1

A STUDY ON WORKING CAPITAL MANAGEMENT IN KSE LTD, IRINJALAKUDA

PROJECT REPORT

Submitted by

JITHIN C.U
Register No: 098001608020

In partial fulfilment for the award of the degree Of

MASTER OF BUSINESS ADMINISTRATION MAHENDRA ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES NAMAKKAL 637 503 MAY-2011

MAHENDRA ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES

PROJECT WORK MAY-2011

This is to certify that the project entitled A STUDY ON WORKING CAPITAL MANAGEMENT IN KSE LTD, IRINJALAKUDA

JITHIN C.U Register No: 098001608020 of MBA during the year 2010-2011 Project guide S.P. SREEKALA Submitted for the project viva-voce examination held on-----------------------------Internal examiner ------------------External examiner Head of the department

DECLARATION

I affirm that the project work titled A STUDY ON WORKING CAPITAL MANAGEMENT IN KSE LTD, IRINJALAKUDA being submitted in partial fulfillment for the award of MASTER OF BUSINESS ADMINISTRATION is the original work carried out by me. It has not formed the part of any other project work submitted for award of any degree or diploma, either in this or any other University.

JITHIN C.U
Register No: 098001608020

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

S.P.SREEKALA M.Com., M.B.A., M.Phil., (Ph.D).,

ACKNOWLEDGEMENT

I wish to express my sincere thanks to the Management, Mahendra Engineering College, for providing me the needed facilities to do my project report in working capital management in KSE Ltd, Irinjalakuda. I express my sincere thanks to our Principal Dr. R. SAMSON RAVINDRAN, B.E., M.S., M.B.A., Ph.D (Solar Energy)., Ph.D (Bio-Engg)., F.I.E, C.E.(India) M.I.S.T.E., for his encouragement given to me in carrying on the project report. I take immense pleasure to thank Mr. R ARIVALAGAN, MBA, M com, M.Phil H.O.D in charge, Department of Management Studies, .Mahendra Engineering College, for his valuable guidance during each stage of project report. I have great pleasure in extending my sincere gratitude to my beloved guide Mrs. S.P. SREEKALA, M.Com., M.B.A., M.Phil., (Ph.D)., Lecturer Department of Management Studies, Mahendra Engineering College, Mahendirapuri, Namakkal Dt , for his valuable guidance and for the pain and strains taken in making this project report as a grand success. I express my thanks to Mr.M.D.ANIL, Finance Manager, KSE LTD, IRINJALAKUDA and other staff members at KSE LTD, IRINJALAKUDA who kindly provided their helping hand for doing the project work. I remember with love the blessings and inspiration given by my parents, family members and friends for the successful completion of the work.

JITHIN C.U

CONTENTS CHAPTER NO. LIST OF TABLES LIST OF CHARTS 1 INTRODUCTION 1.1 INDUSTRY PROFILE 1.2 COMPANY PROFILE 2 DESIGN OF STUDY 2.1 OBJECTIVES OF THE STUDY 2.2 SCOPE OF THE STUDY 2.3 LIMITATIONS OF THE STUDY 2.4 STATEMENT OF THE PROBLEM 2.5 REVIEW OF LITERATURE 2.6 RESEARCH METHODOLOGY 3 4 ANALYSIS AND INTERPRETATION FINDINGS, SUGGESTIONS 4.1 FINDINGS 4.2 SUGGESTIONS 5 CONCLUSION & FUTURE ENHANCEMENT 5.1 CONCLUSION 6 APPENDICES 6.1 SOURCE 7 REFERENCE PARTICULARS PAGE NO. 8 9 10 13 17 29 30 30 31 32 33 35 36 69 69 70 71 71 72 72 72

ABSTRACT

The project is A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO KSE LTD, IRINJALAKUDA.The main objective of the study is to find out the soundness, liquidity and profitability of the company. The study is formulated by the research design for analyzing the profitability, soundness and liquidity of the company. The research design used for this study is analytical research design. Secondary data is collected from journals, magazines, reports and books. The statistical tools for the study are common size statement, comparative statement, trend analysis and ratio analysis. Graphs are also used for the diagrammatic representation of the interpretation. The study was mainly based on the annual reports of KSE Ltd.

LIST OF TABLES
TABLE Particulars PAGE

No 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 TABLE SHOWING CURRENT RATIO TABLE SHOWING LIQUIDITY RATIO CREDITORS TURN OVER RATIO AVERAGE PAYMENT PERIOD STOCK TURN OVER RATIO WORKING CAPITAL TURN OVER RATIO STATEMENT OF WORKING CAPITAL COMPARATIVE STATEMENT FOR THE YEAR 2005-06 TO 2006-07 3.9 COMPARATIVE STATEMENT FOR THE YEAR 2006-07 TO 2007-08 3.10 COMPARATIVE STATEMENT FOR THE YEAR 2007-08 TO 2008-09 3.11 COMPARATIVE STATEMENT FOR THE YEAR 2008-09 TO 2009-10 3.12 3.13 INVENTORY CONVERSION PERIODS WORKING CAPIATAL TREND

No 38 41 43 47 48 51 53 54

56

58

60

64 66

LIST OF CHARTS
TABLE Particulars No 3.1 CHART SHOWING CURRENT RATIO No 40 PAGE

3.2 3.3 3.4 3.5

CHART SHOWING LIQUIDITY RATIO CREDITORS TURN OVER RATIO AVERAGE PAYMENT PERIOD TREND CHART

43 46 48 68

1. INTRODUCTION
Working capital means the part of the total assets of the business that change from one form to another form in the ordinary course of business operations. In a perfect world, there would be no necessity for current assets and liabilities because there would be no uncertainty, no transaction costs, information search

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costs, scheduling costs, or production and technology constraints. The unit cost of production would not vary with the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product market shall be perfectly competitive and would reflect all available information, thus in such an environment, there would be no advantage for investing in short term assets. However the world we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowings and lending rates for investments and financings of equal risks. Similarly each organization is faced with its own limits on the production capacity and technologies it can employ there are fixed as well as variable costs associated with production goods. In other words, the markets in which real firm operated are not perfectly competitive. These real world circumstances introduce problems which require the necessity of maintaining working capital. For example,, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial imputes in future at reasonable price. This may necessitate the holding of inventory, current assets. Similarly an organization may be faced with an uncertainty regarding the level of its future cash flows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of reserve of short term marketable securities, again a short term capital asset. In corporate financial management, the term Working capital management (net) represents the excess of current assets over current liabilities.

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Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for two purposes Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, buildings & etc Short term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses. It is otherwise known as revolving or circulating capital Working Capital = Current Asset Current Liability. The primary objective of working capital management is to ensure that sufficient cash is available to Meet day to day cash flow needs. Pay wages and salaries when they fall due Pay creditors to ensure continued supplies of goods and services. Pay government taxation and provider of capital dividends and Ensure the long term survival of the business entity.

Concept of working capital Gross Working Capital = Total of Current Asset Net Working Capital = Excess of Current Asset over Current Liability

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1.1 INDUSTRY PROFILE

1.1.1 Solvent Extraction Industry The solvent industry has achieved a phenomenal progress and at present there are 520 units having overall oil cake or oil seed processing capacity of more than 9.9 million/year. The solvent extraction plays important role in the oil economy. Solvent extraction in India was started in 1945. It had to struggle for more than 20 years to establish itself.

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1.1.2 Crises of coconut industries in Kerala in 1960s 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. 1.1.3 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

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extracting oil and was able to reduce the oil content up to 6%. The industries in Kerala later began to follow it. 1.1.4 Cattle feed Industry From the beginning KSE Ltd marketed the buy product obtained from its solvent extraction division in the brand name of Jersey Copra Cake. Most of the progress in the cattle feed sector has come about in the past 30 years only. There are only few cattle feed units in the country especially in Kerala. The cattle industry of the state has been utilizing the indigenous raw material i.e. coconut cake, which is the residue left after the extraction of oil from copra which is mainly used as cattle feed. Coconut cake contains 4-5% oil is generally used for industrial purpose and deoiled cakes is used to make mixed cattle feed. In Kerala the rotary cake was used as a cattle feed and actually this excessive oil on cakes reduced the keeping quality of the cake and also upset the digestive system of the cattle e. In foreign countries, the cattle is feed only with de-oiled cakes and according to the dairy experts, the milk and fact contend of milk depends solely on the protein contend of the feed. All these factors stress the importance of having a few cattle field industry in the state. Thus in 1996, KSE Ltd. Entered the cattle field industry, setting up the new plan fir manufacturing ready mixed cattle feed. The last three decades have been KSE emerging as the leader in ready mixed cattle feed in the country. Today KSE Ltd. Commands the recourses, expertise and infrastructure of manufacture a range of livestock feed in high volumes, driven by a commitment to high standards of quality

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1.1.5 Dairy Industry Most of the progress in the dairy sector has come about in the past 25 years only. Till 1970, the 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. The bulk of growth in the milk output is therefore accounted for by the unorganized section consisting of millions of small milk producers, feeding their cattle largely on crop residues. Many of these producers have organized themselves into co-operative under the umbrella if the National Dairy Development Board (NDDB) which had been running a highly successful animal husbandry promotion programme named operation flood. The private sector has now entered into this field in a big way, capitalizing on the availability of cheap surplus milk to produce various kinds of dairy products for the domestic and international market. Several dairy products like skimmed milk powder, whole milk powder, and infant milk foods of western origin are now being produced in India. A variety of cheeses, milk drinks, ice creams, pasteurized butter etc. which, were very common in this country till a few decades ago are now available in abundance in department stores of big and small cities. The main objective of this programme is to

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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.

1.2 COMPANY PROFILE

Cattle play a vital role in the economy of India. Cows and bullocks are regarded as the foundation of agriculture in India. Cattle supplies the motive power for almost all agriculture operations such as ploughing, lifting water from wells and the transport of produce to the markets. They provide most of the manure used by farmers in India and often enable them to earn something during this spare time by carting for hire; their unawareness of farmers about the proper feeding methods of cows leads to cow milk productivity. Majorities of Indian cattle are seriously underfed particularly cows in rural areas. Due to these reasons, the importance of the cattle feed industry has been increased in India.

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Kerala Solvent Extractions was registered as a public limited company on 25 th September, 1963. The company was later renamed as KSE Limited and listed in the stock exchanges of Mumbai, Chennai and Kochi. KSE, a company having annual turn of Rs. 250 crore, is the largest manufacturer of cattle feed. It is marketing annually about 2.2 lakh tones of superior quality cattle feed. KSE is in the oil extraction industry for the past 32 years. The company has secured the National Productivity Award for the year 2001-2002 for being first in terms of production efficiency in the animal feed sector. This is the sixth time in arrow that the company has been selected for the most coveted award. KSE, with a capital base of Rs. 36 crore embarks on an expansion to double its solvent extraction capacity and add a most modern eco-friendly vegetable oil refining plant. 1.2.1 ORIGIN Copra crushing has been a native industry of Kerala. But inefficient crushing methods and competition from the modernized oil mills elsewhere shattered coconut oil industry in Kerala in early 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. 1.2.2 HISTORY In 1963, KSE Ltd was established according to Indian Companies Act 1956. It was registered as a public limited company on 25th September, 1963. Its first production

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was started in 1972 with a capacity of 40 tones per day. In 1980 the capacity of plant was raised to 60 tones per day. In 1983, a fully automatic cattle feed plant was added with a capacity of 120 tones per day capacity. By 1992 the capacity of solvent extraction plant was further increased to 100 tones per day. In 1987, the plant capacity was increased to 180 tones over day. The companys second production unit with a capacity of 150 tones per day solvent extraction commenced operation at Swaminathapuram. Dindigul district of Tamil Nadu in 1988 and 1989 respectively. The cattle feed capacity was subsequently increased to 180 tones per day. 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.

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Kerala Solvent Extraction Limited was registered as a public limited company on 25th September 1963. The company was later renamed as KSE Limited. The company is listed in three stock exchanges- Mumbai, Chennai, Cochin. The company started production in1972 with a solvent extraction capacity of 40 MTS per day. On1976 the company is modernized to cattle feed industry with a capacity of 50 tons per day. KSE Limited is a product oriented company. Cattle feed is the main product of the company. The other products are oil-cake, de-oiled cake (JERSEY), Milk, Ice cream, etc.. De-oiled cake is marketed under the brand name JERSEY. Their Ice cream marketed under the brand name Vesta, is well accepted in the market. Now they are trying to expand their milk products. 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

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Vadagiri, Kottayam, has a computerized control room for monitoring, homogenization, size reduction, batching, pelletisation, pellet cooling and aspiring system. The manufacturing processes used in the company are Wooden canes Oil mill Expeller mill Solvent extraction

Now-a-days, the first three processes are out of use. Irinjalakkuda unit of the company is mainly concentrated on solvent extraction process. Irinjalakuda unit of the company consists of cattle feed plant and refining plant. 1.2.3 Challenges Kerala feeds; Milma, Godrej, Prima, etc. are the main competitors to the company. But the company is the number one producer of cattle feed in private sector. Now the company is concentrated on producing more milk products. Projects for this purpose are on consideration. 1.2.4 SHARE CAPITAL OF THE COMPANY The authorized share capital of the company is Rs.4 crores and issued and subscribed capital is Rs. 32 crore. The par at value of one equity share capital is Rs. 10. The company issued 6000, 135% redeemable cumulative preference shares of Rs. 100 each. The redemption of these shares is at par after ten years but before fifteen years from the date of their allotment. The company has made 2 bonus issues and one right issue.

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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.

1.2.5 Milestone 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 unit increased to 180 MTS per day

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1995 1996 1998

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 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

1999

unit of KSE Limited) was renamed as KSE Limited Swaminathapuram. 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, Tamil nadu.

2002

Started operating a solvent extraction plant and oil refineryon lease at Kanchikkode for processing coconut cake. Cattle feed production capacity of the Irinjalakuda plant increased to 199 MTS per day.

2003

Ice cream Vesta launched Started produced cattle feed at a leased plant at Edayar, Kalamassery. Cattle feed capacity of Swaminathapuram unit increased to 195 MTS per day. Vesta haven ice cream parlours at Irinjalakuda an Marathakkara started

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2004

New project of 200 TPD solvent plant and 100 TPD oil physical refining plant started. Acquires hand from KINFRA for starting a new project at Kinfra park, orate.

2005

Cattle feed production capacity at irinjalakuda unit increased to 210 MTS per day, Started producing cattle feed in a leased unit at Erode. Company acquired its 5th cattle feed manufacturing unit at Mysore.

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.

1.2.6Board of Directors

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Board of directors of the company has ten members including the managing director. They are as followsNAME Mr. M. C. Paul Mr. T. O. Paul Mr. A. P. George Mr. K. P. John Mr. T. C. Mathew Mr. P. D. Anto Mr. John francis K. Dr. K. C. Vijayaraghavan Mr. T. R. Ragulal DESIGNATION Chairman and Managing director Executive director Director and legal advisor 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.

1.2.7 Bankers KSE Limited banks with Bank of Baroda, Irinjalakkuda branch. 1.2.8 Units of KSE Limited Head office KSE Limited, Irinjalakkuda. Production units (Kerala): 1. 2. Irinjalakkuda unit; Vedagiri unit, Kurumullur;

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3. 4. 5. 6. 7. Tamil nadu:

Palakkad unit, Palakkad; Diary unit, Konikkara; Edayar, Cochin; NIDA unit, Kanchikkode, Palakkad; Parapadi unit, Calicut.

1. Swaminathapuram unit, Dindugal; 2. Diary unit, Thalayuthu. Karnataka:

1. Hinkal, Mysore.

1.2.9 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

Cattle Feed
26

produce ready mix compound cattle feed because it was not able to fulfill the demand of Jersey copra cake. The company was also producing food supplement for cattle feed 1.2.10 CATTLE FEED DEVISION Pellet Mash Cattle feed in 1976, the company started manufacturing ready mixed compound cattle under the brand name K.S.Cattle Feed. The balanced ready mix feed manufactured after due consideration of needs of the cattle in the state is well received all over Kerala, therefore constituting its share in the milk production of the state. Fully automatic & sophisticated live stock feed plant at 120 tonne productions per day was established at Irinjalakuda to meet the increasing demand for cattle & this went Delu Special Super Deluxe Supreme Ordinary into commercial production in 1983. Jersey xe Cattle Pellet Mash Mash Plus Mash

Pellet

Feed

CATTLE FEED SEGMENTATION

Pellet

Mash

Deluxe Plus

Delux e

Supreme Pellet

Jersey

Ordinary Mash

Super Mash

Special
Mash

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2. DESIGN OF THE STUDY

Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for two purpose There are spreads between the borrowings and lending rates for investments and financings of equal risks. Similarly each organization is faced with its own limits on the production capacity and technologies it can employ there are fixed as well as variable

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costs associated with production goods. In other words, the markets in which real firm operated are not perfectly competitive. These real world circumstances introduce problems which require the necessity of maintaining working capital. For example,, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial imputes in future at reasonable price. This may necessitate the holding of inventory, current assets. Similarly an organization may be faced with an uncertainty regarding the level of its future cash flows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of reserve of short term marketable securities, again a short term capital asset. In corporate financial management, the term Working capital management (net) represents the excess of current assets over current liabilities.

2.1 OBJECTIVES OF THE STUDY

I. II. To analyze the sources of working capital. To draw meaningful conclusion and put forward suggestion for effective
WORKING CAPITAL

management.

III. IV. V.

To study the capital structure. To understand firms working capital position. To determine the efficiency in cash, inventory, debtors, creditors.

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2.2 SCOPE OF THE STUDY

Working Capital Management is concerned with the problems that arise in attempting to manage the Current Assets, the Current Liabilities and the inter-relationship that exists between them. The term Current Assets refers to those Assets which in the ordinary course of business can be, or will be, converted into Cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The Major Current Assets are Cash, Marketable Securities, Accounts Receivables and Inventory. Current Liabilities are those Liabilities, which are intended at their inception, to be paid in the ordinary course of business, within a year out of the current assets or the earnings of the concern .The basic Current Liabilities are Accounts Payable, Bills Payable, Bank Overdraft and outstanding expense. The goal of Working Capital Management is to manage the firm's Assets and Liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The Current Assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of the short term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is, therefore, the main theme of the theory of management of working capital.

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2.3 LIMITATIONS OF THE STUDY

1.The duration of the study is limited to one month. This is a major constraint. 2.The period of the study of the analysis is limited to 5 years from 2005 to 2009 3.The study is based on the secondary data i.e. companys published financial statement. 4.Data about inventory is not available for further analysis 5.The limitations of the ratio analysis are also the major constrains of the study. 6.Data for inter firm comparison is not available.

2.4 STATEMENT OF THE PROBLEM

The problem of that is stated as the increasing the cost of production and highly increasing the cost of raw materials of KSE Ltd, Iringalakuda

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NEED FOR THE STUDY Working capital management, which is concerned with decisions relating to the current assets and current liabilities?. The key difference between long term financial management and short term financial management is in terms of the timing of cash. While long term financial decisions like buying capital equipment or issuing debentures involve cash flows over an extended period of time short terms finanacial decision typically involve cash flows within a year or within the operating cycle of the firm. working capital management is concerned with the problem that arise in attempting to manage the current assets. It is the capital invested in different items of current assets needed for the business,viz., inventory,debtors,cash and other current assets such has loans and advances to third parties capital required for purchase of rawmaterial and for meeting day to day expenditure on salaries, wages, rents, advertising etc., is called working capital.

2.5 REVIEW OF LITERATURE

2.5.1 NICOLA A. TARASHEV1

BIS working papers no. 179, July 2005

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This paper uses firm-level data to compare the performance of six structural credit risk models in terms successfully they predict default. Structural models focus on the changes in value of a corporate obligor assumes that default occurs when asset values cross some lower threshold. The paper finds that the modal well but they dont fully capture the effects of the business and credit cycles- and also could be improper incorporation of macroeconomic variables. Endogenous default models- and also produce better and quite an estimate of optimal capital when filtered through the base ii internal rating based approach. The analysis that the most material borrower characteristics are the firms leverage ratio, default recovery rate, and of return. 2.5.2ROHAN CHURM and NIKOLAOS PANIGIRTZOGLOU2 This paper uses a structural model of credit risk to try to decompose into their main component expected default, uncertainty about the rate default , liquidity, regulation and tax, it looks at how well it fits historical default frequencies to calculate an average historical compensation for credit risk that could be compared to the average observed credit spread. The results show, among other things, that a large part of credit spread investment grade debt is due to non-credit risks factors, while the reverse is true. 2.5.3 MARCO SORGE3 Are longer maturity loans in project financing necessarily riskier than shorter maturity loans? This paper show some key characteristics of project finance, such as non-recourse debt, political risk, and ex ante spread finance lending to argue that longterm project financing is not necessarily perceived by lenders as risk in term project finance lending. The findings contrast with most other forms of lending, where credit risk increases with maturity. Instead, the paper finds that the particular characteristics of credit risk in project suggest a hump-shaped term structure of loan spreads.

Bank of England working paper no. 253, 2005

BIS Quarterly Review, 6 December 2004

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2.5.4 MARK MANNING4 It is tempting to assume that the difference in price between a credit-risk-free bond and a credit risky but it is strongly related to the expectation of default. Yet, as this paper explains, the truth is more complex. This applies a structural credit model to explore the problem using data from Sterling bond markets. It concludes variability in the spread of high-grade A- rated credits is not strongly related to default probability. Instead the spread is determined by other factors such as liquidity. In this case of lower quality BBB-rated bonds, debentures seem to explain about a third to a half of spread variation, depending on the modeling technique that is implemented. 2.5.5 FERNANDO GONZALEZ .5 Agency credit ratings are an important feature of the financial markets and they play an increasingly important in bank credit risk management and regulatory capital calculations. This paper looks at the many ways that the market and regulators have put on agency ratings. It says that ratings have become hard-wired financial system in various ways (e.g., rating based trigger clauses in lending covenants) that can have effect on market dynamics. It also summarizes rating methodology and takes a look at the problem of credit and default time horizons. . It says that ratings have become hardwired financial system in various ways (e.g., rating based trigger clauses in

2.6. RESERCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research

Bank of England working paper, 17 august 2004 European Central Bank, June 2004

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problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology. 2.6.1 METHODOLOGY OF STUDY TYPE OF RESEARCH Type of research employed is analytical research 2.6.2 COLLECTION OF DATA Secondary data is mainly used for this study and the five year data from 2005-06 to 2009-10 pertaining to the study was collected from the company and the remaining from books, magazines, journals, web sites etc. 2.6.3 TOOLS FOR ANALYSIS Secondary data were analyzed and interpreted with the help of different tools such as ratio analysis, graphs, tables, operating cycle, comparative balancesheets, schedule of changing in working capital etc. TIME PERIOD The duration of the study was for a period of 2005 to 2010

3.DATA ANALYSIS AND INTERPRETATION

Data anlysis and interpretation is the core factor of any project. This chapter data analysis and interpretation consist of analytic part based upon empirical study. In this project the researcher used annual report for data collection. The study is based on

35

primary and secondary data. Primary data is collected by means of interview. Secondary data is collected by annual reports. In project, I have used various tools such as Ratio analysis Operating cycle Trend analysis Schedule of changes in working capital

3.1. RATIO ANAYSIS Ratio analysis is the process of determining and presenting in arithmetical terms the relation between figures and group of figures drawn from satements. The ratio analysis is one of the tools in the hands of those who want to know something more from the finanacial satements. Ratio is basis of this analysis. Ratio can be expressed in any of three ways. Rate, which is the ratio between the numerical facts over a period of time. Pure ratios or propotions, which are arrived at by the simple division of one number

by another. Percentage, which is a special type of rate expressing the relationship in hundred. Ratio analysis is based on different ratios which are calculated from the accounting data contained in the financial satements. Different ratios are used for different purpose.

36

These ratios can be grouped into various classes according to the financial activity function to be evaluated. 3.1.1 CURRENT RATIO Current assets normally mean assets convertible and meant to be converted into cash within a year time. Current assets usually include cash in hand and at bank, debtors, bills receivable, prepaid expenses, inventories, ratio materials, work in progress and finished goods, marketable securities and other short term high quality investments. Current liability represent the liablities at which fall due for payment within year. Current ratio establishes the relation between the current assets and current liabilities. Conventional rule, idle current ratio should be 2:1 The ability of a company to meets its short term commitment is normally assessed by comparing current assets with current liabilities.

CURRENT RATIO

37

CURRENT RATIO=

CURRENT ASSETS CURRENT LIABILITIES

TABLE 3.1

CURRENT RATIO

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

CURRENT ASSETS( lakhs) 3137.42 4590.76 3063.73 2870.67 3270.91

CURRENT LIABILITIES( lakhs) 1195.60 1632.56 840.48 1016.37 1142.61

CURRENT RATIO 2.62 2.81 3.64 2.82 2.86

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

38

concern. The company has maintained the current ratio favorable from 2005-2006 to 2009-2010, but the year 2007-2008 the ratio was highly increased to 3.64. The main reason for increasing current ratio in the year 2007-2008 is dipping the sail in that year, it is because of increased price of the products. So the stock increased. To recover this problem the sales have to increase.

CHART NO: 3.1

CURRENT RATIO

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3.1.2 LIQUDITY RATIO It is the ability of a firm to meet its obligation in the short run, usually based on current assets and current liability. These are the ratios which measure the short term

40

solvency or financial position of the firm.Liqudity refers to the ability of concern to meet its current obligation as and when they become due.

CURRENT ASSETS CLOSING STOCK LIQUDITY RATIO = CURRENT LIABILITIES

TABLE NO 3.2 YEAR

LIQIDITY RATIO CURRENT LIABILITES(laks ) 1195.60 1632.56 840.48 1016.37 1142.61 0.9641 1.5534 1.4398 1.2865 1.0984 LIQUDITY RATIO

CURRENT ASSETS-CLOSING STOCK(laks)

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

1152.71 2535.94 1210.17 1328.96 1255.03

INTERPRETATION Quick ratio is expressed as quick asset:quick liability.quick ratio of 1:1 is considered to represent a satisfactory financial position. If actual quick ratio is equal or more than the standard quick ratio of 1:1,the conclusion can be the concern is liquid and so it can pay of its short-term liability out of its quickly The company has maintained

41

quick ratio favorable from 2005-06 to 2008-09. In year 2005-06 the company shows lower quick ratio because of the company had highest stock in the year.

CHART NO 3.2

LIQUIDITY RATIO

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3.1.3 CREDITORS TURNOVER RATIO

43

It constitutes an important source to provide spontaneous working capital of the firms. Creditors turnover ratio expresses the number times the accounts payable are converted into purchase by management during the year. Normally higher turnover ratio is preferred. ANNUAL PURCHASE CREDITORS TURNOVER RATIO = AVERAGE PAYABLE TABLE3.3 YEAR CREDITORS TURN OVER RATIO ANNUAL PURCHASE AVERAGE PAYABLE CREDITORS TURNOVER RATIO

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

16867.45 17987.75 21910.96 23071.44 29308.93

322.68 787.61 418.80 491.29 557.82

52.27 22.84 52.32 46.96 52.54

INTERPRETATION

44

This ratio reflects whether terms of terms of credit allowed by supliers are liberal or stringent. High creditors turnover ratio shows that creditors are being paid promptly, while a low turnover ratio reflects liberal credit terms granted by suppliers. The company has been maintaining a better creditors turnover ratio but the year 2006-07 the ratio was highly decreased. Now the company recover this problem.

CHART3.3

CREDITORS TURNOVER RATIO

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3.1.4 AVERAGE PAYMENT PERIOD Average payment period related to the average number of days within which payment to the creditors are being made. If the number of days is large, it shows the

46

inability of the firm to pay the creditors prompty, which will definitely affect the credit worthiness NUMBER OF DAYS AVERAGE PAYMENT PERIOD = CREDITORS TURN OVER RATIO

TABLE 3.4 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

AVERAGE PAYMENT PERIOD DAYS IN YEAR 365 365 365 365 365 CREDITORS TURN OVER RATIO 52.27 22.84 52.32 46.96 52.54 AVERAGE PAYMENT PERIOD 7 16 7 8 7

INTERPRETATION Above table shows average payment period of K S E pvt ltd. Company getting 6-8 days to make payment to the supplier. This help the company to get discount from suppliers. But the year 2006-07 the company took 16 days to make the payment.

47

CHART 3.4

AVERAGE PAYMENT PERIOD

3.1.5 INVENTORY (STOCK) TURNOVER RATIO Inventory turnover ratio reflect the efficency of inventoy management. This ratio indicates the number of times the inventory is replaced the during the year. Higher ratio shows greater efficiency in management and vice versa. COST OF GOODS SOLD

48

INVENTORY (STOCK) TURNOVER RATIO= AVERAGE INVENTORY

TABLE 3.5 SHOWING STOCK TURN OVER RATIO

YEAR

COST OF GOOD SOLD

AVERAGE INVENTORY 1094.26 1659.51 1628.34 1340.48 1394.56

STOCK TURNOVER RATIO 18.20 13.76 16.69 21.60 24.36

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

19917.38 22829.10 27199.67 28947.48 33971.91

INTERPRETATION The above table shows the inventory conversion period of k s e ltd. From the part of the company ideal period is 20 days. Company is not achieve the inventory conversion period as ideal in last two years,that is ,22 and 25 days have taken to convert the stock into cash in 2008-09 and 2009-10 respectively. The reason of taking this much dates, company purchased rawmaterial in bulk quantity with discount.

49

3.1.6 WORKING CAPITAL TURNOVER RATIO The different use of overall working capital in a firm can be measured with the help of working capital turnover ratio. The ratio indiactes the ratio of working capital utilization in the firm. A higher ratio indicates the efficient utilization of working capital and vice versa.

NET SALES WORKING CAPITAL TURN OVER RATIO= AVERAGE NET WORKING CAPITAL

TABLE 3.6 WORKING CAPITAL TURN OVER RATIO

YEAR NET SALES NET WORKING CAPITAL 2005-06 2006-07 2007-08 21301.58 24076.42 27551.91 1941.82 2958.21 2223.25 WORKING CAPITAL TUREOVER RATIO 10.96 8.13 10.63

50

2008-09 2009-10

28947.49 35007.87

1854.30 2128.30

15.61 16.64

INTERPRETATION The higher ratio indicated efficient utilization of working capital and a low ratio indicates inefficient utilization. The above table shows the working capital and high ratio is due to high net working capital. In the year 2006-07 shows the working capital is 8 times but after that year the company getting good working capital utilization.

3.2 STATEMENT OF WORKING CAPITAL: A statement of working capital is working capital is working capital is prepared to depict the changes in working capital. Working capital represents the excess of current Assets over current liabilities. Since, several times, i.e., all current assets and current liabilities are the components of working capital, it is necessary to measure the increase or decrease therein, by preparing a statement or schedule of changes in Working Capital. This statement is prepared with current assets and current liabilities as appearing in the Balance Sheets under consideration.

51

Working capital is defined as the difference between current asset and current liabilities. Working capital of FRONTLINE EXPORTING is analyzed to find out the nature of source of fund and how they are utilized for financing current assets.

TABLE3.7 STATEMENT OF WORKING CAPITAL FROM THE YEAR 2005-2009 Current Assets a) Inventories 2005-06 15,34,87,65 8 b)Sundry Debtors c)Cash&Bank Balances Total assets (A) 31,32,65,32 3 45,32,76,86 5 90,67,543 9,03,35,432 2006-07 24,65,78,96 0 91,23,654 3,67,85,432 2007-08 23,54,67,43 2 1,09,87,654 13,24,56,87 6 31,24,44,12 5 28,65,00,114 31,24,01,442 43,25,672 34,23,567 2008-09 2009-10

23,98,76,543 27,65,42,765

43,56,87,980 56,76,54,329

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Current Liabilities a) Liabilities b) Provisions Total liability (B) 6,65,23,432 4,77,67,003 11,42,90,43 5 Net working 19,89,74,88 8 6,56,43,212 9,67,24,252 16,23,67,46 4 29,09,09,40 1 22,65,59,69 3 17,41,65,671 18,81,50,100 1,04,57,654 7,54,26,778 858,84,432 8,75,44,332 2,47,90,111 8,76,53,434 3,65,97,908

11,23,34,443 12,42,51,342

capital (A-B)

TABLE NO 3.8 COMPARITIVE STATEMENT FOR THE YEAR 2005-2006 to2006-07 (Rs in lakhs)

53

PARTICULARS LIABILILTIES :

2005-2006

2006-2007

CHANGE

a) Liabilities b) Provisions

6,65,23,432 4,77,67,003

6,56,43,212 9,67,24,252

8,80,220 (-)4,89,57,249

11,42,90,43 TOTAL 5

16,23,67,46 4 (-) 48077029

ASSETS: a) Inventories 15,34,87,65 8 b)Sundry Debtors c)Cash&Bank Balances 90,67,543 9,03,35,432 31,32,65,32 TOTAL 3 24,65,78,96 0 91,23,654 3,67,85,432 45,32,76,86 5 14,66,97,413 9,30,91,302 56,111 5,35,50,000

Working capital= Current asset current liability INTERPRETARTION:

19,89,74,888

29,09,09,401

The comparative balance sheet for the financial year 2005-06 to 2006-07 shows that there has been increase in the current assets as well as the current liabilities of the company. It says company has increased its capacity of current assets in the year .working capital has been increased than the previous years working capital,increase in working capital means increase in the cost of day to day expenses

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TABLE NO 3.9 COMPARITIVE BALANCE SHEET FOR THE YEAR 2006-07 to 2007-08 (Rs in lakhs)

55

PARTICULARS LIABILILTIES :

2006-2007

2007-08

CHANGE

a) Liabilities b) Provisions

6,56,43,212 9,67,24,252

1,04,57,654 7,54,26,778

5,51,85,558 2,12,97,474

16,23,67,46 TOTAL 4 8,58,84,432 7,64,83,032

ASSETS: a) Inventories 24,65,78,96 0 b)Sundry Debtors c)Cash&Bank Balances 91,23,654 3,67,85,432 23,54,67,43 2 1,09,87,654 13,24,56,87 6 45,32,76,86 TOTAL
Working capital= Current asset current liabilities

1,11,11,528 (-)18,64,000

(-)14,08,32,740

36,90,23,07 2
28,31,38,640

5
29,09,09,441

(-)13,15,85,212

INTERPRETARTION: This comparative balance sheet for the financial year 2006-07 to 2007-08 shows that there has been decrease in the current assets as well as the current liabilities of the company. It says company has decreased its capacity of raw materials at the same time

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company has increased its cash and bank balances it may be through collecting the amount of creditors.in this table we can see that working capital has been decreased in a short range .it may be because of in the previous year may be the boom situation of the company , there may be a chance of rice of a competitor

TABLE NO 3.10 COMPARITIVE BALANCE SHEET FOR THE YEAR 2007-08 to 2008-09 (Rs in lakhs)

57

PARTICULARS LIABILILTIES :

2007-08

2008-2009

CHANGE

a) Liabilities b) Provisions

1,04,57,654 7,54,26,778

8,75,44,332 2,47,90,111

7,70,86,678 5,06,36,667

11,23,34,44 TOTAL 8,58,84,432 3 7,64,83,032

ASSETS: a) Inventories 23,54,67,43 2 b)Sundry Debtors c)Cash&Bank Balances 1,09,87,654 13,24,56,87 6 36,90,23,07 TOTAL
Working capital= 17,41,65,671 Current asset-current liability

23,98,76,54 3 43,25,672 43,56,87,98 0 28,65,00,11 4

28,31,38,640

(-)44,09,111 66,61,982

(-)30,32,31,104

(-)30,09,78,233

INTERPRETARTION: By analyzing the current assets and current liabilities of the company for the year 2007-08 to 2008-09, it is clear that there has been an increase in the sundry debtors position of the firm. There is an increase of Rs. 66,61,982 (in lakhs) in the year 2008-0 as

58

compared to that of 2007-08. In this comparative analysis we can see that working capital has again reduced , it says that company reduced its productivity , it may be the stage of depresion

TABLE NO 3.11 COMPARITIVE BALANCE SHEET FOR THE YEAR 2008-09 to 2009-10 (Rs in lakhs)

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PARTICULARS LIABILILTIES :

2008-2009

2009-10

CHANGE

a) Liabilities b) Provisions

8,75,44,332 2,47,90,111

8,76,53,434 3,65,97,908

(-)1,09,102 (-)1,18,07,797

11,23,34,44 TOTAL 3

12,42,51,34 2 (-)11916899

ASSETS: a) Inventories 23,98,76,54 3 b)Sundry Debtors c)Cash&Bank Balances 43,25,672 43,56,87,98 0 28,65,00,11 TOTAL Working capital= Current asset-current liability INTERPRETARTION: The comparative balance sheet of 200-09 to 2009-10 shows that there has been an increase in the current liability position of the firm while that of the current assts has also been increased with that of the previous year. Current assets have been 4 8,36,84,429 27,65,42,76 5 34,23,567 56,76,54,32 9 31,24,01,44 2 18,81,50,100 16,77,30,376 13,19,66,349 36666222 (-)9,02,195

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increased to 31,24,01,442 in 2010 as compared to that of 2009.working capital also increased in this year so this is a positive trend.

3.03 OPERATING CYCLE:

The operating cycle deals with the cycle of how a firm takes cash and converts it into incventory and how inventory converted into sales, account receivables, and ultimately

61

back into cash. An investment in the working capital is influenced by 4 key events in production of sales cycle of the firm. Purchase of raw material Payment of raw material Sales of finished goods Collection of cash sales

Length of operating cycle is to be determined by the spots with inventory conversion period For call calculating the operating cycle we have to calculate the three accounting period ratios they are inventory conversion period, receivable period and payable deferral period
A)

INVENTORY CONVERSION PERIOD: INVENTORY

INVENTORY CONVERSION PERIOD = COST OF GOOD SOLD

X 365

(OPENING STOCK + CLOSING STOCK) INVENTORY = X 365

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SALES b) Receivable collection period (Debtors cycle):

ACCOUNT RECEIVABLE RECEIVABLE COLLECTION PERIOD = SALES

C)

X 365

PAYABLE DEFERRAL PERIOD ACCOUNT PAYABLE

PAYABLE DEFERRAL PERIOD

365

COST OF GOOD SOLD

TABLE3.12

CONVERSION PERIODS

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Accounting period ratio Inventory conversion period Receivable collection period Payable deferral period

2005-06

2006-07

2007-08

2008-09

2009-10

96

91

79

88

116

115

109

37

53

66

95

103

114

76

80

INTERPREATION The above table and chart depicts that the inventory conversion period shows an increasing trend from 2000 to 2002 from 92 days and then it starts to decrease up to 79 days in the year 2005. The standard norm of the company is 100 days. Only in 2004 and 2007 the inventory conversion period is higher than the standard norms in that period company is took more days inventory conversion. The inventory is converted rapidly in other years with 920days.91 days, 79 dys & 88 days in 2000, 2004,2005 and 2006 respectively. 3.4 TREND ANALYSIS

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In working capital analysis the direction at changes over a period of time is of crucial importance. Working capital is one of the important fields of management. It is therefore very essential for an annalist to make a study about the trend and direction of working capital over a period of time. Such analysis enables as to study the upward and downward trend in current assets and current liabilities and its effect on the working capital position. In the words of S.P. Gupta The term trend is very commonly used in day-today conversion trend, also called secular or long term need is the basic tendency of population, sales, income, current assets, and current liabilities to grow or decline over a period of time According to R.C.galeziem The trend is defined as smooth irreversible movement in the series. It can be increasing or decreasing. Emphasizing the importance of working capital trends, Man Mohan and Goyal have pointed out that analysis of working capital trends provide as base to judge whether the practice and privilege policy of the management with regard to working capital is good enough or an important is to be made in managing the working capital funds. Further, any one trend by it self is not very informative and therefore comparison with Illustrated their ideas in these words, An upwards trends coupled with downward trend or sells, accompanied by marked increase in plant investment especially if the increase in planning investment by fixed interest obligation

TABLE 3.13 TREND OF WORKING CAPITAL FROM 2005-2010

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YEARS

WORKING CAPITAL TREND 100 05 62 51 49

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

3.5 GRAPHICAL REPRESENTATION OF TREND SINCE 2005-2010 In the words of S.P. Gupta The term trend is very commonly used in day-today conversion trend, also called secular or long term need is the basic tendency of

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population, sales, income, current assets, and current liabilities to grow or decline over a period of time According to R.C.galeziem The trend is defined as smooth irreversible movement in the series. It can be increasing or decreasing. Emphasizing the importance of working capital trends, Man Mohan and Goyal have pointed out that analysis of working capital trends provide as base to judge whether the practice and privilege policy of the management with regard to working capital is good enough or an important is to be made in managing the working capital funds.

CHART3.5 WORKING CAPITAL TREND

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4.1FINDINGS
1. The company has maintained quick ratio favorable from 2005-06 to 2008-09. In

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

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

2010, but the year 2007-2008 the ratio was highly increased to 3.63.
3. The company has been maintaining a better creditors turnover ratio but the year

2006-07 the ratio was highly decreased. Now the company recover this problem.
4. Company getting 6-8 days to make payment to the supplier. This help the

company to get discount from suppliers. But the year 2006-07 the company took 19 days to make the payment.
5. Company is not achieve the inventory conversion period as ideal in last two

years, that is ,22 and 25 days have taken to convert the stock into cash in 2008-09 and 2009-10 respectively. The reason of taking this much dates, company purchased raw material in bulk quantity with discount.
6. In the year 2006-07 shows the working capital is 7 times but after that year the

company getting good working capital utilization.

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

standard norms in that period company is took more days inventory conversion. The inventory is converted rapidly in other years with 920days.91 days, 79 dys & 88 days in 2001, 2005,2006 and 2007 respectively

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4.2 SUGGESTIONS

1 . The management should pay attention towards increasing working capital turnover by minimizing the investment in inventories and receivables. 2 . The management should try to increase the liquidity position of the company by proper by proper investment in current assets. 3 . the management is never think credit sales in their policies. But trade debtors in balance sheet so it must think to eliminate it so as to reduce working capital requirements. 5 . The company mainly depends on cash sales if credit sales to maximum extend. 6 . Better consistency should be maintained in relation with working capital. 7 . Advanced and new technology of production should be incorporated. 8 . Unnecessary operational expenses should be reduced. 9 . special attention should be made by management in management of short term funds.

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5. CONCLUSION
From the study it is concluded that KSE LTD has good working capital management .however it is also revealed that current ratio is least minimum and quick ratio is not up to peak , even though the company is maintaining a good track record . It means that efficient utilization of working capital especially in the areas of inventory and cash management. Profitability is the key to success in business customer centric thinking is extremely essential for survival in todays business environment. Searching and developing the strategic control points in an industry simultaneously with business design process can go along way. Every good business design should have at least one strategic control point.

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6.1 SOURCE
Companys annual reports and records Website
1) www.kselimited.com 2) http://en.wikipedia.org/wiki/Working_capital 3) www.studyfinance.com/lessons/workcap/

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

2008.
b. Jain S.P. & Narang K.L., Cost and Financial Analysis, Kalyani Publishers, New

Delhi, 2008.
c. Kothari C.R., Research Methodology, 2nd Revised Edition, New Age

International Pvt. Ltd., 2009.

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

3rd Edition, Kalyani Publishers, New Delhi, 2000. e. Dr.K.G.Chandrasekharan Nair and Dr. Jayakumar CORPORATE ACCOUNTING Chapter 8, Ratio analysis,page no:8.1 8.46