73740598 a Study on Working Capital Management

1

A STUDY ON WORKING CAPITAL MANAGEMENT IN KSE LTD,

IRINJALAKUDA

PROJECT REPORT

Submitted by

JITHIN C.U

Register No: 098001608020 

In partial fulfilment for the award of the degree

Of    

MASTER OF BUSINESS ADMINISTRATION 

MAHENDRA ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES

NAMAKKAL – 637 503

MAY-2011

2

MAHENDRA ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES

PROJECT WORK

MAY-2011

This is to certify that the project entitled

A STUDY ON WORKING CAPITAL

MANAGEMENT IN

KSE LTD, IRINJALAKUDA

JITHIN C.U

Register No: 098001608020

of MBA during the year 2010-2011

Project guide Head of the department

S.P. SREEKALA                                                       

Submitted for the project viva-voce examination held on--------------

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

Internal examiner External examiner

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4

D E C L A R A T I O N 

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

MANAGEMENT IN KSE LTD, IRINJALAKUDA being submitted in partial 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 or any other University.

 JITHIN C.U

Register No: 098001608020 

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

S.P.SREEKALA

M.Com., M.B.A., M.Phil., (Ph.D).,

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ACKNOWLEDGEMENT

              I wish to express my sincere thanks to the Management, Mahendra Engineering

College, for providing me the needed facilities to do my project report in working capital

management in KSE Ltd, Irinjalakuda. 

                I express my sincere thanks to our Principal Dr. R. SAMSON RAVINDRAN,

B.E., M.S., M.B.A., Ph.D (Solar Energy)., Ph.D (Bio-Engg)., F.I.E, C.E.(India)

M.I.S.T.E., for his encouragement given to me in carrying on the project report.

             I take immense pleasure to thank Mr. R ARIVALAGAN, MBA, M com,

M.Phil H.O.D in charge, Department of Management Studies, .Mahendra Engineering

College, for his valuable guidance during each stage of project report.

             I have great pleasure in extending my sincere gratitude to my beloved guide

Mrs. S.P. SREEKALA, M.Com., M.B.A., M.Phil., (Ph.D)., Lecturer Department of

Management Studies, Mahendra Engineering College, Mahendirapuri, Namakkal Dt , for

his valuable guidance and for the pain and strains taken in making this project report as a

grand success.

I express my thanks to Mr.M.D.ANIL, Finance Manager, KSE LTD, IRINJALAKUDA

and other staff members at KSE LTD, IRINJALAKUDA who kindly provided their

helping hand for doing the project work.

                  I remember with love the blessings and inspiration given by my parents,

family members and friends for the successful completion of the work. 

JITHIN C.U

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CONTENTS

CHAPTER NO.

PARTICULARSPAGE

NO.

LIST OF TABLES 8

LIST OF CHARTS 9

1 INTRODUCTION 10

1.1 INDUSTRY PROFILE 13

1.2 COMPANY PROFILE 17

2 DESIGN OF STUDY 29

2.1 OBJECTIVES OF THE STUDY 30

2.2 SCOPE OF THE STUDY 30

2.3 LIMITATIONS OF THE STUDY 31

2.4 STATEMENT OF THE PROBLEM 32

2.5 REVIEW OF LITERATURE 33

2.6 RESEARCH METHODOLOGY 35

3 ANALYSIS AND INTERPRETATION 36

4 FINDINGS, SUGGESTIONS 69

4.1 FINDINGS 69

4.2 SUGGESTIONS 70

5 CONCLUSION & FUTURE ENHANCEMENT 71

5.1 CONCLUSION 71

6 APPENDICES 72

6.1 SOURCE 72

7 REFERENCE 72

ABSTRACT

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The project is “A STUDY ON WORKING CAPITAL MANAGEMENT WITH

SPECIAL REFERENCE TO KSE LTD, IRINJALAKUDA”.The main objective of the

study is to find out the soundness, liquidity and profitability of the company.

The study is formulated by the research design for analyzing the profitability,

soundness and liquidity of the company.

The research design used for this study is analytical research design. Secondary

data is collected from journals, magazines, reports and books.

The statistical tools for the study are common size statement, comparative

statement, trend analysis and ratio analysis. Graphs are also used for the diagrammatic

representation of the interpretation. The study was mainly based on the annual reports of

KSE Ltd.

LIST OF TABLES

8

TABLE

No

Particulars PAGE

No

3.1 TABLE SHOWING CURRENT RATIO 38

3.2 TABLE SHOWING LIQUIDITY RATIO 41

3.3 CREDITORS TURN OVER RATIO 43

3.4 AVERAGE PAYMENT PERIOD 47

3.5 STOCK TURN OVER RATIO 48

3.6 WORKING CAPITAL TURN OVER RATIO 51

3.7 STATEMENT OF WORKING CAPITAL 53

3.8 COMPARATIVE STATEMENT FOR THE YEAR 2005-06

TO 2006-07

54

3.9 COMPARATIVE STATEMENT FOR THE YEAR 2006-07

TO 2007-08

56

3.10 COMPARATIVE STATEMENT FOR THE YEAR 2007-08

TO 2008-09

58

3.11 COMPARATIVE STATEMENT FOR THE YEAR 2008-09

TO 2009-10

60

3.12 INVENTORY CONVERSION PERIODS 64

3.13 WORKING CAPIATAL TREND 66

LIST OF CHARTS

9

TABLE

NoParticulars

PAGE

No

3.1 CHART SHOWING CURRENT RATIO 40

3.2 CHART SHOWING LIQUIDITY RATIO 43

3.3 CREDITORS TURN OVER RATIO 46

3.4 AVERAGE PAYMENT PERIOD 48

3.5 TREND CHART 68

1. INTRODUCTION

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“Working capital means the part of the total assets of the business that change from

one form to another form in the ordinary course of business operations.”

In a perfect world, there would be no necessity for current assets and

liabilities because there would be no uncertainty, no transaction costs, information search

costs, scheduling costs, or production and technology constraints. The unit cost of

production would not vary with the quantity produced. Borrowing and lending rates shall

be same. Capital, labour, and product market shall be perfectly competitive and would

reflect all available information, thus in such an environment, there would be no

advantage for investing in short term assets. However the world we live is not perfect. It

is characterized by considerable amount of uncertainty regarding the demand, market

price, quality and availability of own products and those of suppliers. There are

transaction costs for purchasing or selling goods or securities. Information is costly to

obtain and is not equally distributed.

There are spreads between the borrowings and lending rates for

investments and financings of equal risks. Similarly each organization is faced with its

own limits on the production capacity and technologies it can employ there are fixed as

well as variable costs associated with production goods. In other words, the markets in

which real firm operated are not perfectly competitive. These real world circumstances

introduce problem’s which require the necessity of maintaining working capital. For

example,, an organization may be faced with an uncertainty regarding availability of

sufficient quantity of crucial imputes in future at reasonable price. This may necessitate

the holding of inventory, current assets. Similarly an organization may be faced with an

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uncertainty regarding the level of its future cash flows and insufficient amount of cash

may incur substantial costs. This may necessitate the holding of reserve of short term

marketable securities, again a short term capital asset. In corporate financial management,

the term Working capital management” (net) represents the excess of current assets over

current liabilities.

Working capital may be regarded as the life blood of business. Working

capital is of major importance to internal and external analysis because of its close

relationship with the current day-to-day operations of a business. Every business needs

funds for two purposes

Long term funds are required to create production facilities through purchase of

fixed assets such as plants, machineries, lands, buildings & etc

Short term funds are required for the purchase of raw materials, payment of

wages, and other day-to-day expenses. It is otherwise known as revolving or circulating

capital

Working Capital = Current Asset – Current Liability.

The primary objective of working capital management is to ensure that sufficient

cash is available to

Meet day to day cash flow needs.

Pay wages and salaries when they fall due

Pay creditors to ensure continued supplies of goods and services.

Pay government taxation and provider of capital – dividends and

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Ensure the long term survival of the business entity.

Concept of working capital

• Gross Working Capital = Total of Current Asset

• Net Working Capital = Excess of Current Asset over Current Liability

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1.1 INDUSTRY PROFILE

1.1.1 Solvent Extraction Industry

The solvent industry has achieved a phenomenal progress and at present there are

520 units having overall oil cake or oil seed processing capacity of more than 9.9

million/year. The solvent extraction plays important role in the oil economy. Solvent

extraction in India was started in 1945. It had to struggle for more than 20 years to

establish itself.

1.1.2 Crises of coconut industries in Kerala in 1960’s

In the 1960’s there was a crisis in coconut oil extraction industry in Kerala.

After conversion from wooden ghani’s to rotaries the cost of the production had

increased considerably. By using this new method they were able to extract more oil from

the coconut cake. Earlier 20% of the oil was retained in the coconut cake, now it has

reduced to 12%.

Although Kerala produces 80% of copra produced in the country large part of it was

sold to other state as copra itself and they were earning good profit when mills in Kerala

wasn’t able to get enough copra for their daily needs. When oil industry in other parts of

the country was thriving in Kerala it was struggling. So they understood the need for

modernization of their mills. At that time Dr. P. S. Lokanathan committee set up to study

the feasibility of starting new industries in Kerala, recommended of establishment of 3

solvent plants in Kerala and it was also proposed that one should be located in Thrissur

itself.

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1.1.3 Coconut oil miller’s co-operative society

Lion share of copra went to mills in Bombay and they were able to generate good

profits. To overcome the situation a co-operative society formed by name Coconut Oil

Miller’s Co-operative Society and it was decided that this society would act as an agent

of state trading corporation for distribution of copra.

By seeing the performance of the Bombay group an investigation department was

assigned to investigate it. Then they found out that they were using expeller mills for

extracting oil and was able to reduce the oil content up to 6%. The industries in Kerala

later began to follow it.

1.1.4 Cattle feed Industry

From the beginning KSE Ltd marketed the buy product obtained from its

solvent extraction division in the brand name of Jersey Copra Cake. Most of the progress

in the cattle feed sector has come about in the past 30 years only. There are only few

cattle feed units in the country especially in Kerala. The cattle industry of the state has

been utilizing the indigenous raw material i.e. coconut cake, which is the residue left after

the extraction of oil from copra which is mainly used as cattle feed. Coconut cake

contains 4-5% oil is generally used for industrial purpose and deoiled cakes is used to

make mixed cattle feed.

In Kerala the rotary cake was used as a cattle feed and actually this excessive

oil on cakes reduced the keeping quality of the cake and also upset the digestive system

of the cattle e. In foreign countries, the cattle is feed only with de-oiled cakes and

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according to the dairy experts, the milk and fact contend of milk depends solely on the

protein contend of the feed. All these factors stress the importance of having a few cattle

field industry in the state.

Thus in 1996, KSE Ltd. Entered the cattle field industry, setting up the new

plan fir manufacturing ready mixed cattle feed. The last three decades have been KSE

emerging as the leader in ready mixed cattle feed in the country. Today KSE Ltd.

Commands the recourses, expertise and infrastructure of manufacture a range of livestock

feed in high volumes, driven by a commitment to high standards of quality

1.1.5 Dairy Industry

Most of the progress in the dairy sector has come about in the past 25 years only.

Till 1970, the country’s milk production increased merely by 1% a year. But after the

intensification of cattle improvement programme through artificial insemination, using

sasses of exotic breeds and launch of operation flood, the production started rising rapidly

from the mid 19

The transformation of India from a milk deficit to a milk surplus country is

essentially the result of an intensive campaign launch by the Govt. and semi Govt. bodies

to promote animal husbandry as a means of generating income for the landless poor. The

bulk of growth in the milk output is therefore accounted for by the unorganized section

consisting of millions of small milk producers, feeding their cattle largely on crop

residues.

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Many of these producers have organized themselves into co-operative under the

umbrella if the National Dairy Development Board (NDDB) which had been running a

highly successful animal husbandry promotion programme named operation flood.

The private sector has now entered into this field in a big way, capitalizing on the

availability of cheap surplus milk to produce various kinds of dairy products for the

domestic and international market. Several dairy products like skimmed milk powder,

whole milk powder, and infant milk foods of western origin are now being produced in

India. A variety of cheeses, milk drinks, ice creams, pasteurized butter etc. which, were

very common in this country till a few decades ago are now available in abundance in

department stores of big and small cities. The main objective of this programme is to

build a viable and self sustaining national dairy industry capable of meeting the domestic

demand for fresh liquid milk and milk products and competing in the international area.

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1.2 COMPANY PROFILE

Cattle play a vital role in the economy of India. Cows and bullocks are regarded as

the foundation of agriculture in India. Cattle supplies the motive power for almost all

agriculture operations such as ploughing, lifting water from wells and the transport of

produce to the markets. They provide most of the manure used by farmers in India and

often enable them to earn something during this spare time by carting for hire; their

unawareness of farmers about the proper feeding methods of cows leads to cow milk

productivity. Majorities of Indian cattle are seriously underfed particularly cows in rural

areas. Due to these reasons, the importance of the cattle feed industry has been increased

in India.

Kerala Solvent Extractions was registered as a public limited company on 25 th

September, 1963. The company was later renamed as KSE Limited and listed in the stock

exchanges of Mumbai, Chennai and Kochi. KSE, a company having annual turn of Rs.

250 crore, is the largest manufacturer of cattle feed.

It is marketing annually about 2.2 lakh tones of superior quality cattle feed. KSE

is in the oil extraction industry for the past 32 years.

The company has secured the National Productivity Award for the year 2001-2002

for being first in terms of production efficiency in the animal feed sector. This is the sixth

time in arrow that the company has been selected for the most coveted award.

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KSE, with a capital base of Rs. 36 crore embarks on an expansion to double its

solvent extraction capacity and add a most modern eco-friendly vegetable oil refining

plant.

1.2.1 ORIGIN

Copra crushing has been a native industry of Kerala. But inefficient crushing

methods and competition from the modernized oil mills elsewhere shattered coconut oil

industry in Kerala in early 1960’s. It was as a part of the package program to revive

coconut oil industry in the state of Kerala that oil millers of Irinjalakuda and surrounding

places formed themselves into a corporate body to start a solvent extraction plant.

1.2.2 HISTORY

In 1963, KSE Ltd was established according to Indian Companies Act 1956. It

was registered as a public limited company on 25th September, 1963. Its first production

was started in 1972 with a capacity of 40 tones per day. In 1980 the capacity of plant was

raised to 60 tones per day. In 1983, a fully automatic cattle feed plant was added with a

capacity of 120 tones per day capacity. By 1992 the capacity of solvent extraction plant

was further increased to 100 tones per day. In 1987, the plant capacity was increased to

180 tones over day.

The company’s second production unit with a capacity of 150 tones per day

solvent extraction commenced operation at Swaminathapuram. Dindigul district of Tamil

Nadu in 1988 and 1989 respectively. The cattle feed capacity was subsequently increased

to 180 tones per day.

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The third cattle feed plant of the company started operation at Vedagiri in

Kottayam district of Kerala in 1995. This plant is now working on three shifts producing

around 150 tonnes per day. This plant has a basic installed capacity to go up to 240

tonnes per day. The plant at Irinjalakuda and Vedagiri are fully automatic and key

manufacturing operations are controlled by microprocessors. Vedagiri project costing

around Rs. 6 crore was fully financed out of internal sources of company. Company put

up a vegetable oil refining plant at Irinjalakuda at a cost of Rs. 1 crore in 1995. This

project was also fully financed from internal accruals. The company is reaming solvent

extracted coconut oil and expeller sunflower oil in the refinery plant.

Oil millers of Thrissur are the promoters of the company. It was registered in

1956 and incorporated as a public limited company in 1963 as per Indian Companies Act.

Kerala Solvent Extraction Limited was registered as a public limited company on

25th September 1963. The company was later renamed as KSE Limited. The company is

listed in three stock exchanges- Mumbai, Chennai, Cochin.

The company started production in1972 with a solvent extraction capacity of 40

MTS per day. On1976 the company is modernized to cattle feed industry with a capacity

of 50 tons per day.

KSE Limited is a product oriented company. Cattle feed is the main product of

the company. The other products are oil-cake, de-oiled cake (JERSEY), Milk, Ice cream,

etc.. De-oiled cake is marketed under the brand name “JERSEY”. Their Ice cream

marketed under the brand name “Vesta”, is well accepted in the market. Now they are

trying to expand their milk products.

20

In the early stages, the company faced financial difficulties, but was assisted by

K.S.I.D.C. (Kerala State Industrial Development Corporation) by subscribing to it’s

twenty five percent equity capital and I.F.C.I. (Industrial Finance Corporation of India).

KSE had computerized its operations way back. In the year 1999, KSE

went on to upgrade its EDP set up further. A custom made ERP soft ware was

developed for its units and head office through M/s R.R. Software Pvt. Ltd. Cochin and

online computerization was fully implemented at all its plants. Being custom made for

KSE this ERP software, with SQL RDBMS front end on Visual basic and Windows NT

OS , selflessly had integrated all function of the organization viz FA, inventory, billing

payroll ,PPC. MIS, share accounting etc.

The head office at irinjalakuda has two servers and 40 Nodes running the

application. Other units, in all, have about 8 servers and about 50 Nodes. Their plant at

Vadagiri, Kottayam, has a computerized control room for monitoring, homogenization,

size reduction, batching, pelletisation, pellet cooling and aspiring system.

The manufacturing processes used in the company are

Wooden canes

Oil mill

Expeller mill

Solvent extraction

Now-a-days, the first three processes are out of use. Irinjalakkuda unit of the

company is mainly concentrated on solvent extraction process.

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Irinjalakuda unit of the company consists of cattle feed plant and refining plant.

1.2.3 Challenges

Kerala feeds; Milma, Godrej, Prima, etc. are the main competitors to the

company. But the company is the number one producer of cattle feed in private sector.

Now the company is concentrated on producing more milk products. Projects for this

purpose are on consideration.

1.2.4 SHARE CAPITAL OF THE COMPANY

The authorized share capital of the company is Rs.4 crores and issued and

subscribed capital is Rs. 32 crore. The par at value of one equity share capital is Rs. 10.

The company issued 6000, 135% redeemable cumulative preference shares of Rs. 100

each. The redemption of these shares is at par after ten years but before fifteen years from

the date of their allotment. The company has made 2 bonus issues and one right issue.

The company went in for public issue of shares in 1994. Company shares are listed at the

stock exchanges at Cochin, Chennai, and Mumbai. The present market value of the

company’s share is Rs. 160 as on 22nd December, 2006. The reserves and surplus on 31st

March, 2005 is Rs. 25 crores. The company declared a dividend of 125% for the year

ended 31st March, 2006.

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1.2.5 Milestone

Year Events

1976 A new plant was set up to produce 50 MTS of ready mixed cattle feed

1979 Production capacity of cattle feed plant is increased to 60 MTS per day

1983 A fully automatic cattle feed plant started operation. Capacity 120 MTS Per

day

1984 The solvent extraction plant capacity increased to 80 MTS per day

1987 Cattle feed plant capacity increased to 180 MTS per day

1988 Cattle feed plant in Tamil nadu went in to operation. Capacity 100 MTS per

day

1989 The capacity of solvent extraction plant of Tamil nadu unit is expanded to

100 MTS per day

1990 Cattle feed production capacity of Tamil nadu increased to 150 MTS per day

1991 Palakkad branch started

1993 The company enters export market

Keyes forte, the new feed supplement for cattle introduced. Cattle feed

manufacturing capacity of Swaminathapuram unit increased to 180 MTS per

day

1995 Cattle feed production is started in Mysore in Karnataka state. Calicut branch

opened

1996 240 TPD cattle feed plant at Vedagiri in Kottayam district started operation.

Company renamed to KSE Limited

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1998 Company acquired its fourth manufacturing unit at Palakkad and decided to

manufacture and market poultry feed from this unit. Company celebrated the

silver jubilee of the Irinjalakuda unit on completion of 25 th year of

commencement of production. Feeds and extractions, Swaminathapuram( a

unit of KSE Limited) was renamed as KSE Limited Swaminathapuram.

1999 A modern children’s park and information centre has been completed for the

benefit of the public. The company introduced ‘KS Deluxe plus’, the new

pelleted feed in HDPE bags for Kerala market.

2000 Company started production and marketing of pasteurized milk and milk

products from Konikkara diary, Thrissur, Kerala, and Thalayuthu diary,

Tamil nadu.

2002 Started operating a solvent extraction plant and oil refineryon lease at

Kanchikkode for processing coconut cake.

Cattle feed production capacity of the Irinjalakuda plant increased to 199

MTS per day.

Ice cream ‘Vesta’ launched

2003 Started produced cattle feed at a leased plant at Edayar, Kalamassery. Cattle

feed capacity of Swaminathapuram unit increased to 195 MTS per day.

‘Vesta’ haven ice cream parlours at Irinjalakuda an Marathakkara started

2004 New project of 200 TPD solvent plant and 100 TPD oil physical refining

plant started. Acquires hand from KINFRA for starting a new project at

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Kinfra park, orate.

2005 Cattle feed production capacity at irinjalakuda unit increased to 210 MTS

per day,

Started producing cattle feed in a leased unit at Erode.

Company acquired its 5th cattle feed manufacturing unit at Mysore.

ISO 9001-2000 accreditation for Vadagiri and Swaminathapuram units.

2006 The 200 TPD solvent extraction plant at Koratty commissioned.

100 TPD physical refining plant at Koratty commissioned.

A branch at Nilamel, Kollam district started.

A branch at coimbatore started for marketing Vesta ice cream.

1.2.6Board of Directors

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Board of directors of the company has ten members including the managing director.

They are as follows-

NAME DESIGNATION

Mr. M. C. Paul Chairman and Managing director

Mr. T. O. Paul Executive director

Mr. A. P. George Director and legal advisor

Mr. K. P. John Director

Mr. T. C. Mathew Director

Mr. P. D. Anto Director

Mr. John francis K. Director

Dr. K. C. Vijayaraghavan Director

Mr. T. R. Ragulal Director

Chief General Manager of the company is Mr. Anand Menon. Mr. R.

Sankaranarayanan is the secretary-cum-chief finance manager.

1.2.7 Bankers

KSE Limited banks with Bank of Baroda, Irinjalakkuda branch.

1.2.8 Units of KSE Limited

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Head office

KSE Limited, Irinjalakkuda.

Production units (Kerala):

1. Irinjalakkuda unit;

2. Vedagiri unit, Kurumullur;

3. Palakkad unit, Palakkad;

4. Diary unit, Konikkara;

5. Edayar, Cochin;

6. NIDA unit, Kanchikkode, Palakkad;

7. Parapadi unit, Calicut.

Tamil nadu:

1. Swaminathapuram unit, Dindugal;

2. Diary unit, Thalayuthu.

Karnataka:

1. Hinkal, Mysore.

1.2.9 PRODUCT PROFILE

27

In the beginning stage of KSE limited had only solvent unit. After some time the

company started to produce jersey copra Cakes, compound cattle feed & refined

sunflower oil. Jersey copra cake, the coconut cake, which comes out of Solvent

Extraction process is made pure by de-solvent sing & named as ‘Jersey Brand Copra

Cake’. At present it is marketed in Kerala, Tamil Nadu & Gujarat Company started to

produce ready mix compound cattle feed because it was not able to fulfill the demand of

‘Jersey copra cake’. The company was also producing food supplement for cattle feed

1.2.10 CATTLE FEED DEVISION

Cattle feed in 1976, the company started manufacturing ready mixed compound

cattle under the brand name “K.S.Cattle Feed”. The balanced ready mix feed

manufactured after due consideration of needs of the cattle in the state is well received all

over Kerala, therefore constituting its share in the milk production of the state.

Fully automatic & sophisticated live stock feed plant at 120 tonne productions per

day was established at Irinjalakuda to meet the increasing demand for cattle & this went

into commercial production in 1983.

CATTLE FEED SEGMENTATION

Cattle Feed

Pellet Mash

Ordinary

Mash

Super

Mash

Special

Mash

JerseySupreme

Pellet

Deluxe

Plus

Deluxe

Pellet

28

2. DESIGN OF THE STUDY

Cattle Feed

Pellet Mash

Ordinary

Mash

Super

MashSpecial

Mash

JerseySupreme

PelletDeluxe

Plus

Deluxe

29

Working capital may be regarded as the life blood of business. Working capital is of

major importance to internal and external analysis because of its close relationship with

the current day-to-day operations of a business. Every business needs funds for two

purpose There are spreads between the borrowings and lending rates for investments and

financings of equal risks. Similarly each organization is faced with its own limits on the

production capacity and technologies it can employ there are fixed as well as variable

costs associated with production goods. In other words, the markets in which real firm

operated are not perfectly competitive. These real world circumstances introduce

problem’s which require the necessity of maintaining working capital. For example,, an

organization may be faced with an uncertainty regarding availability of sufficient

quantity of crucial imputes in future at reasonable price. This may necessitate the holding

of inventory, current assets. Similarly an organization may be faced with an uncertainty

regarding the level of its future cash flows and insufficient amount of cash may incur

substantial costs. This may necessitate the holding of reserve of short term marketable

securities, again a short term capital asset. In corporate financial management, the term

Working capital management” (net) represents the excess of current assets over current

liabilities.

2.1 OBJECTIVES OF THE STUDY

30

I. To analyze the sources of working capital.

II. To draw meaningful conclusion and put forward suggestion for effective

WORKING CAPITAL management.

III. To study the capital structure.

IV. To understand firms working capital position.

V. To determine the efficiency in cash, inventory, debtors, creditors.

2.2 SCOPE OF THE STUDY

Working Capital Management is concerned with the problems that arise in

attempting to manage the Current Assets, the Current Liabilities and the inter-relationship

that exists between them. The term Current Assets refers to those Assets which in the

ordinary course of business can be, or will be, converted into Cash within one year

without undergoing a diminution in value and without disrupting the operations of the

firm. The Major Current Assets are Cash, Marketable Securities, Accounts Receivables

and Inventory.

Current Liabilities are those Liabilities, which are intended at their inception, to be paid

in the ordinary course of business, within a year out of the current assets or the earnings

of the concern .The basic Current Liabilities are Accounts Payable, Bills Payable, Bank

Overdraft and outstanding expense. The goal of Working Capital Management is to

manage the firm's Assets and Liabilities in such a way that a satisfactory level of working

capital is maintained. This is so because if the firm cannot maintain a satisfactory level of

working capital, it is likely to become insolvent and may even be forced into bankruptcy.

31

The Current Assets should be large enough to cover its current liabilities in order

to ensure a reasonable margin of safety. Each of the current assets must be managed

efficiently in order to maintain the liquidity of the firm while not keeping too high a level

of any one of them. Each of the short term sources of financing must be continuously

managed to ensure that they are obtained and used in the best possible way. The

interaction between current assets and current liabilities is, therefore, the main theme of

the theory of management of working capital.

2.3 LIMITATIONS OF THE STUDY

1.The duration of the study is limited to one month. This is a major constraint.

2.The period of the study of the analysis is limited to 5 years from 2005 to 2009

3.The study is based on the secondary data i.e. company’s published financial statement.

4.Data about inventory is not available for further analysis

5.The limitations of the ratio analysis are also the major constrains of the study.

6.Data for inter firm comparison is not available.

32

2.4 STATEMENT OF THE PROBLEM

The problem of that is stated as “the increasing the cost of production and

highly increasing the cost of raw materials of KSE Ltd, Iringalakuda

NEED FOR THE STUDY

Working capital management, which is concerned with decisions relating to the

current assets and current liabilities?. The key difference between long term financial

management and short term financial management is in terms of the timing of cash.

While long term financial decisions like buying capital equipment or issuing

debentures involve cash flows over an extended period of time short terms finanacial

decision typically involve cash flows within a year or within the operating cycle of the

firm. working capital management is concerned with the problem that arise in attempting

to manage the current assets. It is the capital invested in different items of current assets

needed for the business,viz., inventory,debtors,cash and other current assets such has

loans and advances to third parties capital required for purchase of rawmaterial and for

meeting day to day expenditure on salaries, wages, rents, advertising etc., is called

working capital.

33

2.5 REVIEW OF LITERATURE

2.5.1 NICOLA A. TARASHEV1

This paper uses firm-level data to compare the performance of six structural credit

risk models in terms successfully they predict default. Structural models focus on the

changes in value of a corporate obligor assumes that default occurs when asset values

cross some lower threshold. The paper finds that the modal well but they don’t fully

capture the effects of the business and credit cycles- and also could be improper

incorporation of macroeconomic variables. Endogenous default models- and also

produce better and quite an estimate of optimal capital when filtered through the base ii

internal rating based approach. The analysis that the most material borrower

characteristics are the firms leverage ratio, default recovery rate, and of return.

2.5.2ROHAN CHURM and NIKOLAOS PANIGIRTZOGLOU2

This paper uses a structural model of credit risk to try to decompose into their main

component expected default, uncertainty about the rate default , liquidity, regulation and

tax, it looks at how well it fits historical default frequencies to calculate an average

historical compensation for credit risk that could be compared to the average observed

credit spread. The results show, among other things, that a large part of credit spread

investment grade debt is due to non-credit risks factors, while the reverse is true.

2.5.3 MARCO SORGE3

Are longer maturity loans in project financing necessarily riskier than shorter

maturity loans? This paper show some key characteristics of project finance, such as

non-recourse debt, political risk, and ex ante spread finance lending to argue that long-

1 BIS working papers no. 179, July 2005

2 Bank of England working paper no. 253, 2005

3 BIS Quarterly Review, 6 December 2004

34

term project financing is not necessarily perceived by lenders as risk in term project

finance lending. The findings contrast with most other forms of lending, where credit

risk increases with maturity. Instead, the paper finds that the particular characteristics of

credit risk in project suggest a “hump-shaped” term structure of loan spreads.

2.5.4 MARK MANNING4

It is tempting to assume that the difference in price between a credit-risk-free bond

and a credit risky but it is strongly related to the expectation of default. Yet, as this paper

explains, the truth is more complex.

This applies a structural credit model to explore the problem using data from Sterling

bond markets. It concludes variability in the spread of high-grade A- rated credits is not

strongly related to default probability. Instead the spread is determined by other factors

such as liquidity. In this case of lower quality BBB-rated bonds, debentures seem to

explain about a third to a half of spread variation, depending on the modeling technique

that is implemented.

2.5.5 FERNANDO GONZALEZ .5

Agency credit ratings are an important feature of the financial markets and they play

an increasingly important in bank credit risk management and regulatory capital

calculations. This paper looks at the many ways that the market and regulators have put

on agency ratings. It says that ratings have become hard-wired financial system in

various ways (e.g., rating based trigger clauses in lending covenants) that can have effect

on market dynamics. It also summarizes rating methodology and takes a look at the

problem of credit and default time horizons. . It says that ratings have become hard-

wired financial system in various ways (e.g., rating based trigger clauses in

2.6. RESERCH METHODOLOGY

4 Bank of England working paper, 17 august 2004

5 European Central Bank, June 2004

35

Research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying how research is done scientifically. In it we

study the various steps that are generally adopted by a researcher in studying his research

problem along with the logic behind them. It is necessary for the researcher to know not

only the research methods/techniques but also the methodology.

2.6.1 METHODOLOGY OF STUDY

TYPE OF RESEARCH

Type of research employed is analytical research

2.6.2 COLLECTION OF DATA

Secondary data is mainly used for this study and the five year data from 2005-06

to 2009-10 pertaining to the study was collected from the company and the remaining

from books, magazines, journals, web sites etc.

2.6.3 TOOLS FOR ANALYSIS

Secondary data were analyzed and interpreted with the help of different tools such

as ratio analysis, graphs, tables, operating cycle, comparative balancesheets, schedule of

changing in working capital etc.

TIME PERIOD

The duration of the study was for a period of 2005 to 2010

3.DATA ANALYSIS AND INTERPRETATION

36

Data anlysis and interpretation is the core factor of any project. This chapter “data

analysis and interpretation consist of analytic part based upon empirical study. In this

project the researcher used annual report for data collection. The study is based on

primary and secondary data. Primary data is collected by means of interview. Secondary

data is collected by annual reports. In project, I have used various tools such as

Ratio analysis

Operating cycle

Trend analysis

Schedule of changes in working capital

3.1. RATIO ANAYSIS

Ratio analysis is the process of determining and presenting in arithmetical terms

the relation between figures and group of figures drawn from satements. The ratio

analysis is one of the tools in the hands of those who want to know something more from

the finanacial satements. Ratio is basis of this analysis.

Ratio can be expressed in any of three ways.

Rate, which is the ratio between the numerical facts over a period of time.

Pure ratios or propotions, which are arrived at by the simple division of one number by

another.

Percentage, which is a special type of rate expressing the relationship in hundred.

37

Ratio analysis is based on different ratios which are calculated from the accounting

data contained in the financial satements. Different ratios are used for different purpose.

These ratios can be grouped into various classes according to the financial activity

function to be evaluated.

3.1.1 CURRENT RATIO

Current assets normally mean assets convertible and meant to be converted into

cash within a year time. Current assets usually include cash in hand and at bank, debtors,

bills receivable, prepaid expenses, inventories, ratio materials, work in progress and

finished goods, marketable securities and other short term high quality investments.

Current liability represent the liablities at which fall due for payment within year.

Current ratio establishes the relation between the current assets and current

liabilities. Conventional rule, idle current ratio should be 2:1

The ability of a company to meets its short term commitment is normally assessed by

comparing current assets with current liabilities.

38

CURRENT RATIO

CURRENT RATIO= CURRENT ASSETS

CURRENT LIABILITIES

TABLE 3.1 CURRENT RATIO

YEAR CURRENT

ASSETS( lakhs)

CURRENT

LIABILITIES( lakhs)

CURRENT RATIO

2005-06 3137.42 1195.60 2.62

2006-07 4590.76 1632.56 2.81

2007-08 3063.73 840.48 3.64

2008-09 2870.67 1016.37 2.82

2009-10 3270.91 1142.61 2.86

39

INTERPRETATION

As a conventional rule, idle current ratio should be 2:1. The actual current ratio is

2:1 it can be reasonably being taken as a sign of liquidity or the short term solvency of

concern. The company has maintained the current ratio favorable from 2005-2006 to

2009-2010, but the year 2007-2008 the ratio was highly increased to 3.64.

The main reason for increasing current ratio in the year 2007-2008 is dipping the

sail in that year, it is because of increased price of the products. So the stock increased.

To recover this problem the sales have to increase.

40

CHART NO: 3.1 CURRENT RATIO

41

3.1.2 LIQUDITY RATIO

It is the ability of a firm to meet its obligation in the short run, usually based on

current assets and current liability. These are the ratios which measure the short term

solvency or financial position of the firm.Liqudity refers to the ability of concern to meet

its current obligation as and when they become due.

CURRENT ASSETS – CLOSING STOCK

LIQUDITY RATIO =

CURRENT LIABILITIES

TABLE NO 3.2 LIQIDITY RATIO

YEAR CURRENT ASSETS-CLOSING

STOCK(laks)

CURRENT

LIABILITES(laks)

LIQUDITY RATIO

2005-06 1152.71 1195.60 0.9641

2006-07 2535.94 1632.56 1.5534

2007-08 1210.17 840.48 1.4398

2008-09 1328.96 1016.37 1.2865

2009-10 1255.03 1142.61 1.0984

42

INTERPRETATION

Quick ratio is expressed as quick asset:quick liability.quick ratio of 1:1 is

considered to represent a satisfactory financial position. If actual quick ratio is equal or

more than the standard quick ratio of 1:1,the conclusion can be the concern is liquid and

so it can pay of its short-term liability out of its quickly The company has maintained

quick ratio favorable from 2005-06 to 2008-09. In year 2005-06 the company shows

lower quick ratio because of the company had highest stock in the year.

43

CHART NO 3.2 LIQUIDITY RATIO

44

3.1.3 CREDITORS TURNOVER RATIO

It constitutes an important source to provide spontaneous working capital of the

firms. Creditors turnover ratio expresses the number times the accounts payable are

converted into purchase by management during the year. Normally higher turnover ratio

is preferred.

ANNUAL PURCHASE

CREDITORS TURNOVER RATIO =

AVERAGE PAYABLE

TABLE3.3 CREDITORS TURN OVER RATIO

YEAR ANNUAL

PURCHASE

AVERAGE

PAYABLE

CREDITORS

TURNOVER RATIO

2005-06 16867.45 322.68 52.27

2006-07 17987.75 787.61 22.84

2007-08 21910.96 418.80 52.32

2008-09 23071.44 491.29 46.96

2009-10 29308.93 557.82 52.54

45

INTERPRETATION

This ratio reflects whether terms of terms of credit allowed by supliers are liberal

or stringent. High creditors turnover ratio shows that creditors are being paid promptly,

while a low turnover ratio reflects liberal credit terms granted by suppliers.

The company has been maintaining a better creditors turnover ratio but the year 2006-07

the ratio was highly decreased. Now the company recover this problem.

46

CHART3.3 CREDITORS TURNOVER RATIO

47

3.1.4 AVERAGE PAYMENT PERIOD

Average payment period related to the average number of days within which

payment to the creditors are being made. If the number of days is large, it shows the

inability of the firm to pay the creditors prompty, which will definitely affect the credit

worthiness

NUMBER OF DAYS

AVERAGE PAYMENT PERIOD =

CREDITORS TURN OVER RATIO

TABLE 3.4 AVERAGE PAYMENT PERIOD

YEAR DAYS IN YEAR CREDITORS TURN

OVER RATIO

AVERAGE

PAYMENT PERIOD

2005-06 365 52.27 7

2006-07 365 22.84 16

2007-08 365 52.32 7

2008-09 365 46.96 8

2009-10 365 52.54 7

48

INTERPRETATION

Above table shows average payment period of K S E pvt ltd. Company getting 6-8 days

to make payment to the supplier. This help the company to get discount from suppliers.

But the year 2006-07 the company took 16 days to make the payment.

CHART 3.4 AVERAGE PAYMENT PERIOD

49

3.1.5 INVENTORY (STOCK) TURNOVER RATIO

Inventory turnover ratio reflect the efficency of inventoy management. This ratio

indicates the number of times the inventory is replaced the during the year. Higher ratio

shows greater efficiency in management and vice versa.

COST OF GOODS SOLD

INVENTORY (STOCK) TURNOVER RATIO=

AVERAGE INVENTORY

TABLE 3.5 SHOWING STOCK TURN OVER RATIO

YEAR COST OF GOOD

SOLD

AVERAGE

INVENTORY

STOCK TURNOVER

RATIO

2005-06 19917.38 1094.26 18.20

2006-07 22829.10 1659.51 13.76

2007-08 27199.67 1628.34 16.69

2008-09 28947.48 1340.48 21.60

2009-10 33971.91 1394.56 24.36

50

INTERPRETATION

The above table shows the inventory conversion period of k s e ltd. From the part

of the company ideal period is 20 days. Company is not achieve the inventory conversion

period as ideal in last two years,that is ,22 and 25 days have taken to convert the stock

into cash in 2008-09 and 2009-10 respectively. The reason of taking this much dates,

company purchased rawmaterial in bulk quantity with discount.

3.1.6 WORKING CAPITAL TURNOVER RATIO

The different use of overall working capital in a firm can be measured with the

help of working capital turnover ratio. The ratio indiactes the ratio of working capital

utilization in the firm. A higher ratio indicates the efficient utilization of working capital

and vice versa.

NET SALES

WORKING CAPITAL TURN OVER RATIO=

AVERAGE NET WORKING CAPITAL

TABLE 3.6 WORKING CAPITAL TURN OVER RATIO

51

YEAR NET SALES NET WORKING

CAPITAL

WORKING

CAPITAL

TUREOVER RATIO

2005-06 21301.58 1941.82 10.96

2006-07 24076.42 2958.21 8.13

2007-08 27551.91 2223.25 10.63

2008-09 28947.49 1854.30 15.61

2009-10 35007.87 2128.30 16.64

INTERPRETATION

The higher ratio indicated efficient utilization of working capital and a low ratio

indicates inefficient utilization. The above table shows the working capital and high ratio

is due to high net working capital. In the year 2006-07 shows the working capital is 8

times but after that year the company getting good working capital utilization.

3.2 STATEMENT OF WORKING CAPITAL:

52

A statement of working capital is working capital is working capital is prepared to

depict the changes in working capital. Working capital represents the excess of current

Assets over current liabilities. Since, several times, i.e., all current assets and current

liabilities are the components of working capital, it is necessary to measure the increase

or decrease therein, by preparing a statement or schedule of changes in Working Capital.

This statement is prepared with current assets and current liabilities as appearing in the

Balance Sheets under consideration.

Working capital is defined as the difference between current asset and current

liabilities. Working capital of FRONTLINE EXPORTING is analyzed to find out the

nature of source of fund and how they are utilized for financing current assets.

TABLE3.7 STATEMENT OF WORKING CAPITAL FROM THE YEAR 2005-2009

53

Current Assets 2005-06 2006-07 2007-08 2008-09 2009-10

a) Inventories 15,34,87,658 24,65,78,960 23,54,67,432 23,98,76,543 27,65,42,765

b)Sundry Debtors 90,67,543 91,23,654 1,09,87,654 43,25,672 34,23,567

c)Cash&Bank

Balances

9,03,35,432 3,67,85,432 13,24,56,876 43,56,87,980 56,76,54,329

Total assets (A) 31,32,65,323 45,32,76,865 31,24,44,125 28,65,00,114 31,24,01,442

Current

Liabilities

a) Liabilities 6,65,23,432 6,56,43,212 1,04,57,654 8,75,44,332 8,76,53,434

b) Provisions 4,77,67,003 9,67,24,252 7,54,26,778 2,47,90,111 3,65,97,908

Total liability (B) 11,42,90,435 16,23,67,464 858,84,432 11,23,34,443 12,42,51,342

Net working

capital (A-B)

19,89,74,888 29,09,09,401 22,65,59,693 17,41,65,671 18,81,50,100

TABLE NO 3.8

54

COMPARITIVE STATEMENT FOR THE YEAR 2005-2006 to2006-07

(Rs in lakhs)

 PARTICULARS     2005-2006 2006-2007 CHANGE

LIABILILTIES :  

a) Liabilities6,65,23,432 6,56,43,212 8,80,220

b) Provisions4,77,67,003 9,67,24,252 (-)4,89,57,249

TOTAL   11,42,90,435 16,23,67,464 (-) 48077029

ASSETS:        

a) Inventories  15,34,87,658 24,65,78,960 9,30,91,302

b)Sundry Debtors   90,67,543 91,23,654 56,111

c)Cash&Bank Balances  9,03,35,432

3,67,85,4325,35,50,000

TOTAL     31,32,65,323 45,32,76,865 14,66,97,413

INTERPRETARTION:

Working capital= 19,89,74,888 29,09,09,401

Current asset – current liability

55

The comparative balance sheet for the financial year 2005-06 to 2006-07 shows

that there has been increase in the current assets as well as the current liabilities of the

company. It says company has increased its capacity of current assets in the

year .working capital has been increased than the previous years working

capital,increase in working capital means increase in the cost of day to day expenses

TABLE NO 3.9

56

COMPARITIVE BALANCE SHEET FOR THE YEAR 2006-07 to 2007-08

(Rs in lakhs)

 PARTICULARS     2006-20072007-08

CHANGE

LIABILILTIES :  

a) Liabilities6,56,43,212 1,04,57,654 5,51,85,558

b) Provisions9,67,24,252 7,54,26,778 2,12,97,474

TOTAL   16,23,67,464 8,58,84,432 7,64,83,032

ASSETS:        

a) Inventories  24,65,78,960 23,54,67,432 1,11,11,528

b)Sundry Debtors   91,23,654 1,09,87,654 (-)18,64,000

c)Cash&Bank Balances 

3,67,85,432 13,24,56,876(-)14,08,32,740

TOTAL     45,32,76,865 36,90,23,072 (-)13,15,85,212

INTERPRETARTION:

Working capital= 29,09,09,441 28,31,38,640

Current asset – current liabilities

57

This comparative balance sheet for the financial year 2006-07 to 2007-08 shows that

there has been decrease in the current assets as well as the current liabilities of the

company. It says company has decreased its capacity of raw materials at the same time

company has increased its cash and bank balances it may be through collecting the

amount of creditors.in this table we can see that working capital has been decreased in a

short range .it may be because of in the previous year may be the boom situation of the

company , there may be a chance of rice of a competitor

TABLE NO 3.10

58

COMPARITIVE BALANCE SHEET FOR THE YEAR 2007-08 to 2008-09

(Rs in lakhs)

 PARTICULARS     2007-082008-2009

CHANGE

LIABILILTIES :  

a) Liabilities1,04,57,654 8,75,44,332 7,70,86,678

b) Provisions7,54,26,778 2,47,90,111 5,06,36,667

TOTAL   8,58,84,432 11,23,34,443 7,64,83,032

ASSETS:        

a) Inventories  23,54,67,432 23,98,76,543 (-)44,09,111

b)Sundry Debtors   1,09,87,654 43,25,672 66,61,982

c)Cash&Bank Balances 

13,24,56,876 43,56,87,980(-)30,32,31,104

TOTAL     36,90,23,072 28,65,00,114 (-)30,09,78,233

INTERPRETARTION:

Working capital= 28,31,38,640 17,41,65,671

Current asset-current liability

59

By analyzing the current assets and current liabilities of the company for the

year 2007-08 to 2008-09, it is clear that there has been an increase in the sundry debtors

position of the firm. There is an increase of Rs. 66,61,982 (in lakhs) in the year 2008-0 as

compared to that of 2007-08. In this comparative analysis we can see that working capital

has again reduced , it says that company reduced its productivity , it may be the stage of

depresion

60

TABLE NO 3.11

COMPARITIVE BALANCE SHEET FOR THE YEAR 2008-09 to 2009-10

(Rs in lakhs)

 PARTICULARS     2008-20092009-10

CHANGE

LIABILILTIES :  

a) Liabilities8,75,44,332 8,76,53,434 (-)1,09,102

b) Provisions2,47,90,111

3,65,97,908(-)1,18,07,797

TOTAL   11,23,34,443 12,42,51,342 (-)11916899

ASSETS:        

a) Inventories  23,98,76,543 27,65,42,765 36666222

b)Sundry Debtors   43,25,672 34,23,567 (-)9,02,195

c)Cash&Bank Balances 

43,56,87,980 56,76,54,32913,19,66,349

TOTAL     28,65,00,114 31,24,01,442 16,77,30,376

Working capital= 8,36,84,429 18,81,50,100

Current asset-current liability

61

INTERPRETARTION:

The comparative balance sheet of 200-09 to 2009-10 shows that there has

been an increase in the current liability position of the firm while that of the current assts

has also been increased with that of the previous year. Current assets have been

increased to 31,24,01,442 in 2010 as compared to that of 2009.working capital also

increased in this year so this is a positive trend.

62

3.03 OPERATING CYCLE:

The operating cycle deals with the cycle of how a firm takes cash and converts it into

incventory and how inventory converted into sales, account receivables, and ultimately

back into cash. An investment in the working capital is influenced by 4 key events in

production of sales cycle of the firm.

Purchase of raw material

Payment of raw material

Sales of finished goods

Collection of cash sales

Length of operating cycle is to be determined by the spots with inventory conversion

period

For call calculating the operating cycle we have to calculate the three accounting

period ratios they are inventory conversion period, receivable period and payable deferral

period

A) INVENTORY CONVERSION PERIOD:

INVENTORY

INVENTORY CONVERSION PERIOD = X 365

COST OF GOOD SOLD

(OPENING STOCK + CLOSING STOCK)

63

INVENTORY = X 365

SALES

b) Receivable collection period (Debtors cycle):

ACCOUNT RECEIVABLE

RECEIVABLE COLLECTION PERIOD = X 365

SALES

C) PAYABLE DEFERRAL PERIOD

ACCOUNT PAYABLE

PAYABLE DEFERRAL PERIOD = X 365

COST OF GOOD SOLD

TABLE3.12 CONVERSION PERIODS

64

Accounting

period ratio

2005-06 2006-07 2007-08 2008-09 2009-10

Inventory

conversion

period

96 91 79 88 116

Receivable

collection

period

115 109 37 53 66

Payable

deferral

period

95 103 114 76 80

INTERPREATION

The above table and chart depicts that the inventory conversion period shows an

increasing trend from 2000 to 2002 from 92 days and then it starts to decrease up to 79

days in the year 2005. The standard norm of the company is 100 days. Only in 2004 and

2007 the inventory conversion period is higher than the standard norms in that period

company is took more days inventory conversion. The inventory is converted rapidly in

other years with 920days.91 days, 79 dys & 88 days in 2000, 2004,2005 and 2006

respectively.

65

3.4 TREND ANALYSIS

In working capital analysis the direction at changes over a period of time is of

crucial importance. Working capital is one of the important fields of management. It is

therefore very essential for an annalist to make a study about the trend and direction of

working capital over a period of time. Such analysis enables as to study the upward and

downward trend in current assets and current liabilities and its effect on the working

capital position.

In the words of S.P. Gupta “The term trend is very commonly used in day-today

conversion trend, also called secular or long term need is the basic tendency of

population, sales, income, current assets, and current liabilities to grow or decline over a

period of time”

According to R.C.galeziem “The trend is defined as smooth irreversible

movement in the series. It can be increasing or decreasing.” Emphasizing the importance

of working capital trends, Man Mohan and Goyal have pointed out that “analysis of

working capital trends provide as base to judge whether the practice and privilege policy

of the management with regard to working capital is good enough or an important is to be

made in managing the working capital funds.

Further, any one trend by it self is not very informative and therefore comparison

with Illustrated their ideas in these words, “An upwards trends coupled with downward

trend or sells, accompanied by marked increase in plant investment especially if the

increase in planning investment by fixed interest obligation”

66

TABLE 3.13 TREND OF WORKING CAPITAL FROM 2005-2010

YEARS WORKING CAPITAL TREND

2005-06 100

2006-07 05

2007-08 62

2008-09 51

2009-10 49

3.5 GRAPHICAL REPRESENTATION OF TREND SINCE 2005-2010

67

In the words of S.P. Gupta “The term trend is very commonly used in day-today

conversion trend, also called secular or long term need is the basic tendency of

population, sales, income, current assets, and current liabilities to grow or decline over a

period of time”

According to R.C.galeziem “The trend is defined as smooth irreversible

movement in the series. It can be increasing or decreasing.” Emphasizing the importance

of working capital trends, Man Mohan and Goyal have pointed out that “analysis of

working capital trends provide as base to judge whether the practice and privilege policy

of the management with regard to working capital is good enough or an important is to be

made in managing the working capital funds.

CHART3.5 WORKING CAPITAL TREND

68

4.1FINDINGS

1. The company has maintained quick ratio favorable from 2005-06 to 2008-09. In

year 2009-10 the company shows lower quick ratio because of the company had highest

stock in the year. .

69

2. The company has maintained the current ratio favorable from 2005-2006 to 2009-

2010, but the year 2007-2008 the ratio was highly increased to 3.63.

3. The company has been maintaining a better creditors turnover ratio but the year

2006-07 the ratio was highly decreased. Now the company recover this problem.

4. Company getting 6-8 days to make payment to the supplier. This help the

company to get discount from suppliers. But the year 2006-07 the company took 19 days

to make the payment.

5. Company is not achieve the inventory conversion period as ideal in last two

years, that is ,22 and 25 days have taken to convert the stock into cash in 2008-09 and

2009-10 respectively. The reason of taking this much dates, company purchased raw

material in bulk quantity with discount.

6. In the year 2006-07 shows the working capital is 7 times but after that year the

company getting good working capital utilization.

7. Only in 2005 and 2008 the inventory conversion period is higher than the

standard norms in that period company is took more days inventory conversion. The

inventory is converted rapidly in other years with 920days.91 days, 79 dys & 88 days in

2001, 2005,2006 and 2007 respectively

70

4.2 SUGGESTIONS

1 . The management should pay attention towards increasing working capital turnover by

minimizing the investment in inventories and receivables.

2 . The management should try to increase the liquidity position of the company by

proper by proper investment in current assets.

3 . the management is never think credit sales in their policies. But trade debtors in

balance sheet so it must think to eliminate it so as to reduce working capital requirements.

5 . The company mainly depends on cash sales if credit sales to maximum extend.

6 . Better consistency should be maintained in relation with working capital.

7 . Advanced and new technology of production should be incorporated.

8 . Unnecessary operational expenses should be reduced.

9 . special attention should be made by management in management of short term funds.

71

5. CONCLUSION

From the study it is concluded that KSE LTD has good working capital

management .however it is also revealed that current ratio is least minimum and quick

ratio is not up to peak , even though the company is maintaining a good track record . It

means that efficient utilization of working capital especially in the areas of inventory and

cash management.

Profitability is the key to success in business customer centric thinking is extremely

essential for survival in today’s business environment. Searching and developing the

strategic control points in an industry simultaneously with business design process can go

along way. Every good business design should have at least one strategic control point.

72

6.1 SOURCE

Company’s annual reports and records

Website

1) www.kselimited.com

2) http://en.wikipedia.org/wiki/Working_capital

3) www.studyfinance.com/lessons/workcap/

REFERENCE

Books

a. Arora M.N., Management Accounting, Himalaya Publishing House, Mumbai,

2008.

b. Jain S.P. & Narang K.L., Cost and Financial Analysis, Kalyani Publishers, New

Delhi, 2008.

c. Kothari C.R., Research Methodology, 2nd Revised Edition, New Age

International Pvt. Ltd., 2009.

d. Shashi K. Gupta & Sharma R.K., Financial Management Theory & Practice,

3rd Edition, Kalyani Publishers, New Delhi, 2000.

e. Dr.K.G.Chandrasekharan Nair and Dr. Jayakumar ‘CORPORATE

ACCOUNTING’

Chapter 8,’ Ratio analysis’,page no:8.1 – 8.46