Chapter - 3 : Research Methodology……

CHAPTER – 3
RESEARCH METHODOLOGY

3.1 INTRODUCTION
3.2 TITLE OF THE PROBLEM
3.3 PERIOD OF THE STUDY
3.4 NATURE OF THE STUDY
3.5 TOOLS AND TECHNIQUES
3.6 SCOPE OF THE STUDY
3.7 REVIEW OF LITERATURE
3.8 BROADER HYPOTHESIS
3.9 OBJECTIVES OF THE STUDY
3.10 METHOD OF DATA COLLECTION
3.11 METHO OF ANALYSIS AND INTERPRETATION
OF DATA
3.12 CHAPTER SCHEME
3.13 LIMITATIONS OF THE STUDY

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CHAPTER – 3
RESEARCH METHODOLOGY

3.1 INTRODUCTION
Proper management of working capital is very important for the
success of an enterprise. It aims at protecting the purchasing power of
assets and maximizing the return on investment. The manner of
administration of current assets to a very large extent determines the
success of operations of a firm. Constant management is required to
maintain appropriate levels in the various working capital accounts. The
observation of Kennedy and McMullen does carry weight when they say
that, A study of working capital is of major importance to internal and
external analysis because of its close relationship to current day – to-day
operations of business. Inadequacy or mismanagement of working capital
is the leading cause of business failures. Shortage of working capital, so
often advanced as the main cause of failure of industrial concerns, is
nothing but the clearest evidence of mismanagement which is so
common.
The current assets and current liabilities flow round in a business
like an electric current. The working capital plays the same role in the
business as the role of the heart in the human [Link] as the heart gets
blood and circulates the same in the body, in the same way, working
capital funds are generated and these fund are circulated in the business.
As and when this circulation stops, the business gets stale, pale and
lifeless. It is because of this reason that the working capital is known as
circulating capital as it circulates in the business like blood in the human
body. The funds generated from the issue of shares, borrowings, and from

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operations are used to pay creditors for raw materials etc. the raw
material are processed, wages and overhead expanses are [Link]
makes available the stock of finished goods by sale of which either
debtors are created, or cash is received, and thus the profit is being
generated. A portion of which is utilized for payment of tax, interest and
dividends. This cycle continues throughout the life of business.
The importance of working capital management lies in the fact that
financial managers spend a great deal of time in managing current assets
and current liabilities. Arranging short term financing,negotiating
favorable credit terms, controlling the movement of cash, administering
accounts receivables and monitoring the investment in inventories
consume a great deal of time of financial managers.
Working capital management and profitability certainly have some
relation with each research work is available on this relationship but the
selected sector i.e. Textile sector has not been under much consideration
before this in India, regarding the significance of working capital
management. So much literature is not available in this sector in India
context. Working capital is very important part of business activities of
many firms. For the textile sector as well, working capital management is
of crucial value. So, the aim of this study is to find out “Does efficient
working capital management have any impact on the profitability of firms
of textile sector of India.
In this backdrop the researcher has decided to study the working
capital management of textile industry with the overall objective of
studying working capital management through different types of ratio
based on the financial information of these companies.
As India is an agricultural country, so textile industry plays the

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Most important role in the development of Indian economy. In textile

industry working capital management is major problem. For the first time
the researcher has tried to emphasize on working capital management
with reference to Textile industry.
The remaining study is based on an analysis of previous literature
which provides the theoretical background for the study, research
methodology which includes description of all variables included in the
study. Chapter- 5 provides the conclusion on all above.
3.2 TITLE OF THE PROBLEM
This subject of this study is as follows:
"A STUDY ON WORKING CAPITAL MANAGEMENT AND ITS
IMPACT ON PROFITABILITY OF SELECTED UNITS OF
TEXTILE INDUSTRY"
The textile industry big role in the growth and development of
country. It provides required infrastructure for economic development of
country. This topic will be select keeping in view the availability of time
and ability of the researcher. After available literature and deep
discussion with the guide, researcher has selected the topic.
3.3 PERIOD OF THE STUDY
The present study is mode of a period of ten accounting year
starting from 2002 –2003 to 2011 -2012. The researcher has selected
2002 -03 base year. This year is normal for the purpose of analysis and
evolution.
3.4 NATURE OF THE STUDY
This study is based on the secondary data, derived from annual
published reports of selected unit’s textile units. Various researches have
been conducted under commerce faculty of Hemchandracharya north

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Gujarat University Patan, however no research has been conducted on

working capital management and its impact on profitability of selected
units of textile [Link] this study would be an original contribution
as the problem of the study is unique in every respect. It is a functional
aspect of the industry. No sampling technique is needed as the research
wants to take a census for the study.
3.5 TOOLS AND TECHNIQUES
Accounting techniques and statistical techniques have been used in
the present study. For the analysis the accounting technique Ratio
Analysis is used. Ratio analysis is considered as the best tool for
performance evaluation an organization. Ratio is quotient of two numbers
and the relation expressed between two figures. The ratio analysis
concentrates on the inter relationship among the figures appearing in the
financial statement profit & loss account and Balance sheet. The strengths
and weakness can be measured properly by the ratio analysis.
By using appropriate and revenant statistical techniques, the
collected data is edited and tabulated. For that purpose of testing
hypothesis framed during the course of research, the researcher used
parametric and non-parametric tests. With the help of average,
percentage, co variance, the data has been presented. Hypotheses have
been tested by5% level of significance by using An nova test requirement
of the study.
3.6 SCOPE OF THE STUDY
The study covers a period of ten year beginning from 2002- 03 to
2011 -12. In this study overall working capital, its broader components
and their management have been discussed.

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The textile industry has witness radical change in the last decade.
Existing units have expanded their production. All IIndia has many textile
industry, not included the all textile industry. The study is based only nine
textile industry. The study covers the evaluation of credit current ratio,
quick ratio Liquid ratio, Inventory Turnover ratio efficiency, current
efficiency, working capital turnover ratio efficiency, selected units.
The study is limited to only working capital management covering
various ratios related to working capital. The tool for appraisal of
working capital management is ratio analysis. so the scope of the study is
restricted to working capital management as functional scope of textile
industry.
3.7 REVIEW OF LITERATURE
Working capital management can be considered as an important
source of profitability of many researchers investigated the impact of
working capital management on profitability. This past research
demonstrated that efficient working capital management leads to greater
profitability. Smith (1980) conducted a study on profitability and liquidity
and suggested that working capital management directly influence risk
and profitability of a firm. Hence it can be inferred that effective working
capital management can increase the financial strength of a business.
Soenen (1993) also performed an analysis of working capital
management and its relationship with financial [Link] study
was based on US firms and after the study he suggested that if the length
of net trade cycle increases then it affects the return on investment
negatively.
Working capital management and profitability relationship has
been explored by many other researchers as well. Deloof (2003) analyzed

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1009 non – financial firms of Belgium. He found that gross operating

profit of a firm is negatively related to inventory turnover and average
collection period. Hence, he recommended that financial manager can try
to improve profitability by enhancing average payment period and by
curbing inventory turnover and average collection period. He also
recommended that profitability is strongly related to working capital
management of a business. Through a study on Saudi Arabian companies,
Eljelly (2004) discovered that the profitability and cash gap have a
significant negative relationship with each other. Mallik, sur, and Rakshit
(2005) evaluated Indian pharmaceutical industry. They discovered that
profitability and liquidity do not have any significant relationship for
these firms.
Dutt S. K. has written an article on tea industry, an appraisal which
was published in management in March -1992. He analyzed the financial
efficiency, profitability and liquidity by using different ratios.
In the year 1998 a study was made by S. J. Parmar on profitability
analysis of cement industry in Gujarat State for the period from 1988- 89
to 1994-95. He made an attempt to analyze financial strength, liquidity,
profitability, cost and sales trend and social welfare trend by using
various ratio, common size analysis and value added analysis. He made
several suggestions for the importance of profitability of cement industry.
In his analysis he indicates various reasons for the higher cost, low
profitability and inefficient use of internal resources.
Karva and Suberamanium published an article on the financial
performance of 10 units relating to the period from 1972- to 1979 which
mainly observed liquidity, profitability, financial performance, financial

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structure and overall performance. For this study they used conventional
ratio analysis.
Yoganandan. G. & Jaganathan his review the article analyzed
researches carried out in China, India, Sri Lank, Bangladesh and Pakistan.
These economies are the dominant textile exporters in the international
trade. Based on the review, it is suggested that future researches can be
done analyzing impact of these factors on less export oriented industries
so that possibly such results may be compared and new theories could be
established. Yoganandan. G & Jaganathan Management Studies K.S.R
College of Arts and Science Tiruchengode, India (2013) IJCBM,ISSN
2319-2828.
Marimuthu, K. N1, Mary Jessica - University of Hyderabad,
Doctoral Scholar, School of Management Studies, his review The study
reveals that liquidity position of the listed companies is highly
satisfactory level and there is relatively a less impact of liquidity position
on profitability. The study found that there is a lower degree association
between the working capital management and profitability and
recommended firm manager should take necessary action and concentrate
on liquidity management.
Virambhai (2010) his review the textile industry productivity and
financial efficiency focused on industry’s current position and its
performance. It concluded the company/management should try to
increase the production, minimize the cost and operating expenses,
exercise proper control on liquidity position, reduction of power, fuel,
borrowing funds, overheads, interest burden, etc. Hiralal Darsani (IJRHS)
ISSN:2320-771
Marimuthu, K.N University of Hyderabad, his review the Textile

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industrys financial performances and its main paramount is investment

decision makings as per expediency. Study conducted on evaluation of
textile industry selected Tamilandu companies and it reveals the better
performance out of 1376 companies in India under CMIE Prowess.
Therefore, there is more importance to give the company industrial
activity performances as per requirement, earning capacity, and share
price and profits and generating income, and assets. IJRMEC Volume2,
Issue 11 (November 2012) ISSN: 2250-057X
AHSAN AKBAR (2014) Phd scholar reviews of in his research
the Working capital management is more important for firms in emerging
markets with less access to short term funds. Financial and liquidity crises
that started in US increased the importance of short term financial
management for companies all around the globe. EUROPEAN
ACADEMIC RESEARCH ISSN 2286-4822
Dr. Meenakshi Anand, review of in his research financial position
of textile companies in India is sound and they are exploring their
available resource. The profitability margins has slightly different due to
volatile textiles market and volatility in raw material prices. The more
over liquidity position of companies is also sound, they maintained
sufficient funds to meet their short term obligations and there total net
worth is quiet enough to repay total outside liabilities of the companies,
so solvency position is almost same in all the companies. The textile
industry has traditionally remained a highly capital intensive capital
intensive industry and therefore general trend is of high gearing ratio.,
(JBM&SSR) ISSN No: 2319-5614
Md. Asaduzzaman Tabassum Chowdhury review of in his
research (Bangladesh) The study investigates the relationship between the

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working capital management and profitability of 21 Bangladeshi Textile

companies for the period 2008–12. The impact of working capital
management has been analyzed using multiple regression models
between WCM and profitability. The study finds a positive relationship
between profitability with number of days of inventory and number of
day’s accounts receivables, in contrast negative relationship with number
of days accounts payables. Research Journal of Finance and
Accounting ISSN 2222-2847
DR. T. MADHU SUDANA & DR. B. PHANISWARA RAJU
review of in his research the textile industry is second largest industry in
India, due lack of proper management of working capital, number of units
are becoming sick which results downfall not only in industrial
development but also economic development. Therefore, an attempt has
been made to analyze the liquidity and profitability in Textile
Industry.(IJRC,I&M) ISSN 2231-5756.
3.8 BROADER HYPOTHESIS:
The border hypothesis of the study is that the Garden silk mill,
Alok industry Ltd, Laxmi mill ltd, shree Dinesh mill ltd, Mafatlal
company ltd, Raymond company ltd, Digjam ltd, siyaram silk mill ltd,
Ruby miil ltd, working capital management is efficient and helpful for
improving profitability over the period of study.
3.9 OBJECTIVES OF THE STUDY
The main objectives are:
1. To study the trend of working capital in selected units.
2. To study the efficiency of working capital management of
Selected units.
3. To analysis the components of working capital of selected Units.

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4. To assess and comments on the liquidity position of selected units.

5. To make suggetions for the better working capital management of
selected units.
3.10 METHOD OF DATA COLLECTION
Present study the main source of data, used for the study is
secondary drwon from the annual profit and loss account and balance
sheet figures as found in the annual reports of the selected units. The
selected data was complemented thruogh direct personal unstructured
investigation of general managers, internet, senior personal of accuonts
department of selected units. The main information and data have been
collected from head offices of the selected units. Opening expressed in
commercial journals magazines, news papers accounting literature,
various journals and magazines on textile industry have also been used in
the study.
3.11 METHOD OF ANALYSIS AND INTERPRETATION
OF DATA
The study is based on secondry data taken the annual reports of the
selected units for the period from 2002-03 to 2011-12. Unstructured
personal interviews have been taken for secondary data and understand
the internal and external factors affecting the working capital
management of the units. The data obtained have been duly classified
edited and tabulated under various groups as per requirements of the
study. An analytical tool like ratio, percentages trends, regression analysis
and co- efficient of co- relation were used for objective analysis and for
darwings for meaningful conclusions.

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3.12 CHAPTER SCHEME

The research report has been presented as per the following chapter
scheme:
Chapter - 1 :
Introductin of Textile Industry
This chapter discussion has been mode points like Introduction,
Meaning and development of textile industry in Gujarat, History and
development of textile industry, Needs for textile in india, Government
policies for textile industries, Growth of textile industries in India,
Challenges faced by Indian textile industries, references.
Chapter - 2 :
Conceptual Framework of working capital management
This chapter explains introduction of working capital, concept of
working capital.
Introduction, concept of working capital, concept of permanent
and temporary working capital, The objective of working capital
management, The structure of working capital, The accounting concept of
working capital, concept of zero working capital, Factors affecting to
working capital, Nature of business, production cycle, production policy,
business cycle, computation of working capital, credit policy,growth and
expansion, Vagaries in the availability of raw material, Dividend policy,
Depreciation policy, price level changes, operating efficiency,
conclusions.
Chapter - 3 :
Research Methodology
The Indian textile industry is one of the largest in the world with a
massive raw material and textiles manufacturing bas. Our economy is

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largely dependent on the Tex earnings retile manufacturing and e trade in

addition to other major industries. Textile industry working capital
management is major problem, its impact on profitability. The researcher
has tried to understand on working capital management in selected
Textile industry nine units of selection ten years 2002-2003 from the
2011-2012 annual reports Garden silk mill Ltd, Alok industry Ltd, Laxmi
mill Ltd, shree Dinesh mill Ltd, Mafatlal company Ltd, Raymond
company Ltd, Siyaram silk mill Ltd, Ruby mill Ltd. A nova test for it and
have been using ratio analysis.
In this chapter of Research methodology narration has been made
in relation to various components of research methodology like:
introduction, title of the study, review of literature, data collection, period
of the study, scope of the study, objective of the study, nature of the
study, tools and techniques used in the study, hypothesis of the study,
chapter scheme of the study and limitations of the study.
Chapter - 4 :
Analysis and Interpretation
It covers the aspects like, major trends of working capital in
Garden silk mill, Alok industry Ltd, Laxmi mill ltd, shree Dinesh mill ltd,
Mafatlal company ltd, Raymond company ltd, Digjam ltd, siyaram silk
mill ltd, Ruby miil ltd, current ratio, Quick ratio, Liquid ratio, working
capital Turnover ratio, stock turnover ratio, Debtors Turnover
Ratio,analysis with net working capital turnover ratio, financing of
current assets with matching approach, liquidity position of Garden silk
mill, Alok industry Ltd, Laxmi mill ltd, shree Dinesh mill ltd, Mafatlal
company ltd, Raymond company ltd, Digjam ltd, siyaram silk mill ltd,
Ruby mill ltd, components of working capital - Gross Profit ratio,

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Operating Profit ratio, Expanse ratio, Net profit ratio, return on capital
employed, Earning per share. Working capital and profitability analysis
with the help of profit margin and overall profitability (Return on
investments).
Chapter - 5 :
Summary Findings and Suggestions
In this chapter summary of various chapter of the study, major
findings of the study and suggestion of study have been shown.
3.13 LIMITATIONS OF THE STUDY
The main limitations of the study are as follows:
1. The study is limited to ten year 2002-03 to 2011-12 only
2. The study is related to textile industry.
3. This study is based on secondary data derived from published
annual reports of the selected Units. The reliability and finding are
largely deepending on the data published In annual reports.
4. This study is restricted to only 10 units as compared to population
the sample size is to samll. Hence it becomes the limitation of the
study.
5. The ratio analysis has its own limitations. The same also applies to
the the present study.
6. There are many approaches to performance measurement. There is
no Uniformity among experts.
7. The calculation of working capital has many practical difficulties
there are different methods to calculate the working capital of an
industry.

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3.14 References:
1. SHARMA R.P. “Corporate financial structure” print well
publishers, Jaipur-302004, p.6
2. MICHAEL V.P.“Research methodology in management”
Himalayan Publishing house, Bombay, 1985,[Link].107
3. VERMA B.H. “Analysis of financial statement ”Arihant
publishers, Jaipur, 1988,[Link].54
4. KOTHARI C. R. “Research Methodology – Methods and
techniques” Wilshaw Prakashan, New Delhi, 1997,p.18
5. ULLMAN NEIL R “Elementary statistics-an applied approach”
p.234,
6. Cited in Kothari C.R.“Research Methodology-Methods and
Techniques” Wishwa prakashan, New Delhi, 1997, p.277.
7. BATTYJ. “MANAGEMENT ACCOUNTACY” Orient longmens,
New Delhi, 1966, P.394.
8. BRADLEY J.V. “Distribution free statistical tests.” Prentice Hall
Inc. New Jersey, p.129
9. STEVENSON W.J. “Business statistics” Harper and Row, New
York, 1978.p.299
10. Robert H. Wessel; Principles of Financial Analysis (N.Y.,
Macmillan, 1961), p. 29.
11. WESTON J.F. AND BRIGHAM E.F “Managerial Finance”cited
in Sharma akhileshwar “profitability analysis of Drugsand
pharmaceutical companies in India” A thesis submitted for the
degree of PH.D, in the faculty of commerce, saurashtra university
Rajkot 1992,p

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12. DAVE N. V. “Industrial sickness and some key areas of

management (A study of textile Industry: Gujarat) A thesis of
PH.D. In faculty of commerce, saurashtra university, Rajkot, 1984,
p. 260-261.
13. GUPTA R.L.& [Link], Financial statement analysis
(Delhi : Sultan chand&sons.1980), p.40
14. PHILIP [Link] AND CARL S. WARREN “Financial
accounting” South western publishing co, cicinnati, 1982,
[Link].159.
15. R.S. KULSHRESTHA “Profitability in India’s steel industry
during the decade 1960-70”A thesis submitted for the degree of
PH.D depts. E.A.F.M., university of Rajasthan, Jaipur, 1973, p.83.
16. MURTHYROGER, H. HERMAN SON. Accounting principles,
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17. S. P. Gupta “Fundamentals of statistics,” Himalaya Publishing
House (1982), New –Delhi.
18. [Link] & [Link] : Introduction to Management
Accounting, Sheth Publishers Pvt. Ltd. Bomby.
19. Arora M.N. Cost Accounting- Principles and practice, vikas, New
Delhi
20. Dr. [Link] :Problem & solution in Management
Accounting &Financial Management, Sultan Chand.
21. Anthony Robert, Reece et. al, Principal of Management
Accounting, Richard D. irwin inc. Llinois.
22. Khan M.Y. and Jain P.K. Management Accounting, Tata McGraw
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23. Ravi Kishore, Management accountancy, Taxmann Publication.

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24. Jain S.P. and Narang K.L. Cost Accounting, Kalyani, New Delhi
25. [Link] & Manmohan, Management Accountancy,Sahitya
Bhavan, Agra.
26. Kaplan R.S. and Atkinson A.A. Advanced managementAccounting,
Prentice Hall India, New Delhi.
27. Gupta R.L. and Radhaswamy, [Link] Accounting : Sultan
chand and sons, New Delhi.
28. Monga J.R. Ahuja Girish and shegal Ashok : Financial
Accounting.
29. International Journal of Commerce, Business Management, ISSN :
2319-2828. Yoganandan.G & Jaganathan A.T.
30. The Lahore Journal of Economics 16: 2 (Winter 2011): pp. 141–
178
31. International Journal of Research in Humanities and Social
Sciences Vol. 1, Issue:4, June 2013 (IJRHS) ISSN:2320-771X
Hiralal R. Desrani.
32. Marimuthu, [Link] of Hyderabad, Hyderabad, India
IJRMEC Volume2, Issue 11 (November 2012) ISSN: 2250-057X.
33. International Journal of Economics, Commerce and Management
United Kingdom Vol. I, Issue 1, 2013 Licensed under Creativ
Common ISSN 2348 0386.
34. Journal of Business Management & Social Sciences Research
(JBM&SSR) ISSN No: 2319-5614 Volume 3, No.6, June 2014 –
Dr. Meenakshi Anand.
35. Research Journal of Finance and Accounting ISSN 2222-1697
(Paper) ISSN 2222-2847 Vol.5, No.8, 2014.

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36. International Journal of Innovative Research and Development

ISSN 2278 – 0211 - Dr. Mary Jessica and Marimuthu K. N.
37. International Journal of Research commerce IT & management
ISSN 2231-5756 Dr. T. Madhu Sudana & Dr. B. Phaniswara Raju.

………

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