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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
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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
7
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
10
“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
13
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.
21
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
23
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
25
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
26
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