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CHAPTER 1 INTRODUCTION

1.INTRODUCTION
1.1 About KSE Limited
KSE Limited was established in 1963, as Kerala Solvent Extractions Ltd., now known as KSE Ltd., entered the Solvent Extraction Industry, setting up the very first solvent extraction plant in Kerala. The solvent extraction plant went on stream in 1972 and in 1976, a new plant was set up to manufacture ready mixed cattle.KSE Limited is a public limited company with around 4500 shareholders. The shares are listed in BSE & NSE. They are the largest manufacturer of compound cattle feed in Private sector in the country. The last three decades have seen KSE emerging as a leader in solvent extraction and ready mixed cattlefeed in the country. Today KSE commands the resources, expertise and infrastructure to manufacture a range of livestock feed in high volumes, coconut oil from coconut oil cake and refined edible oil. Driven by a commitment to high standards of quality, KSE has not only won customer confidence but also national recognition through several awards and accolades.With modern manufacturing facilities spread over three states, KSE caters to the vast belt stretching across Southern India and enjoys a significant presence in exports too. Since the early days, KSE has endeavoured to supply its products to customers through an extensive network of dealers and retailers, which form a dedicated force behind the success of KSE. Its a matter of pride that KSE is a household name today. With a strong commitment to customers and product quality and being cost competitive, KSE stands poised to meet new challenges.

1.2.INDUSTRY PROFILE 1.2.1 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.

1.2.2 CRISIS OF COCONUT INDUSTRIES IN KERALA IN 1960

In the 1960s there was a crisis in coconut oil extraction industry in Kerala. After conversion from wooden ghanis 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 wasnt 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.

1.2.3 COCONUT OIL MILLERS 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 Millers 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.

1.2.4

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 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 plant for 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

1.2.5 DIARY INDUSTRY

Most of the progress in the dairy sector has come about in the past 25 years only. Till 1970, the countrys 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. 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.

5 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.

1.3 COMPANY PROFILE 1.3.1 INTRODUCTION

Cattle play a vital role in the economy of India. 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 25th 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 20012002 for being first in terms of production efficiency in the animal feed sector. 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.

1.3.2 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 1960s. 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.

1.3.3 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 tonnes per day. In 1983, a fully automatic cattle feed plant was added with a capacity of 120 tonnes per day capacity. By 1992 the capacity of solvent extraction plant was further increased to 100 tonnes per day. In 1987, the plant capacity was increased to 180 tonnes over day. The companys second production unit with a capacity of 150 tonnes per day solvent extraction commenced operation at Swaminathapuram. Dildigul district of Tamil Nadu in 1988 and 1989 respectively. The cattle feed capacity was subsequently increased to 180 tonnes per day. 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 25 th 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.

8 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. 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 its 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 1) Wooden canes 3) Expeller mill 2) Oil mill 4) 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. Irinjalakuda unit of the company consists of cattle feed plant and refining plant.

1.3.4 COMPETITORS
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.

1.3.5 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 companys 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.

1.3.6 ENVIRONMENT AND SAFETY

The company is maintaining safety standards and ensuring pollution free environment. The working environment has been made pollution free, noiseless, conductive atmosphere. The plant was erected in such a way to monitor and maintain the dust free environment. The safety measures are strictly followed.

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1.3.7 QUALI TY POLICY

Companies quality policy is to produce and distribute good quality compounded cattle feed in pellet from mineral mixture and other fodder materials through a quality system, which registers continual improvement by setting and reviewing functional quality objectives aimed to create enhanced customer satisfaction. The quality policy objectives aimed to create enhanced customer satisfaction. The quality policy will be communicated to all and will be reviewed periodically for continued suitability. The management and staff are determined and committed to achieve this quality policy and to make dairying. Quality management principles Customer focus Leadership Involvement of people Process approach System approach to management Continual improvements Mutually beneficial supplier relationships The management of KSE ltd recognizes that measurement and monitoring of customer satisfaction as a vital tool for evaluating the performance of KSE LTD. Customer complaints revived by customer complaints received by customer care cell are properly monitored for prompt redressed in the best possible ways to ensure customer delight and thus keep up the quality level. The finance and accounts department tries to improve the effectiveness and efficiency of the quality management systems by providing positively the financial results to the concerned and suggest them for suitable Improvement actions in the concerned and suggest them for suitable improvement actions in the monthly performance review meeting.

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FEED ANALYTICAL LAB Quality control, feed analytical lab is located inside the Kerala feeds ltd campus. This department was starting functioning from. The department lab equipped with latest and most modern analytical instrument for analyzing moisture, crude protein, crude fiber, other extract, sand and silica and aflatoxin for the coded samples of raw materials in process product and finished product. VISION KSE is committed to provide quality livestock feed and service to farmers at a reasonable cost. MISSION Increase the production of balanced compounded cattle feed in pellet form 240 metric tons to 500 metric tons per day To produce 240 metric tons per day of other livestock feed (goats, buffaloes, elephants, laboratory animals & pets) To manufacture appropriate type of feed and feed supplement for different stages of livestock To become a market driving company to a market driven company Educate and train the livestock farmers to practice scientific feed to optimize livestock productivity To support the development of knowledge based network on feed related activities if To offer consultancy services for the procurement of feeds ingredients, logistics solution, feed manufacturing, setting up of feed if analytical labs

12 To achieve the turnover of RS 250 cores To be active partner in community development programs.

1.3.8 UNITS OF KSE Ltd.

Head office :- KSE Limited, Irinjalakkuda. I. 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. II. Tamil nadu: 1. Swaminathapuram unit, Dindugal 2. Diary unit, Thalayuthu. III. Karnataka: 1. Hinkal, Mysore.

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1.3.9 MILESTONES OF THE COMPANY

Year 1976 1979 1983 1984 1987 1988 1989 1990 1991 1993 Events A new plant was set up to produce 50 MTS of ready mixed cattle feed Production capacity of cattle feed plant is increased to 60 MTS per day A fully automatic cattle feed plant started operation. Capacity 120 MTS Per day The solvent extraction plant capacity increased to 80 MTS per day Cattle feed plant capacity increased to 180 MTS per day Cattle feed plant in Tamil nadu went in to operation. Capacity 100 MTS per day The capacity of solvent extraction plant of Tamil nadu unit is expanded to 100 MTS per day Cattle feed production capacity of Tamil nadu increased to 150 MTS per day Palakkad branch started The company enters export market. Keyes forte, the new feed supplement for cattle introduced. Cattle feed manufacturing capacity of Swaminathapuram 1995 1996 unit increased to 180 MTS per day Cattle feed production is started in Mysore in Karnataka state. Calicut branch opened 240 TPD cattle feed plant at Vedagiri in Kottayam district started operation. Company renamed to KSE Limited

14 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 25th year of commencement of production. Feeds and extractions, Swaminathapuram( a unit of KSE Limited) was renamed as KSE Limited Swaminathapuram. 1999 A modern childrens 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, 2002 Tamil nadu. 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 2003 launched Started produced cattle feed at a leased plant at Edayar, Kalamassery. Cattle feed capacity of Swaminathapuram unit increased to 195 MTS per day. 2004 Vesta haven ice cream parlours at Irinjalakuda an Marathakkara started 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 2005 Kinfra park, koratty. 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. 2006 ISO 9001-2000 accreditation for Vadagiri and Swaminathapuram units. 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.

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1.3.10 BOARD OF DIRECTORS

Board of directors of the company has ten members including the managing director. NAME Mr. M. C. Paul Mr.P.K. Varghese Mr. A. P. George Mr. K. P. John Mr.Joseph Xavier Mr. P. D. Anto Mr. John francis K. Dr. K. C. Vijayaraghavan Mr. T. R. Ragulal Dr.Jose Paul Thaliyath DESIGNATION Chairman and Managing director Executive director Director and legal advisor Director Director Director Director Director Director Director

Chief General Manager of the company is Mr. Anand Menon. Mr. R. Sankaranarayanan is the secretary-cum-chief finance manager. BANKERS KSE Limited banks with ICICI BANK LIMITED.

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1.4 PRODUCT PROFILE

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 fulfil the demand of Jersey copra cake. The company was also producing food supplement for cattle feed . PRODUCT PROFILE The main products marketed are 1. K S CATTLE It includes six types. They are: K.S K.S. SUPER K.S SUPER K.S DELUX PELLETS K.S DELUX PLUS PELLETS K.S SUPREME PELLETS

1.4.1 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.

17 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.

1.4.2 CATTLE FEED SEGMENTATION

Cattle Feed

Pellet

Mash

Delux e Plus

Delue x

Suprem e

Jersey Pellet Figure 1.4.2.1

Ordinary Mash

Super Mash

Special
Mash

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CHAPTER 2 OBJECTIVE, SCOPE, METHODOLOGY,LIMITATIONS AND REVIEW LITERATURE

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2.1OBJECTIVES OF THE STUDY

To analyse the management working capital in the company To analyze the liquidity position of the firm. To know about the Debtor turnover ratio and Debtors collection period. To know about the schedule of changes in working capital.

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2.2 SCOPE OF THE STUDY

The achievement of adequate profitability is specific to each situation and outside the scope of the digest. The problem of liquidity is less dependent on particular circumstances and it is easier to make useful generalizations. There are two distinct requirement for liquidity firstly, profitability and secondly, care and thoroughness in administration. It is only if a firm is profitable that in the long run it will receive in cash more than it pays out. This is the most clearly imaginable in the case of trading business which buys and skills exclusively on cash basis. If such a firm makes losses it is paying out in cash more than it coming in from sales. It can only sustain its cash balance by injections of capital or by selling off its assets, processes which cannot continually indefinitely. Profitability may be necessary but it is not sufficient. A firm must be careful to ensure that it does not ensure commit itself to payments that it cannot cover. Thus detailed records require be keeping, ideally on a real time basis, of cash in hand and expecting and cash to be paid. The accounting statement showing this detail is the cash budget .every item will be tracked in terms of the time of flow, and the whole managed so that there is never a time when payments cannot be made when due .this is requires the steady exercise of the bureaucratic virtues of thoroughness, reliability and accuracy, together with contingency planning to cope with uncertainty The scope of the study is confined to analyze and study the management of working capital for a period of five financial years from 2005-06 to 2009-10.

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2.3 METHODOLOGY Collection of data

The data is collected from annual reports of the KSE Ltd., IRINJALAKUDA.

Source of data
Source of data is mainly collected through the secondary datas of the company. Balance sheet of last 5 years Profit & loss a/c of last 5 years Cash flow statement of last 5 years

Secondary data
Secondary datas were collected from various books, annual reports, companys documents and from companys website.

Tools used for analysis of data

Analysis of liquidity posission 1) Current Ratio 2) Quick Ratio or Acid test Ratio or Liquidity Ratio 3) Absolute Liquidity Ratio Analysing the efficiency of components of working capital 1) Cash to current assets ratio 2) Inventory to current assets ratio 3) Inventory turnover ratio 4) Working capital turnover ratio 5) Debtors turnover ratio

22 6) Average debt collection period 7) Creditors turnover ratio 8) Average debt payment period

Type of research
The researcher used analytical research for analyzing the working capital management of the company from its various financial statements.

2.4 LIMITATIONS OF THE STUDY

Limited time and resources prevented from making a detailed study. Secondary data was the main source of information. Reports (trading profit and loss account, balance sheet) of financial year 2010-11 were not available for the study.

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2.5 REVIEW LITERATURE

2.5.1 WORKING CAPITAL

Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. Working Capital = Current Assets Net Working Capital = Current Assets Current Liabilities Net Operating Working Capital = Current Assets Non Interest-bearing Current Liabilities Equity Working Capital = Current Assets Current Liabilities Long-term Debt A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

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2.5.2 CALCULATION OF WORKING CAPITAL

Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

accounts receivable (current asset) Accounts receivable (A/R) in American English, receivables or debtors in British

English, is money owed to a business by its clients and shown in its accounts as an asset. It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered.

inventory (current assets) In the USA and Canada the term has developed from a list of goods and materials

to the goods and materials themselves, especially those held available in stock by a business; and this has become the primary meaning of the term in North American English, equivalent to the term "stock" in British English. In accounting, inventory or stock is considered an asset.

accounts payable (current liability) Accounts payable is a file or account sub-ledger that records amounts that a

person or company owes to suppliers, but has not paid yet (a form of debt), sometimes referred as trade payables. When an invoice is received, it is added to the file, and then removed when it is paid. Thus, the A/P is a form of credit that suppliers offer to their

25 customers by allowing them to pay for a product or service after it has already been received. The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. An increase in working capital indicates that the business has either increased current assets (that is has increased its receivables, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors.Implications on M&A: The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment mechanism in a sale and purchase agreement) is equal to: Current Assets Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or deposit balances.Cash balance items often attract a one-for-one purchase price adjustment.

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2.5.3 WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

DECISION CRITERIA
By definition, working capital management entails short term decisions generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability.

One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results

27 from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making.

Credit policy of the firm: Another factor affecting working capital management is credit policy of the firm. It includes buying of raw material and selling of finished goods either in cash or on credit. This affects the cash conversion cycle.

2.5.4 MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day to day

expenses, but reduces cash holding costs. In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and automated clearing house facilities. Sometimes, private banking customers are given cash management services.

Inventory management. Identify the level of inventory which allows for uninterrupted production but

reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow. Besides this, the lead times in production should be lowered to reduce Work in Progress (WIP) and similarly, the Finished Goods should be kept on as low level as possible to avoid over production - see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic quantity.

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Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract

customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.

Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the

inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

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2.5.5 DETERMINANTS OF WORKING CAPITAL

Working capital requirements of a concern depends on a number of factors, each of which should be considered carefully for determining the proper amount of working capital. It may be however be added that these factors affect differently to the different units and these keeps varying from time to time. In general, the determinants of working capital which re common to all organizations can be summarized as under: 1. Nature of business Need for working capital is highly depends on what type of business, the firm in. there are trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc. public utilities like railways, electricity, etc., need much less inventories and cash. Manufacturing concerns stands in between these two extends. Working capital requirement for manufacturing concerns depends on various factors like the products, technologies, marketing policies. 2. Production policies Production policies of the organization effects working capital requirements very highly.Seasonal industries, which produces only in specific season requires more working capital . some industries which produces round the year but sale mainly done in some special seasons are also need to keep more working capital. 3. Size of business Size of business is another factor to determines the need for working capital 4. Length of operating cycle. Operating cycle of the firm also influence the working capital . longer the orating cycle, the higher will be the working capital requirement of the organization.

30 5. Credit policy Companies; follows liberal credit policy needs to keep more working capital with them.Efficiency of debt collecting machinery is also relevant in this matter. Credit availability form suppliers also effects the companys working capital requirements. A company doesnt enjoy a liberal credit from its suppliers will have to keep more working capital. 6. Business fluctuation Cyclical changes in the economy also influence the level of working capital. During boom period, the tendency of management is to pile up inventories of raw materials and finished goods to avail the advantage of rising prove. This creates demand for more capital. Similarly, during depression when the prices and demand for manufactured goods. Constantly reduce the industrial and trading activities show a downward termed. Hence the demand for working capital is low. 7. Current asset policies. The quantum of working capital of a company is significantly determined by its current assets. Policies. A company with conservative assets policy may operate with relatively high level of working capital than its sales volume. A company pursuing an aggressive amount assets policy operates with a relatively lower level of working capital. 8. Fluctuations of supply and seasonal variations Some companies need to keep large amount of working capital due to their irregular sales and intermittent supply. Similarly companies using bulky materials also maintain large reserves of raw material inventories. This increase the need of working capital . some companies manufacture and sell goods only during certain seasons. Working capital requirements of such industries will be higher during certain season of such industries period. 9. Other factors Effective co ordination between production and distribution can reduce the need for working capital . transportation and communication means. If developed helps to reduce the working capital requirement.

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CHAPTER 3 ANALYSIS AND INTERPRETATION

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3.1

ANALYSIS OF LIQUIDITY POSITION OF KSE Ltd., IRINJALAKUDA

These ratios indicate the capacity of the business to meet its short term

application. Liquidity is the ability of the firm to meet its current liabilities as they fall due. It is extremely essential for a firm to be able to meet its obligations as they become due. Liquidity ratios measure the ability of a firm to meet its short-term financial strength or solvency. Theses ratios are much helpful not only to creditors,bankers and other shor-term lenders ,but also to long-term lenders, employees, management, and the shareholders. The trade creditors, bankers, and other short term lenders are very much interested in obligation out of its short-term resourses. The long term lenders are interested in these ratios ,as they would like to know whether the concern would be able to pay the interest on loans on the due date. The employees of the concern are interested in these ratios in the sense that they would like to know the ability of the concern to pay the remuneration of the staff in time. The management is interested in it for judging the efficiency with which the working capital is employed in the business. The shareholders are interested in these ratios in the sense that they would be able to pay the dividend. Following are the important liquidity ratios: 1) Current Ratio 1) Quick Ratio or Acid test Ratio or Liquidity Ratio 2) Absolute Liquidity Ratio

33

1) CURRENT RATIO
Current ratio is the most common ratio for measuring liquidity. It represents the ratio of current assets to current liabilities. It is also called working capital ratio. It is calculated by dividing current assets by current liabilities. CURRENT ASSETS CURRENT RATIO = CURRENT LIABILITIES The current ratio of firm measures its short-term solvency. In a sound business a current ratio of 2:1 is considered as ideal one. A high ratio indicates sound solvency posission and low ratio indicate inadequate working capital. CURRENT RATIO Year 2005-06 2006-07 2007-08 2008-09 2009-10 Current assets 4590.76 3063.73 2870.67 3270.91 3277.43 Current liabilities 1632.56 840.48 1016.37 1142.61 1259.56 (Rs in lakhs) Current ratio 2.8120 3.6452 2.8244 2.8627 2.6020

Source: Annual reports of the company Table 3.1.1

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

34 concern. The company has maintained the current ratio favorable from 2005-06 to 200910, but the year 2006-2007 the ratio was highly increased to 3.6452. The main reason for increasing current ratio in the year 2006-2007 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.

CURRENT RATIO

2009-10, 2.1871

2005-06, 2.641

2005-06 2006-07 2007-08

2008-09, 2.4904 2006-07, 3.4675 2007-08, 2.4704

2008-09 2009-10

Figure 3.1.2

INFERENCES
From the above diagram current ratio of the company is favorable in the study period 2005-06 to 2009-10 and in the year 2006-07 it is high because of the increase in various current assets like rawmaterials and inventory.

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2) QUICK RATIO OR ACID TEST RATIO

This ratio shows the relation between quick assets to quick liabilities. It is determined by dividing quick assets by current liabilities or quick liabilities. QUICK ASSETS QUICK RATIO = CURRENT LIABILITIES

The term quick assets refers to current assets ,which can be converted in to cash immediately. It consist of all current assets except stock and prepaid expenses. Quick liabilities compraise current liabilities excluding bank overdraft. Quick ratio of 1:1 is considered satisfactory as a firm can easily meet all its current liabilities. If the ratio is less than 1:1 then the financial position of the concern is sound and good. QUICK RATIO (Rs in lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Quick assets 2535.94 1210.17 1328.97 1255.04 1539.95 Table 3.1.2 Current liabilities 1632.56 840.48 1016.37 1142.61 1259.56 Quick ratio 1.5534 1.4399 1.3076 1.0984 1.2623

Source: Annual reports of the company

INTERPRETATION

36 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 2009-10. In year 2008-09 the company shows lower quick ratio because of the company had highest stock in the year.
QUICK RATIO

1.2623, 19%

1.5534, 23%

2005-06 2006-07 2007-08

1.0984, 16% 1.4399, 22% 1.3076, 20%

2008-09 2009-10

Figure 3.1.3

INFERENCES
From the above diagram quick ratio of the company has favorable in the study period 2005-06 to 2009-10. In year 2008-09 the company shows lower quick ratio because of the company had highest stock in the year. .

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3) ABSOLUTE LIQUIDITY RATIOS

This ratio is the most rigorous and conservative test of a firms liquidity position. It gives a more meaningful measure of liquidity when used in conjunction with current and acid test ratio. Absolute liquidity ratio relates the sum of cash and marketable securities to the current liabilities. It is expressed as follows : CASH +MARKETABLE SECURITIES ABSOLUTE LIQUIDITY RATIO = CURRENT LIABILITIES

The ideal absolute liquidity ratio is 0.75:1. It is fixed at 0.75:1 because for the payment of quick liabilities besides the 100% cash from the absolute liquid assets, a good amount of cash may also result from other curret assets like receivables and sundry debtors. If the absolute liquid ratio is equal to or more than the standard ratio of 0.75:1, the concern can be taken as liquid. On the other hand , if the actual absolute liquid ratio is less than 0.75:1, the concern is considered as not liquid. The absolute liquid ratio of KSE Ltd.is shown in the following table: ABSOLUTE LIQUIDITY RATIO (Rs. In lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Cash balance 1813.95 459.80 530.99 439.04 860.31 Current liabilities Absolute liquid ratio 1632.56 1.1111 840.48 0.5471 1016.37 0.5224 1142.61 0.3842 1259.56 0.6830 Source: Annual reports of the company Table 3.1.3

INTERPRETATION

38 The ideal absolute liquidity ratio is 0.75:1. we can see that except the year 200506 cash position of the company is very weak when we compare it with its current liabilities. Moreover , during the last year KSEs cash position was abnormally poor the continuing trend of which shall negatively affect its future operations.

ABSOLUTE LIQUIDITY RATIO

0.683, 21%

1.1111, 34%

2005-06 2006-07 2007-08

0.3842, 12% 0.5224, 16% 0.5471, 17%

2008-09 2009-10

Figure 3.1.4

INFERENCES
From the above diagram shows absolute liquidity ratio of the company has favorable in the study period 2005-06 to 2009-10 except in the year 2005-06, the company shows 1.1111 as absolute liquidity ratio. which is less than the ideal ratio 0.75: 1, because of the companys poor cash position. .

39

III.2 ANALYSING THE EFFICIENCY OF COMPONENTS OF WORKING CAPITAL (ACTIVITY RATIOS OR TURNOVER RATIOS)
Activity ratio indicates operational efficiency of the business concern. Activity ratios measure how efficiently the assets are employed by the firm. These ratios indicates the speed with which assets are being converted in to sales. The important turnover ratios are analysed below : 1) CASH Cash is the money,which a firm can disburse continuously. It is the common denominator to which all current assets can be reduced because other major current assets ,that is , receivables and inventory get eventually converted in to cash. CASH TO CURRENT ASSETS RATIO This ratio is calculated by dividing cash by current assets. Cash is compared with current assets first to know the proportion of cash to current assets ,which directly affects the profitability of the firm because cash as such is an unproductive asset. Even though cash is an unproductive asset , it cannot be reduced below a certain limit because contingencies may arise during the course of business. There is no standard or fixed norm for this ratio. CASH AND BANK BALANCE CASH TO CURRENT ASSETS RATIO = CURRENT ASSET

40

CASH TO CURRENT ASSETS (Rs. In lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Cash and bank balance 1813.95 459.80 530.99 439.04 860.31 Current assets Cash to current assets(%) 4590.77 39.51% 3063.73 15.01% 2870.68 18.50% 3270.91 13.42% 3277.43 26.25% Source:annual reports of the company Table 3.2.4

INTERPRETATION
As per the above table it is found that the percentages of cash to current assets are 39.51,15.01,18.50,13.42, and 26.25 respectively. The higher percentage of cash to current assets is shown in the year 2005-06. which shows the greater liquidity of the company, but after that the percentage is gradually decreased. In the year 2009-10 it was 26.25%, this shows the improvement of liquidity position of the company,because of the increase of the liquid cash.
CA TO CU R T A SH R EN SSETS R TIO A

2009-10, 26.25%

2005-06, 39.51%

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

2008-09, 13.42% 2007-08, 18.50% 2006-07, 15.01%

2009-10

Figure 3.2.5

INFERENCES

41 From the above diagram shows variability in the cash to current assets ratio of the company ,the 2005-06 shows39.51% , but after that itn will decrease. In the year 2009-10 indicates better increase in cash position.

2) INVENTORY TO CURRENT ASSETS

Inventory includes stock of raw materials, spares and stores including goods-intransit, goods- in-process, finished goods and others. Every enterprise needs inventory for smooth functioning of its activities. It serves as a link between production and distribution process. INVENTORY INVENTORY TO CURRENT ASSETS = CURRENT ASSETS INVENTORY TO CURRENT ASSETS (Rs. In lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Inventory 2429.82 2217.66 1930.15 2469.86 2082.62 Current assets Inventory to current assets(%) 4590.77 52.93% 3063.73 73.03% 2870.68 67.24% 3270.91 75.51% 3277.43 63.54% Source:annual reports of the company Table 3.2.5

INTERPRETATION
The tamle shows that the inventory is the largest component of the companys current assets. During the period of study the inventory is varied from 52.93% to 75.51%. This shows the large portion of current assets stands the inventory. As far as a manufacturing concern is keep such level of investment is justifiable. However , suspicious investment in inventory should affect the companys working capital.

42

INVENTORY TO CURRENT ASSETS RATIO

2009-10, 63.54%

2005-06, 52.93%

2005-06 2006-07 2007-08

2008-09, 75.51% 2007-08, 67.24%

2006-07, 73.03%

2008-09 2009-10

Figure 3.2.6

INFERENCES
From the above diagram shows variability in the inventory to current assets ratio of the company ,in 2008-09 shows 75.51% of inventory as the part of current assets. Increased level of inventory will badly affect the working capital of the company. In 2009-10 it has reduced 10% than the last year.

43

3) INVENTORY TURNOVER RATIO

Inventory turnover ratio indicates whether investment in inventory is efficiently used or not. It also measures the effectiveness of the firms sales efferts. This ratio shows the number of times the stock is converted in to sales. A high inventory ratio shows satisfactory sales. A low inventory turnover ratio results in blocking of funds in inventory. There is no standared rates for the inventory turnover.

COST OF GOODS SOLD INVENTORY TURNOVER RATIO = AVERAGE STOCK

COST OF GOODS SOLD = SALES GROSS PROFIT OR COST OF GOODS SOLD = (OPENING STOCK + PURCHASE + DIRECT EXPENSES CLOSSING STOCK) OPENING STOCK + CLOSSING STOCK AVERAGE STOCK = 2

It is also decided to analyse the inventory conversion period which represents the number of days taken to convert inventory in to cash. A high conversion period indicates the inefficiency of management.

44 INVENTORY TURNOVER RATIO &INVENTORY HOLDING PERIOD (Rs. In lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Cost of goods sold 22829.11 27179.67 27988.34 33971.92 35176.81 Average inventory Inventory Turnover Ratio(times) 1659.51 13.76 1628.34 16.69 1340.48 20.88 1394.56 24.36 1412.97 24.90 Source:annual reports of the company

Table 3.2.6

INTERPRETATION
The above table shows the inventory conversion period of KSE Ltd. From the part of the company ideal period is 20 days. Company is not achieve the inventory conversion period as ideal in last three years , that is 21,24 and 25 days have takento convert the stock in to cash in 2007-08,2008-09, and 2009-10 respectively. The reason of taking this much dates , company purchased rawmaterial in bulk quantity with discount.
IN E TO Y TU N V R R TIO(in tim ) V N R RO E A es

2 09 0 24 0 -1 , .9

2 5 , 1 .76 00 -06 3 2 06 7, 16 9 0 -0 .6

20 5-0 0 6 20 6-0 0 7 20 7-0 0 8 20 8-0 0 9

2 08 9, 24 6 0 -0 .3

20 7-0 , 2 8 0 8 0.8

20 9-1 0 0

Figure 3.2.7

INFERENCES
The diagram shows the inventory turnover ratio , the high ratio shows the delay in conversion of rawmaterials in to finished goods and finished goods in to cash. The last three year shows the more than 20 days for the conversion. Because of purchasing raw materials in bulk for discount.

4) WORKING CAPITAL TURNOVER RATIO

45 This ratio reflects the turnover of the firms net working capital in the course of the year. It is a good measure of over trading and under trading .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 TURNOVER RATIO = NET WORKING CAPITAL

WORKING CAPITAL TURNOVER RATIO (Rs. In lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Net sales 24030.84 27503.59 28947.50 35007.87 37094.10 Net working capital 2958.21 2223.25 1854.30 2128.30 2017.87 Working capital turnover ratio 8.12 12.37 15.61 16.45 18.38 Source:annual reports of the company Table 3.2.7

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 2005-06 shows the working capital is 8 times but after that year the company getting good working capital utilization.

46
W KIN CA OR G PITA TU N L R OVER R TIO A (in times )

2009-10, 18.38

2005-06, 8.12 2006-07, 12.37

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

2008-09, 16.45

2007-08, 15.61

2009-10

Figure 3.2.8

INFERENCES
From the above diagram shows the working capital turnover ratio is gradually in creased during the study period 2005-2006. In the year 2009-10 has show 18.38 times. It shows the efficient utilization of the working capital.

47 5) DEBTORS TURNOVER (DRs VELLOCITY) The purpose of this ratiois to discuss the credit collection process and policy of the firm. This ratio shows relation between accounts receivable and net credit sales of the period. The term accounts receivable include debtors and bills receivable. The higher the ratio the better it is : NET CREDIT SALES DEBTORS TURNOVER RATIO = AVERAGE ACCOUNTS RECIEVABLES

AVERAGE DEBT COLLECTION PERIOD :This ratio measures the quality of debtors . it shows the average number of days allowed in between the receipt of the invoice and the actual payment of the invoice. A short collection period implies prompt payment by debtors. A shorter cpllection period reduces the chance of bad debts. A longer collection period implies inefficient credit collection performance. AVERAGE DEBT COLLECTION PERIOD = (IN DAYS) ADCP(in month) = NET CREDIT SALES ( DEBTORS + BILLS RECIEVABLES) * 365 NET CREDIT SALES OR ( DEBTORS + BILLS RECIEVABLES) * 12

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DEBTORS TURNOVER RATIO & AVERAGE DEBT COLLECTION PERIOD

(Rs. In lakhs) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Net sales 24030.84 27503.59 28947.50 35007.87 37094.10 Average Trade Debtors 96.88 47.25 39.42 31.70 32.21 Debtors Turnover Average Collection Ratio Period(days) 248.52 1.47 582.08 0.63 734.33 0.50 1104.35 0.33 1151.63 0.32 Source: annual reports of the company

Table 3.2.8

INTERPRETATION
It is an indicative of credit management. The shorter the average collection period the better the trade credit management and liquidity of debtors. The ratio is gradually increased this shows the better position of the company . The lower collection period in 2009-10 ,0.32 which reduces firms baddebts. The reason is inceasing of cash sales and better collection performance.

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DEBTORS TURNOVER RATIO

2005-06, 248.52 2009-10, 1151.63 2006-07, 582.08

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

2007-08, 734.33 2008-09, 1104.35

Figure 3.2.9

INFERENCES
The above diagram shows debtors turnover ratio of the company. The increased ratio shows the chances to increase bad debt. Here the ratio is increased in every year.1151.63 times in the year 2009-10.
AVERAGE DEBT COLLECTION PERIOD

2009-10, 0.32 2008-09, 0.33 2005-06 2005-06, 1.47 2006-07 2007-08 2007-08, 0.5 2006-07, 0.63 2008-09 2009-10

Figure 3.2.10

INFERENCES
The above diagram shows average debt collection period of the company. The low collection period shows power of the company to collect the amount from its debtors. The collection period of the year 2009-10 is 0.32 days. The company has win to keep their collection period as low in past five years. Which help the company to get enough working capital assistance.

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6) CREDITORS TURNOVER RATIO (Crs VELLOCITY)

This ratio indicates the number of times the accounts payablerotate in a year.accouts payable include trade creditors and bills payable. This ratio shows the relationship between net credit purchase and accounts payable. NET CREDIT PURCHASE CREDITORS TURNOVER RATIO = AVERAGE ACCOUNTS PAYABLES

AVERAGE DEBT PAYMENT PERIOD:Average credit payment period indicates credit period enjoyed by the firm payingto its creditors.

( CREDITORS + BILLS PAYABLES)*365 AVERAGE DEBT PAYMENT PERIOD = (IN DAYS) ADPP (in month) = NET CREDIT PURCHASE NET CREDIT PURCHASE ( CREDITORS + BILLS PAYABLE)*12

Both the creditors turnover ratio and average debt payment period indicate about the promptness in making payment for credit purchases.

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CREDITORS TURNOVER RATIO & AVERAGE DEBT PAYMENT PERIOD

Year 2005-06 2006-07 2007-08 2008-09 2009-10 Annual Purchase 17987.75 21910.96 23071.44 29308.93 29794.75 (Rs. In lakhs) Ave. trade Creditors Ave. paymemt creditors turnover ratio (in days) 787.61 22.84 15.98 418.80 52.32 6.98 491.29 46.96 7.77 557.82 52.54 6.95 451.95 65.92 5.54 Source: annual reports of the company Table 3.2.9

INTERPRETATION
Higher the average payment period shows the company can enjoy the considerable time from its suppliers before they can claim dues from the company. The table shows higher payment period in the year 2005-06 during the study period .
CREDITOR TU S RNOVER RA TIO

2009-10, 65.92

2005-06, 22.84 2006-07, 52.32

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

2008-09, 52.54

2007-08, 46.96

2009-10

Figure 3.2.11

INFERENCES
The above diagram shows average debt payment period of the company. This shows the considerable increase in debt payment period during the study period. In the year 2005-06 turnover ratio is 22.84 times , but it is increased in last year 2009-10,it is 65.92 times. Increase in turnover affect the companys working capital.

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AV ERAGE DEBT PAY ENT PERIOD M

2009-10, 5.54 2008-09, 6.95 2005-06, 15.98

2005-06 2006-07 2007-08 2008-09 2006-07, 6.98 2009-10

2007-08, 7.77

Figure 3.2.12

INFERENCES
The above diagram shows the average debt payment period of the company. The payment period was decreased in to 5.54 days in the year 2009-10. The decrease in payment period reduce companys time for paying credit amount.

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CHAPTER 4 FINDINGS, SUGGESSIONS AND CONCLUSION

54

FINDINGS
The current ratio of the company is faire during the study period. It shows more than 2 as ratio. The quick ratio of the company is satisfactory. In the study period it shows more than 1:1. The ratio of cash to the current liabilities of the company is very poor during the study period except in the year 2005-06. The ratio of cash to current assets is very poor. In the year 2005-06 it shows 39.51%. The low percentage shows the liquidity position of the company is very low. The major portion of the current assets is inventory. This will reduce the companys working capital availability. Only reason is bulky purchase of rawmaterials. The working capital turnover ratio of the company is icreased from 8.12 to 18.38 during study period. Debtors turnover ratio and average debt collection period shows working capital efficiency of the company. Creditors turnover ratio and average payment period shows working capital availability and better management of the company. The management of working capital in the company is satisfied. They have to reduce cost of the rawmaterials through bulky purchase. But it shows rduction in quick cash liquidity. The companys liquidity position is sound , when we analyse the liquidity ratios. The debtors turnover and collection period shows better management of the working capital of the company. The changes in the schedule of working capital is increased over the years. The company try to utilize maximam sources of working capital.

SUGGESSIONS

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The liquidity position of the company is better, but working capital is fluctuating over the years. So, the company try to maintain a stable working capital position by giving better attention and diligence to the working capital management.

The major part of the companys current assets is inventory. This will rduce

companys liquidity position. So ,company should place timely order for raw materials and ensure its availability on time. The following factors will consider when determining the optimum level of stock:the average level of daily sales (adjusted for seasonal variations); the lead time between ordering goods and their delivery; the reliability of suppliers; the type of good and the danger of their perishing or becoming obsolete; the cost of re-ordering stock; storage and security costs; other factors such as rumours of a shortage or an increase in price. The companies debt collection period is more than 30 days . So,with this in mind an effective credit control policy is necessary. This should include the following:

Before allowing credit, an organisation should check the credit rating of potential customers, where necessary seeking references from a third party. Often this will involve using the services of a credit agency such as Dunn and Bradstreet. Based upon the results of a credit check, credit limits can be set. Once the credit limit is reached it cannot be exceeded without the authorisation of senior management.

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Credit customers should be informed in writing of the normal credit period (for example 30 days after the invoice date). A small cash discount is often used as an incentive to encourage early payment by debtors. For example, many firms offer a discount of 2.5% of the invoice value for payment within seven working days of the invoice date. It is essential that an organisation maintains accurate records detailing all transactions with customers and the amounts owing. An aged debtors' list detailing the length of time that a debt has been owing is useful since it highlights those debts which management needs to concentrate on. An organisation should issue regular

statements (normally monthly), and where necessary these should be followed up with reminders and phone calls/letters.

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CONCLUSION
KSE Ltd. ,IRINJALAKUDA was established in the year 1963. Now KSE Ltd. have different units in south India and also they have farm and ice cream factory. Mainly they have concentrated on cattle feed industry. Now it has the largest private sector cattle feed company in an India. During the course of this project we have looked at the items which make up working capital and considered how organisations can improve their management of working capital. We have seen that the ideal level of working capital is difficult to calculate and will vary from one organisation to another depending upon the industry in which they operate. What is essential is that a business avoids both the situation of too little or too much working capital. The project entitled A STUDY ON WORKING CAPITAL MANAGEMENT IN KSE Ltd. was undertaken with the object of creating an idea about the management of the working capital of the business firm. The study in KSE Ltd. helped me to attain a good knowledge about practices inworking capital management and I conclude that the study was a successful and a memorable one.

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BIBLIOGRAPHY REFERENCES
Books 1) Dr.K.G.Chandrasekharan Nair and Dr. Jayakumar CORPORATE ACCOUNTING Chapter 8, Ratio analysis,page no:8.1 8.46 Websites 1) www.kselimited.com 2) http://en.wikipedia.org/wiki/Working_capital 3) www.studyfinance.com/lessons/workcap/

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APPENDICES BALANCE SHEET , PROFIT & LOSS A/C, AND CASH FLOW STATEMENT

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Appendix-1 BALANCE SHEET OF KSE Ltd. , IRINJALAKUDA

Mar '06 12 mths ---------------IN RS . Cr.---------Mar '07 Mar '08 Mar '09 Mar '10 12 mths 12 mths 12 mths 12 mths 3.20 3.20 0.00 0.00 22.12 0.00 25.32 14.77 12.51 27.28 52.60 Mar '07 12 mths 52.65 22.38 30.27 3.20 3.20 0.00 0.00 23.50 0.00 26.70 13.35 6.45 19.80 46.50 Mar '08 12 mths 52.86 24.48 28.38 3.20 3.20 0.00 0.00 24.83 0.00 28.03 24.04 5.95 29.99 58.02 Mar '09 12 mths 54.53 26.13 28.40 3.20 3.20 0.00 0.00 29.37 0.00 32.57 20.97 8.26 29.23 61.80 Mar '10 12 mths 68.60 29.63 38.97

Sources Of Funds
Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 3.20 3.20 0.00 0.00 23.51 0.00 26.71 26.06 6.98 33.04 59.75 Mar '06 12 mths Application Of Funds Gross Block Less: Accum. Depreciation Net Block 47.20 19.77 27.43

61 Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 3.78 0.02 24.30 0.97 2.62 27.89 2.84 15.52 46.25 0.00 12.21 5.51 17.72 28.53 0.00 59.76 0.17 83.46 0.51 0.03 22.18 0.47 4.39 27.04 4.31 0.21 31.56 0.00 8.89 0.87 9.76 21.80 0.00 52.61 0.15 79.13 1.00 0.03 19.30 0.39 5.00 24.69 4.07 0.31 29.07 0.00 10.37 1.62 11.99 17.08 0.00 46.49 4.38 83.44 9.98 0.08 24.70 0.32 3.47 28.49 3.46 0.92 32.87 0.00 11.24 2.05 13.29 19.58 0.00 58.04 1.72 87.60 0.97 4.08 20.83 0.32 6.77 27.92 3.21 1.83 32.96 0.00 11.21 3.96 15.17 17.79 0.00 61.81 1.74 101.80

Appendix-2 PROFIT & LOSS A/C OF KSE Ltd. ,IRINJALAKUDA

Mar '06 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 240.60 0.30 240.30 0.35 -1.28 239.37 190.68 5.43 10.12 6.22 13.19 1.35 0.00 226.99 Mar '06 12 mths Operating Profit 12.03 ---------------IN RS . Cr.---------Mar '07 Mar '08 Mar '09 Mar '10 12 mths 12 mths 12 mths 12 mths 275.06 0.02 275.04 0.43 0.59 276.06 238.24 6.02 10.35 6.66 10.36 0.82 0.00 272.45 Mar '07 12 mths 3.18 289.51 0.03 289.48 0.95 0.04 290.47 249.31 5.55 10.81 5.74 8.32 0.74 0.00 280.47 Mar '08 12 mths 9.05 350.28 0.03 350.25 -0.41 0.60 350.44 305.40 6.87 12.77 6.58 7.07 0.79 0.00 339.48 Mar '09 12 mths 11.37 370.97 0.03 370.94 1.31 0.49 372.74 318.31 7.51 14.99 4.86 6.52 0.85 0.00 353.04 Mar '10 12 mths 18.39

62 PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 12.38 1.82 10.56 1.57 0.00 8.99 -0.11 8.88 2.85 5.91 36.32 0.00 4.00 0.56 32.00 18.48 125.00 83.46 3.61 2.50 1.11 2.81 0.00 -1.70 0.17 -1.53 -0.57 -1.01 34.22 0.00 0.32 0.05 32.00 -3.16 10.00 79.13 10.00 2.88 7.12 2.87 0.00 4.25 -0.01 4.24 1.62 2.58 31.16 0.00 1.12 0.19 32.00 8.07 35.00 83.44 10.96 3.52 7.44 2.59 0.00 4.85 0.21 5.06 1.87 3.21 34.07 0.00 1.60 0.27 32.00 10.02 50.00 87.60 19.70 3.23 16.47 3.84 0.00 12.63 0.02 12.65 4.38 8.27 34.72 0.00 3.20 0.53 32.00 25.85 100.00 101.80

Appendix-3 CASH FLOW OF KSE Ltd. ,IRINJALAKUDA

Mar '06 12 mths 8.88 12.04 -9.96 12.41 14.49 3.65 18.14 Mar '07 12 mths -1.75 -0.17 -2.38 -10.99 -13.54 18.14 4.60 ---------------IN RS . Cr.---------Mar '08 Mar '09 Mar '10 12 mths 12 mths 12 mths 4.21 5.01 12.66 10.50 -1.34 -8.45 0.71 4.60 5.31 2.28 -11.40 8.20 -0.92 5.31 4.39 17.52 -9.34 -3.97 4.21 4.39 8.60

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

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