Naveen Working Capital of KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL
DECLARATION I Mr VISHWANATH B HADIMAN,Register Number 1PT10MBA85 student of PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY ,Bangalore, hereby declare that this project entitled Working capital management of ksdl. has been prepared by me in partial fulfillment for the award of MBA Degree of Vishveshvaraya technological university. This has not been submitted in part or full towards any other Degree or Diploma toany University or Institution. I also declare that all information, data and input which I haveu s e d a n d r e f e r r e d t o i n t h i s r e p o r t a r e m e a n t o n l y f o r a c a d e m i c p u r p o s e a n d w i l l n o t b e parted with or used for any commercial or other purpose.
PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY
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INTRODUCTION PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 2
Cash the most liquid assets, is of vital importance to the daily operation of business firm. Concern will always keep sufficient cash for meeting its obligation. Any shortage of cash will hamper the operation of a concern and any excess of it will be unproductive ,as it doesnt contribute any thing to the firms productivity ;cash is referred as most unproductive of all the assets .while the fixed assets like machinery and plant etc .and current assets such as inventory will help business in increasing the earning capacity ,cash in hand will not add anything to the concern ,thus the major function of financial manager id to maintain a sound cash position . It is in this context that cash management is assumed to be one of the key areas of working capital management .apart from the fact that cash is mast liquid asset cash is
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major liquid assets that is receivable and inventory get eventually converted into cash.
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WHAT IS CASH? The term cash with reference to cash management is used in two sense. In a narrow sense it include ,coins, currency notes, cheque , bank draft held by a firm with it and the demand deposit held by it in bank . In broader sense it also include near cash assets such as marketable securities and time deposit with banks .such deposit can immediately be sold or converted into cash if the circumstances so require .the term cash management is generally used for management of both cash and near current assts . FACTS OF CASH MANAGEMENT: Management of cash is concerned with the managing of a. cash inflow and outflow of firm b. cash flows within the firms and c. Cash balances needed by the firm at a point of time by the financing of deficit or of investing surplus cash. but it is difficult to predict cash flows accurately .hence ,in order to resolve the uncertainty about cash flow prediction and lack of synchronization between cash receipts and payments ,the firm should develop some strategies regarding the following four factor of cash management. 1. CASH PLANNING : It is a technique to plan and control the use of cash it protects the financial condition of the firm by developing projected cash statement from forecasting of expected cash in flows and out flows for a given period the forecasts may be used on the present operation or the anticipated future operations .Cash planning is very crucial in developing the overall operating plans of the firm.
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2. CONTROLING THE LEVEL OF CASH BALANCES: As one of the basic objectives of cash management is to minimize the level of cash balance, controlling the level of cash balance does not mean just minimizing the level of cash balance within the firm .it means neither ensuring that the level of cash balance is neither excessive nor inadequate .(i.e. .optimum). a. OPTIMUM CASH LEVEL Company must decide about the appropriation level of cash balances to be maintained. Both the cost of excess cash and danger of cash deficiency have to be matched to arrive at optimum level of cash balance. b. INVESTMENT SURPLUS CASH All surplus cash has been properly invested so as to earn profit .The company has to decide about the division of such cash balance borrowed from bank deposit ,marketable securities on inter corporate loan. An idea cash management system depends on the companys product, organization structure, culture and option available.
CASH MANAGAMENT STRATEGIES The strategies that should be the enterprise in managing its cash are as follows Pay accounts payable as much as possible on time without demanding the firms credit rating but take advantage of any favorable cash discounts. Turnover the inventory as quickly as possible ,avoiding stock out that might result in shutting down the production line or result in a loss of sale. Collect accounts receivables as early as possible without losing future sales because of high pressure collection techniques .cash discounts if they are economically justified may be used to accomplish this objective.
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MOTIVE FOR HOLDING CASH Cash is the crucial component of the working of the capital of a firm .as every transaction results either in an inflow or an outflow of cash .the pivotal point in recent date of financial management is to maximize cash generation and minimize cash outflow. Keynes postulates three motives of holding cash; The transaction motive The precautionary motive The speculative motive Beside these instrument of cash management forecasting Karnataka soaps &detergent ltd., is expected to prepare Monthly operating statements Bi- annual internal resources& utilization statement Bi-annual working capital balance. OBJECTIVES FOR KEEPING CASH BALANCE The following are the general objectives for keeping cash balance in every firm For meeting daily obligation To take benefit of favorable market condition To meet contingencies To secure cash discount from suppliers
CASH BUDJECTING Cash forecasting or budget are the principal tool of cash management .they may be divided into two categories ;short term forecasting and long term forecasting though this distinction is somewhat arbitrary. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 7
PREPERATION OF CASH REPORTS The preparation of cash budget sets the framework for management of cash flows and cannot be considered as a financial act in cash management process. The operation of the business enterprise may often deviate from the planned course with immediate changes in cash requirement. The preparation of cash budget is relatively smooth exercise for controlling the cash inflows effectively .the crux of effective cash management lies in synchronizing the cash flows this can be achieved by preparing periodical cash reports .the cash budget is the planning or forecasting instrument where as cash reports help in comparing the actual cash flow with projected cash flow. This helps in financial exercise which determines the future cash needs and plan financing of these needs and exercise control over cash and liquidity of the firm.
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INTRODUCTION TO WORKING CAPITAL
1.1 WORKING CAPITAL The management of working capital is an integral part of overall corporate management. in simple terms ,working capital is the amount of funds which a small scale industry must have to finance its day-to-day operation .It may also be regarded as that portion of an industry total capital which is employed in short term operation ,included in these operation are such items as stock of raw materials and supplies needed for manufacture stock of finished goods waiting for sale ,semi processed items and components that will soon will soon emerge as final product ,sundry debtors representing pending collection against credit sales and short term investments. Working capital is commonly defined in accounting and financial analysis as net current assets consisting of inventories, including goods, net receivables, marketable securities, Bank balances and cash in hand Working capital at times called net working capital is represented by the excess of current assets over liabilities and identifies the relatively liquid portion of total enterprises capital which constitutes a margin of buffers for maturing obligations within the industry cycle of the business. CONCEPTS The concepts of working capital is broadly understood in Gross and Net concept. The Gross and Net working capital is represented by the sum total of all the current assets of the enterprises while the net working capital is the difference between the current assets and current liabilities. In short the gross and net working capital present the distinct and important facts of working capital management.
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NET WORKING CAPITAL It represent the excess of total current assets over current liabilities and measured by current ratio to indicate that current assets have an edge over the current liabilities .viz current assets>current liabilities . Net working capital = current assets current liabilities = (cash +marketable +accounts +bills +inventories) Minus (-) accounts +notes &bills +expenses +payables temporary loans) It is an accepted principle that has a current ratio of 2:1 is considered as solvent, while a lower ratio indicates insolvency of the units. GROSS WORKING CAPITAL It is equal to the total sum of the current assets and may represent both owned capital &loan capital. Working capital refers to the firms, investment in current assets which comprises of cash short term securities, debtors, bills receivables stock which can be converted into cash within an accounting year. The process of working capital concept focuses attention on two aspects, Optimum investment in current assets. Financing current assets.
OPERATING CYCLES PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 10
The basic need of manufacturing units is to procure raw material for the purpose of production. In the process of production, the business includes costs in the form of wages for labour , power and fuel, deprecation on machinery and direct expenses. Raw materials ultimately converted into finished goods remains in the form of stock waiting for being sold in the market as per the trend in the market, the receivables /debtors. Receivables are ultimately paid in cash; the time span within which the business activity rotates is called an operating cycle. Constituents of an operating cycle, cash, raw materials, work in progress, finished goods and receivables represent a portion of total current assets .Thus investment in operating cycle represents a part of working capital finance.
Operating cycle refers to the time of duration required the sales after the conversation of resources into inventories into cash. In other words it refers to time required or taken in the process of conversion of cash into raw material ;raw materials into receivables and finallyrom receivable into cash.
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CAS Cash Credt CASH Operating Service & OPERATI FUND H INVESTME collections salesRECEVIVAB Expense production LES NTS ONS production producti on
1.2 COMPONENTS OF WORKING CAPITAL Working capital can be categorized into two; a. permanent or fixed working capital b. temporary or variable working capital PERMENT OR FIXED WORKING CAPITAL: The need for current working assets arises because of the operating cycle. The operating cycle is a continuous process, and therefore the need for current assets felt constantly, but the magnitude of current assets needed is not always the same; it increases or decreases over a time
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There is always a minimum level of current assets, which is continuously required by the firm to carry on its business operation. This minimum level of current assets is preferred to as permanent or fixed working capital.
Depending upon the changes in production and sales the needed for current assets over and above the permanent current assets , will fluctuate ,for extra inventory of finished goods will have to be maintained to support the peak periods of sales and investment in receivables may also increase during such periods. The extra capital needed to support the changing production and sales activates is called the fluctuating or variable or temporary working capital.
PERMANENT AND TEMPORARY WORKING CAPITAL: The above figure illustrates the difference between permanent t and temporary working capital. Here the permanent working capital is stable over time, while temporary working capital is fluctuating sometimes increasing and sometime decreasing.
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However, the permanent working capital line needs not to be horizontal if the firms requirement for permanent capital is increasing (or decreasing) over period in accordance with seasonal demands. For a growing firm the difference between permanent and temporary working capital can be depicted through the below diagram.
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THE FINANCING DECISION OF WORKING CAPITAL; The reason for the variation in the amount invested in current assets may be such as nonpayment of debt owing to financial stringency of some important customer ,security of raw material ,like in raw material prices ,lockout ,etc , the need of such changes in working capital are of short term in nature which should be meet by short term funds .The minimum working capital needed are however ,met out of long term sources of funds .For a growing concern the working capital requirement are of much longer duration than the requirement of fixed assets . The letter can be ultimately met by cash inflow but the working capital cant be realized unless the business is closed; in this sense it is wrong to consider working capital requirement as temporary 1.3 NEED FOR WORKING CAPITAL MANAGEMENT The need for working capital (gross) or current assets cant be overemphasized .the main objective of financial decision making is to maximize the share holders wealth .to achieve this it is necessary to generate sufficient profit. The extent of which profits can be earned will naturally depend upon the magnitude of sales, among the other things .A successful sales programmed is in other words necessary in earning profit by any business enterprise. however sales do not convert into cash instantly there is invariability a time lag between the sales of goods and the receipt of cash .there is PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 15
therefore, a need for different form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold .therefore sufficient working capital is necessary to keep the containing flow for the length of time necessary to complete the following events conversion of cash into inventory conversion of inventory into receivables Conversion of receivable to cash.
If it were possible to complete the sequence instantaneously, there would no need for current assets .but since it is not possible the firm is forced to have current assets; since cash inflow and cash out flow do not match, firms have to necessarily keep cash or invest in short time liquid securities so that they will be in a position to meet obligation when they become due. similarly firms must have adequate inventory to against the possibility of not being able to meet demand for their products .adequate inventory, therefore, provides a cushion against being out of stock .if firms to be competitive, they must sell goods to their customers on credit which is necessitates the holding of accounts receivable .it is in these ways that an adequate level of working capital is absolutely necessary for smooth sales activity in turn enhance the owners wealth. DETERMINENTS OF WORKING CAPITAL There are no set rules or formula to determine working capital requirement of a company .a large number of factors influence the working capital needs of companies .all the factors are of different significance .the important of these factors change over a period of time .following are factors ,which generally influence the working requirement of companies 1. Nature and size of business 2. Manufacturing cycle 3. Business function 4. Production policy 5. Firms credit policy 6. Availability of credit PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 16
7. Growth and expansion activates 8. Profit margin and profit appropriation 9. Operating efficiency 10. Price level changes
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1.4 SOURCES OF WORKING CAPITAL Among the various available for financing working capital needs, a finance manager has to select the best suitable source depending on the working capital needs of the company. Long term sources are; 1. Issue of shares 2. Issue of debenture 3. Pouching back of profit 4. Sale of fixed assets 5. Long term loans The short term sources for financing working capital requirement can be classified into internal and external sources. INTERNAL SOURCES 1. Withdrawing the deprecation funds 2. Using the resources meant for taxation 3. Postponement of payment of accrued expenses EXTERNAL SOURCES 1. Bank credit 2. Trade credit 3. Bills of exchange and other promissory notes 4. Public deposit (short term) 5. Customer deposit 6. Government assistance 7. Loans from directors Security deposit from employees
ADVANTAGES OF WORKING CAPITAL PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 18
1. Solvency of the business : Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 2. Goodwill: Sufficient working capital enables a business concern to make prompt payments and helps in creating and maintaining goodwill. 3. Easy loans : Concern having adequate working capitals, high solvency and good credit standing can arrange from loans from bank and others easy and favorable terms. 4. Cash Discounts : Adequate working capital also enables a concern to avail cash discounts on the purchase and hence it reduces cost. 5. Regular supply of raw materials : Sufficient working capital ensures regular supply of raw materials and continuous production. 6. Ability to face crisis : Adequate working capital enables a concern to face business crisis in emergency such as depression because during such periods, generally, there is much pressure on working capitals. 7. High morale : Adequacy of working capitals creates an environment of security, confidence, high morale and creates overall efficiency in a business.
CHAPTER -2 RESEARCH DESIGN 2.1 STATEMENT OF PROBLEM PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 19
Working capital management is a significant aspect in the management of finance of any organization .Checking the level of working capital can help easily identify and profitability position of the firm; and the decisions regarding a. The level of working capital ,which can be determined ,by the level of current assts and liabilities b. The composition of current assts and liabilities c. Financing of current assets and liabilities are most important and significance in the financial efficiency of business and also its credit worthiness, which has gained importance in these days of credit squeeze .This fact has been justified by many industries, which have failed frequently due t faulty management of working capital especially with regard to effect of views and suggestions and regulation laid by tankan, chore and mar the committee is very important. It is with this view that case study has been made on working capital management in Karnataka soaps and detergent ltd 2.2 OBJECTIVES IF THE STUDY a. To study the pattern and products procedure followed regarding working capital management in Karnataka soaps and detergents ltd .With special reference to ratio analysis. b. To study the working capital needs of Karnataka soaps and detergent ltd. To offer suggestions for improving the working capital management in Karnataka soaps and detergents ltd c. To study the system of 1. management of cash 2. management of accounts receivables and 3. Management of inventories in KS&DL. 2.3 SCOPE OF THE STUDY Working capital management includes management of both current assets and current liabilities .As the time available is limited and the subject is very vital the study is confined to only the management of current assets. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 20
METHODOLGY OF STUDY The methodology that has been adopted while collecting the information and interpretation in a meaningful way has been to collect information both from primary and secondary sources viz., Through the verbal discussions which were held with finance and other department Through the various books of various authors on the subject of financial management Through the calculations of various ratio and its comparison with previous year.
2.4 TOOLS FOR THE COLLECTION OF DATA Data had been collected from two sources one from report published by KS&DL and information has been collected from the executives &library of KS&DL.
FIELD WORK Several visits were made to collect the required data from KS&DL and they extended their full cooperation in getting information required.
PLAN OF ANALYSIS Ratio analysis, percentage analyses were for analyzing the data. 2.5 LIMITATION OF THE STUDY The study is concerned only on one particular topic The study is purely conducted upon the data which is available as per financial statement of the company and references drawn and theoretical conclusions arrived at are based on the basis of information provided by the company. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 21
The period of study was very less as the company could provide the information up to the year 2007-08 and not for 2008-09 which is in process. The study contains the data up to the year 2007-08
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CHAPTER-3 INDUSTRY PROFILE INTRODUCTION 3.1 INTRODUCTION TO SOAP INDUSTRY:Soap is the one of the oldest chemical substances known to the humans. In ancient time, Soap was unknown even to Greeks. Who had a deep culture .at first in the 16th century manufacturing of the soap took place in Germany using tallow and wood ash. Later in 17th & 18th centuries improvements were made by addition of organic substance like alkali, oils etc, and gave different varieties of soap by slight change in their chemical combination and ingredients. Soap is one of the commodities, which has become an indispensable part of life of the modern fantasy world. Since it is non-durable consumer goods, there is a large market for it. The whole soap industry is experiencing changes due to innumerable reasons such as Government relations, environment, toxicological allergy problems, increase in cost of raw material etc. The changing technology and even existing desire by the individuals and the organization to produce a better product at a mere economical rate has also acted as Catalyst for the dynamic process of change. More and more Soap manufactures are trying to capture a commanding market share by introducing and maintaining acceptable products. The soap industry in India faces a cutthroat Competition, while multinational companies dominate the market. Indian Soap industry has seen several ups and downs in the last 30 to 40 years. In the year 1964, during the China war India faced severe shortage of fats due to foreign exchange Crisis. Following Swadeshi movement in 1905, few more factories were set up and they were: 1. Mysore Government Soap factory at Bangalore. 2. Godrej Soaps at Bombay. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 23
SOAP INDUSTRY IN INDIA: In India since ancient period soap nuts, shikakai etc., were used. Soap was an unknown product for India up to 18th century. Soap was imported to India in 1884. Soap in its modern from was introduced in the country from the western countries. The factory in India to manufacture soap was started at Meerut in 1887 by English people. Soap industry setting up their manufacturing unit during 1918 in Bombay & M/s, government soap factory at Bangalore. During the year 1930 m/s Tata oil mills setup their unit in Bombay. M/s. Hindustan lever ltd, at Bombay and Calcutta followed them during the year 1934. MARKET FOR SOAP PRODUCT: Toilet soap is a fast moving consumer product, which is purchased frequently and available easily. The use of soap is so popular that the concept of cleanliness is attributed to the use of soap. Therefore a wide range of soap is flooding in market. The market of soap products is reckoned to grow 10-15% a year while MNCs like HLL and P&G dominate the market particularly in the premium segment in the organized sector. Nirma, Godrej soap and Colgate Palmolive too are in the race.
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THE INDIAN SOAP INDUSTRY SCENARIO: The Indian soap industry has been dominated by handful of companies such as 1. Hindustan Levers Limited. 2. Tata Oil Mills (Taken over by HLL ) 3. Godrej Soaps Private Limited. The Indian Soaps industry continued to flourish very well until 1967-68, but began to stagnate. Soon it started to recover and experienced a short upswing in 1974. This increase in demand can be attributed to:1. Growth of population. 2. Income and consumption increase. 3. Increase in urbanization 4. Growth in degree of personal hygiene. A soap manufacturer has 2 Classifications, Organized and unorganized sector. KSDL is under organized Sector. PRESENT STATUS: MARKET SCENARIO India is the ideal market for cleansing products. The countrys Per capita consumption of detergent powders and bars stands at 1.6 Kg and soap at 543gms. Hindustan Lever, which towers over the cleaning business, sells in all over the cleaning business but the tiniest of Indian settlements.
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PROBLEMS OF SOAPS & DETERGENTS INDUSTRY: Industry faces some problems due to increase in the cost of raw materials. The major ingredients like soda ash, linear alkyl benzene and Sodium Tripoli phosphate poses number of serious problems in terms of availability. The demand and supply gap of vegetables oil is 1.5 to 2 Lakh tons and is met through imports. COMPANY PROFILE OF KS & DL HISTORY :India is a rich land of forest; ivory, silk, sandal, precious gems are magical charms of centuries. The most enchanting perfumes of the world got their exotic spell with a twist of sandal. The worlds richest sandalwood resource is from one isolated stretch of forests land in South India that is Karnataka. The origin of sandalwood and its oil in Karnataka, which is used in making of Mysore sandal soaps is well known as Fragrant Ambassador of India & Sandalwood oil is in fact known as Liquid Gold. By the Inspiration of His Highness Maharaja of Mysore late Jayachamarajendra Wodeyar, the trading of sandalwood logs started which was exported to Europe and New destinations, but with commencement of First world War India faced Severe Crisis on the business of sandalwood. This situation gave rise to start of an industry, which produces value added products i.e., of Sandalwood oil. His Highness Maharaja of Mysore created this situation as an opportunity by sowing the seed of the Government Sandalwood Oil Factory, which is the present KS&DL. The project was shaped with the engineering skills and expertise of the top level. Late was the man behind the project. Todays famous Mysore sandal soaps credit goes to late Sri .Sosale Garalapuri Shastri who incorporated the process of soap making using Sandalwood oil. He was an PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 26 Sir M. Visvesvaraya, the great Engineer
eminent scientist in the field working at the Tata Institute, Bangalore. He was sent to England to master the fine aspects of soap manufacturing. The Maharaja of Mysore & Diwan Sir. M.Visvesvaraya established the Government Soap factory during the year 1918. The factory was started as a very small unit near K.R.Circle, Bangalore with the capacity of 100 tons P.A. In November 1918 the Mysore sandal soap was put into the market after sincere effort and experiments were undertaken to evolve a soap perfume blend using sandalwood oil as the main base to manufacture toilet soap. The factory shifted its operation to Rajajinagar industrial area, Bangalore in July 1957, where the present plant is located. The plant occupies an area of 39 acres (covering Soaps, Detergents and Fatty Acid divisions), on the Bangalore Pune Highway, easily accessible by transport services and communication. Another sandal wood oil division was established during the year 1944 at Shimoga, which stopped its operations in the year 2000 for want of Natural Sandalwood. This factory started at a moderate scale in year 1916. The first product was washing soap in addition to the toilet soap in the year 1918. The toilet soap of the company was made up of sandal wood oil. In 1950 Government decided to expand the factory in two stages. The first stage of expansion was done to increase the output to 700 tons per year and was completed in the year 1952 in the old premises. The next stage of expansion was implemented in 1954 to meet growing demand for Mysore sandal soap and for this purpose Government of India sanctioned license to manufacture 1500 tons of Soaps and 75 tons of glycerin per year. The expansion project worth of Rs.21 lakhs includes the shifting of the factory to a newly laid industrial suburban of Bangalore.
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The factory started functioning in this new premise [i.e., present one] from 1st July 1957. From this year onwards till date the factory had never looked back, it has achieved growth and development in production scales and profits.
The industry has 2 more divisions one at Shimoga and another at Mysore where sandal wood oil is extracted. The Mysore division functioning from 1970 and only during 1984 manufacturing of perfumed and premiere quality Agarbathies at Mysore division were started. Right from the first log of sandalwood that rolled into the boiler room in 1916, the company has been single minded pursuit of excellence. The project took shape with the engineering skills and expertise of top-level team under the leadership of Sir. M.Visvesvaraya, Prof. Waterson and Dr.Subrough. Like this soap factory was started as a small unit and now it has grown up to a giant size. RENAMING: On 1st October 1980, the Government Soap Factory was renamed as Karnataka Soaps and Detergent Limited. The Company was registered as a public limited company. Today Company produces varieties of products in the toilet soaps, detergent, Agarbathies and Cosmetics.
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3.2 OBJECTIVES OF KS & DL: To serve the national economy To attain self reliance To promote and uphold its image as symbol of traditional products To promote purity and quality products and thus enhance age old charm of Sandalwood Oil To build upon the reputation of Mysore Sandal soap based on pure sandal oil. To maintain the brand loyalty of its customer. To supply the products mentioned above at most reasonable and competitive rate. VISION STATEMENT: Keeping pace with globalization, global trends and the states policy for using technology in every aspect of governance. Ensuring global presence of Mysore Sandal products while leveraging its unique strengths to take advantage of the current technology scenario by intelligent and selective diversification. Secure all assistance and prime status from Government of India, all technology alliances. Further, ensure Karnatakas pre-eminent status as a proponent and provider of technology services to the world, nation, other states public and private sectors. Making available technology product and services at the most affordable price to the people at large, in keeping with the policy of a welfare state. Making all out efforts to achieve unimaginable profits. Most importantly to earn the invaluable foreign exchange, both to the state and to the country. 3.3 COMPETITORS OF KS&DL PRODUCTS AND SERVICES:KS&DL is facing cut-throat competition in national and international market. Some of its main competitors are: M/S. Hindustan Uni Lever Ltd., PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 29
M/S. Godrej Soaps Private Ltd., M/S. Proctor& Gamble M/S. Wipro M/S. Nirma Soaps Private Ltd., M/S. Jyothi Laboratories KS&DL has the following departments:1) Finance and Accounts 2) Human Resources Development & Administration 3) Research and Development 4) Quality Assurance 5) Materials & Stores 6) Production & Maintenance 7) Marketing & Business Group 8) Projects & Management Information Services HRD DEPARTMENT:Importance of HRD Department: 1) Management of human resources. 2) Co-operation 3) Assisting the management in HR matters 4) Development of work force. 5) Work together to achieve organizational goals and 6) Profit and growth. KEY FUNCTIONS OF THE HRD:1) Recruitment and Selection 2) Training and Development 3) Promotion and Transfer 4) Wages and salary administration 5) Performance Appraisal 6) Industrial Relations 7) Disciplinary Action and PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 30
8) Welfare Measures
TRADEMARK OF KS & DL:The SHARABHA The carving on the cover is the sharabha, the trademark of KS & DL.
The sharabha is a mythological creation from the puranas which has a body of a lion and head of elephant, which embodies the combined virtues of wisdom and strength. It is adopted as an official emblem of KS& DL to symbolize the philosophy of the company. The sharabha thus symbolized a power that removes imperfections and impurities. The maharaja of Mysore as his official emblem adopted it. And soon took its pride of place as the symbol of the Government Soap Factory of quality that reflects a standard of excellence of Karnataka Soaps and Detergent Limited.
SLOGAN:NATURAL PRODUCTS WITH EXOTIC FRAGRANCES KS & DL has a long tradition of maintaining the highest quality standard, right from the selection of raw materials to processing and packing of the end product. The reasons why its products are much in demand globally and are exported regularly to UAE, Beharen, Saudi-Arabia, Kuwait, Qatar, South America. The entire toilet soaps of KS & DL are made from raw materials of vegetable origin and are totally free from animal fats. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 31
POLICY OF KS&DL : Seek purchase of goods and services from environment responsible suppliers. Communicate its environment policy and best practices to all its employees implications. Set targets and monitor progress through internal and external audits. Strive to design and develop products, which have friendly environmental impact during manufacturing.
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3.4 BIRDS EYE VIEW OF KS&DL :1918 Government Soap Factory was started by Maharaja of Mysore and the Mysore Sandal Soap was introduced into the market for the first time. 1950 - The factory output raised to 500 M.Tons with the following modifications. 1. Renovating the whole premises. 2. Installing new boiler soap building plant and drying chamber. 1954 Received license from Government to manufacture 1500 tons of soap and 75 tons of glycerine per year. 1957 Factory shifted its operation to Rajajinagar industrial area. 1974 Mysore sales international limited was appointed as the sole selling agent, for marketing its products. 1975 Rs.4 Crores synthetic detergent plant was installed based on Italian technology by Ballestra SPA. 1980 - On 1st October 1980 the Government Soap Factory was converted into a public sector enterprise and renamed as Karnataka Soaps & Detergents Limited. 1981 a) Production capacity increased to 6000 tons, b) Rs.5 Crores Fatty Acid Plant was installed. 1984 Manufacturing of premium quality of Agarbathies at Mysore division. 1985 Production capacity was raised to 26,000 M.tons Per Annum. A large variety of toilet soaps at attractive shapes, colors and fragrances introduced to meet the varieties & tastes of consumers. 1992 The company was registered with the Board for Industries and Financial Reconstruction (BIFR), New Delhi in December for rehabilitation, as the company suffered losses continuously since 1980 at its net worth fully eroded. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 33
1996 The BIFR approved the rehabilitation scheme in September & the Company stated making Profits. 1999 ISO-9002 Certificate for quality assurance in production, installation and Servicing. 2000 ISO-14001 certificate pertaining to environmental management system. 2003 The entire carried forward loss of Rs.98 Crores wiped out and in May BIFR, declared the company to be out of its Purview. The Company is making profit continuously, It is only State Public Sector unit has come out of BIFR. 2004 The ISO-9002 was upgraded to ISO-9001-2004, Quality Certificate. 3.5 PRESENT STATUS OF THE COMPANY The company is mainly dependent on southern market. The product availability in retail outlets particularly for Mysore sandal soap is almost comparable to any other similar industries products in the premium segment in the south. Whereas in other parts like Eastern & Northern markets penetration of our product is relatively poor, which depends on the companys distribution structure, stockist and field personnel strength. With increased trust on distribution, the company does not foresee any problems to achieve the projected sales through the redistribution package. Further, the policy of Indian Government also sees the public sector enterprises enter the industry in a large way there by making the products available to the consumers at reasonable prices. Being located in the centre of southern part of India the Government Soap
Factory claims preferential treatment for expansion programme availability of exotic natural Sandalwood oil.
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AN ISO-9002 COMPANY: KS & DL with a tradition of excellence of over eight decades is committed customer delight, through total quality management and continuous improvement through the involvement of all employees. KS&DL has got ISO 9002 certificate. To improve the quality management system and to facilitate TQM in the process of soap and detergent, the management took decision to obtain ISO-9002 by end of March 1999. Accordingly action play was drawn and a committee was set up for the purpose during October 1998 with a mission statement. According to the company constitution, officers go for the formation in all the areas of the companys operation. Particularly production, procurement, quality assurance, store maintenance. The company gives initial training including conducting employees awareness programme, document quality manual and quality system procurement. In this direction company obtained the guidance from gulag Consultancies, Bangalore and Bureau of Indian Standards, Bangalore. Accordingly, company standards registered for ISO 9002 by the end of March to the Bureau of Indian Standards. Obtained the certificate by the end of March 1999 itself. This is to project in the national and international market and also to improve quality of products offered to the consumers with the assurance of quality in the message. The Company got itself upgraded to ISO-9001-2004, Quality Systems in the year 2004-05. ISO-14001:The company is located in the heart of the Bangalore city. The management of the company took a decision to get the ISO-14001 and become model to other public sector for the techniques used and also to other Government units to spread the message of maintenance. ISO-14001 and ISO-9001 will facilitate to improve the corporate brands in the global market and it will help the company to improve the profits, year after year on PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 35
long-term basis.
The environment management system adopted in the company
through this motive as follows: Conservation of energy Conservation of Surrounding Conservation of resources. Equipped with latest technology and backed by full-fledged control and R&D support, KS&DL is marching confidentially ahead in the new millennium. The Company is developing new products to meet the changing preferences of its customers.
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KS&DL AT GLANCE:Incorporated Name - Karnataka Soaps and Detergents Limited. Address - Karnataka Soaps and Detergents Limited Bangalore Pune High Way Post Box No.5531, Rajajinagar, Bangalore 560 055 Ph: 080-3377691/3370469/23371103 to 06 22376922 to 24 Email : Mysorsandal @ vsnl.com, Website : www.mysoresandal.com Year of Establishment - 1918 Constitution Management Wholly owned by Govt. of Karnataka - Govt. of Karnataka nominates/appoints Board of Directors. Chairman & MD Renamed Trademark - 1980 - The trademark is SHARABHA. It is the Body of lion with the head of an elephant means blending the majesty of lion with strength of an elephant. Production range - Toilet soaps, bar soaps, Detergent Cakes, Powder, Agarbathies, Cosmetics, Baby products, Sandalwood Oil Process know how - The facility is a pioneer in the Manufactures of various soaps and technology Imported from Italy. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 37
Capacity of the Unit - Licensed capacity is 26,000metric tons of Soaps & 10,000 M Tons of Detergents Per annum Plants - At Bangalore Soap Plant ,Detergent Plant, Fatty Acid Plant - At Mysore Sandal wood Oil Agarbathies - At shimoga THE BIRTH OF A LEGEND :The early year of the 20th century witnessed the birth of a magical formula, created from the finest and purest sandalwood oil, better known as liquid gold, distilled exclusively at our divisions in Karnataka-Mysore. A fragrant gift to the world from the first Government Soap Factory of India. Nurtured by the Maharaja of Mysore. Enriched with all the goodness of natural sandal wood oil, this unique soap captured hearts and markets at home, as well as right across the globe creating a fragrant legacy for the state of Karnataka. Soaps and Detergents limited (KS&DL) is the true inheritor of this golden legacy of India. Continuing the tradition of excellence for over eight decades, using only the best Grade sandal wood oil in its product range. KS&DL today in one of the largest producers of Sandal wood oil and sandal wood soaps in the world. Duty Paid Godown
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3.6 PRODUCT MANUFACTURED BY KS&DL:TOILET SOAPS NAME OF THE PRODUCT Mysore Sandal Soap Mysore Sandal Classic Soap Mysore Sandal Gold Soap Mysore Sandal Baby Soap Mysore Special Sandal Soap Mysore Rose Soap Mysore Sandal Herbal Care Soap Mysore Jasmine Soap Mysore lavender Soap Mysore Sandal bath tablet Mysore Sandal classic bath tablet Mysore Jasmine bath tablet Mysore Special Sandal tablet Mysore Sandal rose tablet Mysore Sandal Guest tablet
UNITS OF GRAMS 75 75 125 75 75 100 100 100 & 75 150 150 150 150 150 150 17
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DETERGENTS NAME OF THE PRODUCT Mysore detergent powder Mysore detergent powder Mysore detergent Cake Mysore detergent cake TALCUM POWDERS UNITS IN GRAMS 1000 500 125 250
NAME OF THE PRODUCT Mysore Sandal Talc Mysore Sandal Baby Talc AGARBATHIES
UNITS IN GRAMS 20, 50, 100, 300 100, 200, 400
NAME OF THE PRODUCT Mysore Sandal Premium Mysore Sandal Regular Mysore Rose Nagachampa Suprabhatha Mysore Jasmine Parijatha Sir M.V.100 Bodhisathva Venkateshwara Durga Ayyappa Alif Laila Meditation
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PRODUCT RANGE FROM THE HOUSE OF MYSORE SANDAL SOAP Mysore Sandal Soap (75gm,125gm & 150gm)
Mysore Sandal Special shop (75gm)
c. Mysore Sandal Baby Soap (75gm)
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d. Three-In-One Gift Pack (SJR) 3Tabs (150gm Each)
e. Mysore Sandal Gold Soap (125gm)
f. Mysore Rose Soap (100gm)
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Six-In-One Gift Pack- 6Tabs (150gm Each)
Mysore Sandal Gold Sixer 6 Tabs (125gm Each)
Mysore Sandal Soap Bath Tablet Trio 3nos. (150gm Each)
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Mysore Sandal Classic Soap (75gm)
DETERGENTS KS&DL also manufactures high quality detergents applying the latest spray drying technology with well balanced formulation of active matters & other builders; they provide the ultimate washing powder. 1. Sensor Detergent Powder 2. Mysore Detergent Powder 3. Mysore Detergent bar 4. Mysore Detergent Cake AGARBATHIS (1kg/2kg) (1kg/500gms) (250gms) (125gms/250gms)
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Mysore Sandal premium Mysore Rose Suprabath Parijata Venkateshwar Ayyappa Chandhana Mysore sandal Nagachampa Mysore Jasmine Bodhisattva Durga Alif Laila
SANDALWOOD OIL In 5ml, 10ml,20ml, 100ml,500ml,2kg,5kg,20kg,and 25kg packing.
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POWDERS Mysore Sandal Talk: Cooling & Healing, Fragrant freshness, Net. Wt 20gm, 60gm, 300gm and 1kg. Mysore Sandal Baby Powder: Tender loving care for baby& Mummy. Net wt 100400gms.
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SWOT ANALYSIS OF KS&DL: STRENGTHS: Only soap in India that contains pure sandal and almond oil. Certified by ISO Worlds largest production of sandal wood oil. Brand name from decades in soap market. It has very good dealership network in South which ensures that the products reach every customer. Diversified product range helps the company to maintain stability. WEAKNESSES: Distribution network weak in north and east. Absence of television advertisement Neglecting freshness aspect. High oriented cost due to excessive labour force. Low turnover resulting in low profit. OPPORTUNITIES: Traditional benefits that sandal is good for skin Skin care is just gaining importance among consumers Government support and large production capacity. Advantages of being in the industry for a long time. Existence of vast market and huge demand.
THREATS: Other competitors such as Rexona, Moti, Santoor etc. There is a need for renovation of plant and machinery. Government Policy may reduce growth potential. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 48
Other sandal soaps in the market
CLASSIFICATION OF EMPLOYEES AT KS&DL 1. Permanent Employee: One who has been engaged for work on a permanent basis. 2. Temporary Employee: One who has been engaged for work, which is essentially of temporary nature and likely to be finished within a limited period. 3. Probationary Employee: One who is provisionally employed to fill a permanent vacancy. 4. Casual Workmen: One who is engaged on day to day basis, for casual or non recurring work. 5. Trainee: Trainee is a learner who may or may not be paid stipend during the period of training.
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3.7 ORGANISATION CHART OF KARNATAKA SOAPS AND DETERGENT LIMITED
ORGANISATION STRUCTURE
EXECUTIVE DIRECTOR
MANAGING DIRECTOR GM GM (MKTG) (FINANCE)
CHAIRMAN
AGM (HRD)
GM DGM GM AGM DGM AGM (PRODN) (SOD) (R&D/ (STORES) (MTL) (E&S) QAD) DGM (DM) GM AGM (P&M) (U&E)
WORKING CAPITAL MANAGAEMENT IN KARNATAKA SOAPS AND DETERGENTS LTD. The working capital in Karnataka Soaps and Detergents Ltd. is efficiently operated by the Finance Department. The finance Department headed by Assistant General Manager is actively involved in preparing, monitoring and reviewing the requirements of working capital. It prepares cash flow statement and cash budgets monthly; prepares sales budget; production budget; manpower material budget and other financial statements to estimate the working capital need and compares the actual with the forecast. It also takes effective steps to correct variations if any arises. The normal and peak periods of collection and payments are analyzed and cash requirement is planned accordingly. It works out important financial ratios regularly to make sure that the Page 50
financial position of the industry is sound. Quarterly cash flow statement and budget are reviewed and are put up to the board of directors .the finance department has been successful in adhering to the needs and recommendations the Tandon/Chore committee. They are therefore, able to obtain additional amount of borrowing from banks for working capital requirements if so needed. INTRODUCTION Working capital indicates circular flow of cash i.e., a sort of revolving fund starting with cash used to pay raw material, labor and operating expenses and when finished goods are ready for sale, the cash is recovered through sales of the finished goods/semifinished goods, either on cash or on credit. Thus we have a circular cash flow from cash to inventories to receivable and back to cash. Working capital refers to the flow of ready funds necessary to work. Ordinarily speaking working capital is understood to imply the liquid funds representing the excess of current assets over current liabilities or the difference between current assets and current liabilities.
WORKING CAPITAL CYCLE In case of working capital there are cyclical changes.. The company purchases the raw material which means the cash is converted into raw material. When finished goods are produced raw materials are converted into finished stock. Then finished goods are sold on credit to t5he customer4s when stock is cycle begins with cash and ends with cash. So it is called as working capital cycle. INVENTORIES All raw materials except preference material will be at 2 months stock level. goods. The company normally kept 3 months stock of uninterrupted production. STOCK Refers to the stock of chemicals. Perfumery material and packing material. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 51 The purchases are done in bulk depending on the availability and demand for finished
WORK-IN-PROGRESS The period allowed as per the norms in 2 weeks. FINISHED GOODS Finished goods are kept in stock for one month generally by the company. DEBTORS The time period allowed by the company for debtors is 1.5 months.
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CASH-IN-HAND The company generally maintains liquid cash of Rs. 1-2 lakhs at any point of time. SUNDRY CREDITORS The creditors for the company are the suppliers of raw materials, stores, materials, etc, for which the company is generally allowed a credit of one month
MANAGING CASH FLOW Since KS&DL is dealing with very few customers and that to with the government entities, it does not adopt any techniques for accelerating cash collections and controlling cash disbursements. INTRODUCTION ACCOUNT RECEIVABLES Account receivables or trade credit is the most prominent force of the modern business. Sit is considered as an essential marketing tool, acting as abridge for the movement of goods through production and distribution stages to customers finally. AS firm grants credit to protect its sales from the competitor and to attract potential customer trade credit thus creates receivable or book debts, which the firm is expected to collect in future. It also involves an element of risk as the cash payment has to be received; hence they have to be carefully analyzed. Receivable constitute a substantial portion of current assets of several firms. They form about 1/3 part of current assets in India As substantial amount are tied up in trade debtors, it needs careful analysis and proper management, for proper management of receivable a concern must adopt an optimum credit policy.
OPTIMUM CREADIT POLICY PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 53
The optimum investment in receivables will be at a level where there is trade off between costs and pr4ofitability.When the firm resorts to a liberal credit policy the profitability of firm increase in account of higher sales. However, such a policy collection cost. The total investment in receivable increase and thus the problem of liquidity is created. On the other hand a stringent credit policy reduces profitability off between the profit and sales that bring in receivables. VARIABLES OF CREDIT POLICY A firm should establish receivable policies after carefully considering both benefit and cost of different policies. These policies relate to: 1. Credit standards 2. Credit terms and 3. Collection procedures. ACCOUNT RECEIVABLES MANAGEMENT IN KS&DL The accounts receivables of Karnataka Soaps and Detergents Limited., is an important component of working capital, if constitutes around 40% of the total amount. CREDCIT ANALYSIS The company does not call for any credit analysis as it is dealing with public sector undertaking and Govt. Department etc. However a few private customers are provided with credit after scrutinizing there past performance. CREDIT TERMS Karnataka soaps and detergents limited. Provides credit to customers. The period of which range from 30 to 45 days. In current assets of private customers. The sales and services are rendered against an advance of full amount or 90% of the amount along with the order. CASH DISCOUNT The KS&DL does not provide any cash discount to the customers. COLLECTION POLICY Monthly customers wise schedules/reporters are prepared by all the units the KS&DL to know the age of receivable accounts, amount due etc. And necessary followup actions are taken by the representative unit of KS&DL. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 54
CONTROL OF ACCOUNTS RECEIVABLES IN KARNATAKA SOAPS AND DETERGENTS LIMITED Various reports which serve as a control device for accounts receivable are prepared by all the units of Karnataka Soaps and Detergents Limited., and are submitted to control office they include. Monthly sundry debtors report. Report on age of accounts and Weekly debtors report. Different units KS&DL prepares monthly reports indicating the credit sales to customers and provide the opening balance at the beginning of the year, total dispatches done during the month, realization figures and balance of bills not submitted and outstanding. One-month report is also prepared to analyze the age of each h account receivable. The accounts due for more than one year and less than one year are analyzed. Customer wise, to know why the amounts are outstanding. There is one more weekly debtors report, which is prepared by finance department of each unit for the purpose of internal control. All these reports mentioned above, prepared by KS&DL units and are sent to the companys corporate office at Bangalore on the basis of their reports. The finance department in corporate office advises the different units in taking actions to reduce investments in receivable. If any problems arise, the corporate office solves it. The KS&DL also makes provisions for bad and doubtful debts on the basis of the period for which debts have been outstanding.
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INVENTORIES INTRODUCTION The preceding two chapters basis consideration in managing current assets namely, cash and receivable are analyzed. The third major current assets is inventory, inventory are stocks of product a company is manufacturing for slaw and components that makes up the product. Inventory like receivable are also a sufficient ratio if most firms assets and according to the required substantial investment, to keep these investment from becoming unnecessary large, inventories must be managed efficiently. NATURE OF INVENTORIES The various forms in which inventories exist in a manufacturing company are; a. RAW MATAERIAL Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials are those units, which have been purchased and stored for future productions. b. WORK IN PROGRESS The work-in-progress is that stage of stocks, which are in between raw materials and finished goods. They are se3mi/finiashed products that need more work the time takes in the manufacturing process. The greater the time taken in manufacturing, the more will be the amount of work in progress.
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c. FINISHED GOODS Finished goods inventories area those completely manufactured products, which are ready for sale. Stocks of raw materials and work in progress facilitate production, while stock of finished goods is required for smooth marketing operations. The level of three kinds of inventories for a firm depends on the nature of its business. A manufacturing firm will have substantially high level of all three kinds of inventories.
Supplies include office and plant cleaning material oil, fuel, light, bulbs, etc. There materials do not directly enter into production but are necessary for production process. Usually, there supplies are small part of inventory and do not involve significant investment. Therefore a sophisticated system of inventory control may not be maintained for them. NEED TO HOLD INVENTORIES There are generally three major motives for holding inventories. 1. The transactions motive, which emphasizes the need to maintain inventories to facilitate smooth production and sales operation. 2. The precautionary motive, which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supplies forces and other factors. 3. The speculative motive, which influence the decision to increase or reduce inventory level to take advantage of price fluctuations. A company should maintain adequate stock of material as it is not possible f0or a company to produce raw material whenever it is needed and also for a continuous and smooth and uninterrupted production process.
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When materials are manufactured in a concern there cost will be known as set up costs. Their costs will include cost of setting up machinery for manufacturing materials, time taken in setting costs of tool etc. INVENTORY MANAGEMENT TECHNIQUES In managing inventories the firm should determine the optimum level of inventory efficiently controlled make the firm flexible. Inefficient inventory control results in unbalanced and inventory and inflexibility; the firm may be sometimes out of stock and sometimes may pile up unnecessary stocks this increase the level of investment and makes the firm unprofitable. ECONOMIC ORDER QSUALITY (EOQ) One of major inventory management to be resorted is how many inventories should be added when inventory is replenished. To decide this, economic order quality model is helpful. Determining optimum or economic order quantities involve two types of costs. a) Ordering costs. b) Carrying costs. The economic order quantity in that inventory level which minimize the total of ordering and carrying costs.
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SELECTIVE INVENTORY CONTROL Usually a manufacturing company has to maintain several types of inventories it is not desirable to keep same degree of control on all the items i.e. a company has to pay maximum attention to those items whose value is the highest. This can be achieved through an approach called the in between the two categories. A item requires the higher control; C items require low control while B item requires reasonable attention of the management. ABC analysis is also known as control by importance and exception (CIA). ABC analysis. Where in the high value items are classified as A items, C items represents relatively the least value, while the B falls
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CHAPTER-4 ANALYSIS AND INTERPRETATION ANALYSIS OF CHANGES IN WORKING CAPITAL STATEMENTS According to working capital management rules, an increase in a current assets, results in increase in working capita, decrease in a current assets, results in decreasing in working capita, increase in current liability results in decrease in working capital and decrease in a current liability increase in working capital. From the above statement for the year ending 31 03 2005, it is clear that there is decrease in working capital of Rs. 22546398 due to increase in current assets . From the above statements for the year ending 31 03 2005, it is clear that there is decrease in working capital of Rs. 74118473. It is due to decrease in current liability. Comparing these two year statements it is evident there is proper utilization of current assets and current liabilities in the year 31 03 2005. Thus it shows the improvement in the utilization of current assets and current liabilities. From the statements of 31 03 2004, 31 03 2005, 31 03 2008 it is clear that there is decrease in working capital. We find that there is effective utilization of current assets and current liabilities. COST OF LIQUIDITY OF COST ILLIQUIDITY As we knew cost of liquidity increases in WCP because of excessive funds in current assets. The cost of liquidity is the cost of holding insufficient current and it increases with the decrease in WCP. One has to minimize the total cost of both the costs of liquidity and liquidity in order to determine the optimum level of working capital.
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AGGRESSIVE MODERATE CONSERVATIVE LEVAEL OF WORKING CAPITAL Observing the above, WCP, there is an excessive fund investing in current assets, which increase the cost of liquidity. Therefore, it is better for the company to adopt moderate working capital policy thereby reducing the total cost.
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1. RATIO RELATING TO LIQUIDITY OF WORKING CAPITAL. Liquidity ratio used to measure the ability of a firm to pay its maturing obligation on time .The first concern of the financial analysis of the liquidity of working capital is used for both short term creditors and internal management of the firm. 1.CURRENT RATIO The net working capital position of firm is indicated by the relationship of its current assts and current liabilities .It measures the ability of a firm to pay off its short term obligation .higher the obligation .Higher the current ratio greater the short term solvency and vice versa CURRENT ASSETS CURRENT RATIO = CURRENT LIABiLITES CURRENT RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 Current Assets 911689555 1091372587 1239560593 1201140120 Current Labilities 475523005 451607354 561527841 563447217 Current Ratio 1.917235434 2.416640423 2.207478423 2.131770437
Table-1
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ANALIYSIS The current ratio of KSDL for the year 2007-2008, 2008-2009,2009-2010,20102011 are 1.92, 2.42, 2.21, 2.13 times respectively. The ideal current ratio is 2times. Hence it is inferred that the short term solvency of the company is very good. But in the year 2008-2009, the company had maintained a high current ratio indicating that the company had engaged itself in under trading.
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2. LIQUID OR QUICK OR ACID RATIO The quick ratio emphasizes the relationship of liquid assets to current liabilities. The term liquid assets refers to current assets, which can be converted into cash immediately or at a short nature. LIQUID ASSETS QUICK RATIO = CURRENT LIABILITES LIQUID ASSTS = CURRENT ASSETS INVENTORY TABLE -2 YEAR Quick Assets 2007-2008 2008-2009 2009-2010 2010-2011 615676733 683920100 721954754 675905562 Current Labilities 475523005 451607354 561527841 563447217 Quick Ratio 1.294735957 1.514413116 1.285697166 1.199589849
QUICK RATIO
INFERENCE The quick ratio of KSDL for the year 2007-2008, 2008-2009,2009-2010,2010-2011 are 1.29, 1.51, 1.29, 1.20 times respectively. The ideal quick ratio is 1:1. Hence it is inferred that the financial liquidity of the organization is very good. It also indicates that the firm is indulged in efficient inventory management by not maintaining huge inventory, hence by cutting the inventory cost.
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TABLE 5 DEBTORS TURNOVER RATIO It is a ratio between net sales and average debtors indicate the efficiency of credit management .Higher the debtors turnover ratio higher will be the efficiency. NET SALES DEBTORS TURN OVER RATIO = AVERAGE DEBTORS
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Year 2007-2008 2008-2009 2009-2010 2010-2011
Net Sales 1286462008 1533703531 1789059796 1810681627
Debtors 210059025 204756347 214700867 208190152
DTR 6.124288199 7.490383343 8.332801916 8.697249172
Debtor Collection Period 58.78234144 48.06162562 43.20275504 41.39239809
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DEBTORS TURNOVER RATIO
ANALYSIS: The debtors turnover ratio is 6.12 in the year 2007-2008 and 7.49,8.33,8.69 upto 2010-2011 INFERENCE: The debtor turnover ratio of KSDL for the year 2007-2008, 2008-2009,2009-2010,2010-2011 are 6.12, 7.49, 8.33, 8.70 times respectively & the Debt Collection Period are 59, 48, 43, 41 days respectively The ideal Debt Payment Period is 30days. The organization has allowed the credit period more than the ideal Debt Collection Period & the actual Debt Payment Period of the organization which indicates that the organizations credit collection period is inefficient & is in alarming situation.
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TABLE 6 CREDIT TURNOVER RATIO (CTR) CTR ratio indicates credit facility enjoying by the firm. It is calculated taking into account net purchases and average conditions, calculated as fallows. NET PURCHASES CREDIT TURNOVER RATIO = AVERAGE CREDITORS
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 Material Purchases Creditors CTR 518909473 82909923 6.811288909 847238335 56632624 16.42087239 958986877 72289374 13.75355538 969031446 61739288 16.35695588
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CREDITORS TURNOVER RATIO
ANALYSIS: CREDITORS turnover ratio is 6.81 in the year 2007-2008, and 16.42,13.75,16.35 upto 2010-2011 INFERENCE: The creditor turnover ratio of KSDL for the year 2007-2008, 2008-2009,20092010,2010-2011 are 6.81, 16.42, 13.75, 16.36 times respectively & the Debt Payment Period are 54, 22, 26, 22 days respectively. The ideal Debt Payment Period is 30days. The organization has received the credit period lesser than the ideal Debt Payment Period, hence it can be inferred that the organization has not received sufficient period of credit from its creditors
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TABLE 10 WORKING CAPITAL TURNOVER RATIO (WTC) It is a ratio between net sales and net working capital. It shows efficiency of working capital to generate sales. It is expressed as fallows.
NET SALES WORKING CAPITAL TURNOVER RATIO (WTC) = NET WORKING CAPITAL
Year 2007-2008 2008-2009 2009-2010 2010-2011
Net Sales 1286462008 1533703531 1789059796 1810681627
Net Working Capital 436166550 639765233 678032752 637692903
WCTR 2.94947425 2.39729115 2.6386038 2.839425715
WORKING CAPITAL TURNOVER RATIO
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ANALYSIS: The working capital turnover ratio is 2.94 in the year 2007-2008 and 2.39,and 2.68, 2.83 upto 2010-2011 INFERENCE: The Working Capital Turnover ratio of KSDL for the year 2007-2008, 2008-2009, 2009-2010, 2010-2011 are 2.95, 2.40, 2.64, 2.84 times respectively. The organization is consistent & efficient in the effective utilization of the working capital of an enterprise.
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CHAPTER-5 FINDINGS AND SUGGESTIONS
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ORGANISATION STUDY InKarnataka Soaps and Detergents. Ltd. Project submitted in partial fulfillment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATIONBANGALORE UNIVERSITY Submitted by:UMANANDA.HReg. No: 09JQCMA077Under the Guidance of Prof. H.S.MURTHYJAYANAGAR, 7 TH BLOCK, BANGALORE.2009-2011. 1
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FINDINGS 1. It seems that the company has invested lesser amount in outside investment. If the interest rate is more than the alternate channels of funds needed that company must think about investment in outside organization. 2. The company has been able to improve its performance year and year by effective utilization of resources supported by sound technical back ground will knit management team and strong brand equity of KS&DL. 3. The company has high liquidity towards working capital management which is very effective for the management of inventories. 4. The finance department has been successful in adhering to the needs and recommendations of the tender/chore committee. 5. All the payments to creditors are made through cheque, even other expenses are paid through cheque; wages, salary excise duty are paid monthly.
6. The company has sufficient quick assets like book debts and cash to cover its short term obligation and the observed ratios is more than normal standard of 1:1 are far above the safety margin.
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SUGGESTIONS IN THE light of finding of the study of following suggestions are made for the improvement of the working capital management in KS&DL. 1. KS&DL should check it is financial performance every 3 months. It will be better to know the current positions of the company and also helpful at active the goods. 2. Commencement of effective forecasting of the working capital. 3. It will be better if KS&DL diverts a little portion of its funds to find assets which will help the enterprise in undertaking expansion activities and ultimately enhancing its sales and profitability. 4. The requirements of working capital should be properly assessed by considering various aspects such as production schedule, labour cost and net sales.
CONCLUSION Despite difficult economic conditions and an overall slowdown of industrial growth in our country, KS&DL has a good demand for products; its market is steadily increasing. PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 77
KS&DL has a very good quality system. It is known for its quality products in the market, It manufactures 80% of good quality sandalwood products and 20% nonsandalwood which is famous world wide for its brand and quality. awarded ISO 9002 certificate. It is a major achievement. A company has good name in the market because it provides competition. KS&DL has been able to increase its presence prices of product diversification by effective utilization of manpower and resources supported by sound technological background, efficient management team and strong brand equity of KS&DL. The process of reforms and liberalization result higher industrial growth adopted group technology. KS&DL markets after excellent opportunity to Global Markets. It has been
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BIBLIOGRAPHY LIST OF BOOKS 1. PRASSANA CHANDRA 2. I. M PANDEY 3. M.Y. KHAN AND JAIN .P.K FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT
E-MAIL; mysoresandal@vsnl.com Website; www.mysoresandal.com
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BALANCE SHEET AS 31ST MARCH 2007 PARTICULARS 2006-2007
Amount SOURCES OF FUNDS 1. Share Holders Fund a. share capital b. Reserve and surplus. 2. Loan funds a. secured loans b. unsecured loans. TOTAL APPLICATION OF FUNDS 1. Fixed assts a. Gross block (less) : deprecation b. Net Block 2. Investments 3.current assets loans &advances a. inventory b. sundry debtors c. cash and bank Balances d loans and advances (Less) ;- current liabilities and provisions a. liabilities b. provisions Net Current Assets 4. Miscellaneous Expenditure Profit and loss account TOTAL
Amount
318221000 15070293 16629120 129995436
146624556 479915849
292406486 233475517
58930969 100
350855723 80873641 312345581 72546525 816621470 280039861 128527890 408567751 408053719 12931061 479915849
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Amount SOURCES OF FUNDS 1. Share Holders Fund a. share capital b. Reserve and surplus. 2. Loan funds a. secured loans b. unsecured loans. TOTAL APPLICATION OF FUNDS 1. Fixed assts a. Gross block (less) : deprecation b. Net Block 2. Investments 3. Deffered Tax Assets 3.current assets loans &advances a. inventory b. sundry debtors c. cash and bank Balances d loans and advances (Less) ;- current liabilities and provisions a. liabilities b. provisions Net Current Assets 4. Miscellaneous Expenditure Profit and loss account TOTAL
Amount
318221000 136826041 10365536 89995436
100360972 555408013
296106154 237050829
59055325 30000100 32146548
296012822 146346670 334385423 104944640 881689555 308752365 166770640 475523005 406166550 28039490 555408013
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Amount SOURCES OF FUNDS 1. Share Holders Fund a. share capital b. Reserve and surplus. c. Exchange Fluctuation Reserve 2. Loan funds a. secured loans b. unsecured loans. TOTAL APPLICATION OF FUNDS 1. Fixed assts a. Gross block (less) : deprecation b. Net Block 2. Investments 3. Deffered Tax Assets 3.current assets loans &advances a. inventory b. sundry debtors c. cash and bank Balances d. loans and advances e. Investment in gratuity trust (Less) ;- current liabilities and provisions a. liabilities b. provisions Net Current Assets 4. Miscellaneous Expenditure Profit and loss account TOTAL
Amount
318221000 267719129 1769358 10704608 83506504
190711112 778420599
309623620 239847860
69775760 100 52504866
407452487 163529618 255132910 215257572 50000000 1091372587 246650794 204956560 451607354 639765233 16374640 778420599
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YEAR AT A GLANCE (Rs In Lakhs)
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Naveen Working Capital of KS&DL

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WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

INTRODUCTION PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 2

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

INTRODUCTION TO WORKING CAPITAL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

OPERATING CYCLES PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 10

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

ADVANTAGES OF WORKING CAPITAL PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY Page 18

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL

WORKING CAPITAL MANAGEMENT OF KS&DL

The environment management system adopted in the company

PEOPLES EDUCATION SOCIETY INSTITUTE OF TECHNOLOGY

WORKING CAPITAL MANAGEMENT OF KS&DL