sagar working capital management project

A PROJECT REPORT

ON

A STUDY OF WORKING CAPITAL MANAGEMENT

IN KANSAI NEROLAC PAINTS LIMITED

Submitted by

SAGARKUMAR ASHOKLAL BORA

In Partial Fulfillment of the

MASTERS DEGREE OF COMMERCE

Under The Guidance of

DR. G. P. SATAV

Submitted to

University of Pune

Through

Mamasaheb Mohol Mahavidyalaya

(Arts, Commerce and Science)

48/1, Erandwana, Paud Road,

Pune 411038

YEAR : 2013-14

Declaration by Student

I hereby declare that the project report titled “A Study of Working Capital

Management in Kansai Nerolac Paints Limited” has been prepare and submitted by

me in the partial fulfillment of the Master Degree of Commerce curriculum as per the

rules of University of Pune.

This report is based on my original research. This report gives clear idea about

Working Capital position of company. All attempts have been made to present authentic

and real information about the company and its Working Capital position.

Date: 01/05/2014

Place: Pune Sagarkumar Ashoklal Bora

Acknowledgement

It is a matter of great satisfaction and pleasure to present this report on “Working

Capital Management in Kansai Nerolac Paints Limited” I take this opportunity to

owe my thanks to all those involved in my research.

I would like to thank our Principal Dr. G. P Satav M.com., Ph.D. and HOD Dr. Mahendra

Avaghade Ph.D. for giving necessary support during the course.

I would like to thank Kansai Nerolac Paint Limited for giving the opportunity to

complete my project in the company. I put on record my sincere thanks to my college,

Mamasaheb Mohol Collage, Paud Road, Pune - 38 for giving me such an opportunity.

I am proudly indebted to my Project Guide Prof. Dr. G. P Satav for all her support and

guidance towards the completion of my project

I avail this opportunity to give my thanks to Mr. Bipin Pandit Admin Head and Tushar

Patil- Accounts Executive, Finance Dept. for guiding me at every stage in my project. In

spite of their busy schedule they took out the time to answer my queries patiently and

helped me throughout the project.

My sincere thanks to all staff of Kansai Nerolac Paints . Industries for all the cooperation

and assistance to me at any time without which the project would have been incomplete.

Sagarkumar Ashoklal Bora

Date & Ref. no.

CERTIFICATE

This is certified that Mr. Sagarkumar Ashoklal Bora is currently

pursuing M.Com. (Advanced Cost Accounting and Cost Systems), has

successfully completed the project on the topic “A study of Working

Capital Management in Kansai Nerolac Paint Limited.” under the

guidance of Principal Dr. Satav G. P. The Project is submitted in partial

Fulfillment of the requirement of the M.Com. Course as prescribed by the

University of Pune.

Name of the Course : The Masters Degree of Commerce

Name of the Company : Kansai Nerolac Paints Limited

Title of the Project :A Study of Working Capital

Management in Kansai Nerolac Paint Ltd

Academic Year : 2013-2014

Dr. Avaghade M. R. Prin. Dr. Satav G. P.

Project Guide Principal

Mamasaheb Mohol Collage

External Examiner

20 t h Apr i l , 2014

TO WHOM IT MAY CONCERN:

Th is is to cer t i fy that Sagar Ashok la l Bora , a s tudent o f

Mamasaheb Mohol Co l lege - Arts , Commerce and Sc ience,

has success fu l ly comple ted h is project t i t led “A Study

of Working Capital Management” on our company,

w i th re fe rence to the par t ia l fu l f i l lment o f the

requ irements o f the Master Degree o f Commerce , Pune

Un ivers i ty.

A l l necessary deta i ls were prov ided f rom our s ide for

the es tab l ishment o f th is Pro ject .

We wish h im the very bes t in a l l h is fu ture endeavours .

Thank ing You,

With Regards ,

For Kansa i Nero lac Pa in ts L imited,

Accounts Execut ive

Index

Sr. No. Chapter Name Page No.

1 Introduction 1-21

2 Company Profile 22-31

3 Research Methodology 32-35

4 Data Analysis and Interpretation 36-57

5 Findings, Conclusion and suggestion 58-60

Bibliography

Annexure 61

Index

Sr. No. Contents Page No.

1 Introduction

1.1. Meaning and Definition

1.1.1. Meaning

1.1.2. Definition

1.2. Concept of Working Capital

1.2.1. Gross Working Capital

1.2.2. Net Working Capital

1.3. Need of Working Capital

1.4. Working Capital Cycle

1.5. Factors Affecting Working Capital Requirement

1.5.1. Nature of Business

1.5.2. Length of Production Cycle

1.5.3. Size and Growth of Business

1.5.4. Business / Trade Cycle

1.5.5. Term of Purchase and sales

1.5.6. Profitability

1.5.7. Operating Efficiency

1.6. Financing the Working Capital Requirement

1.6.1. Fixed or Permanent Working Capital

1.6.2. Variable or Temporary Working Capital

1.7. Measurement of Working Capital

1.8. Working Capital Management

1.8.1. Cash Management

1.8.2. Inventory Management

1.8.3. Receivables Management

1.9. Consequence of Under Assessment Of W. Capital

1.10. Consequence of Over Assessment Of W. Capital

1.11. Tips for Managing Working Capital

1-21

2 Company Profile

2.1 Company description

2.2 About Nerolac & Kansai

2.3 The Kansai Nerolac Thimeline

2.4 Code of Conduct

2.5 Corporate Values

2.6 Management & Key People

2.6.1 Board of Directors

2.6.2 Key People

2.7 Product

2.8 Company Analysis

22-31

3 Research Methodology

3.1 Introduction of the Study

3.2 Objective of the Study

3.3 Scope of the Study

3.4 Importance / Significance of Project

3.5 Source of Research Data

3.5.1 Primary Data

3.5.2 Secondary Data

3.6 Limitation of Study

3.7 Tools Used For Analysis of Data

32-35

4 Data Analysis and Interpretation

4.1 Net Working Capital

4.2 Statement Showing Changes in Working Capital

4.3 Ratio Analysis

4.3.1 Liquidity Ratio

4.3.2 Turnover Ratio

36-57

5 Findings, Conclusion and suggestion 5.1 Findings 5.2 Conclusions 5.3 Suggestions

58-60

Bibliography

Annexure

61

- List of Tables -


4.1 Net Working Capital 36

4.2 Changes in Working Capital for the Year 2009-2010 38




4.6 Current Ratio 43

4.7 Quick Ratio 44

4.8 Inventory Turnover Ratio 47

4.9 Inventory Holding Period 48

4.10 Debtors Turnover Ratio 50

4.11 Debtors Collection Period 51

4.12 Creditors Turnover Ratio 53

4.13 Creditors Payment Period 54

4.14 Working Capital Turnover Ratio 56

- List of Graph -


4.1 Net Working Capital 37

4.2 Current Ratio 43

4.3 Quick Ratio 45

4.4 Inventory Turnover Ratio 47

4.5 Inventory Holding Period 49

4.6 Debtors Turnover Ratio 50

4.7 Debtors Collection Period 52

4.8 Creditors Turnover Ratio 53

4.9 Creditors Payment Period 55

4.10 Working Capital Turnover Ratio 56

1

Chapter - 1

Introduction

1.1. Meaning and Definition 1.1.1. Meaning 1.1.2. Definition

1.2. Concept of Working Capital 1.2.1. Gross Working Capital 1.2.2. Net Working Capital

1.3. Need of Working Capital 1.4. Working Capital Cycle 1.5. Factors Affecting Working Capital Requirement

1.5.1. Nature of Business 1.5.2. Length of Production Cycle 1.5.3. Size and Growth of Business 1.5.4. Business / Trade Cycle 1.5.5. Term of Purchase and sales 1.5.6. Profitability 1.5.7. Operating Efficiency

1.6. Financing the Working Capital Requirement 1.6.1. Fixed or Permanent Working Capital 1.6.2. Variable or Temporary Working Capital

1.7. Measurement of Working Capital 1.8. Working Capital Management

1.8.1. Cash Management 1.8.2. Inventory Management 1.8.3. Receivables Management

1.9. Consequence of Under Assessment Of W. Capital 1.10. Consequence of Over Assessment Of W. Capital 1.11. Tips for Managing Working Capital

2

1.1. Meaning and Definition: 1.1.1 Meaning:

Working Capital is the amount of capital that a business has available to meet the

day-to-day cash requirements of its operations. It is concerned with the problem arise in

attempting to manage the current assets, the current liabilities and the inter relationship

that exist between them. Working Capital is the difference between resources in cash or

readily convertible into cash and organizational commitments for which cash will soon be

required or within one year without undergoing a diminution in value and without

disrupting the operation of the firm. It also refers to the amount of current Assets that

exceeds current Liabilities.

What is Working Capital?

Working capital refers to the investment by the company in short terms assets

such as cash, stock, receivable, marketable securities. It is also called as net working

capital. Net current assets or net working capital refers to the current assets less current

liabilities.

In Accounting:

Working Capital / Net Current Assets = Current Assets - Current Liabilities.

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1.1 Working Capital

1.1.2 Definitions:

a) Weston & Brigham:-

“Working capital refers to a firm’s investment in short-term assets cash, short term

securities, accounts receivables, inventories etc”.

b) Mead Mallott & Field:-

“Working capital means current assets”.

c) Bonnerille:-

“Any acquisition of funds which increases the current assets increases working

capital for they are one and the same”.

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1.2. Concepts of Working Capital:

There are two concept of working capital –

Gross working capital

Net working capital

�� Gross working capital:

Gross working capital refers to gross current assets. Current assets are the assets,

which can be converted into cash with in a financial year.

�� Net working capital:

Net working capital refers to the difference between current assets and current

liabilities and this is more acceptable connotation of the term working capital.

The term current assets refers to those assets held by the business which can be converted

into cash within a short period of time of say one year without reduction value. The main

types of current assets are stock, receivables and cash. The term current liabilities refer to

those liabilities, which are to be paid off during the course of business, within a short

period of time say one year. They are expected to be paid out of current assets or earnings

of business. The current liabilities mainly consist of sundry creditors, bills payables, bank

over draft, outstanding expenses etc.

1.3. Need of working capital:

Working capital may be regarded as the lifeblood of the business. Without

insufficient working capital, any business organization cannot run smoothly or

successfully. In the business, the Working Capital is comparable to the blood of the

human body. Therefore, the study of working capital is of major importance to the

internal and external analysis because of its close relationship with the current day-to-day

operations of a business. The inadequacy or mismanagement of working capital is the

leading cause of business failures.

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The need of gross working capital or current assets cannot be overemphasized.

The object of any business is to earn profits. The main factor affecting the profits is the

magnitude of sales of the business. But the sales cannot be converted into cash

immediately. There is a time lag between the sale of goods and realization of

cash. There is a need of working capital in the form of current assets to fill

up this time lag. Technically, this is called as operating cycle or working capital cycle,

which is the heart of need for working capital. This working capital cycle can be

described in the following words.

If the company has a certain amount of cash, it will be required for purchasing the

raw material though some raw material may be available on credit basis. Then the

company has to spend some amount for labour and factory overheads to convert the raw

material in work in progress, and ultimately finished goods. These finished goods when

sold on credit basis get converted in the form of sundry debtors. Sundry debtors are

converted in cash only after the expiry of credit period. Thus, there is a cycle in which the

originally available cash is converted in the form of cash again but only after following

the stages of raw material, work in progress, finished goods and sundry debtors. Thus,

there is a time gap for the original cash to get converted in form of cash again. Working

Capital needs of company arise to cover the requirement of funds during this time gap,

and the quantum of working capital needs varies as per the length of this time gap.

Thus, some amount of funds is blocked in raw materials, work in progress,

finished goods, sundry debtors and day-to-day requirements. However, some part of these

current assets may be financed by the current liabilities also. E.g. some raw material may

be available on credit basis, all the expenses need not be paid immediately, workers are

also to be paid periodically etc. But still the amounts required to be invested in these

current assets is always higher than the funds available from current liabilities. This is

precise reason why the needs for working capital arise.

1.4. Working Capital Cycle

Working capital cycle indicates the length of time between a firm’s paying for

materials entering into stock and receiving the cash from sale of finished goods. In a

manufacturing firm, the duration of time required to complete the sequence of events is

called operating cycle.

In case of a manufacturing company, the operating cycle is the length of time necessary

to complete the following cycle of events

a) Conversion of cash into raw materials

b) Conversion of raw materials into work

c) Conversion of

d) Conversion of finished goods into accounts receivables

e) Conversion of accounts receivable into cash

The working capital cycle is

6

Working Capital Cycle:




lled operating cycle.


to complete the following cycle of events –

Conversion of cash into raw materials

Conversion of raw materials into work-in-progress

Conversion of work-in-progress into finished goods

Conversion of finished goods into accounts receivables

Conversion of accounts receivable into cash

The working capital cycle is shown below:

1.2 Working Capital Cycle





7

The above operating cycle is repeated repeatedly over the period depending upon the

nature of the business and type of product etc. the duration of the operating cycle for the

purpose of estimating working capital is equal to the sum of duration allowed by the

suppliers.

Fund required & acquired by a business may be invested in two types of assets.

Fixed Assets

Current Assets

Fixed assets are those assets, which yield the return in the due course of time. The

various decisions like in which fixed assets funds should be invested and how much

should be invested in the fixes assets can be said to fixed capital management. Another,

types of assets is equally important i.e. Current Assets. These types of assets are required

to ensure and fluent business operation and can be said to be lifeblood of business.

From the Financial management point of view, the nature of fixed assets and current

assets differ from each other--

1) The fixed assets are required to be retaining in the business over a period and they

yield the returns over their life, whereas the current assets loose their identity over

a short period, say one year.

2) In the case of current assets, it is always necessary to strike a proper balance

between the liquidity and profitability principles, which is not the case with fixed

assets. E.g. If the size of current assets is large, it is always beneficial from the

liquidity point of view as it ensures smooth and fluent business operations.

Sufficient raw material is always available to cater to the production needs,

sufficient finished goods are available to cater to any kind of demand of

customers, liberal credit period can be offered to the customers to improve the

sales and sufficient cash is available to pay off the creditors and so on.

8

However, if the investment in current assets is more than what is ideally required,

it affects the profitability, as it may not be able to yield sufficient rate of return on

investment. On the other hand, if the size of current assets is too small, it always involves

the risk of frequent stock out, inability of the company to pay its dues in time etc. As

such, the investment in current assets should be optimum. Hence, it is necessary to

manage the individual components of current assets in a proper way. Thus, working

capital management refers to proper administration of all aspects of current assets and

current liabilities. Working Capital Management is concerned with the problems arising

out of the attempts to manage current assets, current liabilities and inter-relationship

between them. The intention is not to maximize the investment in working capital nor is

it to minimize the same. The intention is to have optimum investment in working capital.

In other words, it can be said that the aim of working capital management is to have

minimum investment in working capital without affecting the regular and smooth flow of

operations. The level of current assets to be maintained should be sufficient enough to

cover its current liabilities with a reasonable margin of safety. Moreover, the various

sources available for financing working capital requirements should be properly managed

to ensure that they are obtained and utilized in the best possible manner.

9

1.5. Factors Affecting Working Capital Requirement:

The amount of working capital required depends upon a number of factors which can be

stated as below:

1.5.1 Nature of Business:

Some businesses are such, due to their very nature, that their requirement of fixed

capital is more rather than working capital. These businesses sell services and not

the commodities and not the commodities and that too on cash basis. As such, no

funds are blocked in piling inventories and also no funds are blocked in

receivables. E.g. Public utility services like railways, electricity boards,

infrastructure oriented projects etc. Their requirement of working capital is less.

On the other hand, there are some business like trading activity, where the

requirement of fixed capital is less but more money is blocked in inventories and

debtors. Their requirement of the working capital is more.

1.5.2 Length of Production Cycle:

In some business like machine tool industry, the time gap between the

acquisitions of raw material till the end of final production of finished product

itself is quite high. As such more amounts may be blocked either in raw materials,

or work in progress or finished goods or even in debtors. Naturally, their needs of

working capital are higher. On the other hand, if the production cycle is shorter,

the requirement of working capital is also less.

1.5.3 Size and Growth of Business:

In very small companies, the working capital requirements are quite high

overheads, higher buying and selling costs etc. As such, the medium sized

companies positively have an edge over the small companies. But if the business

starts growing after a certain limit, the working capital requirements may be

adversely affected by the increasing size.

10

1.5.4 Business / Trade Cycles:

If the company is operating in the period of boom, the working capital

requirements may be more as the company may like to buy more raw material,

may increase the production and sales to take the benefits of favorable markets,

due to the increased sales, there may be more and more amount of funds blocked

in stock and debtors etc. Similarly, in case of depression also, the working capital

requirements may be high as the sales in terms of value and quantity may be

reducing, there may be unnecessary piling up of stocks without getting sold, the

receivables may not be recovered in time etc.

As such, in both these two extreme situation of business/trade cycles, the working

capital requirement may be high.

1.5.5 Terms of Purchase and Sales:

Sometime, due to competition due to competition or custom, it may be necessary

for the company to extend more and more credit to the customers, as a result of

which increases working capital requirements. On the other hand, in case of

purchase, if credit is offered by the suppliers of goods and services, a part of

working capital requirement may be financed by them, but if it is necessary to

purchase these goods or services on cash basis, the working capital requirement

will be higher.

1.5.6 Profitability:

The profitability of the business may vary in each and every individual case,

which in its turn may depend upon numerous factors. But high profitability will

positively reduce the strain on working capital requirement of the company,

because the profits to the extent that they are earned in cash may be used to meet

the working capital of the company. However, profitability has to be considered

as one of the ways in which strain on working capital requirement of the company

may be relieved. And these angles are:

11

a) Taxation Policy :

How much is required to be paid by the company towards its tax liability? As

the amount of cash profits only after payment of taxes will be available to the

company for meeting its requirement of working capital.

b) Dividend Policy :

How much of the profits earned by the company are distributed by way of

dividend? As the amount of cash profit to the extent not distributed by way of

dividend only will be available to the company for meeting its requirement of

working capital.

1.5.7 Operating Efficiency :

If business is carried on more efficiently, it can operate in profits, which may

reduce the strain on working capital; it may ensure proper utilization of existing

resources by eliminating waste and improved coordination etc.

1.6. Financing the Working Capital Requirement:

There are various methods available for financing the working capital requirement, it

is necessary to view the term working capital in one more angle.

1.6.1 Fixed or Permanent Working Capital:

This indicates that amount of minimum working capital which is required to be

maintained by every business at any point of time, in order to carry on the business on

permanent and uninterrupted basis.

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1.2 Fixed and Variable Working Capital

1.6.2. Variable or Temporary Working capital:

This indicates that amount of working capital required by the business which is over

and above fixed and permanent working capital.

This need of the working capital may vary depending upon the fluctuations in

demand as a result of changes in production or sales.

The basic difference between these two is as depicted below:

As far as financing of the fixed or permanent needs of working capital are concerned,

these need should be met out of the long term sources of fund viz. Own generation of

funds, out of the profit earned, shares or debentures.

As far as financing of the variable or temporary needs of working capital are

concerned, these needs can be meet from the various sources as stated below.

13

� A part of these needs may be financed by way of the credit available from the

suppliers of material or services, and the facility of delayed payment of

expenses.

� A part of these needs may be financed by way of short term or medium term

debts accepted by the company in the form of inter corporate borrowing,

public deposited etc.

� A part of these needs may be financed by way of long term sources of fund in

the form of own generation of funds, out of the profit earned, shares,

debentures and other long term borrowing.

� A major portion of these working capital needs are financed by the banks. In

financing the working capital needs of the business, the credit obtained from

banks plays a very-very important role.

1.7. Measurement of Working Capital:

There are three methods for assessing the working capital requirement as explained

below:

� Percent of Sales Method:

Based on the past experience, some percentage of sales may be taken for determining

the quantum of working capital.

� Regression Analysis Method:

The relationship between sales and working capital and its various components may

be plotted on Scatter diagram and the average percentage of past 5 years may be

ascertained. This average percentage of sales may be taken as working capital. Similar

exercise may be carried out at the beginning of the year for assessing the working capital

requirement. This method is suitable for simple as well as complex situations.

14

� Operating Cycle Method:

As a first step, we have to compute the operating cycle as follows:

i) Inventory period: Number of days consumption in stock = I = M/365

Where, I – Average inventory during the year

M = Materials consumed during the year

ii) Work-in-process: Number of days of work-in-process = W = K/365

Where, W = Average work-in-process during the year

K = Cost of work-in-process i.e., Material + Labour + Factory overheads.

iii) Finished products inventory period: G = F/365

Where G = Average finished products inventory during the year

F= Cost of finished goods sold during the year

iv) Average collection period of Debtors = D = S/365

Where, D = Average Debtors balances during the year

S= Credit sales during the year

v) Credit period allowed by Suppliers = C = P/365

Where C= Average creditors’ balances during the year

P = credit purchases during the year

vi) Minimum cash balance to be kept daily

Formula: O.C = M + W + F + D - C

Note: It is also known as working capital cycle. Operating cycle is the total time gap

between the purchase of raw material and the receipt from Debtors.

15

1.8. Working Capital Management:

To start any business, first of all we need finance and the success of that business

entirely depends on the proper management of day-to-day finance and the management of

this short-term capital or finance of the business is called Working Capital Management.

Working Capital is the key difference between the long-term financial management

and short-term financial management in terms of the timing of cash. Working capital

management is a short-term financial management. Working capital management is

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

current liabilities & the inter relationship that exists between them. The current assets

refer to those assets, which can be easily converted into cash in ordinary course of

business, without disrupting the operations of the firm.

Working capital management or short-term financial management is a significant

facet of financial management. It is important due to two reasons:

• Investment in current assets represents a substantial portion of total investment

• Investment in current assets and the level of current liabilities have to be geared

quickly to changes in sales.

Working capital involves activities such as arranging short-term finance,

negotiating favorable credit terms, controlling the movement of cash,

administrating accounts receivables, and monitoring the investment in

inventories also take a great deal of time.

Management of working capital is concerned with the problem that arises in

attempting to manage the current assets, current liabilities. The basic goal of working

capital management is to manage the current assets and current liabilities of a firm in

such a way that a satisfactory level of working capital is maintained, i.e. it is neither

adequate nor excessive as both the situations are bad for any firm. There should be no

shortage of funds and also no working capital should be ideal. Working Capital

Management Polices of a firm has a great on its probability, liquidity and structural

16

health of the organization. So working capital management is three dimensional in nature

as:

1) It concerned with the formulation of policies with regard to profitability, liquidity and

risk.

2) It is concerned with the decision about the composition and level of current assets.

3) It is concerned with the decision about the composition and level of current liabilities.

Components of Working Capital:

�� Cash Management:

Cash is the important current asset for the operation of the business. Cash is the basic

input needed to keep the business running in the continuous basis, it is also the ultimate

output expected to be realized by selling or product manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt

the firm’s manufacturing operations while excessive cash will simply remain ideal

without contributing anything towards the firm’s profitability. Thus a major function of

the financial manager is to maintain a sound cash position. Cash is the money, which a

firm can disburse immediately without any restriction. The term cash includes coins,

currency and cheques held by the firm and balances in its bank account.

Need for Holding Cash:

The need for holding Cash arises from a variety of reasons, which are,

a) Transaction Motive:

A company is always entering into transactions with other entities. While some

of these transactions may not result in an immediate inflow/outflow of cash (E.g. Credit

purchases and Sales), other transactions cause immediate inflows and outflows. So

firms keep a certain amount of cash so as to deal with routine transactions where

immediate cash payment is required.

17

b) Precautionary Motive:

Contingencies have a habit of cropping up when least expected. A sudden fire

may break out, accidents may happen, employees may go on a strike, creditors may

present bills earlier than expected or the debtors may make payments earlier than

warranted. The company has to be prepared to meet these contingencies to minimize

the losses. For this purpose companies generally maintain some amount in the form of

Cash.

c) Speculative Motive:

Firms also maintain cash balances in order to take advantage of opportunities

that do not take place in the course of routine business activities. For example, there may

be a sudden decrease in the price of Raw Materials, which is not expected to last long or

the firm may want to invest in securities of other companies when the price is just right.

These transactions are purely of speculative nature for which the firms need cash.

�� Inventory Management:

Inventories are goods held for eventual sale by a firm. Inventories are thus one

of the major elements, which help the firm in obtaining the desired level of sales.

Inventories includes raw materials, semi finished goods, finished products.

In company there should be an optimum level of investment for any asset,

whether it is plant, cash or inventories. Again inadequate disrupts production and causes

losses in sales. Efficient management of inventory should ultimately result in wealth

maximization of owner’s wealth. It implies that while the management should try to

pursue financial objective of turning inventory as quickly as possible, it should at the

same time ensure sufficient inventories to satisfy production and sales demand.

The main objectives of inventory management are operational and financial.

The operational mean that means that the materials and spares should be available in

sufficient quantity so that work is not disrupted for want of inventory. The financial

objective means that investments in inventories should not remain ideal and minimum

working capital should be locked in it.

18

�� Receivables’ Management:

Receivables or debtors are the one of the most important parts of the current

Assets which is created if the company sells the finished goods to the customer but not

receive the cash for the same immediately. Trade credit arises when a company sales its

products or services on credit and does not receive cash immediately. It is an essential

marketing tool, acting as a bridge for the moment of goods through production and

distribution stages to customers.

The receivables include three characteristics

1) It involve element of risk which should be carefully analysis.

2) It is based on economic value. To the buyer, the economic value in goods or services

passes immediately at the time of sale, while seller expects an equivalent value to be

received later on.

3) It implies futurity. The cash payment for goods or serves received by the buyer will be

made by him in a future period.

A company gives trade credit to protect its sales from the competitors and to attract the

potential customers to buy its products at favorable terms. Trade credit creates

receivables or book debts that the company is accepted to collect in the near future. The

customers from who receivables have to be collected are called as “Trade Debtors”

receivables constitute a substantial position of current assets.

Granting credit and crediting debtors, amounts to the blocking of the company’s funds.

The interval between the date of sale and the date of payment has to be financed out of

working capital as substantial amounts are tied up in trade debtors. It needs careful

analysis and proper management.

In KNPL, they are selling the goods on cash basis and also on credit basis.

19

1.9. Consequences of Under Assessment of Working Capital:

• Growth may be stunted. It may become difficult for the enterprise to undertake

profitable projects due to non-availability of working capital.

• Implementation of operating plans may become difficult and consequently the

profit goals may not be achieved.

• Cash crisis may emerge due to paucity of working funds.

• Optimum capacity utilization of fixed assets may not be achieved due to non-

availability of the working capital.

• The business may fail to honor its commitment in time, thereby adversely

affecting its credibility. This situation may lead to business closure.

• The business may be compelled to buy raw materials on credit and sell finished

goods on cash. In the process it may end up with increasing cost of purchases and

reducing selling prices by offering discounts. Both these situations would affect

profitability adversely.

• Non-availability of stocks due to non-availability of funds may result in

production stoppage.

• While underassessment of working capital has disastrous implications on

business, over assessment of working capital also have its own dangers.

1.10. Consequences of Over Assessment of Working Capital:

• Excess of working capital may result in unnecessary accumulation of inventories.

• It may lead to offer too liberal credit terms to buyers and very poor recovery

system and cash management.

• It may make management complacent leading to its inefficiency.

• Over-investment in working capital makes capital less productive and may reduce

return on investment.

Working capital is very essential for success of a business and, therefore, needs

efficient management and control. Each of the components of the working capital

needs proper management to optimize profit.

20

1.11. Tips for Managing Working Capital:

If your small business is facing frequent cash flow problems or you always seem to be

getting behind on paying back loans and debts to different creditors, it may be time to

implements some better techniques for managing your working capital. How you manage

your working capital as a small business owner directly affects your operational cash

flow and eventually, your profits. If you don't have an effective system in place for

managing accounts receivable, accounts payable, and inventory, you'll run into cash flow

problems quarter after quarter.

Here are some essential tips for managing your working capital:

1.12. Avoid extending too much credit. If you are too lenient with your payment

terms for invoices, you'll find it incredibly difficult to sustain a healthy cash flow

in the long run. Make sure that you perform a simple business credit check before

granting customers any type of credit, and tighten up your terms of payment so

that invoices get paid within a reasonable amount of time.

1.13. Don't become dependent on a single customer for business. Don't focus all of

your efforts on sustaining a relationship with just a single, or a handful, of

21

customers. Become more reliant on frequent purchases from a large portfolio of

customers instead. This will help you grow your business quickly and can also

prevent many cash flow and credit problems.

1.14. Pay suppliers on time, every time. If you don't have positive relationships with

your suppliers, they may end up halting delivery of inventory and essential

supplies you need to keep business operations running smoothly. Make paying

your suppliers a priority by adopting some sound accounts payable practices and

keeping track of your invoices.

1.15. Take inventory regularly. Having too much inventory or finding yourself in a

situation with an inventory shortage can affect business operations and eventually

hurt your profits. Make sure you're performing thorough inventory checks

regularly and have a system in place to ensure inventory keeps moving.

1.16. Take advantage of quantity discounts. If you purchase certain items in bulk or

make large purchases from a single supplier on a regular basis, inquire about

quantity discounts and negotiate terms so that you can get a discount for making

payment early. Depending on the nature of your business, these types of discounts

can help to offset some operational costs and help you better manage working

capital.

Adopting some sound business practices and learning how to manage your accounts

receivable, accounts payable, and inventory can have an impact on your business's cash

flow situation. Use the tips above to better manage your working capital and improve

overall business operations.

-Company Profile of

Kansai Nerolac Paints Limited is situated at Pirangut Road, near Manas Lake,

Bhukum, Pune – 08 it is started from 1920

2006 the name of the company has been changed to Kansai Nerolac Paints Ltd.

company is a second largest coating company in India.

Chairman and Mr.Devendra Motilal Kothari is a Vice

Mr.Harishchandra Meghraj Bharuka are working as a Managing Director in

Nerolac Paints Limited.

2.1 Company description2.2 About Nerolac & Kansai2.3 The Kansai Nerolac Thimeline2.4 Code of Conduct2.5 Corporate Values2.6 Management & Key People

2.6.1 Board of Directors2.6.2 Key People

2.7 Product 2.8 Company Analysis

22

Company Profile of Kansai Nerolac Paints Limited


08 it is started from 1920 as Gahagan Paints and Varnish Co. Ltd.

2006 the name of the company has been changed to Kansai Nerolac Paints Ltd.

second largest coating company in India. Dr. Jamshed Jiji Irani is a

Chairman and Mr.Devendra Motilal Kothari is a Vice-Chairman of the company and

hchandra Meghraj Bharuka are working as a Managing Director in

Nerolac Paints Limited.

Chapter - 2

Company Profile

Company description About Nerolac & Kansai The Kansai Nerolac Thimeline Code of Conduct Corporate Values Management & Key People

Board of Directors Key People

Analysis

Kansai Nerolac Paints Limited-


as Gahagan Paints and Varnish Co. Ltd. In

2006 the name of the company has been changed to Kansai Nerolac Paints Ltd. Now the

Dr. Jamshed Jiji Irani is a

Chairman of the company and

hchandra Meghraj Bharuka are working as a Managing Director in Kansai

23

2.1. Company Description:

"Kansai Nerolac has been a cherished name in millions of households across the length

and breadth of India. The company manufactures a diversified range of products for

every surface. It is the second largest coating company in India and the market leader in

automotive and powder coating. Nerolac paints as it is known popularly are an

established brand in decorative paints.

It is a global leader in innovation and is known best for its product innovation, R&D and

sensitivity towards.

2.2. About Nerolac & Kansai

Kansai Nerolac: The story till date.

What has made Kansai Nerolac the second largest paint company in India?

It could be their product innovations, cutting-edge R&D, state-of-the-art solutions or their

sensitivity towards the environment. Or it could be something that's a lot simpler, like

their immense curiosity and unwavering belief in constant innovation.

As a result, today, Kansai Nerolac is the second largest coating company in India and a

market leader in Industrial Coatings.

2.3. The Kansai Nerolac Timeline:

• 1920: they started their journey as Gahagan Paints and Varnish Co. Ltd at Lower

Parel in Mumbai.

• 1957: Goodlass Wall Pvt. Ltd grew popular as Goodlass Nerolac Paints (Pvt) Ltd.

Also, it went public in the same year and established itself as Goodlass Nerolac

Paints Ltd.

• 1976: Goodlass Nerolac Paints Ltd. became a part of the Tata Forbes Group on

acquisition of a part of the foreign shareholdings by Forbes Gokak.

24

• 1983: Goodlass Nerolac Paints Ltd. Strengthened itself by entering in technical

collaboration agreements with Kansai Paint Co. Ltd, Japan and Nihon Tokushu

Toryo Co. Ltd, Japan.

• 1999: Kansai Paint Co. Ltd, Japan took over the entire stake of Tata Forbes group

and thus GNP became wholly owned subsidiary of Kansai Paint Company Ltd.

• 2006: On the 11th of July, Goodlass Paints Ltd. name has been changed to Kansai

Nerolac Paints Ltd.

2.4. Code of Conduct:

The Board of Directors of Kansai Nerolac Paints Limited has adopted the

following Code of Conduct for the Board of Directors and senior management of the

Company. For the purpose of this Code, the term “senior management” shall mean

personnel of the Company who are members of its core management team excluding

Board of Directors. This would comprise all members of management one level below

the executive directors, including all functional heads.

The Code has been adopted, effective the 31st day of December 2005.

This code should be read in conjunction with the “code of conduct for managerial

and executive staff”, the “code of conduct for prevention of insider trading and code of

corporate disclosure practices” and the “policy on appropriate social conduct at

workplace” and such other policies / codes that the company may from time to time

formulate in pursuit of its commitment to the core values of integrity and honesty

The company shall always strive to maintain the highest standards of conduct in

all its Endeavour’s. The Company Directors and senior managers have a responsibility to

lead by example, acting with truth, sincerity and fairness in all decisions.

The Code is intended to serve as a source of guiding principles for directors and

senior managers. This Code cannot be expected to address every expectation or condition

regarding proper and ethical business conduct. Each Director and senior manager is

expected to comply with the letter and spirit of this code using good common sense and

professional ethics as the best guide.

25

Goodlass Nerolac Paints Ltd.(GNPL), the Indian subsidiary of Japan based Kansai Paint

Co. Ltd, is the second largest paint company in India with presence in decorative paints

as well as industrial paints & marine paints, enamels, varnishes, coatings, resins etc. It is

the second largest coating company in India. The company markets its products under the

brand names Nerolac, Glossolite, Goody, Allscapes, Excel, in decoratives.

Origin & Evolution of Nerolac:

It is the second largest coating company in India and market leader in Industrial

Coatings. It’s Industrial Coatings it has a wide range of products in the Automotive,

Powder, General Industrial and High performance Coatings space. Nerolac paints, as it

are popularly known, is an established brand in decorative paints.

Kansai Nerolac Paints Ltd is a subsidiary of Japan based Kansai Paint Company

Limited, which is one of the top ten coating companies in the world. The technological

edge of Kansai helps us constantly innovate and come up with products that meet

consumer need gaps. Kansai Nerolac has always believed that the key to its business is:

o Technology

o Research & Development

o Innovations

26

2.5. Corporate Values

Vision, Values and Culture

� Responsive

� Innovation

� Team Orientation

� Entrepreneurial

� Simplicity

These are the values that form the foundation of their business and provide the blueprint

that sets us in the right direction, each time.

In today's dynamic business environment, no organization can afford to survive without a

thoughtful vision, a dynamic set of guidelines and the ability to leverage global

technology, as and when needed.

Hence, we make it a point to ensure that all their ventures consciously internalize these

values in every business transaction.

2.6. Management & Key People:-

The people who make the company are its real assets.

At Kansai Nerolac, we stand by this. The success of Kansai Nerolac has hinged on this

philosophy since 1920, and being the second largest paint company in India is the rightful

tribute to its people's commitment and dedication.

With employee strength of around 2000 spread over the country and an efficient

management, the company provides the conducive work atmosphere to develop and

grow. Their team of Ph.D's, engineers and technicians visit collaborator's plants abroad to

update themselves with the latest techniques.

27

2.6.1. Board Of Directors:

• Dr. Jamshed Jiji Irani

Chairman

• Mr.Devendra Motilal Kothari

Vice-Chairman

• Mr.Harishchandra Meghraj Bharuka

Managing Director

• Mr. Pradip Panalal Shah

• Mr. Noel Naval Tata

• Mr. Pravin Digambar Chaudhari

Wholetime Director

• Mr. Yoshikazu Takahashi

• Mr. Hitoshi Nishibayashi

2.6.2. Key People:

The people who make the company are its real assets.The success of Kansai Nerolac has

hinged on this philosophy since 1920.

• Mr H.M. Bharuka

Managing Director

• Mr Pravin Chaudhari

Executive Director - Industrial Coatings Division & Supply Chain

• Mr. Anuj Jain

Director - Decorative

• Mr. Junichi Kazima

Director - QA (Quality Assurance) & QC (Quality Control)

• Mr. Abhijit Natoo

Vice President - Supply Chain

• Mr. Jason Gonsalves

Vice President - Corporate Planning, Strategy & IT

• Mr. Mahesh Mehrotra

Vice President

• Mr. Prashant Pai

Vice President

• Mr. Shrikant Dikhale

Vice President

• Mr. Sudhir Rane

Vice President

2.7. Product:

1) Decorative:

Colours, textures & patterns,

that they're also absolutely chemical

a splash of colour can make a world of difference.

28

Mr. Mahesh Mehrotra

Vice President - Technical

Mr. Prashant Pai

Vice President - Finance

Mr. Shrikant Dikhale

Vice President - Human Resources

Mr. Sudhir Rane

Vice President - Industrial Coatings

Product:

Decorative:

Colours, textures & patterns, all unique and exquisite. Team these up with the fact

that they're also absolutely chemical-free and you get the perfect home.

a splash of colour can make a world of difference.

all unique and exquisite. Team these up with the fact

free and you get the perfect home. After all,

2) Automotive Coatings:

Automotive Coatings is an industry that's highly specialized, technical and has

diverse requirements. Therefore, Nerolac ensures that all its products are

developed after intense research and withstand repeated tribulations and extreme

conditions without s

3) Performance Coatings

Performance coatings are available for a wide range of purposes. Be it household

appliances or metal fittings in factories, we offer a comprehensive range of

general industrial coating systems. For

durability, the finishing processes offered by us, such as powder coating, provide

them with just that.

29

Automotive Coatings:




conditions without suffering any damage whatsoever.

Performance Coatings: Performance coatings are available for a wide range of purposes. Be it household


general industrial coating systems. For customers who expect higher quality and


them with just that.




Performance coatings are available for a wide range of purposes. Be it household


customers who expect higher quality and


Quality:-

It is the philosophy of

achieve complete customer satisfaction by providing products and services that

consistently meet or exceed the customer needs and expectations, pursuant to agreed

specifications, delivery schedules and competitive prices.

company to systematically operate its manufacturing facilities by

commitment to total quality management at all levels and on a continuous basis with a

view to achieving “First Time Right” results in manufacture, services and other

operations.

In continuation of their

Paints Ltd have successfully implemented various Quality Managements Systems in our

organization. All manufacturing locations of KNPL have been certified for ISO 9001

2008 Being major Industrial paint manufacturer & supplier to OEM customers

KNPL has also implemented QMS as specified by I

30

It is the philosophy of Kansai Nerolac Paints Ltd., and its associates to



specifications, delivery schedules and competitive prices. It is the philosophy of the

y to systematically operate its manufacturing facilities by



ntinuation of their efforts to achieve highest Quality standards


organization. All manufacturing locations of KNPL have been certified for ISO 9001

Being major Industrial paint manufacturer & supplier to OEM customers

has also implemented QMS as specified by ISO/TS 16949 standard .Their

., and its associates to



It is the philosophy of the

y to systematically operate its manufacturing facilities by inculcating



eve highest Quality standards the Kansai Nerolac


organization. All manufacturing locations of KNPL have been certified for ISO 9001-

Being major Industrial paint manufacturer & supplier to OEM customers

SO/TS 16949 standard .Their

31

industrial paint manufacturing locations are certified for ISO/TS 16949 -2009 The

Japanese 5-S and TPM (total productive maintenance) concepts have been implemented

in organization.

2.8. Company Analysis:

According to the individual - Audited financial statement for the Year 2012-13, total net

operating revenues increased 9.45%, from INR 2624.84 cr. to INR 2872.94. The net

income of the period increased 35.34% reaching INR 292.17 cr. at the end of the period

against INR 215.88 last year. The Return on Asset (Net income / Total Asset) went from

12.71% to 14.17% and the Net Profit Margin (Net Income/Net Sales) went from 8.35% to

10.29% when compared to the same period last year. The Debt to Equity Ratio (Dept

Capital/Equity) was 0.11% same as compared to 0.11% the previous year. Finally, the

Current Ratio (Current Assets/Current Liabilities) went from 1.99 to 1.69 when compared

to the previous year.

32

Research methodology is a way to systematically solve the research problem. It

May be understood as a science of studying now research is done systematically. In that

various steps, those are generally adopted by a researcher in studying his problem along

with the logic behind them.

“The procedures by which the researcher goes about their work of describing,

explaining and predicting phenomenon are called methodology”.

Chapter - 3

Research Methodology

3.1 Introduction of the Study

3.2 Objective of the Study

3.3 Scope of the Study

3.4 Importance / Significance of Project

3.5 Source of Research Data

3.5.1 Primary Data

3.5.2 Secondary Data

3.6 Limitation of Study

3.7 Tools Used For Analysis of Data

33

3.1. Introduction of the Study:

Working capital signifies (show) funds required for day to day business operation of

the organization. Working capital management refers to the administration of all aspects

of current assets and current liabilities. It refers to the firm’s investment in current assets.

It is defined as excess of current assets over current liabilities. Working capital

management plays a vital role in any organization and one should have a thorough

knowledge about the working capital position.

In view of this context, I have undertaken this study and it would be a great advantage

to the company also to know its working capital.

3.2. Objective of the Study:

� To know the requirement of working capital.

� To study various working capital management polices

� To study the arrangement of working capital

� To find out different ratios related with working capital

3.3. Scope of the Study:

The scope of the study is to study of working capital position of the company. The

study is limited up to Kansai Nerolac Paints Limited only. Further the study is based on

last 5 years Annual report of Kansai Nerolac Paints Limited. The main scope of the study

was get knowledge of various methods of working capital management, effective tools

for credit policies & the components which is effecting in working capital. The study of

working capital is based on tools like Ratio Analysis, Statement of changes in working

capital.

34

3.4. Importance / Significance of Project:

There are numerous aspects of working capital management that makes it an

important topic for the study.

The management of assets in any organization is an essential part of overall

management. The enterprise, at the time of formation attaches great importance to fixed

assets management, as a part of investment decision-making. However, in the overall

day-to-day financial management, after the initial investment, the management gives

more importance to managing working capital. If we look at any financial statement it

will be evident that the investment in fixed assets remains more or less static but the

working capital is constantly changing. A healthy working capital position is the end

result of a successful business. This is reflected in adequate inventories, lowest level of

debtors, minimum utilization of bank facilities for working capital, etc. thus the study of

working capital management occupies an important place in financial management.

3.5. Source of Research Data:

There are mainly two sources which the data required for the research is collected.

3.5.1. Primary Data:

The primary data is that data, which is collected fresh or first hand, and for first

time which is original in nature. Most of the information will be gathered through

primary sources. The methods that will be used to collect primary data are:

a) Interview (with financial manager)

3.5.2. Secondary Data :

The secondary data are those, which have already collected and stored.

Secondary data easily get those secondary data from records, annual reports of the

company etc. It will save the time, money and efforts to collect the data.

35

Secondary data are collected from:

1) Annual report of company (The major source of data for this project was collected

through annual reports & profit and loss account of last 5 year period from 2008-

2009 to 2012-2013)

2) Reference books of various author in financial management

3) Syllabus books of ICWAI in financial accounting

4) Some more information collected from internet, visiting various website.

3.6. Limitation of Study:

�� The entire financial position of the company cannot be disclosed.

�� Department heads were busy so time for interaction was less.

�� The study will be based on five annual reports only. The information

from annual reports is insufficient to calculate few ratios.

3.7. Tools Used For Analysis of Data:

The data were analyzed by using the following financial tools:

♦ Ratio Analysis

♦ Statement of Changes in Working Capital

36

4.1. Net Working Capital:

An analysis of the net working capital will be very help full for knowing the

operational efficiency of the company. The following table provides the data relating to

the net working capital of KNPL

Net Working Capital = Current Assets – Current Liabilities

Table 4.1: Table Showing Net Working Capital

Year Current Assets Current Liabilities Net Working Capital

2008-2009 49807.77 32808.36 16999.41

2009-2010 56198.61 39799.85 16398.76

2010-2011 70428.45 47265.12 23163.33

2011-2012 104245.20 52277.80 51967.40

2012-2013 107193.10 63417.50 43775.60

Chapter - 4

Data Analysis and Interpretation

4.1 Net Working Capital 4.2 Statement Showing Changes in Working Capital 4.3 Ratio Analysis

4.3.1 Liquidity Ratio 4.3.2 Turnover Ratio

37

Graph 4.1: Net Working Capital

Interpretation:

The above table No. 4.1 and graph No. 4.1 reveals that the net working capital of

the company during the period of 2008-2009 to 2012-2013 during the year 2008-09 the

company has Rs. 16999.41 lacs NWC which is decrease in FY 2009-10 up to Rs.

16398.76 lacs. In the year 2010-11 the company has Rs. 23163.33 lacs NWC. The NWC

of the company is increasing compared to the previous years. In the year 2011-12 the

company NWC raised up to Rs. 51967.40 which is show the big increases in NWC. In

the FY 2012-13 the NWC is again decrease up to Rs. 43775.60.

The above analysis reveals that company has sufficient working capital to meets

its short term liability, it is good indicator for the company but in 2012, working capital is

increased by 51967.40 lacs which shows that a sufficient amount has been blocked in

working capital which could be used for some other more beneficial purpose.

0

10000

20000

30000

40000

50000

60000

2008-09 2009-10 2010-11 2011-12 2012-2013

Am

ou

nt

in L

acs

Year

Net Working

Capital

38

4.2. Statement Showing Changes in Working Capital:

The purpose of preparing this statement is for finding out the increase or decrease

in working capital and to make a comparison between two financial years.

Table 4.2: Statement Showing Changes in Working Capital for the Year 2009-2010

Particular Year Changes

2009 2010 Increase Decrease

Current Assets:

Inventories 17063.39 24744.44 7681.05

Sundry Debtors 20957.29 23236.62 2279.33

Cash & Bank Balance 7616.39 4108.25 3508.14

Loans and Advances 4170.70 4109.30 61.40

Total Current Assets 49807.77 56198.61

Less Current Liabilities:

Liabilities 24423.49 30432.44 6008.95

Provisions 8384.87 9367.41 982.54

Net Working Capital 16999.41 16398.76

Increase / Decrease in Working Capital 600.65 600.65

Total 16999.41 16999.41 10561.03 10561.03

Interpretation:

The above table No. 4.2 reveals that the decrease in the working capital for the

year 2009-2010. It is mainly because decrease in cash and bank balance and increase in

liabilities The end result of the statement of changes in working capital after comparing

all the increases and decreases is the net decrease in the amount of working capital. The

above table focuses on the fact that the decrease in working capital is Rs.600.65 lacs.

39




Current Assets:

Inventories 24744.44 35410.25 10665.81

Sundry Debtors 23236.62 26025.99 2789.37





Liabilities 30432.44 36354.37 5921.93

Provisions 9367.41 10910.75 1543.34



Total 23163.33 23163.33 14369.03 14369.03

Interpretation:

The above table No. 4.3 reveals that the increase in the working capital for the

year 2010-2011. It is seen that during the year 2011 net working capital is increase by Rs.

6764.57 lacs compare to previous year. All the current assets except cash and bank

balance have increased in year 2011 as compared to year 2010. The end result of the

statement of changes in working capital after comparing all the increases and decreases is

the net increase in the amount of working capital is Rs. 6764.57 lacs.

40




Current Assets:

Inventories 35410.25 45371.00 9960.75

Sundry Debtors 26025.99 35883.40 9857.41


Loans, Advances & Other Current A. 5023.15 3113.90 1909.25

Current Investment 13959.20 13959.20



Liabilities 36354.37 44960.90 8606.53

Provisions 10910.75 7316.90 3593.85



Total 51967.40 51967.40 39319.85 39319.85

Interpretation:

The above table No. 4.4 reveals that the huge increase in the working capital for

the year 2011-2012. All the current assets except loans and advances have increased in

year 2012 current liabilities is also increase by Rs. 8606.53 lacs but provisions are

decrease by Rs. 3593.85 lacs. The end result of the statement of changes in working

capital after comparing all the increases and decreases is the net increase in the amount of

working capital was Rs. 28804.07 lacs. It indicates an adequate working capital in Kansai

Nerolac Paint Limited.

41




Current Assets:

Inventories 45371.00 53407.30 8036.30

Sundry Debtors 35883.40 41998.90 6115.50


Current Investment 13959.20 1250.40 12708.80


Other Current Assets 1839.93 2600.10 760.17



Trade Payables 35423.70 38934.20 3510.50

Other Current Liabilities 9537.20 16482.90 6945.70

Short-term Provisions 7316.90 8000.40 683.50



Total 51967.40 51967.40 23848.25 23848.25

Interpretation:

The above table No. 4.5 reveals that that the changes in working capital in the

year 2012-13 it shows that the all current assets and current liabilities are increase except

current investment. Current investments are decrease by Rs. 12708.80. The end result of

the statement of changes in working capital after comparing all the increases and

decreases is the net decrease in the amount of working capital of Rs. 8191.80 lacs. It is

indicated that excess amount in current investment is invested in some other more

beneficial purpose.

42

4.3. Ratio Analysis:

Introduction:

Ratio Analysis is a powerful tool of financial analysis. Alexander Hall first

presented it in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of

comparison of one figure against other, which makes a ratio and the appraisal of the

ratios to make proper analysis about the strengths and weakness of the firm’s operations.

The term ratio refers to the numerical or quantitative relationship between two accounting

figures. Ratio analysis of financial statements stands for the process of determining and

presenting the relationship of items and group of items in the statements.

Note: I have used the ratio analysis in this project in order to substantiate the managing

of working capital. For this, I used some of the ratios to get the required output.

4.3.1. Liquidity Ratio:

Liquidity refers to the ability of a firm to meet its current obligations as and

when these become due. The short-term obligations are met by realizing amounts

from current, floating or circulating assets.

Following are the ratios which are frequently used in measuring the shot-term

liquidity of a firm and it can help to assess the ability of a firm to meet its current

liabilities.

i) Current Ratio

ii) Acid Test Ratio / Quick Ratio / Liquidity Ratio

i) Current Ratio:

It is a ratio, which express the relationship between the total current Assets and

current liabilities. It measures the firm’s ability to meet its current liabilities.

the availability of current assets in rupees for every one rupee of current

ratio of greater than one means that the firm has more current assets than current

liabilities claims against them. A standard ratio between them is 2:1. (i.e., every current

liability of Re. 1 should be backed by current assets of Rs. 2)

Year Current Assets

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0.00

0.50

1.00

1.50

2.00

2008

Cu

rre

nt

Ra

tio

43

Current Ratio:


measures the firm’s ability to meet its current liabilities.

the availability of current assets in rupees for every one rupee of current



liability of Re. 1 should be backed by current assets of Rs. 2)

Current Assets

Current Liabilities

Table 4.6: Table Showing Current Ratio

Current Assets Current Liabilities

49807.77 32808.36

56198.61 39799.85

70428.45 47265.12

104245.20 52277.80

107193.10 63417.50

Graph 4.2: Current Ratio

2008-09 2009-10 2010-11 2011-12 2012-13

Year

Current Ratio =


measures the firm’s ability to meet its current liabilities. It indicates

the availability of current assets in rupees for every one rupee of current liabilities. A



Current Ratio

1.52

1.41

1.49

1.99

1.69

Current Ratio

44

Interpretation:

The above table No. 4.6 and graph No. 4.2 1 reveals that the current ratio of the

company. This ratio reflects the financial stability of the company. The above table

analysis reveals that during the year 2008-09 the current ratio was 1.52, during the year

2009-10 it was 1.41 and in the year 2010-11 it was 1.49. This shows the current ratio

decrease every year but in the year 2011-12 the current ratio goes up to 1.99 due to

increase in current assets. In the year 2012-13 the current ratio was dropped to 1.69 only

because of increase in current liabilities. If we see all year ratio it is seen that the current

ratio is always below the standard ratio i.e., 2:1.

Hence it is necessary to improve current assets and decrease current liabilities.

ii) Acid Test Ratio / Quick Ratio / Liquidity Ratio:

This ratio establishes a relationship between quick/liquid assets and current

liabilities. It measures the firms’ capacity to pay off current obligations immediately.

An asset is liquid if it can be converted in to cash immediately without a loss of

value; Inventories are considered to be less liquid, because inventories normally

require some time for realizing into cash. This ratio is also known as acid-test ratio.

The standard quick ratio is 1:1 is considered satisfactory.

Quick Assets (Current Assets – Inventory)

Current Liabilities

Table 4.7: Table Showing Quick Ratio

Year Quick Assets Current Liabilities Quick Ratio

2008-2009 32744.38 32808.36 1.00

2009-2010 31454.17 39799.85 0.79

2010-2011 35018.20 47265.12 0.74

2011-2012 58904.20 52277.80 1.13

2012-2013 53785.80 63417.50 0.85

Quick Ratio =

Interpretation:

The above table No. 4.7 and graph No. 4.3

the quick ratio was 1.00 this means company maintains satisfactory quick ratio, But in the

year 2009-10 it is decrease

is to be said that it does not meet with the standard. In the year 2011

1.13 it shows during the year 2011

satisfactory but it is again decrease in year 2012

There for it can be said that its liquidity position is not good and stable.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2008-09

Qu

ick

Ra

tio

45

Graph 4.3: Quick Ratio

table No. 4.7 and graph No. 4.3 1 reveals that during the year 2008


10 it is decrease up to 0.79 and in 2010-11 it was again decrease up to 0.74 It

is to be said that it does not meet with the standard. In the year 2011

1.13 it shows during the year 2011-12 the liquidity position of the

again decrease in year 2012-13 and close to the 0.85

here for it can be said that its liquidity position is not good and stable.

2009-10 2010-11 2011-12 2012-13

Year

uring the year 2008-09


again decrease up to 0.74 It

is to be said that it does not meet with the standard. In the year 2011-12 it is gone up to

12 the liquidity position of the company is

13 and close to the 0.85.

here for it can be said that its liquidity position is not good and stable.

Quick Ratio

46

4.3.2. Turnover Ratio:

Activity / Turnover Ratios are a set of financial ratios used to measure the

efficiency of various operations of a business. Activity ratios measure the efficiency

of the firm in using its resources / assets. These ratios are also known as Asset

Management Ratios because these ratios indicate the efficiency with which the

assets of the firm are managed / utilized. These are the ratios which indicate the

speed with which assets are converted or turned over into sales.

Following are the ratios which help in management of working capital.

i) Inventory Turnover Ratio.

ii) Debtors/ Accounts receivables Turnover Ratio.

iii) Creditors/Accounts Payables Turnover Ratio.

iv) Working Capital Turnover Ratio.

i) Inventory Turnover Ratio:

a) In Times:

Inventory turnover ratio indicates how many times inventory is sold and

replaced in a financial year. In other words, the ratio gives the frequency of

conversion of inventory into cash in a given financial year. Normally, higher ratio is

considered good as it suggests better inventory management.

Net Sales

Average Inventory

Inventory Turnover Ratio =

Table 4.8

Year Net Sales

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

Graph 4.4:

Interpretation:

The above table No. 4.8

in company from 2008

times in the year 2008

subsequent decrease in the year 2010

times and 5.75 times respectively.

0.00

2.00

4.00

6.00

8.00

2008-09

Inv

en

tory

Tu

rno

ve

r R

ati

o

47

Table 4.8: Table Showing Inventory Turnover Ratio

Net Sales Average Inventory Inventory Turnover Ratio

137451.92 17202.25

170638.36 22403.92

213873.02 30077.35

258587.90 40390.65

283950.90 49389.15

Graph 4.4: Inventory Turnover Ratio

The above table No. 4.8 and graph No.4.4 reveal that the Inventory Turnover Ratio

in company from 2008-09 to 2012-13. The Inventory Turnover Ratio was 7.99

in the year 2008-09. It decreases in 2009-10 to 7.62 times

subsequent decrease in the year 2010-11, 2011-12 and 2012-13 to 7.11 times, 6.10

times and 5.75 times respectively.

2009-10 2010-11 2011-12 2012-13

Year

: Table Showing Inventory Turnover Ratio

Inventory Turnover Ratio

7.99 Times

7.62 Times

7.11 Times

6.40 Times

5.75 Times

reveal that the Inventory Turnover Ratio

y Turnover Ratio was 7.99

10 to 7.62 times. There was a

o 7.11 times, 6.10

Inventory

Turnover Ratio

48

It is shows that the Inventory Turnover Ratio is decrease in every year

during the study period. It is indicated that the sale of the company slowing down

and the company have high stock level.

b) In Days / (Inventory Holding Period):

This period measures the average time taken for clearing the stocks. It indicates

that how many days’ inventories take to convert from raw material to finished

goods.

Days in Year

Inventory Turnover Ratio

Table 4.9: Table Showing Inventory Holding Period

Year Days in Year Inventory Turnover Ratio Inventory Holding Period

2008-2009 365 7.99 Times 45.68 Days

2009-2010 365 7.62 Times 47.90 Days

2010-2011 365 7.11 Times 51.34 Days

2011-2012 365 6.40 Times 57.03 Days

2012-2013 365 5.75 Times 63.48 Days

Inventory Holding Period =

Graph 4.5:

Interpretation:

The above table No.

Period. During the year

10 up to 47.90 days and 2011

the year 2011-12 and 2012

It is reveals that the

investment in inventory increases and funds are block

increase in sales and decrease in

company.

ii) Debtors / Accounts receivables Turnover Ratio:

a) In Times:

The receivable turnover ratio (Debtors turnover ratio) indicates the velocity of a

company's debt collection, the number of times average receivables are turned over

during a year. This ratio determines how quickly a company collects outstanding

cash balances from its customers during an accounting period. It is an important

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2008-09

Pe

rio

d i

n D

ay

s

49

Graph 4.5: Inventory Holding Period

The above table No. 4.9 and graph No. 4.5 1 reveals that the Inventory

Period. During the year 2008-09 it was 45.68 days. It was increase in the year 2009

10 up to 47.90 days and 2011-11 up to 51.34 days it was subsequently increase in

12 and 2012-13 to 57.03 days and 63.48 days.

It is reveals that the Inventory Holding Period is increase in every year. I

investment in inventory increases and funds are blocked in the inventory. There for

increase in sales and decrease in Inventory is necessary for good health of the

/ Accounts receivables Turnover Ratio:

In Times:




ces from its customers during an accounting period. It is an important

09 2009-10 2010-11 2011-12 2012-13Year

Inventory Holding

increase in the year 2009-

subsequently increase in

Holding Period is increase in every year. It means

in the inventory. There for

is necessary for good health of the




ces from its customers during an accounting period. It is an important

Inventory

Holding Period

indicator of a company's financial and operational performance and can be used to

determine if a company is having difficulties collecting sales made on credit.

Table 4.10

Year Net Sales

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0.00

2.00

4.00

6.00

8.00

10.00

2008-09

De

bto

rs T

urn

ov

er

Ra

tio

Debtors Turnover

50



Net Sales

Debtors

Table 4.10: Table Showing Debtors Turnover Ratio

Net Sales Debtors Debtors

137451.92 20957.29

170638.36 23236.62

213873.02 26025.99

258587.90 35883.40

283950.90 41998.90

Graph 4.6: Debtors Turnover Ratio

2009-10 2010-11 2011-12 2012-13

Year

Debtors Turnover Ratio =



Turnover Ratio

Debtors Turnover Ratio

6.56 Times

7.34 Times

8.22 Times

7.21 Times

6.76 Times

Debtors Turnover

Ratio

51

Interpretation:

The above table No. 4.10 and graph No. 4.6 reveals that the Debtors

Turnover Ratio fluctuating over the years. It was 6.56 times in the year 2008-09 it

increase to 7.34 times in the year 2009-10 it again increase in the year 2010-11 to

8.22 times but it was decrease in the year 2011-12 to 7.21 times and during the year

2012-13 to 6.36 times.

This shows the company is collecting debt quickly. It is good indicator for the

company.

b) In Days / (Debtors Collection Period):

The term Debtor Collection Period indicates the average time taken to

collect trade debts. In other words, a reducing period of time is an indicator of

increasing efficiency. Debtors collection period measures the quality of debtors

since it measures the rapidity or the slowness with which money is collected from

them a shorter collection period implies prompt payment by debtors. It reduces the

chances of bad debts. A longer collection period implies too liberal and inefficient

credit collection performance.

Days in Year

Debtors Turnover Ratio

Table 4.11: Table Showing Debtors Collection Period

Year Days in Year Debtors Turnover Ratio Debtors Collection Period

2008-2009 365 6.56 Times 55.64 Days

2009-2010 365 7.34 Times 49.73 Days

2010-2011 365 8.22 Times 44.40 Days

2011-2012 365 7.21 Times 50.62 Days

2012-2013 365 6.76 Times 53.99 Days

Debtors Collection Period =

Interpretation:

The above table No

2008-09 Debtors Collection Period was 55.64 days, which is down in the year

2009-10 to 49.73 days and in the year 2010

Collection Period was again increase in the year 2011

days in the year 2012-13.

This shows inefficient credit collection performance, company need to control

in debtors and collected receivable quickly.

iii) Creditors/Accounts

a) In Times:

Accounts payable turnover is the ratio of net credit purchases of a business to its

average accounts payable during the period. It measures short term liquidity of business

since it shows how many times during a period,

payable is paid to suppliers by a business.

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2008

Pe

rio

d i

n d

ay

s

52

Graph 4.7: Debtors Collection Period

The above table No. 4.11 and graph No. 4.7 reveals that

09 Debtors Collection Period was 55.64 days, which is down in the year

10 to 49.73 days and in the year 2010-11 to 44.40 days. The D

Collection Period was again increase in the year 2011-12 to 20.62 days and 53.99

13.


in debtors and collected receivable quickly.

Creditors/Accounts Payables Turnover Ratio:

In Times:



since it shows how many times during a period, an amount equal to average accounts

payable is paid to suppliers by a business.

2008-09 2009-10 2010-11 2011-12 2012-13

Year

reveals that during the year

09 Debtors Collection Period was 55.64 days, which is down in the year

11 to 44.40 days. The Debtors

12 to 20.62 days and 53.99




an amount equal to average accounts

Debtors

Collection

Period

53

Net Purchase

Creditors

Table 4.12: Table Showing Creditors Turnover Ratio

Year Net Purchase Average Creditors Creditors Turnover

Ratio

2008-2009 89958.28 23001.12 3.91 Times

2009-2010 107182.23 29404.40 3.65 Times

2010-2011 140024.53 35125.02 3.99 Times

2011-2012 169689.80 35423.70 4.79 Times

2012-2013 189857.40 38934.20 4.88 Times

Graph 4.8: Creditors Turnover Ratio

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2008-09 2009-10 2010-11 2011-12 2012-13

Cre

dit

ors

Tu

rno

ve

r R

ati

o

Year

Creditors

Turnover Ratio

Creditors Turnover Ratio =

54

Interpretation:

The above table No. 4.12 and graph No. 4.8 reveal that the Creditors

Turnover Ratio during the year 2008-09 was 3.91 times that was decrease in the

year 2009-10 to 3.65 times. There was a subsequent increase in the year 2010-11

and 2011-12 to 3.99 times and 4.79 times respectively. In the year 2012-13 it was

gone up to 4.88 times.

It shows that company has making prompt payment to the creditors.

b) In Days / (Creditors Payment Period):

The Creditors Payment Period represents the average number of days taken

by the firm to pay the creditors and other bills payables.

Days in Year

Creditors Turnover Ratio

Table 4.13: Table Showing Creditors Payment Period

Year Days in Year Creditors Turnover Ratio Creditors Payment Period

2008-2009 365 3.91 Times 93.35 Days

2009-2010 365 3.65 Times 100.00 Days

2010-2011 365 3.99 Times 91.48 Days

2011-2012 365 4.79 Times 76.20 Days

2012-2013 365 4.88 Times 74.80 Days

Creditors Payment Period =

Graph 4.9:

Interpretation:

The above table No.

Period changing over the year It

100 days in the year 2009

days. During the year 2011

in the year 2012-13.

It indicates that the company has taken sufficient time for making payment to

creditors.

0.00

20.00

40.00

60.00

80.00

100.00

2008

Pe

rio

d i

n D

ay

s

55

Graph 4.9: Creditors Payment Period

The above table No. 4.13 and graph No. 4.9 reveal that Creditors Payment

Period changing over the year It was 93.35 days in the year 2008-09. It increases to

100 days in the year 2009-10. Then after it is decrease in the year 2010

days. During the year 2011-12 it was 76.20 days which was gone up to 74.80 days

the company has taken sufficient time for making payment to

2008-09 2009-10 2010-11 2011-12 2012-13Year

Creditors Payment

09. It increases to

10. Then after it is decrease in the year 2010-11 to 91.48

12 it was 76.20 days which was gone up to 74.80 days

the company has taken sufficient time for making payment to

Creditors

Payment …

iv) Working Capital Turnover Ratio:

This ratio indicates the number of times the working capital is turned over in the

course of the year. This ratio measures the efficiency with whi

used by the firm. A higher ratio indicates efficient utilization of working capital and a

low ratio indicates otherwise. But a very high working capital turnover is not a good

situation for any firm.

Table 4.14

Year Net Sales

2008-2009 137451.92

2009-2010 170638.36

2010-2011 213873.02

2011-2012 258587.90

2012-2013 283950.90

Graph 4.10:

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2008

WC

TR

Working Capital Turnover

56

Working Capital Turnover Ratio:


course of the year. This ratio measures the efficiency with which the working capital is



Net Sales

Net Working Capital

Table 4.14: Table Showing Working Capital Turnover Ratio

Net Sales Net Working Capital Working Capital

137451.92 16999.41

170638.36 16398.76

213873.02 23163.33

258587.90 51967.40

283950.90 43775.60

Graph 4.10: Working Capital Turnover Ratio

2008-09 2009-10 2010-11 2011-12 2012-13

Year

Working Capital Turnover Ratio =


ch the working capital is



Net Sales

Working Capital

Turnover Ratio

Working Capital Turnover Ratio

8.09 Times

10.41 Times

9.23 Times

8.98 Times

6.49 Times

Turnover Ratio

WCTR

57

Interpretation:

The above table No. 4.14 and graph No. 4.10 reveal that working capital

turnover ratio year to year it was 8.09 times in the year 2008-09. During the year

2009-10 that was high 10.41 times there was subsequent decrease in the year 2010-

11, 2011-12 and 2012-13 to 9.23 times, 8.98 times and 6.49 times respectively.

This shows the company is utilizing working capital effectively in first 3

year then after it is shown that inefficient utilization of working capital.

58

5.1. Findings:

� Working Capital of the company showing positive working capital during the

study period there was higher working capital Rs. 51967.40 lacs in F.Y. 2011-12.

� The company has higher current and quick ratios are i.e., 1.99 times and 1.13

times respectively in the year 2011-12.

� As per current ratio firm is able to pay its current liability

� Inventory Turnover Ratio decreasing during the study period.

� Debtor’s Turnover Ratio is very high in the 2010-11. In the year 2011-12 it has

decreased up to 7.21 times as compared to 2010-11 and in the last year 2012-13 it

was again decreased up to 6.76 times as compared to 2011-12.

� Debtor Collection Period shows poor credit collection performance which

was gone up to 53.99 days in the year 2012-13.

Chapter - 5

Findings / Conclusions and Suggestions

5.1 Findings 5.2 Conclusions 5.3 Suggestions

59

� Creditors Turnover Ratio was increase from 2009-10 to 2012-13. It was 3.65

times in F.Y. 2009-10 and it was shows higher during 2012-13 that is 4.88 times.

� The Creditors Payment Period shows that the company has taken sufficient time

from creditors. It was 100 day in 2009-10 which was decrease onwards 2009-10

to 2012-13 and it comes 74.80 days in the year 2012-13.

� Working Capital Turnover Ratio this shows the company is utilizing working

capital effectively in first 3 year then after it is shown that inefficient utilization of

working capital.

5.2. Conclusions:

The study on working capital management conducted in Kansai Nerolac Paint

Limited to analyze the working capital position and working capital management police

of the company. The company’s working capital position is analyzed by using the tool of

ratio analysis through annual reports from 2008-09 to 2012-13.

The Current and Quick Ratio of the company is good but there is some need to

increase in that. The inventory turnover ratio has decrease in every year this is not good

sign for the company. The company’s liquidity position is very good it regard to the

investments in current assets there are adequate funds invested in it. Care should be taken

by the company not to make further investments in current assets, as it would block the

funds, which could otherwise be effectively utilized for some productive purpose. On the

whole, the company is moving forward with excellent management.

60

5.3. Suggestions:

� Working capital of the company has increasing every year except last year this is

good sign for the company. It has to maintain it further, to run the business long

term.

� The current and quick ratios are almost below to the standard requirement. So the

working capital management of the company is not satisfactory. There for

improve in current and quick ratios in necessary.

� The company should take precautionary measures for investing and collecting

funds from receivables and to reduce the bad debts.

� The company has take most of the time to making payment to the creditors. This

is not good sign for the company. Because it will decrease the Goodwill of the

company in market and also decrease credibility of the company. It has

maintained it further to survive in the market.

� The company is utilizing working capital effectively this is good for the company.

But if there is some amount of working capital is invested in some other

beneficial Purpose.

61

-Bibliography-

Books

Sr. Name of the Books Name of the Author Publication

1 Research Methodology C. R. Kothari New Age International

(Methods & Techniques) Publication

2 Financial Management Prof. S. M. Inamdar Everest Publishing House

3 Financial Policy and Bhabatosh Banerjee Eastern Economy Edition

Management Accounting

4 Management Accounting Dr. Mahesh Kulkarni Nirali Prakshan

Dr. Suhas Mahajan

5 Financial Management & -- Directorate of Studies

International Finance ICWAI

Website

1) www.nerolac.com 2) Icwai.org 3) www.slideshare 4) www.google.com

Annexure Financial Statement

Bibliography Annexure

sagar working capital management project

Education

working capital requirement

working capital position

temporary working capital

concept of working capital

gross working capital

net working capital

permanent working capital

measurement of working