Gangraju Fina Preparedl

Kirloskar Electric Company Ltd.
, Bangalore
Chapter – 1
INTRODUCTION TO WORKING CAPITAL
Empirical observations show that the financial managers have to spend much
of their time to the daily internal operations relating to current assets and current
liabilities of the firms. As the largest portion of the manager’s time is devoted to
working problems, it is necessary to manage working in the best possible way to get
maximum benefit. The effective management of the business, among other things
primarily depends upon the manner in which the short-term assets and short run
sources of financing are managed. The management or current assets management
consists of inventories, accounts receivable and cash & bank balances as the major
components. There is a difference between current assets and fixed assets in terms
of their liquidity. A firm requires many years to recover the initial investments in fixed
assets such as plant and machinery and land and buildings. On the contrary,
investments in current assets are turned over many times a year. Investments in
current assets such as inventories and book debts are realized during the firm’s
working capital cycle, which is usually less than a year. Working capital is that
proportion of a company’s total capital, which is employed in short-term operations.
Thus, a study in this field is of major importance to both internal and external
analysis, for its close relationship with the day-to-day operations of a business.
There are many aspects of working capital management, which form an important
function of a financial manager:-
 Working management represents a large portion of the firm’s investment in
assets.
 Working management has greater significance not only for small firms but
also for large firms.
 The need for working capital is directly related to sales growth.
Govt. First Grade College Nelamangala Page 1

Kirloskar Electric Company Ltd., Bangalore
Most of the work dealing with working capital management in confined to the
balance sheet, which is directed towards optimizing the levels of cash and
marketable securities, receivable and inventories. For the most part, optimization of
these current assets is isolated from the optimization of the other current assets and
the overall valuation of the firm.
The decision concerning cash and resources, receivable, investments and

current liabilities is with an objective of maximizing the overall value of the firm. Once
decisions are reached these areas, the levels of working capital are also reduced.
An appropriate level of working capital is to be maintained as the excessive working
capital interrupts the smooth flow of the business activity and curbs profitability. Also,
there are a lot of circumstances where shortage of working capital has proved to be
the major factor for business failure. Operating plans are out of control and the
corporate objectives get blurred. The suppliers and the creditors give the firm an
adverse credit rating and tighten up credit terms.
The problem of managing working capital has got a separate entity as against
different decision-making issues concerning current assets individually. Working
capital has to be regarded as one of the conditioning factors in the long run
operations of a firm, which is often inclined to treat it as an issue of short-run
analysis and decision-making.
The management of working capital hence involves constant vigilance to

ensure that the right quantum is available on a continuing basis to support and
promote the activities. Sound financial and statistical techniques, supported by
judgment, should be used to predict the quantum of working capital needed at
different time periods.

CONCEPTS OF WORKING CAPITAL

“Working capital is the amount of funds necessary to cover the cost
of operating the enterprise”.
- Subbin
Net working capital refers to the difference between the inflow and outflow of
funds. In other words, it is the net cash inflow. It is defined as the excess of current
assets over current liabilities and provisions.’ Conceptually, working capital is either
explained as: - Net Working Capital or Gross Working Capital. These concepts are
not exclusive; rather they have equal significance from management viewpoint.
Gross working capital refers to the firm’s investment in current assets.
NEED FOR WORKING CAPITAL FINANCE
The need for working capital finance is over-emphasized. Every business

needs some amount of working capital. The need for working capital arises due to
the time gap between production and realization of cash from sales. There is an
operating cycle involved in the sales and realization of cash. There are time gaps
between purchase of raw materials & production, production & sales and realization
of cash. Thus, working capital is needed for the following purposes.
 For the purpose of raw materials, components and spares.

 To pay wages and salaries.
 To incur day-to-day expenses and overhead costs such as fuel, power and
office expenses, etc.
 To meet the selling costs as packing, advertising etc.
 To provide credit facilities to the customers.
 To maintain the inventories of raw materials, work in progress, stores
 And spares and finished stock.

TYPES OF WORKING CAPITAL
Permanent working capital
Temporary working capital
Working capital Gross working capital
Net working capital
Negative working capital
Reserve working capital
1) Permanent working capital:

It means the minimum amount of investment in all current assets which is
regarded at all times to carry on minimum level of business activities. The operating
cycle is a continuous process and therefore, the need for current assets. But, the
magnitude of current assets increases and decreases over time. There is always a
minimum level of current assets required at all time by the firm to carry on its
business operations. This minimum level of current assets is known as Permanent
working capital or fixed working capital.
2) Temporary working capital:

Temporary working capital is also called as the fluctuating or variable working
capital. The amount of Temporary working capital keeps on changing depending
upon the changes in production and sales.
3) Gross working capital:

It is the amount of funds invested in the various components of current

assets. It refers to the total current assets of the business. It is also known as
circulating capital, because the current assets are rotating in their nature.
4) Net working capital:

It is the difference between current assets and current liabilities. It is the
excess of current assets over current liabilities. This concept enables a firm to
determine the exact amount available at its disposal for operational requirements.
5) Negative working capital:

When a current liability exceeds current assets, it is called as negative
working capital emerges. Such a situation occurs when a firm is nearing crisis of
some magnitude.
6) Reserve Working Capital:

It refers to the short term financial arrangement made by the business units to
meet uncertain changes or to meet uncertainties. Business firms are always
exposed to risks which ma y controllable or uncontrollable. In the event of happening
of such events, reserve working capital strengthens the capacity of the company to
face the challenges.
Cash RM WIP Finished Goods Sales Debtor B/R Cash
NEED FOR MAINTENANCE OF ADEQUATE WORKING CAPITAL
An adequate or optimum working capital balance refers to the desired

working capital where a firm will not have excess or shortage of working capital and

indicates both profitability and liquidity for the firm. It is necessary to maintain an
optimum cash balance, an optimum level of inventory and an optimum level of
debtors and receivable.
OPERATING CYCLE
Operating cycle indicates the length of time between firm’s paying for
materials entering into stock and receiving the cash from sale of finished goods. In
other words, the duration of the required time to complete the sequence of events is
called operating cycle. The operating cycle may take the following sequence:
1. In a Manufacturing Concern
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 debtors.
The following figure shows the operating cycle of a manufacturing concern.

Purchase
Cash of Raw
Material
Accounts
W.I.P
Receivable
Finished
Sales
Goods
2. In a Trading Concern
a) Cash into inventories
b) Inventories into debtors and bills receivables
c) Debtors and bills receivables into cash
The following figure shows the operating cycle of a trading concern

Cash
Account
Receivable
Stock of
Finished
Goods
DANGERS OF EXCESS WORKING CAPITAL
 It results in unnecessary accumulation of inventory in the form of raw material

or work in progress or finished goods, leading to a high cost of storage,
space, Insurance, increased theft, deterioration in the quality of goods, etc.
 Also, it is an indication of defective credit policy and slack collection period.
Consequently, higher incidence of bad debts adversely affects profits.
 Excess cash in hand indicates idle cash and even though the liquidity position
of the company is good, it lacks profitability.
 Excessive working capital makes the management complacent, which
degenerates into managerial inefficiency.
 Excess availability of cash tempts the executives to spend more.
DANGERS OF INADEQUATE WORKING CAPITAL
 The production process will be obstructed if there is shortage of working

capital.

 Fixed assets are not efficiently utilized if there is lot of working capital funds,
which leads to deterioration in profits.
 The firm loses its reputation when it is not in a position to honor its short-term
obligations.
 Ultimately it leads to the reduction in sale, as the firm cannot meet the
demand of the customers.
EFFECT OF INADEQUATE WORKING CAPITAL ON DECISION MAKING:-
 Stagnates the growth of the firm,

 Threatens the solvency of the firm,
 Creates difficulties in implementing the operating plans,
 Renders the firm unable to avail the attractive credit opportunities
EFFECTS OF EXCESS WORKING CAPITAL ON DECISION MAKING
 Impairs firm’s profitability through idle cash and

 Makes dividend policy liberal,
 Creates difficulties to cope with the future, on the failure of the estimated
speculative profits.
IMPORTANCE OF WORKING CAPITAL

Even though the skills for maintaining the working capital are somewhat
unique, the goals are the same-viz. to make an efficient use of funds for minimizing
the risk of loss to attain profit objectives.
Firstly, the adequate of working capital contributes a lot in raising the credit-
standing of a corporation in terms of favorable rates of interest on bank loan, better
terms on goods purchased, reduced cost of production on account of the receipt of
cash discounts, etc.

Secondly, a company with sufficient working capital is always in a position to

take the advantage of any favorable opportunity either to purchase raw materials or
to execute a special order or to wait for better market position.
In the third place, the ability to meet all reasonable demands for cash without
inordinate delay is a great psychological factor to improve the all rounds efficiency of
the business.
Lastly, during slump the demand for working capital, instead of coming down,
shoots up. A good amount of working capital is locked up in the inventories and book
debts. Concerns having ample resources can tide over that period of depression.
Thus, working capital is regarded as one of the conditioning factors in the

long run operations of the firm, which is often inclined to treat it as an issue of short
run analysis and decision making.
DETERMINANTS OF WORKING CAPITAL

Determinants of Working Capital
Nature of Size of Manufacturing Production Volume of Terms

of Industry business cycle policy sales
Purchase
And
Sales
Business Growth and Supply of Operating

Cycle Expansion Raw Materials Efficiency
Credit Policies Profit Margin Profit

of RBI Appropriation
Price Level Capital Structure

Changes of the Company
SOURCES OF WORKING CAPITAL

Sources of Working Capital
Long Term Financing Short Term Financing
Issue of Shares Short Term Banks Loans
Loans from Financial Institution Indigenous Banks
Accepting Public Deposits Commercial Papers
Floating of Debentures Factoring of Receivables
Raising Funds by Internal Financing Trade Credit
Chapter – 2
Research Design of the Study
RESEARCH DESIGN
is a logical and systematic planning and it helps in directing
in research study. The methodology techniques to be adopted for
achieving the objection. In constitutes the blue print for collecting
measurement and analysis of data.
A research design is the program that guides the investigator
in the process collecting analyzing & investigator in the process
collecting analyzing & interspacing observation. It provides a
systematic plan of procedure for the research to follow;
Title of the Study

“ A STUDY ON WORKING CAPITAL MANAGEMENT at
KIRLOSKAR ELECTRIC COMPANY LTD, BANGALORE”
STATEMENT OF PROBLEM
Working capital is an important requirement for any business, without which

no business can survive. Every activity of the business is related to the availability of
the working capital. That is, arranging short-term financing, negotiating favorable
credit terms, controlling the movement of cash, administering the account receivable
and monitoring the investment in inventories. All this consumes a great deal of time
of finance managers. Also the obstacles inhabiting the effective working capital
management throws open challenges to the finance managers in managing working
capital.
OBJECTIVES OF THE STUDY

 The study was conducted mainly to understand and analyze the issue of
working capital management, being practically employed in Kirloskar Electric
Company Ltd.,
 To understand the practical difficulties faced by managing the working capital.
 To analyze the various external and internal factors effecting working capital
management in Kirloskar Electric Company Ltd.,
 To understand and learn the various policies framed by Kirloskar Electric
Company Ltd. for effective management of working capital.
SCOPE OF THE STUDY
The study confines to K.E.C. the published annual reports supplied by the
company for important source of statistical data for judging its working results and
financial position. The financial statement comprising of financial year were used.
Review Or Literature
“Working capital is the amount of funds necessary to cover the cost
of operating the enterprise”.
- Subbin
Working capital is that part of the firms total capital which is required for
financing short term assets or current assets such as cash deletor inventories,
marketable securities, it also knows as circulating capital or working capital.
Books are :

 I.m. Pandey(2004) concepts of working capital “financial managemen.”

8th edition
 Prasanna chandra (2008). “financial management.” 7th edition.
 Annual repots of the company.
Kirloskar Electric Industries limited formerly being, is a democratic and well

organized structure in itself. The lower level and function level managers are
consulted and consultations are analyzed before the top management takes any
decisions
SOURCE OF DATA
For making the study of the topic working capital management with reference
to KEC (Govenahalli) interview method, personal method, has been adopted. The
decision in any business situation depends on the data collected. Facts are
expressed in quantitative form can be termed as data. Success of any statically
investigation depends on the availability of accurate and reliable data. These depend
on the appropriateness of the method chosen for data collection. Thus, data
collection is a very basic activity in decision making.
Data may be classified in to two groups
1. Secondary Data:
When data derived form other sources, than data is called secondary data.
The secondary data has been collected from various published sources most of the
facts & figures in this report came from published sources like annual reports
company profile reference books & website of company I;e.
www.kirloskar.electic.com. The secondary data used for the analysis.

METHODOLOGY
Research is organization’s inquiry designed and carried out to provide

information to solve the problem. In fact is the scientific investigation of a certain
problem. “Research is the process of systematically obtaining accurate answer to
significant and pertinent question by the use of scientific method in gathering and
interpreting information”. A Research Design is the specification of methods and
procedures for acquiring the information needs to structure or solve the problems.
The type of research used was Descriptive type.
OPERATIONAL DEFINITIONS OF THE CONCEPTS

Working capital
Working capital may be regarded as that proportion of a firms total which
is employed in financing it day –to-day operations. It is the amount of funds,
which a firm holds, in the form of current assets to meet its current liabilities.
a. Net working capital

Net working capital is the difference between the current assets and current
liabilities.
a. Current assets. these assets which can be concerted in to operating cycle,
without understanding Diminution in value of or disrupting operating cycle,
they include cash, short-term securities debtors, bills receivables and stock
(Inventory)
b. Gross working capital

1. Gross working capital refers to the firms total investment in current
assets

c. Current Liabilities.
Current liabilities are those claims of outsiders ethics are expected to mature
for payment with in accounting year (or operating cycle) they include
creditors, bills payable and outstanding expresses, which are short-term
sources.
d. Cash
Cash is the money, which firm can disburse immediately without any
restriction, it includes coins, currency, cheques held buy the firm and balance
in a bank account sometimes mere cash items such as marketable securities, or
bank time deposits are also included in cash. The basic characteristics of near
cash assets in that they can readily convertible into cash.
e. Receivables
A firm any grant trade credit to protect it’s sales from the competitors and to
attract potential customers to buy it’s at favorable term when the firm sells its
product services on trade credit receivables. Which the firm is expected to
collect in near facture.
f. Inventories
An inventory refers to stock of goods or product of the company. It may be in

the form of raw –materials, work-in-progress and finished goods.
PLAN OF ANALYSIS
This project is divided into 5 chapters’ scheme and consists of the following.

REFERENCE PERIOD
The study on working capital at Kirloskar Electric company ltd, Bangalore.

(with special reference to Govena Hally) was conducted period of 60 days
LIMITATIONS OF STUDY
 This report is based on the annual reports, which are provided by the
company that cannot be relied upon.
 The collection of data for analysis is restricted to Kirloskar Electric Company
Ltd., Bangalore only and
 Time was major limiting factor to the study.
 Even though the information collected is reliable, it may not be 100%
accurate.
 Only 4 years have been considered for the calculation of working capital of
the company.

CHAPTER SCHEME
Chapter 1- Introduction
This in turn is divided into general introduction and theoretical background of

the study.
Chapter 2 - Research Design of the Study
This chapter deals with the research method used in the study. It also throws
light on the objectives, scope and limitations of the study. It includes review of
literatures also.
Chapter 3 - Profiles
This chapter includes profile of the company, its origin, growth and the
present status of the organization.
Chapter 4 - Analysis and Interpretation of Data
This is mainly analytical in nature and here; primary data are analyzed as per
the stated objectives. Results are shown both narration and graphical form for each
parameter separately.
Chapter 5 - Summary of Findings, Suggestions and Conclusions

This chapter contains executive summary of the dissertations, valid findings
of the study, conclusions and suggestions made for the dissertation.
At the end of the report, Bibliography and all annexure is attached.

CHAPTER 3
COMPANY PROFILE
The founder of Kirloskar group is late “LAXMAN RAO KASHINATH

KIRLOSKAR”. He was born in 1868 in a village called GULAHASAR in Belgaum
district. He had preferences for Mechanical from his school days and therefore came
to Mumbai and completed a course of technical draftsmanship at JJ school of Arts.
He started business of selling and repairing the bicycles.
When our visionary founder Laxmanrao Kirloskar created the first Iron Plough
for the Indian farmer. His involvement with agriculture led him to make the first pump
then the prime movers for the pump. Since KEC corporate goal has been took into
the future and engineer products that time would eventually demand.
FOUNDERS
Laxmanrao Kashinath Kirloskar was a successful industrialist,

but his chief merit lay in the trail he blazed, for the principle in life he depended upon
were his vision and a spirit of pioneering.
Laxmanrao K. Kirloskar
Founders, Kirloskar group of companies.
Kirloskar Electric Company Limited (KEC) is one of India’s leading

manufactures of Electrical and Power Equipment. Established in 1948 by Mr.
Ravindra L Kirloskar was the youngest son of Laxmanrao and Radhabhai Kirloskar.
Kirloskar Electric Company manufactures AC Motors, AC Generators, DC Motors,

Traction Equipment, Electronics Switchgears and Transformers and under takes

turnkey electrical projects.
Ravindra L. Kirloskar was the youngest son of Laxmanrao and

Radhabhai Kirloskar, who later headed KEC operations. Having a degree in
electrical engineering from the Worcester Polytechnic Institute, U.S.A. he began his
professional career in Kirloskar Brothers. In 1942 he designed and built India’s first
electric motor at Kirloskarwadi with his colleague N.K.Joshi. He guided us with the
highest level of quality...
"Quality must go beyond standard tests and procedures. It

must be equated with self respect and personal pride."
Ravindra L. Kirloskar
Founder, Kirloskar Group of Companies
His words breathe the sprit with which the Kirloskar Industrial journey began.
And this sprit has continued through the passage of time.
In 60 years, the company has built on its core capabilities of prime

technological and engineering skills completed by world class manufacturing
facilities. Kirloskar Electric products have made more than a significant contribution
to India’s rapidly growing economy. Today, Kirloskar Electric Company is capable of
delivering a wide range of custom engineered products that meet and exceed global
standards at very competitive prices.

Kirloskar Electric Company at a Glance.
A country’s progress has been closely linked to effective harnessing and use
of electrical energy for the benefit of its people. Kirloskar Electric’s Endeavour has
been to distribute cost effective solutions in all applications of electricity. We are
actively involved in supplying electrical, industrial electronic equipment, systems and
solutions to Industry. In all these ventures, our focus has been to provide state-of-
the-art technology that can enhance living standards and thereby make the
environment a better place to live in.
Structure
It is the like the skeleton of the whole company edifice. Company structure
refers to the relatively more durable company arrangements and relationships. It
prescribes the formal relationships among various positions and activities. Major
functions of the structure are to reduce external uncertainty through the control
mechanism, to undertake a wide variety of activities through devices such as
departmentalization, specialization, division of labor and delegation of authority and
to enable the company to keep its activities coordinated and to have a focus in the
midst of diversity in the pursuit of its objectives.
In Kirloskar Electric Company activities are grouped into different functional
units. Each major function of the enterprise is grouped into different department.
This can also be studied as a separate function. Specialization of department
promotes the excellence in performance. It leads to improve planning and control of
key functions and ensure economy.

Organization Chart
Chief Executive
Assistant Chief Executive
Personnel Production Marketing Finance

Manager Manager Manager Manager
Relations Asst Manager Sales Manager Finance

Manager Stator & Coil for West, East, Executive
Winding North
Training
Manager Engineer Sales Manager Accounts
Final Assembly for south Executive
And Rotor
Employees
Services Production
Manager Supervisors

KIRLOSKAR ELECTRIC COMPANY LTD
Board of Directors : Vijay R. Kirloskar

Chairman & Managing Director
A. S. Lakshmanan
S. N. Agarwal
Anil Kumar Bhandari
Sarosh j. Ghandy
V. P. Mahendra
Kamlesh Gandhi
Mythili Balasubramanian
IDBI Nominee
Ramesh D. Damle
LIC Nominee
Company Secretary : P. Y. Mahajan
Auditors : B. K. Ramadhyani & Co.
Bankers : Bank of Baroda

Bank of India
State Bank of India
State Bank of Mysore
State Bank of Travancore
The Hong Kong & Shanghai
BankingCorporation
Bank of Commerce, Kuala Lumpur( Malaysia )
Registered Office : Industrial Suburb, Rajajinagar
Bangalore – 560 010

Objectives of the Company
 To provide products of highest quality and value.

 To achieve cost effectiveness in machine shops and foundry.
 To invest in the technology to achieve technological excellence and
competitive edge.
 Commitment for continuous improvement in process, methods productivity
and quality.
 To develop employee’s mutual trust, respect and training.
 To reduce wastage throughout supply chain.
 Human resource development.
Quality Policy
Quality Policy of Kirloskar Electric Company ltd “Shall be to continuously

improve the effectiveness of the Quality Management System, conforming to
ISO 9001:2000 standards in design, manufacturing, marketing and service at
competitive prices, products, of such quality resulting in customer
satisfaction and market leadership.”
Mission
To remain a leading producer of electrical technology products in India.
 To continuously grow in our business and became a significant player in the
world market.
 To maximize return on investment.
 To achieve international levels of excellence in technology and quality.
Values
 Products of highest technology and quality.
 Customer orientation.
 Team work among our people.
 Profits for growth.
Guiding Principles
 Innovate continuously to excel in design and manufacturing.
 Develop products required by the market.
 Manufacture the products of highest policy.
 Focus on the customer in all actions.
 Respond promptly to customer needs.
 Deliver supplies on time every time.
 Treat each other with trust and respect to build a team.
 Develop people by training and delegation.
 Reduce cost instantly to remain competition.
 Offer goods and services at competitive prices.
 Look upon dealers, suppliers and by associates as partners.
 Maintain safe, clean and healthy environment.
 Conduct business in a socially responsible manner.
 Earn enough profits to fund growth and diversification.
Kirloskar Electric Company Bangalore consist of various departments
Department play a vital role in the development of the company. These
departments manage all operation of the company. They are as follows:

 HUMAN RESOURCE DEPARTMENT
 ENGINEERING DEPARTMENT
 PRODUCTION DEPARTMENT
 MAINTENCE DEPARTMENT
 STORE AND MATERIAL HANDLING DEPARTEMENT
 QUALITY ASSURANCE DEPARTMENT
 MARKETING DEPARTMENT
 FINANCE DEPARTMENT
Human Resources Management
KIRLOSKAR ELECTRIC COMPANY recognizes its employees as the most

important asset for its continuous growth. HRM in KEC shall strive to ensure
continuous organization growth by nurturing the strength of its employees and
providing the environment and opportunity for every individual to rise to his or her
highest potential identify and achieve his or her personal goal within the framework
of organizational, societal and national objective.
Engineering Department
Engineering Department plays a major role in giving shape to the products i.e.
electric motors, generators, transformers and controllers. It is mainly concerned with
designing of products according to the needs and wants of customers. Highly,
technically background employees will work together to ensure maximum
satisfaction to the customer. They also undertake comprehensive review of products
before adding new features. The department outlays designs, drawing and sketches
required by the production department and keeps track of recent changes in the

technology thereby diversifying the product produced by the organization in the

modern era of computation.
Production Department
Production department in any industry performs the functions of converting

raw materials into finished goods. The manufacturing of goods requires a
predetermined plan so that available recourses of company are used to optimum
level and more wastage is reduced to the greater extent.
Maintenance Department
Through integration with other modules the data is always kept current and
processes that are necessary for Plant Maintenance and Customer Service are
automatically triggered in other areas.
Stores and Material Handling Department
Have to maintain the minimum stock level. Have to issue material on

request without delay. To store and handle materials properly so as to eliminate the
possibility of damage. Storage of materials and ensure proper condition of raw
materials. To reduce wastage throughout supply chain. To plan procure materials
and services confirming to specified requirements. Store and preserve materials till
they are issued for use.
Quality Assurance Department
Quality assurance programmer take into account the requirements of this part
can be used, after agreement between the purchaser and the manufacturer, to verify
the quality of the motors during the manufacturing process.

Marketing Department
The word “marketing” is derived from Latin word “MARCATUS” which means
MERCHANDISE where trade or place of business is conducted. The essence of
marketing is a transaction, which occurs when one social unit strives to exchange
something of value with another social unit. Marketing takes into account various
activities like marketing research, product development, distribution, pricing,
advertising, personal selling. It acts as a “Link” between producer and consumer. It
maintains equilibrium between mass production and mass consumption. Hence, the
entire marketing system is vital for the organization.
Finance Department
During my dissertation on Kirloskar Electric Company I had the opportunity to

study the operation of Finance Department of KEC; on the basis of I have made my
analysis. In KEC, Finance Department looks after accounts, finance and taxation.
Brief History
History has a way of respecting itself. For Kirloskar Electric, pioneering has
become a life style. A natural consequence of its passionate pursuit of excellence,
which has now become an industrial benchmark both domestic and international
markets. For India’s leaders in AC (Alternate Current) and DC (Direct Current)
machines, it’s just a question of making history all over again.
 1948:- A new era opens for Indian industry. Kirloskar Electric produces the
countries very first AC motor.

 1954:- Impatient for progress, the company gets into product diversification
producing its first Transformer.
 1958:- A critical power situation inspires production of the country’s AC
Generator.
 1963:- The pattern of breakthrough continues. DC Motor and DC Generator
rolls off the Assembly line.
 1965:- Market element increases. India’s first motorized gear unit joins the
Kirloskar Electric product range.
 1980:- New collaborations. Better products Thyristor converter, made in
collaboration with Thorn EMI, UK.
 1989:- More collaboration. More products with FUJI of Japan for
INVERTERS; and with TOSHIBA of Japan for UPS.
 1991:- TOYO DENKI Collaborations for motors and Generators up to 10
MW/MVA. Production of technologically advanced large DC MOTORS and
large AC MOTORS, in collaborations with AEG DIAMLER BENZ of Germany
up to 20 MW.
 1992:- The company starts production of LI-TECH CRT based CNC system.
 1993:- Kirloskar Electric becomes the first company in India to receive ISO
9000 Certification for entire product range and for all its manufacturing units.
 1995:- Took over Volta’s Transformer started manufacturing plant at Tumkur
for manufacturing of stamping, Die cast, Rotors/Bodies and Coils.
 2002:- Kirloskar Electric receives ISO 9001:2000 Certification for the entire
product range and for all its manufacturing units.

Projects of KEC
Kirloskar Electric ventured into Projects and Systems Group (PSG)

understanding the Potential requirement of the industry.
With state-of-the art manufacturing support, Projects and

Systems Group has performed the best winning the challenging and reputed orders
all over India. It has provided solutions from the project concept to commissioning
by integrating Design, Supply and Installation for large projects.
Switchyards & Power Distribution

The central philosophy of PSG is to offer a complete system of Electric
Control and Automation that is handled by us as a single source.
Co-generation depends on plant specific parameters.
PSG formed this group to meet the challenges of Power

Generation using Non-Conventional Energy Sources.
PSG has expertise and experience in following main projects:
• Micro/Mini & Small Hydel Projects
• Co-Generation Projects
• Wind Energy Projects

• Solar Energy Projects

• Gas Based Power Projects
• Diesel Based Power Projects
• Wave Energy Projects
Steel Industry
High temperature exhaust gases are used for better energy

recycling. In association with turbine manufacturers cater to the requirements of the
power plants and offer complete electric's like generator and associated controls for
diesel, small Hydel projects, wind power plants. PSG designed and executed
complete electrical system for country's first co-generation plant at Tasco Cheyyar,
5MW in Tamilnadu and The Ugar Sugar, 32MW in Karnataka and thereafter
developed many co -generation plants.
Co-Generation
PSG has successfully designed, manufactured, supplied, tested

and commissioned couple of challenging projects. KEC has executed first co-
generation.
Project in Karnataka for Ugar Sugar of 30 MW in the year 2000. KEC has also
executed such co-generation projects for Prabhulingeshwara Sugar (16 MW) &
Varalakshmi Sugar (20 MW) in Karnataka. Co-Generation: "Combined Generation"
by conversion of energy contained in a fuel into two or more usable forms.

The role of PSG in Switchyards and Power Distribution are:
 PSG has developed expertise in Design, Engineering, Supply, Erection and

commissioning of Electrical Switchyard up to 220kV.
 PSG has successfully commissioned total electric's including switchyardand
plant electrification for Toyota Kirloskar, Sulzer Flowel, KFIL, NALCO, BFL,
Enercon, Hero-Cycles, and DGS & D Port Blair, just to highlight a few valuable
clients out of the total list.
 PSG in association with General Electric Drive System USA had supplied the
total electrics & automation package of 2 Million tones per annum to Steel Hot Strip
Mill of Essar Steel Ltd., in Gujarat, India.
Milestones
India’s first satellite tracked: -

Proud scientist celebrated the successful tracking of India’s first satellite. The
meticulously planned event was held in Hassan, Karnataka. The team had finalized
the specification for AC Generators with Kirloskar Electric Company, taking care of
intricate details like Transient loading and transient voltage regulation performance.
Missile Test Fired: -

The first ever indigenously built missile was test fired in early 90’s, year
before; premier defense organization perfected the intricate performance
requirement of power supply unit. KEC played a key role in building the entire power
supply unit. The AC Generators of KEC were customized for arduous duty.

India explores Antarctica:-

India was the first developing country to join Antarctica explorations. The task
team behind this feat had done the homework right. They carried with them specially
designed AC Generators, developed by KEC that worked perfectly in sub zero
temperatures.
Rajadhani flagged off: -

The research wing of India Railways worked with specialists from KEC to
design highly reliable AC Generators that would take that heat, dust, smoke and the
acceleration of the bogie and continue to function giving passengers of the
Rajadhani greater speed, greater comfort and increased safety.
Stealth ship launched: -

On 18 April 2003, national dailies splashed the launch of the first indigenously
designed stealth ship. The ship four KEC 1000kw AC Generators which are the
result of our close association with Indian Navy, in the supply of AC Generators, for
frontline battle ship.
Survival in Leh: -
In the lab, the Defense experts drenched it with salt spray, blasted it with
sand, vibrated it, heated it in an oven, and rocked it over the bumps. In the field they
hauled it from deserts of Rajasthan to marshy areas in Assam and yet the KEC AC
Generators worked for decades. They wanted to verify whether the AC Generators
bleeds as human do when they land up in Leh, the highest place inhabited on earth

and they did id with success. That is why KEC remains the most preferred make by
the Defense establishments.
Certifications
We are very proud to be the first Electrical Engineering Company to get ISO
9001 certification in India. KEC is also the first electrical equipment manufacturing
company in India to be awarded with the certificate for providing ‘CE’ Mark Kirloskar
Electric is a pioneer in export of Electrical and Electronic goods.
Bureau Veritas Quality International (BVQI)
Bureau Veritas Quality International (BVQI) has certified the Quality

Management System of KEC. We are also first in electrical industry to obtain ISO
90012000 certification by BVQI.
KEMA Certification
‘KEMA' registered quality B.V.Netherlands, notified authority

have tested our products with respect to low voltage directive, EMC
(Electromagnetic) directive and MD (Machinery) directive.
Confirmative Europeenne (CE)

‘CE' stands for ‘CONFIRMATIVE EUROPEENNE' and conformity to

European standards meeting basic requirements of Safety, Health, and Environment
& Protection (SHEC). KEC is entitled to provide 'CE Marking' for AC motors, AC
generators and DC machines. ‘CE' marking allows the product un-registered legal
access to the European market.
NVLAP Certification
We are proud of having established an independent laboratory

duly certified by NVLAP - NIST, USA for testing of energy efficient 3 phase Induction
motors up to 50 HP. Kirloskar Electric Test Laboratory (KETL) is first in India and
among few in Asia to get NVLAP Accreditation.
AWARDS
 Best Innovative product for Digital drive by IEEMA at the Elecrama exhibition.
 National award for R&D from the Department of Scientific & Industrial
research, Ministry of Science & Technology, India
AREA OF OPERATIONS:
It has National and regional customers where the production is taken place
according to the order given by customer that to at the legal right.
Plant locations of KEC
Regd. Office: Unit-1

P. B. No. 5555, Plot No. 6,

Malleswaram West, Govenahalli,
Bangalore- 560 055. Nelamangala,
Bangalore Rural Dist.
Bangalore - 562 123
Unit- 2 Unit- 3
P.B. 112, Belavadi Industrial Area,
Gokul Road, Mysore - 571 186
Hubli - 580 030
Unit- 4 Unit- 5
Survey No.16 Jalahalli
Hirehalli Industrial Area Bangalore-560031
Tumkur - 572 168
Unit- 6
J.D.Royalite building,
Tumkur Road,
Bangalore-560022
Competitors
o ABB
o TRIDENT POWER SYSTEMS LTD
o CROMPTON GREAVES
o INTEGRATED
o BHARAT HEAVY ELECTRICALS LTD
o HAVELS INDIA

Sales Office of KEC
o Kollkata
o Chennai
o Patna
o Surat
o Nagpur
o Bangalore
o Mumbai
o Hyderabad
o Ahmedabad
o Belgaum
o New Delhi
o Nashik
o Jaipur
o Bhuvaneswar
o Jamshedpur
o Coimbatore
o Madhurai
o Guwahati
Product Profile
1) AC Motors

Kirloskar Electric was the first company in India

to manufacture AC Motors way back in 1948. Since then it has manufactured
millions of motors for domestic and International Market. KEC has electric motors for
every conceivable application and industry. Motors are offered in open type, closed
type and heat exchanger type enclosures. Class F insulation being standard for all
motors, class H insulation is also offered for low voltage motors.
The modular design totally enclosed air to air heat exchanger is the first
choice of industry for the more arduous applications. Compact rib cooled motors with
unique internal cooling are used for duty atmospheres meeting the performance their
requirements of national and international standards. In the aspect of dimension,
size, weight, aesthetics and performance they are comparable to the best of the
world.
2) DC Motors

The DC Motors are designed with ample

Margin of safety to ensure trouble free service even under exacting operating
conditions. Kirloskar Electric forms its fabled stable of DC Motors have put into
international use more than 0.1 million motors since 1969. The wide product range in
capacity and variety satisfies the needs of a multitude of applications. The Industrial
Laminated Yoke range starting from frame 80 to 3157 with outputs of 0.75 to 3250
kW caters to the industry requirement of torques up to 200 knm. The rugged and
reliable higher range of motors are specifically designed for exacting duties in a hot
and cold metal rolling mill drive, the sticky rubber mixer drive and continues duty
cement kiln drive.
These products come from an in house developed technology based on the

best of world class international design manufacturing concepts. Kirloskar Electric
has a history of excelling in special application and customization. Today, there are
more than 150 Electric Rope working in Indian coal mines, completely powered by
Kirloskar Electrics. India’s premier aircraft manufacturing facility in Bangalore houses
one of the worlds few high power and outdoor duty vertical DC motors, for helicopter
blade load testing made by Kirloskar.
Applications
Industries: - Steel Mills – Auxiliary Drives, Textile Machine, Rubber Industry,
Cement Industry, Machine Tools – Spindle Drives, Apron feeders,
Conveyers, Pumps, Printing Machine, Cable making Machines,

3) AC Generators
For over four decades, four out of every five AC

generators manufactured by the organized sector in India were made by Kirloskar
Electric Company. This has resulted in a population of several million Kirloskar AC
Generators. Their simple construction, long life and easy availability of spares
through a wide network of service centers make them the preferred choice in critical
applications like nuclear, missile, petrochemical, power and other process industries.
Continuous product development has kept pace with corresponding prime

mover availability like wind mills, gas turbines, water turbines, steam turbines and
Variety of makes of diesel engines. The products quality based on world class
technology and state-of-the-art infrastructure makes leading consultants specify. In
the aspect of dimensions, size, weight, aesthetics and performance they are
comparable to the best in the world.
Applications
Industries : Telecom, Textile, Agriculture.

Military : Battle Tanks, Warships.
Utilities : Fuel Stations, Milk Diaries, Cinema Houses,
Nursing Homes, Construction, Hospitals

4) Electronics
In 1978 KEC started manufacturing electronic

products. A separate unit at Mysore was started in 1980. This unit offers process
industries, customized packages in terms of motors and drives which results in
higher productivity, energy saving and greatly reduced. A large roster of awards and
recognition like Best Innovative Product for Digital DC Drive by IEEMA at the
Elecrama exhibition and the National Award for R&D from the Department of
Scientific and Industrial Research, Ministry of Science & Technology, India, bear
testimony to the high standard of product quality and reliability maintained.
The product range include DC Drives in collaboration with Thorn EMI, UK, in
a range from 2.7 KW to 2.5 MW which find intensive applications in core process
industries like sugar, steel paper, cement, rubber, material handling & test rigs.
Applications: -
Industries : Plastic, Textile, Railways, Rubber, Cement, Sugar,
Paper, Banking.
Utilities : IT, Medical Equipment, Machine Tools.
5) Traction Equipment: -

Product Catalogue Indian Railways and KEC have had a

long and productive association wherein KEC has kept pace with each stage of
technological development demanded by the indigenization of India's vast railway
system. Its team of engineers supported by world class manufacturing facility set out
in the eighties to indigenize electric equipment which was, until then, imported at
great cost. The Traction Division was started in 1990 to cater to mainline electric and
diesel locomotives. Today KEC is one of the major suppliers of electrical equipment
to the railways.
Beginning with the first DC Motors for compressor application in AC coaches,

KEC went on to develop dynamic braking resistors for goods train. Since then it has
been a series of firsts, with the development of Alsthom design of 3900 hp traction
motors and Hitachi design of 5400hp for electric locomotives. Prestigious Indian
trains like Rajadhani Express, Shatapthi and Palace on Wheels have 500 KVA AC
generators for power car applications. With diesel locomotives going in for GM
technology, KEC was the first Indian company to make radiator cooling fans, dust
bin blower-motors to international standards. With its successful contribution to the
modernizing of Indian railways KEC has now been approached by world leaders in
traction for strategic tie ups which will ensure the presence of KEC traction products
in the global arena.
Applications: -
Industries : Railway.
Profile

INDUSTRIAL PROFILE
Background and Historical Trends
Electricity in India
The advent of electricity in India was in the form of galvanic electricity (both
electrochemical and electro-magnetic) through telegraphy. Unlike other
technological developments in the west, which were introduced in India after a time
gap ,the electric telegraph was introduced almost at the same time as in Europe and
America. The first experimental line was set up in Calcutta in 1839 at the Botanical
Gardens along the river Hooghly.
Electricity for lighting arrived 35 years later. The former princely state of
Bikaner holds the record of introducing electricity in the subcontinent. In 1886,
Jamsetji Tata installed a dynamo driven power plant in his residence, which was
later extended to the adjacent Gymkhana Chambers ten years later. When Jamsetji
Tata built the Taj Mahal Hotel in 1903, it was equipped with a modern power
generator for all the electrical needs of the establishment.
Anticipating the growing needs of electricity as a public utility, the

Government of India in 1986 invited Crompton to assist in the preparation of an
Electric Lighting Act. Kilburn & Co., agents for Crompton & Co. Chelmsford secured
the first Calcutta lighting license. Subsequently the Indian Electric Company Ltd. was
registered in London in January 1897, which changed its name to become the
Calcutta Electric Supply Corporation (CESC).
A Calcutta Electric Supply Corporation (CESC) poer station commence
operation at Emambaug Lane (Prince Street on April 17, 1899), was powered by

Crompton dynamos (850 KWA, 220V @50 rpm0, Williams engine and Babcock and
Wilcox boilers. Crompton & Co. played a major role in meeting the growing demand.
The first major hydroelectric project (4.5 MW) in India was on the Cauvery
River at Sivanasamudram, commissioned by the Maharaja of Mysore in 1899. It
commenced power supplies to the Kolar Gold Mines in 1902. The capacity was
increased power supplies to 42 MW in stages by 1927.
In 1903, Crompton & Co. installed a power plant for the Madras Electric
Supply Corporation of India Ltd. The company set up power plants in different cities
including Karachi, Kanpur, Allahabad, Nagpur, Rangoon, and Tibet. Impressed by
what he had seen in the Niagara Falls Hydroelectric Scheme and Enthused by
George Westinghouse, Jamsetji Tata proposed a power project by utilizing the water
resource available in the Western Ghats for supplying power for the lighting and
industrial needs of Bombay. The Tata Hydroelectric power supply Co. was
registered on November 7, 1910 and the license obtained by the syndicate for power
generation was transferred to the Company.
The Company commissioned the country’s largest Hydropower station at that

time of 32 MW capacities by coupling 4 sets of pelton wheels directly to 8 MW 3
phase 50 HZ generators at Lonavla and transmitted power to Bombay on a 110 KV
transmission line. To meet the increased load demand, Tata Sons Ltd., promoted a
new Company- Andhra valley power supply co. in 1916 and commissioned a 72 MW
power plant at Shivpuri in 1922. A third company Tata power co. ltd. As incorporated
in 1919 and set up an 88 MW generating station at Bihar in 1927.
Electrical equipments such as motors, transformers, switchgears etc. are
used by all sectors of the Indian Economy. Some major areas where these are used
are the multi-crore projects for power generation including nuclear power stations,
petrochemical complexes, and chemical plants integrated steel plants, non-ferrous

metal units etc. the industry has been upgrading the existing technology and is now
capable of taking up turnkey contracts for exporting markets. The Industry has been
de-licensed. The existing installed capacity in the industry is of the order of 4500

MW of thermal, 1345MW of hydro and about 100 MW of gas based power

generation equipment per annum. There also exists capability for manufacture of
equipment for the nuclear power plants in the country. The share of domestic
equipment is about 66% in the country’s power generation capacity.
The Heavy Electrical Industry is capable of manufacturing transmission and

distribution equipment up to 400 KV AC and high voltage DC. Steps have also been
taken to upgrade the technology to the next higher system voltage level of 800 KV.
Large electrical motor used in Steel plants, Petrochemical complexes and other such
heavy industries are also been manufactured in the country. Electric motor is the
workhorse of prime moving in industries and in household application for over a
decade. DC motors, Induction motors and Universal motors have been mainly used
for various applications. These classic motors developed before the advent of
electronics are designed to operate at constant-speed directly from readily available,
utility main AC power usually with relatively little regard towards efficiency.
The single-phase induction motors drive most of these applications. The

efficiency of these motors, depending on the rating, could be, lowest 25% (table
fans, ceiling fans, small exhaust fans, a/c blower motors etc) to highest 65% (pumps,
blower motors in large air-conditioners etc.). The volume of such motors used in
each country is very huge. Therefore, even if a small improvement in the efficiency
of the motors driving these applications is affected, it will have a large impact on the
energy it can save.
Advent of manufacturing of electrical equipment in India
In the initial years, no overseas company thought of setting up a

manufacturing facility in India, Burma, Aden, and Ceylon. Many of the were

merchandising and contracting through their local agents in India like Kilburn & Co.,
Martin & Co., John Fleming etc. Understanding the growing demand for electricity,
particularly in the textile mills, Greaves Cotton, the biggest group of spinning mills,
setup its electrical engineering department in 1904 holding agencies for Crompton,
F&A Parkinson and Verity & Co. and took up contract jobs foe electrification.
After commissioning, the Calcutta and Madras power plants, Crompton

established its office in the two cities in 1911 as a distributing company. So did
Siemens in 1922 and AEI (India) Ltd. In1924. India cable Co. set up a manufacturing
plant in Jamshedpur in 1923, Westinghouse Brakes & Signals in Calcutta in the late
1920s, Crompton Parkinson in Bombay in 1937, Philips Electrical Co. (India) Ltd. in
Calcutta in1931.
Among Indian companies, Bengal Lamps was established to manufacture

electric lamps in 1932, India Electric Works Ltd. started an integrated design ceiling
fan factory in Calcutta around the same time. Other important companies include
Larsen & Turbo (a partnership of two enterprising young Danes) in 1938, Bajaj
Electrical (1938), Ess Ess Kay Engg. (1935), Jyoti Ltd. (1943), Mysore Electrical
(1945), Kirloskar Electric (1946) etc.
Table - 01
Market Capitalization of Electric Companies
(Rs in Crores)
Company Name Market Capitalization
ABB 8,483.75

Crompton Greave 4,578.42

Havells India 648.69
Techno Electric 348.26
HBL Power 272.78
Bharat Bijlee 215.72
Emco 166.80
Best and Crompt 162.85
RTS Power Corp 147.04
Kirl Electric 142.72
Honda Siel 136.42
Elpro Int 105.51
Numeric Powe 98.53
Easun Reyrl 79.04
WS Industries 49.89
Indo Asian Fuse 42.86
Birla Power Sol 42.85
Jyoti 36.62
Shilchar Techno 36.00
Modison Metals 26.41
IMP Powers 26.40
Lakshmi Elec 24.11
De Nora India 23.33
Salzer Elec 23.32
Igarashi Motors 16.65
Marsons 15.40
Stone India 14.43
Alfa Transformer 14.20
Integra Hind 13.28
Kaycee Ind 8.66
Accurate Transf 8.02
ContinentContro 3.03
Rexnord Electro 2.86
Switching Tech 2.84
Envair Electro 2.81
Toyama Electric 2.79
Thana Elect 2.19
Chapter – 4
Analysis and Interpretation of Data

Working capital is looked as a driving seat of finance manager in Kirloskar

Electric Company Ltd. As it involves manufacturing activity it requires efficient
amount of working capital to meet its day-to-day needs. The long-term working
capital needs are for building, plant, furniture, etc., and the short-term needs are
cash, inventories, securities, etc. The balances sheet shows the financial position of
a company at a given point of time. It provides a snapshot and is regarded as a
static picture. The income statement or the profit and loss statement reflects the
performance of a company over a period of time. The significant accounting policies
followed by Kirloskar Electric Company Ltd. are as follows;
Significant Accounting Policies:
 Accrual System of Accounting:

The company follows the accrual system of accounting in respect of all items
of expenditure and income.
 Fixed Assets:
Fixed Assets are stated at cost of acquisition inclusive of freight, duties, taxes
and incidental expenses relating to the acquisition, installation, erection and
commissioning less depreciation. A portion of the land owned by the company has
been revalued. Internally manufactured assets are revalued at works cost.
 Investments:
Investments unless otherwise stated are considered as long term in nature
and are valued at acquisition cost less provision for diminution, if any.
 Inventories:
Raw materials, stores, spare parts ad components are revalued on first in first
out basis at net landed cost except for stock purchased in prior years at switchgear
division, which are valued at estimated cost due to non- availability of adequate data
or net realizable value whichever is lower. Finished goods are valued at works costs
or net realizable value whichever is lower.
 Depreciation:

Depreciation is charged on the written down value of assets at the rate

specified in schedule 16 to the Companies Act, 1956 or Income Tax Act, 1961,
which ever is higher an asset as on 31st march 1994.
 Research and Development Expenditure:
Revenue expenditure in carrying out research and development activity is
charged to the profit loss account of the year in which it is incurred. Capital
expenditure in respect of research and development activity is capitalized as fixed
assets and depreciation as provided.
 Gratuity:
Provision of gratuity is made on an estimated basis as per the provision of the
payment of gratuity act 1972.
Share Capital:
Issued, subscribed and paid up
1,200,000 (1,200,000) Preference Shares of Rs 100/- each.
33,268,817 (31,268,817) Equity Shares of Rs 10/- each.
The Current Assets and Current Liabilities of Kirloskar Electric Company Ltd.
is given below.
CURRENT ASSETS:
 INVENTORIES
a) Raw materials, stores parts, components etc
b) Stock in Trade
Work-in-progress.
Finished goods.
c) Scrap.
 SUNDRY DEBTORS (unsecured considered good except doubtful debts)

a) Debts outstanding for a period exceeding 6 months

b) Others
 CASH AND BANK BALANCES

a) Cash in hand.
b) Amount in Transit
c) Balances with Scheduled Banks
 LOANS AND ADVANCES (unsecured considered good except doubtful

debts)
a) Advances recoverable in cash or kind.
b) Sundry Advances
CURRENT LIABILITIES AND PROVISIONS

 CURRENT LIABILITIES
a) Sundry Creditors.
b) Acceptances
c) Trade Advances
 PROVISIONS
a) For taxation (including FBT)
b) For gratuity.
c) For Earned Leaves
d) For Warranty Claim
By studying the working capital in Kirloskar Electric Company Ltd one can
know the factors influencing the growth prospects of the company.
SOURCES OF WORKING CAPITAL TO KIRLOSKAR ELECTRIC COMPANY LTD

 Shares: Issues of shares is the most important source for raising the
permanent or long-term capital for Kirloskar Electric Company, has 33,268,817
(31,268,817) Equity Shares of Rs 10/- each.
 Loans: Financial institutions such as commercial banks, life insurance
Corporation, industrial finance corporation of India, state financial corporation etc
provides long term, short term, and medium term loans to the companies.
 Secured loans: Kirloskar Electric Company gets secured loans by borrowing
money from:
a) From Banks
b) Finance Lease obligations
c) From a Company
d) Zero coupon debentures
 Unsecured loans: Kirloskar Electric Company gets unsecured loans from:
a) Fixed Deposits Unclaimed
b) Interest accrued and due – FD’s
c) SICOM sales tax loan
d) From Companies
TABLE – 4.1

TABLE SHOWING GROSS WORKING CAPITAL CHANGES OF KIRLOSKAR

ELECTRIC COMPANY LTD
(Rs in 000’s)
Particulars 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006
Current Assets
Inventories 912,182 736,238 455,864 229,727 217,961
Sundry Debtors 2,000,512 1,895,783 1,598,625 1,378,923 1,126,390
Cash &Balance 444,919 484,230 524,749 413,668 139,434
Loans advances 349,710 561,369 580,537 387,329 253,968
Gross Working
3,707,323 3,677,620 3,159,775 2,409,647 1,737,753
Capital
TABLE – 4.2
TABLE SHOWING NET WORKING CAPITAL CHANGES OF KIRLOSKAR

(Rs in 000’s)
Particulars 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006
Gross Working
3,707,323 3,677,620 3,159,775 2,409,647 1,737,753
Capital
(-) Current
2,615,839 2,585,228 2,131,454 1,763,766 1,555,257
Liabilities
Net Working Capital 1,091,484 1,092,392 1,028,321 645,881 1,182,496

Graph: - 01
NET WORKING CAPITAL CHANGES
Ratio
Year
INTERPRETATION
The gross working capital has fluctuated with the growth of the business over
a series of years. There is an increase in the current assets of the company which
helps the company for smooth flow of day to day activities.
INTERPRETATION
The net working capital table indicates that excess current asset is available
at the disposal of the company for the operational requirements.

TABLE- 4.3
TABLE SHOWING SALES, DEBTORS & CREDITORS

(Rs in 000’s)
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Sales 9,055,707 9,629,301 7,649,921 6,186,711 3,203,637
Opening
1,895,783 1,598,625 1,353,438 1,126,390 825,008
debtors
Closing
2,000,512 1,895,783 1,598,625 1,378,923 1,126,390
debtors
Opening
1,770,648 869,210 547,539 501,081 343,027
creditors
Closing
1,916,780 1,770,648 869,210 547,539 501,081
creditors
INTERPRETATION
From the above table, it is evident that the sales of the Kirloskar Electric
Company have increased over a period of time and this increases the size and
components of working capital. There is also an increase in the debtors, which is
apparent from the table, which implies that the company is running short of cash or
there is inadequate cash in the hands of the company.

TABLE – 4.4
TABLE SHOWING OPERATING CYCLE CALCULATION OF KIRLOSKAR

(Rs in 000’s)
SL PARTICULARS 2005- 2006- 2007- 2008-2009 2009-
NO 2006 2007 2008 2010
01 Raw material conversion period
A Cost of Raw 10289.72 14546.13 18097.98 18287.54 16852.76
material consumed
per day
B Raw material 859,539 1,565,045 2,423,116 6,325,671 6,111,480
inventory
Conversion Period 84 days 108 days 134 days 346 days 362 days
02 Work-in-progress
conversion period
A Cost of production 111704.6 15337.64 19119.34 21976.1 20964.1
per day
B Work-in-progress 57,195 80,905 169,290 324,148 462,326

inventory
Work-in-progress 5 days 5 days 9 days 15 days 22 days
holding days
03 Finished goods conversion period
A Cost of goods sold 712.04 791.5 1021.36 3688.55 4111.29

per day
B Finished goods 73,221 101,632 124.214 164,525 166,188
inventory

Finished goods 103 days 128 days 122 days 45 days 40 days
inventory holding
days
04 Debtors Collection period
A Credit Sales per 11729.12 16950 20958.69 26381.65 24810.16

day
B Average Sundry 975,699 1,252,657 1,476,032 1,747,204 1,948,148
Debtors
Collection Period 83 days 74 days 71 days 66 days 79 days
05 Payment deferral period
A Purchases per day 8181.21 10298.54 12,027.08 406.01 374.32
B Creditors 422,054 538,287 708,375 1,319,929 1,843,714
Credit holding days 52 days 52 days 59 days 3250days 4926

days
Formulae used to get the proper data in the above table are as follows:
1. Raw material Average cost of Raw material

Inventory =
Cost of Raw material consumed per day
2005-2006 = 859,539
--------------------- = 84 DAYS
10289.78
2006-2007 = 1,565,045
--------------------- = 108 DAYS
14548.13

2007-2008 = 24231165
--------------------- = 134 DAYS
18097.98
2008-2009 = 6325671
--------------------- = 346 DAYS
18287.76
2009-2010 = 6111480
--------------------- = 362 DAYS
16852.76
2. Work-in-progress Average cost of work-in-progress

Inventory =
Cost of production per day
2005-2006 = 57185
--------------------- = 5 DAYS
111704.60
2006-2007 = 80905
--------------------- = 5 DAYS
15337.64
2007-2008 = 169290
--------------------- = 8 DAYS
19119.34

2008-2009 = 324148
--------------------- = 15 DAYS
21976.10
2009-2010 = 462326
--------------------- = 22 DAYS
20964.01
3. Finished Goods Cost of Finished Goods

Inventory =
Cost of goods sold per day
2005-2006 = 73221
--------------------- = 103 DAYS
712.04
2006-2007 = 101632
--------------------- = 128 DAYS
791.5
2007-2008 = 124214
--------------------- = 122 DAYS
1021.36
2008-2009 = 164525
--------------------- = 40 DAYS
3668.55
2009-2010 = 166188
--------------------- = 40 DAYS
4111.29

4. Debtors Collection Average Sundry Debtors

Period =
Credit Sales per Day
2005-2006 = 975699
--------------------- = 83 DAYS
11729.12
2006-2007 = 1252657
--------------------- = 74DAYS
16950
2007-2008 = 1476032
--------------------- = 70 DAYS
20958.69
2008-2009 = 1747204
--------------------- = 66 DAYS
26381.65
2009-2010 = 1948148
--------------------- = 79 DAYS
24810.16

5. Creditors Payment Average Sundry Creditors

Period =
Credit Purchase per Day
2005-2006 = 422054
--------------------- = 52 DAYS
8181.21
2006-2007 = 538287
--------------------- = 52 DAYS
10298.54
2007-2008 = 708375
--------------------- = 59 DAYS
12027.08
2008-2009 = 1319929
--------------------- = 66 DAYS
406.01
2009-2010 = 1843714
--------------------- = 4926 DAYS
374.32
ANALYSIS OF OPERATING CYCLE CALCULATIONS

From the table number 01 the raw material inventory level in the year 2005-
2006 which stood as Rs 859,539, 2006-2007 which stood as Rs 1,565,045, 2007-
2008 which stood as Rs 2,423,116 and 2008-2009 which stood as Rs 6,325,671 and
2009-2010 which stood 6,111,480 indicating that the company has good production
and does not have any uncertainty in supply of raw materials. There has been an

increase in the level of work in progress inventory and hence it is a satisfactory level,
also Kirloskar Electric Company has maintained an increasing level of finished
goods inventory to meet the demand of the customers.
In the case of Debtors collection period it has been decreased year by year.
In 2005-2006 collection period was 83 Days, where as 2006-2007 collection period
was 83 Days, where as 2006-2007 collection period was 74 Days was decreased
but in 2007-2008 collection period was decreased to 71 days and 2008-2009
collection period was decreased to 66 days, and 2009-2010 collection period was
increased to 79 days. it means Kirloskar Electric Company is not extending the
credit facilities to the there valued customers. The debtor’s collection period is
decreasing, which is good sign from the company’s point of view. It means the
company is in position to collect its debts in time and is also capable of
managing its day today activities.
The company’s creditors are decreased to Rs 422,054 in 2005-2006 when

compare to last four years shown in table. In the view of the company’s financial
position is paying more interest to reduced its creditors. A higher creditor’s ratio or
Lower credit period enjoyed ratio in 2009-10, 2008-09 and 2007-08 2007-
2006. This indicates creditors paid slowly.

.TABLE – 4.5
TABLE SHOWING SUMMARY OF OPERATING CYCLE CALCULATION OF
KIRLOSKAR ELECTRIC COMPANY LTD
AEING ANALYSIS
NO PARTICULARS 2005- 2006- 2007- 2008-2009 2009-
2006 2007 2008 2010
01 Inventory
conversion period
A Raw material 84 Days 108 Days 134 Days 346 Days 362 Days
B Work-in-progress 5 Days 5 Days 9 Days 15 Days 22 Days
C Finished goods 103 Days 128 Days 122 Days 45 Days 40 Days
02 Receivable 83 Days 74 Days 71 Days 66 Days 79 Days

conversion period
03 Gross Operating 275 Days 315 Days 336 Days 472 Days 503 Days
Cycle(1+2)
04 Payment Deferral 52 Days 52 Days 59 Days 3250 Days 4926
period Days
05 Net Operating 223 Days 263 Days 277 Days -2778 -4423
Cycle(3-4) Days Days
INTERPRETATION
According to the above table the operating cycle takes -4423 Days to convert
raw materials into cash in the year 2009-2010. The net operating cycle has
increased over year by year i.e. in 2005-2006 223 days, 2006-2007 has to increased
to 263 days, in the year 2007-2008 it has increased to 277 days and in year 2008-09
it has decreased to -2776 days. Due to the following reasons can be highlighted

about these fluctuations.
In the year 2009-2010 raw material holding days have increased by 16 days
this is because raw material consumption has increased to Rs 6,111,480 and at the
same time the level of raw material inventory has increased to Rs 2, 14,191.
One reason would be the policy of company, to reduce the inventory holding
to bring the cost down, but there is an increase in the work-in-progress holding days
when compared to that of the year 2008-2009, due to fluctuations of demand for the
company’s product in the market.
Collection period is reduced so as to increase the cash inflows, where as the

payment deferral period is increased to 4926 days in the year 2009-2010 when
compared to 3250 days in the year 2008-2009, and 59 days in 2007-2008. This
indicates that the company has to take necessary steps to control disbursements for
maximum availability of cash.

RATIO ANALYSIS
The ratio analysis is one of the most important and powerful tools of financial
analysis. It is the process of establishing and interpreting various ratios. It is with the
help of ratios that the ratios that the financial statement can be analyzed more
clearly and decisions made from such analysis.
Ratio analysis is the technique of calculation of number of accounting ratios

from the data found in the financial statements, the comparison of the accounting
ratios with those of the previous years or with those of other concerns engaged in
similar line of activities or with those of standard ratios and the interpretation of the
comparison.

CONCEPT OF RATIO
A ratio is a simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated quotient of two mathematical
expressions. According to Accountant’s handbook by Wixonkell and Bedford, a ratio
“is an expression of the quantitative relationship between two numbers”.
CURRENT RATIO
Current ratio may be defined as the relationship between current assets and
current liabilities. The main objective of is to measure the ability of the firm to meet
its short term financial soundness of the firm. This ratio is also known as working
capital ratio. It is computed by dividing the total current assets by total current
liabilities. The standard ratio is 2:1
Total Current Assets

Current ratio =
Total Current Liabilities
Current assets include cash in hand, cash at bank, bills receivable, sundry
debtors, inventory, prepaid expenses, outstanding incomes temporary investments
and advances. Current liabilities include bills payable, sundry creditors, bank
overdraft, unclaimed dividend, outstanding expenses, provision for taxation and
proposed dividend etc.

TABLE – 4.6
TABLE SHOWING CURRENT RATIO
(Rs in 000’s)
CURRENT CURRENT CURRENT

YEAR
ASSETS LIABILITIES RATIO
2005-2006 1,737,753 1,576,507 1.102

2006-2007 2,409,647 1,805,200 1.335
2007-2008 3,159,775 2,214,785 1.427
2008-2009 3,677,620 2,915,935 1.261
2009-2010 3,707,323 2,955,817 1.254
Graph- 02
Current Ratio
1.427
1.335
1.261 1.254
1.102
Ratio
INTERPRETATION
The above table shows the current ratio for the five financial years.
Comparing with the corresponding year there is no improvement in the current
ratio. The analysis shows that the company has a liquidity position which is not
satisfactory to meet its obligations without any borrowings.

QUICK RATIO
Quick ratio reveals the relationship between quick assets and current
liabilities. It is also known as liquid ratio or acid test ratio. The main objective of
computing this ratio is to measure the ability of the company to meet its short term
obligations as and when due, without relying upon the realization of stock. Quick
assets include all current assets except inventory and prepaid expenses. Current
liabilities include all current liabilities except bank overdraft.
Quick Assets
Quick ratio =
Current liabilities
TABLE – 4.7
TABLE SHOWING THE QUICK RATIO
(Rs in 000’s)
CURRENT
YEAR QUICK ASSETS QUICK RATIO
LIABILITIES
2005-2006 1,519,792 1,576,507 0.96

2006-2007 2,179,920 1,805,200 1.21
2007-2008 2,703,911 1,805,200 1.22
2008-2009 2,941,382 2,915,935 1.00
2009-20010 2,795,141 2,955,817 0.94
Graph 03

Quick Ratio
1.21 1.22
0.96 1.00 0.94
Ratio
INTERPRETATION
The above Table shown the Quick ratio is increased to 1.21 in the year 2006-
2007 when compared to the previous year 2005-2006, and again it is increased to
1.22 in the year 2007-2008. It is decreased to 1.00 and 0.94 in the year 2008-09 and
2009-10. This further confirms that there are fluctuations in the short-term liquidity of
the company. So above analysis shows that KEC liquidity position is satisfactory.

INVENTORY TURNOVER RATIO
Inventory turnover ratio is the ratio, which indicates the number of times the
stock is turned over i.e., sold during the year. In other words, it is the ratio between
the cost of goods sold and average stock. This ratio can be calculated as follows.
Sales
Inventory Turnover Ratio =
Average Inventory
TABLE – 4.8
TABLE SHOWING INVENTORY TURNOVER RATIO

(Rs in 000’s)
Inventory Turn
Year Sales Average Stock
Over Ratio
2005-2006 4,281,127 168,776 25.37
2006-2007 6,186,711 223,844 27.64
2007-2008 7,649,921 342,796 22.32
2008-2009 9,629,301 596,051 16.15
2009-2010 9,055,707 824,210 11.00

Graph- 04
INVENTORY TURNOVER RATIO
Ratio
INTERPRETATION
The Table and figure shows that the KEC has very high turnover ratio. It was
25.37 in the year 2005-06 and there was a slight improvement and it increased to
27.64 in the year 2006-07 and in 2007-08 was 22.32 and it decreased to 16.15for
the year 2008-09 and in year 2009-10 again it has decreased to 11.00 . So above
analysis shows that highly efficient and so it sells away its goods quickly.

DEBTORS TURNOVER RATIO
Debtors Turnover Ratio is to establish the relationship between credit sales

and trade debtors. In other words, it indicates the velocity of debts collection of the
firm in a year. This ratio is calculated as follows.
Credit Sales
Debtors Turnover Ratio =
Debtors
TABLE – 4.9
TABLE SHOWING DEBTORS TURNOVER RATIO
(Rs in 000’s)
Debtors Turn Over
Year Sales Debtors
Ratio
2005-2006 4,281,127 975,699 4.39 times
2006-2007 6,186,711 1,252,657 4.94 times
2007-2008 7,649,921 1,476,032 5.18 times
2008-2009 9,629,301 1,747,204 5.51 times
2009-2010 9,055,707 1,948,147 4.64 times

Graph- 05
DEBTORS TURNOVER RATIO
5.51
4.94 5.18 4.64
4.39
Ratio
INTERPRETATION
From the table and figure it is clear that debtor turnover ratio increasing over
the years. It was 4.39 times in the year 2005-06 it increased to 4.94 times and 5.18
times and 5.51 in the year 2006-07 and 2007-08 and 2008-2009 respectively. It
again decreased to 4.64 times in the year 2009-2010 Analysis shows that credit
allowed period is increasing and fluctuating over by year.

CREDITORS TURNOVER RATIO
Creditors Turnover Ratio is used to establish relationship between credit

purchase and average trade creditors. The objective of calculating this ratio is to
determine the efficiency with which the creditors are managed. This ratio is
calculated as follows.
Credit purchase
Creditors Turnover Ratio =
Average creditors
TABLE – 4.10
TABLE SHOWING CREDITORS TURNOVER RATIO

(Rs in 000’s)
CREDITORS
Year PURCHASES CREDITORS
TURNOVER RATIO
2005-2006 2,985,775 422,054 7.07 times
2006-2007 3,758,968 538,287 6.98 times
2007-2008 4,389,889 708,375 6.20 times
2008-2009 1,148,197 1,319,929 0.1 times
2009-2010 136,360 3,687,428 0.03 times

Graph- 06
CREDITORS TURNOVER RATIO
7.07 6.98
6.20
Ratio
0.1
0.03
INTERPRETATION
The ratio indicates the rates at which the payments are made to creditors i.e.
the number of times payments are made to creditors. Here the ratios are in 2005-06
is 7.07 times that is higher and in 2006-07 is 6.98 times which have further
decreased to 6.20 times in 2007-08.and there is decreased in the year 2008-09 to
0.1 times. And further decreased in the year 2009-10 to 0.03 times. Lower the ratios
better the liquidity position. Here the condition is good. They have enough periods
for payments. Creditors and Debtors are interrelated. Company is giving credit to
debtors according to the credit got by their creditors.

WORKING CAPITAL TURNOVER RATIO
Working Capital Turnover Ratio expresses the relationship between the

working capital and sales. The ratio indicates how effectively a company is utilizing
its working capital. It indicates the velocity of the utilization of net working capital.
The ratio measures the sufficiency with which the working capital is being used by
the organizations. The higher the ratio indicates efficient utilization of working capital
or vise versa. A very high working capital ratio is not good situation to any firm. It is
calculated as follows
Sales
Working capital turnover ratio =
Net Working capital
TABLE – 4.11
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO

(Rs in 000’s)
Net Working Working Capital
Year Sales
Capital Turn Over Ratio
2005-2006 4,281,127 182,496 23.46 times
2006-2007 6,186,711 645,881 9.58 times
2007-2008 7,649,921 1,028,321 7.44 times
2008-2009 9,629,301 1,092,392 8.81 times
2009-2010 9,055,707 1,091,484 8.29 times

Graph-07
WORKING CAPITAL TURNOVER RATIO
23.46
Ratio
9.58
7.44 8.81 8.29
INTERPRETATION
A higher ratio indicates efficient utilization of working capital and lower
ratio indicates otherwise. Here in table, it is shown that the year 2005-06 the ratio is
23.46 times which has increased to 23.46 times which has decreased to 9.58
times., 7.44 times in the years, 2006-07 and 2007-08. Than which has increased to
8.81 times in the year 2008-09 and further it has increased to 8.29 times in the year
2009-10. Since net working capital has high variations over the period which shows
the inefficient utilization of working capital of the company. Though the company is a
big manufacturing unit, they are producing the goods to the institutions rather than
individuals. The company is more concentrating on export market and bulk sales.

CASH TURNOVER RATIO
The cash turnover ratio is the ratio between cash and sales. Cash for this
purpose, means cash in hand, cash at bank and readily realizable investment or
securities. This ratio indicates the extent to which the company efficiently utilizes
cash resources. It is also helpful in determining the liquidity of the company.
Net Annual Sales

Cash Turnover Ratio =
Cash
TABLE – 4.12
TABLE SHOWING CASH TURNOVER RATIO

(Rs in 000’s)
Cash Turn Over
Year Sales Cash
Ratio
2005-2006 4,281,127 139,434 30.70
2006-2007 6,186,711 413,668 14.96
2007-2008 7,649,921 524,749 14.58
2008-2009 9,629,301 484,230 19.89
2009-2010 9,055,707 444,919 20.35

Graph- 08
CASH TURNOVER RATIO
30.70
19.89 20.3
14.9 14.58
Ratio
INTERPRETATION
The standard cash turnover ratio is 10:1. A cash turnover ratio of 10:1 or
more indicates the effective utilization of cash resource of the company. For the past
five fiscal years, as shown in the table shows the ratios are more than the standard
ratio and the ratios are more than the standard ration and the ration are increasing at
very high rate. In the year 2005-06 the ratio was 30.70% and the ratio was sudden
increase from 30.70% to 14.96% in the year 2006-07 and later it decreased to 14.58
% of the year 2007-08 and than It is decrease to 19.89 to and 20.35 % in the year
2008-09 & 2009-10 respectively.

FIXED ASSETS TURNOVER RATIO
The ratio, which expresses the relationship between the sales and total
assets, is known as fixed assets turnover ratio.
Sales
Fixed assets turnover ratio =
Fixed Asset
TABLE – 4.13
TABLE SHOWING FIXED ASSETS TURNOVER RATIO
(Rs in 000’s)
YEAR SALES FIXED ASSETS RATIO
4,281,127 172,276
2005-2006 24.85
6,186,711 126,178
2006-2007 49.30
2007-2008 7,649,921 163,916 46.67
2008-2009 9,629,301 1,697,425 5.67
2009-2010 9,055,707 1,751,168 5.17

GRAPH – 09
FIXED ASSETS TURNOVER RATIO
49.03 46.67
24.8
Ratio
5.67 5.17
INTERPRETATION:-
The standard norm is 5 times. In all the five fiscal years
there is more than 5 times. It indicates over utilization of fixed asset. Fixed assets
turnover ratio has increased to 24.85 to 49.03 in the year 2005-06 and there be
gradual increase from 46.67 in the year 2007-08. In the year 2008-09 it has
decreased to 5.67 from 49.03 in the year 2008-09. Where as again there is an
increase in the year 2009-10 from 5.67 to 5.17.

CURRENT ASSETS TURNOVER RATIO
Current assets turnover ratio is computed by dividing net sales by current

assets. The ratio indicates the extent to which the investment in current assets as
contributed towards sales. Thus it helps the firm to know its efficiency of utilizing
current assets. If the ratio is high then it indicates the firm is in good position. It
shows the over or under trading position is relation to the quantum of working
capital.
The Current Asset Turnover ratio is calculated as follows:
Sales
Current asset turnover ratio =
Current assets
TABLE – 4.14
TABLE SHOWING CURRENT ASSET TURNOVER RATIO
(Rs in 000’s)
YEAR SALES CURRENT ASSETS RATIO
2005-2006 4,281,127 1,737,753 2.46

2006-2007 6,186,711 2,409,647 2.57
2007-2008 7,649,921 3,159,775 2.42
2008-2009 9,629,301 3,677,620 2.61
2009-2010 9,055,707 3,707,323 2.44

GRAPH – 10
CURRENT ASSET TURNOVER RATIO
2.46 2.59 2.42 2.61 2.44
Ratio
INTERPRETATION:-
There is increase in current assets ratio in all the five years even though the
ratio is less than 1 which shows management has not better utilized the current
assets. But in the current year 2009-10 it had been better utilized its current assets
towards making sales of the company. There is a slight improving in utilizing the
current assets from year to year.

Chapter- 05
Summary of Findings, Suggestions and Conclusion
FINDINGS:
The study of working capital management at Kirloskar Electric
Company Ltd. reveals the following findings.
 Gross Profit has increased. This is due to increase in selling price of the
company as compared to sales and there is lower cost of production.
 There is constant control over the companies operating cost or

overheads which shows the operational efficiency of the company.
Which gives fair return on investment?
 Creditors turn over ratio ration decreased and the credit payment period
is also abnormal.
 When we look at the working capital turnover ratio, working capital has
been effectively utilized in making sales i.e. year by year.
 The Current Ratio is below the standard ratio i.e. 2:1 and liquid ratio is
above the standard level i.e. 1:1. The current ratio and liquidity ratio are
below standards. It is not good from company’s point of view. It means
creditors are not paid promptly. The Current Ratio in the year 2010 is
1.254. Hence it has to take care about this ratio as it is near to (1:1) in
the year 2010.

 The company’s quick ratio is fluctuating hence company has to

formulate policies in such a way that such fluctuations can be
minimized to a greater extent in the upcoming days.
 The increase in debtors turnover ratio shows company follows a sound

credit policy.
 The company is in a position to collect its debts in time and is also

capable of managing its day today activities.
 The inventory turnover ratio is increasing over the past few years
indicating the company’s sound inventory policy it indicates that
company’s inventory is moving quickly.
 Current assets and Current liabilities are increasing.
 The current assets turnover ratio is showing increasing trend which

indicates that current assets are being properly used towards making
sales of the company.

SUGGESTIONS:
On the basis of performance evaluation of Kirloskar Electric Company
Ltd through working capital analysis for a period of four-years from 2005 to
2009 the following are the recommendations.
 The company has to increase its current assets and quick assets
adequately.
 The company has to reduce its debtor’s collection period to 30 days.
 The company should increase its investment in working capital from

sales so that they can meet the current liabilities in future.
 Company has to take corrective steps towards proper usage of short

term assets for making sales.
 The Current Ratio and liquidity Ratios are below the standard ratio i.e.
2:1.
 The operating cycle period has been decreased so that working capital
requirement should be less and in turn it is improving liquidity position
of firm
 The profit of the company can be maximized by reducing operating

expenses.
 Company can try to have future plans as for as production and

business activities are concerned and also to forecast the future
requirement of working capital so that it can increase its sales and
profit.
 The company should maintain stable rate of current ratio.

 Debtor turnover ratio of the company is satisfactory so the companies’

receivable management is good. But in this respect too company has to
take care not to follow excessively stringent credit policies as it may
lead to lower sales.
 Working capital turnover ratio has increased. This is due to

considerable increase in sales, however working capital is concerned
so the company should put more effort to increase the sales and
continue the same.
 The concern should make necessary arrangement to increase cash

balance so as to provide sufficient coverage to Quick liabilities.

CONCLUSION
To ensure liquidity position of the firm it must have sufficient funds. A

large amount of working capital would mean that the firm has idle funds, lower
the amount of working capital, higher would be the amount of risk. To ward off
both risks of ill-liquidity and excess liquidity, the firm should maintain an
optimum level of current assets. An adequate working capital required for
smooth running of the firm. Working capital usually concerns with
administration of all current assets and current liabilities.
The Company is expanding day by day to meet the challenges of

competitions in the market. Thus, with a good infrastructure and efficient
human forces the company is moving towards the success rapidly.
The overall working capital of the company is good but they have to
take care about the each components of working capital which plays vital role
in managing day-to-day activities of the company. As Kirloskar Electric
Company Ltd., is a manufacturing company there is no hard and fast rule to
maintain the standard norms as other companies are following. The practical
analysis is different from the theoretical explanations so we have calculated
what we got from the company.
A study of working capital management shows that the net working

capital requirement has come down and also there is a significant
improvement in collections due to a rigid credit policy adopted by the
company. In conclusion, it is efficient in managing capital of the company.
A still better efficient planning of the working capital management can

raise more profits for the company taking it to the heights of prosperity, which
make to reduce the companies’ working capital.

The basic objective of working capital management is to have a balanced

liquidity position. The company has a positive net working capital during all the
years of its operation. This indicates the company’s good liquidity position. This is
also made clear by the current assets ratio, which is greater than one all the years.
It means that the investment in current assets is more sufficient to meet its
obligations.

BIBLIOGRAPHY
BOOKS:
1. I.M.Pandey (2004) concepts of working capital, “Financial

Management”, 8th edition Vikas publication.
2. M.Y.Khan and P.K.Jain, (2003), “Financial Management”,
3rd edition, tata Mc Graw hill.
3. Prasanna Chandra,(2008), “Financial Management”, 7th
edition, CFM-Mc Graw Hill.
REPORTS
4. Annual reports of the company.
Website:
5. www.kirloskar-electric.com

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Kirloskar Electric Company Ltd.

INTRODUCTION TO WORKING CAPITAL

Govt. First Grade College Nelamangala Page 1

The decision concerning cash and resources, receivable, investments and

The management of working capital hence involves constant vigilance to

Govt. First Grade College Nelamangala Page 2

CONCEPTS OF WORKING CAPITAL

NEED FOR WORKING CAPITAL FINANCE

The need for working capital finance is over-emphasized. Every business

 For the purpose of raw materials, components and spares.

Govt. First Grade College Nelamangala Page 3

TYPES OF WORKING CAPITAL

Permanent working capital

Temporary working capital

Working capital Gross working capital

Net working capital

Negative working capital

Reserve working capital

1) Permanent working capital:

2) Temporary working capital:

3) Gross working capital:

Govt. First Grade College Nelamangala Page 4

It is the amount of funds invested in the various components of current

4) Net working capital:

5) Negative working capital:

6) Reserve Working Capital:

Cash RM WIP Finished Goods Sales Debtor B/R Cash

NEED FOR MAINTENANCE OF ADEQUATE WORKING CAPITAL

An adequate or optimum working capital balance refers to the desired

Govt. First Grade College Nelamangala Page 5

a) Conversion of cash into raw materials.

The following figure shows the operating cycle of a manufacturing concern.

Govt. First Grade College Nelamangala Page 6

Govt. First Grade College Nelamangala Page 7

DANGERS OF EXCESS WORKING CAPITAL

 It results in unnecessary accumulation of inventory in the form of raw material

DANGERS OF INADEQUATE WORKING CAPITAL

 The production process will be obstructed if there is shortage of working

Govt. First Grade College Nelamangala Page 8

EFFECT OF INADEQUATE WORKING CAPITAL ON DECISION MAKING:-

 Stagnates the growth of the firm,

EFFECTS OF EXCESS WORKING CAPITAL ON DECISION MAKING

 Impairs firm’s profitability through idle cash and

IMPORTANCE OF WORKING CAPITAL

Govt. First Grade College Nelamangala Page 9

Secondly, a company with sufficient working capital is always in a position to

Thus, working capital is regarded as one of the conditioning factors in the

DETERMINANTS OF WORKING CAPITAL

Govt. First Grade College Nelamangala Page 10

Determinants of Working Capital

Nature of Size of Manufacturing Production Volume of Terms

Business Growth and Supply of Operating

Credit Policies Profit Margin Profit

Price Level Capital Structure

SOURCES OF WORKING CAPITAL

Govt. First Grade College Nelamangala Page 11

Sources of Working Capital

Long Term Financing Short Term Financing

Issue of Shares Short Term Banks Loans

Loans from Financial Institution Indigenous Banks

Accepting Public Deposits Commercial Papers

Floating of Debentures Factoring of Receivables

Raising Funds by Internal Financing Trade Credit