Working capital management on Kamal solvent pvt. Ltd.“Working capital mangement” Chapter No. Particulars Certificate Acknowledgement Declaration 1 1.1 1.2 1.3 1.4 1.5 2 2.1 2.2 2.3 2.4 3 4 4.1 R.C.E.T, Bhilai Page No. I II III IV 7 8 9 9 10 11 13 14 14 15 16 17 41 42 MBA 09/11 Page Contents Working Capital Management Introduction Need of working capital Gross W.C. and Net W.C. Types of working capital Determinants of working capital Research Methodology Introduction Types of research methodology Objective of study Scope and limitations of study Introduction of company Working Capital Size and analysis Working capital level. Working capital management on Kamal solvent pvt. Ltd. 4.2 4.3 4.4 4.5 5 5.1 5.2 5.3 6 6.1 6.2 Working capital trend analysis. Current assets analysis. Current liability analysis Changes of working capital Working Capital Ratio analysis Introduction Role of ratio analysis Limitations of ratio analysis 5.4 CALCULATIONS Conclusions Conclusion Bibliography 43 44 45 46 50 51 51 51 53 73 73 74 R.C.E.T, Bhilai MBA 09/11 Page Working capital management on Kamal solvent pvt. Ltd. CHAPTER 1 INTRODUCTION R.C.E.T, Bhilai MBA 09/11 Page Working capital management on Kamal solvent pvt. Ltd. WORKING CAPITAL MEANING OF WORKING CAPITAL: Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency; also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash. An increase in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors. IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL IN AN INDUSTRY SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production. Goodwill: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill. Easy loans: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production. R.C.E.T, Bhilai MBA 09/11 Page Working capital management on Kamal solvent pvt. Ltd. Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the satisfaction of the employees and raises the morale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits. Exploitation Of Favorable Market Conditions: If a firm is having adequate working capital then it can exploit the favorable market conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices. Ability To Face Crises: A concern can face the situation during the depression. Quick And Regular Return On Investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future. High Morale: Adequate working capital brings an environment of securities, confidence, high morale which results in overall efficiency in a business. EXCESS OR INADEQUATE WORKING CAPITAL Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital. Both excess as well as short working capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm. R.C.E.T, Bhilai MBA 09/11 Page 7. stores and spares and finished stock. Due to lower rate of return n investments. 6. 5. There is an operating cycle involved in sales and realization of cash. 3. work-in-progress.T. 2. The redundant working capital gives rise to speculative transactions DISADVANTAGES OF INADEQUATE WORKING CAPITAL Every business needs some amounts of working capital. To meet the selling costs as packing. Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts. Bhilai MBA 09/11 Page . the values of shares may also fall. To maintain the inventories of the raw material. Ltd. advertising. production and sales. There are time gaps in purchase of raw material and production. To provide credit facilities to the customer. R. To pay wages and salaries To incur day-to-day expenses and overload costs such as office expenses. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL IN AN INDUSTRY 1. components and spares. It may reduce the overall efficiency of the business. Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments. Thus working capital is needed for the following purposes: For the purpose of raw material. 4.E. If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained.C. The need for working capital arises due to the time gap between production and realization of cash from sales.Working capital management on Kamal solvent pvt. etc. Redundant working capital leads to unnecessary purchasing and accumulation of inventories. and realization of cash. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity.E.T.Working capital management on Kamal solvent pvt. Ltd. 7. 2. during the busy season. So working capital is directly proportional to the length of the manufacturing process. of working capital and vice-versa. PRODUCTION POLICY: If the policy is to keep production steady by accumulating inventories it will require higher working capital. 8. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. water supply and railways because they offer cash sale only and supply services not products. 4. R. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and service costs before the final product is obtained. 5. 3. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS 1.C. SIZE OF THE BUSINESS: Greater the size of the business. SEASONALS VARIATIONS: Generally. of working capital along with fixed investments. 6. Bhilai MBA 09/11 Page . On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. greater is the requirement of working capital. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt. of working capital as compared to a firm having a low rate of turnover. and no funds are tied up in inventories and receivables. A firm having a high rate of stock turnover will needs lower amt. a firm requires larger working capital than in slack season. Longer the cycle larger is the requirement of working capital. Others FACTORS: These are: Operating efficiency. Banking facilities. Ltd. R. 9. there is need for larger amt. we shall require large amt. optimistic expansion of business. Import policy. of working capital due to rise in sales. the business contracts.T. etc. On the contrary in time of depression. Management ability Irregularities of supply. difficulties are faced in collection from debtor and the firm may have a large amt.E. 10 RATE OF GROWTH OF BUSINESS: In faster growing concern. etc. of working capital. of working capital. Bhilai MBA 09/11 Page . Asset structure Importance of labor. BUSINESS CYCLE: In period of boom.Working capital management on Kamal solvent pvt. rise in prices. when the business is prosperous. sales decline.C. net working capital and net operating working capital. receivables. Gross Working Capital refers to the firm's investment in Current Assets. On the basis of time. short-term securities. They are: a) Way of optimizing investment in Current Assets. On the basis of concept working capital can be classified as gross working capital. Gross Working Capital = Total Current Assets of the company during the financial year. It includes cash. The concept of Gross Working Capital focuses attention on two aspects of Current Assets' management. CLASSIFICATION OF WORKING CAPITAL – Working capital may be classified in two ways: On the basis of concept. b) Way of financing current assets.C. working capital may be classified as: Permanent or fixed working capital. Ltd. Temporary or variable working capital ON THE BASIS OF CONCEPT VARIOUS TYPES OF WORKING CAPITAL 1. and inventory). R. debtors (account receivables or book debts).T. On the basis of time. bills receivables and stock (inventory). Gross Working Capital: The firm's investment in current assets (such as cash and marketable securities. Bhilai MBA 09/11 Page .Working capital management on Kamal solvent pvt.E. C.T. bills payables and outstanding expenses.E. which are expected to mature for payment within an accounting year. It indicates the liquidity position of and suggests the extent to which working Capital needs may be financed by permanent sources of funds. 2. is defined as Current Assets minus Current Liabilities. Bhilai MBA 09/11 Page . Net Working Capital refers to the difference between Current Assets and Current Liabilities are those claims of outsiders. Ltd. Current liabilities include all the short-term borrowings. Net Working Capital = Total Current Assets – Total Current Liabilities 3. Net Working Capital: This is a qualitative concept. + ACCOUNTS /RECIVEABLE) – (Accruals + ACCOUNTS/PAYABLE) R. For every firm a particular amount of net Working Capital in permanent. cash & equivalents and other current assets. debtors.Working capital management on Kamal solvent pvt. It includes creditors or accounts payables. Net operating working capital (NOWC): Operating CA – Operating CL = (Cash + Inv. Current assets include stocks. Net Working Capital. The net working capital metric is directly related to the current ratio. 2.C. And the most important part is the efficient management of working capital in right time.E. 5.ordination. Super/Absolute quick ratio. This involves the need of working capital analysis. Quick ratio 4.T. such as: 1. The liquidity position of the firm is totally effected by the management of working capital. Current ratio 3.Working capital management on Kamal solvent pvt.A ratio is a simple arithmetical expression one number to another. co. 2. Ltd. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. Schedule of working capital changes & fund flow Statement RATIO ANALYSIS . The objective of ratio analysis is to help management in analyzing and interpreting the financial statements. The analysis of working capital can be conducted through a number of devices. R. Bhilai MBA 09/11 Page . control. Ratio analysis. Cash ratio. Debtor turnover ratio. WORKING CAPITAL ANALYSIS - As we know working capital is the life blood and the centre of a business. a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. communication and forecasting etc . So. to get adequate information useful for the performance of various functions like planning. Adequate amount of working capital is very much essential for the smooth running of the business. The following ratios can be calculated for these purposes: 1. Average collection period. 6. 7. The fund flow analysis consists: Preparing schedule of changes of working capital Statement of sources and application of funds. SCHEDULE OF WORKING CAPITAL CHANGES & FUND FLOW STATEMENT Fund flow analysis is a technical device designated to the study the source from which additional funds were derived and the use to which these sources were put. R.Working capital management on Kamal solvent pvt.T.C. Creditors/Payable turnover ratio.E. Ltd. Bhilai MBA 09/11 Page . 8. It is an effective management tool to study the changes in financial position (working capital) business enterprise between beginning and ending of the financial dates. Average payment turnover period. E.T. CHAPTER 2 RESEARCH METHOLOGY R.Working capital management on Kamal solvent pvt.C. Ltd. Bhilai MBA 09/11 Page . journals. explaining and predicting phenomenon are called methodology. Secondary data collection Primary data collection method The primary data is that data which is collected fresh or first hand. Bhilai MBA 09/11 Page . questionnaire etc. money and efforts to collect the data. to support the secondary data. Secondary data easily get those secondary data from records. and for first time which is original in nature. may be understood as a science of studying now research is done systematically.Working capital management on Kamal solvent pvt. R. Primary data collection 2.C. Primary data can collect through personal interview. It is important for research to know not only the research method but also know methodology. books etc. ”The procedures by which researchers go about their work describing. those are generally adopted by a researcher in studying his problem along with the logic behind them. annual reports of the company etc.E. It will save the time. balance sheets. In that various steps. RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem.” Types of data collection There are two types of data collection methods available: 1. Secondary data also made available through trade magazines.T. Secondary data collection method The secondary data are those which have already collected and stored. Ltd. To analyze the working capital management of the industry with the help of various ratios. OBJECTIVES OF THE PROJECT To analyze the financial statement of KAMAL SOLVENT EXTRACTIONS PVT. To find out how industry manage its profitability.T. Compare performance with past performance of the industry.C. R.LTD.Working capital management on Kamal solvent pvt.E. Ltd. From the Year 2006-07 to 2008-09. Bhilai MBA 09/11 Page . Rice Bran Oil is extensively used in Japan. Initially the entire quantities of rice bran oil produced in India were used as raw material for the soaps & detergent industry as the free fatty acid content of the oil was very high. it is rich in natural anti-oxidants and unique nutrient. Besides having an ideally balanced fatty acid profile. Bhilai MBA 09/11 Page . Ltd. the Government of India introduced money credit scheme to encourage the use of rice bran oil as a product mix in vanaspati (hydrogenated fat) wherein substantial rebate from the payment of excise duty on vanaspati was given for use of rice bran oil in the manufacture of vanaspati.E. Korea. In the early eighties. A number of scientific studies conducted in India & abroad have well documented the better cholesterol lowering properties of rice bran oil as compared to other conventional vegetable oils. R. In this way government of India encouraged for grooming up the rice bran industries in India. Rice Bran Oil extraction started in India about 40 years back.C. China. It was in the middle of 60's that a beginning was made in India for the extraction of oil from rice bran with the help of solvent extraction process wherein food grade hexane is used to extract oil from rice bran. Taiwan and Thailand as premium edible oil.T. It is the conventional & the most favorite cooking medium of the Japanese and is popularly known as "Heart Oil" in Japan. All these studies have attributed these properties of the oil to the presence of unique nutrient in this oil known as Oryzanol & tocotrienolss. It has a potential to produce over one million tons of this nutritious oil.Working capital management on Kamal solvent pvt. The Rice Bran Oil industry in India Rice Bran Oil is a unique vegetable oil produced from the outer brown layer of rice which is removed in the form of rice bran during the polishing process of the rice milling industry. It has acquired the status of a "Functional Food" or a "Health Food" in Western Countries. India is the second largest producer of paddy in the world after China contributing about 23% to the total world production of paddy. Ltd.C. ltd Gujrat Ambuja Exports ltd. Manufacturers of Rice bran oil in India: Here the following table contains the information about the name of the some big manufacturers of rice bran oil in India - Name of the company Hemraj Industries pvt. Ltd. Kumar Metal Industries pvt.T.E. Ltd Jindal oil & fats ltd. Kamal solvent Extractions pvt. Shree Sita Agro Foods pvt. Ltd City West Bengal Rajasthan Durg Ahemdabad Mumbai Rajnandgaon Rajnandgaon Uttar Pradesh R. Ltd Ganpati solvent Jai lakshmi solvent Pvt. Bhilai MBA 09/11 Page .Working capital management on Kamal solvent pvt. Net sales of the company increase because of its various demandable brands & its shows that company getting good business from its customer’s. The net sales went up from Rs 49. CRORE) 2007-08 2008-09 Interpretation: The sales figures are encouraging as there is a positive trend and the rate of increase is considerably high.09% from 2006-07 to 2008-09.Working capital management on Kamal solvent pvt.C. and freight expenses have been deducted. FINANCIAL HIGHLIGHT OF THE COMPANY Gross sales for a period after cash discounts. Ltd.46 90 80 70 60 50 40 30 20 10 0 2006-07 SALES (IN RS.95 crore in year 2006-07 to Rs 82. Bhilai MBA 09/11 Page .46 crore in years 2008-09. R.95 59.E.T. Gross sales includes both credit and cash sales of the company.43 82. YEAR 2006-07 2007-08 2008-09 SALES(IN RS CRORE) 49. returns. In this way the percentage increase of sales of the industry is 65. including operating. Bhilai MBA 09/11 Page .Working capital management on Kamal solvent pvt.8 0.4 0. non-operating.99.51 PBT (IN RS CRORE) 1. 1. This measure deducts all expenses from revenue including interest expenses and operating expenses.4 1. but it leaves out the payment of tax.T. This measure combines all of the company's profits before tax. YEAR 2006-07 2007-08 2008-09 PROFIT BEFORE TAX (IN RS.2 0 2006-07 2007-08 2008-09 PBT (IN RS CRORE) R.2 1 0.C.6 1. PBT exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from year to year. CRORE) 0.24 1. Ltd.E. Profit Before Tax –PBT A profitability measure that looks at a company's profits before the company has to pay corporate income tax.6 0. continuing operations and non-continuing operations. depreciation and tax. Profit after tax (PAT) It the net profit earned by the company after deducting all expenses like interest.83 Crore in the year 2006-07 to Rs.07 crore in 2008-09. PAT can be fully retained by a company to be used in the business.07 PAT (IN RS CRORE) 1.83 0.80 1.2 1 0.99 crore in years 2006-07 to Rs. 0.6 0.Company paid dividend to its shareholder’s from this residual amount. Bhilai MBA 09/11 Page . Ltd.4 0. 1. Interpretation: The profit before tax is rising in a consistent rate showing a very positive trend from Rs.T. YEAR 2006-07 2007-08 2008-09 SALES(IN RS CRORE) 0. 1. 0.8 0. R.C.51 crore in 2008-09. However dividend is paid to the share holders from this residue.E.2 0 2006-07 2007-08 2008-09 PAT (IN RS CRORE) Interpretation: The profit after tax is rising in a consistent rate showing a very positive trend from Rs.Working capital management on Kamal solvent pvt. 1. Working Capital: Funds are also needed for short-term purposes for the purchase of raw material. furniture. “PROJECT ON WORKING CAPITAL MANAGEMENT ON KAMAL SOLVENT EXTRACTIONS PVT LTD” CAPITAL TYPES OF CAPITAL Working Capital which is required for a business can be classified under two main categories via.E. invested in current assets keep revolving fast and are being constantly converted in to cash and this cash flow out again R. Investments in these assets represent that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed capital. These funds are known as working capital. debtors & inventories.term or current assets such as cash.T. payment of wages and other day – to.to-day operations. marketable securities. Ltd. In simple words. Long terms funds are required to create production facilities through purchase of fixed assets such as plant & machinery.day expenses etc. Bhilai MBA 09/11 Page . etc. 2. building. working capital refers to that part of the firm’s capital which is required for financing short. Funds.Working capital management on Kamal solvent pvt.C. Fixed Capital: Every business needs funds for two purposes for its establishment and to carry out its day. land. thus. Hence.C. R.T. Bhilai MBA 09/11 Page .Working capital management on Kamal solvent pvt. in exchange for other current assets. Ltd. it is also known as revolving or circulating capital or short term capital.E. Working capital management on Kamal solvent pvt. CHAPTER 3 INTRODUCTION OF COMPANY R.T.C.E. Bhilai MBA 09/11 Page . Ltd. is Rice Bran oil producing company established on 1990 focused on specialized. is engaged in the industry as the trusted manufacturing unit for edible oil viz. The Industry is surrounded with green trees. high-value products and services.E. The company’s head office is at Rajnandgaon with subsidiary offices in Durg and Raipur in India.T. This development process of converting the byproduct into finished goods underpins various processes. NILKAMAL and RSOYEE respectively. Ltd. COMPANY PROFILE KAMAL SOLVENT EXTRACTIONS PVT LTD INTRODUCTION: Kamal Solvent Extractions Pvt. Kamal Solvent Extractions Pvt. Water Filter Plant of this industry takes care of pollution free extraction of Water used in Industrial Production works. The company’s principal activities are extracting oil from the rice bran and refining the extracted oil and marketing the edible oil to the potential market. Ltd. Company also sells crude oil (non-refined oil) to big companies like I.C and PEPSICO in India.is rated as a smoke and pollution free industry in the Chhattisgarh state of India. Within short period of time earned an unmatched success and reputation in the region and also in various parts of the country.T. Refined Rice Bran Oil and Triple Refined Rice Bran Oil under the registered brand name “KAMAL” and “RAJKAMAL. Kamal Solvent Extractions Pvt.C. Bhilai MBA 09/11 Page . Ltd. R. Ltd. which the company executes with full dedication and concentration with the help of various expertises.Working capital management on Kamal solvent pvt. we have always dreamed big. setting standards for excellence. the by-product obtained is deoiled rice bran. MISSION & VISION: "At Kamal Solvent Extractions Pvt. Rice bran oil is used for human consumption. The polished rice which we generally consume is obtained after removing this bran from the rice. It also has several industrial uses.B. Antioxidants of Vitamin E group are naturally occurring in rice bran oil. It is important to understand that bran and husk are not same. Appearance of rice bran oil ranges from cloudy to clear depending on the degree of de-waxing and winterization process applied.O: Rice Bran Oil. Our vision is to be a world class organization that is a benchmark for other organizations in the country." R. which is commonly known as “HEART OIL” in Japan. this husk is removed from the paddy and what remains is brown rice. This crude oil is further refined in order to obtain rice bran oil. The paddy that comes from the fields has a hard outer covering called the husk.. During the de-husking process. The rice so obtained is brown in colour since it has an oily brown covering called the Bran.T.C. We have been a leading light in the field of Rice bran oil for the past years. Ltd. It is our vision that has taken us from a pioneer that spear-headed the rice bran revolution to the recent position. R. Typically rice bran accounts for 7 –8 % of the rice produced and the recovery of rice bran oil from rice bran is usually 15%. and leading the thrust in adopting environment friendly policies. which is removed in the form of rice bran for producing white rice. Rice bran is a by-product of the rice milling industry from which rice bran oil is extracted. We strive to look beyond the boundaries of competition by being quality centric in our manufacturing practices. After oil extraction. is unique cooking oil produced from the brown layer of rice paddy. Ltd.E. In other word. Bhilai MBA 09/11 Page . The bran which is left behind after the polishing process undergoes the solvent extraction process in order to obtain crude rice bran oil.Working capital management on Kamal solvent pvt. Gives better taste & flavor to food items. Available in small packs also (5 liter.E. Rich micronutrients & natural antioxidants – Kamal contains oryzanol. Economical – 15% less absorption of oil during frying. shakti swaad bemisal”.T. Cheaper and popular – Kamal refined rice bran oil is the highly selling product in all over central India. Features of Kamal solvent products – The tag line of the company is – “KAMAL ka kaamal.C. 1 liter pack). Frying takes less time.Working capital management on Kamal solvent pvt. Easily reachable available in all general stores. These tag lines express the quality of the kamal products inspite of it we can discuss about the features of the kamal products by following ways – Premium quality – Kamal produced in world class specially developed process under highly hygienic condition to give better taste and natural flavor to good health. In spite of all the above features some more features of the kamal products are – Longer shelf life. Tocotrienol and Squalene which provides many benefits for human health. saves energy. More stable at high temperature. R. Bhilai MBA 09/11 Page . Anti – viral capacity Oil is less sticky so its saves soap. Nutritionally superior – Kamal contains about 18% saturated. Heart food for every happy home.45% monosaturated and 35% polyunsaturated fatty acid which is close to American heart association recommendation. Ltd. ITC.T.The brands of Kamal solvent comes in different types of packaging.The products of Kamal solvent is divided in four different brands.C.Working capital management on Kamal solvent pvt. Bhilai MBA 09/11 Page . quantity and price which can be shown with the help of following table – Types of packaging pouch pouch Can(plastic) Can(plastic) Tin can Tin can 500ml 1 liter 5 liter 15 liter 15 k.g 15 liter quantity Per pack price in Rs. KAMAL RASOYEE PRODUCT BRANDS RAJKAMAL NILKAMAL PACKAGING OF THE BRANDS . PRODUCTS OF KAMAL SOLVENT . The produced oil of the company is also supplied in bulky quantity to the multinational companies also like – PepsiCo. Ltd.50 42.50 107 690 740 635 Note – Prices of the various products of the company which is shown in the above table are always fluctuating as according to the market condition R. The brands which are shown below in diagram are mostly preferable in Chhattisgarh.E. 21. and Madhya Pradesh and Andhra pradesh. Maharashtra. 29 59.533 3.86 5.52 R.Working capital management on Kamal solvent pvt. it is important proper balance in regard to the liquidity of the firm.6045 6. The short term obligations of a firm can be met in time only when it is having sufficient liquid assets.995 1.604 2.24 3.912 1.834 0.81 2006-07 (In Rs.075 1.80 82.890 2. Bhilai MBA 09/11 Page . So we can calculate the liquidity ratio and the other important ratios of the company by following ways.14 4.95 0.46 1. creditors.50 4. Therefore.566 1.02 9.E.40 11.C.98 10. crore) 2007-08 (In Rs. Before calculating the various ratios we show the financial statistics of the firm by following ways – Year NET SALES PAT PBT DEBT FIXED ASSETS CURRENT ASSESTS CURRENT LIABILITES RESERVE AND SURPLUS CAPITAL EMPLOYED 9.51 4.806 1.58 12.43 0. the smooth functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be strong. crore) 49.T. ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY The short –term creditors of a company such as suppliers of goods of credit and commercial banks short-term loans are primarily interested to know the ability of a firm to meet its obligations in time. But a very high degree of liquidity of the firm being tied – up in current assets.49 3. So to with the confidence of investors.crore) 2008-09 (In Rs. Ltd. ON THE BASIS OF TIME VARIOUS TYPES OF WORKING CAPITAL 1. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. finished goods and cash balance.T. 2. Every firm has to maintain a minimum level of raw material. R. work.Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. PERMANENT OR FIXED WORKING CAPITAL .E. TEMPORARY OR VARIABLE WORKING CAPITAL .Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. Bhilai MBA 09/11 Page . Ltd. Variable working capital can further be classified as seasonal working capital and special working capital. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.C.in-process. As the business grow the requirements of working capital also increases due to increase in current assets.Working capital management on Kamal solvent pvt. Working capital management on Kamal solvent pvt. CHAPTER 4 DATA ANALYSIS & INTERPRETATION R.C. Ltd. Bhilai MBA 09/11 Page .E.T. From the graph it is clear that current assets of the industry increases simultaneously from the financial year 2006-07 to 2008. crore) 15 10 5 0 2006-07 2007-08 2008-09 INTERPRETATION .E.C.81 GROSS WORKING CAPITAL (in Rs. Ltd. R. CALCULATION OF GROSS WORKING CAPITAL.09. Bhilai MBA 09/11 Page .We can calculate the gross working capital of the industry with the help of following formula – Gross Working Capital = Total Current Assets of the company during the financial year.02 9.Working capital management on Kamal solvent pvt. GROSS WORKING CAPITAL . NET WORKING CAPITAL & NET OPREATING WORKING CAPITAL – 1. crore) 6.T. YEAR 2006-07 2007-08 2008-09 CURRENT ASSETS (In Rs.98 10. crore) 8 6 4 2 0 2006-07 2007-08 2008-09 R. 2.21 2006-07 2007-08 2008-09 6.We can calculate the net working capital of the industry with the help of following formula – Net Working Capital = Total Current Assets – Total Current Liabilities YEAR CURRENT (In Rs.E. Bhilai MBA 09/11 Page . CAPITAL crore) crore) 4.81 1.89 2.53 3. crore) ASSETS CURRENT NETWORKING (In Rs.02 9.T.60 NET WORKING CAPITAL (in Rs.45 7.98 10.13 7. LIABILITIES (In Rs.Working capital management on Kamal solvent pvt. Ltd.C. NET WORKING CAPITAL . 60 NET OPREATING WORKING CAPITAL In Rs. NET OPREATING WORKING CAPITAL .55 OPREATING CURRENT LIABILITIES (In Rs.88 3. crore) 1.4 1. crore) 3.95 2006-07 2007-08 2008-09 R. + ACCOUNTS /RECIVEABLE) – (Accruals + ACCOUNTS/PAYABLE) or YEAR OPREATING CURRENT ASSETS (In Rs. 3. Bhilai MBA 09/11 Page . INTERPRETATION – From the above graph it is clear that the net working capital of the increase in the year 2007-08 comparison with the previous year than it again decreases in the year 2008-09 with very small difference but the current assets of the company is always more than current liabilities in all the financial years. crore) 1.53 3.E.89 2.We can calculate the net operating working capital of the industry with the help of following formula – Net operating working capital (NOWC) = Operating CA – Operating CL (Cash + Inv.77 5.T. Ltd.93 5.C.Working capital management on Kamal solvent pvt. C.22 0.88 crore in the year 06-07 than it increases and became 3.82 1. Cash ratio = cash balance / current liabilities YEAR CASH & BANK BAL.95 crore in the year 08-09.60 0.31 1.4 crore in the year 07-08 and then it again decreases and became 1. Bhilai MBA 09/11 Page . 4 3 2 1 0 NET OPREATING WORKING CAPITAL (in Rs.32 0.E. crore) crore) 2006-07 2007-08 2008-09 0. crore) 2006-07 2007-08 2008-09 INTERPRETATION – From the above graph it is clear that net operating working capital varies in different financial years it is 1.Working capital management on Kamal solvent pvt.53 3.89 2. Ltd.36 R.T. CURRENT CASH LIABILITIES(in RATIO Rs. CASH RATIO: This is the ratio between cash and bank balance to current liabilities.43 0.(in Rs. marketable securities. accounts receivable and inventories. cash equivalents. Current assets normally include cash. current portion of term debt.E. Current liabilities consist of accounts payable. accrued expenses and taxes).T. marketable securities. short term notes payable. 2.36 in the year 2007-08 and the calculated ratios shows that company have sufficient portion of cash and bank balance against its current liabilities. The concept behind this ratio is to ascertain whether a company's short-term assets (cash.C. accrued income taxes and other accrued expenses (wages). receivables and inventory) are readily available to pay off its short-term liabilities (notes payable. Current Ratio – The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. the better. short-term loans. payables. In theory. cash ratio 2008-09 40% 2006-07 24% 2007-08 36% Interpretation The cash ratio of the company increase from0.22 in the year 2006-07 up to 0.Working capital management on Kamal solvent pvt. the higher the current ratio. Ltd. current maturities of long term debt. Bhilai MBA 09/11 Page . R. Bhilai MBA 09/11 Page . crore) 2006-07 2007-08 2008-09 CURRENT LIABILITIES (in Rs.98 10. 3. the business is illiquid. CURRENT RATIO crore) 6. Current liabilities = outstanding expenses + bill payable + dividend payable etc.Working capital management on Kamal solvent pvt. the business is liquid.02 9. but cash is not working.89 2.81 1.C.T. Rule of thumb 1.00 R.0. If the current ratio is greater than 1.6045 3. If the current ratio is less than 1.94 3.18 3. Relatively high ratio values mean that the business is liquid. YEAR CURRENT ASSETS (in Rs.53 3. Ltd.0. 2. Current ratio = total current assets / total current liabilities Current assets = cash + marketable securities + bill receivables + sundry debtors + inventories.E. 3. This depicts that company’s liquidity position is sound and the current assets of the company is sufficient to fulfill its short-term liabilities obligation. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets.T.C. Rule of thumb 1. R. 3. but cash is not working. the business is illiquid. Relatively high ratio values mean that the business is liquid. the business is liquid. 2.E.0. Therefore. Ltd. a higher ratio means a more liquid current position.0 it means the business is liquid and in all the years’ current ratio of company is more than the ideal ratio. If the current ratio is greater than 1.Working capital management on Kamal solvent pvt. Quick ratio The quick ratio -the quick assets ratio or the acid-test ratio -is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities.0. If the current ratio is less than 1. which are more difficult to turn into cash. Bhilai MBA 09/11 Page . If we see the current ratio of the company for last three financial years it has increased from 2006-07 to 2007-08 but decrease in the year 2008-09 in spite of this it is more than 1. current ratio 2008-09 2007-08 current ratio 2006-07 0 1 2 3 4 5 Interpretation As we know that ideal current ratio for any firm is 2:1. Bhilai MBA 09/11 Page .02 9. Quick ratio = Total current assets – inventory / Total current liabilities YEAR CURRENT ASSETS(in Rs. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as R.53 3. crore) 2006-07 2007-08 2008-09 PREPAID INVENTORIES(in CURRENT QUICK EXPENSES(in Rs.4 1. yet there may be doubts regarding their realization into cash immediately or in time.80 Quick ratio 2 1. Company’s quick ratio is more than ideal ratio.38 1. debtors and bills receivable are generally more liquid than inventories.E.24 1.8 1.81 0.60 1.Working capital management on Kamal solvent pvt. crore) 6. The ideal quick ratio is 1:1.2 1 0.6 1.057 0.0718 3.98 10. SUPER /ABSOLUTE QUICK RATIO Although receivables.87 1.118 0.4 0. 4. Ltd.6 0.89 2.34 5. crore) LIABILITIES(in RATIO Rs.12 4.T.C.2 0 2006-07 2007-08 2008-09 Quick ratio Interpretation A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. This shows company has no liquidity problem.8 0. crore) Rs. E.22 0. to exclude even receivables from the current assets and find out the absolute liquid assets.1 0.C.31 = 1.05 0 2006-07 2007-08 2008-09 SUPER QUICK RATIO R.53 3.15 0. crore) RATIO crore) 2006-07 2007-08 2008-09 assets / current liabilities 0.60 0. Bhilai MBA 09/11 Page .2 0.T.32 0. Ltd.43 0.Working capital management on Kamal solvent pvt. securities. Absolute CASH & BANK CURRENT SUPER Liquid Assets includes: Absolute liquid ratio = Absolute liquid LIABILITIES(in QUICK YEAR BAL.89 2.37 Absolute liquid assets = cash & bank balances + investment in govt.3 0. Rs. Quick liabilities current liabilities – bank overdraft SUPER QUICK RATIO 0.(in Rs.25 0.35 0.4 0.82 1. This ratio also provides help to reduce doubtful debt and on the second hand it provides help to the firm for the creation of the various funds which is useful for the other profitability activates of the company.Working capital management on Kamal solvent pvt.(in Rs. crore) CREDIT SALES .14 49.46 R. Ltd. If the debtors turnover ratio is more than this condition is good for our business because if the ratio is more than it means company will receive the amount from debtors very quickly.95 59.86 3.50 4.T. Bhilai MBA 09/11 Page .C.(in Rs. Interpretation: From the above super quick ratio it is clear that company carries a small amount of cash. borrowing power & long term investment.43 82. RECEIVABLE/DEBTORS TURN OVER RATIO – With the help of this ratio we can easily measure the predictable amount which is has to receive from the debtors. But there is nothing to be worried about the lack of cash because company has reserve. 5. crore) DEBTOR TURNOVER RATIO 27 17 20 2006-07 2007-08 2008-09 1.E. The formula for calculating receivable turnover ratio – Receivable turnover ratio – credit sales / debtors + bills receivable YEAR DEBTORS . Working capital management on Kamal solvent pvt. Debtors turnover 30 25 20 15 10 5 0 2006-07 2007-08 2008-09 Debtors turnover Interpretation: From the above graph it is clear that in the various different year the Debtors turnover ratio is also different and with the help of this ratio company can easily measure predictable receive amount from the debtors.E. Every industry has set its own standard for the average collection period. 6. Ltd.T. AVREAGE/DEBT COLLECTION PERIOD – With the help of this ratio we can easily find out that in how many days the amount of credit sales will receive. Bhilai MBA 09/11 Page .C. The formula for calculating average collection period is Average collection period = Debtors + bills receivable / credit sales × 365 R. If the calculated average collection period is less than standard one than this situation is good for the company but if it is more than this situation is not consider good for the company. Bhilai MBA 09/11 Page . R.T. Ltd.86 3.E. If the calculated average collection period is less than standard than it is good for the industry but if it’s more than standard one than it is not consider good for the industry.50 4.C.46 DAYS 2006-07 2007-08 2008-09 1.43 82.95 59.14 14 22 18 25 20 15 10 5 0 2006-07 2007-08 Average collection period 2008-09 Interpretation – so with the help of this ratio we can easily find out that in how many days the amount of credit sales will receive.Working capital management on Kamal solvent pvt. YEAR DEBTORS .(in Rs.(in Rs. crore) 49. crore) SALES. Every industry has set its own standard for average collection period. The formula for calculating payment turnover ratio is Payment turnover ratio = credit purchase/creditors + bills payable YEAR CREDITORS.90 47.92 18.2 2006-07 2007-08 2008-09 payment turnover R.Working capital management on Kamal solvent pvt.47 payment turnover 19.52 18.95 67.T. Ltd.(in CREDIT Rs.C.89 2.This is ratio is just reverse of the debtors turnover ratio the only difference is that with the help of this ratio we can easily find out the condition or the level of the firm for the payment of the credit purchase. 7.(in TURN OVER Rs. crore) RATIO 19.4 19.60 36.8 18. Bhilai MBA 09/11 Page .6 18.53 3.71 2006-07 2007-08 2008-09 1.E. CREDITORS/PAYMENT TURNOVER RATIO .4 18.2 19 18.6 19. crore) PAYMENT PURCHASE. The formula for calculating average payment period is Average payment period = creditors + bills payable / credit purchase × 365 YEAR CREDITORS CREDIT PURCHASE PAYMENT TURN OVER RATIO 2006-07 2007-08 2008-09 1.E. Ltd.Working capital management on Kamal solvent pvt. Interpretation .95 67. AVERAGE PAYMENT PERIOD . 8.With the help of this ratio we can easily find out that in how many days company will pay to its creditors.47 19 19 19 R.90 47.T.53 3.C. Bhilai MBA 09/11 Page .89 2.So from the above graph we got different creditors turnover ratio in different years and this ratios shows the company ability or level for the payment to its creditor’s.60 36. R.E. Average payment period 20 15 10 5 0 2006-07 2007-08 2008-09 Average payment period Interpretation .C. Bhilai MBA 09/11 Page . This ratio is very important for the business from the creditor’s point of view.Working capital management on Kamal solvent pvt. Ltd.T.This ratio is similar with average collection period the only difference is that with the help of this ratio we can find out that in how many days company will pay to its creditor’s. C.Working capital management on Kamal solvent pvt.T. CHAPTER 5 SUGGETION R. Bhilai MBA 09/11 Page .E. Ltd. Bhilai MBA 09/11 Page .C.Working capital management on Kamal solvent pvt.T.E. R. Ltd. Ltd.C.T. CHAPTER 6 CONCLUSION R. Bhilai MBA 09/11 Page .E.Working capital management on Kamal solvent pvt. 2.Working capital management on Kamal solvent pvt. Working capital increased because of increment in the current assets is more than increase in the current liabilities. 3. Ltd. Positive working capital indicates that industry has the ability of payments of short terms liabilities. 5. The study has been conducted on gross working capital. Working capital of the industry was increasing and showing positive working capital per year. Conclusion Working capital management is important aspect of financial management. Bhilai MBA 09/11 Page . net working capital and net operating working capital and ratio analysis of working capital . The study of working capital management of KAMAL SOLVENT EXTRACTIONS PVT. R. 4.T.C.LTD. Company’s current assets were always more than requirement it affect on profitability of the company. So following are the various conclusive points generate after the study – 1. It shows good liquidity position. has revealed that the current ratio was as per the standard industrial practice but the liquidity position of the company showed an increasing trend. Current assets are more than current liabilities indicate that industry used long term funds for short term requirement.E. C.T.E. Bhilai MBA 09/11 Page . CHAPTER 7 BIBLIOGRAPHY R. Ltd.Working capital management on Kamal solvent pvt. co.P. Ltd.Dr.Working capital management on Kamal solvent pvt.com www.wikipedia. S. Bhilai MBA 09/11 Page . Sources and Bibliography www. Gupta FINANCIAL MANAGEMENT .P.E. Gupta R. S.google.in Official website of the company MANAGEMENT ACCOUNTING – Dr.T.C.
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