Professional Documents
Culture Documents
HBCC&M/BVB/WCM
HBCC&M/BVB/WCM
CHAPTER-I
1.1 INTRODUCTION:
The project is carried out in karnataka soaps and detergents ltd. The
project studies the working capital management in KSDL and evaluates its
financial management performance.
Working capital management is the integral part of overall financial
management. Effectiveness of financial management depends upon the proper
utilization and management of investment of funds in business. Funds can be
invested permanent/long term purposes such as acquisition of fixed assets,
expansion and diversification of business, modernization of plants and
machinery and R&D.
Funds are also needed for short-term purpose that is for day-to-day
operation of the business. Day to day operation includes procurement of raw
materials, payment of wages and meeting and other day-to-day expenses these
funds are known as working capital. It refers to that part of the firms capital,
which is required for financing current assets such as cash, marketable
securities, debtors, inventories, work in progress and finished goods. Working
capital management helps to carryout day-to-day operations of business
smoothly.
Working capital management refers to management of current assets and
current liabilities and the inter-relationship that exists between them. In other
words, it refers to all aspects of administration of both current assets and
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Setting the financial objectives and laying down the policies and
procedures i.e., administration of the financial plan.
Financial planning almost confirm to the process of capitalization. Here
a clear distinction needs to be made between capitals and capitalization in a
nutshell, capital implies the money equivalent to tangible and intangible assets
required to be provided for establishing and operating an understanding on a
viable basis. However, capitalization is the process of determination of the
amount of capital to be raised the securities through which the capital is to be
raised and the relative proportions of the various types of securities to be issued
and also the administration of capital. In short, capitalization is equivalent to
the valuation placed upon the fixed capital by the corporation measured by
stocks and bonds outstanding.
The total capital of the concern is employed in two ways, fixed capital
and working capital. The fixed capital is invested in fixed or long run assets.
The quantum of fixed capital needed varies directly with the amount of fixed
assets owned or used by a business. But working capital needs constant
attention, since it always rotates or circulated.
1.1 (a) CONCEPTUAL CLARIFICATION :
Working capital management is the integral part of overall financial
management. Effectiveness of financial management depends upon the proper
utilization and management of investment of funds in business. Funds can be
invested permanent/long term purposes such as acquisition of fixed assets,
expansion of production and diversification of business, modernization of
plants and machinery and research & development.
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Funds are also needed for short-term purpose that is for day-to-day
operation of the business. Day to day operation includes procurement of raw
materials, payment of wages and meeting other day-to-day expenses. These
funds are known as working capital. It refers to that part of the firms capital,
which is required for financing current assets such as cash, marketable
securities, debtors, and inventories, work in progress and finished goods.
Working capital management helps to carryout day-to-day operations of
business smoothly.
We 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 without adequate working capital. Therefore both inadequate and
excessive working capital is not good for business.
Finance is the lifeblood of any business, whether it is large or small. An
ambitious plan cannot materialize unless adequate finance is made available.
Hence finance is considered as the kingpin of a business enterprise.
In a modern money-using economy, finance may be defined as the
provision of money as the time it is wanted. Business finance is defined as that
business activity, which is concerned with the acquisition and conservation of
capital funds in meeting the financial management of a concern. In short, it is a
statement estimating the total amount of capital required by a concern and
determining its composition.
A business has to design scientific financial planning, which covers,
three important aspects,
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The upswing in the Indian Economy has enhanced the demand for the
goods and commodites. The demand for cosmetic products has been increased
due to change in culture and life style of the people, correlated with the growth
of other segments like education, IT & BT, thinking capacity of people,
population, sex descrimination etc., tremendous growth in requirement of
cosmetics like soaps, detergents, perfume, powder, snow etc. The size of
Indian cosmetics industry is over US$25 billion and it accounts for over 6.5%
of GDP. With the GDP growth likely to be around 8% for 3 to 5 years going
forward, the demand for cosmetics will continue to grow with sectors like,
Chemical industry, forest department to supply sandal, etc,
Birth of karnataka soaps and detergents limited
The raising trend in life style of people, the company has commenced
and taken firm roots have been working since past 9 decade. Its providing the
best goods and services to customers from past so many years.
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SHORT
TERM CAPITAL
CURRENT
ASSETS
MEDIUM
TERM
CAPITAL
FIXED
ASSETS
LONG
TERM
CAPITAL
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MARKETING (CREDIT)
FINANCE
(CASH FLOWS)
MANUFACTURING (INVENTORY)
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KINDS
KINDSOF
OFWORKING
WORKINGCAPITAL
CAPITAL
On
Onthe
theBasis
Basisofof
Concepts
Concepts
On
Onthe
theBasis
Basisofof
Time
Time
Gross
Gross
Working
Working
Capital
Capital
Net
NetWorking
Working
Capital
Capital
Regular
Working
Capital
Reserve
Reserve
Working
Working
Capital
Capital
Fixed
Fixed
Working
Working
Capital
Capital
Seasonal
Seasonal
Working
Working
Capital
Capital
Temporary
Temporary
Working
Working
Capital
Capital
Special
Special
Working
Working
Capital
Capital
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The operating cycle of any manufacturing firm has to pass through three
stages.
Selling the goods i.e. cash sale/ credit sale. Credit sale creates book
debts or bills receivables.
Purchases
Payment
Credit sales
Collection
RMCP+WIPCP+FGCP
Inventory Conversion
Receivables Conversion
Period
Period
Payables
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Realization of cash.
This cycle continues again from cash to purchase of raw materials and
so on. The length of operating cycle of a manufacturing firm is the total of
inventory conversion period and receivables conversion period. We can
estimate the inventory period the accounts receivable period and accounts
payable period from the financial statements of the firms. For this the following
formula can be used.
Table 1.2 : Showing the ratios and its formulas
S.No.
1
Ratios
Formulas
Net sales
Average debtors
Therefore,
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t
a
l
c
a
p
w
o
r
k
i
n
g
Temporary
working capital
Am
A
oun
tmof
o
wor
u
kin
gn
t
cap
ital
o
f
Permanent
working capital
Time
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Temporary working
capital
Am
oun
t of
wor
kin
g
cap
ital
Permanent working
capital
Time
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Finished
FinishedGoods
Goods
Accounts
Accounts
receivable
receivable
Wages,
Wages,Salaries
Salaries
factory
overheads
factory overheads
Working
WorkingProcess
Process
Raw
RawMaterials
Materials
Cash
Cash
Suppliers
Suppliers
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Conservative policy
Average policy
Lev
el
of
curr
ent
ass
ets
Aggressive policy
Time
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Minimum cost
Total
cost
Cost of
liquidity
Cos
ts
Cost of
illiquidity
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Cost of Liquidity
If the firms level of current asset is very high, it has excessive liquidity.
Its return on assets will be low as funds tied up in idle cash and stocks earn
nothing and high levels of debtors (through low rates of rerun) increase with
the level of current assets.
Cost of illiquidity
It is the cost of folding insufficient current assets. The firm will not be
in a position to honor its obligations if it carries too little cash. This may force
the firm to borrow funds at high rates of interest and adversely affect credit
worthiness of the firm and also it pose difficulties in obtaining funds in future.
So in determining the optimum level of current assets the firm should balance
the profitability solvency tangible by minimizing total costs- costs of liquidity
and costs of illiquidity.
The following figure indicates that with level of current assets, the cost
of liquidity increases while the cost of illiquidity decreases and vice versa. The
minimum cost point indicates the optimum level of current assets. Some of the
approaches to the study of working capital analysis or analysis of working
capital can be conducted through a number of devices, such as:
1) Ratio Analysis:
It is simple arithmetical expression of the relationship of one number to
another. The technique of ratio analysis can be employed for measuring short
term liquidity or working capital position of firm.
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Table 1.3 : Showing the ratios and its formulas and its significance
I
Ratio
Liquidity Ratio
Formula
Significance
It measures
1)
2)
Current Ratio
Quick/liquid ratio
Current Assets
Short term
Current liabilities
solvency of the
Quick assets
firm
Current liabilities
3)
4)
Cash/absolute
liquid ratio
Current liabilities
Net working
capital ratio
5)
Interval measure
Net asset
II
Profitability Ratio
1)
Operating expenses =
It measures the
ratio
Net Sales
operating
efficiency of the
2)
Return on
investment
3)
Operating profit
X 100
firm
Capital employed
X 100
Sales
4)
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Net sales
III Turn Over Ratio
1)
Inventory turnover
To measure the
ratio
Average inventory
efficiency and
effectiveness of
2)
3)
Net sales
over ratio
Current assets
Working
capital
the firm
Net sales
ratio
IV Leverage Raito
1. Debt Ratio
2. Fixed Assets
3. Debt Equity
Ratio
Total Debt
It measures
long term
Fixed Assets
solvency of the
Net worth
firm
Total Debt
Share holders equity or Net worth
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calculating variance if any so that corrective actions may be taken in the future.
The objective of working capital budget is to ensure availability of funds as and
when needed and to ensure effective utilization of these resources. However the
first two approaches have been adopted in the analysis of Working Capital.
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CHAPTER- II
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Incur day to day expenses and over head costs such as fuel, power and
office expenses.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customer.
To maintain the inventories of raw material, work in progress, stores and
spares and finished goods.
The management of assets in any organization is an essential part of
overall management. The enterprise at the time of formation attaches great
importance to fixed assets management as a part of investment decision
making. However, in the overall day-to-day financial management, after the
initial investment, the management given more importance to managing
working capital. It we look at any financial statement it will be evident that the
investment infixed assets remain more or less static but the working capital is
constantly changing or always fluctuating in nature.
2.3 STATEMENT OF THE PROBLEM :
KS&DL is engaged in manufacture of a wide range of cosmetics and
toilet soaps which is even exported e to the various countries around the world.
Since the industry scenario is such that it has a long selling cycle. Hence it has
a continuously increasing turnover. Belongs the operating cycle is long and the
working capital requirements are high. In such a scenario it dwells upon the
managements of the company to play according to the dynamics of the industry
in such a way that it leads to an advantage to the company. The management
should workout the optimal level of working capital, which gives an ideal
trade-off between risk, return and profitability. The short-term solvency of the
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This chapter gives a clear picture of how the study has been carried on. It
summarizes the procedures followed in this study.
The methodology adopted to collect the information is secondary data is
mainly taken from the annual reports of the company for past four years i.e.
from year 2005-06, year 2006-07, year 2007-08, 2008-09year, And data so
collected was properly analyzed and interpreted to achieve the end objective of
the project study conducted.
2.5 RESEARCH DESIGN :
TYPE OF RESEARCH
This project A Study on Working Capital Management & Profitability
Analysis of KS&DL is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has
to use facts or information already available, and analyze these to make a
critical evaluation of the facts, figures, data or material. The project includes
finding of primary data and secondary data. It includes surveys and fact-finding
enquiries. So, the project basically covers description of state of affairs, as it
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exists at present. Here in this case, the researcher does not have control over the
variables. Here, the job done as a researcher is to use the facts and information
already available.
The research is done with the aid of the annual reports, the company
database textbooks and the observation and interaction being the only source of
primary data whatever is used. The same set information is analyzed to make
the critical evaluation of the material. With the given nature of research this is
an analytical type of research wherein the analysis of the existing set of affairs
are used to arrive the effect of working capital management on the return and
profitability of the company.
INSTRUMENTATION TECHNIQUES
The techniques used for the collections of the financial statements, data
and other information as follows. The primary data were collected by
interaction and observation. The secondary data were collected from the
published annual reports, budgeted manuals and the audited balance sheet and
profit and loss account, database of the company.
DATA COLLECTION
The project makes use of both the primary as well as secondary data.
Primary data were collected by observation and interaction. In the course of
time, the finance manager and his executives, the purchase manager and his
executives and the store manager and his executives provided very appreciable
co-operation during the interaction. As for the secondary data, the various
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published materials were used along with the database. The annual reports,
fact-sheets, budgeted manuals and the audited balance sheet and profit and loss
account, accounting and financial database of the company.
TOOLS USED FOR ANALYSIS OF DATA
The data were analyzed using the following financial tools and techniques
Ratio analysis
Common size statements
Statement of changes in working capital
2.6 REVIEW OF LITERATURE :
LITERATURE REVIEW
There is plenty of literature available on the topic of working capital
management. Many textbooks and the relevant websites provide good coverage
on the subject.
PURPOSE
Literature review is the beginning of the primary data collection. It acts
as a gateway to the familiarity exercise by getting exposed to the study field in
details. Literature review included texts, databases, internet, journals and
dailies. The purpose of literature review is innumerable in research work.
Specific need for references and citations makes secondary data quite valid.
Literature review forms the integral part of larger research. Secondary data
form sole basis for research for research in some instances. Above all,
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secondary data has proven to be less costly, readily available, less time
consuming and less effort required compared to primary data.
Literature review provides support to validate secondary data hence
complementing the filed data conclusion. It has also been observed that
secondary data gives insight into the research details. It is mandatory to
examine secondary data as a prerequisite for accuracy and relevance for
primary data and subsequent analysis.
Literature review heavily relied on published texts, Annual Reports
KS&DL accounting and financial database of the company, fact sheets of the
company, other manuals, internet and revered journals and case studies in the
filed of working capital management were constantly reviewed.
The review of the literature provided a solid guideline to conduct the
study. It provided the secondary data required and the adequate guideline for
the nature of the primary data.
2.7 PLAN OF THE ANALYSIS :
The internship project is divided into five chapters.
Chapter-I deals with a brief introduction of the working capital
management hierarchy. This chapter also including a brief explanation about
the introduction to the top land an overview of the industry in general and
theoretical prospective.
The second chapter provides detailed Research Design of the study,
scope of the study, objective of the study, Research methodology, plan of
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Chapter-3
Karnataka soaps and detergents limited (KSDL)
Karnataka soaps and detergents limited [KSDL] a government of
Karnataka
Undertaking company, is involved in the extraction of sandalwood oil & in the
manufacture of soaps, Detergents, Incense Sticks, and Sandal Talc. Having over
9 decades of experience in this
Field, KSDL to-day is one of the largest producers of sandalwood oil and
sandal soap in the world, with a turn-over of RS. 125crores. With the oldest
known perfumery material sandalwood as its main ingredient, the sandal soaps
of KS&DL have a definite niche in the soap market. Gifted by the Maharaja of
Mysore, the Mysore Sandal Soap has credited of adorning the treasure of the
Buckingham Palace in London. Sandal Soaps of KSDL are probably the only
soap in the world with pure natural sandalwood oil.
KSDL is the true inheritor of Indias golden sandalwood legacy, the
sandalwood oil. Sandal wood oil is recommended in ancient ayurvedic texts for
skin care, has excellent antiseptic properties and soothes prickly heat and other
skin rashes too. This is the reason why soaps made out of sandalwood oil are
used all over the world for nourishing and softening the skin. It was the
availability of sandal wood oil, which became a reason to set up a soap factory.
Government soap Factory in Bangalore was established by the Maharaja of
Mysore his Highness Nalwadi Krishnaraja Wodeyar and Diwan
Sir.M.Visvesvarya during the year 1916.The soap making process was
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perfected under the steward ship of eminent scientist Shri S.G. shastry. The
sandalwood Oil Division, Mysore was established during the year 1916 and
Sandalwood Oil Division at shimoga was established during the year 1944.
In 1980, Government of Karnataka integrated the Sandal oil
factories at Mysore and shimoga and Government soap Factory at Bangalore
and formed Karnataka Soaps & Detergents Limited [KSDL], which has been
incorporated as a company under Companys Act of 1956.
KSDLS Bangalore complex has production facilities for Toilet
Soaps and detergents. The factory is located in the yeshwantpur Industrial Area
of Bangalore & lies on Bangalore-Pune Highway. The total campus area of this
soaps &detergents factory is 39 acres and 10 guntasThe built-up area is
26acres.
The soaps plant has one of the largest production facilities in the country with
an installed capacity of 26,000 tones per annum. A unique feature of KSDLs
Soap plant is its flexibility to process as many as ten different varieties of soaps
simultaneously. KSDLs product Range includes toilet soaps coming in
different and district fragnences like Sandal, Jasmine, and Rose etc. All the
soaps are purely environment friendly as they are made from pure vegetable
ingredients. KSDL also undertakes orders for manufacture of soaps as per the
customers specification on mutual understanding.
The detergent plant has an installed capacity of 10,000 tones per
annum. It has sintex plant for the manufacture of detergent cakes & bars. In the
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PRODUCTS OF COMPANY
KSDLs product range include Toilet soaps, Incense sticks, coming in different
And a distinct fragrance in sandal Rose etc. and also includes Talcum Powder,
Detergent Cake & Detergent Powders.
TOILET SOAPS
KSDL offers a variety of toilet soaps of different fragrances. They create lather
and last for long.
Following are the fragrances that KSDL offers: Mysore Sandal Soap
Mysore Sandal classic soap
Mysore Sandal Rose Soap
Mysore Sandal Baby Soap
Mysore Sandal Gold Soap
Mysore Sandal Herbal Care
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INCENSE STICKS
KSDL offers a quality incense Sticks that apart form spreading fragrance
delivers peace and tranquility. They create an atmosphere of solace when used.
TALCUM POWDER
KSDL offers Talcum powders that are refreshing and gives a cooling effect.
The fragrance Last for long.
The categories available are: Mysore Sandal Talc
Mysore Sandal Baby Talc
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DETERGENTS
Based on quality, safety, and performance, KSDL offers detergents that apart
from whitening the cloth, provides a mild and soothing fragrance to it.
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