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A STUDY 0N WORKING CAPITAL MANAGEMENT OF KERALA AGRO MACHINERY COOPERATION LIMITED, ATHANI Submitted in partial fulfillment of the requirements

for the award of the degree of MASTER OF BUSINESS ADMINISTRATION Mahatma Gandhi University, Kottayam. By HIMA MOHAN (Enroll. No: 08/101/PF/110) Under the Supervision of Ms.Navya A H ST.JOSEPHS COLLEGE, IRINJALAKUDA (M.G.University off-campus study centre) Centre Code-101

School of Distance Education Mahatma Gandhi University Kottayam, Kerala-686560 2008-2010

INTRODUCTION Finance is the crucial factor in the establishment & success of any concern. Operation means Production & Sale. Working capital is the amount of fund used for financing the day to day operation in a business concern such as Raw materials Meeting expenditure on salaries, wages, rents, rates, advertising etc. It is that part of capital and credit which enables an enterprise to start and conduct its operations. The need of working capital arises because receipt and payment of cash are not continuous. Need of current assets arises on account of production and consequent of sales, which will not be converted into cash immediately. Working capital management is a significant function of finance manager and he has to spend a great deal of time on working capital management. To carryout the operations successfully and maximize the return on investment, a proper management of working capital is highly essential... Efficient working capital management requires a careful enquiry into the current assets and current liabilities so as to control and conserve working capital properly, In short, profitability depends largely on the efficient management of working capital. Hence, the study on working capital analysis of KAMCO assumes importance in the present scenario. It is an integral part of the overall corporate management.

Statement of the Problem Working capital is the lifeline of any industry, irrespective of its operations and a neglect of their major aspect can be highly detrimental to the efficiency of an organization. Working capital should be optimum to run the business operations in the most effective manner. The excess or shortage of working capital would be dangerous to any business. The excessive working capital can be dangerous; it result into reducing profits, unnecessary purchasing, accumulation of inventories, chances of theft, waste and losses, excessive debtors, defective credit policy and lesser efficiency in the organization. Inadequate working capital results in difficulty for the firm to exploit favorable market conditions, inefficiencies, increased costs, reduced profit stagnant growth and difficulties to implement operating plans. Effective management and control of various components of working capital is the most important function of financial management. Hence the present study is working capital management and profitability position of KAMCO Ltd.

Objectives of the study To analyze and evaluate working capital management in KAMCO. To understand liquidity and profitability position of KAMCO To assess the effectiveness of inventory of KAMCO To study the relative significance of various sources of financing of working capital To find the working capital requirements of KAMCO To know the history, growth and development of the company. To suggest remedies and recommendations for making necessary improvements in the working capital management of KAMCO.

RESEARCH METHODOLOGY Research Design: The study is descriptive in nature as efforts are taken to describe the various areas of functioning in the management of working capital in KAMCO Ltd. The study is about the description of the state of affairs, as it existed in the past. Sources of data collection:1. Research & analysis are based on the previous 5 years annual report. 2. Expert opinion from in house finance professionals & managers at KAMCO Ltd. 3. Reference to various manuals of finance department of KAMCO Ltd & Company website.

Tools used for analysis For the purpose of analysis of data, various statistical & accounting techniques are used. The accounting techniques include statement of Net working capital , Ratio Analysis , rend Analysis , Cash flow Analysis & Fund flow Analysis. The ratios used in the study:1. Liability ratios 2. Working Capital ratios 3. Efficiency or turnover ratios 4. Leverage ratios 5. Profitability ratios In this study, ratio analysis tries to explain the liquidity, solvency, efficiency and profitability position of KAMCO Ltd. Period of the study:For the purpose of study, date of five financial years that is 2004-2005 to 2008-200- has been taken into consideration. Duration of the study:The study on working capital management has been done for a period of 2 months from 1/12/2009 to 25/1/2010 in KAMCO Ltd.

Scope of the Study: The study was conducted in KAMCO Ltd Athani, Aluva. The study mainly focuses on the working capital investment and profitability analysis of KAMCO. Working capital investment is the lifeblood of a company. Adequate and appropriate working capital financing ensures that a firm has sufficient cash flow to pay its bills as if awaits the full collection of revenue. Working capital is also needed to undertake activities to improve business operations and remain competitive. This study will help them to understand their current working capital position and to improve the man agent of working capital in a better way. This study provides an idea to the public about the liquidity and profitability position of KAMCO Ltd Significance of the Study The working capital management includes efficient handling of current assets as well as current liabilities. Proper management of working capital is almost importance for all corporate houses. It is true that, without proper management of working capital there will be no purchase of raw material, nonfunctioning of production process, no marketing and ultimately no profit. The present study provides an insight into different aspects of working capital management in selected unit of five years period. The study would point out the working capital policies pursued by the company. The study highlights the usage of ratios and statistical techniques that may be used to solve the problems in working capital and to explain the liquidity position of the company.

Limitations of the study Availability of data has been restricted to last five years of annual reports The study was conducted within a short period of the time, because of that time was very limit. So time was the major limiting factor In house data has been very secretive and this shortcoming can be reflected in the analysis The study is based on the published information only. The result of this study is applicable only for this company and is not suited for other companies. Analysis is made only for the post data. So the future variation in all aspects may be affecting the study.

INDUSTRY PROFILE
India is basically an agrarian nation. There are numerous farmers in India who are cultivating in large scale or in small scale. There was not much mechanization in India in the field of agriculture, till recently. Lack of scientific cultivation and mechanization amounted for the low productivity in the country. Farmers depended on manually operated and animal drawn agricultural impellents. Even today they are used extensively. But mow the old methods of cultivation are giving way to new methods though in a slow progression. Mechanization in the field of agriculture increases the productivity and reduces the unit cost of production. It also reduces the time taken for the agricultural operation and removes the drudgery and hazards to the human beings and animals. Adoption of new methods and mechanization in the agricultural field increases the necessity of various agricultural machinery and implements. Tillers and Tractors posses prime positions among the agricultural machineries. Tractors are widely used in the states like Punjab and Bihar, were Zamindari system is still prevailing and the farmers possessing vast areas of land and fields. Tractors are within their reach and they are economical also for them. A power tiller is a reduced vision of tractor. It has got it name form its rotary tilling unit. While tractors are usually used for operations in large holding the tillers are suited to small areas of land so in those places where there are small scale and middle class farmers tillers are more attractive.

Tillers are suitable than the tractors in the hilly areas also. Moreover the tilling and ploughing operations done by tillers are better than those done by tractors. A tiller cost much less than a tractor all this contribute the fact that the demand for tiller is increasing magnificently in the recent days. Multiple crop farming appears most common in Bihar and Kerala. Intercropping is also carried out in coconut gardeners of Kerala. The interspaces are used for cultivation of banana tapioca, vegetables, clove etc and are tilled using power tillers. Land preparation, pumping leveling, spraying etc by means of power tillers has reduced the cost of cultivation. These are not limited to Kerala. This also attribute to the demand of power tillers The tillers production in India is not able to meet the demand in the country. In 1974, there were five tiller manufacturing companies in India, Russia and Chinese tillers also were imported to meet the demand. But these tillers gained no significance in the tiller market of India due to the factors of quality, availability of spare parts etc. Now in India there are a few companies which manufacture power tillers. 1. Kerala, Agro Machinery Corporation Limited
2. V.S.T. Tillers and Tractors Limited Bangalore.

3. Bhoomi tillers, Hyderabad


4. National Engineering Company, Madras.

5. Dogar Tools, Madhya Pradesh. But,of these companies KAMCO & V.S.T Tillers and Tractors are the only two companies which have undertaken significant

production. They both have technical collaboration with Japanese companies. While KAMCO has collaborated with RUBOTA V.S.T has got collaboration

with Mitsubishi of Japan. These two companies have an aggregate 95% of the market share in India in their field. It was expected that the liberalization policy of the government would bring new competition in the tiller market from the foreign counterparts. But this has not happened yet. We can say, without any doubt that the tiller industry in India is in its boom period.

COMPANY PROFILLE History Kerala Agro Machinery Corporation Limited (KAMCO) was

established in year 1973 as la wholly owned subsidiary of Kerala Agro Industries Corporation Ltd. Subsequently KAMCO become a separate Government of Kerala undertaking in 1986 with a paid up to capital of Rs.1.61 Crore. During the initial years, the company had a carry over loss of Rs.2.1 Crores up to March 1984. this was completely wiped off by 1989 and the company is playing dividend to the Government for the last 15 years. KAMCO is an ISO 9001:2000 certified company with the objective of manufacturing small agricultural machines mainly intended for the small and marginal farmers of our country. For the last four decades KAMCO has been meeting the needs and demands of Indian farmers. KAMCO has completed its 39 years and is running on profit for the last 20 years. Continuously increasing its production turnover and profit years after year. The main products of the company are KAMCO Power Tiller, KAMCO Power Reaper and KAMCO Diesel Engine Power tiller is a versatile machine used for primary farming operations like tilling, ploughing, weeding, hulling, leveling, ridging and transporting. etc. water with a great force. KAMCO Power Reaper is a compact small harvesting machine suitable for harvesting paddy, wheat, barley

For the last four decades, KAMCO has been meeting the needs and demand of Indian farmers. The logo of KAMACO is Engineering green Revolution .KAMCO has been successfully engineering the green revolution in India through the manufacture of Indigenously and quality agricultural machineries. KAMCO has established three more units form its internally generated resources. The units are located at: Kalamassery in Ernakulam District Kanjikode in Palakkad District Mala in Thrissur District KAMCO Yesterday Kerala Agro Machinery Corporation Limited (KAIC Ltd) Trivandrum promoted the establishments of Kerala Agro Machinery Corporation Limited (KAMCO). The KAIC Ltd, entered into a technical collaboration agreement with M/S Kubota Limited, Japan in February 1972. On 15/11/1972, the Kerala Industrial and Technical Consultancy organization Limited (KITCO) was entrusted with the work of preparing the project report for the manufacture of Kubota power was incorporated on 24-03-1973 with an authorized capital of Rs.2 crore as a subsidiary of M/S KALC Ltd, which held the entire paid up capital shares in KAMCO. KAMCOs Kalamassery unit was purchased outright from SIDCO during 1990 and converted as a viable Diesel Engine unit. Moreover, KAMCO

absorbed the workers of the sick unit as permanent employees. expansion activity, a new modern compact unit for manufacturing

As

an

power tillers was put up at Kanjikode, Palakkad Dist for a cost of 43Crores during the beginning of 1995. As a part of diversification activity, the company developed a compact small harvesting machine KAMCO Power Reaper and its production is carried out at Mala unit in Thrissur district. The project cost of the unit was 4.278 crores. KAMCO TODAY KAMCO is synonymous with service to the small and marginal farmers of the country. KAMCO through their precision and quality is revolutionizing the small and marginal holdings throughout the country. Today KAMCO Power tiller is the most sought after tiller in India, enjoying over 50% of the market share at national level. The year 1998 was the silver jubilee year of KAMCO. The company with its four plants at Athani, Kalamassery, Kanjikode and Mala unit is confidently meeting the demands for KAMCO products in Indian and abroad.. The main markets for the Power Tiller are in lest Bengal, Assam, Tripura, Meghalaya and Manipur. A major milestone in the achievements of the company is that KAMCO got the international quality Excellence certificate under ISO 9002 in October 1996. KAMCO is the 2nd Public sector undertaking the high standards of the products for their three units. From 15-03-2000 registered company by KPMG quality Registration accredited by the Data council for Certification. Objectives of the Company

The objectives of the company are to manufacture in India, either in collaboration with or otherwise, or import and trade agricultural machinery like Tractors, Power Tiller, Power Reapers Combine Harvester, Transplanted ,m Diesel engines, Pump sets, Implements,

accessories and spares there to. The objective also include establishment of engineering workshops or retail shops to undertake repairs and servicing of agricultural machinery or other machinery, equipment, implements and tools. Activities of the Company KAMCOs manufacturing facilities include special purpose machines, specially built general purpose machines & imported machines. The inspection facilities include modern inspection & testing equipment. KAMCO has their own metrology, calibration & engine test lab. The following are the main activities of the company:
Manufacturing & marketing of agricultural machines like power tillers,

tractors, power reaper, diesel engines etc.


Power tillers produced at Athani & Palakkad units. Major components for

power Tillers are manufactured in Athani & all other components bought out from dedicated vendors in India. There are around 250 vendors now. Kalamassery unit produce engine for Power tillers Power reaper produced at Mala. Trading / manufacturing of their farm machine. MARKETING

The company has 45 dealers all over India.


New dealers are appointed to cover selected districts in Tamilnadu,

Karnataka, Maharashtra, Orrisa & Andra Pradesh Close interaction with the Govt of India in the formulation of new schemes & policies for farm mechanization.
Regular demonstrations & services camps are being organized in

various states.
KAMCO Power Reaper has been exported to lran & Srilanka recently.

Their machines has been well accepted by the customers HUMAN RESOURCES Total employee strength is about 567 persons. Periodical training is being conducted to improve the performance levels of workmen. Mainly management development programmes are conducted for officers. Training programmes are to suit specific requirements based on individual needs. Periodicals assessment of employees performance is carried out after training. DEPARTMENT PROFILE FINANCE DEPARTMENT

KAMCO is a Government undertaking company which produces the products which support the agricultural industry. Both the manufacturing and the sales of the products are done by the company itself. All these activities should

involve careful finance decisions. Al these decisions are taken by the finance department of the company. The finance department is headed by the General Manager (Finance). And the department also involves other accounting and finance staffs. The important finance decisions taken by the department are investment decisions and fund requirement decisions. All the activities in the organization right from the acquisition of raw materials, manufacturing process, warehousing, and distribution all involves finance. So the finance department plays a major role in planning the activities and putting the funds in effective use. The finance department of KAMCO is able to perform all these functions and find out success in all its operations. Now KAMCO has a operating profit of Rs. 95012482 for the year ending March 2008. The important thing is that KAMCO has no loaned funds as liability. From the above details we can understand the efficiency of the finance department of the company.

Functions of Finance Department The account manager looks after the entire function of the company. The finance department is computerized. The major source of fund includes share capital. Reserve & surplus and not include loan fund. The major functions of finance department are

Proper utilization of funds Developing sufficient funds. Budget preparing Pure accounting Increase profitability Taxation etc.

The financial function is stands for full planning control and execution of four activities. The main function of the financial department includes the receipt and payment of cash, settlement of account proper custody and safe guard important and valuable document. The other functions are financial planning, budgeting and also analyzing the companys current performance with past performance and inform their performance to the necessary authority.

KAMCO FINACE DEPARTMENT STRUCTURE MANAGING


DIRECTOR

GENERAL MANAGER

MANAGER COST/AUDIT

DGM FINANCE

DY.MANAGER

DY. MANAGER

ASST.MANAGER COST/AUDIT

ASST. MANAGER ACCOUNT

SUPERINENDENT

SUPERINTENDENT

ACCOUNTANT

ACCOUNTANT

MARKETING DEPARTMENT Marketing of the products is very important; every organization is

having a separate marketing department. KAMCO also has a marketing department functioning in the firm. It is headed by the General Manager. In Indian market KAMCO has the market share of 41.5%. The firm does not make any advertisements for their products; they sell their products through Government agencies of different states. The main competitor of KAMCO is VST Tillers and Tractors. The company has 45 dealers all over India. New dealers appointed to cover selected districts in Tamil Nadu, Karnataka, Maharashtra, Orissa and Andra Pradesh. KAMCO Power Reaper has been exported to Iran and Sri Lanka. These machines have been well accepted by the customers. Close interaction with the Government of India in the formulation of new schemes and policies for farm mechanization. Regular demonstrations and service camps are being organized in various states by the experts. HUMAN RESOURCE DEPARTMENT

Human Resource is the greatest asset of every company. KAMCO has a powerful human resource in its hands. These human resources should be effectively managed in order to get the highest result. Management of these resources is done in a separate department, Human Resource Department. This department is headed by the General Manager (HR).

There are 567 employees working in KAMCO in different departments. The various activities of Human Resource Department are HR planning, selection, training and development, employee health and safety, welfare activities, wages and salary administration, maintain good labor relations,

formulating programs and procedures, maintaining good industrial relations, personnel research and performance appraisal etc. The company gives cordial importance to human resource development activities. Company follow a pre planned training colander covering all areas and the training is imparted with the help of various institutions. Effectiveness of training programs is periodically reviewed for further improvement. The industrial relations in the company are cordial which forms the basis for sustained growth of the organization. The main functions of Human Resource Department in KAMCO are the following 1. levels 2. 3. Periodical training is being conducted to improve the performance of workmen Mainly management development programs conducted for officers Training programs designed to specific requirements based on

individual needs 4. Periodical assessment of employees performance carried out after

training

QUALITY ASSURANCE DEPARTMENT Quality standards for each and every component and product have been

established by the company and well documented; vendors premises and their manufacturing facilities are also periodically accessed. All components are

subjected to close inspections and observations are documented to ensure trace ability at any time. Quality assurance department is equipped with all modern facilities. The company has got a standards celebration of all measuring instruments. Fully documented history cards of measuring instruments are maintained so that periodical celebration of equipments is carried out regularly. The companys policy is to equip itself with all modern inspection and testing equipments in addition to replacement. Each product are subjected to running tests for predetermined duration and only those which pass the requirements are accepted and declared ready for dispatch. Because of these quality standards the company gets ISO 90012000. QUALITY SYSTEMS AND CERTIFICATIONS Quality Systems Well defined quality system procedures adopted covering all activities Improvements are made on regular basis based on the feed back from Regular interactions with all vendors including site visits to maintain KAMCO Power Tiller certified for compliance with the minimum KAMCO Power Reaper has been tested by SRFMT & TI. ISO 9001-2000 Version Improvement in the systems and improved customer or dealer Comply with the requirement of customers and applicable statutory or satisfaction. regulatory requirement. to ensure quality of products and customer satisfaction. the customers and dealers. and improve the acceptance level of components. performance standards of Government of India.

Improvement in the effectiveness of the established quality systems. Addresses customers, dealers, vendor, society, employees and Quality Policy Total customer satisfaction through quality products and services with

shareholders for their requirement and satisfaction.

improved technology and employee participation. Comply with the requirement of customers and the applicable statutory/regulatory requirements. The effectiveness of the established quality management system is continually improved to enable achievement of the policy. Quality Objectives To ensure that the quality requirements of the products and services To create culture among all employees towards total quality concepts To create healthy working environment for the attainment of quality To detect and prevent non conformance and defects as early as possible offered are maintained at all stages. and productivity through total involvement and commitment of all employees. goals with excellence and to make quality a way of life. to eliminate them through appropriate changes to the Quality Management System. To achieve and maintain quality leadership through continuous technology up gradation, improvement in techniques, systems and procedures.

RESEARCH & DEVELOPMENT DEPARTMENT

There is a separate Research and Development Department is functioning in KAMCO. This department conducting research studies on their products according to the needs and expectations of the customers. The research officer is heading the department. In order to improve overall output of the present engine of power tiller, action has been taken to convert the same into direct injection version through

Automotive Research Association of India, Pune. The company had developed various accessories of power tiller like type IV steel wheel suitable for deep fields, Potato Digger and Riding seat. A steel wheel cheaper also had been developed for wetland operations.

PRODUCTION DEPARTMENT Production is department is one of the important department that

functioning at KAMCO Athani unit. Production department is performance its operations under the strict control of General Manager (operations). The department also includes the various section managers and supervisors. The production department of KAMCO ltd mainly includes the following operations Assembling Pretreatment Machine shop

All these functions are carried out for manufacturing the products for the firm The other important departments that are functioning in the organization are the following Maintenance Department Materials Department Purchase Department Stores Department Systems Department

Organization Structure The Board of Directors governs the company. Board of directors

includes chairman, Managing Director and other Directors. The Managing Director is the top most official and the government gives delegation of authority to the managing director as may be entrusted and delegated to him time to time by the Board. The managing director is the operational Head of the company supported by the General manager and the Deputy Officer in decision making. The chief Executive Officer of the company is the Managing director who shall execute his function, subject to the overall control and supervision of the Board. The government of Kerala nominates the Chairman of the Board. The various department of KAMCO are production, maintenance, materials, quality assurance, engineering systems, finance, marketing and human resource management.

The Deputy General Manager (Finance) is also the company secretary. All the financial workers of the company are performing with the help of manager and deputy managers of account department. Senior Manager (research and development) is the head of Quality Assurance Department and Engineering Department. aided design room for engineering section. The Manager (HRM) and training officer carries out the human resource development functions. The General Manager is the Head of production, stores, materials, maintenance, Civil engineering security and human resources management departments, Senior Manager, Manager and Deputy Manager of these functions assist him. Manager (Marketing north Zone) will look after the efforts of the KAMCOs officers regional outside Kerala. and Bhopal. There are seven regional officers for KAMCO at Trichy, Pondichery, Kolkata, Hyderabad, Ranchi He is also the management representative of lSO system. There is a well versed computer

PRODUCTS OF KAMCO LTD KAMCOs Products include:1. KAMCO Power Tiller:KAMCO Power Tiller is a versatile machine primarily used for preparation of land farming operations. It is popularly known as complete farming unit with suitably designed accessories the machine can be used

for a large number of specific operations like tilling, ploughing, weeding, pumping, pudding, leveling, hulling, and ridging etc. Advantages Automatic fuel controls help to save precious fuel Unique radiator cooling system helps in non-stop operation. Simple movements and controls for easy-handling

2. KAMCO Power Reaper KAMCO Power Reaper is ideally suited for harvesting of paddy, wheat, barley, and similar crops. If harvests and makes windrows at the rate of 3-4 hours per hectare. Since the fuel used is Kerosene, cost of operation is the lowest and it helps the farmer to harvest his field at the lowest cost. 3. KAMCO agra garden tiller The petrol- engined small Tiller is eco-friendly Power Tiller ideal for paddy or wheat cultivation, inter-cultivation applications, landscaping or gardening, potato harvesting and for land preparations at horticultural farms. This highly fuel efficient and powerful equipment with easy-tocontrol operations is ideal for small and medium farmers. 4. KAMCO diesel engine

KAMCO diesel engine is a 12 HP single cylinder Horizontal Diesel Engine with automatic fuel control mechanism and radiator cooling, extremely compact and weighing only 140 kg. It has been well received in the market owing to its virtually trouble free performance

REVIEW OF LITERATURE The available literature can be divided into two empirical and conceptual . empirical literature is that which contains studies made earlier and also it consists of many factors and figures observed in the earlier studies. The conceptual literature is one which deals with concepts and theories. EMPIRICAL LITERATURE 1. A study on FINANCIAL EVALUATION THROUGH RATIO ANALLYSIS done by Gouri S Vasrrier at KAMCO Ltd, Aluva during the year 2007-2008 reveals that the company has a satisfactory financial performance in terms of profitability, liquidity, returns and earning per share etc. 2. A study on working capital management done by Vigitha CV at KAMCO Ltd, Aluva during the year 2008-2009 reveals that the company is in a position to pay its current obligations. The company is

effectively utilizing its assets. And the company has a sound financial position. 3. A study on working capital management done by Sandhya at Kerala Solvent extract Limited, Irinjalakuda during the year 2006 reveals that KSE Ltd has sound financial position and is making a steady profit. she also pointed out that with strong commitment to customers and product quality, KSE stands paired to meet new challenges.
4.

A study on working capital management done by LG.B. Prasad and. DR. SC Rastogi, during the year 2005, reveals that the working capital is the same as net current assets, and it is an important part of the firms balance sheet. They pointed out that many business become weaker not

because they were unprofitable, but because they suffered from shortage of working capital. 5. A study on working capital management in Travancore Cochin Chemicals Limited done by Praveen my natty at Udyogmandal during the year 2004-2005 reveals that the company has to keep more current assets in the form of absolute cash so that it will help the company to maintain good liquidity position in the organization. He also reveals that the company does not make prompt payment to creditors. He also point out that the company should take proper steps to reduce working capital turnover cycle. 6. A study on working capital Management of KERALA FEEDS Limited did MARY NITA at Kallettumkara during the year 2005-2006 reveals that Kerala Feeds Limited has a sound financial position and to make a steady profit. The company effectively utilizes its current assets. The companys debt management has improved and the company also makes prompt payment to its creditors. Thus the overall performance of the company is satisfactory.

7. A study on :Analysis of working Capital done by Patel D.M. at color chemicals Limited during the year 2004 reveals that the current and quick ratio gives turnover depicts a bright future that is it indicates that the company is efficiently utilizing its current assets.

CONCEPTUAL LITERATURE
The developing economies generally face the problem of inefficient utilization of resources available to them. Capital is the most scarce and highly valuable productive resource in such economies. The proper utilization of this valuable resource will promote profitability, rate of growth, cut down cost and above all, improve efficiency of productive system. Hence, harnessing and monitoring of capital is of paramount importance to any development policy of institutions. Generally, the entire capital requirement for every organization can be classified into two categories, namely fixed capital and working capital. The management of working capital has largely been ignored, which has resulted in the sub optimal utilization of available resource.

Working Capital

Working capital is the amount of fund used for financing the dayto-day operations in a business concern, such as for purchasing raw materials, meeting expenditure on salaries, wages, rents, rates, advertising etc. Working Capital in simple terms is an amount of funds, which a company must have to finance its day-to-day operations. It is a part of the firms capital, which is required for financing short-term expenses like purchase of raw materials, payment of wages and other day-to-day expenses etc. In other words, working capital refers to that part of total capital, which is used for carrying out the routine or regular business operations. Working capital management is a significant function of financial manager and he has to spend a great deal of time on working capital management. It ensures both profitability and liquidity of an organization. It is an integral part of overall corporate management. Definition of working capital By definition working capital is the excess of current assets over current liabilities from current assets. It provides an index of financial soundness of current creditors and is one of the primary indicators of short run solvency for a business. According to Genestenburg working capital or circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, for example, cash to inventories, inventories to receivables, receivables to cash. In the words of shubin, working capital is the amount of funds necessary to cover the cost of operating the enterprise. Working capital in a

going concern is a revolving fund, it consist of cash receipts from sales which are used to cover the cost of operation. CLASSIFICATION OF WORKING CAPITAL Working capital may be classified in two ways:
(a) On the basis of concept

On the basis of concept, working capital is classified as gross working capital and net working capital.
(b) On the basis of time.

On the basis of time, working capital can be classified into two categories
(1) Permanent or fixed working capital (2) Temporary or variable working capital

DIAGRAM SHOWING TYPES OF WORKING CAPITAL

Kinds of Working capital

On the basis of concept

On the basis of time

Gross working capital

Net working capital

Permanent or fixed working capital

Temporary or variable working capital

Regular working capital

Reserve working capital

Seasonal working capital

Special working capital

CONCEPT OF WORKING CAPITAL There are two concepts of working capital: Gross working capital Net working capital Gross working capital The gross working capital is the capital invested in the total current assets of the enterprise. Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. The gross working capital is also known as circulating capital. Net working capital Net working capital is the difference between current assets and current liabilities. The concept of net working capital represents the volume of current assets to be financed by long-term sources. Though current assets and current liabilities are turned over within relatively shorter period of time, the net balance of current assets is that proportion which is permanently owned by the company. This concept is also useful to the members of accountancy profession, investors, and creditors and other whose task is to judge the liquidity and financial soundness of the business undertaking. The short-term financiers and creditors are interested in knowing the margin of protection available to meet their commitment fully without any loss. It provides a measurement of strength of current assets and is useful for assessing the financial position of the business.

Factors determining the working Capital Requirements


The working capital requirements of a concern depend upon a large number of factors. It is not possible to rank them because all such factors are of different importance and the influence of individual factors changes for a firm over time. However, the following are important factors generally influencing the working capital requirements.

Nature of business. Time consumed in manufacture. Size of the business. Turnover. Terms of trade. Nature and value of the product. Seasonal fluctuation. Fluctuations in supply. Use of manual labour or machines. Growth and expansion of business. Company policies.

METHODS OF ESTIMATING WORKING CAPITAL REQUIREMENTS. Following are the methods generally used in estimating working capital requirement:

Conventional Method According to the conventional method, cash inflows and

outflows are matched with each other. Greater emphasis is laid on current ratio, liquidity ratio, etc, which pertain to the liquidity of a business.

Net current Asset Forecast Method:This is the most practical and widely used method of estimating working capital requirements. Under this method, first of all, value of each current asset is estimated. After this an estimation of current liabilities is made.

Difference between the total estimated amount of current asset and current liabilities gives the net working capital requirement of the firm. To this amount some extra amount (or safety margin) by way of provision for contingency is added. This is generally calculated as a fixed percentage of working capital.

Operating Cycle Method:The operating cycles starts with the purchase of raw material and ends with the realization of cash from the sale of finished products. This cycle involves the purchase of raw materials and stores, its conversion into stock of finished goods through work-in-progress with progressive increment of labour and service costs, conversion of finished goods into sales, debtors and receivables and ultimate realization of cash and this cycle continues again from cash to purchase of raw material and so on.

Percentage of sales Method:It is the traditional and simple method of determining the level of working capital and its components. In this method, the working capital is determined on the basis of the past experience. If over the years, the relationship between the sales and the working capital is found to be stable, then this relationship can be taken as the base for determining the working capital for the future.

Regression Analysis Method:It is a useful statistical technique applied for forecasting working capital requirements. It helps in capital requirement projection after establishing the average relationship between sales and working capital and its various components in the past years. The method of least squares is used in this regard. WORKING CAPITAL MANAGEMENT

Working capital management refers to all aspects of the administration of both current assets and current liabilities. In other words, working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationships that exist between them. The basic objective of working capital management is to manage the firms current assets and current liabilities in such a way that the satisfactory level of working capital is maintained. The current assets should be sufficient enough to cover current liabilities in order to maintain a reasonable safety margin. Moreover, different components of working capital are to be properly balanced. In the absence of such a situation, the financial position in respect of the firms liquidity may not be satisfactory. \ OBJECTIVES OF WORKING CAPITAL MANAGEMENT The basic objectives of working capital management are as follows:

By optimizing the investment in current assets and by reducing the level

of current liabilities, the company can reduce the locking up of funds in working capital thereby it can improve the return on capital employed in the business.

The company should always be in a position to meet its current

obligations, which should be properly supported by the current assets available with the firm. However, maintaining excess funds in working capital means locking of funds without return.

The firm should manage its current assets in such a way that the marginal

return on investment in these assets is not less than the cost of capital employed to finance the current assets.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT The importance of the sound and proper management of working capital may be studied from the following facts:
1.

Near about 50 per cent to 70 per cent capital of a manufacturing

firm is invested in its current assets. In capital budgeting, we consider about fixed investment in very detail that is nearly 30 per cent to 50 per cent of the total funds. Hence the management of current assets should get proper attention of the management.
2.

Fixed assets can be acquired even on lease but there is no

alternative for current assets. There is no way of avoiding the investment in inventory and receivable.
3.

There is a positive correlation between the sales of a firm and its

current assets. With an increase in sales a corresponding increase in current asset is also required. As a result, their proper administration too becomes important.
4.

Working capital requirements are generally financed through

outside sources. So a continuous effort is necessary to utilize them in the best way. Surveys indicate that most of the part of the financial managers time is devoted to the management of current assets and current liabilities.
5.

Working capital management is particularly important for small

firms. A small firm has relatively limited access to the long-term capital markets. Therefore, it must depend heavily on short-term bank loans and trade credit. Working capital is a financial metric which represents the amount of day-to-day operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. For a company to remain solvent, it must be able to meet its current liabilities and thus have an adequate amount of working capital. The amount of working capital considered adequate may vary from

one company to another depending on the type of business, composition of current assets, inventory turnover rate and credit terms.

End Note:
1.

Mary Nita, WORKING CAPITAL MANAGEMENT OF KERALA Ligy V.K, WORKING CAPITAL MANAGEMENT OF SELECTED Roy T.S. and Jain C.M, WORKING CAPITAL MANAGEMENT OF Marc Deloof, DOES WORKING CAPITAL MANAGEMENT
5. Michael J. Peel and Nicholas Wilson, WORKING CAPITAL AND

FEEDS LIMITED, 2005-2006.


2.

AUTOMOBILE COMPANIES IN INDIA, March 2008.


3.

OIL AND GAS CORPORATION, volume 2, no.4, July 2005, pp: 48-52.
4.

AFFECT PROFITABILITY OF BELGIAN FIRMS? November 2001. FINANCIAL MANAGEMENT PRACTICES IN THE SMALL FIRM SECTOR

6.

Sushma Vishnani and Bhupesh Kr. Shah, IMPACT OF WORKING MANAGEMENT POLICIES ON CORPORATE

CAPITAL
7.

PERFORMANCE Sangeetha.T.Varghese, WORKING CAPITAL MANAGEMENT OF Veeto Wilson, WORKING CAPITAL MANAGEMENT OF KERALA Praveen Mynatty, WORKING CAPITAL MANAGEMENT IN Danny Thomas, WORKING CAPITAL MANAGEMENT WITH LYRIL PLASTICS, 2003-2004.
8.

FEEDS LIMITED, 2002-2003.


9.

TRAVANCORE COCHIN CHEMICALS LIMITED, 2004-2005.


10.

SPECIAL REFERENCE TO STAR GROUP OF COMPANIES, September 2008.

DATA ANALYSIS AND INTERPRETATION The analysis and interpretation of financial statement is used to determine the financial position and results of operations as well. A number of methods or devices are used for analysis, fund flow analysis, budgeting etc. In this project, I have used two methods of analysis, such as ratio analysis and trend Analysis.

Statement showing the amount of working capital of KAMCO Ltd

Current Assets Loose tools Inventories Sundry debtors Cash&Bank Other current assets Loans&Advance Total

2005 9.86 1781.91 891.42 2771.42 103.60 648.50 6206.71

2006 7.50 2207.7 8 1025.9 7 2878.7 5 102.87 419.43 6642.3 0

2007 5.35 1948.86 1220.42 3922.46 134.62 316.59 7548.30

2008 3.85 2040.90 1989.42 3525.63 179.39 175.81 7915.00

2009 4.36 2252.04 2616.75 3585.66 198.52 167.74 8825.07

Current Liabilities Current liabilities Provision Total Working capital 725.17 325.38 1050.56 5156.15 836.33 133.08 969.31 5672.9 9 1266.22 81.46 1347.68 6200.62 1019.63 103.17 1122.80 6792.20 1257.03 72.82 1329.85 7495.22

Diagram showing working capital of KAMCO Ltd.

workingcapital
8000 7000 6000 5000 4000 3000 2000 1000 0 2005 2006 2007 2008 2009

RATIO ANALYSIS

Ratio analysis was developed to determine the stability of various financial aspects of business. It shows the relationship between two figures, that is two aspects of our business. The ratio is one of the most powerful tools of financial analysis. It is with the help of ratio that the financial statements can be analyzed more clearly and decisions can be made form such analysis. A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of the mathematical expressions. According to accountants handbook by Wixon Kell and Bedford a ration is an expression of the quantitative relationship between two numbers. The ratios not only help the managerial persons but also the shareholders, creditors, employees, government and for the audit requirement etc. Analysis and interpretation of various accounting ratios gives a skilled and experienced analyst, a better understanding of the financial conditions and performance of the firm that what he could have obtained only through a personal of financial statements. In every firm it is very important to have a proper balance in regard to the liquidity, solvency, efficiency, and profitability. The ratio analysis is helpful to maintain this balance effectively. The ratios are generally classified into:-] 1. Lilquidity ratios 2 Working capital ratios 3 efficiency or Turnover ratios 4 Leverage ratios 5 Profitability ratios

Liquidity Ratios

Liquidity refers to the ability of a concern to meet its current obligations when this becomes due. If the current assets can pay off current liabilities, the liquidity position will be satisfactory. The bankers, suppliers of goods and other short-term creditors are interested in the liquidity position of the concern. The following ratios are used to measure the liquidity of a firm:1. Current ratio 2. Quick ratio or Acid test ratio 3. Absolute liquidity ratio 1 Current Ratio:Current ratio is the most conventional ratio to analyze working capital position of the firm . Current ratio of 2:1 is considered satisfactory but it also depends upon industrys nature, place and custom. It is made more useful for inter-firm comparison of liquidity. Ratio provides a manager of safety to creditors. Current Ratio = Current Assets Current liabilities

Table showing Current ratio of KAMCO Ltd.

Year

Current Assets (Rs..in Lakhs)

Current liabilities

Ratio

2004-05 2005-06 2006-07 2007-08 2008-09

6206.71 6642.30 7548.30 7915.00 8825.08

1050.56 969.31 1347.68 1122.80 1329.85

5.83 6.85 5.60 7.05 6.64

Diagram showing the current ratio of KAMCO Ltd.

Cu r re n t Ratio

8 7 6 5 4 3 2 1 0
20

6.85 5.83 5.6

7.05

6.64 2004-05 2005-06 2006-07 2007-08

Current Ratio

5 04-0

20

6 05-0

20

7 06-0

20

8 07-0

20

9 08-0

Ye ar s

2008-09

Interpretation

The satisfactory level of current ratio is 2:1. The above analysis reveals that the current ratio is much larger than the satisfactory current ratio. indicates that the short term financial position is highly satisfactory. 2. Quick Ratio:This ratio also termed asAcid test ratio or Liquidity ratio . This ratio is ascertained by comparing the liquid assets to current liabilities. Prepaid expenses and stock are not taken as liquid assets. The quick ratio may be defined as the relationship between quick or liquid assets to current or liquid liabilities. It depicts the immediate liquid position of the concern. Generally a ratio of 1:1 is considered satisfactory in quick ratio. This

Quick /liquid assets Quick ratio = Current/liquid liabilities

Table showing quick ratio of KAMCO Ltd. Year 2004-05 2005-06 2006-07 2007-08 2008-09 Quick assets 4424.80 4434.52 5599.44 5874.10 6573.05 Quick liabilities 1050.56 969.31 1347.68 1122.80 1329.85 Ratio 4.21 4.57 4.15 5.23 4.94

Diagram showing the quick ratio of KAMCO Ltd.

Quick Ratio 6 5 Quick Ratio 4 3 2 1 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 Quick Ratio 4.21 4.57 4.15 5.23 4.94

Interpretation The satisfactory level of quick ratio is 1:1. The above analysis revels that the quick ratio for five years is above 1:1. This indicates that the company has a good liquid position

3. Absolute Liquidity Ratio

The absolute liquidity ratio is obtained by dividing cash and marketable securities by current liabilities. It is also called cash position ratio. When liquidity is highly restricted in terms of cash equivalents. This ratio should be calculated. The ideal absolute ratio is taken as 0.5 times. Cash +marketable securities Absolute liquidity ratio = Current liabilities

Table showing Absolute liquidity ratio of KAMCO Ltd. Years Cash= Marketable securities 2004--05 2005-06 2006-07 2007-08 2008-09 3997.06 4521.43 4628.75 5575.63 5635.66 1050.56 969.31 1347.68 1122.81 1329.85 Current liabilities Absolute Liquidity Ratio 3.80 4.66 3.43 4.97 4.24

Diagram showing the Absolute liquidity ratio of KAMCO Ltd

Absolute Liquidity Ratio 6 5 Quick Ratio 4 3 2 1 0 2004--05 2005-06 2006-07 Years 2007-08 2008-09 3.8 4.66 3.43

4.97 4.24 2004--05 2005-06 2006-07 2007-08 2008-09

Interpretation In the above 5 year the absolute liquidity ratio of the company was satisfactory. The absolute liquidity ratio is above the ideal value i.e. 0.5 times. It indicates that the company was in a good position in terms of cash to meet its current liabilities.

Leverage Ratio

This ratio measures the long term financial position of the enterprise. The term solvency refers to the ability of a concern to meet its long term obligations. includes:a) b) a) Debt equity Ratio:Debt Equity Ratio also known as external- internal equity ratio. It is calculated to measure the relative claims of outside and owners against the firms assets. This ratio indicates the relationship between the external equities or the outsiders fund and the internal equities or shareholders funds. It is calculated by using the formula as follows:Debt Equity Ratio = Outsiders fund Shareholders fund Debt Equity Ratio Proprietary Ratio Analysis of long term financial position or test of solvency

A ratio of 1:1 is considered to be a satisfactory ratio. In some business, a high ratio of 2:1n or even more may be considered satisfactory.

Table showing Debt Equity Ratio of KAMCO Ltd

Year

Outsiders fund (Rs. In lakhs)

Shareholders fund (Rs. In lakhs)

Ratio

2004-05 2005-06 2006-07 2007-08 2008-09

725.17 836.24 1266.22 1019.63 1257.03

6014.14 6481.73 6997.67 7566.55 8274.40

.12 .13 .18 .13 .16

Diagram showing Debt Equity Ratio of KAMCO Ltd.


Debt Equity ratio
0.2 0.18 0.16 Debt Equity Ratio 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2004-05 2005-06 2006-07 2007-08 2008-09 Years 0.12 0.13 0.13 Ratio 0.18 0.16

Interpretation

The satisfactory level of debt equity ratio 1:1 .The debt equity ratio was highest in 2006-2007 and lowest in 2004-2005 with the values 0.18 and 0.12 respectively. The above analysis reveals that the debt equity ratio is less than the satisfactory level. It indicates that the company is not making good use of the financial leverage and increasing the return to equity shareholders. Proprietary Ratio Proprietary ratio relates the shareholders funds to total assets. It is variant of the debt equity ratio. This ratio shows the long term or future solvency of the business. It is calculated by using the formula. Shareholders fund Proprietary Ratio = Total assets

The ideal ratio is 1:3. This ratio shows the general strength of the company. Table showing Proprietary Ratio of KAMCO Ltd Years Shareholders fund (Rs. In lakhs) Total Assets (Rs. In lakhs) Ratio

2004-05 2005-06 2006-07 2007-08 2008-09

6014.14 6481.73 6997.67 7566.55 8274.40

7096.63 7481.98 8372.68 8725.84 9646.28

.85 .87 .84 .87 .86

Diagram showing proprietary ratio of KAMCO Ltd

Proprietory Ratio
0.875 0.87 0.865 Proprietory Ratio 0.86 0.855 0.85 0.845 0.84 0.835 0.83 0.825 2004-05 2005-06 2006-07 2007-08 2008-09 Years 0.85 0.84 0.87 0.87 0.86

Ratio

Interpretation The ideal proprietary ratio is 1:3. the above analysis reveals that the proprietary ratio is much less than proportion of net worth is invested in fixed assets. This will adversely affect the long-term solvency of the firm.

Profitability Ratio

The primary objective of a business undertaking is to earn profits. The business needs profits not only for its existence, but also for expansion and diversification. Profitability is an indication of the efficiency with which the operations of the business are carried on. The important profitability ratios are:i. Gross Profit Ratio ii Net profit ration iii Net worth Ratio i. Gross profit Ratio Gross profit Ratio measures the relationship of gross profit to net sales and is usually represented as a percentage. It can be computed as:Gross profit Ratio = Gross Profit*100 Net sales Table showing Gross Profit ratio of KAMCO Ltd Years 2004-05 2005-06 2006-07 2007-08 2008-09 Gross Profit 908.55 405.40 1187.80 1071.51 1219.93 Net Sales 7934.39 7998.07 9114.09 10118.62 12027.57 Ratio 11.45 5.06 13.03 10.59 10.14

Diagram showing Gross Profit ratio of KAMCO Ltd


Gross Profit Ratio
14 12 Gross Profit Ratio 10 8 6 4 2 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 5.06 Ratio 11.45 13.03 10.59 10.14

Interpretation The above analysis shows that the gross profit ratio is fluctuating year after year. This indicates the increasing level of price and high cost of production.

ii. Net Profit Ratio:Net profit ratio is the ratio of net profit to sales and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. It is calculated by suing the following formula.

Net Profit Ratio =

Net Profit*100 Net Sales

The higher the ratio the better it is. Net Profit ratio reflects the profitability of the firm. Increases/decreases in net profit ratio indicates a change in profit. Table showing Net Profit Ratio of KAMCO Ltd.

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Net ProfitGross Profit 467.83 522.82 572.60 625.55 764.52

Net Sales 7934.39 7998.07 9114.09 10118.62 12027.57

Ratio 5.89 6.54 6.28 6.18 6.36

Diagram showing Net Profit ratio of KAMCO Ltd

Net Profit Ratio


8 7 6 Net Profit Ratio 5 4 3 2 1 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 Ratio 5.89 6.54 6.28 6.18 6.36

Interpretation The above analysis shows that the net profit ratio is fluctuating year after year. It shows an increasing trend except the years 2006-2007 and 2007-2008. it indicates that the administrative and selling expenses are high in some year than other years. So they need to give more attention to administrative and selling expenses.

iii. Net worth Ratio Net worth ratio is also known as return on shareholders investment. This ratio indicates the profitability from shareholders point of view. The term net profit as used here means net income after payment of interest and tax including net non operating income. It is the final income that is available for distribution as dividend to shareholders. Shareholders fund include preference and equity share capital, all reserve and surplus belonging to shareholders. It is calculated by using the following formula.

Net worth Ratio

Net Profit after Interest and tax Shareholders fund

Table showing Net worth Ratio of KAMCO Ltd.

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Net Profit after interest & tax 467.83 522.82 572.60 625.55 764.52

Shareholders fund 6014.14 6481.73 6997.67 7566.55 8274.4

Ratio 7.79 8.07 8.18 8.27 9.24

Diagram showing Net Worth Ratio of KAMCO Ltd

Net Worth Ratio


10 9 8 Net Worth Raio 7 6 5 4 3 2 1 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 Ratio 7.79 8.07 8.18 8.27 9.24

Interpretation The above diagram and table shows the net worth ratio of KAMCO Ltd. The analysis indicates that the net worth ratio shows an increasing trend, which indicates that the overall efficiency of the company is satisfactory.

Efficiency ratio/Turnover Ratios This ratio is also known as activity ratio. These ratio indicates how effectively or efficiently the resources are utilized by a firm in the asset management. This ratio highlight upon the activity and operational efficiency of the business. The turnover ratios are divided into manly four, which are as follows:1. 2.
3. 4.

Inventory Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio Working capital Turnover Ratio

1. Inventory Turnover Ratio: The inventory turnover ratio increases the velocity of conversion of stock into sales.. Promptness of sale indicates better performance of the business. It also shows efficiency of the concern. Immediate sake of goods produced require further production, which consequently activated the productive process and is responsible for rapid development of businss. The ratio is calculated by dividing the cost of goods sold by the amount of average inventory cost. Inventory Turnover Ratlio = Cost of goods sold Average Inventory Inventory conversion period = 365

Inventory turnover ratio Usually higher inventory turnover ratio is always beneficial to the concern. Lower inventory turnover ratio shows that the stock is blocked

and not immediately sold. It shows the poor performance of the business and inefficiency of the management. The ratio measures the effectiveness of the stock policy if the management. It should be the constant effort so the management to dispose off the stock at the earliest . Table showing inventory Turnover Ratio of KAMCO Ltd.

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Cost of goods sold (Rs. In lakh) 7025.84 7592.67 7926.29 9047.09 10807.67

Average inventory 1789.42 1994.85 2078.12 1994.88 2146.47

Ratio 3.93 3.80 3.81 4.53 5.05

Diagram showing Inventory Turn over Ratio of KAMCO Ltd

Inventory Turn over Ratio


6 5.05 Inventory Turn over Ratio 5 4 3 2 1 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 3.93 3.8 3.81 4.53 2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation From the above analysis it is clear that the inventory turnover ratio shows a increasing trend over the five year. This indicates that there is a good inventory management in the company. b) Debtors Turnover Ratio The debtors turnover ratio indicates the number of times the debtors are turned over during the year. Generally , the higher the values of debtors turnover, the more liquid are the debtors. The average collection period measures the equality of debtors. It indicates the rapidity ir slowness of turnover . The shorter the collection period, the better the quality of debtors ie, it implies the prompt payment of customers. But too shorter period id not favorable . It may reduce bad but it will be considered as very restrictive measures which effect the sale . it is calculated by using the formula. Debtors turnover ratio = Total sale Debtors Average collection period = 365 Debtors turnover ratio

Table showing the debtors turnover ratio of KAMCO Ltd

Years

Sales (Rs. In lakhs)

Debtors (Rs. In lkhs) 891.42 1025.97 1220.42 1989.42 2616.75

Debtors turnover Ratio 8.90 7.79 7.47 5.09 4.60

Average collection period 41 days 47 days 49 days 72 days 79 days

2004-05 2005-06 2006-07 2007-08 2008-09

7934.39 7998.07 9114.09 10118.63 12027.57

Diagram showing the Debtors turnover ratio of KAMCO Ltd

Debtors Turn over Ratio 10 8.9 Debtors Turn over Ratio 8 6 5.09 4 2 0 200405 200506 2006- 200707 08 Years 200809 4.6 7.79 7.47 Debtors Turn over Ratio

Interpretation :The above analysis the debtors turnover ratio shows an decreasing trend and the collection period shows an increasing trend. It indicates that the inefficient management of debtors or sale and lieu liquid debtors c) Creditors turnover Ratio :The Ratio shows the number of days of credit enjoyed by the firm for the purchase of raw materials . it is computed by using following formula. Creditors Turnover Ratio = Credit purchase Sundry creditors Average payment period = 365 Creditors turnover Ratio A high creditors turnover ratio shows that the creditors are being paid promptly. While a low turnover ratio reflect liberal credit terms credited by the suppliers. Table showing creditors turnover Ratio of KAMCO Ltd Years Purchase (Rs. In lakhs) 2004-05 2005-06 2006-07 2007-08 2008-09 5234.04 5848.26 6128.86 7340.87 9139.08 Creditors (Rs. In lkhs) 509.57 486.17 652.10 829.01 1095.88 Creditors turnover Ratio 10.27 12.03 9.39 8.05 8.34 Average collection period 35 days 30 days 38 days 41 days 44 days

Diagram showing the creditors turnover ratio of KAMCO Ltd

Creditors Turnover Ratio


14 12 10 Creditors 8 Turnover 6 Ratio 4 2 0 2004-05 2005-06 2006-07 2007-08 2008-09 Years 10.27

12.03 9.39 8.05 8.34 Series1

Interpretation :The above analysis shows that the creditors turnover ratio fluctuate year after year. In the year 2004- 2005 creditors turnover ratio is 10.27% and collection period is 35 days. During the next year there was slightly increase in the ratio. But in 2006-07 and 2007-08 it shows a decrease in trend and in 200809 ratio increase slightly to 8.34%. It reflects liberal credit term granted by suppliers.

D) Working capital turnover ratio The efficiency of short term funds utilize can be tested with working capital turnover ratio . The analysis of this ratio over a period indicates the efficiency of working capital in supporting sale. It is calculated by using the formula. Working Capital Turnover Ratio = Sales Net working Capital Working capital turnover indicate the velocity of the utilization of net working capital. This ratio indicated the number of times the working capital is turned over in the course of year. This ratio measure the efficiency with which the working capital is being used by a firm. A higher ratio indicated efficient utilization of working capital and low ratio indicated otherwise. Table showing working capital turnover ratio.

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Sales (Rs. In lakhs) 7934.39 7998.07 9114.09 10118.63 12027.57

Net working Capital 5156.18 5672.99 6200.62 6792.20 7495.24

Ratio 1.54 1.41 1.47 1.49 1.60

Diagram showing Working Capital turn over Ratio of KAMCO Ltd

Working Capitl Ratio


2 1.75 1.5 Working 1.25 capital Ratio 1 0.75 0.5 0.25

1.54

1.41

1.47

1.49 Series1

2004-05 2005-06 2006-07 2007-08 Years

Interpretation:Higher working capital ratio indicates the effective utilization of working capital and low ratio indicates lesser or inefficient / ineffective utilization of working capital . In the year 2004-05 working capital ratio was 1.54% , which decrease to 1.41% in the year 2005-06 . But in the next year it shows an increase in trend i.e., it increase to 1.47 in the year 2006-07, 1.49 in the year 2007-08 and it 1.60 in the year 2008-09 this indicates efficient utilization of working capital

Working Capital Ratios The net working capital is divided in to mainly four which are as follows :1. Net working capital ratio 2. current asset to working capital ratio 3. Current liability to working capital ratio 4. current Asset to Fixed Assets 1 Net working Capital Ratio :This ratio shows the liquidity of the firm. High amount of working capital increase the liquidity of the firm, and low amount of working capital decrease the liquidity position of the firm. It is calculated by dividing the net working capital by net asset Net working capital ratio = Net working capital Net Assets Table showing the net working capital of KAMCO Ltd

Years

Net working Capital (Rs. In lakhs)

Net assets

Net working capital Ratio 0.73 0.76 0.74 0.77 0.78

2004-05 2005-06 2006-07 2007-08 2008-09

5156.18 5672.99 6200.62 6792.20 7495.24

7096.63 7481.98 8372.68 8725.84 9646.28

Diagram showing Net Working Capital Ratio of KAMCO Ltd

Net Working Capital Ratio


Net working capital Ratio 0.8 0.78 0.76 0.74 0.72 0.7 2004-05 2005-06 2006-07 Years 2007-08 2008-09 0.73 0.76 0.74 0.77 0.78

Interpretation:The first two years the net working capital ratio shows an increasing trend but in the next year 2006-07, the net working capital ratio shows decreasing trend. During the year the ratio decreased to .74% . During the next year 2007-08 and 2008-09 the ratios slightly increased from 0.77% to 0.78%. It shows an increasing trend in the net working capital ratio. This shows that liquidity Position of KAMCO Ltd is increasing .

2 Current Asset to Working Capital Ratio

This Ratio shows the relationship between current assets and working Capital. Very high and very low current assets to working capital .ratio is not good for a business concern, because that shows more working capital or less working capital is contained in the current assets. The ratio is calculated by using the following the formula. Current Asset to Working Capital Ratio = Current Assets Net Working Capital Table showing Current assets to working capital Ratio of KAMCO Ltd

Current Assets Years

Net working capital

Current assets to working capital Ratio 1.20 1.17 1.22 1.17 1.18

2004-05 2005-06 2006-07 2007-08 2008-09

6206.71 6642.30 7548.30 7915.00 8825.08

5156.18 5672.99 6200.62 6792.20 7495.24

Diagram showing Current assets to working capital Ratio of KAMCO Ltd

Curent Assets to working capital Ratio


1.22

1.2

1.17

1.17

1.18 Current a ssets S1 w orking to capital Ratio

2004-05

2005-06

2006-07 years

2007-08

2008-09

Interpretation:The figure shows that the working capital of company forms a small part of current assets. This indicates the funds do not remain idle in the company. The working capital is used more effectively and efficiently.

Current Liability to Working Capital Ratio This ratio shows the relationship between the current liabilities to net working capital . If the current liability to net working capital ratio is high, it indicates that more working capital is contained in the current liabilities. Otherwise ie, if the ratio is low it means less amount of working capital is contained in the current liabilities. The ratio is calculated by using the following formula. Current liability to working capital Ratio= Current Liabilities Net working capital

Table showing Current liability to working capital Ratio of KAMCO Ltd

Years

Current Liabilities

Net working capital

Current liabilities to working capital Ratio .20 .17 .22 .17 .18

2004-05 2005-06 2006-07 2007-08 2008-09

1050.56 969.31 1347.68 1122.81 1329.85

5156.18 5672.99 6200.62 6792.20 7495.24

Diagram showing Current liabilities to working capital Ratio of KAMCO Ltd

Current liabilities to working capital Ratio


Current liabilities to working capital Ratio 0.25 0.2 0.15 0.1 0.05 0 2004-05 2005-06 2006-07 years 2007-08 2008-09 0.2 0.17 0.22 0.17 0.18 Series2

Interpretation:The above analysis shows a favorable financial posit6ion of KAMCO Ltd . The above analysis indicates that less amount of working capital is contained in the current liabilities. So the working capital is effectively used.

Current Assets to Fixed Assets The level of current assets can be measured by relating current assets to fixed assets. Higher current assets to fixed assets ratio indicates a conservative

current assets policy whereas lower ratio indicates an aggressive current asset policy . it is calculated by using the following formula Current assets to fixed assets ratio = Current Assets Fixed Assets Table showing Current asset to fixed assets Ratio of KAMCO Ltd

Years

Current Assets

Fixed Assets

Current asset to fixed assets Ratio 8.68 9.99 11.62 13.06 14.32

2004-05 2005-06 2006-07 2007-08 2008-09

6206.71 6642.30 7548.30 7915.00 8825.08

714.92 664.68 649.38 605.82 616.20

Diagram showing Current assets to fixed assets Ratio of KAMCO Ltd

Current assets to fixed assets


14.32 2008-09 2007-08 years 11.62 2006-07 9.99 2005-06 8.68 2004-05 0 2

13.06

10

12

14

16

Current assets to fixed assets Series1

Interpretation: The above analysis shows that KAMCO Ltd followed a higher current assets to fixed assets ratio. This indicates that KAMCO Ltd followed a conservative policy. This shows that company was not ready to take a high risk and hence it was in a high liquidity position.

TREND ANALYSIS OF WORKING CAPITAL In this study method of least squares are used to find out the requirement of gross working capital in the year 2008-2009. Straight line trend equation: Y= a + bX The two normal equations are Y= na + bX XY= aX + bX2 Y= na XY=bX2 Table showing trend value of working capital Year Gross working capital(Y) 2005 2006 2007 2008 2009 Total 5156.18 5672.99 6200.62 6792.20 7495.22 31317.21 Deviation from middle year(X) -2 -1 0 1 2 -10312.36 -5672.99 0 6792.20 14990.44 5797.29 4 1 0 1 4 10 5103.98 5683.71 6263.44 6843.17 XY X2 Trend value

Diagram showing trend value of working capital


80 0 0 70 0 0 60 0 0 50 0 0 40 0 0 30 0 0 20 0 0 10 0 0 0 20 05 200 6 20 07 2008 20 09 ratio

Interpretation The trend analysis of working capital requirements of KAMCO Ltd reveals that the working capital requirements of the company has increased year after year. The above analysis shows the working capital position of the company from 2004-2005 to 2008-2009.The entire graph gives a positive trend.

TREND VALUE OF SALES Straight line trend equation: Y= a + bX The two normal equations are Y= na + bX------------ (1) XY= aX + bX2------------ (2) Y= na XY=bX2 Year Sales Deviation from middle 2005 2006 2007 2008 2009 Total 7934.39 7998.07 9114.09 10118.63 12027.57 47192.75 year(X) -2 -1 0 1 2 -15868.78 -7998.07 0 10118.63 24055.14 10306.92 4 1 0 1 4 10 7377.17 8407.86 9438.55 10469.24 11499.93 XY X2 Trend value

Diagram showing trend value of sales

140 00 120 00 100 00 80 00 60 00 40 00 20 00 0 2 005 20 6 0 200 7 20 8 0 200 9

Interpretation This figure shows the net sales position of the company from 2004-2005 to 2008-2009 Based on this analysis the company shows a satisfactory trend value in sales.

Findings

The working capital position of the company shown on increasing trend. This means the company is managing its working capital efficiently.

The current ration of the company shows an increasing trend . It indicates that liquidity position of the company is good. The quick ration of the company shows an increasing trend . So the current financial position of the company is satisfactory. The debt equity ratio of KAMCO Ltd shows an increasing trend. It has not reached at satisfactory level. The proprietary ratio of KAMCO ltd shows an increasing trend. It has not reached at satisfactory level. The gross profit ratio shows a fluctuating tendency. But every year the firm has gross profit. The cost of production & other expenses are fluctuating normally.

The net profit ratio shows a decreasing trend. But every year the firm has net profit. The operating & administrative expenses are increasing day by day. So net profit ratio will be decreasing normally.

Net worth ratio of the company shows an increasing trend. It indicates that the overall efficiency of the company is satisfactory. The inventory turnover ratio shows an increasing trend. It indicates that the stock are frequently sold & less amount of money is required to finance the inventory.

The debtors turnover ratio shows a decreasing trend. It indicates that there is a delay in the collection of debt.

Creditors turnover ration shows a decreasing trend showing that the company does not follow an efficient t payment policy. Creditors management of the company is not satisfactory.

Working capital turnover ratio shows an increasing trend. It indicates the efficient utilization of working capital.

Suggestions

The working capital of the company is showing an increasing trend. The Company has to maintain this condition so that the short term solvency can be increased.

The debt equity ratio of the company is not ideal. It should try to maintain a proper balance between debt & equity. Gross profit shows fluctuating trend because of the increasing price of raw materials & high cost of production . So the company must try to reduce the cost of production.

Net profit ratio shows a decreasing trend because of high operating expenses. So the company has to take proper remedial measures to control the operating expenses

The management should also take step to ensure prompt payment to it creditors The net worth ratio of the company is good So it is to be maintained Management of inventory is efficient, but the company can prepare inventory reports.

CONCLUSION The study deals with the analysis of working capital management with special reference to KAMCO Ltd. As far as the company is concerned working capital management is important. it is useful for knowing the efficiency & liquidity position of the company. The analysis of five years reveals that the company is in a position to pay its current obligation. The company is effectively utilizing its assets. The companys debt management has improved and they are also making prompt payment to its creditors. Thus the overall performance of the company is satisfactoruy,

BIBLIOGRAPHY I -BOOKS 1. Banerjee Subir Kumar Financial Management , New Delhi, Sulthan Chan d & Company Ltd 2006. 2. Bhalla .V.K. Working Capital Management New Delhi, Anmal Publication 2008 3. Chandra Prasanna , Financial Management , New Delhi, Thalameraw Hill Publishing Company 2007 4. Gupta S.P. Flementary Statistical Method, New Delhi, Sulthan Chand & Sons 2003 5. Kishore Ravi M, Financial Management New Delhi, Taxman Allied Service 2005 6. Kuchhal S.C., Financial Management , Allahabad, Chaitanya Publishing House , 2005 7. Pandey I.M. Financial Management , New Delhi , Vikar Publishing Ltd 2008 8. Vinod A. Management Accounting Calicut , Central Co Operation Stores Ltd 2003. II-JOURNALS

1. Patel D.M. , Analysis of Working Capital, ACCST Research Journal, Volume III, No. I, January 2005 2. Prasad G.B.K. & Dr Rastogi, Working Capital Management , The Chartered Accountant Students , Volume 9, No.6, November 2005 3. Roys.T.S. & Jain C.M., Working Capital Management of oil & Natural Gas Corporation, The Journal of Business Studies Volume 2 , No.4 July 2005 III REPORTS 1. Annual Reports From 2004-05 to 2008-09 2. Manual of Finance Department of KAMCO LTD IV WEBSITES
1. WWW.KAMCOindia.com 2. WWW.Wikepedia.com

3. WWW.Google .com 4. WWW. Businessline.com