Working Capital Management With Reference To KCH India Private L

WORKING CAPITAL MANAGEMENT
CHAPTER – I
INDUSTRY PROFILE
&
COMPANY PROFILE
S.D.G.S COLLEGE, HINDUPUR Page 1

INDUSTRY PROFILE
The Chemical Industry comprises the companies that produce industrial

chemicals. It is central to modern world economy, converting raw materials (oil,
natural gas, air, water, metals and minerals) into more than 70,000 different products.
Polymers and plastics, especially polyethylene, polypropylene, polyvinyl chloride,
polyethylene terephthalate, polystyrene and polycarbonate comprise about 80% of the
industry’s output worldwide. Chemicals are used to make a wide variety of consumer
goods, as well as thousands inputs to agriculture, manufacturing, construction, and
service industries. The chemical industry itself consumes 26 percent of its own output.
Major industrial customers include rubber and plastic products, textiles, apparel,
petroleum refining, pulp and paper, and primary metals. The largest corporate
producers worldwide, with plants in numerous countries, are BASF, Dow, Shell,
Bayer, INEOS, ExxonMobil, DuPont, and Mitsubishi, along with thousands of
smaller firms.
The chemical industry has shown rapid growth for more than fifty years. The
fastest growing areas have been in the manufacture of synthetic organic polymers
used as plastics, fibers and elastomers. Historically and presently the chemical
industry has been concentrated in three areas of the world, Western Europe, North
America and Japan (the Triad). The European Community remains the largest
producer area followed by the USA and Japan.
The traditional dominance of chemical production by the Triad countries is

being challenged by changes in feedstock availability and price, labor cost, energy
cost, differential rates of economic growth and environmental pressures. Instrumental
in the changing structure of the global chemical industry has been the growth in
China, India, Korea, the Middle East, South East Asia, Nigeria, Trinidad, Thailand,
Brazil, Venezuela, and Indonesia.
Technology
As accepted by chemical engineers, the chemical industry involves the use of

chemical processes such as chemical reactions and refining methods to produce a

wide variety of solid, liquid, and gaseous materials. Most of these products are not
used in manufacture of other items, although a smaller number are used directly by
consumers. Solvents, pesticides, lye, washing soda, and Portland cement are a few
examples of product used by consumers. The industry includes manufacturers of
inorganic- and organic-industrial chemicals, ceramic products, petrochemicals,
agrochemicals, polymers and rubber(elastomers), oleochemicals (oils, fats, and
waxes), explosives, fragrances and flavors. Examples of these products are shown in
the Table below.
Product Type Examples

inorganic industrial ammonia, nitrogen, sodium hydroxide, sulfuric acid
organic industrial acrylonitrile, phenol, ethylene oxide, urea
ceramic products silica brick, frit
petrochemicals benzene, ethylene, styrene
agrochemicals fertilizers, insecticides, herbicides
polymers polyethylene, Bakelite, polyester
elastomers polyisoprene, neoprene, polyurethane
oleochemicals lard, soybean oil, stearic acid
explosives nitroglycerin, ammonium nitrate, nitrocellulose
fragrances and flavors benzyl benzoate, coumarin, vanillin
Although the pharmaceutical industry is often considered a chemical

industry, it has many different characteristics that put it in a separate category. Other
closely related industries include petroleum, glass, paint, ink, sealant, adhesive, and
food processing manufacturers.
Chemical processes such as chemical reactions are used in chemical plants to

form new substances in various types of reaction vessels. In many cases the reactions
are conducted in special corrosion resistant equipment at elevated temperatures and
pressures with the use of catalysts. The products of these reactions are separated using
a variety of techniques including distillation especially fractional distillation,
precipitation, crystallization, adsorption, filtration, sublimation, and drying. The
processes and product are usually tested during and after manufacture by dedicated

instruments and on-site quality control laboratories to insure safe operation and to
assure that the product will meet required specifications. The products are packaged
and delivered by many methods, including pipelines, tank-cars, and tank-trucks (for
both solids and liquids), cylinders, drums, bottles, and boxes. Chemical companies
often have a research and development laboratory for developing and testing products
and processes. These facilities may include pilot plants, and such research facilities
may be located at a site separate from the production plant(s)
Companies in 21st century
The chemical industry includes large, medium, and small companies that are
located worldwide. Companies with sales of chemical products greater than $10
billion dollars in fiscal year 2010 are shown below. For some of these companies the
chemical sales represented only a portion of their total sales; for example
ExxonMobil’s chemical sales were only 8.7 percent of their total sales

COMPANY PROFILE OF KCH INDIA PVT LTD
KCH is the largest manufacturing enterprise in India in the energy

related/infrastructure sector today. KCH was set up to primarily to meet the needs of
the sector in the country. The company was started in 1988 under the name and style
of NCH India Pvt Ltd until July 7th 2002. From July 7th 2002 onwards the company
started to function in the name of KCH India Pvt Ltd. Its first plant was set up in
Chennai ushering in the indigenous heavy chemical equipment industry in India.
KCH India Pvt ltd manufacturers and market specialty maintenance

products and services for better facility and equipment maintenance. KCH India Pvt
ltd. is a 100% technical licensee of the NCH corporation, U.S. NCH Corporation has
been in this line of business for over 8 decades across 65
countries all over the world. KCH India Pvt Ltd is a proud license in India of two
established marketing divisions of NCH corporation viz.,
CHEMSEARCH and CHEM AQUA each specialized in its own fields. Both the
divisions are challenged to surpass customer expectations, create long term customer
relation and be market driven and innovative.
CHEMSEARCH PRODUCT RANGE
The CHEMSEARCH division caters to all kinds of industries and provide

products and service that offer total maintenance solutions to
customer where as CHEM AQUA specializes in cooling tower & boiler water
treatment products. The CHEMSEARCH product range is versatile and can be
broadly categorized into general maintenance, mechanical maintenance, and electrical
& electronic maintenance. GENERAL maintenance includes a range of house keeping
products, heavy duty cleaners and paint stippers. MECHANICAL maintenance
products are those for descaling, decreasing, corrosion, prevention and
lubrication. Electrical & electronic maintenance products include electric motor
cleaners, electrical and electronic equipments cleaners, demiosturizers, etc., The
CHEM AQUA division deal with specialty chemical products for treatment
of cooling tower and boiler. This includes online descalers, anti-scalants, biocides,
scale and corrosion inhibitirs. KCH vision is to become a world class enterprise,

committed to enhance stockholders value. The company is striving to give to shape to

its aspiration and fulfill the expectations as a”LAFFANS PETRO” company.
The greatest strength of KCH is its highly skilled and committed 5000
employees. Every employee is given an equal opportunity to develop him self and
improve his position. Continuous training and retraining, career planning, a positive
work culture and participate style of management have engendered development of a
committed and motivated workforce leading to enhanced productivity and higher
levels of quality.
VISION
 A world class Engineering committed to enhancing stakeholder value.
MISSION
 To be an Indian multination Engineering Enterprise providing total business
solutions though Quality products, systems & services in the fields of Energy,
Industry, Transportation, Infrastructure and other potential areas.
VALUES
 Zeal to Excel and Zest for change.
 Integrity and fairness in all matters.
 Respect for Dignity and Potential of Individuals.
 Strict Adherence to commitments.
 Ensures speed of Response.
 Foster Learning, Creativity and Team-work Loyalty and Pride in the company.
KCH-GLOBAL COMPACT
KCH has joined the “global compact” of united nations and has commited to
support it and the set of core values enshrined in its nine principles. The ‘Global
compact’ is a partnership between the united nations, the business community,
international labour and NGO’s it provide a forum of them to work together and
improve corporate practices through co-operation rather than confrontation.
KCH’s contribution to words corporate social responsibility till date include

adoption of Villages, free medical camps/charitable dispensaries, school for under

privileged and Handicapped children, ban on child labour, disaster/natural calamity

aid, employment for Handicapped, indow resettlement, employment for Ex-
servicemen, irrigationusing treated Sewage, pollutionchecking camps, plantation of
millions of trees, energy saving and Conservation of natural resources through
environmental management.
KCH-HEALTH, SAFETY &ENVIRONMENTAL POLICY
KCH shares the growing concern on issue related to environment and

occupational Health and safety (OHS), and is cimmitted to protecting environment in
and around Its own establishment, and to providing to safe and healthy environment
to all its Employees, for fulfilling these obligations, a health, safety & environmental
policy has been formulated and implemented through management systems.
In recognisation of this KCH has been awarded the ISO 14001 environmental
management systems certification and OHSAS 18001 occupational health and safety
Management systems certification from M/s Det norske veritas(DNV). Under UNDP
Programme for specialized services in the area of environment KCH has set up a
pollution control reaserch institute (PCRI). KCH also has a model center for
occupational Health services, which is a pioneer in this field in India. Today it offers
a wide range of Occupational health care as well as expertise in work environment
monitoring, Toxicology, Ergonomics and in organization of OHS to multitude of
industries from Different sectors in India. Few ILO sponsored candidates from
African countries have Undergone training at this model center.
Kch is a member of CORE (corporation roundtable on development of
strategies for environment) launched by the energy research institute (TERI). CORE
is a envisaged As a means to facilitate a proactive and catalytic role for industry in
addressing the environmental problem plaguing India and helping the industry
towards sustainability Paradigm. CORE is now a partner organization to the WBCSD
(world business council for sustainable devolopment). It has signed a memorandum of
understanding with WBCSD, now called as CORE-BCSD, India. Interface between
companies such as kch, teri and the wbcsd would providean important link to address
issues of sustainable devolopment at a global level and to learn exchange experience
of the participating Companies.

KCH’s commitment to environmental issues can be seen as an integral part of

its core Business. In the field of Non-conventional and renewable, KCH has
successfully launched products. Technology up gradation has been done to minimize
environmental impact of fossil energy products by way of low-Numbers.
Ratio analysis of KCH Indian private ltd

Ratio analysis is a widely-used toolof financial anakysis. It is defined as the
systematic use of to interpret the financial statement so that the strength and
weaknesses of well as historical performance and current financial conditions can be
determined.
Types of ratios:
Ratios can be classified, for the purpose of exposition, into four broad groups:
 Liquidity ratio
 Turnover ratio
 Profitability ratio
LIQUIDITY RATIO:
The liquidity ratios measure the ability of a firm to meet its short-term
obligations and reflect the short-term financial strength/ solvency of a firm. The
ratios, which indicate the liquidity of a firm, are:
 Current Ratio
 Acid test/ Quick ratio.
CURRENT RATIO:
The current ratio is the ratio of total current assets to total current liabilities. It
is obtained by dividing assets by current liabilities.
Current ratio = current assets
Current liabilities
The higher the current ratio, the larger the amount of rupees available per
rupee of current liability, the more the firm ability to meet current obligations and
greater the safety of funds of short-term creditors. Thus current ratio, in away is a
measure of margin of safety to the creditors.

Although there is no hard and fast rule, conventionally, current ratio of 2:1 i.e.,
for every one rupee of current liabilities, there should be two rupees of current assets,
is considered satisfactory.
ACID-TEST OF QUICK RATIO:

The Acid test ratio is the ratio between Quick current assets and current
liabilities and is calculated by dividing the quick assets by the current liabilities. The
term Quick Assets refers to the can be converted into cash immediately. By exclusion
of inventory and pre-paid expenses from current assets we get quick current assets.
Acid test ratio = Quick assets
Current liabilities
Conventionally, a quick ratio of 1:1 i.e., for every rupee of current liability
there should be a rupee of current liability is considered satisfactory.
TURNOVER RATIOS
Another way of examining the liquidity is to determine how quickly certain

current assets are converted into cash. The ratios to measure these are referred to as
turnover ratio.
Relevant turnover ratios are:
a) INVENTORY TURNOVER RATIO
b) DEBTORS TURNOVER RATIO
c) CREDITORS TURNOVER RATIO
INVENTORY TURNOVER RATIO
It is computed by dividing the cost of goods sold by the average
inventory.
Inventory turnover ratio = sales
Inventory
This ratio indicates how fast inventory is sold. A high ratio is good from the
view point of liquidity and vice versa. A low ratio would signify that inventory does
not sell fast and says on shelf or in the warehouse for a long time.

DEBTORS TURNOVER RATIO

It is determined by dividing the net credit sales by average debtors out
standing during the year. Thus,
Debtors turnover ratio = net credit sales
Average debtors
This ratio measures how rapidly debts are collected high ratio is indicative of
shorter time lag between credit sales and cash collection sales. A low ratio shows that
debts are not being collected rapidly.
CREDITORS TURNOVER RATIO:
It is determined by dividing the net credit purchases by average creditors
outstanding during the year. Thus,
Creditors turnover ratio = net credit purchases
Average creditors
NET PROFIT MARGIN:
Net profit is obtained when the operating expenses, interest and tax are
subtracted from the Gross Profit. The Net Profit Margin Ratio is measured by dividing
profit after tax by sales. This ratios measures the over all firms ability to turn each
Rupee sales in to net profit. This ratio also indicates the firms capacity to with stand
adverse economic conditions.
1. Operating Profit Ratio = Earnings Before interest taxes (EBIT)
Sales
2. Net Profit Ratio = Earnings after interest and taxes (EAT)
Sales
CASH MANAGEMENT
Importance of Cash Management:

Cash, the most liquid Asset, is of vital importance to the daily operation of
business firms. Crucial for the solvency of the business, it is referred to as the “Life
Blood of a Business Firm”. Cash Management has to be organized into three specific
areas:
a) Planning, Policies and Decisions.
b) Funds Management.
c) Control Information.
All three functions of Cash Management are closely interlinked. Planning sets
the organizational goals and objectives. Funds have then to be mobilized to satisfy
these goals. Subsequently, the utilization of funds has to be closely monitored and

controlled so that actual performance is in line with what has been planned. Cash
reports, providing a comparison of actual development with fore cast figures are help
full in controlling and revising cash forecasts on a continuous basis.
CASH MANAGEMENT OF KCH PVT. LTD

KCH follows centralized cash management system. Cash collected in the
form of checks, DD's made by various agencies are deposited in the nearest bank and
transmitted to corporation office at Delhi through banks.
The head office allocate the funds to the various units depending up on the
requirements. Cash budgets are prepared weekly and monthly.
Weekly forecasts is made regarding cash inflows, which includes the cash from
customers expert incentives etc., and cash out flows, which includes materials, excise
duty, sales taxes, and personnel payment.
DEPARTMENT
The cash/bank shall be under the charge of an official of finance and

account department not below the rank of account officer for the purpose of control
and supervisors of the section activities.
Record maintain the cash section:
1. cheque drawn register (form cbm4);
For accounting the payment made by the cheque
2. payment bank book(form cbm5):
For accounting the payment the debit made through the bank account.
3. receipt bank book (form cbm6):
Recording all deposits made into the bank account and all credited directly
made by bank.
4. payment cash book (form cbm7):
To record payment made by cash
5. Receipt cash book (form cbm8):
All money received by cheques or DD’s over the cash counter and cheque
drawn in favor of authorized cashier/officer for payment of bills are all accounted
in bank.

opening of bank account:

current and cash credit accounts in the name of KCH may be opened by unit
with the SBI or subsidiaries or any nationalized banks or any other bank approved by
the government with the approval of abroad of directors finance.
Bank account in foreign countries:

1. in local currency at the place of location of the site or hand.
2. In US $ or pound sterling etc., either in foreign countries or at some other place
in any other country.
RECEIVABLES MANAGEMENT:
Business firms often sell on credit to facilitate sales. It valuable to customer as it
arguments their resources. The credit period extended by business firms usually
ranges from 15- 60 days. When goods are sold on credit, finished goods get converted
in to accounts receivables. “the term receivable is defined as debt owed to the firm by
the customer arising from sales of goods orservices in the ordinay cours of business”.
Accounts receivable is the major and second most important component of working
capital.
Receivable management deals with the formulation and implementation of credit
andCollection policy. The three important decision variables of credit are as under:
1. Credit terms
2. Credit standards
3. Collection policy
Credit term: An agreement under which a firm sells on credit to its customer is
known as credit term is known as credit term. It has two components.
1. Credit period
2. Cash discount
Credit standards: the term credit standards represent the basic criteria for
extention of
Credit to customers .
Collection policy: it refers to the procedures a firm follows to collect payment of
fast due accounts. The collection policy should therefore aim ataccelerating
collections from sloe payers and reducing and bad debts.

The major terms of payment in the practice are cash terms, open account,
consignment, draft and letter of credit analysis. Proper assessment of credit risk is an
important element of credit management. Three broad approaches are used for credit
evaluation . Traditional credit analysis, numerical credit scoring and discriminate.
Objectives of receivables management:

. To maintain an optimum level of investment in receivables.
. To maintain optimum volume of sales.
. To control the cost of credit allowed and to keep it at minimum possible level.
. To keep down the average collection period.
. To obtain benefit from the investment in debtors and optimum level.

CHAPTER – II
DESIGN
OF THE
STUDY

NEED OF THE STUDY
The concept of working capital has gained vital role that is the business
activity of any form. It is difficult to find a firm without any amount of working
capital. However, the composition of working capital may vary for different firms. It
is the base for the company to earn sufficient sales activity.
The study is confined to examine the inventory management, receivables

management working Capital Management in KCH Indian Private Ltd, Chennai.
OBJECTIVE OF THE STUDY
 To study the system of working capital management in KCH India Pvt Ltd.
 To examine the feasibility of present system of managing cash, debtors and

inventory in kch ltd
 To study about how working capital is used in KCH India Pvt Ltd
 To analyze the performance of the company to reference to its working capital

components
 To analyze the working capital procedures & policies in KCH India Pvt ltd
 Suggesting a better way if any for improving management for working capital

LIMITATIONS
The study is based on the information available on the latest balance sheets of
the company, these balance sheets suffers a few limitations.
1. The study is based on the working capital analysis only.
2. The source of the study is limited to 5 years from 2010-11 to 2011-12.
3. The study of working capital does not reflect the whole financial position of
the organization
METHODOLOGY
The study of management of working capital is based on primary as well as
secondary data.
SECONDARY DATA:
The secondary data are those which have been already collected by some
agency and which have been processed
The secondary data is obtained from annual report and financial statement that
is balance sheet and profit and loss account, annual reports, journals and other
informational publications of the organization and from the test books of financial
management. However in the study all theoretical information is obtained from
primary data and all financial information is obtained from KCH Pvt Ltd.

CHAPTER – III
REVIEW OF LITERATURE

WORKING CAPITAL INTRODUCTION

Most companies concentrate their managerial effort on controlling profit. They
try to increase sales revenue, reduce their production cost and control their over
heads, operational budgets are drawn up, and standard costs are set and considerable
effort is expended on identifying and rectifying vacancies of actual results against
these budgets and standards. Managing the area of working capital can make the
difference between business survival and business failure.
WORKING CAPITAL MANAGEMENT- THERITICAL FRAME WORK:

This chapter mainly discuss about the different concepts involved in the
working capital management. The emphasis has been given to theoretical back ground
of related items of working capital management viz., meaning of working capital,
kinds of working capital, working capital cycle, components of working capital,
concepts of working capital management, importance of working capital
management, means to improve working capital management, inventory management,
receivables management and possible problems with improved working capital
management.
WORKING CAPITAL:
Working capital is the name given to the “short-term” area of the balance
sheet. Working capital includes the following terms:
 Stock: Stocks are raw materials, partly completed production and finished
goods a waiting sale.
 Debtors: Amounts owed to the company, mainly from customers in respect of
sales made on credit.

 Creditors: Amounts owed by the company, mainly to suppliers of raw

materials, services (electricity, water, telephone, rent etc).
 Cash: Bank balances, cash holdings and short term investments.
Working capital includes the current assets and current liabilities areas
of the balance sheet. Working capital can be called by its alternative name “net
current assets”.
DETERMINANTS OF WORKING CAPITAL:

There are no set rules (or) formulae to determine the working
requirements of a firm. The corporate management has to be consider a number of
factors to determine the level of working capital. The amount of working capital that a
firm would need is affected not only by the factors associated with the firm itself but
also by economic, monetary and general business environment. Among the various
factors, the following are the important ones.
NATURE AND SIZE OF BUSINESS:
The working capital needs of a firm are basically influenced by the
nature of its business. Trading and financial firms generally have low investment is
fixed assets but require a large stock of a variety of merchandise to satisfy the varied
demands of their needs. It may be measured in terms of the scale of operations. A firm
with larger scale of operations will need more working capital than the small one.
MANUFACTURING CYCLE:
The manufacturing cycle starts with the purchase of raw materials and
is completed with the production of finished goods. Since, the manufacturing cycle
involves a longer period; the need for working capital will be more because an
extended manufacturing time span means a larger tie up of funds in inventories.
Any delay at any stage of manufacturing process will result in
accumulation of work in progress and there by enhances the requirement of working
capital.
BUSINESS FLUCTUATIONS:
Seasonal and cyclical fluctuations in demand for a product
considerably effect the working capital requirement, especially, the temporary
working capital requirements of the firm. An upward swing in economy leads to
increased sales, resulting in the enhancement of the firm’s investment in inventory

and receivables (or) book debts. On the other hand, a decline in the economy. Register
a fall in sales and consequently a fall in the levels of stock and debts.
Seasonal fluctuations may also create production problems. Increase in
production level may be expensive during peak periods. A firm that follows a policy
of steady production will utilize its resources to the fullest extent possible in all then
reasons.
This will imply accumulation of inventories in off-season and their
disposal in peak season.
PRODUCTION POLICY:
If a firm follows steady production policy even when the demand is

seasonal. Inventory will accumulate during off-season periods. And there will be
higher inventory costs and risks. If the costs and risks of maintaining a constant
production schedule are high. The firm may adopt the policy of varying its production
schedule in accordance with the changes in dem
TURN-OVER (OR) CIRCULATING CAPITAL:
The speed with which the operating cycle completes its round (i.e.
cash-raw materials-finished products-accounts receivable-cash) plays a decisive role
in influencing the work capital needs.
CREDIT TERMS:
The credit policy of the firm affects the size of working capital by
influencing the levels of the book debts. Though the credit terms granted to customers
in a large measure depend upon the norms and practices of the industry (or) trade to
which the firm belongs, yet it may endeavor to shape its large funds in block debts.
Stock collection procedure may even increase the chances of bad debts. A firm
enjoying liberal credit terms will need less working capital.
GROWTH AND EXPANSION ACTIVITITES:

As a company grows logically, huge amount o working capital is
required. Though it is difficult to state any firm rules, regarding the relationship
between growth in the volume of a firm’s business and its working capital needs, the

fact to recognize is that the need for increased working capital funds may precede the
growth in business activities, rather than following it.
OPERATING EFFICIENCY:
Operating efficiency means optimum utilization of resources. The firm
can minimize its needs for working capital by efficiently controlling its operating
costs. With increased operating efficiency, the use of working capital is improved and
the place of cash cycle is accelerated. Better utilization of resources improves
profitability and helps in relieving the pressure on working capital.
PRICE LEVEL CHANGES:

Generally rising price level requires a higher investment in working
capital. With increasing prices, the same level of current assets need enhanced
investment. How ever, firms, which can immediately increase their products upwards,
need not face serve working capital problems during the periods of rising price levels.
The effects of increasing price levels may however be dealt differently by different
firms due to variations in individual prices. It is possible that some companies may
not be affected by rising prices where as others may be badly hit by it.
IMPORTANCE OF WORKING CAPITAL:

As a discussed earlier, the net working capital of a business is its
current assets less its current liabilities.
CURRENT ASSETS INCLUDE:

 Stocks of raw materials.
 Work in-progress
 Finished goods trade debtors
 Prepayments
 Cash balances
CURRENT LIABILITIES INCLUDE;
 Trade creditors
 Accruals
 Taxation payable

 Dividend payable
 Short-term loans
Every business needs adequate liquid resources in order to maintain day-to-
day cash flow. It needs enough cash to pay wages and salaries as they fall due and to
pay creditors if it is to keep its work force and ensure its supplies.
Maintaining adequate working capital is not just important in the short-term.
Sufficient liquidity must be maintained in order to ensure the survival of the business
in the long-term as well.
Even a profitable business may fail it does not have adequate cash flow to
meet its liabilities as they fall due.
Therefore, when business make investment decisions they must not only
consider the financial outlay involved with acquiring the new machine or the new
building etc, but must also take account of the additional current assets that are
usually involved with any expansion of activity.
Increased production tends to engender a need to hold additional stocks of
raw materials and work in progress. Increased sales usually mean that the level of
debtors will increase. A general increase in the firm’s scale of operations tends to
imply a need for greater levels of cash.
KINDS OF WORKING CAPITAL:

Working capital is classified in to two categories
- fixed (or) permanent working capital
- variable, fluctuating, seasonal, temporary, (or) special working capital
FIXED OR PERMANENT WORKING CAPITAL:

The need for current assets arises because of operating cycle. The
operating cycle is a continuous process and therefore, the need for current asset is felt
constantly but the magnitudes of current assets need not to be always the same. It may
increase or decrease overtime. However, there exists always, a minimum level of
current assets that are being referred as permanent or fixed working capital. It is
permanent in the same way as investment in the firm’s fixed assets.

Temporary
Permanent
FLUCTATION IN WORKING CAPITAL:

Depending upon the changes in production and sales, the need for
working capital over the permanent W.C will fluctuate. The need for working capital
may also vary on account of seasonal changes (or) abnormal (or) unanticipated
conditions. For example, a rise in the price level may lead to increase in the amount of
funds invested in stock of raw materials as well as finished goods. Additional working
capital may be required to face cut throat competition in the market (or) other
contingencies like strikes and lockouts. Any special advertising companies organized
for increasing sales (or) other promotional activities may have to be financed by
additional working capital. The extra working capital needed to support the changing
business activities is called the fluctuating working capital.
Fluctuating
Permanent
Time

WORKING CAPITAL CYCLE:

The working capital cycle can be defined as:
The need of time, which elapse between the point at which, cash beings to
be expended on the production of a product and the collection of cash from a
customer.
The diagram below illustrates the working capital cycle for a manufacturing firm:
Work - in - progress
Raw materials Stock
Finished Goods Stock

Wages & Over heads
Trade Creditors Selling Expenses

Sale
Trade Debtors
CASH
Share
Taxation Holders
Fixed Assets Loan Creditors
Lease payments

The upper portion of the diagram above shows in a simplified form the chain
of events in a manufacturing firm. Each of the boxes in the upper part of the diagram
can be seen as a tank through which funds flow.
These tanks, which are concerned with day to day activities, have
funds constantly flowing into and out of them.
 The chain starts with the firm buying all input materials on credit.
 In due course this stock will be used in production, work will be
carried out on the stock, and it will become a part of the firm’s work in
progress (WIP).
 Work will continue on the WIP until it eventually emerges as the
finished product.
 As production progresses, labor costs and overheads will need to be
met.
 Of course at some stage trade creditors will need to be paid.
 When the finished goods are sold on credit, debtors are increased
 They will eventually pay, so that cash will be injected in to the firm
Each of the areas stocks (raw materials, work in progress and finished
goods), trade debtors, cash (positive or negative) and trade creditors can be viewed as
tanks into and from which funds flow.
Working capital is clearly not the only aspect of a business that affects the
amount of cash:
 The business will have to make payments to government for taxation.
 Fixed assets will be purchased and sold.
 Lesser of fixed assets will be paid their rent.
 Share holders (existing or new) may provide new funds in the form of
cash.
 Some shares may be redeemed for cash.
 Dividends may be paid.
 Long term loan creditors (existing or new) may provide loan finance, loans
will be needed to be repaid from time to time, and
 Interest obligations will have to be met by the business.
Unlike movements in the working capital items, most of these ‘non
working capital’ cash transactions are not every day events. Some of them are annual
events (e.g. tax payments, lease payments, dividends, interest and possibly, fixed asset
purchases and sales). Others (e.g. new equity and loan finance and redemption of old
equity and loan finance) would typically be rarer events.
Taking control of working capital means focusing on its main elements:

Control of the debtors element (the amount owed the business in the
short term) involves a fundamental trade off between the cost of providing credit to
customers (which includes financing bad debts and administration), and the additional
net revenue that can be earned by doing so. The working capital can be kept to a
minimum with effective credit control policies, which will require:
 Setting and enforcing credit terms.
 Setting customers prior to allowing them credit.
 Setting and reviewing individual credit limits.
 Efficient invoicing and statement generation.
 Prompt query resolution.
 Continuous review of debtors position (generating ‘aged debtors’ report)
 Effective chasing and collection procedure; and
 Limits beyond which legal action will be purchased
Before allowing credit to anew customer, customer’s trade and bank
references should be sought. According can be asked for and a report including any
country court judgments against the business and a credit score asked for from a credit
rating business (such as dun and Brad Street).
Sales men views can also be canvassed and the potential customer
visited.
The extent to which will means are called upon will depend on the
amount of the credit sought, the period, past experiences with this customer or trade
sector, and the importance of the business that is involved. But this is not a one off
requirement. One classic fraud is to start off with small amounts of credit, with
invoices being settled promptly, eventually building up to a huge order and a
disappearing customer.
Credit checking, even for established customers, should therefore feature in
the regular procedures.
When the credit worthiness of a new customer is established, positive credit
control calls for the setting of a credit limit, any settlement discounts, the credit period
and credit charges (if any).
The Late Payment of Commercial Debts (interest) Act now allows small
businesses to charge large interest on late payment of business debts by companies
and public sector organizations. From last November they were also able to take

similar action against other small businesses. Nevertheless, it is wise to inform

customers this right will be exercised.
Collection is a vital element of credit control and must include standard, polite
and well-constructed reminder letters and effective telephone or e-mail follows up.
Use of collection agencies should be considered, as could factoring – in its most
comprehensive from a loan facility based on outstanding invoices plus a sales ledger
and debtors control service.
Efficient control of debtors will assist cash flow, and help keep overdraft or
other requirements down, and hence reduce interest costs.
Debtors represent future cash_or they should do if proper credit control
policies are pursued.
Likewise stock will eventually become cash, but in the mean time represents
working capital tied up in the business. Keeping levels to the minimum required for
efficient operations will keep costs down. This means controlling buying, handling,
storing, issuing and recording stock.
Components of working capital:
Current assets:
Current assets are defined as either cash or those assets that can be converted
into cash within the current year. The major components of these current assets are
inventories, account receivables and advances.
Inventories:
These are materials: commodities or goods used in day-to-day operations of
production of in the form of finished goods. These include raw materials, work-in-
progress and finished goods.
Account Receivables:
These are short-term debts owed by company arising from credit and sales
made to customers of the firm.
Advances:
These represent amount paid for which the goods and services have not yet
been rendered, including advances given to suppliers and employees.
Current Liabilities:
Short term Loans: Money borrowed from various banking and non-sources for
banking sources for short periods of time.
Other Liabilities:
These include tax payments due within one year and proposed dividends.

Concepts of Working Capital:

The amount of working capitals to be invested in each category depends on:
a) Cash-to-Cash Cycle: The size or length of time that is number of days required
to get the cash that is invested at the time of commencement of production.
b) Seasonal and permanent working capital needs: The amount required
irrespective of quality of production indicates working capital viz., rent of factory,
wages to the workers, payments to the creditors, etc. during the certain period only,
the required raw material for business is available. In the absence of such bulk
purchases, business may use due benefits due to bulk purchase.
c) Trade-off between liquidity and risk: No doubt the risk is more the benefit.
But in the absence of sale liquidity position, the business will not run to its strengths.
Hence, there should be a balance between liabilities and assets that can be liquidated.
The financing of working capital can be studied under the “hedging”
approach, “conservative” approach and “aggressive” approach or trade-off.
In the “Hedging approach”, or “matching approach”, while the long term
financing will be used to finance fixed assets and permanent current assets, the
fluctuating assets will be used to finance fixed assets and permanent current assets,
the fluctuating assets will be financed by short-term funds. In a growing situation,
permanent financing would be increased in keeping with the increase in the
permanent fund requirements.
A better plan is to adopt “conservative approach” when the previous “hedging
approach” is not possible. The firm under this plan finances its permanent current
assets and a part of temporary fixed assets with long term funds and thus leading to
the storage of liquidity by investing surplus funds in marketable securities during the
period of lack of temporary assets. This is safest way in reducing risk.
WORKING CAPITAL MANAGEMENT:
Most companies concentrate their managerial effort on controlling profit. They

try to increase sales revenue, reduce their production cost and control their overheads.
Operational budgets are drawn up, standard costs are set and considerable effort is
expected on identifying and rectifying variances of actual results against these
budgets and standards.

However, too few companies worry very much about managing another,
possibly equally important, part of their business-the area of working capital
management. But, managing the area of working capital can make the difference
between business survival and business failure.
Many profitable companies fail each year because their management teams
fail to manage the area of working capital. They may be profitable, but they are not
able to pay the bills.
Importance of Working Capital Management:
We will find a running business firm, which does not require some amount of
working capital. Even a fully equipped manufacturing firm is sure to collapse if it
cannot meet any of the following requirements:
a) An adequate supply of raw materials to process.
b) Cash to meet the wage bill
c) The capacity to wait for the market for its finished products and
d) The availability to grant its customers
Similarly, a commercial enterprise is virtually good for nothing without

merchandising to sell working capital. This is the life-blood of a business. As a matter
of fact, any organization whether profit oriented or otherwise, will not be able to carry
on day-to-day operations of a business, a study of working capital and its management
is of importance to individual as well as external analysis. Its being increasingly
realized that the in adequacy or mismanagement of working capital is the leading
cause of business failures. We must not loose sight at the fact that management of
working capital is an integral part of the overall financial management and ultimately
of the over all corporate challenge and shows a welcome opportunity for a financial
manager who is ready to play a pivotal role in his organization.
Neglect of management of working capital may result in technical insolvency
and even liquidation of business unit. Inefficient working capital management may
cause either inadequate or excessive working capital, which is dangerous.
A firm may have to face the following adverse consequences from inadequate
working capital:

1. It may be difficult for the firm to undertaken profitable profits due to non-
availability of funds
2. Implementation of operating plans may become difficult and consequently.
The firm’s profit goals may not be achieved.
3. Fixed assets may not be efficiently utilized due to lack of working capital.
Thus lowering the rate of returns on investments.
4. Operating inefficiency may creep in due to difficulties in meeting day-to-day
commitment.
5. A firm looses its reputation, when it is not position to honor its short-term
obligations and results, it may have to face tight credit terms.
6. It may loose alternative credit opportunities.
On the other hand, excessive working capital may have the following problem:
1. Excessive working capital may result in unnecessary accumulation of
inventories, there by increasing the chances of inventory misleading, waste
and theft.
2. Excessive working capital may make management coalescence leading
eventually to management in efficiency.
3. It may also provide undue incentives for adopting too liberal a credit policy
and stacking of collecting receivables, causing a higher incidence of bad debts.
This adversely effect on profits.
4. It may encourage the tendency to accumulate inventories for making
speculative profits
Meaning to improve working capital management:

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

 Increase in sales without increasing inventory, receivables or bank

financing.
 Reduction in receivables, inventory or banking financing while
maintaining sales at their current levels.
2. A defensive move is to construct format contingency plan to combat working
capital shortages that might happen unexpectedly by following ways:
 By notifying company bankers and closely listing available collateral
fixed assets available for sale and lease_back transactions.
 By developing list of inventory_either raw materials or finished goods
that could be sold enhance cash quickly.
 By developing a lit of vendors willing to grant mere liberal terms in
credit crunches.
Investing surplus cash to earn interest. The investment should be done after
defining the objectives and ruling the benefits, seeking in an order of ranking,
security, maturity, liquidity, and yield.
Benefits of Working Capital Management:

Create an effective, company wide working capital management system.
2. Handle cash flows more efficiency.
3. Develop successful strategies for short_term liquidity.
4. Enhance the conversion of accounts receivable to cash.
5. Find out how different purchasing approaches affect accounts payable and
cash management.
6. Measure and control the costs of your company’s working capital
management.
7. Apply a global approach to working capital management, incorporating major
foreign subsidiaries into your system value added conversion work in
progress.

Even profitable companies fail if they have inadequate cash flow. Liabilities are
settled with cash not profits. The primary objective of working capital management is
to ensure that sufficient cash is available to:
A. Meet day-to-day cash flow needs.
B. Pay wages and salaries when they fall due.
C. Pay creditors to ensure continued supplies of good and services.
D. Pay government taxation and providers of capital-dividends and
E. Ensuring the long-term survival of the business entity.
CHAPTER-IV
DATA ANALYSIS
AND
INTERPRETATION
DATA ANALYSIS AND INTERPRETATION
In this chapter an analysis of working capital management in BHART HEAVY
ELECTRYCALS LIMITED by using certain management accounting tools viz., changes
in working capital & ratio analysis. Further a study on the practice followed in BHARAT
HEAVY ELECTRIALS LIMITED in respect of inventory management, cash
management, receivables management etc., is made. As a part of getting realistic
substantiation and to show the practical attitude of the analysis of the management, the

projected data pertaining of financial year 2008-09 is also considered for the analysis
wherever required. But due to non-availability of sufficient time, the projections could
not be compared with the actual.
Changes in Working Capital:
It is natural for any organization to compare its performance with different
dimensions. There are certain practices recommended by management experts basing on
the mode of comparison. For example, to compare the performance of different
organizations of same industry, a popularly known tool called common size statement
analysis is used. Similarly, to compare a firm’s performance with its earlier performance,
a tool named financial statement analysis is used. Among this financial statement analysis
techniques, funds flow statement, cash flow statement are most popular for their over all
analysis of the financial records available.
Under funds flow statement analysis, study of the changes in working capital is
studied. Being this study is the fundamental for the analysis from the point of view
working capital, it is studied the information of KCH Indian Private Ltd company
covering the period from 2008-2009 to 2012-13 and details are furnished below:
Table 1
Statement of changes in working capital for the year 2008-09 to 2009-10:
Rs. In million
Particulars 2008-09 2009-10 Increase Decrease
CURRENT ASSETS
Inventories 4374.40 5660.60 1286.20
Sundry debtors 8455.80 8488.00 32.20
Cash & bank balance 84.50 95.70 11.20
Other current assets 0.00 0.00 0.00
Loans & advances 1428.70 1285.90 142.80
Inter unit balances(net) 386.90 0.00 386.90

SUB TOTAL(A) 14730.30 15530.20
CURRENT LIABILITIES
Sundry creditors 1948.40 2254.30 305.90
Advances from customers 2911.60 2882.20 29.40
Other liabilities 429.40 455.00 25.60
Provisions 1084.30 837.60 246.70
Inter unit balance(net) 0.00 1718.00 1718.00
SUB TOTAL(B) 6373.70 8147.10
NET WORKING
8356.60 7383.10
CAPITAL(A-B)
INCREASE/DECREASE IN
973.50 373.50
WORKING CAPITAL
8356.60 8356.60 2579.20 2579.20
On the observing the above working capital calculations for the year 2008-
2009, we can notice that the WC is decreased by 11.65% compared to the previous
financial year.
There is no overall increase of 5.43% in total current assets during the year
2009-10 when compared to the previous financial year. This is due of the increase
inventory, sundry debtors, cash & bank with 29.04%, 0.30% & 13.25% respectively.
But there is a decrease in loans & advance, inter unit balances by 10.00% & 100%
respectively.
There is no overall increase of 27.83% in total current Liabilities during the
year 2009-10 when compared to the previous financial year. This is due to decrease of
provision advances from customers, by 22.75% & 1.01% respectively.
Table 2
Rs. In million
CURRENT ASSETS
Inventories 5660.60 5813.00 152.40
Sundry debtors 8488.00 8500.10 12.10
Other current assets 0.00 0.00
Loans & advances 1285.90 1179.30 109.60
Inter unit balances(net) 0.00 0.00
SUB TOTAL(A) 15530.20 15579.30
CURRENT LIABILITIES
Provisions 837.60 893.00 55.40
SUB TOTAL(B) 8147.10 7449.00
NET WORKING
7383.10 8130.30
CAPITAL(A-B)
Increase/Decrease In Working
747.20 747.20
Capital
8130.30 8130.30 1918.90 1918.90
On observing the above working capital calculations for the year 2010-11, we
can notice that the WC is increased by 10.12% compared to the previous financial
year.
There is an overall increase of 0.31% in total current assets during the year
2010-11 when compared to the previous financial year, in spite of the decrease in cash
& bank, loans & advance by 6.06% & 8.52% respectively and increase in inventory,
and sundry debtors by 2.69% & 0.14% respectively. There is on overall decrease of
8.56% in total current liabilities during the year 2010-11, when compared to the
previous financial year. This is due to decrease of other liabilities and inter unit
balance by 37.93% & 92.07% respectively.
Table 3
Rs. In million
CURRENT ASSETS
Inventories 5813.00 7254.00 1441.00
Sundry debtors 850.10 8123.70 376.40
Loans & advances 1176.30 1161.20 15.10

SUB TOTAL(A) 15579.30 16743.60
CURRENT LIABILITIES
Provisions 893.00 1514.00 621.00
SUB TOTAL(B) 7449.00 7442.70
NET WORKING
8130.00 9300.90
CAPITAL(A-B)
1170.60
Capital
9300.90 9300.90 2266.80 2266.80
can notice that the WC is increased by 14.14% compared to the previous financial
year.
There is an overall increase of 7.43% in the total current assets during the year
2011-12 when compared to the previous financial year, in spite of the decrease in
sundry debtors, loans & advance by 4.42% & 1.28% respectively and increase in
inventory cash & bank, by 27.43%, 42.38% respectively.
There is on overall decrease of 0.08% in the current liabilities during the year
2011-12, when compared to the previous financial year. This is due to decrease of
sundry creditors, other liabilities, inter unit balances by 17.80%, 16.07% & 100%
respectively.
Table 4
Rs. In million
CURRENT ASSETS
Inventories 7254.00 6324.60 929.40
Sundry debtors 8123.70 8282.90 159.20
Loans & advances 1161.20 910.40 250.80


SUB TOTAL(A) 16743.60 18577.80
CURRENT LIABILITIES
Provisions 1514.00 1683.80 169.80
Inter unit balance(net) 0.00 0.00
SUB TOTAL(B) 7442.70 8498.90
NET WORKING
9300.90 10078.90
CAPITAL(A-B)
778.00
Capital
1078.90 10078.90 3493.00 3493.00
can notice that the WC is increased by 0.83% compared to the previous financial year.
There is an overall increase of 10.95% in the total current assets during the
year 2012-13 when compared to the previous financial year, in spite of the decrease in
inventory cash & bank, loan & advance by 12.81%, 63.04% & 21.59% respectively.
There is on overall increase of 14.19% in total current liabilities during the
year 2012-13, when compared to the previous financial year. This is due to increase of
advance from customers, other liabilities, and provisions by 36.83%, 37.21% &
11.21% respectively.
Ratio Analysis of KCH Indian Private Ltd:

 CURRENT RATIO
Current ratio = Current asset
Current liabilities
CURRENT RATIO:
Table 5
YEAR Current Assets Current Liabilities Current Ratio
2008-09 14730.00 6373.70 2.11
2009-10 15530.20 8147.10 1.90

2010-11 15579.30 7449.00 2.09

2011-12 16736.00 7442.70 2.14
2012-13 18577.80 8498.90 2.28
INTERPRETATION:
The current ratio of a firm measures its ability to meet short-term obligations
or in other words it measures the short-term solvency of a firm. The current ratio of
2:1 is considered satisfactory.
In context of KCH Indian Private Ltd, Chennai the current ratio is more than
standard. It is in increasing trend from 2008-09 to 2010-12.
ACID-TEST OF QUICK RATIO:

Acid test ratio = Quick assets
Current liabilities
Table 6
YEAR Quick Assets Current Liabilities Acid test ratio
2008-09 10355.90 6373.70 1.62
2009-10 9869.60 8147.10 1.21
2010-11 9766.30 7449.00 1.31
2011-12 9489.60 7442.70 1.27

2012-13 12253.20 8498.90 1.44
INTERPRETATION:
Quick ratio is referred to as a firm’s ability to convert assets quickly into cash
in order to meet its current liabilities. Thus, it is a measure of quick liquidity.
The quick ratio is a rigorous measure of a ability to service short term
liabilities. Generally a quick ratio of 1:1 is considered satisfactory as a firm can easily
meet all current claims.
In context of KCH Indian Private Ltd, the quick ratio is not up to the standard
in the years 2008-09 & 2012-13. But it was above the standard in the remaining years.
It is good sign to the company that the liquid assets are fastly converted in to cash.
TURNOVER RATIO:
INVENTORY TURNOVER RATIO:
Inventory turnover ratio = Sales
Inventory
INVENTORY TURNOVER RATIO: Table 7

YEAR Turnover Inventory Inventory turnover
ratio
2008-09 13226.40 4374.40 2.02

2009-10 13197.20 5660.60 2.33

2010-11 15320.40 5813.00 2.63
2011-12 13783.80 7254.00 3.99
2012-13 17449.00 6324.60 4.15
INTERPRETATION:
The inventory turnover ratio measures how quickly the inventory is sold. It is
a test of efficient inventory management. In general, a high inventory ratio is better
than a low ratio. A high ratio implies good inventory management. Similarly a very
low inventory turnover ratio is dangerous. It signifies excessive inventory or over
investment in inventory. Thus, a firm should have neither too high nor too low
inventory turnover ratio so as to avoid both stock out costs associated with a high
ratio and the cost of carrying excessive inventory with a low ratio. The inventory
turnover ratio is very good, as it is increasing year by year. Which shows fast
conversion of inventory into cash? The ratio is very high in the year 2012-13.
DEBTORS TURNOVER RATIO:

Debtors turnover ratio = Net credit sales
Average debtors
DEBTORS TURNOVER RATIO: Table 8

YEAR Turnover Average Debtors Ratio
2008-09 13226.40 8455.80 1.69

2009-10 13197.20 8488.00 1.55

2010-11 15320.40 8500.10 1.80
2011-12 13783.80 8123.70 1.95
2012-13 17449.00 8282.90 2.12
INTERPRETATION:
This ratio indicates the speed with which accounts receivable are being
collected. The higher the turnover ratio and the shorter the average collection period,
the better is the trade credit management and the better is the liquidity of the debtors,
as short collection period and high turnover ratio imply prompt payment on the part of
debtors. On the other hand, low turnover ratio and long collection period reflect delay
payment by debtors.
Receivables of KCH was high in the year 2012-13 but there is sudden fall in
the successive years due to debtors are not to pay the amount back so proper care
should be taken in case of debtors. In the projected year it is decreased where
compared to preceding year.
]
CREDITORS TURNOVER RATIO:
Creditors turnover ratio = Net credit purchases
Average creditors

YEAR Purchases Average Creditors Ratio
2008-09 6249.00 1666.70 3.74

2009-10 7788.80 2101.40 3.70

2010-11 7629.10 2614.10 2.91
2011-12 6967.20 2709.20 3.57
2012-13 7552.10 2245.55 4.36
INTERPRETATION:
A low turn over ratio reflects liberal credit term granted by suppliers, while a
high ratio shows that accounts are to be settled rapidly. The creditor’s turnover ratio is
an important tool of analysis as a form can reduce its requirement of current assets by
replying on supplier’s credit.
Here the creditors turnover ratio was at 3.74 in 2008-09, but has decreased to
2.57 in 2011-12 and again increased to 3.36 in the preceding years. From this we can
say the management is taking efficient use of working capital by extending the
payment to the creditors.
NET PROFIT MARGIN:

1. Operating profit ratio = Earnings before interest taxes (EBIT)
Sales
2. Net Profit Ratio = Earnings after interest and taxes (EAT)

Sales

YEAR EBIT Sales Ratio

2008-09 2145.00 10452.90 0.02
2009-10 713.90 11835.30 0.06
2010-11 1349.80 11848.70 0.11
2011-12 1342.80 11998.40 0.16
2012-13 1582.10 13629.00 1.01
INTERPRETATION:
The Operating Profit ratio of KCH Indian Private Ltd is in an increasing trend.
It was at 0.20 in the year 2008-09 and was decreased at 0.06 in the years 2009-10. In
the years 2010-11 and 2011-12 it was constant at 0.11 times in the 2012-13 it was
increased 0.12

CHAPTER – V
FINDINGS
&
SUGGESTIONS
FINDINGS

 On observing the changes in WC from the years 2008-09 to 2012-13, it has

been noticed that expect for the year 2011-12, remaining all years the working
capital of the company was increasing year by year.
 The current ratio reveals that the company can make its short term obligations
at any given point of time. Trough ratio of 2:1 is considered satisfactory. The
research reveals that the company current ratio is above the standard.
 It has been observed from the research that quick ratio had been above the
standard ratio.
 The inventory turnover indicates that conversion of inventory into cash is not
very fast through out study. Its inventory holding period was more than four
months.
 As per the debtors turnover ratio it is observe that the debts are not collecting
rapidly from as the debt collection period is 205 days.
 It has been observed that the creditors are not paid on time during study
period. As the creditors payment period was more than three months.
 Cash management of KCH Indian Private Ltd is very good in all the years
except for the year 2012-13. Cash is properly utilized for the operations of the
company.
 Inventory management reveals that most of the stock is in the form of raw
materials and finished goods. It means that the raw materials are converted
into finished goods.
 Inventory management reveals that most of the stock is in the form of raw
materials and finished goods. It means that the raw materials and finished
goods are not converted into immediately.
SUGGESTIONS

 The net working capital of KCH is good. But the company’s working capital
turnover ratio shows the utilization of working capital is not satisfactory. It is
suggested that the company should concentrate on the management of current
assets and current liabilities more effectively.
 The debtors constitute 50% of the total current assets. To the company this is
difficult to manage to the account receivables of the company should collect
the debts as quickly as possible. Company’s average collection period of
debtors is not satisfactory, so the company has to revise its credit policy.
 The liquidity position of the company is satisfactory. Even though the
company current ratio is more than standard norm, if the sales orders increased
the liquidity position is sufficient.
 As inventory holding period is more than four months. So the company has
take necessary steps to reduce the investment in investor by accurately
forecasting sales.
 Step should also be taken to reduce the scrap, which has been increasing over
the years. Necessary measure should be taken for the disposal of the scrap as
soon as possible.
 It should also be appealed to the Government that aid is granted directly to the
KCH. With regard to Electricity Broads and other public sector units so that
the previous debts can be cleared off.
CONCLUSIONS

From the analysis about the working capital at KCH India Private Ltd
conclude in spite of all suggestions, the company has to reduce its production cost to
increase Gross profit.
The concern has efficient management. But contribution of inventory towards
working capital was decreased. The company has maintaining stock to revise its credit
policy to increase the sales in future. But a little more care may be taken in managing
the various aspects of working capital management. Hence the suggestions given are
realistic which would lad to increase in the profitability of the company.
BIBLIOGRAPHY

BOOK/RESOURCE AUTHOR
FINANCIAL MANAGEMENT I.M.PANDEY
FINANCIAL MANAGEMENT KHAN&JAIN
FINANCIAL MANAGEMENT S.N.MAHESWARY
MANAGEMENT ACCOUNTENCY Dr. N. THIRUPALU
WEBSITE WWW.KCHCHENNAI.COM
WWW.STUDYFINANCE.COM
WEBSITE:
www.google.com
www.wekipedia.com

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WORKING CAPITAL MANAGEMENT

S.D.G.S COLLEGE, HINDUPUR Page 1

The Chemical Industry comprises the companies that produce industrial

The traditional dominance of chemical production by the Triad countries is

As accepted by chemical engineers, the chemical industry involves the use of

S.D.G.S COLLEGE, HINDUPUR Page 2

Product Type Examples

Although the pharmaceutical industry is often considered a chemical

Chemical processes such as chemical reactions are used in chemical plants to

S.D.G.S COLLEGE, HINDUPUR Page 3

Companies in 21st century

S.D.G.S COLLEGE, HINDUPUR Page 4

COMPANY PROFILE OF KCH INDIA PVT LTD

KCH is the largest manufacturing enterprise in India in the energy

KCH India Pvt ltd manufacturers and market specialty maintenance

CHEMSEARCH PRODUCT RANGE

The CHEMSEARCH division caters to all kinds of industries and provide

S.D.G.S COLLEGE, HINDUPUR Page 5

committed to enhance stockholders value. The company is striving to give to shape to

KCH’s contribution to words corporate social responsibility till date include

S.D.G.S COLLEGE, HINDUPUR Page 6

privileged and Handicapped children, ban on child labour, disaster/natural calamity

KCH-HEALTH, SAFETY &ENVIRONMENTAL POLICY

KCH shares the growing concern on issue related to environment and

S.D.G.S COLLEGE, HINDUPUR Page 7

KCH’s commitment to environmental issues can be seen as an integral part of

Ratio analysis of KCH Indian private ltd

S.D.G.S COLLEGE, HINDUPUR Page 8

ACID-TEST OF QUICK RATIO:

Another way of examining the liquidity is to determine how quickly certain

S.D.G.S COLLEGE, HINDUPUR Page 9

DEBTORS TURNOVER RATIO

Importance of Cash Management:

S.D.G.S COLLEGE, HINDUPUR Page 10

CASH MANAGEMENT OF KCH PVT. LTD

The cash/bank shall be under the charge of an official of finance and

S.D.G.S COLLEGE, HINDUPUR Page 11

opening of bank account:

Bank account in foreign countries:

S.D.G.S COLLEGE, HINDUPUR Page 12

Objectives of receivables management:

S.D.G.S COLLEGE, HINDUPUR Page 13

S.D.G.S COLLEGE, HINDUPUR Page 14

NEED OF THE STUDY

The study is confined to examine the inventory management, receivables

OBJECTIVE OF THE STUDY

 To examine the feasibility of present system of managing cash, debtors and

 To analyze the performance of the company to reference to its working capital

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1. The study is based on the working capital analysis only.

2. The source of the study is limited to 5 years from 2010-11 to 2011-12.

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WORKING CAPITAL INTRODUCTION

WORKING CAPITAL MANAGEMENT- THERITICAL FRAME WORK:

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 Creditors: Amounts owed by the company, mainly to suppliers of raw

DETERMINANTS OF WORKING CAPITAL:

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

GROWTH AND EXPANSION ACTIVITITES:

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PRICE LEVEL CHANGES: