A PROJECT REPORT

ON

A STUDY OF WORKING CAPITAL MANAGEMENT

IN KANSAI NEROLAC PAINTS LIMITED

Submitted by

SAGARKUMAR ASHOKLAL BORA

In Partial Fulfillment of the

MASTERS DEGREE OF COMMERCE

Under The Guidance of

DR. G. P. SATAV

Submitted to

University of Pune

Through

Mamasaheb Mohol Mahavidyalaya

(Arts, Commerce and Science)

48/1, Erandwana, Paud Road,

Pune 411038

YEAR : 2013-14
 Declaration by Student

I hereby declare that the project report titled “ A Study of Working Capital
Management in Kansai Nerolac Paints Limited” has been prepare and submitted by me
in the partial fulfillment of the Master Degree of Commerce curriculum as per the rules of
University of Pune.

This report is based on my original research. This report gives clear idea about
Working Capital position of company. All attempts have been made to present authentic
and real information about the company and its Working Capital position.

Date: 01/05/2014
Place: Pune Sagarkumar Ashoklal Bora
 Acknowledgement

It is a matter of great satisfaction and pleasure to present this report on “ Working Capital
Management in Kansai Nerolac Paints Limited” I take this opportunity to owe my
thanks to all those involved in my research.

I would like to thank our Principal Dr. G. P Satav M.com., Ph.D. and HOD Dr. Mahendra
Avaghade Ph.D. for giving necessary support during the course.

I would like to thank Kansai Nerolac Paint Limited for giving the opportunity to
complete my project in the company. I put on record my sincere thanks to my college,
Mamasaheb Mohol Collage, Paud Road, Pune - 38 for giving me such an opportunity.

I am proudly indebted to my Project Guide Prof. Dr. G. P Satav for all her support and
guidance towards the completion of my project

I avail this opportunity to give my thanks to Mr. Bipin Pandit Admin Head and Tushar
Patil- Accounts Executive, Finance Dept. for guiding me at every stage in my project. In
spite of their busy schedule they took out the time to answer my queries patiently and
helped me throughout the project.

My sincere thanks to all staff of Kansai Nerolac Paints . Industries for all the cooperation
and assistance to me at any time without which the project would have been incomplete.

Sagarkumar Ashoklal Bora

Date & Ref. no.

CERTIFICATE
This is certified that Mr. Sagarkumar Ashoklal Bora is currently
pursuing M.Com. (Advanced Cost Accounting and Cost Systems), has
successfully completed the project on the topic “A study of Working
Capital Management in Kansai Nerolac Paint Limited.” under the
guidance of Principal Dr. Satav G. P. The Project is submitted in partial
Fulfillment of the requirement of the M.Com. Course as prescribed by the
University of Pune.

Name of the Course : The Masters Degree of Commerce

Name of the Company : Kansai Nerolac Paints Limited
Title of the Project :AStudy ofWorkingCapital
Management in Kansai Nerolac Paint Ltd
Academic Year : 2013-2014

Dr. Avaghade M. R. Prin. Dr. Satav G. P.

Project Guide Principal
Mamasaheb Mohol Collage

External Examiner
 th
20 April, 2014

TO WHOM IT MAY CONCERN:

This is to certify that Sagar Ashoklal Bora, a student of Mamasaheb

Mohol College - Arts, Commerce and Science, has successfully
completed his project titled “A Study of Working Capital
Management” on our company, with reference to the partial
fulfillment of the requirements of the Master Degree of Commerce,
Pune University.

All necessary details were provided from our side for the establishment
of this Project.

We wish him the very best in all his future endeavours.

Thanking You,
With Regards,
For Kansai Nerolac Paints Limited,

Accounts Executive
 Index
Sr. No. Chapter Name Page No.
1 Introduction 1-21

2 Company Profile 22-31

3 Research Methodology 32-35

4 Data Analysis and Interpretation 36-57

5 Findings, Conclusion and suggestion 58-60

Bibliography 61
Annexure
 Index
Sr. No. Contents Page No.
1 Introduction 1-21
1.1. Meaning and Definition
1.1.1. Meaning
1.1.2. Definition
1.2. Concept of Working Capital
1.2.1. Gross Working Capital
1.2.2. Net Working Capital
1.3. Need of Working Capital
1.4. Working Capital Cycle
1.5. Factors Affecting Working Capital Requirement
1.5.1. Nature of Business
1.5.2. Length of Production Cycle
1.5.3. Size and Growth of Business
1.5.4. Business / Trade Cycle
1.5.5. Term of Purchase and sales
1.5.6. Profitability
1.5.7. Operating Efficiency
1.6. Financing the Working Capital Requirement
1.6.1. Fixed or Permanent Working Capital
1.6.2. Variable or Temporary Working Capital
1.7. Measurement of Working Capital
1.8. Working Capital Management
1.8.1. Cash Management
1.8.2. Inventory Management
1.8.3. Receivables Management
1.9. Consequence of Under Assessment Of W. Capital
1.10. Consequence of Over Assessment Of W. Capital
1.11. Tips for Managing Working Capital
2 Company Profile 22-31
2.1 Company description
2.2 About Nerolac & Kansai
2.3 The Kansai Nerolac Thimeline
2.4 Code of Conduct
2.5 Corporate Values
2.6 Management & Key People
2.6.1 Board of Directors
2.6.2 Key People
2.7 Product
2.8 Company Analysis

3 Research Methodology 32-35

3.1 Introduction of the Study
3.2 Objective of the Study
3.3 Scope of the Study
3.4 Importance / Significance of Project
3.5 Source of Research Data
3.5.1 Primary Data
3.5.2 Secondary Data
3.6 Limitation of Study
3.7 Tools Used For Analysis of Data

4 Data Analysis and Interpretation 36-57

4.1 Net Working Capital
4.2 Statement Showing Changes in Working Capital
4.3 Ratio Analysis
4.3.1 Liquidity Ratio
4.3.2 Turnover Ratio

5 Findings, Conclusion and suggestion 58-60

5.1 Findings
5.2 Conclusions
5.3 Suggestions
Bibliography 61
Annexure
 - List of Tables -
Sr. No. Contents Page No.
4.1 Net Working Capital 36
4.2 Changes in Working Capital for the Year 2009-2010 38
4.3 Changes in Working Capital for the Year 2010-2011 39
4.4 Changes in Working Capital for the Year 2011-2012 40
4.5 Changes in Working Capital for the Year 2012-2013 41
4.6 Current Ratio 43
4.7 Quick Ratio 44
4.8 Inventory Turnover Ratio 47
4.9 Inventory Holding Period 48
4.10 Debtors Turnover Ratio 50
4.11 Debtors Collection Period 51
4.12 Creditors Turnover Ratio 53
4.13 Creditors Payment Period 54
4.14 Working Capital Turnover Ratio 56
 - List of Graph -
Sr. No. Contents Page No.
4.1 Net Working Capital 37
4.2 Current Ratio 43
4.3 Quick Ratio 45
4.4 Inventory Turnover Ratio 47
4.5 Inventory Holding Period 49
4.6 Debtors Turnover Ratio 50
4.7 Debtors Collection Period 52
4.8 Creditors Turnover Ratio 53
4.9 Creditors Payment Period 55
4.10 Working Capital Turnover Ratio 56
 Chapter - 1
Introduction
1.1. Meaning and Definition
1.1.1. Meaning
1.1.2. Definition
1.2. Concept of Working Capital
1.2.1. Gross Working Capital
1.2.2. Net Working Capital
1.3. Need of Working Capital
1.4. Working Capital Cycle
1.5. Factors Affecting Working Capital Requirement
1.5.1. Nature of Business
1.5.2. Length of Production Cycle
1.5.3. Size and Growth of Business
1.5.4. Business / Trade Cycle
1.5.5. Term of Purchase and sales
1.5.6. Profitability
1.5.7. Operating Efficiency
1.6. Financing the Working Capital Requirement
1.6.1. Fixed or Permanent Working Capital
1.6.2. Variable or Temporary Working Capital
1.7. Measurement of Working Capital
1.8. Working Capital Management
1.8.1. Cash Management
1.8.2. Inventory Management
1.8.3. Receivables Management
1.9. Consequence of Under Assessment Of W. Capital
1.10. Consequence of Over Assessment Of W. Capital
1.11. Tips for Managing Working Capital

1
1.1. Meaning and Definition:

1.1.1 Meaning:

Working Capital is the amount of capital that a business has available to meet the
day-to-day cash requirements of its operations. It is concerned with the problem arise in
attempting to manage the current assets, the current liabilities and the inter relationship that
exist between them. Working Capital is the difference between resources in cash or readily
convertible into cash and organizational commitments for which cash will soon be required
or within one year without undergoing a diminution in value and without disrupting the
operation of the firm. It also refers to the amount of current Assets that exceeds current
Liabilities.

What is Working Capital?

Working capital refers to the investment by the company in short terms assets such
as cash, stock, receivable, marketable securities. It is also called as net working capital. Net
current assets or net working capital refers to the current assets less current liabilities.

In Accounting:
Working Capital / Net Current Assets = Current Assets - Current Liabilities.

2
 1.1 Working Capital

1.1.2 Definitions:

a) Weston & Brigham:-

“Working capital refers to a firm’s investm ent in short-term assets cash, short term
securities, accounts receivables, inventories etc”.

b) Mead Mallott & Field:-

“Working capital means current assets”.

c) Bonnerille:-
“Any acquisition of funds which increases the curre nt assets increases working capital
for they are one and the same”.

3
1.2. Concepts of Working Capital:
There are two concept of working capital –
Gross working capital
Net working capital

Gross working capital:

Gross working capital refers to gross current assets. Current assets are the assets,
which can be converted into cash with in a financial year.

Net working capital:

Net working capital refers to the difference between current assets and current
liabilities and this is more acceptable connotation of the term working capital.
The term current assets refers to those assets held by the business which can be converted
into cash within a short period of time of say one year without reduction value. The main
types of current assets are stock, receivables and cash. The term current liabilities refer to
those liabilities, which are to be paid off during the course of business, within a short
period of time say one year. They are expected to be paid out of current assets or earnings
of business. The current liabilities mainly consist of sundry creditors, bills payables, bank
over draft, outstanding expenses etc.

1.3. Need of working capital:

Working capital may be regarded as the lifeblood of the business. Without

insufficient working capital, any business organization cannot run smoothly or
successfully. In the business, the Working Capital is comparable to the blood of the human
body. Therefore, the study of working capital is of major importance to the internal and
external analysis because of its close relationship with the current day-to-day operations of
a business. The inadequacy or mismanagement of working capital is the leading cause of
business failures.

4
 The need of gross working capital or current assets cannot be overemphasized. The
object of any business is to earn profits. The main factor affecting the profits is the
magnitude of sales of the business. But the sales cannot be converted into cash
immediately. There is a time lag between the sale of goods and
realization of cash. There is a need of working capital in the
form of current assets to fill up this time lag. Technically, this is called
as operating cycle or working capital cycle, which is the heart of need for working capital.
This working capital cycle can be described in the following words.

If the company has a certain amount of cash, it will be required for purchasing the
raw material though some raw material may be available on credit basis. Then the
company has to spend some amount for labour and factory overheads to convert the raw
material in work in progress, and ultimately finished goods. These finished goods when
sold on credit basis get converted in the form of sundry debtors. Sundry debtors are
converted in cash only after the expiry of credit period. Thus, there is a cycle in which the
originally available cash is converted in the form of cash again but only after following the
stages of raw material, work in progress, finished goods and sundry debtors. Thus, there is
a time gap for the original cash to get converted in form of cash again. Working Capital
needs of company arise to cover the requirement of funds during this time gap, and the
quantum of working capital needs varies as per the length of this time gap.

Thus, some amount of funds is blocked in raw materials, work in progress, finished
goods, sundry debtors and day-to-day requirements. However, some part of these current
assets may be financed by the current liabilities also. E.g. some raw material may be
available on credit basis, all the expenses need not be paid immediately, workers are also to
be paid periodically etc. But still the amounts required to be invested in these current assets
is always higher than the funds available from current liabilities. This is precise reason why
the needs for working capital arise.

5
1.4. Working Ca pital Cycle:

Working capital cycle indicates the length of time betwee n a firm’s paying for
materials entering int o stock and receiving the cash from sale of finished goods. In a
manufacturing firm, t he duration of time required to complete the sequence of events is
called operating cycle.

In case of a manufact uring company, the operating cycle is the length of time necessary to
complete the follow ing cycle of events –

a) Conversion of cash into raw materials

b) Conversion of raw materials into work-in-progress
c) Conversion of work-in-progress into finished goods
d) Conversion of finished goods into accounts receivables
e) Conversion of accounts receivable into cash

The workin g capital cycle is shown below:

1.2 Working Capital Cycle

6
The above operating cycle is repeated repeatedly over the period depending upon the
nature of the business and type of product etc. the duration of the operating cycle for the
purpose of estimating working capital is equal to the sum of duration allowed by the
suppliers.

Fund required & acquired by a business may be invested in two types of assets.

Fixed Assets
Current Assets

Fixed assets are those assets, which yield the return in the due course of time. The
various decisions like in which fixed assets funds should be invested and how much should
be invested in the fixes assets can be said to fixed capital management. Another, types of
assets is equally important i.e. Current Assets. These types of assets are required to ensure
and fluent business operation and can be said to be lifeblood of business.

From the Financial management point of view, the nature of fixed assets and current
assets differ from each other--

1) The fixed assets are required to be retaining in the business over a period and they
yield the returns over their life, whereas the current assets loose their identity over a
short period, say one year.
2) In the case of current assets, it is always necessary to strike a proper balance
between the liquidity and profitability principles, which is not the case with fixed
assets. E.g. If the size of current assets is large, it is always beneficial from the
liquidity point of view as it ensures smooth and fluent business operations.
Sufficient raw material is always available to cater to the production needs,
sufficient finished goods are available to cater to any kind of demand of customers,
liberal credit period can be offered to the customers to improve the sales and
sufficient cash is available to pay off the creditors and so on.

7
 However, if the investment in current assets is more than what is ideally required, it
affects the profitability, as it may not be able to yield sufficient rate of return on
investment. On the other hand, if the size of current assets is too small, it always involves
the risk of frequent stock out, inability of the company to pay its dues in time etc. As such,
the investment in current assets should be optimum. Hence, it is necessary to manage the
individual components of current assets in a proper way. Thus, working capital
management refers to proper administration of all aspects of current assets and current
liabilities. Working Capital Management is concerned with the problems arising out of the
attempts to manage current assets, current liabilities and inter-relationship between them.
The intention is not to maximize the investment in working capital nor is it to minimize the
same. The intention is to have optimum investment in working capital. In other words, it
can be said that the aim of working capital management is to have minimum investment in
working capital without affecting the regular and smooth flow of operations. The level of
current assets to be maintained should be sufficient enough to cover its current liabilities
with a reasonable margin of safety. Moreover, the various sources available for financing
working capital requirements should be properly managed to ensure that they are obtained
and utilized in the best possible manner.

8
1.5. Factors Affecting Working Capital Requirement:

The amount of working capital required depends upon a number of factors which can be
stated as below:

1.5.1 Nature of Business:

Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. These businesses sell services and not
the commodities and not the commodities and that too on cash basis. As such, no
funds are blocked in piling inventories and also no funds are blocked in
receivables. E.g. Public utility services like railways, electricity boards,
infrastructure oriented projects etc. Their requirement of working capital is less. On
the other hand, there are some business like trading activity, where the requirement
of fixed capital is less but more money is blocked in inventories and debtors. Their
requirement of the working capital is more.

1.5.2 Length of Production Cycle:

In some business like machine tool industry, the time gap between the acquisitions
of raw material till the end of final production of finished product itself is quite
high. As such more amounts may be blocked either in raw materials, or work in
progress or finished goods or even in debtors. Naturally, their needs of working
capital are higher. On the other hand, if the production cycle is shorter, the
requirement of working capital is also less.

1.5.3 Size and Growth of Business:

In very small companies, the working capital requirements are quite high
overheads, higher buying and selling costs etc. As such, the medium sized
companies positively have an edge over the small companies. But if the business
starts growing after a certain limit, the working capital requirements may be
adversely affected by the increasing size.

9
1.5.4 Business / Trade Cycles:

If the company is operating in the period of boom, the working capital

requirements may be more as the company may like to buy more raw material, may
increase the production and sales to take the benefits of favorable markets, due to
the increased sales, there may be more and more amount of funds blocked in stock
and debtors etc. Similarly, in case of depression also, the working capital
requirements may be high as the sales in terms of value and quantity may be
reducing, there may be unnecessary piling up of stocks without getting sold, the
receivables may not be recovered in time etc.

As such, in both these two extreme situation of business/trade cycles, the working
capital requirement may be high.

1.5.5 Terms of Purchase and Sales:

Sometime, due to competition due to competition or custom, it may be necessary

for the company to extend more and more credit to the customers, as a result of
which increases working capital requirements. On the other hand, in case of
purchase, if credit is offered by the suppliers of goods and services, a part of
working capital requirement may be financed by them, but if it is necessary to
purchase these goods or services on cash basis, the working capital requirement
will be higher.

1.5.6 Profitability:

The profitability of the business may vary in each and every individual case, which
in its turn may depend upon numerous factors. But high profitability will positively
reduce the strain on working capital requirement of the company, because the
profits to the extent that they are earned in cash may be used to meet the working
capital of the company. However, profitability has to be considered as one of the
ways in which strain on working capital requirement of the company may be
relieved. And these angles are:
10
 a) Taxation Policy :

How much is required to be paid by the company towards its tax liability? As
the amount of cash profits only after payment of taxes will be available to the
company for meeting its requirement of working capital.

b) Dividend Policy :

How much of the profits earned by the company are distributed by way of
dividend? As the amount of cash profit to the extent not distributed by way of
dividend only will be available to the company for meeting its requirement of
working capital.

1.5.7 Operating Efficiency :

If business is carried on more efficiently, it can operate in profits, which may

reduce the strain on working capital; it may ensure proper utilization of existing
resources by eliminating waste and improved coordination etc.

1.6. Financing the Working Capital Requirement:

There are various methods available for financing the working capital requirement, it is
necessary to view the term working capital in one more angle.

1.6.1 Fixed or Permanent Working Capital:

This indicates that amount of minimum working capital which is required to be

maintained by every business at any point of time, in order to carry on the business on
permanent and uninterrupted basis.

11
 1.2 Fixed and Variable Working Capital

1.6.2. Variable or Temporary Working capital:

This indicates that amount of working capital required by the business which is over
and above fixed and permanent working capital.

This need of the working capital may vary depending upon the fluctuations in demand
as a result of changes in production or sales.

The basic difference between these two is as depicted below:

As far as financing of the fixed or permanent needs of working capital are concerned,
these need should be met out of the long term sources of fund viz. Own generation of
funds, out of the profit earned, shares or debentures.

As far as financing of the variable or temporary needs of working capital are

concerned, these needs can be meet from the various sources as stated below.

12
 A part of these needs may be financed by way of the credit available from the
suppliers of material or services, and the facility of delayed payment of
expenses.
A part of these needs may be financed by way of short term or medium term
debts accepted by the company in the form of inter corporate borrowing, public
deposited etc.
A part of these needs may be financed by way of long term sources of fund in
the form of own generation of funds, out of the profit earned, shares,
debentures and other long term borrowing.
A major portion of these working capital needs are financed by the banks. In
financing the working capital needs of the business, the credit obtained from
banks plays a very-very important role.

1.7. Measurement of Working Capital:

There are three methods for assessing the working capital requirement as explained
below:

Percent of Sales Method:

Based on the past experience, some percentage of sales may be taken for determining
the quantum of working capital.

Regression Analysis Method:

The relationship between sales and working capital and its various components may be
plotted on Scatter diagram and the average percentage of past 5 years may be ascertained.
This average percentage of sales may be taken as working capital. Similar exercise may be
carried out at the beginning of the year for assessing the working capital requirement. This
method is suitable for simple as well as complex situations.

13
 Operating Cycle Method:
As a first step, we have to compute the operating cycle as follows:

i) Inventory period: Number of days consumption in stock = I = M/365

Where, I – Average inventory during the year
M = Materials consumed during the year

ii) Work-in-process: Number of days of work-in-process = W = K/365

Where, W = Average work-in-process during the year
K = Cost of work-in-process i.e., Material + Labour + Factory overheads.

iii) Finished products inventory period: G = F/365

Where G = Average finished products inventory during the year
F= Cost of finished goods sold during the year

iv) Average collection period of Debtors = D = S/365

Where, D = Average Debtors balances during the year
S= Credit sales during the year

v) Credit period allowed by Suppliers = C = P/365

Where C= Average creditors’ balances during the year
P = credit purchases during the year

vi) Minimum cash balance to be kept daily

Formula: O.C = M + W + F + D - C

Note: It is also known as working capital cycle. Operating cycle is the total time gap
between the purchase of raw material and the receipt from Debtors.

14
1.8. Working Capital Management:

To start any business, first of all we need finance and the success of that business
entirely depends on the proper management of day-to-day finance and the management of
this short-term capital or finance of the business is called Working Capital Management.

Working Capital is the key difference between the long-term financial management and
short-term financial management in terms of the timing of cash. Working capital
management is a short-term financial management. Working capital management is
concerned with the problems that arise in attempting to manage the current assets, the
current liabilities & the inter relationship that exists between them. The current assets refer
to those assets, which can be easily converted into cash in ordinary course of business,
without disrupting the operations of the firm.
Working capital management or short-term financial management is a significant
facet of financial management. It is important due to two reasons:

· Investment in current assets represents a substantial portion of total investment

· Investment in current assets and the level of current liabilities have to be geared
quickly to changes in sales.

Working capital involves activities such as arranging short-term

finance, negotiating favorable credit terms, controlling the
movement of cash, administrating accounts receivables, and
monitoring the investment in inventories also take a great deal
of time.

Management of working capital is concerned with the problem that arises in

attempting to manage the current assets, current liabilities. The basic goal of working
capital management is to manage the current assets and current liabilities of a firm in such
a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate
nor excessive as both the situations are bad for any firm. There should be no shortage of
funds and also no working capital should be ideal. Working Capital Management Polices
of a firm has a great on its probability, liquidity and structural

15
health of the organization. So working capital management is three dimensional in nature
as:

1) It concerned with the formulation of policies with regard to profitability, liquidity and
risk.

2) It is concerned with the decision about the composition and level of current assets.

3) It is concerned with the decision about the composition and level of current liabilities.

Components of Working Capital:

Cash Management:
Cash is the important current asset for the operation of the business. Cash is the basic
input needed to keep the business running in the continuous basis, it is also the ultimate
output expected to be realized by selling or product manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt
the firm’s manufacturing operations while excessive cash will simply remain ideal without
contributing anything towards the firm’s profitability. Thus a major function of the
financial manager is to maintain a sound cash position. Cash is the money, which a firm
can disburse immediately without any restriction. The term cash includes coins, currency
and cheques held by the firm and balances in its bank account.

Need for Holding Cash:

The need for holding Cash arises from a variety of reasons, which are,

a) Transaction Motive:
A company is always entering into transactions with other entities. While some
of these transactions may not result in an immediate inflow/outflow of cash (E.g. Credit
purchases and Sales), other transactions cause immediate inflows and outflows. So firms
keep a certain amount of cash so as to deal with routine transactions where immediate
cash payment is required.

16
 b) Precautionary Motive:
Contingencies have a habit of cropping up when least expected. A sudden fire may
break out, accidents may happen, employees may go on a strike, creditors may present
bills earlier than expected or the debtors may make payments earlier than warranted. The
company has to be prepared to meet these contingencies to minimize the losses. For this
purpose companies generally maintain some amount in the form of Cash.

c) Speculative Motive:
Firms also maintain cash balances in order to take advantage of opportunities
that do not take place in the course of routine business activities. For example, there may
be a sudden decrease in the price of Raw Materials, which is not expected to last long or
the firm may want to invest in securities of other companies when the price is just right.
These transactions are purely of speculative nature for which the firms need cash.

Inventory Management:
Inventories are goods held for eventual sale by a firm. Inventories are thus one of
the major elements, which help the firm in obtaining the desired level of sales.
Inventories includes raw materials, semi finished goods, finished products.

In company there should be an optimum level of investment for any asset, whether
it is plant, cash or inventories. Again inadequate disrupts production and causes losses in
sales. Efficient management of inventory should ultimately result in wealth maximization
of owner’s wealth. It implies that while the management should try to pursue financial
objective of turning inventory as quickly as possible, it should at the same time ensure
sufficient inventories to satisfy production and sales demand.

The main objectives of inventory management are operational and financial.

The operational mean that means that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory. The financial
objective means that investments in inventories should not remain ideal and minimum
working capital should be locked in it.
17
Receivables’ Management:
Receivables or debtors are the one of the most important parts of the current Assets
which is created if the company sells the finished goods to the customer but not receive the
cash for the same immediately. Trade credit arises when a company sales its products or
services on credit and does not receive cash immediately. It is an essential marketing tool,
acting as a bridge for the moment of goods through production and distribution stages to
customers.

The receivables include three characteristics

1) It involve element of risk which should be carefully analysis.

2) It is based on economic value. To the buyer, the economic value in goods or services
passes immediately at the time of sale, while seller expects an equivalent value to be
received later on.

3) It implies futurity. The cash payment for goods or serves received by the buyer will be
made by him in a future period.

A company gives trade credit to protect its sales from the competitors and to attract the
potential customers to buy its products at favorable terms. Trade credit creates receivables
or book debts that the company is accepted to collect in the near future. The customers
from who receivables have to be collected are called as “Trade Debtors” receivables
constitute a substantial position of current assets.

Granting credit and crediting debtors, amounts to the blocking of the company’s funds. The
interval between the date of sale and the date of payment has to be financed out of working
capital as substantial amounts are tied up in trade debtors. It needs careful analysis and
proper management.

In KNPL, they are selling the goods on cash basis and also on credit basis.

18
1.9. Consequences of Under Assessment of Working Capital:
· Growth may be stunted. It may become difficult for the enterprise to undertake
profitable projects due to non-availability of working capital.
· Implementation of operating plans may become difficult and consequently the
profit goals may not be achieved.
· Cash crisis may emerge due to paucity of working funds.
· Optimum capacity utilization of fixed assets may not be achieved due to non-
availability of the working capital.
· The business may fail to honor its commitment in time, thereby adversely affecting
its credibility. This situation may lead to business closure.
· The business may be compelled to buy raw materials on credit and sell finished
goods on cash. In the process it may end up with increasing cost of purchases and
reducing selling prices by offering discounts. Both these situations would affect
profitability adversely.
· Non-availability of stocks due to non-availability of funds may result in production
stoppage.
· While underassessment of working capital has disastrous implications on business,
over assessment of working capital also have its own dangers.

1.10. Consequences of Over Assessment of Working Capital:

· Excess of working capital may result in unnecessary accumulation of inventories.
· It may lead to offer too liberal credit terms to buyers and very poor recovery system
and cash management.
· It may make management complacent leading to its inefficiency.
· Over-investment in working capital makes capital less productive and may reduce
return on investment.
Working capital is very essential for success of a business and, therefore, needs
efficient management and control. Each of the components of the working capital
needs proper management to optimize profit.

19
1.11. Tips for Managing Working Capital:

If your small business is facing frequent cash flow problems or you always seem to be
getting behind on paying back loans and debts to different creditors, it may be time to
implements some better techniques for managing your working capital. How you manage
your working capital as a small business owner directly affects your operational cash flow
and eventually, your profits. If you don't have an effective system in place for managing
accounts receivable, accounts payable, and inventory, you'll run into cash flow problems
quarter after quarter.

Here are some essential tips for managing your working capital:

1.12. Avoid extending too much credit. If you are too lenient with your payment terms
for invoices, you'll find it incredibly difficult to sustain a healthy cash flow in the
long run. Make sure that you perform a simple business credit check before
granting customers any type of credit, and tighten up your terms of payment so that
invoices get paid within a reasonable amount of time.
1.13. Don't become dependent on a single customer for business. Don't focus all of
your efforts on sustaining a relationship with just a single, or a handful, of

20
 customers. Become more reliant on frequent purchases from a large portfolio of
customers instead. This will help you grow your business quickly and can also
prevent many cash flow and credit problems.
1.14. Pay suppliers on time, every time. If you don't have positive relationships with
your suppliers, they may end up halting delivery of inventory and essential supplies
you need to keep business operations running smoothly. Make paying your
suppliers a priority by adopting some sound accounts payable practices and keeping
track of your invoices.
1.15. Take inventory regularly. Having too much inventory or finding yourself in a
situation with an inventory shortage can affect business operations and eventually
hurt your profits. Make sure you're performing thorough inventory checks regularly
and have a system in place to ensure inventory keeps moving.
1.16. Take advantage of quantity discounts. If you purchase certain items in bulk or
make large purchases from a single supplier on a regular basis, inquire about
quantity discounts and negotiate terms so that you can get a discount for making
payment early. Depending on the nature of your business, these types of discounts
can help to offset some operational costs and help you better manage working
capital.

Adopting some sound business practices and learning how to manage your accounts
receivable, accounts payable, and inventory can have an impact on your business's cash
flow situation. Use the tips above to better manage your working capital and improve
overall business operations.

21
 Chapter - 2
Company Profile
2.1 Company description
2.2 About Ner olac & Kansai
2.3 The Kansai Nerolac Thimeline
2.4 Code of C onduct
2.5 Corporate Values
2.6 Manageme nt & Key People
2.6.1 Boar d of Directors
2.6.2 Key People
2.7 Product
2.8 Company Analysis

-Company Profile of Kansai Nerolac Paints Limited-

Kansai Nerolac P aints Limited is situated at Pirangut Roa d, near Manas Lake,
Bhukum, Pune – 08 it is started from 1920 as Gahagan Paints an d Varnish Co. Ltd. In
2006 the name of the company has been changed to Kansai Nerol ac Paints Ltd. Now the
company is a second largest coating company in India. Dr. J amshed Jiji Irani is a
Chairman and Mr.Devendra Motilal Kothari is a Vice-Chairman of the company and
Mr.Harishchandra Me ghraj Bharuka are working as a Managin g Director in Kansai
Nerolac Paints Limite d.

22
 2.1. Company Description:

"Kansai Nerolac has been a cherished name in millions of households across the length and
breadth of India. The company manufactures a diversified range of products for every
surface. It is the second largest coating company in India and the market leader in
automotive and powder coating. Nerolac paints as it is known popularly are an established
brand in decorative paints.

It is a global leader in innovation and is known best for its product innovation, R&D and
sensitivity towards.

2.2. About Nerolac & Kansai

Kansai Nerolac: The story till date.

What has made Kansai Nerolac the second largest paint company in India?

It could be their product innovations, cutting-edge R&D, state-of-the-art solutions or their

sensitivity towards the environment. Or it could be something that's a lot simpler, like their
immense curiosity and unwavering belief in constant innovation.

As a result, today, Kansai Nerolac is the second largest coating company in India and a
market leader in Industrial Coatings.

2.3. The Kansai Nerolac Timeline:

· 1920: they started their journey as Gahagan Paints and Varnish Co. Ltd at Lower
Parel in Mumbai.
· 1957: Goodlass Wall Pvt. Ltd grew popular as Goodlass Nerolac Paints (Pvt) Ltd.
Also, it went public in the same year and established itself as Goodlass Nerolac
Paints Ltd.
· 1976: Goodlass Nerolac Paints Ltd. became a part of the Tata Forbes Group on
acquisition of a part of the foreign shareholdings by Forbes Gokak.

23
 · 1983: Goodlass Nerolac Paints Ltd. Strengthened itself by entering in technical
collaboration agreements with Kansai Paint Co. Ltd, Japan and Nihon Tokushu
Toryo Co. Ltd, Japan.
· 1999: Kansai Paint Co. Ltd, Japan took over the entire stake of Tata Forbes group
and thus GNP became wholly owned subsidiary of Kansai Paint Company Ltd.
th
· 2006: On the 11 of July, Goodlass Paints Ltd. name has been changed to Kansai
Nerolac Paints Ltd.

2.4. Code of Conduct:

The Board of Directors of Kansai Nerolac Paints Limited has adopted the following
Code of Conduct for the Board of Directors and senior management of the Company. For
the purpose of this Code, the term “se nior management” shall mean personnel of the
Company who are members of its core management team excluding Board of Directors.
This would comprise all members of management one level below the executive directors,
including all functional heads.

The Code has been adopted, effective the 31st day of December 2005.

This code should be read in conjunction with the “c ode of conduct for managerial
and executive staff”, the “code of conduct for prev ention of insider trading and code of
corporate disclosure practices” and the “policy on appropriate social conduct at workplace”
and such other policies / codes that the company may from time to time formulate in
pursuit of its commitment to the core values of integrity and honesty

The company shall always strive to maintain the highest standards of conduct in all
its Endeavour’s. The Company Directors and senior managers have a responsibility to lead
by example, acting with truth, sincerity and fairness in all decisions.

The Code is intended to serve as a source of guiding principles for directors and
senior managers. This Code cannot be expected to address every expectation or condition
regarding proper and ethical business conduct. Each Director and senior manager is
expected to comply with the letter and spirit of this code using good common sense and
professional ethics as the best guide.
24
Goodlass Nerolac Paints Ltd.(GNPL), the Indian subsidiary of Japan based Kansai Paint
Co. Ltd, is the second largest paint company in India with presence in decorative paints as
well as industrial paints & marine paints, enamels, varnishes, coatings, resins etc. It is the
second largest coating company in India. The company markets its products under the
brand names Nerolac, Glossolite, Goody, Allscapes, Excel, in decoratives.

Origin & Evolution of Nerolac:

It is the second largest coating company in India and market leader in Industrial
Coatings. It’s Industrial Coatings it has a wide range of products in the Automotive,
Powder, General Industrial and High performance Coatings space. Nerolac paints, as it are
popularly known, is an established brand in decorative paints.

Kansai Nerolac Paints Ltd is a subsidiary of Japan based Kansai Paint Company
Limited, which is one of the top ten coating companies in the world. The technological
edge of Kansai helps us constantly innovate and come up with products that meet
consumer need gaps. Kansai Nerolac has always believed that the key to its business is:

o Technology
o Research & Development
o Innovations

25
 2.5. Corporate Values

Vision, Values and Culture

Responsive
Innovation
Team Orientation
Entrepreneurial
Simplicity

These are the values that form the foundation of their business and provide the blueprint
that sets us in the right direction, each time.

In today's dynamic business environment, no organization can afford to survive without a

thoughtful vision, a dynamic set of guidelines and the ability to leverage global technology,
as and when needed.

Hence, we make it a point to ensure that all their ventures consciously internalize these
values in every business transaction.

2.6. Management & Key People:-

The people who make the company are its real assets.

At Kansai Nerolac, we stand by this. The success of Kansai Nerolac has hinged on this
philosophy since 1920, and being the second largest paint company in India is the rightful
tribute to its people's commitment and dedication.

With employee strength of around 2000 spread over the country and an efficient
management, the company provides the conducive work atmosphere to develop and grow.
Their team of Ph.D's, engineers and technicians visit collaborator's plants abroad to
update themselves with the latest techniques.

26
 2.6.1. Board Of Directors:

· Dr. Jamshed Jiji Irani

Chairman
· Mr.Devendra Motilal Kothari
Vice-Chairman
· Mr.Harishchandra Meghraj Bharuka
Managing Director
· Mr. Pradip Panalal Shah
· Mr. Noel Naval Tata
· Mr. Pravin Digambar Chaudhari
Wholetime Director
· Mr. Yoshikazu Takahashi
· Mr. Hitoshi Nishibayashi

2.6.2. Key People:

The people who make the company are its real assets.The success of Kansai Nerolac has
hinged on this philosophy since 1920.

· Mr H.M. Bharuka
Managing Director
· Mr Pravin Chaudhari
Executive Director - Industrial Coatings Division & Supply Chain
· Mr. Anuj Jain
Director - Decorative
· Mr. Junichi Kazima
Director - QA (Quality Assurance) & QC (Quality Control)
· Mr. Abhijit Natoo
Vice President - Supply Chain
· Mr. Jason Gonsalves
Vice President - Corporate Planning, Strategy & IT

27
· Mr. Mahesh Mehrotra
Vice President - Technical
· Mr. Prashant Pai
Vice President - Finance
· Mr. Shrikant Dikhale
Vice President - Human Resources
· Mr. Sudhir R ane
Vice President - Industrial Coatings

2.7. Product :
1) Decorative:
Colours, textur es & patterns, all unique and exquisite. Team these up with the fact
that they're als o absolutely chemica -free and you get the p erfect home. After all, a
splash of col our can make a world of difference.

28
2) Automotive Coatings:
Automotive C oatings is an industry that's highly specialized, technical and has
diverse requirements. Therefore, Nerolac ensures that all its products are developed
after intense research and withstand repeated tr bulations and extreme conditions
wit hout suffering any damage whatsoever.

3) Performance Coatings:
Performance c oatings are available for a wide range of purposes. Be it household
appliances or metal fittings in factories, we offer a comprehensive range of general
industrial coating systems. For customers who expect higher quality and
durability, the finishing processes offered by us, such as po wder coating, provide
them with just that.

29
Quality:-

It is the philosophy of Kansai Nerolac Paints Ltd. , and its associates to

achieve complete cu stomer satisfaction by providing produc ts and services that
consistently meet or exceed the customer needs and expectatio ns, pursuant to agreed
specifications, deliver y schedules and competitive prices. It is the philosophy of the
company to system atically operate its manufacturing fa cilities by inculcating commitment
to total q uality management at all levels and on a c ontinuous basis with a view to
achieving “ First Time Right” results in man ufactur e, services and other operations.

In continuation of the ir efforts to achieve highest Quality standar ds the Kansai Nerolac
Paints Ltd have successfully implemented various Quality Managements Systems in our
organization. All man ufacturing locations of KNPL have been certified for ISO 9001-2008
Being major Industrial paint manufacturer & supplier to OEM customers KNPL has also
implemented QMS as specified by ISO/TS 1 6949 standard .Their

30
industrial paint manufacturing locations are certified for ISO/TS 16949 -2009 The
Japanese 5-S and TPM (total productive maintenance) concepts have been implemented in
organization.

2.8. Company Analysis:

According to the individual - Audited financial statement for the Year 2012-13, total net
operating revenues increased 9.45%, from INR 2624.84 cr. to INR 2872.94. The net
income of the period increased 35.34% reaching INR 292.17 cr. at the end of the period
against INR 215.88 last year. The Return on Asset (Net income / Total Asset) went from
12.71% to 14.17% and the Net Profit Margin (Net Income/Net Sales) went from 8.35% to
10.29% when compared to the same period last year. The Debt to Equity Ratio (Dept
Capital/Equity) was 0.11% same as compared to 0.11% the previous year. Finally, the
Current Ratio (Current Assets/Current Liabilities) went from 1.99 to 1.69 when compared
to the previous year.

31
 Chapter - 3
Research Methodology
3.1 Introduction of the Study
3.2 Objective of the Study
3.3 Scope of the Study
3.4 Importance / Significance of Project
3.5 Source of Research Data
3.5.1 Primary Data
3.5.2 Secondary Data
3.6 Limitation of Study
3.7 Tools Used For Analysis of Data

Research methodology is a way to systematically solve the research problem. It

May be understood as a science of studying now research is done systematically. In that
various steps, those are generally adopted by a researcher in studying his problem along
with the logic behind them.

“The procedures by which the researcher goes about their work of describing,
explaining and predicting phenomenon are called methodology”.

32
 3.1. Introduction of the Study:

Working capital signifies (show) funds required for day to day business operation of
the organization. Working capital management refers to the administration of all aspects of
current assets and current liabilities. It refers to the firm’s investment in current assets. It is
defined as excess of current assets over current liabilities. Working capital management
plays a vital role in any organization and one should have a thorough knowledge about the
working capital position.

In view of this context, I have undertaken this study and it would be a great advantage
to the company also to know its working capital.

3.2. Objective of the Study:

To know the requirement of working capital.

To study various working capital management polices
To study the arrangement of working capital
To find out different ratios related with working capital

3.3. Scope of the Study:

The scope of the study is to study of working capital position of the company. The study
is limited up to Kansai Nerolac Paints Limited only. Further the study is based on last 5 years
Annual report of Kansai Nerolac Paints Limited. The main scope of the study was get
knowledge of various methods of working capital management, effective tools for credit
policies & the components which is effecting in working capital. The study of working
capital is based on tools like Ratio Analysis, Statement of changes in working
capital.

33
 3.4. Importance / Significance of Project:

There are numerous aspects of working capital management that makes it an

important topic for the study.

The management of assets in any organization is an essential part of overall

management. The enterprise, 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 remains more or less static but the working
capital is constantly changing. A healthy working capital position is the end result 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.

3.5. Source of Research Data:

There are mainly two sources which the data required for the research is collected.

3.5.1. Primary Data:

The primary data is that data, which is collected fresh or first hand, and for first
time which is original in nature. Most of the information will be gathered through primary
sources. The methods that will be used to collect primary data are:

a) Interview (with financial manager)

3.5.2. Secondary Data :

The secondary data are those, which have already collected and stored.
Secondary data easily get those secondary data from records, annual reports of the
company etc. It will save the time, money and efforts to collect the data.

34
Secondary data are collected from:

1) Annual report of company (The major source of data for this project was collected
through annual reports & profit and loss account of last 5 year period from 2008-
2009 to 2012-2013)
2) Reference books of various author in financial management
3) Syllabus books of ICWAI in financial accounting
4) Some more information collected from internet, visiting various website.

3.6. Limitation of Study:

The entire financial position of the company cannot be disclosed.
Department heads were busy so time for interaction was less.
The study will be based on five annual reports only. The information from annual
reports is insufficient to calculate few ratios.

3.7. Tools Used For Analysis of Data:

The data were analyzed by using the following financial tools:

¨ Ratio Analysis

¨ Statement of Changes in Working Capital

35
 Chapter - 4
Data Analysis and Interpretation
4.1 Net Working Capital
4.2 Statement Showing Changes in Working Capital
4.3 Ratio Analysis
4.3.1 Liquidity Ratio
4.3.2 Turnover Ratio

4.1. Net Working Capital:

An analysis of the net working capital will be very help full for knowing the
operational efficiency of the company. The following table provides the data relating to the
net working capital of KNPL

Net Working Capital = Current Assets – Current Liab ilities

Table 4.1: Table Showing Net Working Capital

Year Current Assets Current Liabilities Net Working Capital

2008-2009 49807.77 32808.36 16999.41
2009-2010 56198.61 39799.85 16398.76
2010-2011 70428.45 47265.12 23163.33
2011-2012 104245.20 52277.80 51967.40
2012-2013 107193.10 63417.50 43775.60
36
 60000
50000

40000
Amount in Lacs
30000

20000

10000 Net Working

Capital
0
2008-09 2009-10 2010-11 2011-12 2012-2013
Year

Graph 4.1: Net Working Capital

Interpretation:

The above table No. 4.1 and graph No. 4.1 reveals that the net working capital of
the company during the period of 2008-2009 to 2012-2013 during the year 2008-09 the
company has Rs. 16999.41 lacs NWC which is decrease in FY 2009-10 up to Rs. 16398.76
lacs. In the year 2010-11 the company has Rs. 23163.33 lacs NWC. The NWC of the
company is increasing compared to the previous years. In the year 2011-12 the company
NWC raised up to Rs. 51967.40 which is show the big increases in NWC. In the FY 2012-
13 the NWC is again decrease up to Rs. 43775.60.

The above analysis reveals that company has sufficient working capital to meets its
short term liability, it is good indicator for the company but in 2012, working capital is
increased by 51967.40 lacs which shows that a sufficient amount has been blocked in
working capital which could be used for some other more beneficial purpose.

37
 4.2. Statement Showing Changes in Working Capital:

The purpose of preparing this statement is for finding out the increase or decrease
in working capital and to make a comparison between two financial years.

Table 4.2: Statement Showing Changes in Working Capital for the Year 2009-2010

Particular Year Changes

2009 2010 Increase Decrease
Current Assets:
Inventories 17063.39 24744.44 7681.05
Sundry Debtors 20957.29 23236.62 2279.33
Cash & Bank Balance 7616.39 4108.25 3508.14
Loans and Advances 4170.70 4109.30 61.40
Total Current Assets 49807.77 56198.61
Less Current Liabilities:
Liabilities 24423.49 30432.44 6008.95
Provisions 8384.87 9367.41 982.54
Net Working Capital 16999.41 16398.76
Increase / Decrease in Working Capital 600.65 600.65
Total 16999.41 16999.41 10561.03 10561.03

Interpretation:

The above table No. 4.2 reveals that the decrease in the working capital for the year
2009-2010. It is mainly because decrease in cash and bank balance and increase in
liabilities The end result of the statement of changes in working capital after comparing all
the increases and decreases is the net decrease in the amount of working capital. The above
table focuses on the fact that the decrease in working capital is Rs.600.65 lacs.

38
 Table 4.3: Statement Showing Changes in Working Capital for the Year 2010-2011

Particular Year Changes

2010 2011 Increase Decrease
Current Assets:

Inventories 24744.44 35410.25 10665.81

Sundry Debtors 23236.62 26025.99 2789.37
Cash & Bank Balance 4108.25 3969.06 139.19
Loans and Advances 4109.30 5023.15 913.85
Total Current Assets 56198.61 70428.45
Less Current Liabilities:
Liabilities 30432.44 36354.37 5921.93
Provisions 9367.41 10910.75 1543.34
Net Working Capital 16398.76 23163.33
Increase / Decrease in Working Capital 6764.57 6764.57
Total 23163.33 23163.33 14369.03 14369.03

Interpretation:

The above table No. 4.3 reveals that the increase in the working capital for the year
2010-2011. It is seen that during the year 2011 net working capital is increase by Rs.
6764.57 lacs compare to previous year. All the current assets except cash and bank balance
have increased in year 2011 as compared to year 2010 . The end result of the statement of
changes in working capital after comparing all the increases and decreases is the net
increase in the amount of working capital is Rs. 6764.57 lacs.

39
 Table 4.4: Statement Showing Changes in Working Capital for the Year 2011-2012

Particular Year Changes

2011 2012 Increase Decrease
Current Assets:

Inventories 35410.25 45371.00 9960.75

Sundry Debtors 26025.99 35883.40 9857.41
Cash & Bank Balance 3969.06 5917.70 1948.64
Loans, Advances & Other Current A. 5023.15 3113.90 1909.25
Current Investment 13959.20 13959.20
Total Current Assets 70428.45 104245.20
Less Current Liabilities:
Liabilities 36354.37 44960.90 8606.53
Provisions 10910.75 7316.90 3593.85
Net Working Capital 23163.33 51967.40
Increase / Decrease in Working Capital 28804.07 28804.07
Total 51967.40 51967.40 39319.8539319.85

Interpretation:

The above table No. 4.4 reveals that the huge increase in the working capital for the
year 2011-2012. All the current assets except loans and advances have increased in year
2012 current liabilities is also increase by Rs. 8606.53 lacs but provisions are decrease by
Rs. 3593.85 lacs. The end result of the statement of changes in working capital after
comparing all the increases and decreases is the net increase in the amount of working
capital was Rs. 28804.07 lacs. It indicates an adequate working capital in Kansai Nerolac
Paint Limited.

40
 Table 4.5: Statement Showing Changes in Working Capital for the Year 2012-2013

Particular Year Changes

2012 2013 Increase Decrease
Current Assets:

Inventories 45371.00 53407.30 8036.30

Sundry Debtors 35883.40 41998.90 6115.50
Cash & Bank Balance 5917.70 6006.60 88.90
Current Investment 13959.20 1250.40 12708.80
Loans and Advances 1274.60 1929.80 655.20
Other Current Assets 1839.93 2600.10 760.17
Total Current Assets 104245.20 107193.10
Less Current Liabilities:
Trade Payables 35423.70 38934.20 3510.50
Other Current Liabilities 9537.20 16482.90 6945.70
Short-term Provisions 7316.90 8000.40 683.50

Net Working Capital 51967.40 43775.60

Increase / Decrease in Working Capital 8191.80 8191.80
Total 51967.40 51967.40 23848.25 23848.25

Interpretation:

The above table No. 4.5 reveals that that the changes in working capital in the year
2012-13 it shows that the all current assets and current liabilities are increase except
current investment. Current investments are decrease by Rs. 12708.80. The end result of
the statement of changes in working capital after comparing all the increases and decreases
is the net decrease in the amount of working capital of Rs. 8191.80 lacs. It is indicated that
excess amount in current investment is invested in some other more beneficial purpose.

41
 4.3. Ratio Analysis:

Introduction:

Ratio Analysis is a powerful tool of financial analysis. Alexander Hall first

presented it in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison
of one figure against other, which makes a ratio and the appraisal of the ratios to make
proper analysis about the strengths and weakness of the firm’s operations. The term ratio
refers to the numerical or quantitative relationship between two accounting figures. Ratio
analysis of financial statements stands for the process of determining and presenting the
relationship of items and group of items in the statements.

Note: I have used the ratio analysis in this project in order to substantiate the managing of
working capital. For this, I used some of the ratios to get the required output.

4.3.1. Liquidity Ratio:

Liquidity refers to the ability of a firm to meet its current obligations as and when
these become due. The short-term obligations are met by realizing amounts from
current, floating or circulating assets.

Following are the ratios which are frequently used in measuring the shot-term
liquidity of a firm and it can help to assess the ability of a firm to meet its current
liabilities.

i) Current Ratio
ii) Acid Test Ratio / Quick Ratio / Liquidity Ratio

42
 i) Current Ratio:

It is a ratio, whic h express the relationship between the total current Assets and current
liabilities. It m easures the firm’s ability to meet its current liabilities. It indicates the
availability of current assets in rupees for every one rupee of current liabilities. A ratio of
greater than one means that the firm has more curre nt assets than current liabilities claims
again st them. A standard ratio between them is 2 :1. (i.e., every current liability of Re. 1
should be backed by current assets of Rs. 2)

Current Assets
Current Ratio =
Current Liabilities

Table 4.6: Table Showing Current Ratio

Year C urrent Assets Current Liabilities Current Ratio

2008-2009 49807.77 32808.36 1.52
2009-2010 56198.61 39799.85 1.41
2010-2011 70428.45 47265.12 1.49
2011-2012 104245.20 52277.80 1.99
2012-2013 107193.10 63417.50 1.69

2.00

Current Ratio 1.50

1.00
Current Ratio
0.50

0.00
200 -09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.2: Current Ratio

43
 Interpretation:

The above table No. 4.6 and graph No. 4.2 1 reveals that the current ratio of the
company. This ratio reflects the financial stability of the company. The above table analysis
reveals that during the year 2008-09 the current ratio was 1.52, during the year 2009-10 it
was 1.41 and in the year 2010-11 it was 1.49. This shows the current ratio decrease every
year but in the year 2011-12 the current ratio goes up to 1.99 due to increase in current
assets. In the year 2012-13 the current ratio was dropped to 1.69 only because of increase
in current liabilities. If we see all year ratio it is seen that the current ratio is always below
the standard ratio i.e., 2:1.
Hence it is necessary to improve current assets and decrease current liabilities.

ii) Acid Test Ratio / Quick Ratio / Liquidity Ratio:

This ratio establishes a relationship between quick/liquid assets and current

liabilities. It measures the firms’ capacity to pay off current obligations immediately.
An asset is liquid if it can be converted in to cash immediately without a loss of value;
Inventories are considered to be less liquid, because inventories normally require some
time for realizing into cash. This ratio is also known as acid-test ratio. The standard
quick ratio is 1:1 is considered satisfactory.

Quick Assets (Current Assets – Inventory)

Quick Ratio =
Current Liabilities

Table 4.7: Table Showing Quick Ratio

Year Quick Assets Current Liabilities Quick Ratio

2008-2009 32744.38 32808.36 1.00
2009-2010 31454.17 39799.85 0.79
2010-2011 35018.20 47265.12 0.74
2011-2012 58904.20 52277.80 1.13
2012-2013 53785.80 63417.50 0.85
44
 1.20
1.00
Ratio

0.80

0.60
Quick

0.40 Quick Ratio

0.20

0.00

2008-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.3: Quick Ratio

Interpretation:

The above table No. 4.7 and graph No. 4.3 1 reveals that d uring the year 2008-09
the quick ratio was 1.0 0 this means company maintains satisfactory quick ratio, But in the
year 2009-10 it is decrease up to 0.79 and in 2010-11 it was again decrease up to 0.74 It is
to be said that it does not meet with the standard. In the year 2 011-12 it is gone up to 1.13
it shows durin g the year 2011-12 the liquidity positio n of the company is satisfactory but
it is ag ain decrease in year 2012-13 and close to the 0.85.
There for it ca n be said that its liquidity position is not good and stable.

45
 4.3.2. Turnover Ratio:

Activity / Turnover Ratios are a set of financial ratios used to measure the
efficiency of various operations of a business. Activity ratios measure the efficiency
of the firm in using its resources / assets. These ratios are also known as Asset
Management Ratios because these ratios indicate the efficiency with which the assets
of the firm are managed / utilized. These are the ratios which indicate the speed with
which assets are converted or turned over into sales.

Following are the ratios which help in management of working capital.

i) Inventory Turnover Ratio.

ii) Debtors/ Accounts receivables Turnover Ratio.
iii) Creditors/Accounts Payables Turnover Ratio.
iv) Working Capital Turnover Ratio.

i) Inventory Turnover Ratio:

a) In Times:

Inventory turnover ratio indicates how many times inventory is sold and
replaced in a financial year. In other words, the ratio gives the frequency of
conversion of inventory into cash in a given financial year. Normally, higher ratio is
considered good as it suggests better inventory management.

Net Sales
Inventory Turnover Ratio =
Average Inventory

46
 Tabl e 4.8: Table Showing Inventory Turnover Ratio

Year Net Sales Average Inventory Inve ntory Turnover Ratio

2008-2009 137451.92 17202.25 7.99 Times
2009-2010 170638.36 22403.92 7.62 Times
2010-2011 213873.02 30077.35 7.11 Times
2011-2012 258587.90 40390.65 6.40 Times
2012-2013 283950.90 49389.15 5.75 Times

8.00
Inventory
Turnover Ratio
6.00

4.00

2.00
Inventory
Turnover Ratio
0.00
2008-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.4: Inventory Turnover Ratio

Interpretation:

The above table No. 4 .8 and graph No.4.4 reveal that the Inventory Turnover Ratio
in company from 20 08-09 to 2012-13. The Inventory Turnover Ratio was 7.99 times
in the year 20 08-09. It decreases in 2009-10 to 7.62 tim es. There was a subsequent
decrease i n the year 2010-11, 2011-12 and 2012-13 to 7.11 times, 6.10 times and
5.75 times respectively.

47
 It is shows that the Inventory Turnover Ratio is decrease in every year during
the study period. It is indicated that the sale of the company slowing down and the
company have high stock level.

b) In Days / (Inventory Holding Period):

This period measures the average time taken for clearing the stocks. It indicates
that how many days’ inventories take to convert from raw material to finished goods.

Days in Year
Inventory Holding Period =
Inventory Turnover Ratio

Table 4.9: Table Showing Inventory Holding Period

Year Days in Year Inventory Turnover Ratio Inventory Holding Period

2008-2009 365 7.99 Times 45.68 Days
2009-2010 365 7.62 Times 47.90 Days
2010-2011 365 7.11 Times 51.34 Days
2011-2012 365 6.40 Times 57.03 Days
2012-2013 365 5.75 Times 63.48 Days

48
 70.00
60.00

50.00

Period in Days 40.00

30.00

Inventory
20.00 Holding Period
10.00

0.00

2008-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.5: Inventory Holding Period

Interpretation:

The above table No. 4.9 and graph No. 4.5 1 reveals that the I nventory Holding
Period. During the yea r 2008-09 it was 45.68 days. It was increase in the year 2009-
10 up to 47.90 days and 2011-11 up to 51.34 days it was subsequ ently increase in the
year 2011-12 and 2012-13 to 57.03 days and 63.48 days.

It is reveals that the Inventory Holding Period is increase in eve ry year. It means
investment in inventor y increases and funds are blocked in the inventory. There for
increase in sales and decrease in Inventory is necessary for good health of the
company.

ii) Debtors / Accounts receivables Turnover Ratio:

a) In Times:

The receivable tur nover ratio (Debtors turnover ratio) indicates the velocity of a
company's debt collec tion, the number of times average receivable s are turned over
during a year. This ra tio determines how quickly a company collects outstanding
cash balances from its customers during an accounting period. It is an important

49
 indicator of a company's financial and operational performance an d can be used to
determine if a company is having difficulties collecting sales made on credit.

Net Sales
Debtors Turnover Ratio =
Debtors

Tabl e 4.10: Table Showing Debtors Turnover Ratio

Year Net Sales Debtors Debtors Turnover Ratio

2008-2009 137451.92 20957.29 6.56 Times
2009-2010 170638.36 23236.62 7.34 Times
2010-2011 213873.02 26025.99 8.22 Times
2011-2012 258587.90 35883.40 7.21 Times
2012-2013 283950.90 41998.90 6.76 Times

10.00

Debtors 8.00
Turnover
Ratio 6.00

4.00

2.00 Debtors Turnover

Ratio
0.00
2008-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.6: Debtors Turnover Ratio

50
Interpretation:

The above table No. 4.10 and graph No. 4.6 reveals that the Debtors Turnover
Ratio fluctuating over the years. It was 6.56 times in the year 2008-09 it increase to
7.34 times in the year 2009-10 it again increase in the year 2010-11 to 8.22 times but
it was decrease in the year 2011-12 to 7.21 times and during the year 2012-13 to 6.36
times.

This shows the company is collecting debt quickly. It is good indicator for the
company.

b) In Days / (Debtors Collection Period):

The term Debtor Collection Period indicates the average time taken to collect
trade debts. In other words, a reducing period of time is an indicator of increasing
efficiency. 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.

Days in Year
Debtors Collection Period =
Debtors Turnover Ratio

Table 4.11: Table Showing Debtors Collection Period

Year Days in Year Debtors Turnover Ratio Debtors Collection Period

2008-2009 365 6.56 Times 55.64 Days
2009-2010 365 7.34 Times 49.73 Days
2010-2011 365 8.22 Times 44.40 Days
2011-2012 365 7.21 Times 50.62 Days
2012-2013 365 6.76 Times 53.99 Days
51
 60.00
50.00
40.00
Period in days
30.00
20.00
Debtors
10.00 Collection
Period
0.00
200 8-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.7: Debtors Collection Period

Interpretation:

The above table No. 4.11 and graph No. 4.7 reveals that during the year 2008-
09 Debtors Collection Period was 55.64 days, which is down in the year 2009-10 to
49.73 days and in the year 2010-11 to 44.40 days. The Debtors Collection Period was
again increase in the year 2011-12 to 20.6 2 days and 53.99 days in the year 2012-13.

This shows ineffic ient credit collection performance, compan y need to control
in debtors and collecte d receivable quickly.

iii) Creditors/Accounts Payables Turnover Ratio:

a) In Times:

Accounts payable turnover is the ratio of net credit purchase s of a business to its
average accounts paya ble during the period. It measures short ter m liquidity of business
since it shows how m any times during a period, an amount equa l to average accounts
payable is paid to supp liers by a business.

52
 Net Purchase
Creditors Turnover Ratio =
Creditors

Table 4.12: Table Showing Creditors Turnover Ratio

Year Net Purchase Average Creditors Creditors Turnover

Ratio

2008-2009 89958.28 23001.12 3.91 Times

2009-2010 107182.23 29404.40 3.65 Times
2010-2011 140024.53 35125.02 3.99 Times
2011-2012 169689.80 35423.70 4.79 Times
2012-2013 189857.40 38934.20 4.88 Times

6.00

Creditors 5.00
Turnover Ratio
4.00

3.00

2.00 Creditors
1.00 Turnover Ratio
0.00

2008-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.8: Creditors Turnover Ratio

53
Interpretation:

The above table No. 4.12 and graph No. 4.8 reveal that the Creditors
Turnover Ratio during the year 2008-09 was 3.91 times that was decrease in the year
2009-10 to 3.65 times. There was a subsequent increase in the year 2010-11 and
2011-12 to 3.99 times and 4.79 times respectively. In the year 2012-13 it was gone up
to 4.88 times.

It shows that company has making prompt payment to the creditors.

b) In Days / (Creditors Payment Period):

The Creditors Payment Period represents the average number of days taken
by the firm to pay the creditors and other bills payables.

Days in Year
Creditors Payment Period =
Creditors Turnover Ratio

Table 4.13: Table Showing Creditors Payment Period

Year Days in Year Creditors Turnover Ratio Creditors Payment Period

2008-2009 365 3.91 Times 93.35 Days
2009-2010 365 3.65 Times 100.00 Days
2010-2011 365 3.99 Times 91.48 Days
2011-2012 365 4.79 Times 76.20 Days
2012-2013 365 4.88 Times 74.80 Days

54
 100.00

80.00
Period in Days
60.00

40.00 Creditors
Payment…
20.00

0.00
200 8-09 2009-10 2010-11 2011-12 2012-13
Year

Graph 4.9: Creditors Payment Period

Interpretation:

The above tab le No. 4.13 and graph No. 4.9 reveal that Creditors Payment
Period changing over the year It was 93.35 days in the year 2008- 09. It increases to
100 days in the year 2009-10. Then after it is decrease in the year 2010-11 to 91.48
days. During the year 2011-12 it was 76.20 days which was gone up to 74.80 days in
the year 2012-13.

It indicates that the company has taken sufficient time for ma king payment to
creditors.

55
 iv) Working Capital Turnover Ratio:

This ratio indicate s the number of times the working capital is turned over in the
course of the year. Th is ratio measures the efficiency with which the working capital is
used by the firm. A h igher ratio indicates efficient utilization of working capital and a low
ratio indicates otherwise. But a very high working capital t urnover is not a good situation
for any firm.

Net Sales
Working Capital Turnover Ratio =
Net Working Capital
Table 4.1 4: Table Showing Working Capital Turno ver Ratio

Year Net Sales Net Working Capital Working Capital Turnover Ratio

2008-2009 13 7451.92 16999.41 8.09 Times

2009-2010 17 0638.36 16398.76 10.41 Times
2010-2011 21 3873.02 23163.33 9.23 Times
2011-2012 25 8587.90 51967.40 8.98 Times
2012-2013 28 3950.90 43775.60 6.49 Times

12.00

10.00

8.00
WCTR
6.00
WCTR
4.00

2.00

0.00
2008-09 2009-10 2010-11 2011-12 2012-13

Year

Graph 4.10: Working Capital Turnover Rat io

56
Interpretation:

The above table No. 4.14 and graph No. 4.10 reveal that working capital
turnover ratio year to year it was 8.09 times in the year 2008-09. During the year
2009-10 that was high 10.41 times there was subsequent decrease in the year 2010-
11, 2011-12 and 2012-13 to 9.23 times, 8.98 times and 6.49 times respectively.

This shows the company is utilizing working capital effectively in first 3 year
then after it is shown that inefficient utilization of working capital.

57
 Chapter - 5
Findings / Conclusions and Suggestions

5.1 Findings
5.2 Conclusions
5.3 Suggestions

5.1. Findings:
Working Capital of the company showing positive working capital during the study
period there was higher working capital Rs. 51967.40 lacs in F.Y. 2011-12.

The company has higher current and quick ratios are i.e., 1.99 times and 1.13 times
respectively in the year 2011-12.

As per current ratio firm is able to pay its current liability

Inventory Turnover Ratio decreasing during the study period.

Debtor’s Turnover Ratio is very high in the 2010-11. In the year 2011-12 it has
decreased up to 7.21 times as compared to 2010-11 and in the last year 2012-13 it
was again decreased up to 6.76 times as compared to 2011-12.

Debtor Collection Period shows poor credit collection performance which

was gone up to 53.99 days in the year 2012-13.

58
 Creditors Turnover Ratio was increase from 2009-10 to 2012-13. It was 3.65 times
in F.Y. 2009-10 and it was shows higher during 2012-13 that is 4.88 times.

The Creditors Payment Period shows that the company has taken sufficient time
from creditors. It was 100 day in 2009-10 which was decrease onwards 2009-10 to
2012-13 and it comes 74.80 days in the year 2012-13.

Working Capital Turnover Ratio this shows the company is utilizing working
capital effectively in first 3 year then after it is shown that inefficient utilization of
working capital.

5.2. Conclusions:

The study on working capital management conducted in Kansai Nerolac Paint

Limited to analyze the working capital position and working capital management police of
the company. The company’s working capital position is analyzed by using the tool of ratio
analysis through annual reports from 2008-09 to 2012-13.

The Current and Quick Ratio of the company is good but there is some need to
increase in that. The inventory turnover ratio has decrease in every year this is not good
sign for the company. The company’s liquidity position is very good it regard to the
investments in current assets there are adequate funds invested in it. Care should be taken
by the company not to make further investments in current assets, as it would block the
funds, which could otherwise be effectively utilized for some productive purpose. On the
whole, the company is moving forward with excellent management.

59
5.3. Suggestions:
Working capital of the company has increasing every year except last year this is
good sign for the company. It has to maintain it further, to run the business long
term.

The current and quick ratios are almost below to the standard requirement. So the
working capital management of the company is not satisfactory. There for improve
in current and quick ratios in necessary.

The company should take precautionary measures for investing and collecting
funds from receivables and to reduce the bad debts.

The company has take most of the time to making payment to the creditors. This is
not good sign for the company. Because it will decrease the Goodwill of the
company in market and also decrease credibility of the company. It has maintained
it further to survive in the market.

The company is utilizing working capital effectively this is good for the company.
But if there is some amount of working capital is invested in some other beneficial
Purpose.

60
 Bibliography
Annexure

-Bibliography-
Books
Sr. Name of the Books Name of the Author Publication
1 Research Methodology C. R. Kothari New Age International

(Methods & Techniques) Publication

2 Financial Management Prof. S. M. Inamdar Everest Publishing House

3 Financial Policy and Bhabatosh Banerjee Eastern Economy Edition

Management Accounting

4 Management Accounting Dr. Mahesh Kulkarni Nirali Prakshan

Dr. Suhas Mahajan

5 Financial Management & -- Directorate of Studies

International Finance ICWAI

Website
1) www.nerolac.com
2) Icwai.org
3) www.slideshare
4) www.google.com
Annexure
Financial Statement
61