Aswini Simha-Working Capital Mgmt.1

Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________
A Study of Working Capital Management & Profitability Analysis of Kennametal Widia India
A Dissertation submitted in partial fulfillment of the requirement for the award of M.B.A Degree of Bangalore University
By
Ashwini Simha Reg.No. 02XQCM6011
Under the Guidance of Prof Sadhu Handa
M.P.Birla Institute of Management Associate Bharatiya Vidya Bhavan

#43, Race Course Road
Bangalore 560001 October 2004
1 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
DECLARATION
I hereby declare that this project work embodied in this dissertation entitled A Study of Working Capital Management & Profitability Analysis Of Kennametal Widia India has been carried out by me under the guidance and supervision of Prof.Sadhu Handa, M.P.B.I.M Bangalore.
I also declare that this dissertation has not been submitted to any University/Institution for the award of any Degree/Diploma.
Place: Bangalore Date: 13th September 2004
(ASHWINI SIMHA)
CERTIFICATE
I hereby certify that the project work embodied in this dissertation entitled A Study of Working Capital Management & Profitability Analysis of Kennametal Widia India has been undertaken and completed by Ms.Ashwini Simha under my guidance and supervision.
I also certify that she has fulfilled all the requirements under the covenant governing the submission of dissertation to the Bangalore University for the award of M.B.A Degree.
Place: Bangalore
Date:
(Professor Sadhu Handa)

M.P.B.I.M
Bangalore 560001
CERTIFICATE
This is to certify that the project work embodied in this dissertation entitled A Study of Working Capital Management & Profitability Analysis of Kennametal Widia India has been carried out by Miss. Ashwini Simha under the guidance of Prof. Sadhu Handa, Faculty, M.P.B.I.M Bangalore
Place: Bangalore Date:
(Dr. N.S. Malavalli) PRINCIPAL
ACKNOWLEDGEMENT
I take this opportunity to thank Dr N.S.Mallavalli, Principal, M.P.Birla Institute of Management for having given this opportunity to conduct this dissertation. I would like to express my deep sense of gratitude to my guide Prof.Sadhu Handa for providing me with sufficient interaction, and information and for guiding me during the course of my dissertation. I hereby extend my sincere thanks Mr.Selvarajan and Mr.Varadaraj, Kennametal Widia India for their valuable inputs. I would like to thank all the personnel of Kennametal Widia India for their cooperation and for providing the relevant data required. Last but not the least; I would also like to thank my family and friends for their support and encouragement throughout the project.
Ashwini Simha
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ CONTENTS EXECUTIVE SUMMARY 1 INTRODUCTION 1.1 BACKGROUND OF THE STUDY 1.2 STATEMENT OF THE PROBLEM 1.3 NEED & SIGNIFICANCE OF THE STUDY 1.4 OBJECTIVES OF THE STUDY 2 COMPANY PROFILE 2.1 VISION 2.2 MISSION 2.3 PRODUCT RANGE 3 REVIEW OF LITERATURE 3.1 PURPOSE OF LITERATURE REVIEW 3.2 METHODOLOGY OF LITERATURE REVIEW 3.3 CONCLUSIONS 4 RESEARCH METHDOLOGY 4.1 TYPE OF RESEARCH 4.2 INSTRUMENTATION TECHNIQUES 4.3 ACTUAL DATA COLLECTION 4.4 TOOLS FOR ANALYSIS OF DATA 4.5 OTHER SOFTWARE USED FOR DATA ANALYSIS 4.6 LIMITATIONS OF THE STUDY 5 PRESENTATION, ANALYSIS & INTERPRETATION OF DATA 5.1 GENERAL INDICATORS 5.2 LIQUIDITY ANALYSIS 5.3 ACTIVITY RATIOS 5.4 LEVERAGE RATIOS 5.5 PROFITABILITY RATIOS 5.6 INVENTORY MANAGEMENT 5.7 ACCOUNTS RECEIVABLE MANAGEMENT 6 SUMMARY AND CONCLUSION 6.1 CONCLUSIONS FROM STUDY 6.2 SUGGESTIONS FOR FURTHER RESEARCH 7 SUPPLEMENTARY PAGES 7.1 BIBLIOGRAPHY 7.2 ANNEXURE 1 3 4 5 9 10 12 12 13 16 16 17 18 18 19 19 19 20 21 29 32 40 45 56 60 70 74 75
LIST OF TABLES AND GRAPHS

5.1.1: COMPONENTS OF CURRENT ASSETS 5.1.2: COMPONENTS OF CURRENT LIABILITIES 5.1.3: NET WORKING CAPITAL 5.1.4: OPERATING CYCLE 5.2.1: CURRENT RATIO 5.2.2: QUICK RATIO 5.3.1: WORKING CAPITAL TURNOVER RATIO 5.3.2: DEBTOR TURNOVER RATIO 5.3.3: CREDITORS TURNOVER RATIO 5.3.4: CURRENT ASSETS TURNOVER RATIO 5.3.5: FIXED ASSETS TURNOVER RATIO 5.4.1: DEBT EQUITY RATIO 5.4.2: DEBT TO CAPITAL EMPLOYED 5.4.3: INTEREST COVERAGE RATIO 5.4.1: OPERATING PROFIT MARGIN RATIO 5.4.2: COST STRUCTURE
5.4.3: COST STRUCTURE EXPRESSED AS A PERCENTAGE OF SALES 5.4.4: RETURN ON INVESTMENT 5.4.5: ECONOMIC VALUE ADDED 5.4.5: RETURN ON CAPITAL EMPLOYED (ROCE) 5.5.1:COMPONENTS OF INVENTORY 5.5.2:INVENTORY TURNOVER RATIO 5.6.1:TREND IN RECEIVABLE & PAYABLE PERIOD
5.1:CONSOLIDATED STATEMENT SHOWING CA, CL & WC OF KENNAMETAL WIDIA INDIA 5.2: TREND ANALYSIS OF CA, CL & WC AT KENNAMETAL WIDIA INDIA 5.3: COMMON SIZE STATEMENT OF CA & CL
EXECUTIVE SUMMARY
The research is conducted as the case study of KENNAMETAL-WIDIA INDIA LIMITED. Kennametal Widia India is engaged in the manufacture of a wide range of tungsten carbide products and is a forerunner in the field of hard metal technology. The industry scenario is such that it has a long selling cycle, and Kennametal Widia is no exception. Hence it has a continuously increasing turnover. Kennametal Widia belongs to an industry where the operating cycle is long and the working capital requirements are high. In such a scenario it dwells upon the management of the company to play according to the dynamics of the industry in such a way that it leads to an advantage to the company. The management should workout the optimal level of working capital, which gives an ideal trade-off between liquidity and profitability. Hence this study is conducted with an objective to analyze the various components of current assets and liabilities, the extent of funds tied up in each, the trend changes, the efficiency with which each component is managed and the overall efficiency of working capital management and its impact on profitability. The study has also tried to find a relation between working capital and economic value added during the period of study. At Kennametal Widia, the working capital management has shown a dramatic improvement in the period of study. The management has realized the importance of liquidity and cash balances as the real goals of the business. Towards this end, serious measures have been initiated to bring down the working capital by 37% within a span of two years. Better inventory management, adopting a pullpush strategy to bring the manufacturing in tune with the marketing requirement etc are few of the strategies that the company has adopted. It is learnt that by the various corrective actions initiated by the company, the performance in the current year is back to track with operating margin of 15%. 8 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ During the period of study the company has had a change in management, which has seen dramatic changes in the handling of working capital and the overall outlook of the company. The study shows that the company is gradually moving from a conservative working capital management policy to an aggressive policy. The synergy created by the takeover will be reflected in the companys performance in the coming years. To conclude, a healthy working capital position is the sine-qua-non of a successful business. The short-term solvency of the firm depends upon proper and efficient management of working capital. Efficient working capital management will not only increase the profitability of the firm but also in the long run create value to the stakeholders of the firm.
CHAPTER 1: INTRODUCTION 1.1 BACKGROUND OF THE STUDY Importance of the working capital
The developing economies are generally faced with the problem of inefficient utilization of resources available to them. Capital is the scarcest productive resource in such economies and proper utilization of these resources promotes the rate of growth, cuts down the cost of production and above all improves the efficiency of the productive system. Fixed capital and working capital are the dominant contributors to the total capital of the developing country. Fixed capital investment generates production capacity whereas working capital makes the utilization of that capacity possible. Thus the study of working capital behavior occupies an important place in financial management. Working capital has acquired a great significance and sound position for the twin objects of "Profitability and Liquidity". WORKING CAPITAL -- THE FLESH AND BLOOD OF BUSINESS Every business needs funds for two purposes - for its establishment and to carry out day-to-day operations. Accordingly, funds needed for a business can be broadly classified under: Fixed capital (long term needs) Working capital (short-term needs)
Fixed capital forms the skeleton of any business; working capital is its flesh and blood.
CURRENT ASSETS FIXED ASSETS
SHORT TERM CAPITAL LONG TERM CAPITAL LONG TERM CAPITAL
Long-term funds are required to create production facilities through purchase of fixed assets such as plant, machinery, land, building, furniture etc. Investment in these assets represent a part of the firms capital that is blocked more or less on a permanent or fixed basis and hence is called fixed capital. Funds are also required for short-term purposes like purchase of raw materials, payment of wages, salaries and other expenses. These funds are known as working capital. Working capital is what makes a company work. It is impossible to carry on any business only with fixed assets; working capital is a must. Inadequacy of working capital takes any business to death.
1.2 STATEMENT OF THE PROBLEM

Kennametal Widia India is engaged in the manufacture of a wide range of tungsten carbide products and is a forerunner in the field of hard metal technology. Since the industry scenario is such that it has a long selling cycle, Kennametal Widia is no exception. Hence it has a continuously increasing turnover. In a manufacturing engineering industry to which Kennametal Widia belongs the operating cycle is long and the working capital requirements are high. In such a scenario it dwells upon the management of the company to play 11 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ according to the dynamics of the industry in such a way that it leads to an advantage to the company. The management should workout the optimal level of working capital, which gives an ideal trade-off between risk, return and profitability. The short-term solvency of the firm depends upon proper management of working capital. Kennametal Widia India. This study is conducted to analyze the efficiency of working capital management and its impact profitability at
1.3 NEED & SIGNIFICANCE OF THE STUDY

The management of assets in any organization is an essential part of overall management. The enterprises, at the time of formation attaches great importance to fixed assets management, as a part of investment decision-making. However, in the overall day-to-day financial management, after the initial investment, the management gives more importance to managing working capital. If we look at any financial statement it will be evident that the investment in fixed assets remain more or less static but the working capital is constantly changing. A healthy working capital position is the sine-qua-non of a successful business. This is reflected in adequate inventories, lowest level of debtors, minimum utilization of bank facilities for working capital, etc. thus the study of working capital management occupies an important place in financial management. Effective management of working capital compels finance managers to seek interdepartmental coordination for inventories (purchase, supply planning, manufacturing, marketing, logistics), debtors (marketing), creditors (purchase and manufacturing), cash (finance and other managers). The time lag between the purchase of raw materials and the realization of cash from debtors forces the company to find money to finance its operations during that period. 12 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working capital management has dual objectives, which are likely to pull in opposite directionsliquidity and profitability. The management has to strike a delicate balance between the two objectives of liquidity and profitability. Working capital should be maintained at a satisfactory level, neither inadequate nor excessive. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing the obligations within the operating cycle of business. An inadequacy of working capital may lead the firm to insolvency and excessive of working capital take the cost of profitability. Short-term creditors wish the company to have more current assets than current liabilities. It is conventional rule to maintain the level of current assets at twice the level of current liabilities. The level of working capital should be judiciously determined because any shortage in working capital apart from threats of solvency leads to deprivation of opportunities of earnings that are open to an enterprise. On the other hand excessive availability of working capital leads to higher cost of operation in terms of financing cost. Different strategies have to be employed for inventory management, credit management and cash management to maintain a balance between the twin objectives of working capital management. The nature and size of business, the length of the manufacturing cycle and marketing conditions would be largely influencing the working capital needs of the concern. A hotel industry where materials are procured on credit and the finished goods are sold in cash would require a low level of working capital whereas an engineering industry under a competitive atmosphere would require a higher level of working capital. A concern, manufacturing a consumer nondurable products, having very short manufacturing cycle, would need a lower working capital than a concern manufacturing consumer durable products, requiring longer manufacturing cycle. The product line, whether having a 13 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ monopoly or facing competition, extent of distribution networks, credit policy of the industry, seasonality or otherwise of a product also leads to substantial changes in the need for working capital. Apart from these, the managements planned extent of growth due to vast unexplored market etc also largely influence the requirement of working capital. There is generally an impression that the entire need for working capital is purely short-term. But, in fact, there are two clearly distinct elements: Long- term Working Capital: This represents the amount of funds needed to keep a company running in order to satisfy demand at its lowest point. The value, which represents the long-term working capital, stays with the business process all the time. It is for all practical purposes as permanent as fixed assets. In other words, it consists of the minimum currents assets to be maintained at all times. The size of the permanent working capital varies directly with the size of the firm. Short-term Working Capital: This varies directly with the level of activity achieved by a company. The volume of operations decides the quantum of shortterm working capital. It also changes from one form to another; from cash to inventory to debtors back to cash. Temporary working capital should be obtained from sources, which will allow its return when it is not in use.
KINDS OF WORKING CAPITAL
ON THE BASIS OF CONCEPTS
ON THE BASIS OF TIME
GROSS WORKING
CAPITAL
GROSS
NET WORKING CAPITAL
FIXED WORKING CAPITAL
TEMPORARY WORKING CAPITAL
Work
REGULAR WORKING CAPITAL
RESERVE WORKING CAPITAL
SEASONAL WORKING CAPITAL
SPECIAL WORKING CAPITAL
Working capital management deals with the most dynamic field in finance, which needs constant interaction between finance and other functional managers. The finance manager acting alone cannot improve a companys working capital situation. The ultimate long-term solution for a difficult working capital does not lie with the banks; rather, it lies with the manufacturing, marketing and finance activities. Manufacturing has an important role to play in operating with minimum inventories; the purchase department should be able to obtain the best possible terms from suppliers. The marketing department should negotiate with customers for the best terms. The finance manager should be able to coordinate and achieve optimal utilization of operating funds at the lowest interest cost. Thus, working capital management has come to be known as the cash triangle. 15 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
MARKETING (CREDIT)
FINANCE
CASH FLOWS)
(CASH FLOWS)
MANUFACTURING (INVENTORY)
Fig. The Cash Triangle Due to the factors mentioned above the management of working capital becomes one of the most significant jobs of the finance manger. In this project the various components of current assets and liabilities, the extent of funds tied up in each, the trend of changes in funds tied up with each component, the efficiency with each component are managed and overall efficiency of working capital management and its impact on profitability is studied.
1.4 OBJECTIVE OF THE STUDY:

The objective of the project is to study of funds tied up in each
The different components of current assets and liabilities and the extent The trend of changes of each component
To find out the relationship between working capital and profitability the stake holder
To find out the impact of Working Capital on Economic Value Addition to
CHAPTER 2: COMPANY PROFILE

2.1 BACK GROUND The success story WIDIA began more than 70 years ago. It was 1926, that WIDIA came to be known world over. The Krupp group of industries West Germany, developed tungsten carbide commercially for the first time in the world. The substance was found to be as hard as diamond and could even substitute it in many applications. So the name Widia was coined from WIE DIAMANT-German for like diamond. The Bangalore division went on stream in 1967 and has grown by leaps and bounds since then. From a Rs 7.1 lakhs turnover at inception, the company has notched up an impressive Rs 216 crores in 2001. With the active involvement of the employees and executives Widia is sure that the company will grow to greater heights and continue to be the market leader despite tough competition, both domestic and global. WIDIA (INDIA), where German precision, Indian excellence and American management principles join hands to create a formidable force in the Indian industry. A force that asserts itself as the largest subsidiary of WIDIA GmbH, wholly owned by Milacron Inc., USA. At the helm of affairs at WIDIA (INDIA) and based in Bangalore, is a fleet of the best engineers and metallurgists working in unison, uncompromising in an endeavour to bring out the best to help their customers enhance productivity and cut down production costs. A full fledged R & D center works in constant pursuit to offer the right tooling solution for every individual machining application, however complex it may be. 17 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Today WIDIA has almost become a generic name, synonymous with tungsten carbide the world over and has been making significant contribution towards the growth of core sectors of Indian industries such as Automobiles, Heavy Engineering, Railways, Power Generation, Aviation and Mining. The product range of WIDIA encompasses more than 20,000 products covering Metal Cutting, Metal Forming and Mining. Keeping pace with modernization and emerging technological trends new products are aggressively introduced. WIDIA INDIA decided in 1984 to manufacture Machine Tools including CNC machines. The Machine Tool division - WIDMA was thus formed specializing in the design of Special Purpose Machines, to suit specific requirements of customers. WIDIA was acquired in 2002 by Kennametal of United States of America who are No.1 in USA. Thus WIDIA INDIA enjoys the multifaceted expertise of Kennametal. Today KENNAMETAL WIDIA INDIA is: It has A dedicated team of people. Leadership in export of carbide tools. Specialization in carbides, ceramics and SPMs. Institutionalized R & D. A customer driven company. An ISO 9001 certified company. A market leader in the country with a wide range of products. A company with a turn over of over Rs.210/-crores. A company with a share capital of Rs. 21,97,82,400/-. Having a strong customer base and is the market leader in India.
KENNAMETAL WIDIA INDIA is a FERA company with 77% of the share holding being owned by Meturit AG, which is fully owned by Kennametal Inc., USA. Public holds 23%. The board of directors consists of 7 Directors at present, of whom two are whole time Directors viz. Managing Director & CEO Executive Director- Finance & Administration.
2.2 VISION STATEMENT OF KENNAMETAL WIDIA INDIA

To achieve profitable growth of more than 10% per year and to maintain market leadership
2.3 MISSION OF KENNAMETAL WIDIA INDIA

Be responsive to customer needs and develop, manufacture and supply high tech. quality products and services to enhance their productivity and Train, motivate and provide a growth oriented environment to employees and encourage team work, mutual co-operation and support team Encourage innovation and creativity to stay ahead of the competition members to achieve peak performance reduce costs
Give necessary support to suppliers, sub-contractors and business associates, to enable them to meet the companies requirements on a Be systematic and cost effective in working and ensure adequate profits to Control pollution and environment deterioration fro improving quality of life Meet commitments to the Government, Community and Society at large satisfy shareholders and provide resources for continuous growth continual basis
2.4 PRODUCT RANGE

KENNAMETAL WIDIA INDIA manufactures a wide range of cutting tools, forming tools, mining tools and Special Purpose Machines that find wide applications in the Indian Industry today. Hard metal products synonymous with KENNAMETAL WIDIA INDIA, find a wide range of applications in the market. Based on their end use they may be classified as: Metal Cutting Tools Mining Tools
Metal Forming Tools Special Purpose Machines Each segment of products is handled by respective Product Managers. KENNAMETAL WIDIAs customers range from automobile to mining sector. 9 Automobile: automobile manufacturers and ancillaries, e.g. Maruthi 9 Machine Tools Sector: Machine tools manufacturer e.g., HMT aviation, space, etc., e.g. Ranchi, HAL and ISRO. Udyog.
9 Engineering Sector: Heavy and Light engineering, watch making, 9 Core Sector: Defence, Railway, Power and Iron & Steel. and water well drilling and heavy construction.
9 Mining/Drilling Sector: Coal, lignite, copper mining, petroleum drilling 9 Exports: Far East, South East Asia, Australia, West and East Europe. A large percentage of Widia products are in fact Specials which are tailor-made to suit specific requirements of customers. 20 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
METAL CUTTING TOOLS:
WIDAX Tool holders
WIDAX Boring Bars and cartridges
WIDAFLEX and ROTAFLEX Tooling System WIDA Hard metal Tips and Tipped Tools WIDATRONIC Tool Monitoring Systems WIDAX Milling Cutters and End mills WIDAX BW / BW-S Drills WIDIA Carbide Tipped Circular Saws WIDIA Gun drills and BTA Drill Heads TiN / TiAIN Coated Drills
WIDIA Lugged Reamers and Hole Mills WIDAX Progroove and Twin groove Systems WIDIA Hardmetal Inserts WIDALON Coated Inserts CBN and PCD Inserts METAL FORMING TOOLS:
WIDIALOX Ceramic Inserts
WIDIA Cold Heading Dies WIDIA Hot Forging Dies WIDIA Extrusion Dies WIDIA Blanking Tools
WIDIA Bar and Tube Drawing Dies WIDIA Rolls for Wire Rod Mills WIDIA Hardmetal Pellets and Blanks WIDIALOX Ceramic Wear Parts WIDIA Tungsten Copper Electrical Contacts
MINING TOOLS:
WIDIA Tungsten Carbide Rock Roller Bits WIDIA Milled Tooth Rock Roller Bits WIDIA Flat and Round Cutter Picks WIDIA Coal Auger Drills WIDIA Button Type Drifter Bits Rhino Button Bits for Down the Hole Hammers
WIDIAROC Integral Drill Rods and Knock on Bits WIDIA Mining Tips and Wear parts WELDUR and WIDIAROC Hard Facing Alloys SPECIAL PURPOSE MACHINES:
WIDMA Deep Hole Drilling Machines Machine
WIDMA Deep Hole Drilling, Boring, Skiving and Roller Burnishing WIDMA 6 Axis and 4 Axis CNC Tool and cutter Grinder WIDMA CNC Hob Grinding Machine Machine WIDMA CNC Valve Seat Generating and Valve Guide Reaming WIDMA CNC Cylinder Block Boring Machine WIDMA Fine Boring Machine WIDALASER Laser Marking Machine WIDAFELS Work Handling System
What makes KENNAMETAL WIDIA different from the competitors? The special KENNAMETAL WIDIA touch a feeling for the customers needs and the prompt, appropriate response to them. A large percentage of KENNAMETAL WIDIAs products are in fact Specials which have been tailor-made to suit specific requirements of customers. 22 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
CHAPTER 3: LITERATURE REVIEW

There is plenty of literature available on the topic of working capital management. Many textbooks and the relevant websites provide good coverage on the subject.
3.1 PURPOSE
Literature review is the beginning of the primary data collection. It acts as a gateway to the familiarity exercise by getting exposed to the study field in details. Literature review included texts, databases, internet, journals and dailies. The purpose of literature review is innumerable in research work. Specific need for references and citations makes secondary data quite valid. Literature review forms the integral part of larger research. Secondary data form sole basis for research in some instances. Above all, secondary data has proven to be less costly, readily available, less time consuming and less effort required compared to primary data. Literature reviews provides support to validate secondary data hence complementing the field data conclusion. It has also been observed that secondary data gives insight into the research details. It is mandatory to examine secondary data as a prerequisite for accuracy and relevance for primary data and subsequent analysis.
3.2 METHODOLOGY
Literature review heavily relied on published texts, annual reports of Kennametal Widia India, accounting and financial database of the company, fact sheets of the company, other manuals, internet and revered journals and case studies in the field of working capital management were constantly reviewed.
3.3 CONCLUSION
The review of the literature provided a solid guideline to conduct the study. It provided the secondary data required and the adequate guideline for the nature of the primary data.
CHAPTER 4: METHODOLOGY 4.1 TYPE OF RESEARCH

This project A Study on Working Capital Management & Profitability Analysis of Kennametal Widia India is considered as an analytical research. Analytical Research is defined as the research in which, researcher has to use facts or information already available, and analyze these to make a critical evaluation of the facts, figures, data or material. The project includes finding of primary data and secondary data. It includes surveys and fact-finding enquiries. So, the project basically covers description of state of affairs, as it exists at present. Here in this case, the researcher does not have control over the variables. Here, the job done as a researcher is to use the facts and information already available. The research is done with the aid of the annual reports, the company database textbooks and the observation and interaction being the only source of primary data whatever is used. The same set of information is analyzed to make the critical evaluation of the material. With the given nature of research this is an analytical type of research wherein the analysis of the existing set of affairs are used to arrive the effect of working capital management on the return and profitability of the company.
4.2 INSTRUMENTATION TECHNIQUES

The techniques used for the collections of the financial statements, data and other information as follows. The primary data were collected by interaction and observation. The secondary data were collected from the published annual reports, budgeted manuals and the audited balance sheet and profit and loss account, database of the company. 25 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
4.3 ACTUAL COLLECTION OF DATA

The project makes use of both the primary as well as secondary data. Primary data were collected by observation and interaction. In the course of time, the finance manager and his executives, the purchase manager and his executives and the store manager and his executives provided very appreciable co-operation during the interaction. As for the secondary data, the various published materials were used along with the database. The annual reports, fact-sheets, budgeted manuals and the audited balance sheet and profit and loss account, accounting and financial database of the company.
4.4 TOOLS USED FOR ANALYSIS OF DATA

The data were analyzed using the following financial tools and techniques Ratio analysis Common size statements Statement of changes in working capital
4.5 OTHER SOFTWARE USED FOR DATA ANALYSIS

The application software used for the typing of data, analysis of data, and presentations of different charts, tables, graphs etc is Microsoft Word and Excel. MS Excel made a very handy tool for the analysis of the data. It was rigorously made use of during the calculation and comparisons among the data, graphical and tabular presentation, calculation of various ratios, their analysis etc.
4.6 LIMITATIONS OF THE STUDY

The analysis is limited to just three years of data study (from Jan 1, 2000 to June 30, 2003) for financial analysis The study conducted deals only with impact of working capital on profitability without taking into consideration the risk involved The study conducted throws light only on the impact of working capital on a minuscule part of strategic management namely EVA. The figures and facts claimed in the annual reports and in other forms are taken at face value
CHAPTER 5:PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 5.1 GENERAL INDICATORS

COMPONENTS OF CURRENT ASSETS Current assets means assets that will either be used up or converted into cash within a year's time or normal operating cycle of the business whichever is longer. They include cash and bank balances, marketable securities, inventory of raw materials, semi-finished and finished goods, debtors, bills receivables and pre-paid expenses. TABLE 5.1.1: COMPONENTS OF CURRENT ASSETS
(Rs. Crores) PARTICULARS INVENTORIES SUNDRY DEBTORS CASH & BANK BALANCES LOANS & ADVANCES TOTAL CURRENTS ASSETS INCREASE/(DECREASE) IN CA %INCREASE/(DECREASE) IN CA 2000 66.39 80.87 9.92 20.38 177.56 --2001 88.51 77.53 45.25 22.52 233.81 56.25 31.67 2003 50.10 55.30 11.44 15.26 132.10 (101.71) (43.50)
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ GRAPH 5.1.1: COMPONENTS OF CURRENT ASSETS
COMPONENTS OF CURRENT ASSETS

INVENTORIES CASH & BANK BALANCES 100% 80% 60% 40% 20% 0% SUNDRY DEBTORS LOANS & ADVANCES
%s
2000
2001 YEARS
2003
The table shows the composition of current assets in three years. There has been an increase in current assets in the year 2001 compared to the other years. This is due to increase in inventory level in that year. The year 2003 has seen a sharp decrease in current assets. There is a decrease in all the components of current assets right from inventory to loans and advances in 2003. This has led to overall decrease in current assets by 43.5% compared to the previous year.
COMPONENTS OF CURRENT LIABILITIES Current liabilities are those liabilities or obligations, which are expected to mature in the next twelve months. They include short-term loans and advances, accounts payable / sundry creditors, provision for taxation, outstanding expenses and dividend payable.
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ TABLE 5.1.2: COMPONENTS OF CURRENT LIABILITIES
(Rs. Crores) CURRENT LIABILITIES (CL) SUNDRY CREDITORS ADVANCES FROM CUSTOMERS UNCLAIMED DIVIDENDS OTHER LIABILITIES PROVISIONS TOTAL CURRENT LIABILITIES INCREASE/(DECREASE) IN CL %INCREASE/(DECREASE) IN CL 2000 24.90 3.03 0.07 18.93 6.94 53.87 --2001 26.59 2.82 0.10 48.80 2.91 81.22 27.35 0.51 2003 38.49 3.99 0.12 4.32 7.11 54.00 (27.19) (0.33)
GRAPH 5.1.2: COMPONENTS OF CURRENT LIABILITIES COMPONENTS OF CURRENT LIABILITIES 100% 80% 60% 40% 20% 0%
%s
2000
2001 YEAR
2003
SUNDRY CREDITORS UNCLAIMED DIVIDENDS PROVISIONS
ADVANCES FROM CUSTOMERS OTHER LIABILITIES
The table shows the composition of current liabilities in three years. There has been an increase in current assets in the year 2001 compared to the other years. This is due to increase in other liabilities level in that year. The year 2003 has seen a sharp decrease in current liabilities 33% compared to the previous year. 30 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ NET WORKING CAPITAL Net working capital (NWC) represents the excess of current assets over current liabilities. The greater the amount of net working capital, the greater the liquidity of the firm. However, the problem of net working capital as the measure of liquidity is that the change in net working capital does not necessarily reflect the change in liquidity of the firm.
TABLE 5.1.3: NET WORKING CAPITAL

(Rs. Crore)
PARTICULAR CURRENT ASSETS CURRENT LIABILITIES NET WORKING CAPITAL (NWC) INCREASE/(DECREASE) IN NWC %INCREASE/(DECREASE) IN NWC
2000 177.56 53.87 123.69 ---
2001 233.81 81.22 152.59 28.9 23.36
2003 132.1 54.03 78.07 (74.52) (48.83)
GRAPH 5.1.3: NET WORKING CAPITAL
NET WORKING CAPITAL (NWC) 200 150 100 50 0 2000 2001 YEAR NET WORKING CAPITAL (NWC) 2003
The table shows that the net working capital at Widia has increased in 2001 by 23.36% compared to the previous year. There has been a decrease in NWC for the year 2003 compared to 2001 by 48.83%. This decrease in NWC in 2003 is due to better inventory management and focus on collections.
OPERATING CYCLE
The operating cycle represents the time taken for cash spent on raw materials to come back to the business in the form of cash from collection of sale proceeds. In case of a manufacturing firm, the following are the sequence of events, which is termed as operating cycle of the manufacturing firm. Conversion of cash into raw materials Conversion of raw materials in WIP
Conversion of WIP into finished goods
Conversion of finished goods into Accounts receivables Conversion of accounts receivables into cash complete the following cycle events: The term cash or operating cycle contains the length of time necessary to Conversion of cash into inventory
Conversion of inventory into receivable Conversion of receivable into cash
CASH
COLLECTION PHASE
RAW MATERIALS
DEBTORS
WORK-IN- PROGRES
FINISHED GOODS
Fig: Operating Cycle
TABLE 5.1.4: OPERATING CYCLE

2000 RM PERIOD S&S PERIOD WIP PERIOD FG PERIOD DEBT PERIOD GROSS OPERATING CYCLE CREDIT PERIOD * NET OPERATING CYCLE 52 77 39 89 126 383 147 236 2001 41 73 48 113 134 409 119 290
(Days) 2003 73 21 36 47 145 322 225 97
* Credit Period: This includes advances from customers. The company as a conscious decision on policy solicits for advances for all the special orders to take care of the cost of the materials to be procured. As on 30th June 2003, the advance amount received from customers in Rs. 4.7 crore. This has impact of 50 days in bringing down the net operating cycle. 34 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
GRAPH 5.1.4: OPERATING CYCLE

OPERATING CYCLE 400 300 200 100 0
DAYS
236
290 97
2000 2001 2003
2000
2001 YEAR
2003
The operating cycle had increased from 236 days to 290 days in 2001. But in 2003 the operating cycle has reduced drastically to 97 days. This is due to good management by the company in 2003. The stock of raw materials was equivalent to 1.7 months in 2000. It has increased to 2.4 months in 2003. The stores and spares holding period have reduced to a great extent from 2.4 months in 2001 to 0.7 a month in 2003. There has been a better management in the WIP level as well as FG holding level in 2003. The debt collection period is gradual on the rise over the years. The credit payment period also has increased in 2003 compared to the previous years. All these have led to a lower operating cycle in 2003 compared to the previous. The lower the operating cycle the better. It indicates the efficient management of inventory and stores in the company. The company is moving towards better management and control of working capital components, which is indicated by a lower operating cycle.
5.2 LIQUIDITY ANALYSIS

CURRENT RATIO: The current ratio is an indicator of the firm's commitment to meet its short -term liabilities. The current ratio is an index of the concern's financial stability since it shows the extent of working capital, which is the amount by which the current assets exceed the current liabilities. A very high current ratio would indicate inadequate employment of funds while a poor current ratio is a danger signal to the management. It shows that business is trading beyond its resources. TABLE 5.2.1: CURRENT RATIO
(Rs. Crores)
PARTICULAR
CURRENT ASSETS CURRENT LIABILITIES
2000 177.56 53.87
2001 233.81 81.22
2003 132.1 54.03
CURRENT RATIO
3.30
2.88
2.44
GRAPH 5.2.1: CURRENT RATIO
CURRENT RATIO
4.00
RATIO
3.00 2.00 1.00 0.00 2000 2001 2003
YEAR
The table shows that the current ratio has steadily decrease from 3.29 in 2000 to 2.88 in 2001 and 2.44 in 2002-2003. This shows that the company is making effective use of funds while maintaining a favourable position of current ratio of 2:1, which is the ideal value for any industry.
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ QUICK RATIO Quick ratio is a refinement over current ratio as it shows the instant ability to meet the current liabilities. Liquid assets means all the current assets less inventories, sticky debts, etc., i.e. such assets as can be quickly converted into cash. The general norm for a healthy quick ratio is 1:1. This ratio is also known as acid-test ratio.
TABLE 5.2.2: QUICK RATIO

(Rs Crores)
PARTICULARS LIQUID ASSETS CURRENT LIABILITIES QUICK RATIO
2000 111.2 53.9 2.1
2001 145.3 81.2 1.8
2003 82.0 54.0 1.5
GRAPH 5.2.2: QUICK RATIO
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ QUICK RATIO 2.5 2.0 RATIO 1.5 1.0 0.5 0.0 2000 2001 YEAR 2003
At Widia the quick ratio is maintained above the normal norms. The ratio is 2.1:1 for the year 2000. Though the ratio is absolutely strong and favourable from the creditors point of view, at the same time it shows the underperformance on the part of the management to utilize the resources and funds properly. But through the years there has been a better utilization of the resources and funds by the management and hence the quick ratio is 1.8:1 in 2001 and 1.5:1 in 2003.
5.3 ACTIVITY RATIOS

WORKING CAPITAL TURNOVER RATIO: This ratio indicates whether or not working capital has been effectively utilized in making sales. If a firm makes higher volume of sales with relatively small amount of working capital, it is an indicator of the operating efficiency of the company.
TABLE 5.3.1: WORKING CAPITAL TURNOVER RATIO

(Rs. Crores)
PARTICULARS
2000
2001
2003
SALES
234.47
210.98
208.44
NET WORKING CAPITAL
123.69
152.59
78.07
W.C. TURNOVER (TIMES)
1.90
1.38
2.67
GRAPH 5.3.1: W.C TURNOVER

W.C. TURNOVER (TIMES) 3.00 2.50 2.00 1.50 1.00 0.50 0.00
RATIO
2000
2001 YEAR
2003
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ In the year 2000 the working capital turnover was 1.89, which came down to 1.38 in 2001 due to rising prices in raw material and a general slump in the industry. In 2002-2003 the working capital turnover ratio grew to 2.66, which is very good. It indicates that effective methods were employed in the usage of working capital in that year when compared to the previous years. DEBTORS TURNOVER RATIO The average collection period indicates the number of days of credit being given to a companys customers. The ratio indicates the extent to which the debts have been collected in time. An increase in the period will result in greater blockage of funds in debtors. Debtors collection period measures the quality of debtors since it measures the rapidity or the slowness with which money is collected from them a shorter collection period implies prompt payment by debtors. It reduces the chances of bad debts. A longer collection period implies too liberal and inefficient credit collection performance. However, in order to measure a firms credit and collection efficiency, its average should be compared with the average of the industry. It should be neither too liberal nor too restrictive. A restrictive policy will result in lower sales, which will reduce profits. It is difficult to provide a standard collection period of debtors. It depends upon the nature of the industry, seasonal character of the business and credit policies of the firm. In general, the amount of receivables should not exceed 3-4 months credit sales. TABLE 5.3.2: DEBTOR TURNOVER RATIO
(Rs. Crore)
PARTICULARS/YEAR
SALES
2000 234.47
2001 210.98
2003 208.44
AVERAGE DEBTORS DEBTOR TURNOVER RATIO AVERAGE COLLECTION PERIOD (DAYS)
77.24 3.04 120
79.2 2.66 137
66.42 3.14 116
GRAPH 5.3.2: DEBTOR TURNOVER RATIO
DEBTOR TURNOVER RATIO 3.20 3.00 RATIO 2.80 2.60 2.40 2000 2001 YEAR
DEBTOR TURNOVER RATIO
2003
GRAPH 5.3.3: AVERAGE COLLECTION PERIOD
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ AVERAGE COLLECTION PERIOD 140 DAYS 130 120 110 100 2000 2001 YEAR AVERAGE COLLECTION PERIOD 2003
The table and the graphs show that the debtor turnover ratio had come down in the year 2001 when compared to the previous year. The year 2002-2003 saw a sharp increase in the debtor turnover ratio indicating that the debts are being collected on time. The average collection period saw a drastic change in the year 2003 where it decreased to 116 days, the lowest when compared to the previous years. CREDITORS TURNOVER RATIO The creditors turnover ratio indicates the speed with which the payments for credit purchases are made to the creditors. It indicates the promptness or otherwise in making payment of credit purchases. A higher creditors turnover ratio or a lower credit period enjoyed ratio signifies that the creditors are being paid promptly, thus enhancing the credit worthiness of the company. However, a very favourable ratio to this effect also shows that the business is not taking full advantage of credit facilities, which can be allowed by creditors. TABLE 5.3.3: CREDITORS TURNOVER RATIO 43 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
(Rs. Crore)
PARTICULARS/YEAR
PURCHASES
2000
2001
2003
69.3
90
103
AVERAGE CREDITORS
22.92
25.75
32.54
CREDITORS TURNOVER RATIO
3.02
3.50
3.17
AVERAGE PAYMENT PERIOD (DAYS)
121
104
115
GRAPH 5.3.4 CREDITORS TURNOVER RATIO
CREDITORS TURNOVER RATIO 3.60 3.40 3.20 RATIO 3.00 2.80 2.60
2000
2001 YEAR
2003
CREDITORS TURNOVER RATIO
GRAPH 5.3.5: AVERAGE PAYMENT PERIOD
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ AVERAGE PAYMENT PERIOD 125 120 115 110 105 100 95 2000 2001 YEAR AVERAGE PAYMENT PERIOD 2003
The table shows that the credit turnover ratio is moreover constant over the years, with an average of 3.2, which is very good. It shows that the company has maintained the average payment period at 113 days.
CURRENT ASSETS TURNOVER RATIO The current assets turnover ratio gives the relationship between a companys sales and current assets. A decrease in this ratio is a good indication of the performance of the company. It shows the ability of the company to realize the cash from debtors as well as the less amount of money blocked in inventories.
DAYS
TABLE 5.3.4: CURRENT ASSETS TURNOVER RATIO

(Rs. Crore)
PARTICULARS/YEAR
2000
2001
2003
CURENT ASSETS
177.56
233.81
132.1
SALES
234.47
210.98
208.44
CURRENT ASSETS TURNOVER RATIO
0.76
1.11
0.63
GRAPH 5.3.6: CURRENT ASSETS TURNOVER RATIO
CURRENT ASSETS TURNOVER RATIO 1.50 RATIO 1.00 0.50 0.00 2000 2001 YEAR
CURRENT ASSETS TURNOVER RATIO
2003
The table shows that the ratio has increased in 2001 indicating high sales. The ratio has decreased in the year 2003from 1.11 to 0.63 indicating the good performance of the company. It shows the ability of the company to realize the cash from debtors as well as the less amount of money blocked in inventories
FIXED ASSETS TURNOVER RATIO 46 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ The fixed assets turnover ratio underlines the relationship between a companys sales and fixed assets. The higher it is the better. TABLE 5.3.5: FIXED ASSETS TURNOVER RATIO
(Rs. Crore)
PARTICULARS / YEAR SALES FIXED ASSETS FIXED ASSETS TURNOVER RATIO
2000 234.47 55.2 4.25
2001 210.98 63.23 3.34
2003 208.44 53.35 3.91
GRAPH 5.3.7: FIXED ASSETS TURNOVER RATIO FIXED ASSETS TURNOVER RATIO 5.00 4.00 3.00 RATIO 2.00 1.00 0.00
2000
2001 YEAR
2003
FIXED ASSETS TURNOVER RATIO The table shows that the company has maintained a good fixed assets turnover ratio with average being 3.83.
5.4 LEVERAGE ANALYSIS

DEBT TO EQUITY RATIO The debt equity ratio is a very important ratio which highlights a companys capital structure in a nutshell. This ratio is determined to ascertain the soundness of the long term financial policies of the company. It also reveals the relation between long-term debt and proprietors fund of the concern. It shows the efficiency of the management in financial planning. The ratio also indicates the extent to which the firm depends upon outsiders for its existence. The ratio provides a margin of safety to the creditors. It tells the owners the extent to which they can gain the benefits or maintain control with a limited investment. Indian financial institutions usually permit a debt-equity of 2:1. A very high debt equity ratio is not desirable because it entails correspondingly heavy interest payment and loan repayment commitments. TABLE 5.4.1: DEBT EQUITY RATIO
(Rs. Crore)
PARTICULARS / YEAR
2000
2001
2003
DEBT
9.03
47.9
23.8
EQUITY
170.77
165.5
118.8
DEBT TO EQUITY RATIO
0.1:1
0.3:1
0.2:1
GRAPH 5.4.1: DEBT EQUITY RATIO 48 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
DEBT TO EQUITY RATIO 0.3 RATIO 0.2 0.1 0.0 2000 2001 YEAR DEBT TO EQUITY RATIO 2003
The debt-equity ratio was highest in the year 2001. It decreased to 0.2:1 in 2003. This is a significant improvement on the part of the management to promote shareholders fund.
DEBT TO CAPITAL EMPLOYED Debt to capital employed ratio indicates the proportion of total debt, including both short-term and long-term in the total capital employed. It is necessary to keep a watch on this ratio so that the company does not end up in an over leveraged situation, which in extreme cases leads to bankruptcy.
TABLE 5.4.2: DEBT TO CAPITAL EMPLOYED

(Rs. Crore)
PARTICULARS / YEAR DEBT CAPITAL EMPLOYED DEBT TO CAPITAL EMPLOYED
2000 9.03 179.8 0.05
2001 47.9 213.4 0.22
2003 23.8 142.6 0.17
GRAPH 5.4.2: DEBT TO CAPITAL EMPLOYED
DEBT TO CAPITAL EMPLOYED

0.25 0.20 0.15 0.10 0.05 0.00 2000 2001 YEAR DEBT TO CAPITAL EMPLOYED 2003
RATIO
The year 2001 saw an increase in this ratio, which is alarming, but the year 2003 the ratio decreased to 0.17 from 0.22, which is a good sign.
INTEREST COVERAGE RATIO 50 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ The interest coverage ratio indicates the number of times the companys profits before interest and taxes cover the liability interest. The higher the cover, the better it is for the companys lenders. TABLE 5.4.3: INTEREST COVERAGE RATIO
(Rs. Crore)
PARTICULARS / YEAR
2000
2001
2003
EBIT
40.44
21.7
10.38
DEPRECIATION
9.9
10.2
16.1
EBIT + DEPRECIATION
50.3
31.9
26.5
INTEREST
5.95
6.77
6.82
INTEREST COVERAGE RATIO
8.5
4.7
3.9
GRAPH 5.4.3: INTEREST COVERAGE RATIO
INTEREST COVERAGE RATIO 10.0 8.0 6.0 RATIO 4.0 2.0 0.0
2000
2001 YEAR
2003
INTEREST COVERAGE RATIO
The table shows that the interest coverage appears pretty healthy and thus the company has a greater ability to meet or pay the interest burden of outsiders.
5.4 PROFITABILITY RATIO

OPERATING PROFIT MARGIN RATIO The operating profit margin shows the return on sales. This is one of the very key factors, which indicates the operating efficiency and earning capacity of the organisation. From the business perspective the return on sales should be at least twice the interest rate prevailing. This will ensure adequate return for the risk the entrepreneur takes in investing and running the business.
TABLE 5.4.1: OPERATING PROFIT MARGIN RATIO

(Rs Crores)
PARTICULARS / YEAR
2000
2001
2003
SALES
234.47
210.98
208.44
OPERATING PROFIT
40.44
21.7
10.38
OPERATING PROFIT MARGIN
17.2
10.3
5.0
GRAPH 5.4.1: OPERATING PROFIT MARGIN RATIO OPERATING PROFIT MARGIN 20.0 15.0 %RATIO 10.0 5.0 0.0 2000 2001 YEAR OPERATING PROFIT MARGIN RATIO 2003
At Kennametal Widia, the return on sales has come down 16.9% to 1.3%. This is mainly on account of various restructuring efforts and drastic cut in the output (about 35%) to bring down the very high level of inventories held. It is learnt that the situation of 2002-2003 was a temporary phenomena and the company is back on track with current year performance of about 12% operating margin.
COST STRUCTURE RATIO The long-term prospects of a business in the competitive environment and globalization of the economy mainly depends on the cost structure of the organisation. The main cost drivers of a business can be grouped as follows: * * * * * Materials Labour Manufacturing and other expenses Depreciation Interest
The materials and manufacturing expenses are generally variable with the volume of the business whereas the labour and depreciation are generally fixed in nature. The ratio of variable and fixed expenses has due impact in the prospects of the business especially when there is recession or slow down in the economy. The cost structure of Widia is given below:
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ TABLE 5.4.2: COST STRUCTURE
(Rs. Crores) PARTICULARS / YEAR MATERIALS LABOUR COST MANFG & OTHER EXP DEPRECIATION INTEREST PROFIT SALES & INCOME 2000 49.8 43.4 60.19 9.87 5.95 34.49 203.7 2001 53.5 43.9 60.5 10.2 6.7 14.9 189.7 2003 105.5 66.3 84.5 16.1 6.8 3.6 282.8
TABLE 5.4.3: COST STRUCTURE EXPRESSED AS A PERCENTAGE OF SALES
(%)
PARTICULARS / YEAR MATERIALS LABOUR COST MANFG & OTHER EXP DEPRECIATION INTEREST PROFIT SALES & INCOME
2000 24.5 21.3 29.6 4.8 2.9 16.9 100
2001 28.2 23.1 31.9 5.4 3.5 7.9 100
2003 37.3 23.4 29.9 5.7 2.4 1.3 100
The increase in material cost percentage to the sales has had an impact on the profitability of the company. Actions to bring down the same by improving sales 56 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ realization, procurement cost reduction and inventory write down due to obsolescence are required. The labour cost of 23% is also high as compared to general engineering industry norms of about 15%. Restructuring of the organisation and achieving substantial growth are the ultimate solutions in bringing down the labour cost.
RETURN ON INVESTMENT (ROI) The return on capital invested is a concept that measures the profit, which a firm earns on investing a unit of capital. It is desirable to ascertain this periodically. It indicates the percentage of return on the total capital employed in the business. The profit being the net result of all operations, the return on capital expresses all efficiencies or inefficiencies of a business collectively and thus, is a dependable measure for judging its overall efficiency or inefficiency. On this basis, there can be comparison of one company with another and one industry with another. The return on capital when calculated using earnings before interest and tax, would show whether the company's borrowing policy was wise economically and whether the capital had been employed fruitfully. The business can survive only when the return on capital employed is more than the cost of capital employed in the business.
TABLE 5.4.4: RETURN ON INVESTMENT

(Rs. Crores)
PARTICULARS
EBIT
2000
2001
2003
40.44
11.92
10.38
TOTAL CAPITAL EMPLOYED
179.76
212.46
142.60
RETURN ON INVESTMENT ( % )
22.50
5.61
7.28
GRAPH 5.4.2: ROI
RETURN ON INVESTMENT ( % )
25.00 20.00 15.00 10.00 5.00 0.00 2000 2001 2003
The table shows the ROI for the years 2000, 2001,2002-2003 (18 months). The ROI for the year 2001 has dropped drastically to 5.61% from the previous year of 22.49%. Two reasons can be attributed to this sudden fall in ROI of the company in 2001: Abnormal raw material price increase in 2001: This price increase could not be passed on to the customers and the company had to bear the cost. 58 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ There was approximately 15.3 crore drop in the company's earnings due to this abnormal hike in the prices of raw material. Drop in sales in 2001 when compared to 2000: around 10% drop in sales occurred in the company. Any drop in sales below breakeven sales will reduce the contribution by more than 50%. This is what happened in Widia. Sales dropped from Rs.234 crore to Rs.208 crore due to which earnings went down by approximately Rs.11 cr. Adding the figures 15.3 crore and 11 crore to the earnings in 2001, 11.92, we get earnings to be around 38 cr. Using this the ROI when calculated will be 18.2%. This would have been the ROI figure for the year 2001 if the above instances had not occurred. The ROI would have been a reasonable at 18.2% as normally ROI should be around 3 times the bank interest rate.
ECONOMIC VALUE ADDED (EVA) Economic Value Added (EVA) analysis is a technique of value-based management. It measures the profitability of a company after taking into account the cost of capital including equity. It is the post-tax return on capital employed (adjusted for the tax shield on debt) minus the cost of capital employed. In other words, EVA is a residual income after charging the company for the cost of capital provided by lenders and shareholders. It represents the value added to the shareholders wealth by generating operating profits in excess of cost of capital employed in the business. EVA is a measure of total factor of productivity. EVA compels the managers to focus more critically and objectively on the return they are achieving for investors. Economic Value Added is the financial performance measure that comes closely than any other to capturing the true economic profit of an enterprise. 59 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
TABLE 5.4.5: ECONOMIC VALUE ADDED

(Rs Crores)
PARTICULARS/YEAR
PAT INT PAT+INT 1-Tax rate Cost of capital CAPITAL EVA
2000 42.40 5.95 48.35 0.65 0.15 21.98 28.13
2001 29.22 6.77 35.99 0.65 0.15 21.98 20.10
2003 -21.65 6.82 -14.83 0.65 0.15 21.98 -12.94
GRAPH 5.4.3: ECONOMIC VALUE ADDED (EVA)
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ ECONOMIC VALUE ADDED (EVA)
30.00 20.00
EVA
10.00 0.00 -10.00 -20.00 2000 2001 2003
EVA
YEAR
The table and the graph show that the year 2003 has seen a negative economic value, which indicates that there is value destruction in the year 2003 rather than value creation when compared to the previous years. The reason for this can be attributed to several factors. One of the main reasons is that during the year 2002-2003 Widia was taken over by Kennametal, USA and became Kennametal Widia India. This change in management saw lot of restructuring in the company, which resulted in heavy one-time, non-recurring costs to the company. This resulted in lowering the operating profits of the company for that year. Hence the EVA for the year 2003 is negative. This is in contrast with the ROI, an indicator of the profit, which a firm earns on investing a unit of capital, which is positive for the year 2003. The ROI is positive indicating that the company is getting a good return on investment. But the reality is that in that particular year 2003 the value has actually been destroyed and the company has registered a loss. Thus using EVA, one of the new techniques when compared to the outdated ROI, gives a better picture of the performance and the efficiency of the company. The investments made in the year will be fruitful in the coming years. The synergy created due to the takeover will
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ definitely create a good and high value to the stakeholders in the near future itself. RETURN ON CAPITAL EMPLOYED (ROCE) Return on Capital Employed (ROCE) is another way of finding the return on investments. Here the profits are related to the total capital employed. Here the term capital employed refers to the long-term funds supplied by the creditors and owners of the firm. Thus the capital employed basis provides a test of profitability related to the sources of long-term funds. The higher the ratio the more efficient is the use of capital employed. TABLE 5.4.5: RETURN ON CAPITAL EMPLOYED (ROCE)
(Rs Crores)
PARTICULARS/YEAR
2000
2001
2003
PAT
42.40
29.22
-21.65
Book Capital
21.98
21.98
21.98
ROCE
1.93
1.33
-0.99
GRAPH 5.4.4: RETURN ON CAPITAL EMPLOYED (ROCE)
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ RETURN ON CAPITAL EMPLOYED (ROCE)
2.00 1.50 1.00
ROCE 0.50
0.00 -0.50 -1.00 2000 2001 2003
ROCE
YEAR
The table and the graph show that the return on capital employed (ROCE)) is negative for the year 2003. This is in line with the findings derived from EVA. ROCE is a better and more consistent way to find the return on capital employed when compared to return on investment.
5.5 INVENTORY MANAGEMENT
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ Inventories constitute the most significant part of the current assets of a large majority of companies in India. On an average, inventories are approximately 40% of current assets, 50-60% of Working capital and 20-30% of sales. Inventory management involves a tight ropewalk between two conflicting goals not to have too high an inventory level, and not to have one, which is too low. An undertaking neglecting the management of inventories will be jeopardizing its long run profitability and fail ultimately. The reduction in excessive inventories carries a favourable impact on the companys profitability. The various forms of inventories existing in manufacturing companies are raw materials; work in process and finished goods. The levels to be maintained in these three depend on the nature of business. The general motives for holding inventories are: 9 The transaction motive, which emphasizes the need to maintain 9 The precautionary motive, which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply 9 The speculative motive, which influences the decision to increase or reduce inventory levels to take advantage of price fluctuations. The objectives of inventory management can be broadly classified into operative and financial objectives. Operating objectives aims at avoiding production bottlenecks by providing continuous supply of all types of materials, promotion of manufacturing efficiency and prompt execution of their orders to ensure better services to customers. The financial objectives of inventory management includes effecting economy in purchasing through economic order quantity and taking advantage of favourable markets, maintaining optimum level of investment in inventories etc. 64 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan forces and other factors. inventories to facilitate smooth production and sales operation.
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ The various inventory control techniques used are Setting inventory levels ABC analysis Ageing schedule Operating cycle
TABLE 5.5.1:COMPONENTS OF INVENTORY

(Rs. Crores)
PARTICULARS
2000
2001
2003
RAW MATERIALS (RM)
11.41
12.02
11.83
FINISHED GOODS (FG)
39.58
54.61
22.88
WORK IN PROGRESS (WIP)
15.39
21.87
15.38
TOTAL
66.38
88.50
50.09
GRAPH 5.5.1: COMPONENTS OF INVENTORY
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ COMPONENTS OF INVENTORY
100% 80% 60% 40% 20% 0%
%s
2000
2001 YEAR
2003
RAW MATERIALS (RM) WORK IN PROGRESS (WIP)
FINISHED GOODS (FG)
At Kennametal Widia, the inventory components are raw material, work in progress and finished goods. The graph depicts the components of inventory in Widia and their changes over the years 2000 to 2003. The inventory holding period has drastically been reduced from 91 days in 2001 to 34 days in 2003 indicating better inventory control and management in the company.
INVENTORY TURNOVER RATIO (ITR): This ratio reveals the effectiveness of a company's inventory management. Higher sales turnover with relatively lower inventory is a desirable situation. This ratio shows the number of times the inventory is being replaced during the year. So, higher the ratio the better it is as it indicates efficient inventory management.
TABLE 5.5.2:INVENTORY TURNOVER RATIO
(Rs. Crores)
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ PARTICULARS
AVG INVENTORY SALES COGS ITR INVENTORY HOLDING PERIOD
2000 62.69 234.47 162 2.58 141
2001 77.44 210.98 177 2.29 160
2003 69.30 208.44 273 3.94 93
GRAPH 5.5.2: INVENTORY HOLDING PERIOD INVENTORY HOLDING PERIOD 200 150 DAYS 100 50 0 2000 2001 YEAR 2003
The ITR of the company is relatively good, the best being in the year 20022003 which is 10.89 shows that in the year 2003 inventory was best managed. The inventory holding period for the company has decreased drastically from 160 days in 2001 to 93 days in 2002-2003 again indicating the effective management of inventory.
5.6 ACCOUNTS RECEIVABLES MANAGEMENT

Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ Accounts receivables constitute a significant portion of the total current assets of the business next after inventories. They are a direct consequence of trade credit, which has become an essential marketing tool in modern business. While the extension of credit is essential for sales promotion, credit sales result in accounts receivables with all their attendant risks. When a firm sells goods for cash, payments are received immediately and, therefore, no receivables are created. However, when a firm sells goods or services on credit, the payments are postponed to future dates and receivables are created. Usually, the credit sales are made on an open account, which means that no formal acknowledgements of debt obligations are taken from buyers. The only documents evidencing the same are a purchase order, shipping invoice or even a billing statement. The policy of open account sales facilitates business transactions and reduces to a great extent the paper work required in connection with credit sales. Receivables are asset accounts representing amounts owed to the firm as a result of sale of goods / services in the ordinary course of business. Receivables are the result of extension of credit facility to the customers. The objective of such a facility is to allow the customers as reasonable period of time in which they can pay for the goods purchased by them. Receivables are a direct result of credit sale. Credit sale is resorted to by a firm to push up its sales, which ultimately result in pushing up the profits earned by the firm. At the same time selling goods on credit results in blocking of funds in accounts receivables. Additional funds are, therefore, required for the operation needs of the business, which involve extra costs in terms of interest. Moreover, increase in receivables also increases chances of bad debts. Thus creation of accounts receivables is beneficial as well as dangerous. The finance manager has to follow a policy which uses cash funds as economically as possible in extending receivables without adversely affecting the chances of increasing sales and making more profits. Thus the objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding 68 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ of receivables is less than the cost of funds raised to finance that additional credit (i.e. cost of capital). There are many factors, which influence the magnitude, the accounts receivables in a company like cyclical influences, seasonal sales, and competitive credit terms. Credit policy of Kennametal Widia India The company ended up providing Rs. 34.2 crore towards Bad & Doubtful receivables, as at the end of Sep 2002, against total receivables of Rs. 102 crore. This amounted to 34% of total receivables and washed off whatever profits shown in the past couple of years. It is clear that these happenings are due to lack of clear Credit Policy and extension of indiscreet credits to achieve targets in the past. Hence, the Company decided to draw a clear set of rules for extension for credit in the form of a Corporate Credit Policy Document for future adherence.
Glimpse of the credit policy at WIDIA

The Policy: It is appropriate to have one policy for Metal Cutting, Metal Forming & Mining (for product selling) and a separate policy for SPM division (on the basis of project selling).
1. For Metal cutting, Metal forming and Mining product groups: Classification of the customers: The customers are classified across the entire products group as follows 69 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ 1. Stockist / Distributor 2. Consumer 3. Government 4. Exports They are further sub-classified on the following lines, on the basis of size and nature of business: 1. Stockiest / Distributor 2. Master stockist [sales over Rs.50 lac pa] Major stockist [sales between Rs.25 lac and Rs.50 lac pa] Others [sales up to Rs.25 lac pa]
Consumers Large business segment [sales over Rs.10 lac pa] Small and medium business [sales up to Rs.10 lac pa] Original equipment manufacturer (OEM) [for mining]
3.
Government Consisting only defence, railways and other direct departmental customers. The customers under this category are classified as consumers.
4.
Exports Stockist / Distributor Consumer Affiliates
Credit Limit
The credit limit is fixed on 2 basis: Firstly in terms of the period and secondly in terms of monetary limit. The credit period set is 90 days for 70 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ Master Stockist and Large Business Consumers and 60 days to other type of customers but in practice a 120-day period is set. Government For government customers the credit period set can be long as the money is assured from these the government departments. The payment period maybe also is long because of the bureaucracy in government departments.
Consumers
For customers a policy which can be followed is that for old customers a longer period of credit can be given as they are old customers and money is assured from them and constant remainders can be sent to them if payment is not made on time and if still they have difficulty in getting payment they can resort to legal action. 2. For SPM division In the case of SPM division, it shall rather be called as Sales Policy instead of Credit Policy. Classification of Customers: SPM customers can be classified as: 9 Government Customers 9 Private Customers 9 Exports
Government Customers:
Sales Policy
No advance on order acceptance 71 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ 80% - 90% of advance payment on acceptance of the machine at their stores. 10% - 20% balance payment on Commissioning (paid 30 days after commissioning due to paper work). Private customers: 15% - 40% advance payment on order acceptance / Design approval 75% - 50% on dispatch of machine (on Performa Invoice for smaller customers). 10% - 15% balance payment on commissioning.
For all kinds of customers, installation and commissioning should be completed within 60 days form the date of dispatch and final payment should be collected within 30 days from completion of commissioning. Exports: Newly entered segment, operating with the same terms of Private customers, but secured by L/Cs.
CONCLUSION
The SBU heads along with the credit Controllers are responsible for strict adherence to these Credit policy guidelines as it would be important to cover the 72 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ organisation against further exposure to risk of bad receivables and to protect the bottom line by assisting good working capital management. The Internal Audit also monitors the situation on monthly basis and reports exceptions to the management. GRAPH 5.6.1:TREND IN RECEIVABLE & PAYABLE PERIOD
AVERAGE COLLECTION PERIOD 140 130 120 110 100 2000 2001 YEAR AVERAGE COLLECTION PERIOD 2003
DAYS
AVERAGE PAYMENT PERIOD 125 120 115 110 105 100 95 2000 2001 YEAR AVERAGE PAYMENT PERIOD 2003
The lower the collection period, better is the collection policy of the company. From this point the year 2003 is the best, which has the lowest collection period compared to the other years. It shows that the company is following the new credit policy drafted strictly to lower its collection period. However, for the payment period, longer the period is the better for the company. The payment period has remained best in 2000 followed by the year 2003.
DAYS
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ TABLE 5.1:CONSOLIDATED STATEMENT SHOWING CA, CL & WC OF KENNAMETAL WIDIA INDIA
PARTICULARS / YEAR CA: INVENTORIES SUNDRY DEBTORS CASH & BANK BALABCES LOANS & ADVANCES TOTAL CA :
2000
2001
2003
66.39 80.87 9.92 20.38 177.56
88.51 77.53 45.25 22.52 233.81
50.1 55.3 11.44 15.26 132.1
LESS : CL SUNDRY CREDITORS ADVANCES FROM CUSTOMERS UNCLAIMED DIVIDENDS OTHER LIABILITIES PROVISIONS TOTAL CL : 24.9 3.03 0.07 18.93 6.94 53.87 26.59 2.82 0.1 48.8 2.91 81.22 38.49 3.99 0.12 4.32 7.11 54.03
NET WC :
123.69
152.59
78.07
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ TABLE 5.2: TREND ANALYSIS OF CA, CL & WC AT KENNAMETAL WIDIA INDIA
2000
2001
2003
100 100 100 100 100
133.3 95.9 456.1 110.5 131.7
75.5 68.4 115.3 74.9 74.4
LESS : CL SUNDRY CREDITORS ADVANCES FROM CUSTOMERS UNCLAIMED DIVIDENDS OTHER LIABILITIES PROVISIONS TOTAL CL : 100 100 100 100 100 100 106.8 93.1 142.9 257.8 41.9 150.8 154.6 131.7 171.4 22.8 102.4 100.3
NET WC :
100
123.4
63.1
The overall Working Capital (WC) is brought down by 37% over a period of 2 years, which is very significant.
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ TABLE 5.3: COMMON SIZE STATEMENT OF CA & CL
2000
2001
2003
37.4 45.5 5.6 11.5 100
37.9 33.2 19.4 9.6 100
37.9 41.9 8.7 11.6 100
LESS : CL
SUNDRY CREDITORS ADVANCES FROM CUSTOMERS UNCLAIMED DIVIDENDS OTHER LIABILITIES PROVISIONS TOTAL CL : 46.2 5.6 0.1 35.1 12.9 100 32.7 3.5 0.1 60.1 3.6 100 71.2 7.4 0.2 8.0 13.2 100
If the components of debtors are brought to 2001 level, the cash and liquidity position will substantially improve.
CAHPTER 6: SUMMARY AND CONCLUSION
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ As a part of the research, number of analysis has been conducted to find out the trend in the companys working capital policy. Various ratios like current ratio, quick ratio, working capital turnover ratio, debt to equity ratio, trend analysis, etc. were used as the parameter to know whether there has been any substantial or gradual change in the working capital from aggressive to conservative or viceversa. The other major part of the analysis was to find out the impact of working capital policy on the return of the company. ROI, EVA and ROCE were taken as a yardstick for this purpose. An attempt was also made to find out the receivable and payable management of the company. 6.1 CONCLUSIONS FROM THE STUDY 1) Table No. 1 shows a substantial increase in current assets for the year 2001. This was primarily due to high inventory level and an increase in cash holding. The year 2002-2003 saw a decrease in the level of current assets. This was brought about judiciously controlling inventory and reducing the cash holdings. 2) Higher the current ratio means, the company is acting more conservative. Similarly, lower the current ratio means the company is acting more aggressive. The company had a conservative policy with current ratio being high of 3.3 (Table 5). Now the company is moving towards an aggressive policy in the current year. This is indicated by the ratio in 2003 being 2.44. The quick ratio also highlights the aggressive policy the company is following over the years. The quick ratio has decreased from 2.1: 1 in 2000 to 1.5: 1 in 2003 indicating the companys movement from a conservative policy to an aggressive policy.
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ 3) The working capital turnover ratio shows an overall upward trend. In the year 2000 the working capital turnover was 1.89, which came down to 1.38 in 2001 due to rising prices in raw material and a general slump in the industry. In 2002-2003 the working capital turnover ratio grew to 2.66, which is very good. It indicates that effective methods were employed in the usage of working capital in that year when compared to the previous years. 4) The average debtor collection period is in a decreasing trend, which is a good indication that the receivables are being well managed. The average creditor payment period which had decreased in 2001to 104 days, increased in 2002-2003 to 115 days. This indicates that more care should be taken for payables. 5) The current assets turnover ratio is steady and looks good with the ratio being down to 0.63 in 2003 after a slight increase in 2001 to 1.11. 6) The debt to equity ratio was 0.2:1, which indicates that 80% of the capital employed, is through equity fund. Taking into account the current low level of inventory and high level of receivables, the company does not require any additional short-term borrowings for the current level of operations. The company can think of major expansion to take advantage of low cost borrowed fund. 7) The interest coverage ratio shows that the interest coverage appears pretty healthy and thus the company has a greater ability to meet or pay the interest burden of outsiders from its earnings.
8) In terms of operating margin, due to various restructuring efforts and disciplining the manufacturing in tune with the marketing requirement, there was a dent in the year 2003.it has reduced from 17% in 2000 to 5% in 200279 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ 2003. It is learnt that by the various corrective actions initiated by the company, the performance in the current year is back to track with operating margin of 15%. 9) From the cost structure data, the companys fixed cost of labour and depreciation constitutes about 30% on sales. This has affected the company during last two years, as there was no growth in sales. The company needs to restructure / downsize the strength or alternatively aim for substantial growth so that the ratio of this fixed cost can be brought down to the average level of 15-18%. 10) The ROI for 2000 was good but due to unavoidable reasons, the ROI came down in 2001 very drastically from 22.5% to 5.61%. Now the ROI is improving and has gone up in 2002-2003 to 7.57%. From the long-term perspective, the Company needs to have ROI at the rate of 15-20% on its investment. It is learnt that the company is poised for adequate return in the coming years. 11) The EVA analysis of the company for the period of study indicated that during the year 2003 there was value destruction i.e. negative EVA. This was due to various reasons. One of them being major investment and nonrecurring expenditure the company had after the takeover in Aug 2002. no doubt these expenditure resulted in negative EVA for the company in that particular year, but the steps taken by the new management will definitely bear fruits in the coming years. A better and efficient working capital management will increase the EVA of the company.
12) The level of inventory in the total current assets has been constant at 37%. In the composition of inventory the Finished Good inventory and Work in progress inventory was more in 2001 compared to the other years. In 2003 80 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ the level was brought down to acceptable level through judicious inventory management. 13) The average inventory holding period, which went up in 2001 from 141 days in 2000 to 160 days, saw a drastic improvement in 2002-2003. The inventory holding period was brought down to 93 days in 2002-2003. This change came due to better management of inventory by the company. The company at present uses ABC analysis for inventory. It is trying to move on the JIT management of inventory. * From the cost structure data, the companys fixed cost of labour and depreciation constitutes about 30% on sales. This has affected the company during last two years, as there was no growth in sales. The company needs to restructure / downsize the strength or alternatively aim for substantial growth so that the ratio of this fixed cost can be brought down to the average level of 15-18%.
6.2 SUGGESTIONS FOR FURTHER RESEARCH o The research is conducted with the data of past three years. However, better insight could be obtained if the research is conducted with the data for more number of years. 81 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ o The impact of short-term capital management on long-term value of the firm can be evaluated. o The various sources of working capital financing can be evaluated. o The various techniques of inventory management can be evaluated. o The cost-benefit analysis of different credit policy and credit terms can be evaluated.
BIBLIOGRAPHY BOOKS: Financial Management by Prassana Chandra (Fifth Edition) Financial Management by M.Y Khan & P. K Jain (Third Edition) 82 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan
Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________ Strategic Financial Management by G P Jakhotiya Financial Management by I.M Pandey Working Capital Management by V.K Bhalla
WEBSITES: www.widiaindia.com www.google.com www.themanagementor.com www.eva.com www.investopedia.com

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Working Capital Management & Profitability Analysis of Kennametal Widia India ________________________________________________________________

Ashwini Simha Reg.No. 02XQCM6011

Under the Guidance of Prof Sadhu Handa

M.P.Birla Institute of Management Associate Bharatiya Vidya Bhavan

1 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

Place: Bangalore Date: 13th September 2004

2 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

(Professor Sadhu Handa)

3 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

Place: Bangalore Date:

(Dr. N.S. Malavalli) PRINCIPAL

4 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

5 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

6 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

LIST OF TABLES AND GRAPHS

7 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

9 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

10 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

CURRENT ASSETS FIXED ASSETS

SHORT TERM CAPITAL LONG TERM CAPITAL LONG TERM CAPITAL

1.2 STATEMENT OF THE PROBLEM

1.3 NEED & SIGNIFICANCE OF THE STUDY

14 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPTS

ON THE BASIS OF TIME

NET WORKING CAPITAL

FIXED WORKING CAPITAL

TEMPORARY WORKING CAPITAL

REGULAR WORKING CAPITAL

RESERVE WORKING CAPITAL

SEASONAL WORKING CAPITAL

SPECIAL WORKING CAPITAL

1.4 OBJECTIVE OF THE STUDY:

To find out the impact of Working Capital on Economic Value Addition to

16 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

CHAPTER 2: COMPANY PROFILE

18 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

2.2 VISION STATEMENT OF KENNAMETAL WIDIA INDIA

2.3 MISSION OF KENNAMETAL WIDIA INDIA

19 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

2.4 PRODUCT RANGE

METAL CUTTING TOOLS:

WIDAX Tool holders

WIDAX Boring Bars and cartridges

WIDIALOX Ceramic Inserts

21 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

WIDMA Deep Hole Drilling Machines Machine

CHAPTER 3: LITERATURE REVIEW

23 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

24 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

CHAPTER 4: METHODOLOGY 4.1 TYPE OF RESEARCH

4.2 INSTRUMENTATION TECHNIQUES

4.3 ACTUAL COLLECTION OF DATA

4.4 TOOLS USED FOR ANALYSIS OF DATA

4.5 OTHER SOFTWARE USED FOR DATA ANALYSIS

26 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

4.6 LIMITATIONS OF THE STUDY

27 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

CHAPTER 5:PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 5.1 GENERAL INDICATORS

28 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

COMPONENTS OF CURRENT ASSETS

29 M. P. Birla Institute of Management, Associate Bharatiya Vidya Bhavan

SUNDRY CREDITORS UNCLAIMED DIVIDENDS PROVISIONS