A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENT

AT

KEERTHI INDUSTRIES

HYDERABAD

A PROJECT REPORT SUBMITTED

TO

PUNE

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF THE DEGREE IN

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED

BY

NIDHI KIRAN SHAH

PRN no : 170502376

2017-2019

1
 DECLARATION

I the undersigned solemnly declare that the report of the summer training work

entitled study on “Working Capital Management” at Keerthi Industries, Hyderabad is

based on my work carried out during the course of my study under the supervision of

________________________________ ,

_____________________________________&

Mrs_______________________________, Faculty, Department of Management, Dr. D

Y Patil Vidyapeeth Institute of Distance Learning, Pune.

I assert that the statements made and conclusions drawn are an outcome of the project

work. I further declare that to the best of my knowledge and believe the project report

does not contain any part of any work which has been submitted for the award of any

other degree/ diploma/ certificate in this university or any other university.

_______________________

(Signature of the student)

DATE:

PLACE:

2
 CERTIFICATION

This is to certify that the Project Report title Working Capital Management at

Keerthi Industries, Hyderabad submitted in partial fulfilment for the award of MBA

Programme of Department of Business Management, Dr. D Y Patil Vidyapeeth

Institute for Distance Learning, Pune was carried out by Ms. Nidhi Kiran Shah

under my guidance. This has not been submitted to any other University or Institution

for the award of any degree/diploma/certificate.

Name and address of the Guide Signature of the Guide

3
 ACKNOWLEDGEMENT

I would like to extend my gratitude to my Project guide, Mr. KBM Nayudu, Sr.

Manager – HR & Admin for his appreciable support and valuable time and guidance

with providence of resources in terms of knowledge, theoretical gains and practical

experience.

A successful project can never be prepared by the singular effort of the person to whom

project is assigned, but it also demands the help and guardianship of some conversant

persons who undersigned actively or passively in the completion of a successful project.

I would like to extend my thankfulness to him for providing me with excellent

instructors of Keerthi Industries whose guidance and co-operation have been of

immense help for the successful completion of this project. I would also thanks to all

staff members of Indiabulls for guidance and co-operation.

I would also like to thank Mr/ Ms. XXXXXXX, and Mr/ Ms. XXXXX (Internal

Guide) who has been very cooperative and chose to remain anonymous, for giving me

the opportunity to gain from their experience in selection and recruitment processes.

Without their contributions, this project would have been rather incomplete.

4
 TABLE OF CONTENTS

Chapter No. Description Page No.

Introduction

Introduction

Need of study

Scope of study

Objectives of the study

Research Methodology
Chapter I

Data Collection

Limitations of the study

Chapter -II Review of literature

Chapter - III Company Profile

Chapter - IV Data Analysis and Interpretation

Chapter - V Findings, Suggestions and Conclusions

Bibliography

Annexure

5
 Chapter - I
Introduction
Working Capital Signifies funds required for day-to-day business operations of the

firm/organization. Working capital management refers to the administration of all

aspects of current assets and current liabilities. More precautions should be taken for the

effective functioning of working capital management.

A management effort at the minimization of investment on working capital is a

part of the strategy to maximize the wealth of the firm/organization.

It may be recalled that the various items in the balance sheet can be reflected are

broadly divided into categories on each side for the purpose of working capital such as

current items and non-current items.

Working capital planning forms an integral part of the total corporate planning

process particularly the long-term financial plan of the firm/organization.

The working capital management involves deciding upon the amount and

composition of current assets and how to finance these assets.

The firms require working capital to run day-to-day operations. The firm has to

invest enough funds in current assets. Current assets are required because sales do not

convert into cash instantaneously. To convert sales into

6
cash an operating cycle is involved. The operating cycle of a manufacturing company

involves three phases as under:-

1. The acquisition of resources such as raw materials, labour, power and

fuel etc.

2. Manufacture of the product, which includes conversion of raw materials

into work-in-progress.

3. Sale of the product by way of cash or credit sales.

The objective of the working capital management is to maintain a proper balance

between the magnitude of working capital and the general scale of operations of the

firm/organization. The objective of the working capital is to maintain the level of

amount of current assets and amount of current liabilities of a firm/organization to

ensure a reasonable margin of safety.

The scope of working capital management will be covered all elements of

working capital and all determinants of the working capital. More or less it is regarded

as the lifeblood of the business.

The working capital is the result of a managerial effort at minimization of the costs of

liquidity and of liquidity. It involves a managerial planning at synchronization of

maturity dates of current assets and current liabilities.

7
OBJECTIVES OF THE STUDY:

 The important objectives of the study to understand the present financial

position

of KEERTHI INDUSTRIES LIMITED

 To determine the financial position and performance of KEERTHI

INDUSTRIES LIMITED.

 To study the existing system of working capital management in

KEERTHI INDUSTRIES LIMITED, Hyderabad.

 To study the financial ratios etc., which come under the purview of

working capital.

 To examine the feasibility of the present system of managing working

capital.

 To suggest better ways if any for improving the working capital

management.

 To know whether the organization is utilizing its monetary resources are

not.

 To give suggestions on the financial performance of KEERTHI

INDUSTRIES LIMITED

NEED OF THE STUDY:

8
 The study on Working Capital Management position of with using financial

statements. It is very much essential to know the company financial performance for

over come the problem of the company.

Here in this project on attempt is made by Working Capital Management for

knowing the Working Capital performance of the company.

SCOPE OF THE STUDY:

Keeping in view the accessibility and availability of date sources. Keerthi

Industries, Hyderabad and their plant in Mellacheruvu, on 100 percent EOU has been

chosen for the purpose of study.

This study covers the financials from FY2013 to FY18 and it is limited only to

the data given by the finance & accounts department.

The study about Working Capital Management includes management of current

assets and current liabilities. As available of time for the project is limited and the scope

of the subject is very vast, the study is confirmed to overall working capital

management, touching the important aspects.

METHODOLOGY OF THE STUDY:

The study based on secondary sources of data is collected from annual reports.

Internal records and documents of selected sample unit the secondary data is also

collected from various magazines that is survey of Indian Industry 2016 and 2018.

REFERENC PERIOD OF STYDY:

Determination of facts about the financial ratios, financial positions etc., based on

the study of the company’s performance during the last five years covering the period

2016-2017 TO 2017-18.

LIMITATIONS OF THE STUDY:

 The data has been collected through secondary source

9
  The time span i.e.(45 days) which it ahs became difficult to collect all the

information.

 Study has been restricted only to working capotal management.

 The analysis is made on the basis of data.

 The availability of accurate and complete the data is 5 years i.e., from

2013 to 2018.

 Data may not be accurate and they may hide some data for their internal

restrictions.

 The study only on working capital on

Chapter – II
Industry & Company Profile
INDUSTRY PROFILE

Cement industry — an overview:

Cement is the preferred building material in India. It is used extensively in house

hold and industrial constructions. Earlier Government sector used to consume over 50

percent of cement sold in India, but in the later decade its share has come down to 35

percent. Rural areas consume less than 23 percent of the total cement. Availability of

cheaper building materials for non-permanent structures affects the rural demand.

Demand for cement is linked to the economic activity in any country. Broadly, it

can be categorized into demand for housing construction and infrastructure building.

The real driver of cement demand is creation of infrastructure. Hence cement demand in

the emerging economies is much higher than in developed countries where the demand

10
has reached a plateau. In India the Government spending on infrastructure will affect the

demand for cement.

With the “Bharat Nirman” programme announced by the government to various

infrastructure projects, road networks and housing facilities, growth in the cement

consumption is anticipated in the coming years The favorable housing finance

environment is expected to fulfill the vast housing requirements both in rural and urban

areas. The increase in infrastructure projects by the government coupled with the

construction of the North — South and East — West corridor projects have led to an

increase in consumption of cement. This increase is expected to continue in the near

future. The reduction in import duties is not likely to affect the industry as the cement

produced is at par with the international standards and the prices are lower than those

prevailing in international markets.

Cement is a typical industry characterized by the boom and bust syndrome. A

huge potential market and rapid growth in the early stages lead to a surge in interest and

flurry of interest. The projected growth rates point to lucrative market. The buoyant

markets and huge profits ranked in by players and a glut in capacity created.

Competition increases, price fall and margins come under pressure, additional capacity

comes to halt, and weaker players will be out of the market. Demand catches up and the

cycle is repeated all ever again. Perhaps of all the cyclical industries, the Indian cement

industry exhibits this boom and bust cycle most visibly.

Temptation:

11
 A huge potential market, easy availability of raw materials and cheap labour

leads to a fluny of activity and a surge in interest. An estimate of the potential that exists

in the per capita consumption of cement was low in India at 85 kgs. Although the

growth of the industry depends more on level of consumer spending rather than per

capita consumption, less it serves as an easy benchmark to estimate the potential that

exists.

Fuel to fire:

The projected growth rates in demand based on the potential per capita

consumption growth or other demand drivers like the expected GDP growth rate. Fuel

stock market rallies. Consider the boom in cement stocks in 1994. Every cement

company was attracting valuations it never dreamt about. Scarcity induced by lower

capacities and to a large extent on non-availability of power, drove the cement prices to

the hilt. The kind of money minted by most cement companies as well as investors in

that period, made strategists plan enormous increases in capacity. This explains why

capacity creation starting 1 994 was enormous.

Government controls:

The factors that primarily control the price of cement arc coal, power tariffs,

railways, royalty and cess in limestone. Government controls all of these prices.

Coal:

The consumption of coal in a typically dry process system ranges from 20 to 25

percent of clinker production. This means per ton clinker produced 0.2 to 0.25 ton coal

is consumed. This contributes 35 to 40 percent of production cost. The cement industry

12
consumes about ten million tons of coal annually. Since coal fields like BCCL supply a

poor quality of coal, NCL and SCL has to blend a high grade coal with it. The Indian

coal has a low calorific value (3500 to 4000 Kcal/Kg) with ash content a high as 25 to

50 percent compared to imported coal of high calorific value(7000 to 8000 Kcal/Kg )

with low ash content 6 to 7 percent. Lignite is also used as a fuel by blending it with

coal. However this process is not very common.

Electricity:

Cement industry consumes about 5.5 billion units of electricity annually while

one ton of cement approximately requires 120 to 130 units of electricity. Power tariffs

vary according to the locations of the plant and on

the production process. The state government supplies this input and hence plants in

different states like AP, MP experience power cuts to t he tune of 25 to 30 percent every

year causing substantial production loss.

Infrastructure:

To reduce uncertainty relating to power, most of the leading companies like

ACC, Indian rayon and Grasim rely on captive power generating wind mills.

Lime stone:

This constitutes the largest bulk in terms of input to cement. For producing one

ton of cement, approximately 1.6 ton of limestone is required. Therefore the cement

plant location is determined by the location of limestone mines. The major cash outflow

takes place in way of royalty payment to the central government and cess on royalty

levied by the state government. The total limestone deposit in the country is estimated to

13
be 90 million tons. AP has the largest share of 34 percent, Karnataka 13 percent, MP 8

percent, and Rajastan 6.5 percent. The plant near the limestone deposit pay less

transportation cost than others.

Transportation:

Cement is packed in plastic bags or in paper bags nowadays. It is then

transported either by rail or road. Road transportation beyond 200 Km is not

economical. Therefore railways are moving 55 percent cement. There is also a problem

of inadequate availability of wagons especially on western railways and southeastern

railways. Under this scenario, manufacturers are looking for sea routes, this being not

only cheap but also reducing the loss in transit. Today 70 percent of the cement moved

worldwide is by sea compared to 1 percent in India.

However the scenario is changing with most of the big players like ULTRA TECH, ACC

and Grasim had set up their bulk terminals.

Infrastructure for future:

`The consumption of cement is determined by factors influencing the level of

housing and industrial construction, irrigation projects, roads and laying of water supply

and drainage pipes etc. the level and growth of GDP and its sectorial composition,

capital formation, development expenditure, growth in population, level of urbanization

etc. in turn determine these factors. But the domestic demand for cement is mainly from

the housing activities and infrastructure development. The government paved the way

for the entry of private sector in road projects. It has amended the National Highway Act

14
to follow private toll collection and identified projects, bridges express ways and big

passes for private construction. The budget gave substantial incentives to private sector

construction companies. Ongoing liberalization will lead to an increase in industrial

activities and infrastructure development. So it hoped that Indian cement should boom

again in near future.

Installed capacity:

India is the second largest cement producing country, the first being China. The

industry is characterized by a high degree of fragmentation that has created intense

competitive pressure on price realizations. Spread across

the length and breadth of the country, there are 120 large plants belonging to 56

companies with an installed capacity of around 135 million tons as on March 2018.

State wise capacity:

As cement is a low value commodity, freight costs assume a significant

proportion of the final cost. A transportation cost tends the prices of cement in distant

destinations uncompetitive. For instance it is finally feasible to transport cement by over

250 Km, railways are mostly used to transport cement over longer distances. However it

is bulky in nature and infrastructure bottlenecks render even rail transport unavailable

over very long distances. Therefore, manufacturers tend to sell cement at the nearest

market first and sell in distance markets only if additional realization is greater than

freight costs incurred. This highlights the regional nature of the cement industry.

SWOT ANALYSIS OF INDIAN CEMENT INDUSTRY

15
Strengths:

 One of the best technologies in the world.

 Quality of cement comparable to world standards.

 No threat of cement import due to uneconomical, freight cost.

 Large lime stone deposits.

Weakness:

 Worsening power situation, foreign companies to invest sums of money

to setup captive power plant.

 Quality control not available in the country and better quality coal

imports only feasible for port based units.

 Infrastructure bottlenecks like transportation for raw materials and fuel

supply.

 Lack of port facilities impending export.

 Lack of bulk transportation.

 Lower per capita consumption of cement.

Opportunities:

 Immense export opportunity in neighboring countries and middle east.

 Expected infrastructure growth (7.1 percent during 1995 — 96) will add

to the current demand.

 Back log for 41 million housing units.

16
Privatization of infrastructure projects.

Threats:

 Large capacities coming up might see a glut situation emerge, especially

in central and north India putting pressure on the realizations in the said region.

 Lack of funds with the government.

OVERVIEW OF THE STATE CEMENT INDUSTRY:

Andhra Pradesh, the pivot of industrial prosperity in South India, welcomes you

to its resourceful land of minerals, which includes coal, oil & natural gas, bauxite,

limestone, gold, diamonds and more. A host of infrastructure facilities are offered by the

State that include industrial development areas, industrial estates, growth centers and

special complexes like a chemical complex, plastic complex, leather complex and a

software technology park.

Characterized by a large pool of scientific and technical manpower (75 percent

of India’s engineering graduates come out of colleges located in the 4 Southern States of

Andhra Pradesh, Kamataka and Tamil Nadu), abundant

natural resources, fairly well-developed infrastructure and relatively stable and reform-

oriented political leadership the region shows the potential of achieving the type of

sustained progress that was made by the ASIAN countries in the early 1980s. It is not

surprising that manufacturing industries and particularly software exports are helping

these Southern States forge ahead.

Mineral — based industries:

17
 Part of the ancient Gondwana plateau, Andhra Pradesh’s vast mineral wealth is

still not fully exploited. It is the only State in South India to have coal deposits. It is also

an ideal location for thermal plants. There are at present 6 coal based thermal power

plants in the State, generating about 5000 MWs of power. Recent explorations have

indicated reserves of oil and natural gas, both onshore and offshore. The first two fast

track private power generating plant in the country, the Gas based units at Jegurupadu

(216 MWs) and Kakinada ( 208 MWs) have been commissioned in 1996 and 1997

respectively. With good prospects of finding new gas fields in the Krishna-Godavari

deltas there is scope for setting up more gas-based fertilizer plants, chemical units and

power-generating units. With the availability of wet gas, there is scope for fractionation

plants in the coastal region of the State. LNG import terminal at Kakinada port is being

setup . A network of gas pipelines is being laid in A.P for distribution of Natural Gas

through pipelines for domestic consumption in the coastal region of Andhra Pradesh. At

present imports of LPG are serving partly the growing consumer market for domestic

and industrial fuel. There is good scope for the use of LPG and LNG as automobile fuel

in the country in future.

Andhra Pradesh has 30,400 million tons of limestone reserves, which constitute

38 percent of the country’s reserves. At present only 20.5. Million tons are being

consumed largely for the production of cement. With 40 existing cement factories,

Andhra Pradesh is the second largest producer of cement in India with 15 million tons of

cement being manufactured per annum.

In 1999, Larsen and Toubro commissioned a plant with a capacity of 2 million

tons per annum in the backward district of Anantapur with an outlay of Rs. 8 billion (US

18
$184 million). When it reaches its ultimate capacity of 6 million tons, it will be the

biggest plant in Asia.

Gujarat Ambuja Cements Ltd. is setting up a plant with an investment of Rs.7

billion (US $ 160 million) and with a capacity of 2 million tons per annum. The unit is

programmed to be commissioned at the end of 2001.

Andhra Pradesh also produces steel at Visakhapatnam Steel Plant and elegant

building materials like granite, marble and slate which are found in a wide variety of

colors and grades. With the current boom in infrastructure development in India, the

building materials sector is facing good prospects.

Andhra Pradesh has the second largest deposits of bauxite in India. The reserves,

estimated at 700 million, tons can sustain an alumina refinery and smelter with a

capacity of over 1 million tons per annum.

ABOUT “KEERTHI INDUSTRIES LTD” WORKS

The keerthi industries Ltd Works was promoted in the year 1984 located at

Mallacheruvu (V&M), Nalgonda District, Andhra Pradesh, which is 185 kms from

Hyderabad, on the banks of River Krishna and 50 kms away from Miryalaguda Railway

station.Commissioned its unit in the year 1986 with a capacity of 300 tones per day and

upgraded its capacity in stages to 900 tones per day ,at present expansion works are

going on for 1800 tones per day and at present the unit Suverna cement works,

Mallacheruve unit is having oneLime stone deposits zones covering area of 350 acres

viz.,

19
  Shankara Mines

Product Profile

Common among the materials used in its manufacturer Limestone,

Shells and Chalk or marl combined with Shale, Clay, Slate or blast

Furnace slag, Silica sand.

Two manufacturing processes

Two different processes, “dry”, and “wet” are used in the

manufacture of cement.

 The raw material is heated to about 2700 degrees F in huge cylindrical

steel rotary kilns lined with special firebrick.

 Clinker is discharged red-hot from the lower end of the kiln and

generally is brought down to handling temperature in various types of

coolers.

Cement Process

1)Quarry

Basic elements:-

Calcium, Silicon, Iron, Aluminum

Raw materials:-

Limestone, Clay and Sand.

2)Proportioning, Blending & Grinding

3)Preheater Tower

4)Kiln

Raw material reaches 3400 degrees F

5)Clinker cooler & Finish Grinding

20
6)Bagging & Shipping.

Brand The main brand of cement manufactured is

Suvarna 53 Grade.

Human Resources:

The plant has well qualified highly motivated manpower of 130 Employees on its

rolls.Out of 130 employees, 11 are executive cadre and the remaining is in staff &

workmen cadre.

RGANIZATION CHART

CHAIRMAN

MD

DIRECTORS

Production Accounts Testing Sales

Department Department Department Department

21
 Production Chief Accounts Lab Sales

Manager Manager Technicians Manager

Supervisor Accountant Sales

Supervisors

Cler

CHAPTER – III
REVIEW OF LITERATURE
INTRODUCTION:

Working Capital Signifies funds required for day-to-day business operations of

the firm/organization. Working capital management refers to the administration of all

aspects of current assets and current liabilities. More precautions should be taken for the

effective functioning of working capital management.

A management effort at the minimization of investment on working capital is a

part of the strategy to maximize the wealth of the firm/organization.

22
 It may be recalled that the various items in the balance sheet can be reflected are

broadly divided into categories on each side for the purpose of working capital such as

current items and non-current items.

Working capital planning forms an integral part of the total corporate planning

process particularly the long-term financial plan of the firm/organization.

The working capital management involves deciding upon the amount and

composition of current assets and how to finance these assets.

The firms require working capital to run day-to-day operations. The firm has to

invest enough funds in current assets. Current assets are required

because sales do not convert into cash instantaneously. To convert sales into cash an

operating cycle is involved. The operating cycle of a manufacturing company involves

three phases as under:-

4. The acquisition of resources such as raw materials, labour, power and

fuel etc.

5. Manufacture of the product, which includes conversion of raw materials

into work-in-progress.

6. Sale of the product by way of cash or credit sales.

The objective of the working capital management is to maintain a proper balance

between the magnitude of working capital and the general scale of operations of the

23
firm/organization. The objective of the working capital is to maintain the level of

amount of current assets and amount of current liabilities of a firm/organization to

ensure a reasonable margin of safety.

The scope of working capital management will be covered all elements of

working capital and all determinants of the working capital. More or less it is regarded

as the lifeblood of the business.

The working capital is the result of a managerial effort at minimization of the

costs of liquidity and of liquidity. It involves a managerial planning at synchronization

of maturity dates of current assets and current liabilities.

The study of the working capital management, which is known as managing

short-term finance mainly, consists of the following chapters:

1. Working Capital Management.

2. Management of Cash.

3. Management of Receivables.

4. Management of Inventory Control.

5. Analysis of Working Capital and Ratio Analysis.

Management of working capital calls for the maintenance of an optimal balance

between the objectives of profitability and liquidity. Profitability frequently conflict

with each other. Attempts to produce maximum profitability out of various elements of

working capital do create severe liquidity does dilute profits. Working capital

management establishes the best possible trade-off between the profitability of net

24
 current assets employed and the ability to pay current liabilities as they fall due. This

implies a clearly designed risk policy to determine the required liquidity level.

DEFINITION OF WORKING CAPITAL:-

In the words of Prof.S.C.Kuchhal, “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.”

In the words of Shubin, “Working Capital is the amount of funds necessary to

cover the cost of operating the enterprise.”

In the words of Genestenbug, “Circulating capital means current assets of a

company that are changed in the ordinary course of business from one form to another

as for example from cash to inventories, inventories to receivables, receivables in to

cash.

Working capital management is concerned with the management of the current

assets. It is an important and integral part of financial management, as short-term

survival is a pre- requisite to long-term success. A Business can't invest whole of its

capital in long-term assets. Thus, it becomes necessary for the firm to maintain a

considerable amount of Working, Capital in its regular course of business. Working

capital is the lifeblood of an organization. The management should maintain the right

25
amount of working capital on a continues basis to ensure proper functioning of business

operation.

The term working capital is defined as the capital required for day to day

working in business concern such as for purchasing raw material, for meeting daily

expenditure on salaries, wages, rents, advertising etc. Working Capital Management is

concerned with the problems that arise in attempting to manage the current assets, the

current liabilities and inter-relationship that exit between the

NATURE OF WORKING CAPITAL: -

Working Capital may be regarded as the lifeblood of the business. Its effective

management can do much to ensure the success of a business, while its ineffective

management can lead not only to loss of profit but also to ultimate downfall of what

otherwise might be considered as promising concern.

A study of working capital requirements is of major importance to internal and

external analysis because of its close relationship with current day-to-day operations of a

business.

The goal of the working capital management is to maintain the level of current

assets and current liabilities of a firm i.e.; the current assets should be large enough to

cover its current liabilities in order to ensure a reasonable, sense of safety. Working

capital management involves in deciding upon the amount and composition of current

assets and how to finance these assets. These decisions involve trade-offs between risk

and profitability.

26
 The Ratio Analysis of working capital can be used by the management is a

means of checking upon the efficiency with which the working capital is being used in

the enterprise.

Working capital can be regarded as that proportion of the company’s total capital

that is employed in short term operations. The working capital can take the form of cash,

near cash and other assets such as stocks of raw materials and supplies needed for

manufacture, stocks of finished products awaiting sale, semi-finished goods or

components which will soon emerge as final/finished products, sundry debtors pending

collections against credit sales and short term investment etc; if any.

NEED FOR WORKING CAPITAL

The need working capital or current assets to form the day-to-day business activities

cannot be over emphasized. we can hardly find a business firm that does not require any

amount of working capital. indeed different requirements of the working capital. it is

well known that any firm aims at maximizing shareholder’s wealth. to attain this, a firm

should earn a steady amount of profit, which requires successful sales activity. the firm

has to invest enough funds in current assets are needed because sales cannot convert into

cash instantly since there is always an operating cycle involved in the conversion of

sales into cash.

OPERATING CYCLE:

Operating cycle can be said to at the heart of the need for working capital. “the

continuing flow from cash to suppliers, to inventory, to accounts receivable and back

into cash is what is called the operating cycle”. in other words, the term operating cycle

refers to the length of time necessary to complete the following cycle of events:
27
1. CONVERSION OF CASH INTO INVENTORY

2. CONVERSION OF INVENTORY INTO RECEIVABLES.

3.CONVERSION OF RECEIVABLES INTO CASH.

PHASE-3

RECEIVABLES

CASH PHASE-2

INVENTORIES

PHASE-1

The operating cycle consists of three phases. in phase-1, cash gets converted into

inventory. This includes purchase of raw materials, conversion of raw materials into

work-in progress, finished goods and terminates in the transfer of goods to stock at the

end of the manufacturing process. In phase-2 of the cycle, the inventory is converted

into receivables as credit sales are made to customers. the last phase, phase-3, represents

the stage when receivables are collected and with this, completes the operating cycle.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

 Gross Working Capital

 Net Working Capital

28
GROSS WORKING CAPITAL:

It is also known as current capital or circulating capital. It represents the sum

total of all current assets of the firm and has an investment decision focus.

NETWORKING CAPITAL:

It refers to the difference between current assets and current liabilities, it can he

either positive or negative a positive net working capital will arise when current exceed

current liabilities and vice-versa. The net concept is meaningful to judge the current

financial soundness or the short term liquidity position of an enterprise. It suggests the

extent to which working capital needs may be financed by permanent sources of funds.

Working Capital = Current Assets – Current Liabilities.

The amount of working capital to be invested in each category depends on:

a) Cash-to-cash cycle.

b) Seasonal and permanent working capital needs.

c) Trade-off-between liquidity and risk.

The financing of working capital can be studied under the headging approach,

conversion approach and aggressive approach or trade-off. In the “hedging approach”

or “matching approach”, the long term financing will be used to finance fixed assets and

permanent current assets while the fluctuating assets will be financed by short-term

funds. In a growing situation, permanent financing would be increased in keeping with

the increase in permanent fund requirements.

Short Term

Assets Permanent Assets Long Term

29
 Fixed Assets

A better plan is to adopt “conservative approach” when the previous “hedging

approach” is not possible. The firm under this plan finances its permanent current assets

and a part of temporary current assets with long term funds in marketable securities

during the period of lack of temporary assets. This is safest way in reducing risk.

Marketable Securities

Temporary

Current Assets Short Term

Financing

Assets permanent Current Long Term Sources of

Assets Finance

Fixed Assets

Time

In “trade-off” or “aggressive approach”, the permanent current assets will be

financed with short-term funds and the other part by long-term financing. This approach

is perceived to consider in between risk and return. A short-term funding involves

uncertainty to interest rates and availability of finance with an advantage of carrying a

lower interest rate.

Marketable Securities

30
 Temporary

Current Assets Short Term Financing

Assets Permanent Current Assets Long Term Sources

Of Finance

Fixed Assets

Time

KINDS OF WORKING CAPITAL

Working capital is classified into two categories:

 Fixed (or) Permanent working capital

 Variable, fluctuating, Seasonal temporary (or) special

working capital.

Fixed or permanent working capital:

The need for current assets arises because of operating cycle. The operating

cycle is a continuous process and therefore, the need for a current asset is felt constantly

but the magnitude of current assets needs not always the same. It may increase or

decrease overtime. However, there exists always, a minimum level of current assets that

are being referred as permanent or fixed working capital. It is permanent in the same

way as investment in the firm’s fixed assets.

Temporary

31
 Permanent

Time

FLUCTUATING WORKING CAPITAL:

Depending upon the changes in production and sales, the need for working capital

over the permanent W.C will fluctuate. The need for working capital may also vary on

account of seasonal changes (or) abnormal (or) unanticipated conditions. For example, a

rise in the price level may lead to an increase in the amount of funds invested in stock of

raw materials as well as finished goods. Additional working capital may be required to

face cutthroat competition in the market (or) other contingencies like strikes and

lockouts. Any special advertising companies organized for increasing sales (or) other

promotional activities may have to be financed by additional working capital. The extra

working capital needed to support the changing business activities is called the

fluctuating working capital.

Fluctuating

Amount of W.C. Permanent

COMPONENTS OF WORKING CAPITAL:-

CURRENT ASSETS:

Current assets are defined as either cash or those assets that can be converted

into cash within the current year. The major components of these current assets are

inventories, account receivables and advances.

32
 Inventories: These are the materials; commodities or goods used in day-to-day

operations of production or in the form of finished goods. These include materials,

work-in-progress and finished goods.

Accounts receivables: These are short-term debts owed by company arising

from credit and sales made to customers of the firm.

Advances: These represents amount paid for which the goods and services have

not yet been rendered, including advances given to suppliers and employees.

CURRENT LIABILITIES:

Short-term loans: Money borrowed from various banking and non-banking

sources for short periods of time.

Other liabilities: These include tax payments due within one year and proposed

dividends.

DETERMINENTS OF WORKING CAPITAL

There are no set rules (or) formulae to determine the working requirements of a

firm. The corporate management has to consider a number of factors to determine the

level of working capital. The amount of working capital that a firm would need is

affected not only by the factors associated with the firm itself but also by economic,

monetary and general business environment. Among the various factors, the following

are the important ones.

Nature and size of business:

The working capital needs of a firm are basically influenced by the nature of its

business. Trading and financial firms generally have a low investment is fixed assets but

require a large stock of a variety of merchandise to satisfy the varied demands of their

33
customers. The size of the business also has an important impact on its working capital

needs. It may be measured in terms of the scale of operations will need more working

capital than a small one.

Manufacturing cycle:

The manufacturing cycle starts with the purchase of raw materials and is

completed with the production of finished goods. Since, the manufacturing cycle

involves a longer period; the need for working capital will be more because an extended

manufacturing time span means a larger tie-up of funds in inventories. Any delay at any

stage of manufacturing process will result in accumulation of work-in-progress and

thereby enhances the requirement of working capital.

Business fluctuations:

Seasonal and cyclical fluctuations in demand for a product considerably effect

the working capital requirements, especially, the temporary working capital

requirements of the firm. An upward swing in economy leads to increased sales,

resulting in the enhancement of the firm’s investment in inventory and receivables (or)

book debts. On the other hand, a decline in the economy may register a fall in sales and

consequently a fall in the levels of stock and book debts. Seasonal fluctuations may also

create production problems. Increase in production level may be expensive during

utilize its resources to the follows a policy of steady production will utilize its resources

to the extent possible in all the seasons. This will imply accumulation of inventories in

off-season and their disposal in peak season.

Production policy:

34
 If a firm follows steady production policy even when the demand is seasonal.

Inventory will accumulate during off-season periods. And there will higher inventory

costs and risks. If the costs and risks of maintaining a constant production schedule are

high. The firm may adopt the policy of varying its production schedule in accordance

with the changes in demand.

Turn-Over (or) circulating capital:

The speed with which the operating cycle completes its round (i.e. cash – raw

materials – finished products – accounts receivables – cash) plays a decisive role in

influencing the working capital needs

Credit terms:

The credit policy of the firm affects the size of working capital by influencing

the levels of book debts. Though the credit terms granted to customers in a large

measure depend upon the norms and practices of the industry (or) trade to which the

firm belongs, yet it may endeavor to shape its large funds in book debts. Stock

collection procedure may even increase the chances of bad debts. A firm enjoying liberal

credit terms will need less working capital.

Growth and expansion activities:

As a company grows logically, longer amount of working capital will be needed.

Through it is difficult to state any firm rules, regarding the relationship between growth

in the volume of a firm’s business and its working capital needs, the fact to recognize is

that the need for increased working capital funds may precede the growth in business

activities, rather than following it.

35
 Operating efficiency:

Operating efficiency means optimum utilization of resources. The firm can

minimize its need for working capital by efficiently controlling its operating costs. With

increased operating efficiency, the use of working capital is improved and the pace of

cash cycle is accelerated. Better utilization of resources improves profitability and helps

in relieving the pressure on working capital.

Price-level changes:

Generally rising price level requires a higher investment in working capital. With

increasing prices, the same level of current assets need enhanced investment. However,

firms, which can immediately increase their products upward, need not face severe

working capital problems during the periods of rising price levels. The effects of

increasing price levels may however be dealt differently by different firms due to

variations in individual prices. It is possible that some companies may not be affected by

rising prices where as others may be badly hit by it.

COMPUTATION OF WORKING CAPITAL

The two components of working capital (WC) are current assets (CA) and

calculate liabilities (CL). They have a bearing on the cash operating cycle. In order to

calculate the working capital needs, what is required is the holding period of various

types of inventories, the credit collection period and the credit payment period. The WC

also depends on the budgeted level of activity in terms of production/sales is carried on

evenly throughout the year and all costs accrue similarly. The steps involved in

estimating the different items of CA and CL are as follows:

36
IMPORTANCE OF CURRENTASSETS MANAGEMENT

CASH MANAGEMENT

INVENTORY MANAGEMENT

RECEIVABLE MANAGEMENT

IMPORTANCE OF CURRENT ASSET MANAGEMENT

The importance of current assets management consists of three major elements are;

1) Cash management

2) Inventory management

3) Receivable management

Cash management:

One major segment of current asset management is cash management. The main

task of cash management is to hold and maintain an adequate but not excessive, cash

position. Cash is an obvious and inescapable input into a company operation and as such

it has to be available in sufficient doses according to the needs, on a Continuous basis.

So there is a need for an effective plan to deploy this resource to utmost productive use.

According, to the eminent British Economic Lord Keynes, the desire to hold

cash can be attributed to one or more of three motives.

1) The transaction motives.

2) The precautionary motives.

3) The speculative motives.

37
 The transaction motive arises from the need for ready funds to effect payments

for day to day operations or business. Such as payments for purchase, payments for

wages, other operating expenses.

The precautionary motive carries a desire to keep a cash cushion or buffer to

meet unexpected contingencies.

The speculative motive covers the intention to hold the cash to be able to take

advantage of shifts in security prices, arising from changes in the interest rate and other

factors.

The following factors influence the quantum of transaction in precautionary balances.

1) The expected net cash flows based on the cash forecast, taking note of the long term

and short term cash needs of the company.

2) Expectation as to the degree of possible deviation from forecasts, to anticipate

changes

in cash flows under varying circumstances, the possibility concept can be applied.

3) The maturity structure of the different liabilities of the company

4) The facility of readily drawable borrowing power in times of emergency.

5) The philosophy of management regarding high liquidity and risk of insolvency.

6) The efficient planning and control of cash.

The objective of cash planning is to provide advance signals as to

1) What are the amounts of cash that are needed to attain short run profit objectives?

2) How much of this cash requirements can be met out of the cash generated from

current

Income ?

38
3) What are the magnitudes of the ebbs and flows of cash emanating from operations

and

what are the sizes and frequencies of the resulting cash surpluses and deficits?

4) What are the sources of cash (borrowings) and under what conditions or in what

context

they are available.

Timely and rewarding short term outlets will have to be Sound for the surplus

and appropriate outside financing arrangement will have to be made for meeting the

deficits, so that the operations continue unhindered and planned profits are realized.

The sales division may be asked to make special efforts to boost the sales

required to generate the necessary cash. The collection of debts can be accelerated by

periodical reviewing and by allowing rebated incentives for prompt settlement of bills.

The purchase division can be asked to give advance intimation or cash planning

for purchase and a managerial readjustment can be made in internal operations without

affecting the short run profit goal. A credit line with a commercial bank is another major

safeguard against temporary cash shortage. These types of an external trellis should

develop as carefully planned, so that the cash planning drill has to be directed efficient!)

Lo generate optimum resources.

Cash management tools;

The preparation of the cash budget, involves detailed estimate, for various

intervals of time in the near future, of cash receipts from all sources, cash payments for

all purpose and the resulting cash balances. The attention changes from balance sheet

changes or trends to the basis of day-to-day transactions of purchases, sales, collection,

39
payments and expenses, A carefully prepared cash budget reveals, for the finance

manager, the timing and the amount of expected cash inflows and outflows over the

period or periods under scrutiny. With this information, the finance manager is better

equipped to assess the future cash requirements and keep a grip over the cash and

liquidity aspects.

Cash forecasts and budgets can have validity and utility only for the near future,

not exceeding a year. But, whether they are prepared on a daily, weekly, for nightly,

monthly, quarterly or any or any other convenient basis, it is essential that the related

transactions are perceived in detail and recorded, thus enhancing the credibility and

accuracy of the forecasts and budgets as planning and control tools.

Cash Budget:

For a company operating a good system of budgetary control, the preparation of

a cash budget is very important. The several functional budgets provide details of the

relevant monthly cash receipts or disbursements to be transferred to the cash budget.

Certain particulars such as mended borrowings and loan payments, issue of shares or

debentures or payments of dividends will have to be separately determined and

incorporated in the cash budget. The operating budget conceived in summary annual

forms or even as a average monthly plan will fall very much short of the care and

discipline required for repaying short run cash budgets estimates of sales, collection,

purchases, payments, outputs and hence all related expenses have to be noted in detail

with reliable data being available for weekly, monthly or other periods, covering all

phases of operation

40
INVENTORY MANAGEMENT

Inventories constitute a substantial portion of the assets employed in industry.

The term inventory refers to the stockpile of the product a firm is offering for sale and

the components that make up the product. In other words, inventory is composed of

assets that can be sold in future in the normal course of business operations. It

constitutes (a) Raw materials (b) Work-in-progress and (c) Finished goods.

The raw materials of inventory contain items that are purchased by the firm form

others and convertible into finished goods through the manufacturing process. They

constitute the important inputs of the final product.

The work-in-progress (WIP) of the inventory consists of items that are currently

being used in the production process. It normally consists of partially or semi finished

goods that are at various stages of production, in a multistage production process.

Finished goods represent final or completed products, which are available for

sale. The inventory of such goods consists that have been produced but are yet to be

sold.

RECEIVABLES MANAGEMENT

Accounts receivables or debtors represent the sales that are made on credit. The

term receivables are defined as “debt owned to the firm by customers arising from sale

of goods or services in the ordinary course of business”. When a firm makes an ordinary

sale of goods or services and does not receive payment, the firm grants trade credit and

creates accounts receivables that would be collected in future. Receivables management

is also called trade credit management. Thus, accounts receivables represent an

extension of credit to customers, allowing them a reasonable period of time to pay for

41
the goods, which they have received. The objective of receivable management is to have

a trade off between the benefits and the cost associated with the extension credit. The

benefits are increased sales and associated increased profits/marginal distribution. The

major categories of accounts receivables are collection costs, capital costs, delivery

costs and default costs. By making the credit terms more attractive, management can

increase sales turnover. However, granting credit above costs involves finance tied up in

accounts receivables, increased administration expenses and the probabilities of bad

debts. Receivables management forms the core of the working capital management. It is

because the good will and the reputation of the company is sustained by its efficient

receivables management, provided, the company make prompt payments to its suppliers.

This is possible only if the company is in a position to collect the debts from its debtors

efficiently.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

We will hardly find a running business firm, which does not require some

amount of working capital. Even a fully equipped manufacturing firm is sure to collapse

if it cannot meet any of the following requirements:

An adequate supply of raw materials to process.Cash to meet the wage bill.

The capacity to wait for the market for its finished products The availability to grant its

customers.

Similarly, a commercial enterprise is virtually good for nothing without

merchandising to sell working capital. This is the life-blood of a business. As a matter of

fact, any organization, whether profit. Oriented or otherwise, will not be able to carry on

day-to-day activities with out adequate working capital. Because of close relationship

with day-to-day operations of a business, a study of working capital and its management

42
is of major importance individual as well as external analysis. It has been increasingly

realized that the inadequacy or mismanagement of working capital has lead to the cause

of business failures. We must not loose sight at the fact that management of working

capital is an integral part of the overall financial management and ultimately of the over

all corporate challenge and shows a welcome opportunity for a financial manager who is

ready to play a vital role in his organization.

Neglect of management of working capital may result in technical insolvency and

even liquidation of business unit. Inefficient working capital management may cause

either inadequate or excessive working capital, which is dangerous.

A firm may have to face the following adverse consequences from inadequate

working capital.

1) It may

be difficult for the firm to undertake profitable profits due to non-

availability of funds.

2) Implementation of operating plans may become difficult and

consequently the firm’s profit goals may not be achieved.

3) Fixed assets may not be efficiently utilized due to lack of working

capital. Thus lowering the rate of return on investments.

4) Operating inefficiency may creep in due to difficulties in meeting

day-to-day commitments.

5) A firm looses its reputation, when it is not in a position to honor

its short-term obligations and as a result, it may have to face tight credit

terms.

6) It may loose alternative credit opportunities.

43
On the other hand, excessive working capital may have the following

dangers:

1) Excessive working capital may result in unnecessary

accumulation of inventories, thereby, increasing the chances of inventory

misleading, waste and theft.

2) Excessive working capital may make management coalescence

leading eventually to management inefficiency.

3) It may also provide undue incentives for adopting too liberal a

credit policy and stacking of collection receivables, causing a higher

incidence of bad debts. This adversely effect on profits.

4) It may encourage the tendency to accumulate inventories for

making speculative profit.

MEANS TO IMPROVE WORKING CAPITAL MANAGEMENT

1. By Developing own working capital improvement target such as:

a) Increase in sales without increasing inventory, receivables and bank

financing.

b) Reduction in receivables, inventory or bank financing while maintaining

sales at their current levels.

2. A defensive move is to construct format contingency plan to combat working capital

shortages that might happen unexpectedly by following ways:

44
 a) By

notifying company bankers and closely listing available collateral fixed

assets available for sale and leaseback transactions.

b) By

developing list of inventory-either raw materials or finished goods that could

be sold to enhance cash quickly.

c) By

developing a list of vendors willing to grant mere liberal terms in credit

crunches.

3. Investing surplus cash to earn interest. The investment should be done after defining

the objects and ruling the benefits, seeking in an order of ranking-security-maturity-

liquidity-yie

Chapter – IV
Data Analysis & Interpretation
COMPUTATION OF WORKING CAPITAL OF LAST FIVE YEARS

RATIOS OF KEERTHI INDUSTRIES LIMITED

TABLE NO.I

YEARLY STATEMENT OF CHANGES IN WORKING CAPITAL

2014 2015 WORKING CAPITAL

CURRENT ASSETS: Increase Decrease

Inventories 29886215 25104811 - 4781404

Sundry Debtors
43536714 40596252 - 2940462
Cash & Bank 411143 550750 139607 -
Loans & advances 22761851 48114100 25352249 -

45
Total (A)
96595923 114365913
CURRENT LIABILITIES:

Liabilities 61236180 69569025 - 8332845

Total(B) 61236180 69569025

Changes in Working Capital
35359743 44796888 254991856 16054711
(A-B)
Increase in Working
9437145 -
Capital

TABLE NO.II

YEARLY STATEMENT OF CHANGES IN WORKING CAPITAL

2015 2016 WORKING CAPITAL

CURRENT ASSETS: Increase Decrease

Inventories 25104811 31026494 5921683

Sundry Debtors 40596252 41774081 1177829
Cash & Bank 550750 641781 91031
Loans & advances 48114100 55130648 7016548

Total (A)
114365913 128573004
CURRENT LIABILITIES:

Liabilities 69569025 85458034 15889009

46
Total(B) 69569025 85458034
Changes in Working Capital
44796888 43114970 14207091 15889009
(A-B)
Decrease in Working
- 1681918
Capital

TABLE NO.III

YEARLY STATEMENT OF CHANGES IN WORKING CAPITAL

2016 2017 WORKING CAPITAL

CURRENT ASSETS: Increase Decrease

Inventories 31026494 38140219 7083725

Sundry Debtors 41774081 24966682 16807399
Cash & Bank 641781 103013325 102371544
Loans & advances 55130648 85218793 30088145

Total (A)
128573004 251309019
CURRENT LIABILITIES:

Liabilities 85458034 132741437 47283403

Total(B) 85458034 132741437

Changes in Working Capital
43114970 118567582 139543414 64090802
(A-B)

47
Increase in Working
75452612
Capital

TABLE NO. IV

YEARLY STATEMENT OF CHANGES IN WORKING CAPITAL

2017 2018 WORKING CAPITAL

CURRENT ASSETS: Increase Decrease

Inventories 38140219 51960633 13850414

Sundry Debtors
24966682 54760554 29793872
Cash & Bank 103013325 145190167 42176842
Loans & advances 85218793 277071885 191853092

Total (A) 528983239

251309019
CURRENT LIABILITIES:

Liabilities 132741437 240949136 108207699

240949136
Total(B) 132741437
Changes in Working Capital
118567582 288034103 277674220 108207699
(A-B)
Increase in Working 169466521

48
Capital

NET WORKING CAPITAL (NWC)

Net Working Capital = Current Assets – Current Liabilities

Net Working Capital represents the excess of Current Assets over the Current

Liabilities. The term Current Assets refer to those assets, which in the course of

business get converted into cash over a short period, usually, not exceeding one year.

Current Liabilities are those liabilities, which are required to be paid within the short

period, normally a year. Although Net Working Capital is really not a ratio, it is

frequently employed as a measure of company’s liquidity position. An enterprise should

hare sufficient AWC in order to be able to meet the claims of the creditors as well as

meet the day-to-day needs of business. The higher the account of Net Working Capital,

the greater will be the liquidity of the firm.

Simply put, Net Working Capital (NWC) is the difference between a company’s current

assets and current liabilities on its balance sheet. It is a measure of a company’s liquidity

and its ability to meet short-term obligations, as well as fund operations of the business.

The ideal position is to have more current assets than current liabilities, and thus have a

positive net working capital balance.

Common Drivers Used for Net Working Capital Accounts

Below is a list of assumptions that are used in a financial model to forecast NWC:

 Accounts Receivables: Accounts Receivable Days

49
  Inventory: Inventory Days

 Other Current Assets: Percentage of sales, growth percentage, fixed

amount or increasing amount

 Accounts payable: Accounts Payable

TABLE-V

Financial Year Current Assets Current Net

Liabilities Working
Capital
2013-2014 96595923 61236180 35359743
2014-2015 114365913 69569025 44796888
2015-2016 128573004 85458034 43114970
2016-2017 251309019 132741437 118567582
2017-2018 528983239 240949136 288034103

GRAPH NO.I

Conclusion:

50
 The company’s NWC is low during the period 2016-2017. However in the
succeeding next year, the NWC has increased. Also the current assets were always
greater than the current liabilities. This indicates that the company is in better position.

WORKING CAPITAL TURNOVER (WCT) RATIO

WCT RATIO = SALES / NWC
This ratio is used determine the efficiency with which the Working Capital is
being utilized. A higher Working Capital Turnover ratio indicates a favorable turnover of
inventories & on the other hand a low turnover of Working Capital ratio may result due
to excess of Net Working Capital, shows slow turnover of receivables & inventories or a
large investment in the form of temporary & short-term investments.
TABLE NO.VI

Financial Year 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Sales 30327660 496942017 501813702 820765280 1213967136

3
Net Working
Capital 35359743 44796888 43114970 118567582 288034103

WCT
8.57 11.09 11.63 6.92 4.21
Ratio
GRAPH NO.II

51
Conclusion:-
The company’s W.C Turnover ratio is increasing. It is high during the period
2015-16, which indicates proper utilization of funds during that period Manufactured. It
is decreasing during the further periods. This shows that the company is not maintaining
proper standard utilization of funds. Hence the w.c Turnover ratio is increased in the
year 2015-16 when compared to previous years. This shows the company is maintaining
proper standards.

CURRENT RATIO

Current Ratio = Current Assets\ Current Liabilities

The standard form of current ratio (2:1) way varies from industry to industry.
However a ratio of less than 1:1 is certainly undesirable for any industry as to protect the
interest of the creditors & to provide cushion to the firms in adverse circumstance
Financial Year Current Assets Current Liabilities Current Ratio

2013-2014 96595923 61236180 1.57

2014-2015 114365913 69569025 1.64
2015-2016 128573004 85458034 1.50
2016-2017 251309019 132741437 1.89
2017-2018 528983239 240949136 2.19

52
CONCLUSION:-
The company’s current ratio is satisfactory. The current Assets are more than the
liabilities. It implies that for every one rupee of Current Liabilities, Current Assets of
nearly one & half rupees are there to meet them. The company’s Current Ratio
increased from 2015 to 18 years. This shows that the company is better utilizing
current assets to meet liabilities. But in the previous years 2015-16 the Current Ratio
increased this indicates better utilization of Current Assets to meet the liabilities. The
trend indicates that the company is not going for more credits in the recent year. In
this year 2017-18 the company is better utilizing current assets to meet liabilities.

QUICK RATIO:

Quick Ratio = Quick Assets / Current Liabilities.

The quick ratio is the ratio between Quick Current Assets & Current Liabilities.

the quick ratio is a measure of liquidity designed to overcome. The defects this defect of

the Current Ratio is that if fail to convey any information on the opposition of the

current assets of firm. The feral quick assets refer to Current Assets which can be

converted into cash immediately, at a short notice without diminution of their value. The

C.A’S included for the purposes are:

53
 1) Cash & Bank Balances.

2) Short term Marketable Securities.

3) Debtors’ \ receivables. The C.A’S, that are

excluded, are prepaid expenses & inventory. The

standard form is 1:1 ratio.

TABLE NO.VIII
Financial Year Quick Assets Current Liabilities Quick Ratio

2013-2014 66087697 61236180 1.07

2014-2015 88674500 69569025 1.27
2015-2016 97095992 85458034 1.36
2016-2017 212807389 132741437 1.60
2017-2018 476306417 240949136 1.97

54
CONCLUSION:-

Company’s quick ratio is less than the satisfactory level during 2015-16, this
shows that a large part of Current Assets of the firm is field up in slow moving & on
sales inventories & slow paying debts. However, during 2014-15 company showed
better position. This shows that the company is in very good liquidity position. But In
2014-16 the company quick ratio is decreased when compared to the previous year.

ABSOLUTE LIQUID RATIO/CASH RATIO :-

This ratio is also known as Super Quick Ratio or Cash Ratio. This ratio considers

only the absolute liquidity available with the firm. This ratio establishes the

relationship between the absolute liquid assets and liquid liabilities. The absolute

liquid assets include cash in hand, cash at bank, marketable securities. If the Super

Liquid assets are too much in the relation to the current liabilities then it may affect

55
the profitability of the firm, as these super liquid assets are most unproductive assets

of all. Moreover every firm has a reserve borrowings capacity. The firm can borrow

for a short period from the bank or their resources to meet any contingency.

Absolute Liquid Ratio = Absolute Liquid Assets

Current Liabilities

TABLE NO.IX
(Rs. In. Lakhs)
Year Absolute Liquid Ratio
Assets Current Liabilities
2013-2014 718881 61236180 0.01
2014-2015 879174 69569025 0.01
2015-2016 970205 85458034 0.01
2016-2017 104024330 132741437 0.78
2017-2018 245314696 240949136 1.01

56
 INTERPRETATION:

An absolute liquid ratio of 1:2 is usually considered as ideal. Here the absolute liquid
ratio is 0.01 in the year 2014-15 ,0.01 in the year 2013-14, and in the year. 2016-17 it is
0.78 and 2017-18, it is 1.01.So the KEERTHI INDUSTRIES LIMITED is found to be
satisfactory.

DEBTORS TURNOVER RATIO :-

A concern may sell goods on cash as well as on credit. Credit is one of the important

elements of sales promotion. Following a liberal credit policy can increase the

volume of sales. But the effect of a liberal credit policy may result in typing up

substantial funds of a firm in the form of trade debtors. Hence, the liquidity position

57
 of a concern to pay its short-term obligations in time depends upon the quality of its

trade debtors. Debtor’s turnover ratio indicates the velocity of debt collection of firm.

In simple words, it indicates the number of times average debtors are turned over

during a year, thus:

Debtors Turnover Ratio = Sales_/ Average Debtors __

TABLE-X
Year Sales Average Debtors Ratio
2013-2014 303276603 33667275 9.008
2014-2015 496942017 32197044 15.430
2015-2016 501813702 41185166.5 12.18
2016-2017 820765280 33370381.5 24.59
2017-2018 1213967136 39863618 30.45

58
Interpretation:

The higher the value of debtor’s turnover ratio is indicative of sound credit management
policy. Since KEERTHI INDUSTRIES LIMITED debtor turnover ratio is9.008 in the
year 2013-14, 15.43 in the year 2014-15 , in the year 2015-16 is 12.18 in 2016-17, is
24.59. In 2017-18 is 30.45. So the debtor’s turnover ratio is satisfactory.

STOCK TURNOVER RATIO:-

This ratio establishes a relationship between cost of goods sold and average inventory.

Objective:-The objective of computing this ratio is determines the efficiency with

which the inventory is utilized.

Components:

59
1.Cost of goods sold, which is calculated as under cost of goods sold =

Opening inventory + Net purchases + Direct expenses – Closing inventory.

2.Average Inventory

Formula:-
Cost of good sold
Stock Turnover Ratio = Average Inventory

It indicates the speed with which the inventory is converted into

sales. In general, a high ratio indicates efficient performance since

an improvement in the ratio shows that the either the same volume

Of sales has been maintained with a lower investment in stocks on

the volume of sales has increased without any increase in the

amount of stocks.

Cost of goods Average

Year sold Inventory Ratio

2013-2014 176738874 22457956 7.86

2014-2015 290883520 27495513 10.57
2015-2016 292117722 34568357 8.45
2016-2017 343485040 45035426 7.62
2017-2018 476979711 45035426 10.59

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Interpretation:-Company turns its inventory of finished goods into sales

7.62 times a year on average. During the year 2016-17 turnover ratio

decreased from the next year and this shows that the inventory does not sell

fast & stays on the shelf or the warehouse for a long time. The company has

to improve the inventory turnover ratio.How ever the company improve the

stock turnover is good next year is 10.59.

Chapter – V
Findings & Suggestions
Findings:

 KEERTHI INDUSTRIES LIMITED is earning Profits constantly and

it is in a better financial position.

 Company has been enjoying the better liquidity position. The

management is maintaining the working capital in a better manner.

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  The net working capital is constantly increasing this shows the better
management of current assets and current liabilities.

 The company’s working capital turnover is Increasing this shows that the
company is maintaining proper standards in utilization of funds.

 From the current ratio, the current assets are more than the liabilities.

SUGGESTIONS:

 The current assets are of nearly one and half rupees to meet the liabilities
Consantrate on that.

 This year(2017-15 & 2018-2016) the current ratio is decreased when

compared to the other years. This shows the company is not utilizing of
current assets to meet the liabilities.

 The company from the last five years is showed good position in un
saleable working capital turnover ratio . But there is a increase in working
capital turnover ratio this year.

 The quick ratio has increased from 2013-2017 to 2017-2018 during the
study. So maintain this improvement in future also.
 This shows the efficiency of working capital management has
maintaining properly.

BIBLIOGRAPHY
Author Name : Khan & Jain
Title of the book : Financial Management Tata McGraw
Hill
Year : 2000

Author Name : Prasanna Chandra

Title of the book : Financial Management Tata McGraw
Hill
Year : 2001

Author Name : R.K.Sharma & Shahi K.Gupta

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Title of the book : Financial Management Kalyani
Publishers
Year :1996

Author Name :S.P.Jain & K.L. Narang

Title of the book : Cost & Management Accounting
Kalyani Publishers
Year :2006
Referred Web Sites :

www.google search , keerthiindustries.com

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