A Comparative Study of Raymond And Vardhman Textiles on The Basis of Their Working Capital Management

Abstract: -

As we all know working capital management is a very important to any business since it can lead to increase the value of the business. This study will analyse the working capital management of the Raymond and Vardhman textile limited and try to conclude that which company is better in terms of the working capital management. This study has used only secondary data from company’s website and some financial website like moneycontrol.com. The technique of ratio analysis is used in this study for data analysis.

Introduction: -

Working capital management is defined as the strategies that different companies adopts to ensure that the day-to-day activities of the company runs smoothly.

It is also using the current asset and current liability in a most efficient way which will ultimately benefit the company’s overall value and performance.

A proper working capital management will lead to meet the sufficient cash needed for short-term operating cost and short-term debt obligations.

Working capital management is very necessary for a business as it determines the financial health and operational success of a company. A proper management of working capital will lead to the balance between growth, profitability and liquidity of the company. It also leads to maximise the overall operational efficiency of a business and therefore a huge emphasis is made in managing the working capital. Working capital management includes management of account receivables, management of account payable and the management of overall inventory of the company. The main objective of working capital management includes maintaining the working capital operating cycle and its ordered operation should be ensured, reducing the overall cost which is spent on the working capital, and increase the overall return from the current asset investments. There are very bad effects on the company if it not follows the working capital management properly like financial insolvency and also sometimes could lead to legal troubles, liquidation of assets and potential bankruptcy.

The difference between current asset and current liability is known as working capital.

Networking capital= Current Asset – Current Liability

The executives of working capital are a basic errand of money the board since it has the indispensable impact of any business firm since it is legitimately influencing the organizations profitability and liquidity. Liquidity presents the capacity of organization to pay its momentary obligations. Liquidity of an organization is associated with the limit of a firm to play out its transient liabilities. With the assistance of appropriate administration of working capital firm can develop it's the dissolvability, improve its generosity, and it's likewise can look out all the business tasks easily and it's additionally can have the option to look out emergency.

With the goal that the points of Working capital administration are at keeping up a harmony among liquidity and profitability simultaneously as leading the everyday tasks of business. The main purpose of any firm is to maximize profit along with maintaining liquidity. Increasing profits at the cost of liquidity can create serious issues for the firm. Thus, there should be a balance between the two, liquidity and profitability.

To appropriately comprehend the requirements of working capital and its job in textile enterprises this examination has chosen two textile businesses one is Raymond and second is Vardhman textiles. Textile industry is driving area in the Indian economy. In India Textile industry is one of the greatest income workers in the mechanical segments. This area gives 45 million individuals as immediate utilize and Indian Textile division covers 61% universal Textile markets and 22% of the worldwide market. Textile division contributes 14% in industrial items and 4% to Gross domestic product.

For this investigation I have applied the technique for ratio analysis since ratio analysis is perceived as one of the most powerful method asset of financial analysis. It is a procedure of building up and deciphering quantitative connection among figures and gathering of figures. Ratios are the best markers of monetary quality, sufficiency, position, and shortcomings of a firm. Ratios can help the administration in its essential capacities like determining, arranging, planning, control, and correspondence. On the off chance that ratios are appropriately dissected and deciphered the administration can rise the estimation of firm.

Literature review: -

For this research ideas are taken from many different research papers and one of the research paper was “trend in working capital management and its impact on firms performance: an analysis of Mauritian small manufacturing firms” this paper was presented by Kesseven Padachi[endnoteRef:1]. In this research he has took 58 little assembling organizations and secured the period for research 1997 - 98 to 2002-03. For the investigation in this research he has used the strategy of correlation analysis and regression analysis. In this research he found that because of lacklustre showing of the management board higher measure of capital is occupied with various types of assets and due to this the organizations can't accomplish its objective. [1: Padachi, K. (2006). Trends in Working Capital Management & its Impact on Firms Performance: An Analysis of Mauritian Small Manufacturing Firms. International Review of Business Research Papers , 2 (2), 45-58.]

A paper which was presented by M.A. Zariyawati, M.N. Annuar and A.S. Abdul Rahim[endnoteRef:2] and the title of their research was “Working capital management and corporate performance: case of Malaysian” for the research they have chosen board information of 1828 firms for the time of 1996-2006. For further investigation they have followed the method of regression analysis. After the entire procedure of exploration, they have inferred that there was Strong negative connection between CCC and profitability of the organizations. [2: M.A. Zariyawati, M. A. (2009). Working Capital Management and Corporate Performance: Case of Malaysian . Journal of Modern Accounting & Auditing , 5 (11).]

Another paper which was presented by Vedavinayagam Ganesan (2007)[endnoteRef:3] and the title of his research was “An Analysis of working capital management efficiency in telecommunication equipment industry” in this research he took 349 telecommunication organizations as test and covering the period 2001-2007 and for the research he used the method of Anova, correlation and regression analysis. The conclusion of his study was that days working capital adversely influence firm’s profitability. [3: “Vedavinayagam Ganeshan” An Analysis Of Working Capital management efficiency In Telecommunication Equipment Industryrivier Academic Journal, Volume 3, Number 2, Fall 2007]

Another paper on connection between working capital administration proficiency and ebit plays by Azagalah Ramchandrah, Muraildhran[endnoteRef:4]. It was point and investigation the connection between working capital administration proficiency, and earnings before taxes and taxes performance utilization and effectiveness of the paper business in India, its execution momentous well during the period, be that as it may, less exceptional gainful firms wait for longer to pay their bills. Of examine a decline in cash conversion cycle. [4: Azagalah ramchandrah,muraildhranJanakiraman on relation between working capital management efficiency and ebit research paper Volume 7 · Number 1 · Spring 2009]

Another paper in which conditions of Pakistan was studied by Asghar ali and syed atif ali[endnoteRef:5] and the title of their study was “working capital management is it really affects the profitability? Evidence from Pakistan” the investigation demonstrated a positive effect of working capital management on profitability, working capital on total assets and effect of all total assets on profitability of 15 organizations of 3 industrial segments of Pakistan. Considering the outcomes, it is obvious that proficient administration of working capital can lead a firm towards profitability. The organizations ought to improve their receivables and different flows resources segments for adequate working capital. Effective administration of inventories improves the benefit of firms. It is reasoned that organizations with higher working capital have higher proportion of productivity and firms with higher total assets additionally have higher profitability. The organizations having adequate working capital additionally have enough total assets. So, it is seen that organizations having adequate extent of working capital have constructive outcome on total assets and profitability of the organizations. [5: Asghar Ali and Syed Atif Ali“working capital management is It Really Affects the profitability? Evedence from Pakistan” research journal.]

Another research paper was presented by A.K Sharma[endnoteRef:6] and corresponding author Satish Kumar on topic of the “effect of working capital management on firm profitability: Empirical evidence from India.” The principle point of this article is to look at the impact of working capital on profitability of Indian firms. Researcher gathered information from 263 nonfinancial firm from 500 firms recorded at the Bombay Stock (BSE) and covering the period 2000 to 2008.for the examination purpose they have used the method of OLS multiple regression. The discoveries of their examination were altogether different from the different universal investigations led in various markets. The outcomes uncover that working capital management and profitability is emphatically related in Indian organizations. The examination further uncovers that stock of number of days and number of day's records payable is adversely corresponded with a company's profitability, though number of days accounts receivables and cash conversion cycle display a positive relationship with corporate profitability. The current examination adds to the current writing by inspecting the impact of working capital management on benefit with regards to a rising capital market, for example, India. [6: A.K Sharma and corresponding author Satish Kumar “Effect of working capital management on firm profitability empirical Evidence from India’’.Reserch journal]

Another survey was done by B. Bagchi, B Khamrui[endnoteRef:7] and the title of their study was “relationship between working capital management and profitability: A study of selected FMCG companies in India” in this research they have chosen ten FMCG organizations from India and secured information from 2000-2001 to 2009-2010. For coming to the conclusion, they have used correlation, multiple regression and t test. Subsequent to following all the strategy they have reason that among these organizations the positive connection between firm’s profitability and factors of the working capital management was missing. [7: B.Khamrui, B. &. (2012, May). Relationship between Working Capital Management & Profitability :A Study of Selected Companies in India. Business & Economics Journal , 1-11.]

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Objectives of the study: -

• To examine the idea and significance of working capital and the idea of ratios, utility of ratio analysis.
• To compute the financial well-being through Ratio Analysis of Raymond textiles and Vardhman textiles ltd, on relative premise.

Research methodology: -

Scope of the study: -

The current examination is limited to a near investigation between two textiles ventures.

Data collection: -

To achieve the mentioned destinations information is gathered from auxiliary sources, similar to yearly reports, websites, and related other research papers.

Data analysis: -

The assembled information is analysed through ratio analysis and just significant tables are utilized for information conversation according to research need and which are taken for information investigation.

Ratio analysis: Ratio analysis is one of the most powerful tool and many of the companies as well as the researchers are using ratio analysis for determining a company’s present or future financial state.

The different ratio which are analysed for coming to a proper conclusion are as follows: -

1. Liquidity ratios: These ratios will help us in getting the liquidity condition of a business. In this part the following ratios are calculated for each company:
   1. Current Ratio: Current Ratio = Current Assets/ Current Liabilities
   2. Quick Ratio: Quick Ratio = Current Assets – Inventory/ Current Liabilities
2. Activity ratios: These ratios are a measure of how well a company manages its resources on assets. Since these ratios also indicate the speed with which an asset is converted into sales, they are also known as turnover ratios. In this part the following ratios are calculated for each company:
   1. Debtors Turnover Ratio: = Total Sales/Average Debtors
   2. Average Collection Period: = 365/Debtors Turnover Ratio
   3. Inventory Turnover in days: = Inventory/cost of goods sold*365

Figure 1. Raymond and Vardhman Current Ratio

From the above graph, it can be noticed that Raymond have highest current ratio in 2010. We can also infer from the graph that Raymond is having below 1 value for almost five years i.e. in 2012,2013,2017,2018 and 2019 but Vardhman is having current ratio below 1 for only one time i.e. in year 2017 for the span of these 10 years.

Figure 2. Raymond and Vardhman Quick Ratio

The chart shows that the Vardhman is having highest quick ratio value in the year 2011 and lowest in 2015 and 2017 where it is below 1. The year in which the quick ratio is lowest for Raymond is 2018.

Figure 3. Raymond and Vardhman Debtors Turnover Ratio

It is displayed in the graph that the debtor’s turnover ratio for Vardhman is always greater than that of Raymond for this span of ten years. The debtor’s turnover ratio for Raymond is always around 6 but for Vardhman it always greater than 7.

Figure 4. Raymond and Vardhman Average Collection Period

From the above graph we can infer that Raymond has highest average collection period for these ten years of study. The highest collection period of 72 days was there for Raymond in the year 2017. The average collection period for Vardhman is always less than 50 for the years of study.

Figure 5. Raymond and Vardhman Inventory Turnover Ratio (in days)

From the graph it can be easily noted that Raymond is having higher inventory turnover ratio as compared to Vardhman between these ten years of study.

Limitation of the study: -

The ratios have been determined, investigations and deciphered for the period under examination i.e.2010 to 2019. Ratios are determined based on previous financial reports. Due to this we are not able to predict the future performance of the company.

The figures comes here may be ornamental as ratio analysis is principally quantitative examination and not subjective investigation.

Conclusion: -

Working capital management is one of the most significant angles for monetary choices in any specialty unit. This study had attempted to do a comparative examination on working capital management. The chart of current ratio of Raymond Ltd. Has enrolled blend pattern during the most recent ten years, which was most elevated in 2010 and least in 2017, whereas current ratio of Vardhman Ltd. Was solid and sound in comparison of Raymond Ltd. It is found in the chart of debtors turnover ratio that Raymond Ltd. Has less recuperation time than that of Vardhman Ltd. It likewise showed that Raymond as a organization has no more hazard from debtors in contrast to Vardhman. Inventory turnover ratio demonstrated that Raymond Ltd has quicker turnover of crude material than that of Vardhman. Turnover ratio of Raymond Ltd had stayed stable during the study time frame, whereas Vardhman Ltd demonstrated blend pattern according to inventory turnover ratio which showed that Raymond Ltd has persistent creation and deals of its products. From above conversation, it very well may be inferred that Raymond Ltd has sound and more successful working capital framework than Vardhman Ltd has. Raymond Ltd has kept up all perfect degree of working capital and steady increment is indication of sound situation of business from the view point of capital.

References: -

• Debtor Turnover Ratio
  • Raymond 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 5.58 6.48 6.47 5.92 5.73 6.01 5.22 5.1100000000000003 5.52 5.61 Vardhman 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 8.16 7.73 7.15 7.22 7.64 8.09 7.43 7.94 8.3699999999999992 8.81
• Average Collection Period
  • Raymond 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 65.412186379928315 56.327160493827158 56.414219474497685 61.655405405405403 63.69982547993019 60.732113144758735 69.923371647509583 71.428571428571431 66.123188405797109 65.062388591800357 Vardhman 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 44.730392156862742 47.21862871927555 51.048951048951047 50.554016620498615 47.774869109947645 45.117428924598272 49.125168236877528 45.969773299748105 43.608124253285546 41.430192962542563
• Inventory Turnover Ratio
  • Raymond 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 4.82 4 4.04 4.37 4.2 4.6399999999999997 4.41 4.18 3.67 3.46 Vardhman 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2.77 2.3199999999999998 3.05 2.81 2.81 3.56 3.06 3.44 2.77 2.63
• Current Ratio
  • Raymond 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1.38 1.03 0.93 0.89 1.1299999999999999 1.1000000000000001 1.06 0.86 0.87 0.69 Vardhman 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1.65 1.31 1.45 1.26 1.24 1.36 1.03 0.87 1.32 1.35
• Quick ratio
  • Raymond 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1.1299999999999999 0.97 0.9 0.86 1.1100000000000001 1.08 1.1399999999999999 0.95 0.74 0.85 Vardhman 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1.52 1.7 1.33 1.44 1.1399999999999999 0.98 1.17 0.95 1.23 1.19