Documente Academic
Documente Profesional
Documente Cultură
AT
KEERTHI INDUSTRIES
HYDERABAD
TO
PUNE
SUBMITTED
BY
PRN no : 170502376
2017-2019
1
DECLARATION
I the undersigned solemnly declare that the report of the summer training work
based on my work carried out during the course of my study under the supervision of
________________________________ ,
_____________________________________&
I assert that the statements made and conclusions drawn are an outcome of the project
work. I further declare that to the best of my knowledge and believe the project report
does not contain any part of any work which has been submitted for the award of any
_______________________
DATE:
PLACE:
2
CERTIFICATION
This is to certify that the Project Report title Working Capital Management at
Keerthi Industries, Hyderabad submitted in partial fulfilment for the award of MBA
Institute for Distance Learning, Pune was carried out by Ms. Nidhi Kiran Shah
under my guidance. This has not been submitted to any other University or Institution
3
ACKNOWLEDGEMENT
I would like to extend my gratitude to my Project guide, Mr. KBM Nayudu, Sr.
Manager – HR & Admin for his appreciable support and valuable time and guidance
experience.
A successful project can never be prepared by the singular effort of the person to whom
project is assigned, but it also demands the help and guardianship of some conversant
immense help for the successful completion of this project. I would also thanks to all
I would also like to thank Mr/ Ms. XXXXXXX, and Mr/ Ms. XXXXX (Internal
Guide) who has been very cooperative and chose to remain anonymous, for giving me
the opportunity to gain from their experience in selection and recruitment processes.
Without their contributions, this project would have been rather incomplete.
4
TABLE OF CONTENTS
Introduction
Introduction
Need of study
Scope of study
Research Methodology
Chapter I
Data Collection
Bibliography
Annexure
5
Chapter - I
Introduction
Working Capital Signifies funds required for day-to-day business operations of the
aspects of current assets and current liabilities. More precautions should be taken for the
It may be recalled that the various items in the balance sheet can be reflected are
broadly divided into categories on each side for the purpose of working capital such as
Working capital planning forms an integral part of the total corporate planning
The working capital management involves deciding upon the amount and
The firms require working capital to run day-to-day operations. The firm has to
invest enough funds in current assets. Current assets are required because sales do not
6
cash an operating cycle is involved. The operating cycle of a manufacturing company
fuel etc.
into work-in-progress.
between the magnitude of working capital and the general scale of operations of the
working capital and all determinants of the working capital. More or less it is regarded
The working capital is the result of a managerial effort at minimization of the costs of
7
OBJECTIVES OF THE STUDY:
position
INDUSTRIES LIMITED.
To study the financial ratios etc., which come under the purview of
working capital.
capital.
management.
not.
INDUSTRIES LIMITED
8
The study on Working Capital Management position of with using financial
statements. It is very much essential to know the company financial performance for
Industries, Hyderabad and their plant in Mellacheruvu, on 100 percent EOU has been
This study covers the financials from FY2013 to FY18 and it is limited only to
assets and current liabilities. As available of time for the project is limited and the scope
of the subject is very vast, the study is confirmed to overall working capital
The study based on secondary sources of data is collected from annual reports.
Internal records and documents of selected sample unit the secondary data is also
collected from various magazines that is survey of Indian Industry 2016 and 2018.
Determination of facts about the financial ratios, financial positions etc., based on
the study of the company’s performance during the last five years covering the period
2016-2017 TO 2017-18.
9
The time span i.e.(45 days) which it ahs became difficult to collect all the
information.
The availability of accurate and complete the data is 5 years i.e., from
2013 to 2018.
Data may not be accurate and they may hide some data for their internal
restrictions.
Chapter – II
Industry & Company Profile
INDUSTRY PROFILE
hold and industrial constructions. Earlier Government sector used to consume over 50
percent of cement sold in India, but in the later decade its share has come down to 35
percent. Rural areas consume less than 23 percent of the total cement. Availability of
cheaper building materials for non-permanent structures affects the rural demand.
Demand for cement is linked to the economic activity in any country. Broadly, it
can be categorized into demand for housing construction and infrastructure building.
The real driver of cement demand is creation of infrastructure. Hence cement demand in
the emerging economies is much higher than in developed countries where the demand
10
has reached a plateau. In India the Government spending on infrastructure will affect the
infrastructure projects, road networks and housing facilities, growth in the cement
environment is expected to fulfill the vast housing requirements both in rural and urban
areas. The increase in infrastructure projects by the government coupled with the
construction of the North — South and East — West corridor projects have led to an
future. The reduction in import duties is not likely to affect the industry as the cement
produced is at par with the international standards and the prices are lower than those
huge potential market and rapid growth in the early stages lead to a surge in interest and
flurry of interest. The projected growth rates point to lucrative market. The buoyant
markets and huge profits ranked in by players and a glut in capacity created.
Competition increases, price fall and margins come under pressure, additional capacity
comes to halt, and weaker players will be out of the market. Demand catches up and the
cycle is repeated all ever again. Perhaps of all the cyclical industries, the Indian cement
Temptation:
11
A huge potential market, easy availability of raw materials and cheap labour
leads to a fluny of activity and a surge in interest. An estimate of the potential that exists
in the per capita consumption of cement was low in India at 85 kgs. Although the
growth of the industry depends more on level of consumer spending rather than per
capita consumption, less it serves as an easy benchmark to estimate the potential that
exists.
Fuel to fire:
The projected growth rates in demand based on the potential per capita
consumption growth or other demand drivers like the expected GDP growth rate. Fuel
stock market rallies. Consider the boom in cement stocks in 1994. Every cement
company was attracting valuations it never dreamt about. Scarcity induced by lower
capacities and to a large extent on non-availability of power, drove the cement prices to
the hilt. The kind of money minted by most cement companies as well as investors in
that period, made strategists plan enormous increases in capacity. This explains why
Government controls:
The factors that primarily control the price of cement arc coal, power tariffs,
railways, royalty and cess in limestone. Government controls all of these prices.
Coal:
percent of clinker production. This means per ton clinker produced 0.2 to 0.25 ton coal
12
consumes about ten million tons of coal annually. Since coal fields like BCCL supply a
poor quality of coal, NCL and SCL has to blend a high grade coal with it. The Indian
coal has a low calorific value (3500 to 4000 Kcal/Kg) with ash content a high as 25 to
with low ash content 6 to 7 percent. Lignite is also used as a fuel by blending it with
Electricity:
Cement industry consumes about 5.5 billion units of electricity annually while
one ton of cement approximately requires 120 to 130 units of electricity. Power tariffs
the production process. The state government supplies this input and hence plants in
different states like AP, MP experience power cuts to t he tune of 25 to 30 percent every
Infrastructure:
ACC, Indian rayon and Grasim rely on captive power generating wind mills.
Lime stone:
This constitutes the largest bulk in terms of input to cement. For producing one
ton of cement, approximately 1.6 ton of limestone is required. Therefore the cement
plant location is determined by the location of limestone mines. The major cash outflow
takes place in way of royalty payment to the central government and cess on royalty
levied by the state government. The total limestone deposit in the country is estimated to
13
be 90 million tons. AP has the largest share of 34 percent, Karnataka 13 percent, MP 8
percent, and Rajastan 6.5 percent. The plant near the limestone deposit pay less
Transportation:
economical. Therefore railways are moving 55 percent cement. There is also a problem
railways. Under this scenario, manufacturers are looking for sea routes, this being not
only cheap but also reducing the loss in transit. Today 70 percent of the cement moved
However the scenario is changing with most of the big players like ULTRA TECH, ACC
housing and industrial construction, irrigation projects, roads and laying of water supply
and drainage pipes etc. the level and growth of GDP and its sectorial composition,
etc. in turn determine these factors. But the domestic demand for cement is mainly from
the housing activities and infrastructure development. The government paved the way
for the entry of private sector in road projects. It has amended the National Highway Act
14
to follow private toll collection and identified projects, bridges express ways and big
passes for private construction. The budget gave substantial incentives to private sector
activities and infrastructure development. So it hoped that Indian cement should boom
Installed capacity:
India is the second largest cement producing country, the first being China. The
the length and breadth of the country, there are 120 large plants belonging to 56
companies with an installed capacity of around 135 million tons as on March 2018.
proportion of the final cost. A transportation cost tends the prices of cement in distant
250 Km, railways are mostly used to transport cement over longer distances. However it
is bulky in nature and infrastructure bottlenecks render even rail transport unavailable
over very long distances. Therefore, manufacturers tend to sell cement at the nearest
market first and sell in distance markets only if additional realization is greater than
freight costs incurred. This highlights the regional nature of the cement industry.
15
Strengths:
Weakness:
Quality control not available in the country and better quality coal
supply.
Opportunities:
Expected infrastructure growth (7.1 percent during 1995 — 96) will add
16
Privatization of infrastructure projects.
Threats:
in central and north India putting pressure on the realizations in the said region.
Andhra Pradesh, the pivot of industrial prosperity in South India, welcomes you
to its resourceful land of minerals, which includes coal, oil & natural gas, bauxite,
limestone, gold, diamonds and more. A host of infrastructure facilities are offered by the
State that include industrial development areas, industrial estates, growth centers and
special complexes like a chemical complex, plastic complex, leather complex and a
of India’s engineering graduates come out of colleges located in the 4 Southern States of
natural resources, fairly well-developed infrastructure and relatively stable and reform-
oriented political leadership the region shows the potential of achieving the type of
sustained progress that was made by the ASIAN countries in the early 1980s. It is not
surprising that manufacturing industries and particularly software exports are helping
17
Part of the ancient Gondwana plateau, Andhra Pradesh’s vast mineral wealth is
still not fully exploited. It is the only State in South India to have coal deposits. It is also
an ideal location for thermal plants. There are at present 6 coal based thermal power
plants in the State, generating about 5000 MWs of power. Recent explorations have
indicated reserves of oil and natural gas, both onshore and offshore. The first two fast
track private power generating plant in the country, the Gas based units at Jegurupadu
(216 MWs) and Kakinada ( 208 MWs) have been commissioned in 1996 and 1997
respectively. With good prospects of finding new gas fields in the Krishna-Godavari
deltas there is scope for setting up more gas-based fertilizer plants, chemical units and
power-generating units. With the availability of wet gas, there is scope for fractionation
plants in the coastal region of the State. LNG import terminal at Kakinada port is being
setup . A network of gas pipelines is being laid in A.P for distribution of Natural Gas
through pipelines for domestic consumption in the coastal region of Andhra Pradesh. At
present imports of LPG are serving partly the growing consumer market for domestic
and industrial fuel. There is good scope for the use of LPG and LNG as automobile fuel
Andhra Pradesh has 30,400 million tons of limestone reserves, which constitute
38 percent of the country’s reserves. At present only 20.5. Million tons are being
consumed largely for the production of cement. With 40 existing cement factories,
Andhra Pradesh is the second largest producer of cement in India with 15 million tons of
tons per annum in the backward district of Anantapur with an outlay of Rs. 8 billion (US
18
$184 million). When it reaches its ultimate capacity of 6 million tons, it will be the
billion (US $ 160 million) and with a capacity of 2 million tons per annum. The unit is
Andhra Pradesh also produces steel at Visakhapatnam Steel Plant and elegant
building materials like granite, marble and slate which are found in a wide variety of
colors and grades. With the current boom in infrastructure development in India, the
Andhra Pradesh has the second largest deposits of bauxite in India. The reserves,
estimated at 700 million, tons can sustain an alumina refinery and smelter with a
The keerthi industries Ltd Works was promoted in the year 1984 located at
Mallacheruvu (V&M), Nalgonda District, Andhra Pradesh, which is 185 kms from
Hyderabad, on the banks of River Krishna and 50 kms away from Miryalaguda Railway
station.Commissioned its unit in the year 1986 with a capacity of 300 tones per day and
upgraded its capacity in stages to 900 tones per day ,at present expansion works are
going on for 1800 tones per day and at present the unit Suverna cement works,
Mallacheruve unit is having oneLime stone deposits zones covering area of 350 acres
viz.,
19
Shankara Mines
Product Profile
Shells and Chalk or marl combined with Shale, Clay, Slate or blast
manufacture of cement.
Clinker is discharged red-hot from the lower end of the kiln and
coolers.
Cement Process
1)Quarry
Basic elements:-
Raw materials:-
3)Preheater Tower
4)Kiln
20
6)Bagging & Shipping.
Suvarna 53 Grade.
Human Resources:
The plant has well qualified highly motivated manpower of 130 Employees on its
rolls.Out of 130 employees, 11 are executive cadre and the remaining is in staff &
workmen cadre.
RGANIZATION CHART
CHAIRMAN
MD
DIRECTORS
21
Production Chief Accounts Lab Sales
Supervisors
Cler
CHAPTER – III
REVIEW OF LITERATURE
INTRODUCTION:
aspects of current assets and current liabilities. More precautions should be taken for the
22
It may be recalled that the various items in the balance sheet can be reflected are
broadly divided into categories on each side for the purpose of working capital such as
Working capital planning forms an integral part of the total corporate planning
The working capital management involves deciding upon the amount and
The firms require working capital to run day-to-day operations. The firm has to
because sales do not convert into cash instantaneously. To convert sales into cash an
fuel etc.
into work-in-progress.
between the magnitude of working capital and the general scale of operations of the
23
firm/organization. The objective of the working capital is to maintain the level of
working capital and all determinants of the working capital. More or less it is regarded
2. Management of Cash.
3. Management of Receivables.
with each other. Attempts to produce maximum profitability out of various elements of
working capital do create severe liquidity does dilute profits. Working capital
management establishes the best possible trade-off between the profitability of net
24
current assets employed and the ability to pay current liabilities as they fall due. This
implies a clearly designed risk policy to determine the required liquidity level.
firm which is often inclined to treat it as an issue of short run analysis and
decision-making.”
company that are changed in the ordinary course of business from one form to another
cash.
survival is a pre- requisite to long-term success. A Business can't invest whole of its
capital in long-term assets. Thus, it becomes necessary for the firm to maintain a
capital is the lifeblood of an organization. The management should maintain the right
25
amount of working capital on a continues basis to ensure proper functioning of business
operation.
The term working capital is defined as the capital required for day to day
working in business concern such as for purchasing raw material, for meeting daily
concerned with the problems that arise in attempting to manage the current assets, the
Working Capital may be regarded as the lifeblood of the business. Its effective
management can do much to ensure the success of a business, while its ineffective
management can lead not only to loss of profit but also to ultimate downfall of what
external analysis because of its close relationship with current day-to-day operations of a
business.
The goal of the working capital management is to maintain the level of current
assets and current liabilities of a firm i.e.; the current assets should be large enough to
cover its current liabilities in order to ensure a reasonable, sense of safety. Working
capital management involves in deciding upon the amount and composition of current
assets and how to finance these assets. These decisions involve trade-offs between risk
and profitability.
26
The Ratio Analysis of working capital can be used by the management is a
means of checking upon the efficiency with which the working capital is being used in
the enterprise.
Working capital can be regarded as that proportion of the company’s total capital
that is employed in short term operations. The working capital can take the form of cash,
near cash and other assets such as stocks of raw materials and supplies needed for
components which will soon emerge as final/finished products, sundry debtors pending
collections against credit sales and short term investment etc; if any.
The need working capital or current assets to form the day-to-day business activities
cannot be over emphasized. we can hardly find a business firm that does not require any
well known that any firm aims at maximizing shareholder’s wealth. to attain this, a firm
should earn a steady amount of profit, which requires successful sales activity. the firm
has to invest enough funds in current assets are needed because sales cannot convert into
cash instantly since there is always an operating cycle involved in the conversion of
OPERATING CYCLE:
Operating cycle can be said to at the heart of the need for working capital. “the
continuing flow from cash to suppliers, to inventory, to accounts receivable and back
into cash is what is called the operating cycle”. in other words, the term operating cycle
refers to the length of time necessary to complete the following cycle of events:
27
1. CONVERSION OF CASH INTO INVENTORY
PHASE-3
RECEIVABLES
CASH PHASE-2
INVENTORIES
PHASE-1
The operating cycle consists of three phases. in phase-1, cash gets converted into
inventory. This includes purchase of raw materials, conversion of raw materials into
work-in progress, finished goods and terminates in the transfer of goods to stock at the
end of the manufacturing process. In phase-2 of the cycle, the inventory is converted
into receivables as credit sales are made to customers. the last phase, phase-3, represents
the stage when receivables are collected and with this, completes the operating cycle.
28
GROSS WORKING CAPITAL:
total of all current assets of the firm and has an investment decision focus.
NETWORKING CAPITAL:
It refers to the difference between current assets and current liabilities, it can he
either positive or negative a positive net working capital will arise when current exceed
current liabilities and vice-versa. The net concept is meaningful to judge the current
financial soundness or the short term liquidity position of an enterprise. It suggests the
extent to which working capital needs may be financed by permanent sources of funds.
a) Cash-to-cash cycle.
The financing of working capital can be studied under the headging approach,
or “matching approach”, the long term financing will be used to finance fixed assets and
permanent current assets while the fluctuating assets will be financed by short-term
Short Term
29
Fixed Assets
approach” is not possible. The firm under this plan finances its permanent current assets
and a part of temporary current assets with long term funds in marketable securities
during the period of lack of temporary assets. This is safest way in reducing risk.
Marketable Securities
Temporary
Financing
Assets Finance
Fixed Assets
Time
financed with short-term funds and the other part by long-term financing. This approach
Marketable Securities
30
Temporary
Of Finance
Fixed Assets
Time
working capital.
The need for current assets arises because of operating cycle. The operating
cycle is a continuous process and therefore, the need for a current asset is felt constantly
but the magnitude of current assets needs not always the same. It may increase or
decrease overtime. However, there exists always, a minimum level of current assets that
are being referred as permanent or fixed working capital. It is permanent in the same
Temporary
31
Permanent
Time
Depending upon the changes in production and sales, the need for working capital
over the permanent W.C will fluctuate. The need for working capital may also vary on
account of seasonal changes (or) abnormal (or) unanticipated conditions. For example, a
rise in the price level may lead to an increase in the amount of funds invested in stock of
raw materials as well as finished goods. Additional working capital may be required to
face cutthroat competition in the market (or) other contingencies like strikes and
lockouts. Any special advertising companies organized for increasing sales (or) other
promotional activities may have to be financed by additional working capital. The extra
working capital needed to support the changing business activities is called the
Fluctuating
CURRENT ASSETS:
Current assets are defined as either cash or those assets that can be converted
into cash within the current year. The major components of these current assets are
32
Inventories: These are the materials; commodities or goods used in day-to-day
Advances: These represents amount paid for which the goods and services have
not yet been rendered, including advances given to suppliers and employees.
CURRENT LIABILITIES:
Other liabilities: These include tax payments due within one year and proposed
dividends.
There are no set rules (or) formulae to determine the working requirements of a
firm. The corporate management has to consider a number of factors to determine the
level of working capital. The amount of working capital that a firm would need is
affected not only by the factors associated with the firm itself but also by economic,
monetary and general business environment. Among the various factors, the following
The working capital needs of a firm are basically influenced by the nature of its
business. Trading and financial firms generally have a low investment is fixed assets but
require a large stock of a variety of merchandise to satisfy the varied demands of their
33
customers. The size of the business also has an important impact on its working capital
needs. It may be measured in terms of the scale of operations will need more working
Manufacturing cycle:
The manufacturing cycle starts with the purchase of raw materials and is
completed with the production of finished goods. Since, the manufacturing cycle
involves a longer period; the need for working capital will be more because an extended
manufacturing time span means a larger tie-up of funds in inventories. Any delay at any
Business fluctuations:
resulting in the enhancement of the firm’s investment in inventory and receivables (or)
book debts. On the other hand, a decline in the economy may register a fall in sales and
consequently a fall in the levels of stock and book debts. Seasonal fluctuations may also
utilize its resources to the follows a policy of steady production will utilize its resources
to the extent possible in all the seasons. This will imply accumulation of inventories in
Production policy:
34
If a firm follows steady production policy even when the demand is seasonal.
Inventory will accumulate during off-season periods. And there will higher inventory
costs and risks. If the costs and risks of maintaining a constant production schedule are
high. The firm may adopt the policy of varying its production schedule in accordance
The speed with which the operating cycle completes its round (i.e. cash – raw
Credit terms:
The credit policy of the firm affects the size of working capital by influencing
the levels of book debts. Though the credit terms granted to customers in a large
measure depend upon the norms and practices of the industry (or) trade to which the
firm belongs, yet it may endeavor to shape its large funds in book debts. Stock
collection procedure may even increase the chances of bad debts. A firm enjoying liberal
Through it is difficult to state any firm rules, regarding the relationship between growth
in the volume of a firm’s business and its working capital needs, the fact to recognize is
that the need for increased working capital funds may precede the growth in business
35
Operating efficiency:
minimize its need for working capital by efficiently controlling its operating costs. With
increased operating efficiency, the use of working capital is improved and the pace of
cash cycle is accelerated. Better utilization of resources improves profitability and helps
Price-level changes:
Generally rising price level requires a higher investment in working capital. With
increasing prices, the same level of current assets need enhanced investment. However,
firms, which can immediately increase their products upward, need not face severe
working capital problems during the periods of rising price levels. The effects of
increasing price levels may however be dealt differently by different firms due to
variations in individual prices. It is possible that some companies may not be affected by
The two components of working capital (WC) are current assets (CA) and
calculate liabilities (CL). They have a bearing on the cash operating cycle. In order to
calculate the working capital needs, what is required is the holding period of various
types of inventories, the credit collection period and the credit payment period. The WC
evenly throughout the year and all costs accrue similarly. The steps involved in
36
IMPORTANCE OF CURRENTASSETS MANAGEMENT
CASH MANAGEMENT
INVENTORY MANAGEMENT
RECEIVABLE MANAGEMENT
The importance of current assets management consists of three major elements are;
1) Cash management
2) Inventory management
3) Receivable management
Cash management:
One major segment of current asset management is cash management. The main
task of cash management is to hold and maintain an adequate but not excessive, cash
position. Cash is an obvious and inescapable input into a company operation and as such
So there is a need for an effective plan to deploy this resource to utmost productive use.
According, to the eminent British Economic Lord Keynes, the desire to hold
37
The transaction motive arises from the need for ready funds to effect payments
for day to day operations or business. Such as payments for purchase, payments for
The speculative motive covers the intention to hold the cash to be able to take
advantage of shifts in security prices, arising from changes in the interest rate and other
factors.
1) The expected net cash flows based on the cash forecast, taking note of the long term
changes
in cash flows under varying circumstances, the possibility concept can be applied.
1) What are the amounts of cash that are needed to attain short run profit objectives?
2) How much of this cash requirements can be met out of the cash generated from
current
Income ?
38
3) What are the magnitudes of the ebbs and flows of cash emanating from operations
and
what are the sizes and frequencies of the resulting cash surpluses and deficits?
4) What are the sources of cash (borrowings) and under what conditions or in what
context
Timely and rewarding short term outlets will have to be Sound for the surplus
and appropriate outside financing arrangement will have to be made for meeting the
deficits, so that the operations continue unhindered and planned profits are realized.
The sales division may be asked to make special efforts to boost the sales
required to generate the necessary cash. The collection of debts can be accelerated by
periodical reviewing and by allowing rebated incentives for prompt settlement of bills.
The purchase division can be asked to give advance intimation or cash planning
for purchase and a managerial readjustment can be made in internal operations without
affecting the short run profit goal. A credit line with a commercial bank is another major
safeguard against temporary cash shortage. These types of an external trellis should
develop as carefully planned, so that the cash planning drill has to be directed efficient!)
The preparation of the cash budget, involves detailed estimate, for various
intervals of time in the near future, of cash receipts from all sources, cash payments for
all purpose and the resulting cash balances. The attention changes from balance sheet
39
payments and expenses, A carefully prepared cash budget reveals, for the finance
manager, the timing and the amount of expected cash inflows and outflows over the
period or periods under scrutiny. With this information, the finance manager is better
equipped to assess the future cash requirements and keep a grip over the cash and
liquidity aspects.
Cash forecasts and budgets can have validity and utility only for the near future,
not exceeding a year. But, whether they are prepared on a daily, weekly, for nightly,
monthly, quarterly or any or any other convenient basis, it is essential that the related
transactions are perceived in detail and recorded, thus enhancing the credibility and
Cash Budget:
a cash budget is very important. The several functional budgets provide details of the
Certain particulars such as mended borrowings and loan payments, issue of shares or
incorporated in the cash budget. The operating budget conceived in summary annual
forms or even as a average monthly plan will fall very much short of the care and
discipline required for repaying short run cash budgets estimates of sales, collection,
purchases, payments, outputs and hence all related expenses have to be noted in detail
with reliable data being available for weekly, monthly or other periods, covering all
phases of operation
40
INVENTORY MANAGEMENT
The term inventory refers to the stockpile of the product a firm is offering for sale and
the components that make up the product. In other words, inventory is composed of
assets that can be sold in future in the normal course of business operations. It
constitutes (a) Raw materials (b) Work-in-progress and (c) Finished goods.
The raw materials of inventory contain items that are purchased by the firm form
others and convertible into finished goods through the manufacturing process. They
The work-in-progress (WIP) of the inventory consists of items that are currently
being used in the production process. It normally consists of partially or semi finished
Finished goods represent final or completed products, which are available for
sale. The inventory of such goods consists that have been produced but are yet to be
sold.
RECEIVABLES MANAGEMENT
Accounts receivables or debtors represent the sales that are made on credit. The
term receivables are defined as “debt owned to the firm by customers arising from sale
of goods or services in the ordinary course of business”. When a firm makes an ordinary
sale of goods or services and does not receive payment, the firm grants trade credit and
extension of credit to customers, allowing them a reasonable period of time to pay for
41
the goods, which they have received. The objective of receivable management is to have
a trade off between the benefits and the cost associated with the extension credit. The
benefits are increased sales and associated increased profits/marginal distribution. The
major categories of accounts receivables are collection costs, capital costs, delivery
costs and default costs. By making the credit terms more attractive, management can
increase sales turnover. However, granting credit above costs involves finance tied up in
debts. Receivables management forms the core of the working capital management. It is
because the good will and the reputation of the company is sustained by its efficient
receivables management, provided, the company make prompt payments to its suppliers.
This is possible only if the company is in a position to collect the debts from its debtors
efficiently.
We will hardly find a running business firm, which does not require some
amount of working capital. Even a fully equipped manufacturing firm is sure to collapse
The capacity to wait for the market for its finished products The availability to grant its
customers.
fact, any organization, whether profit. Oriented or otherwise, will not be able to carry on
day-to-day activities with out adequate working capital. Because of close relationship
with day-to-day operations of a business, a study of working capital and its management
42
is of major importance individual as well as external analysis. It has been increasingly
realized that the inadequacy or mismanagement of working capital has lead to the cause
of business failures. We must not loose sight at the fact that management of working
capital is an integral part of the overall financial management and ultimately of the over
all corporate challenge and shows a welcome opportunity for a financial manager who is
even liquidation of business unit. Inefficient working capital management may cause
A firm may have to face the following adverse consequences from inadequate
working capital.
1) It may
availability of funds.
day-to-day commitments.
its short-term obligations and as a result, it may have to face tight credit
terms.
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On the other hand, excessive working capital may have the following
dangers:
financing.
44
a) By
b) By
c) By
crunches.
3. Investing surplus cash to earn interest. The investment should be done after defining
liquidity-yie
Chapter – IV
Data Analysis & Interpretation
COMPUTATION OF WORKING CAPITAL OF LAST FIVE YEARS
TABLE NO.I
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Total (A)
96595923 114365913
CURRENT LIABILITIES:
TABLE NO.II
Total (A)
114365913 128573004
CURRENT LIABILITIES:
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Total(B) 69569025 85458034
Changes in Working Capital
44796888 43114970 14207091 15889009
(A-B)
Decrease in Working
- 1681918
Capital
TABLE NO.III
Total (A)
128573004 251309019
CURRENT LIABILITIES:
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Increase in Working
75452612
Capital
TABLE NO. IV
240949136
Total(B) 132741437
Changes in Working Capital
118567582 288034103 277674220 108207699
(A-B)
Increase in Working 169466521
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Capital
Net Working Capital represents the excess of Current Assets over the Current
Liabilities. The term Current Assets refer to those assets, which in the course of
business get converted into cash over a short period, usually, not exceeding one year.
Current Liabilities are those liabilities, which are required to be paid within the short
period, normally a year. Although Net Working Capital is really not a ratio, it is
hare sufficient AWC in order to be able to meet the claims of the creditors as well as
meet the day-to-day needs of business. The higher the account of Net Working Capital,
Simply put, Net Working Capital (NWC) is the difference between a company’s current
assets and current liabilities on its balance sheet. It is a measure of a company’s liquidity
and its ability to meet short-term obligations, as well as fund operations of the business.
The ideal position is to have more current assets than current liabilities, and thus have a
Below is a list of assumptions that are used in a financial model to forecast NWC:
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Inventory: Inventory Days
TABLE-V
GRAPH NO.I
Conclusion:
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The company’s NWC is low during the period 2016-2017. However in the
succeeding next year, the NWC has increased. Also the current assets were always
greater than the current liabilities. This indicates that the company is in better position.
WCT
8.57 11.09 11.63 6.92 4.21
Ratio
GRAPH NO.II
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Conclusion:-
The company’s W.C Turnover ratio is increasing. It is high during the period
2015-16, which indicates proper utilization of funds during that period Manufactured. It
is decreasing during the further periods. This shows that the company is not maintaining
proper standard utilization of funds. Hence the w.c Turnover ratio is increased in the
year 2015-16 when compared to previous years. This shows the company is maintaining
proper standards.
CURRENT RATIO
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CONCLUSION:-
The company’s current ratio is satisfactory. The current Assets are more than the
liabilities. It implies that for every one rupee of Current Liabilities, Current Assets of
nearly one & half rupees are there to meet them. The company’s Current Ratio
increased from 2015 to 18 years. This shows that the company is better utilizing
current assets to meet liabilities. But in the previous years 2015-16 the Current Ratio
increased this indicates better utilization of Current Assets to meet the liabilities. The
trend indicates that the company is not going for more credits in the recent year. In
this year 2017-18 the company is better utilizing current assets to meet liabilities.
QUICK RATIO:
The quick ratio is the ratio between Quick Current Assets & Current Liabilities.
the quick ratio is a measure of liquidity designed to overcome. The defects this defect of
the Current Ratio is that if fail to convey any information on the opposition of the
current assets of firm. The feral quick assets refer to Current Assets which can be
converted into cash immediately, at a short notice without diminution of their value. The
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1) Cash & Bank Balances.
TABLE NO.VIII
Financial Year Quick Assets Current Liabilities Quick Ratio
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CONCLUSION:-
Company’s quick ratio is less than the satisfactory level during 2015-16, this
shows that a large part of Current Assets of the firm is field up in slow moving & on
sales inventories & slow paying debts. However, during 2014-15 company showed
better position. This shows that the company is in very good liquidity position. But In
2014-16 the company quick ratio is decreased when compared to the previous year.
This ratio is also known as Super Quick Ratio or Cash Ratio. This ratio considers
only the absolute liquidity available with the firm. This ratio establishes the
relationship between the absolute liquid assets and liquid liabilities. The absolute
liquid assets include cash in hand, cash at bank, marketable securities. If the Super
Liquid assets are too much in the relation to the current liabilities then it may affect
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the profitability of the firm, as these super liquid assets are most unproductive assets
of all. Moreover every firm has a reserve borrowings capacity. The firm can borrow
for a short period from the bank or their resources to meet any contingency.
Current Liabilities
TABLE NO.IX
(Rs. In. Lakhs)
Year Absolute Liquid Ratio
Assets Current Liabilities
2013-2014 718881 61236180 0.01
2014-2015 879174 69569025 0.01
2015-2016 970205 85458034 0.01
2016-2017 104024330 132741437 0.78
2017-2018 245314696 240949136 1.01
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INTERPRETATION:
An absolute liquid ratio of 1:2 is usually considered as ideal. Here the absolute liquid
ratio is 0.01 in the year 2014-15 ,0.01 in the year 2013-14, and in the year. 2016-17 it is
0.78 and 2017-18, it is 1.01.So the KEERTHI INDUSTRIES LIMITED is found to be
satisfactory.
A concern may sell goods on cash as well as on credit. Credit is one of the important
elements of sales promotion. Following a liberal credit policy can increase the
volume of sales. But the effect of a liberal credit policy may result in typing up
substantial funds of a firm in the form of trade debtors. Hence, the liquidity position
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of a concern to pay its short-term obligations in time depends upon the quality of its
trade debtors. Debtor’s turnover ratio indicates the velocity of debt collection of firm.
In simple words, it indicates the number of times average debtors are turned over
TABLE-X
Year Sales Average Debtors Ratio
2013-2014 303276603 33667275 9.008
2014-2015 496942017 32197044 15.430
2015-2016 501813702 41185166.5 12.18
2016-2017 820765280 33370381.5 24.59
2017-2018 1213967136 39863618 30.45
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Interpretation:
The higher the value of debtor’s turnover ratio is indicative of sound credit management
policy. Since KEERTHI INDUSTRIES LIMITED debtor turnover ratio is9.008 in the
year 2013-14, 15.43 in the year 2014-15 , in the year 2015-16 is 12.18 in 2016-17, is
24.59. In 2017-18 is 30.45. So the debtor’s turnover ratio is satisfactory.
This ratio establishes a relationship between cost of goods sold and average inventory.
Components:
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1.Cost of goods sold, which is calculated as under cost of goods sold =
2.Average Inventory
Formula:-
Cost of good sold
Stock Turnover Ratio = Average Inventory
an improvement in the ratio shows that the either the same volume
amount of stocks.
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Interpretation:-Company turns its inventory of finished goods into sales
7.62 times a year on average. During the year 2016-17 turnover ratio
decreased from the next year and this shows that the inventory does not sell
fast & stays on the shelf or the warehouse for a long time. The company has
to improve the inventory turnover ratio.How ever the company improve the
Chapter – V
Findings & Suggestions
Findings:
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The net working capital is constantly increasing this shows the better
management of current assets and current liabilities.
The company’s working capital turnover is Increasing this shows that the
company is maintaining proper standards in utilization of funds.
From the current ratio, the current assets are more than the liabilities.
SUGGESTIONS:
The current assets are of nearly one and half rupees to meet the liabilities
Consantrate on that.
The company from the last five years is showed good position in un
saleable working capital turnover ratio . But there is a increase in working
capital turnover ratio this year.
The quick ratio has increased from 2013-2017 to 2017-2018 during the
study. So maintain this improvement in future also.
This shows the efficiency of working capital management has
maintaining properly.
BIBLIOGRAPHY
Author Name : Khan & Jain
Title of the book : Financial Management Tata McGraw
Hill
Year : 2000
62
Title of the book : Financial Management Kalyani
Publishers
Year :1996
63