can identify the outsiders fund is not

utilized for current assets.

CHART NO: 16

CHART SHOWING RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

PROPRIETORY RATIO

Proprietory ratio establishes the relationship between shareholders fund to total assets of

the firm. The ratio of proprietors fund to total assets is an important ratio for determining long

term solvency of a firm.

Shareholders Fund

Proprietory Ratio = --------------------------

Total Assets

Proprietory ratio indicates the proportion of shareholders funds in total assets. A high

proprietary ratio indicates less danger and risk to creditors in the event of winding up.

TABLE NO: 17

TABLE SHOWING PROPRIETORY RATIO

Year Share Holders Fund Total Assets Ratio

2007 732890964.8 606504698.7 1.21

2008 749710396.3 628495626.8 1.19

2009 860131233 619380557.1 1.39

2010 853220181.7 684836810.3 1.25

2011 856507988.1 811937985.6 1.05



In the year 2009 the ratio was high that is the shareholders are contributed for total assets,

so the ratio was satisfactory. In the year of 2007, 2008, 2010 and 2011 the ratio was declining so

the ratio was not satisfactory.

CHART NO: 17

CHART SHOWING PROPRIETORY FUND

4.2 TREND ANALYSIS

Trend percentage which plays significant role in analyzing the financial stature of the

enterprise through base years’ performance ratio computation. This not only reveals the trend

movement of the financial performance of the enterprise but also highlights the strengths and

weaknesses of the enterprise

The following ratio is being used to compute the trend percentage

CurrentYear.

= -------------------------- × 100.

Base Year

TABLE NO: 18

TABLE SHOWING SALES PERCENTAGE

Year Amount Trend Percentage

2007 292086224.1 100.00

2008 302330088.1 103.51

2009 270834342.8 92.72

2010 500281853.3 171.28

2011 336804641.4 115.31


The trends of sales had consistently increased in the years 2007 to 2008. In 2009 the sales

trend was decreased and in the year 2010 the sales trend was increased again. In the year of 2011

the sales trend was again decreased.

CHART NO: 18

CHART SHOWING SALES PERCENTAGE

TABLE NO: 19

TABLE SHOWING INVENTORY PERCENTAGE


2007 118682914.5 100.00

2008 110576719.6 93.17

2009 118890973.5 100.18

2010 125599392.1 105.83

2011 200261287.1 168.74


This table shows the increasing trend except in the year 2008. The inventory percentage

is very high in the year 2011. It shows the fluctuating trend in inventory trend percentage.

CHART NO: 19

CHART SHOWING INVENTORY PERCENTAGE

TABLE NO: 20

TABLE SHOWING SUNDRY DEBTORS PERCENTAGE


2007 81743447.94 100.00

2008 104433096 127.76

2009 84133675.89 102.92

2010 81813067.62 100.09

2011 73077031.59 89.40


The above table shows the fluctuating trend in debtor’s percentage. In the year 2008

the debtor’s percentage was increased, in 2009, 2010, 2011 it was decreased, it shows the

fluctuating trend.

CHART NO: 20

CHART SHOWING SUNDRY DEBTORS PERCENTAGE

TABLE NO: 21

TABLE SHOWING BANK LOANS PERCENTAGE


2007 186664164.6 100.00

2008 203483596.2 109.01

2009 313904432.9 168.17

2010 241176975.9 129.20

2011 248749192.3 133.26

(Source: Annual Reports)This table shows the fluctuating trend in bank loans percentage. It was increased in the

year of 2008 and 2009.It was decreased in the year of 2010 and again it was increased in the year

of 2011.

CHART NO: 21

CHART SHOWING BANK LOANS PERCENTAGE

TABLE NO: 22

TABLE SHOWING FIXED ASSETS PERCENTAGE


2007 285535710.4 100.00

2008 361556752.7 126.62

2009 386733705.1 135.44

2010 371278680.1 130.03

2011 365785416.5 128.10


This table shows the fluctuating trend in fixed assets. In the year 2008 and 2009 the

fixed asset’s percentage was increased. In the year 2010 and 2011 the fixed asset’s percentage

was decreased.

CHART NO: 22

CHART SHOWING FIXED ASSETS PERCENTAGE

TABLE NO: 23

TABLE SHOWING LOANS &ADVANCES PERCENTAGE


2007 30768789.84 100.00

2008 2197552.38 7.14

2009 1995932.56 6.49

2010 4270606.87 13.88

2011 31202411.8 101.41


The above shown table shows the fluctuating trend in loans and advances. In the year

2008, 2009 and 2010 the trend percentage was too low and in the year 2011 it was increased.

CHART NO: 23

CHART SHOWING LOANS AND ADVANCES PERCENTAGE

TABLE NO: 24

TABLE SHOWING CASH &BANK BALANCE PERCENTAGE


2007 5861424.49 100.00

2008 35441007.12 604.65

2009 3463866.9 59.10

2010 6804124.76 116.08

2011 1497166.14 25.54


The above shown table shows the fluctuating trend in cash and bank balances. In the year

2008, the trend percentage was too high. In the year 2009 it was decreased. In the year of 2010

again it was increased. And in the year of 2011 again it was decreased too low.

CHART NO: 24

CHART SHOWING CASH AND BANK BALANCE PERCENTAGE

TABLE NO: 25

TABLE SHOWING CURRENT LIABILITIES PERCENTAGE


2007 81822725.08 100.00

2008 77170095.2 94.31

2009 78505703.81 95.95

2010 46452388.63 56.77

2011 91389781.8 111.69


The current liability trend is very high in the year 2011. It was decreased in the year of

2008 and 2010. In the years 2009 to 2011 it was increased. It shows the fluctuating trend in

current liabilities.

CHART NO: 25

CHART SHOWING CURRENT LIABILITIES PERCENTAGE

TABLE NO: 26

TABLE SHOWING CURRENT ASSETS PERCENTAGE


2007 245912771.4 100.00

2008 266774351.9 108.48

2009 232646852 94.61

2010 313558130.2 127.51

2011 446152569.2 181.43


This table shows the fluctuating trend in current assets. In the year 2008, 2010and 2011

the current asset’s percentage was increased. In the year 2009 the current asset’s percentage was

decreased.

CHART NO: 26

CHART SHOWING CURRENT ASSETS PERCENTAGE

4.3 COMPARATIVE BALANCE SHEET STATEMENTS

The comparative balance sheet analysis is the study of the trend of the same items, group

of items and computed items in two or more balance sheets of the same business enterprise on

different dates. The changes in the periodic balance sheet items reflect the conduct of a business.

The changes can be observed by comparison of the balance sheet at the beginning and at the end

of a period and these changes can help in forming an opinion about the progress of an enterprise.

Balance sheets as on two or more different dates are used for comparing the assets,

liabilities and the net worth of the company. Comparative balance sheet analysis is useful for

studying the trends of an undertaking.

Advantages

Comparative statements help the analyst to evaluate the performance of the company.

Comparative statements can also be used to compare the performance of the firm with the

average performance of the industry between different years.

It helps in identification of the weakness of the firm and remedial measures can be taken

accordingly.

COMPARATIVE BALANCE SHEET (2007-2008)

Particulars 2007 2008 Absolute change

Change%

Sources of funds1.share holders fundsa. Capitalb.Reserves & surplus2.Loan fundsa.Secured loansb.Unsecured loans3.Deferred tax liability Total

305251000.00240975800.19

0.00186664164.62

0.00

305251000.00240975800.19

0.00203483596.15

0.00

0.000.00

0.0016819431.53

0.00

0.000.00

0.009.010.00

732890964.81 749710396.34 16819431.53 2.29

Application of funds1.Fixed AssetsA. Gross BlockB. Less: Depreciation

C. Net BlockD. Capital Wip

2. Investments Interest accrued on inv.

3. Cur.Assets,Loan & Adva. Inventoriesb.Sundry Debtorsc. Cash &Bank Balancesd. Other Current Assetse. Loans & Advancesf. Inter Sub Office Current A/C

Total Current Assets(A) 4.Less Current Liabilitiesa .Current Liabilitiesb. Provisions c. Inter Subunit current A/C Total Current liabilities(B)

5.Net CA/CL(A-B) 6. Deffered Rev.Exps.Profit & loss A/C

Total

626677770.41341142060.00

690948958.05329392205.38

64271187.64-11749854.62

10.25-3.44

285535710.4175056216.94

361556752.67164522.24

76021042.261129347.56

26.62-99.8

360591927.35

5450

119225040.2881743447.945861424.498314068.89

30768789.840.00

361721274.91

5350

112696857.49104433095.9535441007.1212005838.992197552.387986370.36

1129347.56

-100

-6528182.7922689648.0129579582.63

3691770.1-28571237.46

7986370.36

0.31

-1.83

-5.4827.75

504.6444.40

-92.850.00

245912771.44

818227258.0855377888.00

0.00

274760722.3

77170095.2061482401.0040741656.39

28847950.85

4652629.8861045113

40741656.39

11.73

5.68611.020.00

137200613.08

108712158.36

263581429.10

179394152.6

95366569.71

292617201.73

42193539.51

13345588.65

29035772.63

30.75

12.27

11.02

732890964.81 749710396.34 16819431.53 2.29(Source: Annual Reports)

Current Financial Position and Liquidity Position

The current assets have increased by Rs.28847950.86 lakhs (11.73%) and sundry debtors

have increased by Rs.22689648 lakhs (27.75%). On the other hand there has been a decrease in

inventories amounting to Rs.6528182.79 lakhs.

Long Term Financial Position

There is an increase in fixed assets of Rs.64271187.64 lakhs (10%). There is also an

increase in long term loans of Rs.16819431.53 lakhs (2.29%). This depicts that fixed assets are

not only financed from long term sources but part of working capital has also been financed from

long term sources. This fact depicts that the policy of the company is to purchase fixed assets

from the long term sources of finance thereby not affecting the working capital.

There is an increase in loaned funds than the share capital so this increases the interest

liability for the company.

Profitability of the Concern

There is no change in the reserves and surplus of the company.



Change%

Sources of funds1.share holders fundsa. Capitalb.Reserves & surplus2.Loan fundsa.Secured loansb.Unsecured loans3.Deferred tax liability Total

305251000.00240975800.19

0.00203483596.15

0.00

305251000.00240975800.19

0.00313904432.85

0.00

0.000.00

0.00110420836.7

0.00

0.000.00

0.0054.260.00

749710396.34 860131233.04 110420836.7 14.72



2. Investments Interest accrued on inv.

3. Cur.Assets,Loan & Adva. Inventoriesb.Sundry Debtorsc. Cash &Bank Balancesd. Other Current Assetse. Loans & Advancesf. Inter Sub Office Current A/C

Total Current Assets(A) 4.Less Current Liabilitiesa .Current Liabilitiesb. Provisions c. Inter Subunit current A/C Total Current liabilities(B)

5.Net CA/CL(A-B) 6. Deffered Rev.Exps.Profit & loss A/C

Total

690948958.05329392205.38

729913131.48343179426.38

38964173.4313787221

5.634.19

361556752.67164522.24

386733705.100.00

25176952.43-164522.24

6.96-100

361721274.91

5350

112696857.49104433095.9535441007.1212005838.992197552.387986370.36

386733705.10

5350

136172993.7784133675.893463866.906880382.911995932.56

101761935.05

25012430.19

0.00

23476136.28-20299420.06-31977140.22-5125456.08-201619.82

93775564.69

6.91

0.00

20.83-19.43-90.22-42.19-9.17

1174.19

274760722.3

77170095.2061482401.0040741656.39

334408787.1

78505703.8174016382.0048737579.32

59648064.8

1335608.6112533981

7995922.93

21.70

1.7320.3819.62

179394152.6

95366569.71

292617201.73

201259665.1

133149122.0

340243055.99

21865512.5

37782552.29

47625854.26

12.18

39.61

16.27

749710396.34 860131233.04 110420836.7 14.73



The current assets have increased by Rs.59648065 lakhs (22%) and sundry debtors have

decreased by Rs.20299420 lakhs (19.4%). On the other hand there has been a increase in

inventories amounting to Rs.23476136.28 lakhs. The current liabilities have increased by

Rs.21865512.5lakhs (12.18%).


There is an increase in fixed assets of Rs.38964173.43 lakhs (5.63%). There is also an

increase in long term loans of Rs.110420837 lakhs (15%). This depicts that fixed assets are not

only financed from long term sources but part of working capital has also been financed from

long term sources. This fact depicts that the policy of the company is to purchase fixed assets

from the long term sources of finance thereby not affecting the working capital.

There is an increase in loaned funds than the share capital so this increases the interest

liability for the company.


There is no change in the reserves and surplus of the company.



Change%

Sources of funds1.share holders fundsa. Capitalb.Reserves & surplus

2.Loan fundsa.Secured loansb.Unsecured loans3.Deferred tax liability Total

305251000.00240975800.19

305251000.00302507795.81

0.0061531995.62

0.0025.53

0.00313904432.85

0.00

4284410.00241176975.22

0.00

4284410.00-72727456.93

0.00

0.00-23.16

0.00

860131233.04 853220181.73 -6911051.31 -0.80



2. Investments Interest accrued on inv.3. Cur.Assets,Loan & Adva. Inventoriesb.Sundry Debtorsc. Cash &Bank Balancesd. Other Current Assetse. Loans & Advancesf. Inter Sub Office Current A/Cg.Inter Sub Unit Current A/C

Total Current Assets(A) 4.Less Current Liabilitiesa .Current Liabilitiesb. Provisions c.Inter Sub Office Current A/Cd. Inter Subunit current A/C Total Current liabilities(B) 5.Net CA/CL(A-B) 6.Deffered Rev.Exps.Profit & loss A/C

Total

729913131.48343179426.38

730773879.98359495199.88

860748.516315773.5

0.114.75

386733705.100.00

371278680.100.00

-15455025.00.00

-3.990.00

386733705.10

5350

136172993.7784133675.893463866.906880382.911995932.56

101761935.050.00

371278680.10

5350

130960645.9981813067.626804124.765792763.004270606.87

14091009.7169825912.27

-15455025.0

0.00

-5212347.78-2320608.28

3340257.8-1087619.912274674.31

-87670925.3169825912.27

-3.99

0.00

-3.82-2.7596.43

-15.80113.96-86.15

0.00

334408787.1

78505703.8174016382.00

0.0048737579.32

313558130.22

46452388.6390049122.0021866965.77

0.00

-20850656.88

-32053315.1816032740.00

-21866965.77-48737579.32

-6.23

-40.8221.660.00

-1.00201259665.1133149122.0

340243055.99

158368476.40155189653.82326746497.81

-42891188.7322040531.82

-13496558.18

-21.3116.55-3.96

860131233.04 853220181.73 -6911051.31 -0.80(Source: Annual reports)


The current assets have decreased by Rs.208506568 lakhs (6.23%) and sundry debtors

have decreased by Rs.232060827 lakhs (2.75%). On the other hand there has been an decrease in

inventories amounting to Rs.5212347.78 lakhs. The current liabilities have decreased by

Rs.42891188.735lakhs (21.31%). This further confirms that the company has improvement in

the liquidity position.


There is an increase in fixed assets of Rs.860748.5 lakhs (0.11%). There is a decrease in

long term loans of Rs.6911051.31 lakhs (0.80%). This surplus that fixed assets are not only

financed from long term sources but part of working capital has also been financed from long

term sources. Also it is clear that there is some addition of fixed assets. There is a decrease in

loaned funds.


There is an increase in the reserves and surplus of the company of Rs.615319956 lakhs

(25.53%). This fact depicts that there is a increase in the profitability of the concern.

4.4 MOTAAL’S COMPREHENSIVE TEST

In order to evaluate the overall liquidity position of Coimbatore Murugan Mills,

Coimbatore during the period under study, Motaal’s Comprehensive Test is applied.

In this test, a method of ranking has been applied to reach at a more comprehensive

assessment of liquidity in which four different ratios viz., networking capital to current assets

ratio, inventory to current assets ratio, liquid assets to current assets ratio and loan and advances

to current assets ratio have been computed and combines in a points score.

A high value of net working capital to current assets ratio or liquid assets to current assets

ratios shows greater liquidity and accordingly ranking has been done in that order. On the other

hand, a low inventory to current assets ratio indicates more favorable liquidity position and

therefore, ranking has been done on the basis that the lower the total of individual ranks, the

more favorable is the liquidity position of the concern and vice versa.

MOTAAL’S COMPREHENSIVE TEST TABLE SHOWING LIQUIDITY POSITION OF THE COIMBATORE MURUGAN MILLS

year

Net working capital to current

asset ratio

Inventory to current asset ratio

Liquid asset to current asset ratio

Loan & advances to

current asset ratio

Total of rank

Ultimate rank

% Rank % Rank % Rank % Rank

200744.21

348.26

42.39

212.51

1 10 3

200848.03

241.45

213.29

10.82

5 10 3

200934.44

451.10

51.49

40.86

4 17 1

201049.49

140.06

12.17

31.36

3 8 5

201119.12

544.89

30.34

56.99

2 15 2


The table furnishes that in Coimbatore Murugan Mills the year 2009 &2011

marked the most sound liquidity position and it was followed by 2007, 2008, and 2010. The

liquidity position of the mill has no changes in the year 2008 and 2009. It shows the mill has

good liquidity position.

CHAPTER-V

FINDINGS AND SUGGESTIONS

5.1 FINDINGS

The standard norm for the current ratio is 2:1.from the study it is inferred that the current

ratio of the firm is not satisfying the standard norm and from the working capital ratio

itself we can find that the company’s working capital management is insufficient.

From the study it is inferred that the quick ratio of the company is declining over the

years. The average quick ratio is 0.60. So the company is not satisfying the standard

norm.

The inventory turnover ratio is fluctuating over the year. The average ratio is 3.01.

The debtor’s turnover ratio is varying over the study period. The average ratio is 4.08.

The creditor’s turnover ratio indicates that there are fluctuations over the years. The

lower ratio indicates that company enjoys a greater credit period to repay the liability.

The working capital turnover ratio indicates a fluctuating trend in the study period. In

2007-08 there is a decrease in the same ratio because of the decrease in working capital

compared to net sales.

Gross working capital ratio is declining over the year. The average gross working capital

ratio is -0.31 this shows insufficient usage of current asset for each rupee of sales.

The solvency position of the company is declining over the year. This means outside

liabilities are increased.

Since the company is running under loss from 2007-2011 the ratio also reflects a negative

indication to the overall performance.

The return on investment ratio is also indicating a negative ratio. This shows return from

the investment is negative.

The fixed assets of the company from 2007-2011 is fluctuating. The FATR ratio is also

indicating a fluctuating tendency.

From the study it can be easily identify that performance of the company shows a

negative trend year after year. For all the years it shows a negative figure. It is mainly

because of the low sales margin compared to high cost of production.

It can be inferred from the study that current asset of the company shows a gradual

increase in current asset for the two years 2008 and 2010 and remaining three years it

shows a decrease in trend.

In the year 2008-2009 higher working capital turnover ratio shows that there is low

investment in working capital and there is more profits. It is finding by working capital

turnover ratio.

The Motaal’s comprehensive test applied in the study shows that the company enjoyed

most sound liquidity position in the year’s 2009, 2011 and 2008.

Comparative balance sheet statements is used to analyze the liquidity position, financial

position and profitability of the Mill in the years 2007-2008, 2008-2009, and 2009-2010.

In the year 2007-2008 and 2008-2009 there is an increase in loaned funds than the share

capital so this increases the interest liability for the company. There is a decrease in

loaned funds in the year of 2009-2010.

5.2 SUGGESTIONS

The amount of working capital of the company is increasing since 2008. So the company

should keep the current assets by increasing its cash and bank balance.

Inventory management of the company is not satisfactory. The raw materials and work-

in-progress inventory holding periods are high. Therefore the company should reduce the

holding period as much as possible.

The debtors of the company is fluctuating over the years, company should adopt a

competent credit policy to attract the customers. Increasing debtors is a solution to

overcome the liquidity problem.

Creditor’s turnover ratio shows that the payment period enjoyed by the company is high.

High creditor’s payment period will affect the regular supply of raw materials so

company can make necessary step to pay its creditors at a reasonable time period.

There has been decreasing trend in the financial soundness of the company in the all

years effective steps should be taken to find the root cause and control it.

The Company is not adopting proper inventory systems like A.B.C. analysis, V.E.D.

analysis etc. this inventory system can make the inventory management more result

oriented.

The surplus fund of the unit should be invested in some short marketable securities,

rather than providing it to its subsidiary free of cost, to improve profitability along with

liquidity.

The company can reduce the cost of production and try to improve its profitability.

5.3 CONCLUSION

The study was conducted to analyze the working capital management in Coimbatore

Murugan Mills, Coimbatore. The financial statements of the company was analyzed and

interpreted. The analysis and interpretation of data relating to working capital management of

Mill helped to reach a conclusion that working capital management efficiency of Coimbatore

Murugan Mills, Coimbatore is not up to the level. So the company must take necessary steps to

improve the net working capital. It is right time for Coimbatore Murugan Mills, Coimbatore to

formulate certain policies to keep a well monitored working capital for better profitability,

reliability, consistency. If all the policies will adopt by a company in a proper way and to utilize

the resources effectively then it will sure that the company will reach its zenith. The company

should adopt a suitable method to manage the working capital effectively.

APPENDICES

BIBLIOGRAPHY

REPORTS

Annual reports of Coimbatore Murugan Mills, Coimbatore for the Year 2007 to 2011.

BOOKS

Dr.S.N.Maheswari, Financial Management Principles and Practices, 10th Edition, Sultan

Chand & sons publishers New Delhi.

Khan M.Y. and Jain P.K., Financial management, Tata Mc-Graw Hill (P) Limited, New

Delhi.

R.K.Sharma and S.K.Gupta, Management Accounting Principles & Practices, 8 th Edition

Kalyani Publication.

C.R.Kothari, Research Methodology, 2nd Edition, New Age International (P) Ltd.

P.R.Vittal, Business Mathematics and Statistics, 6th Edition, Margham Publications,

Chennai.

Dr.S.N.Maheswari, Dr.S.K.Maheswari and SHARAD K Maheswari,Accounting for

Management, 2nd Edition, Vikas publishing house, New Delhi.

M. Pandey, Financial Management, Ninth Edition, Vikas Publishing House Pvt. Ltd.

M.Y. Khan and P.K. Jain, Financial management, Vikas Publishing house ltd., New

Delhi.

K.V. Smith,Management of Working Capital,Mc-Grow-Hill, New York.

Satish Inamdar, Principles of Financial Management,Everest Publishing House.

WEBSITE REFERENCES

www.Google.com

www.Yahoo.com

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