Study on Working Capital Management of Karnataka Soaps and Detergent Ltd

KARNATAKA SOAPS AND DETERGENT LIMITED
INDIAN ACADEMY SCHOOL OF MANAGEMENT STUDIES

BANGALORE-560 043
CERTIFICATE
This is to certify that Mr.Hemanth Kumar.B studying IV semester, MBA, has prepared a Dissertation Report entitled A STUDY ON WORKING CAPITAL MANAGEMENT AT KARNATAKA SOAPS AND DETERGENTS LTD , Bangalore under the guidance of Mr.Srinivas .B.R.as a partial fulfillment of the requirements of the Bangalore University for the award of Master Of Business Administration for the academic year, 20092010. Date: Place: Signature of the Guide
Signature of the Principal
Indian Academy School of Management Studies
A STUDY ON WORKING CAPITAL MANAGEMENT AT KARNATAKA SOAPS AND DETERGENTS LTD BANGALORE
Dissertation submitted in partial fulfillment of the requirements for the award of the Degree of
MASTER OF BUSINESS ADMINISTRATION of BANGALORE UNIVERSITY By HEMANTH KUMAR.B Register Number: 08KSCM6017
Under the guidance of Mr.SRINIVAS.B.R
INDIAN ACADEMY SCHOOL OF MANAGEMENT STUDIES (IASMS) Hennur Cross, Hennur Main Road, Bangalore 560 043 20092010
Introduction Meaning of Finance:A branch of economics concerned with resource allocation as well as resource management acquisition and investment. Simply Finance deals with matters related to money and the markets. Finance is one of the major elements, which activates the overall growth of the economy. Finance is the lifeblood of economy activity. A well knit financial system directly contributes to the growth of the economy. An efficient financial system calls for the effective performance of institutions, financial instruments and financial meets. Importance of finance: Ensure that there are adequate funds available to acquire the resources needed to help the organization to achieve its objectives. Ensure costs are controlled. Ensure adequate cash flow Establish and control profitability levels. One of the major roles of the finance department is to identify appropriate financial information prior to communicating this information to managers and decision makers in order that they may make informed judgments and decisions. Finance also prepares financial documents and final accounts for managers to use and for reporting purposes (AGM etc.)
Financial Management:Financial Management is primarily concerned with acquisition, financing and management of assets of business concern in order to maximize the wealth of the firm for its owners. The basic responsibility of the Finance Manager is to acquire funds needed by the firm and investing those funds in profitable ventures that will maximize firms wealth, as well as, yielding returns to the business concern. The success or failure of any firm is mainly linked with the quality of financial decisions. The focus of financial management is on efficient and judicious use of resources to attain the desired objective of the firm. The basic objectives of Financial management centers around a) the procurement of funds from various sources like Equity share capital, preference share capital, debentures, term loans, working capital finance and b) effective utilization of funds to maximize the profitability of the firm and the wealth of its owners. The responsibilities of the Finance managers are linked to the goals of ensuring liquidity,
KARNATAKA SOAPS AND DETERGENT LIMITED profitability or both and are also related to the management of assets and funds of any business enterprise. The traditional view of financial management looks into the following functions that a Finance manager of a business firm will perform: a) Arrangement of short-term and long term funds from financial institutions. b) Mobilization of funds through financial instruments like equity shares, preference shares, debentures, bonds etc c) Orientation of finance functions with the accounting function and compliance legal provisions relating to funds procurement, use and distribution. With the increase in complexity of modern business situation, the role of a Finance manager is not just confined to procurement of funds, but his area of functioning is extended to judicious and efficient use of funds available to the firm, keeping in view the objectives of the firm and expectations of the providers of funds. Introduction to working capital:Cost estimation sometimes called as networking capital represented by the excess of current assets over the current liabilities and identified the relatively liquid position to total enterprise capital which constitutes a margin of buffer for maturing obligation within the ordinary operating cycle of the business-AICPA Traditionally, working capital has been defined as the firms investment in current assets. Working capital decisions are of tremendous importance of any firm, as they affect the businesss liquidity position. Like long term investment decisions, working capital decisions require an evaluation of the benefits and the costs associated with each component of current assets. Like long term investment decisions, cash flows play an important role in working capital decisions as well. The primary difference between long-term decisions and working capital decisions relates to the time horizon of the decision-making. While long-term financial decisions have cash flow implications for a period that may extend up to 20 years or even more, short term financial decisions i.e., working capital typically affect the cash flows of the firm for a shorter time frame extending upto a maximum of one are year. Working capital management is a significant in financial management due to the fact that it plays a pivotal role in keeping the wheels of a business enterprise running. Working capital management is concerned with short term financial decisions. Shortage of funds for working capital has caused many business fail and in many cases, has retarded their growth. Lack of efficient and effective utilization of working capital leads to earn low rate of return working capital i.e., for meeting the day to day requirements.
KARNATAKA SOAPS AND DETERGENT LIMITED The requirements of working capital varies from firm to firm depending upon the nature of business, production policy, market conditions, seasonality of operations, conditions of supply etc., working capital of a company is like the blood to human body. It is the most vital ingredient of a business. Working capital management is carried out effectively, efficiently and consistently, will ensure the health of an organization. A company invests its funds for long-term purposes and for short term operations. That portion of a companys capital, invested in short term or current assets to carry on its day to day operations smoothly, is called the working capital. Meaning of working capital:The concept of working capital is, perhaps, one of the most misunderstood the literature of finance. The reasons it is subjected to multiple connotations. From the Accountants perspective it refers to the current assets current liabilities differential: from the finance managers angle it implies the total investments made in current assets: from the production managers view it refers to the total funds that a firm needs to carry out its day-to-day operations. For definitional purpose, this book adopts, for obvious reasons, the finance managers view of working capital. For the sake of simplicity, we postpone issues of similarity or otherwise of the three perspectives to later paragraphs. Working capital refers to a firms investment in short term assets viz., cash, shortterm securities, amounts receivables and inventories of raw materials, work-in-progress and finished goods. It refers to all aspects of current assets and current liabilities. The management of working capital is no less important than the management of long term financial investment. Sufficient liquidity is necessary and must be achieved and maintained to provide that funds to pat off obligation as they arise or mature. The efficient working capital management is necessary to maintain a balance of liquidity and profitability. If the funds are tied-up in idle current asset represent poor and inefficient working capital management which affects the firms liquidity as well as profitability. Working capital is defined as the excess of current assets over current liabilities. All elements of working capital are quick moving in nature and therefore, require constant monitoring for proper management. For proper management of working capital, it is required that a proper assessment of its requirement is made. Working capital is also known as circulating capital, fluctuating capital and revolving capital. If the working capital level is not properly maintained and managed, then it may result in unnecessary blockage of scarce resources of the company. Therefore, the Finance managers should give utmost care in management of working capital.
There are two important elements of working capital management: 1. Decisions on the amount of current assets to be held by a firm for efficient operations of its business. 2. Decisions on financing working capital requirement. Need of the study: Cost estimation is essential for any organization, so analyzing the financial progress of the company is of great importance to understand the growth of the organization. The need for the working capital in a business undertaking cannot be overemphasized. The objectives of financial decision making to maximize shareholders wealth. To achieve this, it is necessary to generate sufficient profits the extents to which profits can be earned will naturally depend upon magnitude of the sales among their things. A successful sales programmer is in over words, necessary for earning profits by business enterprise. However sales do not convert into cost instantly. There is invariability a time lag between the sales of goods and the receipts of costs. There is, therefore a need for working capital in the form of current assets to deal with the problem arising out the lack of immediate realization of cost against goods solved. Sufficient working capital is thus, necessary to sustain sales activities. Objectives of working capital management:Objectives of the study:The basic objectives of the study are as follows: v v v v v v To understand the liquidity position ( financial and credit strength ) of KSDL To understand solvency ( financial ) position of KSDL To evaluate inventory management at KSDL To evaluate cash position of the KSDL To find out whether KSDL is maintaining adequate Working Capital by investing sufficient funds in Current Assets To make findings and to offer suggestions.
KARNATAKA SOAPS AND DETERGENT LIMITED (a)By optimizing the investment in current assets and by reducing the level of current liabilities, the company can reduce the locking-up of funds in working capital thereby; it can improve the return on capital employed in the business. (b)The second important objective of working capital management is that the company should always be in a position to meet its current obligations which should properly be supported by the current assets available with the firm. But maintaining excess funds in working capital means locking of funds without return. (c)The firm should manage its current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital employed to finance the current assets. (d)The firm should maintain proper balance between current assets and current liabilities to enable the firm to meet its day to day financial obligations. Scope of study: The study covers all the components of Working Capital. The study carried out at KS&DL Bangalore The study covers a period of three financial years ranging from 2006-07 to 2008-09. This is so because ratios not practical standards as they are several in numbers for each element of the study. Various ratios are used to analyze the Working Capital positions. Different graphs were drawn relating to the study INDUSTRY PROFILE Background of the industry:The early days of civilization shows us that mankind was aware of the importance of cleanliness and hygienic. The great bath of Indus Valley civilization is testimony for this. The roam were known to be considerable users for the soaps. During the period roman enterprise stale wine was collected as a source of ammonium carbonate for cleaning purpose. The mankind knew about soap 2000 years back i.e., in 70 A.D when Mr. Piling and leader accidently discovered soap when roasted meat overflowed on ashes. It was in 1831 A.D, that for the first time detergent was discovered by Mr. Fremy when he supplanted olive oil and almond oil, the consumption of soap in the world in 1884 AD was said to be 2 lakhs tones per annum, and it was in the year Mr. Lever entered the filed of soap by making in a big way.
KARNATAKA SOAPS AND DETERGENT LIMITED Soap is lamp like product, had foaming and cleaning character. Soap is a product that many people might take for granted or consider rather ordinary, but for some, lathering up can be treasured part of morning or nightly routing. Scented or unscented, in bars, gets and liquids, soap is a part of our daily lives. Since then in 1972 AD at first commercial batch of soap was made and marketed by M.S Bristol soap was then taken to London. India is a very vast country having a population more than 100 cores. Household penetration of soap is 98% people belonging to different income levels use different brands, which fall under different segments, but all income was levels use soaps, making it the second largest category in India and detergents being number one. Rural demand is growing at an increasing rate compare to urban because rural consumers in India constitute about 60-70% of the population. Development in manufacturing of soap The credit of making soap affordable to common man goes to Nicolas Leblanc, a French scientist. The early settlers in North America made their own soap by pouring hot water over wood ash to make an alkali called potash. The potash was boiled with animal fats in large. Iron kettles to make soap. But it was crude to look at and it had a bad odor. It was in this country development in soap making led to the making of soaps with fragrance, mildness and color. Mr. Twitched developed a process called Fat splitting in the year 1890 AD. In 1899 again it was Mr. Twitched who took out an American plant claiming manufacturing of sodium salt of petroleum sulphonates. In 1930 Mr. Recycler, a Belgaum scientist produced for the first time sodium Cheryl sulphonated which had similar properties to that of soap. Soap cannot be in acid solution and it forms precipitate with the calcium and magnesium in hard water. Hence, although soap is good all round detergent. During the middle ages soaps were made in various countries such as Italy, France, Spain and England etc. Soap industry in India: Northwest Soap Company established the first soap industry in 1897 at Merut. Following the Swedish movement in 1905 onwards few more factories movement in 1905 onwards few more factories were setup. Soap industries in India began with M/s Godrej, setting up their manufacturing unit during 1918 at Mumbai and M/s Government Soap factory in Bangalore. During the year 1930, M/s TATA oil mills company. Setup Hindustan Lever Limited setup their manufacturing unit at Mumbai and Calcutta. The industry continued to flourish very well
KARNATAKA SOAPS AND DETERGENT LIMITED unit 1967-1968, when the industry stagnated to due to informal price control. The industry soon recovered and experienced a sharp up swing during 1974. Before there World War 1, soap requirement of India was met by imports from the west, especially from United Kingdom. The big companies like lever Brother introduced soap and the use become more common even in villages. The soap supplied was good quality and low price. Second World War give stimulus to indigenous soap industry, by 1994, the capacity established was 1, 26000 tons and actual output was 1, 16000 tons. By 1957 the capacity went up to 2.53 lakhs tons. Today the production capacity is around 6 lakhs tons (Toilet Soap market estimated to 5.4 lakhs tons) In India, the per capital consumption of soap is 500 Gm compared to 1200 Gm in countries like Brazil. In case of detergents the per capital consumption is 1.60 Kg in India compared to 15.5 Kg in urban Europe and 18.5 Kg in Australia. In the organized sector, 88 units are manufacturing soaps with an installed capacity of 7, 05,963(46 units only) tons per year production of soap in this sector was of the order of 3, 52,232 tons during 1994-95 and 3,88,087 tons during 1995-96. There are 33 units in the organized sector for manufacturing of detergents with an installed capacity of 5, 09,020 (22 units only) tons per annum. History Until 1916, Karnataka, then the princely state of Mysore, was exporting sandalwood to France and other European countries for the extraction of oil. However, during the World war1when stocks of wood piled up in the state, an oil-extraction unit in Mysore and one at Shimoga was set up. Since then, Mysore became synonymous with sandalwood oil. Legends A popular saying is that no other tree can grow where the sandalwood does. The reason for this belief could be the fact that the root of the tree is supposed to suck in all the required nutrients needed for its growth from the nearby trees. Another belief says that the smell of the wood is so intoxicating that snakes are said to wrap themselves around the tree. Uses The inner wood or heartwood is used for carving and the bark when powered is an important raw material in the manufacture of agarbathis. For the extraction of oil, used
KARNATAKA SOAPS AND DETERGENT LIMITED by the cosmetic and soap industry, the tree has to be uprooted, for it is the roots that have the highest percentage of oil. Even spent wood after oil extraction is an important raw material in agarbathi manufacture. Sandalwood scrapings are powered and sold in pouches. The powder makes an excellent face and skin pack. A Hindu home usually has a billet of the wood that is rubbed on a stone plate sprinkled with water and the resulting paste is applied to the foreheads of idols during pooja. An ancient Indian remedy for prevention of sunstroke is a glass of cold milk scented with a drop of sandalwood oil. This drink is also supposed to prevent boils and other skin ailments caused, according to the Indian school of medicine, by excessive heart in the body. COMPANY PROFILE INTRODUCTION TO SOAP INDUSTRY: Soap is one of the commodities, which has become an indispensable part of life of the modern fantasy world. Since it is non-durable consumer goods, there is a large market for it. The whole soap industry is experiencing changes due to innumerable reasons such as Government relations, environment, toxicological allergy problems, increase in cost of raw material etc.
Following Swedish movement in 1905, few factories were set up and they were: Mysore Government Soap factory at Bangalore. Godrej Soaps at Bombay. The changing technology and even existing desire by the individuals and the organization to produce a better product at a mere economical rate has also acted as Catalyst for the dynamic process of change. More and more Soap manufactures are trying to capture a commanding market share by introducing and maintaining acceptable products. The soap industry in India faces a cutthroat competition, while multinational companies dominate the market. THE INDIAN SOAP INDUSTRY SCENARIO: The Indian soap industry has been dominated by handful of companies such as
1. Hindustan Levers Limited. 2. Tata Oil Mills (Taken over by HLL)
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3. Godrej Soaps Private Limited. 4. Recent entrants include Colgate Palmolive Limited.,
- Proctor and Gamble Limited., - Nirma Soap Works, - Wipro Limited., The Indian soaps industry continued to flourish very well until 1967-68, but began to stagnate. Soon it started to recover and experienced a short upswing in 1974. This increase in demand can be attributed to: 1. 2. 3. 4. Growth of population Income and consumption increase. Increase in urbanization Growth in degree of personal hygiene
Soap manufacturers are classified as Organized and Unorganized sector. KSDL is under organized sector. PRESENT STATUS: MARKET SCENARIO: India is the ideal market for cleansing products. The countrys per capita consumption of detergent powders and bars stands at 1.6kg and soap at 543gms. Hindustan Lever, which heralds over the cleaning business, sells in all over the cleaning business. PROBLEMS OF SOAPS AND DETERGENTS INDUSTRY: Industry faces some problems due to increase in the cost of raw materials. The major ingredients like soda ash, linear alkyl benzene and Sodium triply phosphate poses number of serious problems in terms of availability. The demand and supply gap of vegetables oil is 1.5 to 2 lakhs tons and is met through imports. HISTORY: India is a rich land of forest; ivory, silk, sandal; precious gems are magical charms of centuries. The most enchanting perfumes of the world got their exotic spell with a twist of sandal. The worlds richest sandalwood resource is from one isolated stretch of forests land in South India that is Karnataka.
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KARNATAKA SOAPS AND DETERGENT LIMITED The origin of sandalwood and its oil in Karnataka, which is used in making of Mysore sandal soaps, is well known as Fragrant Ambassador of India and Sandalwood oil is in fact known as Liquid Gold. By the inspiration of His Highness Maharaja of Mysore late Jayachamarajendra Wodeyar, the trading of sandalwood logs started which was exported to Europe and New destinations, but with commencement of First world War India faced Severe Crisis on the business of sandalwood. This situation gave rise to start of an industry, which produces value added products i.e., of sandalwood oil. His highness Maharaja of Mysore created this situation as an opportunity by sowing the seed of the Government Sandalwood oil Factory, which is the present KS&DL. The project was shaped with the engineering skills and expertise of the top level. Late Sir M. Visvesvaraya, the great Engineer who was the man behind the project. Todays famous Mysore sandal soaps credit goes to late Sri Sosale Garalapuri shastri who incorporated the process of soap making using Sandalwood oil. He was an eminent scientist in the field working at the Tata Institute, Bangalore. He was sent to England to master the fine aspects of soap manufacturing. The Maharaja of Mysore and Diwan Sir. M. Visvesvaraya established the Government Soap factory during the year 1918. The factory was started as a very small unit near K.R Circle, Bangalore with the capacity of 100 tons P.A. In November 1918 the Mysore sandal soap was put into the market after sincere effort and experiments were undertaken to evolve a soap perfume blend using sandalwood oil as the main base to manufacture toilet soap. The factory shifted its operation to Rajajinagar industrial area, Bangalore in July 1957, where the present plant is located. The plant occupies an area of 39 acres (covering Soaps, Detergents and Fatty Acid divisions), on the Bangalore - Pune Highway, easily accessible by transport services and communication. Another sandal wood oil division was established during the year 1944 at Shimoga, which stopped its operations in the year 2000 for want of Natural Sandalwood. This factory started at a moderate scale in year 1916. The first product was washing soap in addition to the toilet soap in the year 1918. The toilet soap of the company was made up of sandal wood oil. In 1950 Government decided to expand the factory in two stages. The first stage of expansion was done to increase the output to 700 tons per year and was completed in the year 1952 in the old premises.
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KARNATAKA SOAPS AND DETERGENT LIMITED The next stage of expansion was implemented in s1954 to meet growing demand for Mysore sandal soap and for this purpose Government of India sanctioned license to manufacture 1500 tons of Soaps and 75 tons of glycerin per year. The expansion project worth of Rs.21 lakhs includes the shifting of the factory to a newly laid industrial suburban of Bangalore. The factory started functioning in this new premise [i.e., present one] from 1st July 1957. From this year onwards till date the factory had never looked back, it has achieved growth and development in production scales and profits. The industry has 2 more divisions one at Shimoga and another at Mysore where sandal wood oil is extracted. The Mysore division started functioning from 1917 and only during 1984 manufacturing of perfumed and premiere quality Agarbathies at was started. Right from the first log of sandalwood that rolled into the boiler room in 1916, the company has been single minded pursuit of excellence. The project took shape with the engineering skills and expertise of top- level team under the leadership of Sir. M. Visvesvaraya, Prof. Watson and Dr. Sudbrough. Like this soap factory was started as a small unit and now it has grown up to a giant size. RENAMING: On 1st October 1980, the Government Soap Factory was renamed as Karnataka Soap and Detergent Limited. The company was registered as a public limited company. Today Company produces varieties of products in the toilet soaps, detergent, Agarbathies and Cosmetics. OBJECTIVES OF KS&DL: To serve the national economy To attain self reliance To promote and uphold its image as symbol of traditional products To promote purity and quality products and thus enhance age old charm of Sandalwood Oil. To build upon the reputation of Mysore Sandal soap based on pure sandal oil. To maintain the brand loyalty of its customer. To supply the products mentioned above at most reasonable and competitive rate.
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KARNATAKA SOAPS AND DETERGENT LIMITED VISION STATEMENT: Keeping pace with globalization, global trends and the states policy for using technology in every aspect of governance. Ensuring global presence of Mysore Sandal products while leveraging its unique strengths to take advantage of the current technology scenario by intelligent and selective diversification. Secure all assistance and prime status from Government of India, all technology alliances. Further, ensure Karnatakas pre eminent status as a proponent and provider of technology services to the world, nation, other states public and private sectors. Making available technology product and services at the most affordable price to the people at large, in keeping with the policy of a welfare state. Making all out efforts to achieve reasonable profits. Most importantly to earn the invaluable foreign exchange, both to the state and to the country.
COMPETITORS OF KS&DL PRODUCTS AND SERVICES: KS&DL is facing cut throat competition in national and international market. Some of its main competitors are: M/S. Hindustan Uni Lever Ltd., M/S. Godrej Soaps Private Ltd., M/s. Proctor and Gamble M/s. Wipro M/s. Nirma Soaps Private Ltd., M/s. Jyothi Laboratories KS&DL has the following departments: 1. 2. 3. 4. 5. 6. 7. 8. Finance and Accounts Human Resources Development and Administration Research and Development Quality Assurance Materials & Stores Production & Maintenance Marketing & Business Group Projects & Management Information Services
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KARNATAKA SOAPS AND DETERGENT LIMITED HRD DEPARTMENT: Importance of HRD Department: 1. 2. 3. 4. 5. 6. Management of human resources Co operation Assisting the management in HR matters Development of work force. Work together to achieve organizational goals and Profit and growth
KEY FUNCTIONS OF THE HRD: 1. 2. 3. 4. 5. 6. 7. 8. Recruitment and Selection Training and Development Promotion and Transfer Wages and Salary administration Performance Appraisal Industrial Relations Disciplinary Action and Welfare Measures
TRADEMARK OF KS & DL:
The SHARABHA
The carving on the cover is the sharabha, the trademark of KS & DL. The sharabha is a mythological creation from the puranas which has a body of a lion and head of elephant, which embodies the combined virtues of wisdom and strength. It is adopted as an official emblem of KS & DL to symbolize the philosophy of the company.
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KARNATAKA SOAPS AND DETERGENT LIMITED The sharabha thus symbolized a power that removes imperfections and impurities. The maharaja of Mysore as his official emblem adopted it. And soon took its pride of place as the symbol of the Government Soap Factory of quality that reflects a standard of excellence of Karnataka Soaps and Detergent Limited. SLOGAN NATURAL PRODUCTS WITH EXOTIC FRAGRANCES KS & DL has a long tradition of maintaining the highest quality standard, right from the selection of raw materials to processing and packing of the end product. The reasons why its products are much in demand globally and are exported regularly to UAE, Beharen, Saudi Arabia, Kuwait, Qatar, South America. The entire toilet soaps of KS & DL are made from raw materials of vegetable origin and are totally free from animal fats. POLICY OF KS&DL: Seek purchase of goods and services from environment responsible suppliers. Communicate its environment policy and best practices to all its employees implications. Set targets and monitor progress through internal and external audits. Strive to design and develop products, which have friendly environmental impact during manufacturing. Reuse and recycle materials wherever possible and minimize energy consumption and waste. BIRDS EYE VIEW OF KS&DL:1918 Government Soap Factory was started by Maharaja of Mysore and the Mysore Sandal Soap was introduced into the market for the first time. 1950 - The factory output rose to 500 M.Tons with the following Modifications. 1. Renovating the whole premises. 2. Installing new boiler soap building plant and drying Chamber.
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KARNATAKA SOAPS AND DETERGENT LIMITED 1954 Received license from Government to manufacture 1500 tons Of soap and 75 tons of glycerin per year. 1957 Factory shifted its operation to Rajajinagar industrial area. 1974 Mysore sales international limited was appointed as the sole Selling agent, for marketing its products. 1975 Rs.4 Crores synthetic detergent plant was installed based on Italian technology by Ballestra SPA. 1980 - On 1st October 1980 the Government Soap Factory was converted into a public sector enterprise and renamed as Karnataka Soaps & Detergents Limited. 1981 a) Production capacity increased to 6000 tons, b) Rs.5 Crores Fatty Acid Plant was installed. 1984 Manufacturing of premium quality of Agarbathies at Mysore division. 1985 Production capacity was raised to 26,000 M.Tons Per Annum. A large variety of toilet soaps at attractive shapes, colors and Fragrances introduced to meet the varieties & tastes of Consumers. 1992 The company was registered with the Board for Industries And Financial Reconstruction (BIFR), New Delhi in December for rehabilitation, as the company suffered losses Continuously since 1980 at its net worth fully eroded. 1996 The BIFR approved the rehabilitation scheme in September & The Company started making Profits. 1999 ISO-9002 Certificate for quality assurance in production, Installation and Servicing.
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KARNATAKA SOAPS AND DETERGENT LIMITED 2000 ISO-14001 certificate pertaining to environmental Management system. 2003 The entire carried forward loss of Rs.98 Cores wiped out And in May BIFR, declared the company to be out of its Purview. The Company is making profit continuously, It is only State Public Sector unit that has come out of BIFR. 2004 The ISO-9002 was upgraded to ISO-9001-2004, Quality Systems. PRESENT STATUS OF THE COMPANY: -
The company is mainly dependent on southern market. The product availability in retail outlets particularly for Mysore sandal soap is almost comparable to any other similar industries products in the premium segment in the south. Whereas in other parts like Eastern & Northern markets penetration of KSDL product is relatively poor, which depends on the companys distribution structure, stockiest and field personnel strength. With increased trust on distribution, the company does not foresee any problems to achieve the projected sales through the redistribution package. Further, the policy of Indian Government also sees the public sector enterprises enter the industry in a large way there by making the products available to the consumers at reasonable prices. Being located in the centre of southern part of India the Government Soap Factory claims preferential treatment for expansion programmed in view of availability of exotic natural Sandalwood oil.
AN ISO-9002 COMPANY: KS & DL with a tradition of excellence of over eight decades is committed to customer delight, through total quality management and continuous improvement through the involvement of all employees. KS&DL has got ISO 9002 certificate.
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KARNATAKA SOAPS AND DETERGENT LIMITED To improve the quality management system and to facilitate TQM in the process of soap and detergent, the management took decision to obtain ISO-9002 by end of March 1999. Accordingly action plan was drawn and a committee was set up for the purpose during October 1998 with a mission statement. The company gives initial training including conducting employees awareness programme, document quality manual and quality system procurement. In this direction company obtained the guidance from Consultancies, Bangalore and Bureau of Indian Standards, Bangalore. Accordingly, company standards registered for ISO 9002 by the end of March to the Bureau of Indian Standards. Obtained the certificate by the end of March 1999 itself. This is to project in the national and international market and also to improve quality of products offered to the consumers with the assurance of quality in the message. The Company got itself upgraded to ISO-9001-2004, Quality Systems in the year 2004-05. ISO-14001:The company is located in the heart of the Bangalore city. The management of the company took a decision to get the ISO-14001 and become model to other public sector for the techniques used and also to other Government units to spread the message of maintenance of environment. ISO-14001 and ISO-9001 will facilitate to improve the corporate brands in the global market and it will help the company to improve the profits, year after year on long-term basis. The environment management system adopted in the company through this motive as follows:
v v v
Conservation of energy Conservation of Surrounding Conservation of resources.
Equipped with latest technology and backed by full-fledged quality control and R&D support, KS&DL is marching confidentially ahead in the new millennium. The Company is developing new products to meet the changing preferences of its customers.
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KARNATAKA SOAPS AND DETERGENT LIMITED THE BIRTH OF A LEGEND:The early year of the 20th century witnessed the birth of a magical formula, created from the finest and purest sandalwood oil, better known as liquid gold, distilled exclusively at our divisions in Karnataka-Mysore. A fragrant gift to the world from the first Government Soap Factory of India. Nurtured by the Maharaja of Mysore, enriched with all the goodness of natural sandalwood oil, this unique soap captured hearts and markets at home, as well as right across the globe creating a fragrant legacy for the state of Karnataka. Karnataka Soaps and Detergents Limited (KS&DL) is the true inheritor of this golden legacy of India. Continuing the tradition of excellence for over eight decades, using only the best Grade sandal wood oil in its product range, KS&DL today in one of the largest producers of sandal wood oil and sandal wood soaps in the world. PRODUCT MANUFACTURED BY KS&DL:TOILET SOAPS
NAME OF THE PRODUCT
UNITS OF GRAMS
Mysore Sandal Soap Mysore Sandal Classic Soap Mysore Sandal Gold Soap Mysore Sandal Baby Soap Mysore Special Sandal Soap Mysore Rose Soap Mysore Sandal Herbal Care Soap Mysore Jasmine Soap Wave Soap Mysore lavender Soap
75, 125 75 75, 125 75 75 100 100, 125 100 100 150
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KARNATAKA SOAPS AND DETERGENT LIMITED Mysore Sandal bath tablet Mysore Sandal classic bath Tablet Mysore Jasmine bath tablet Mysore Special Sandal tablet Mysore Sandal rose tablet Mysore Sandal Guest tablet Table-1.1 150 150 150 150 150 17
GIFT RANGE SBT SJR 06 IN 01 GOLD SIXER
OTHERS Washing Half Bar Washing Sandal Baby Wash DETERGENTS
NAME OF THE PRODUCT Mysore detergent powder
UNITS IN GRAMS 1000
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KARNATAKA SOAPS AND DETERGENT LIMITED Mysore detergent powder Mysore detergent Cake Mysore detergent cake Table 1.2 TALCUM POWDERS 500 125 250
NAME OF THE PRODUCT Mysore Sandal Talc Mysore Sandal Baby Talc Table-1.3 AGARBATHIES
UNITS IN GRAMS 20, 50, 100, 300 100, 200, 400
NAME OF THE PRODUCT Mysore Sandal Premium Mysore Sandal Regular Mysore Rose Nagachampa Suprabhatha Mysore Jasmine Parijata Sir M.V.100 Bodhisattva
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KARNATAKA SOAPS AND DETERGENT LIMITED Venkateshwara Durga Ayyappa Alif Laila XMeditation
PRODUCT PROFILEKS&DL is the true inheritor of golden legacy of India. Continuing the tradition of excellence for over eight decades, using only the best East Indian grade Sandalwood oil & Sandalwood soaps in the world. The products produced at KS&DL are the Soaps, Detergents, Agarbathies and Sandalwood oil. PRODUCT RANGE FROM THE HOUSE OF MYSORE SANDAL SOAP a. Mysore Sandal Soap (75gm, 125gm & 150gm)
b. Mysore Sandal Special shop (75gm)
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c. Mysore Sandal Baby Soap (75gm)
d. Three-In-One Gift Pack (SJR) 3Tabs (150gm each)
e. Mysore Sandal Gold Soap (125gm)
f. Mysore Rose Soap (100gm)
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g. Six-In-One Gift Pack- 6Tabs (150gm each)
h. Mysore Sandal Gold sixer 6 Tabs (125gm each)
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KARNATAKA SOAPS AND DETERGENT LIMITED i. Mysore Sandal Soap Bath Tablet Trio 3nos. (150gm Each)
j. Mysore Sandal Classic Soap (75gm)
k. Mysore Jasmine Soap (100gm)
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KARNATAKA SOAPS AND DETERGENT LIMITED DETERGENTS:
KS&DL also manufactures high quality detergents applying the latest spray drying technology with well balanced formulation of active matters & other builders; they provide the ultimate washing powder. 1. Sensor Detergent Powder 2. Mysore Detergent Powder 3. Mysore Detergent bar 4. Mysore Detergent Cake AGARBATHIS: 1. 2. 3. 4. 5. 6. 7. Mysore Sandal premium 8. Mysore sandal Mysore Rose 9. Nagachampa Suprabath 10. Mysore Jasmine Parijata 11. Bodhisattva Venkateshwar 12. Durga Ayyappa 13. Alif Laila Chandhana (1kg/2kg) (1kg/500gms) (250gms) (125gms/250gms)
SANDALWOOD OIL: In 5ml, 10ml,20ml, 100ml,500ml,2kg,5kg,20kg,and 25kg packing.
POWDERS:
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KARNATAKA SOAPS AND DETERGENT LIMITED 1. Mysore Sandal Talk: Cooling & Healing, Fragrant freshness, Net. Wt 20gm, 60gm, 300gm and 1kg
2. Mysore Sandal Baby Powder: Tender loving care for baby& Mummy. Net wt 100400gms.
AREA OF OPERATION: GLOBAL FAVOURITES FOR THEIR NATURAL GOODNESS KS&DL has a long tradition of maintaining the highest quality standards, right from the selection of raw materials to processing and packaging of the end product. The reason why its products are much in demand globally & are exported regularly to UAE, Bahrain, /Saudi Arabia, Kuwait, Qatar, South East Asian countries as well as North America & South America. The sandalwood oil, of course, is much sought after by the leading perfume houses of the world. All the toilet soaps of KS&DL are made from oils & fats of vegetable origin & totally free from animal fat. OWNERSHIP PATTERN: Wholly owned by Government of Karnataka. COMPETITORS INFORMATION AND THEIR MARKET SHARE:
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KARNATAKA SOAPS AND DETERGENT LIMITED HLL KSDL 70% 11%
Procter and gamble Others Godrej Table-1.4 INFRASTRUCTURAL FACILITIES: 1. 2. 3. 4. Canteen facility Library Car stand Waiting room ACHIEVEMENTS/AWARD:
10% 5% 4%
1. Government of Karnataka Dept of Industries and commerce State Export Promotion Advisory Board. EXPORT AWARD 1974-75 2. Detergent Plant, M/s Chemical Bombay have given 1st prize for the year 1980 3. Geographical Indication GI-2005 4. ISO 9001-2000 in the year 1999 5. ISO 14001-2004 in the year 2000
SWOT ANALYSIS OF KS&DL:STRENGTHS: v v v v v v Only soap in India that contains pure sandal and almond oil. Certified by ISO Worlds largest production of sandalwood oil. Brand name from decades in soap market. It has very good dealership network in south which ensures that the products reach every customer. Diversified product range helps the company to maintain stability.
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WEAKNESSES: v v v v v Distribution network weak in north and east. Absence of television advertisement Neglecting freshness aspect. High oriented cost due to excessive labour force. Low turnover resulting in low profit.
OPPORTUNITIES: v v v v v Traditional benefits that sandal is good for skin Skin care is just gaining importance among consumers Government support and large production capacity Advantages of being in the industry for a long times Existence of vast market and huge demand.
THREATS: Other competitors products such as Rexona, Moti, Santoor etc. v There is a need for renovation of plant and machinery. v Government Policy may reduce growth potential. v Other sandal soaps in the market. v Entry of new multinationals in soap business. CLASSIFICATION OF EMPLOYEES AT KS&DL 1. Permanent Employee: One who has been engaged for work on a permanent basis. 2. Temporary Employee: One who has been engaged for work, which is essentially of temporary nature and likely to be finished within a limited period. 3. Probability Employee: One who is provisionally employed to fill a permanent vacancy. 4. Casual Workmen: One who is engaged on day to day basis, for casual or non recurring work. 5. Trainee: Trainee is a learner who may or may not be paid stipend during the period of training. v
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KARNATAKA SOAPS AND DETERGENT LIMITED MAN POWER DETAILS:
GROUP
Bangalore
SOD Mysore
Marketing Branches
Duty paid Go down Shimoga 03 15 18
Total
Executives Supervisors Workers Total
78 35 605 718
09 07 37 53
40 22 37 99
130 64 694 888
Table-1.5
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2.1 ORGANIZATION CHART
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LITERATURE REVIEW: Cost estimation sometimes called as networking capital represented by the excess of current assets over the current liabilities and identified the relatively liquid position to total enterprise capital which constitutes a margin of buffer for maturing obligation within the ordinary operating cycle of the business-AICPA Review of Literature:Review of literature means a review of all the previous studies, articles published, books published, etc. The review of literature may be given in to three or four parts viz., 1. 2. 3. 4. Review of journal articles Review of books Review of theses on similar titles and Review of reports on this and related themes. Besides enlarging your knowledge about the topic, writing a literature review lets you gain and demonstrate skills in two areas. 1. Information seeking:The ability to scan the literature efficiently, using manual or computerized method to identify a set of useful articles and books. 2. Critical Appraisal:The ability to apply principles of analysis to identify unbiased and valid studies. Components of Working Capital:The components of Working capital are:Current assets:Current assets are those assets which are convertible into cash within a period of one year and those which are required to meet the day operations of the business. The working capital management, to be more precise the management of current assets are cash or near cash resources. These include: (a)Cash and bank balances (b)Temporary investments
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KARNATAKA SOAPS AND DETERGENT LIMITED (c)Short-term advances (d)Prepaid expenses (e)Receivables (f)Inventory of raw materials, stores and spares (g)Inventory of work-in-progress (h)Inventory of finished goods (i)Inventory in government Securities (j)Amount due from subsidiary companies (k)Bills of exchange (l)Deposits (m)Outstanding incomes
Current liabilities:Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year. These include: (a)Creditors for goods purchased (b)Outstanding expenses (c)Short-term borrowings (d)Advances received against sales (e)Taxes and dividends payable (f)Other liabilities maturing within a year (g)Liabilities towards gratuity, etc (h)Loans from Bank and others
Concepts of working capital:-
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KARNATAKA SOAPS AND DETERGENT LIMITED The concepts of Working Capital are of two types. They are: a) Gross Working Capital b) Net Working Capital Gross working capital:The term gross working capital refers to the firms investment in current assets. According to this concept working capital refers to a firms investment in current assets. The amount of current liabilities is not deducted from the total of current assets. The concept of gross working capital is advocated for the reasons: (a)Profits of the firm are earned by making investments of its funds in fixed and current assets. This suggests the part of the earning relate to investment in current assets. Therefore, aggregate of current assets should be taken to mean the working capital. (b)The management is more concerned with the total current assets as they constitute the total funds available for operating purposes than with the sources from which the funds come. (c)An increase in the overall investment in the firm brings an increase in the working capital. Net working capital:The term net working capital refers to the excess of current assets over current liabilities and it is the difference between current assets and current liabilities. The net working capital is a qualitative concept which indicates the liquidity position of a firm and the extent to which working capital needs may be financed by permanent source of funds. The concept looks into the angle of judicious mix of long- term and short-term funds for financing current assets. A portion of net working capital should be financed with permanent sources of funds. The gross and net working capital are ascertained as shown below: Current assets: Raw material stock xxx Work-in-progress xxx Finished goods stock xxx (Rs)
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KARNATAKA SOAPS AND DETERGENT LIMITED Sundry debtors xxx Bills receivables xxx Short-term investments xxx Cash and bank balances ____ Gross Working capital xxx
Less: Current liabilities: Creditors for materials xxx Creditors for expenses xxx Bills payables xxx Tax liability xxx Short-term loans xxx
___
xxx Net working capital
___
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KARNATAKA SOAPS AND DETERGENT LIMITED Note: An increase in the current assets increases the working capital. An decrease in the current assets decreases the working capital. An increase in the current liabilities decreases the working capital. An decrease in the current liabilities increases the working capital. Types of Working Capital:The types of Working Capital are:Permanent working capital:The magnitude of investment in working capital may increase or decrease over a period of time according to the level of production. But, there is a need for minimum level of working capital to carry its business irrespective of change in level of sales or production. Such minimum level of working capital is called permanent working capital or fixed working capital. It is the irreducible minimum amount necessary for maintaining the circulation of current assets. The minimum level of investment in current assets is permanently locked-up in business and it is also referred to as regular working capital. It represents the assets required on continuing basis over the entire year. The permanent component current assets which are required throughout the year will generally be financed from long-term debt and equity.Tandon committee has referred to this type of working capital as core current assets. Core current assets are those required by the firm to ensure the continuity of operations which represents the minimum levels of various items of current assets viz., stock of raw-materials, stock of work-in-progress, stock of finished goods, debtors balances, cash and bank etc.This minimum level of current assets will be financed by the longterm sources and any fluctuations over the minimum level of current assets will be financed by the short-term financing.
Temporary working:It is also called as fluctuating working capital. It depends upon the changes in production and sales, over and above the permanent working capital. It is the extra working capital needed to support the changing business activities. It represents
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KARNATAKA SOAPS AND DETERGENT LIMITED additional assets required at different items during the operation of the year. A firm will finance its seasonal and current fluctuations in business operations through short-term debt financing. For example, in peak seasons, more raw materials to be purchased, more manufacturing expenses to be incurred, more funds will be locked in debtors balances etc. In such times excess requirement of working capital would be financed from short-term financing sources. The management of working capital is concerned with maximizing the return to shareholders within the accepted risk constraints carried by the participants in the company. Just an excessive long-term debts puts a company at risk, so an inordinate quantity of short-term debt also increases the risk to a company by straining its solvency. The suppliers of permanent working capital look for long-term return on funds invested whereas the suppliers of temporary working capital will look for immediate return and cost of such financing will also be costlier than the cost of permanent funds used for working capital. Positive and negative working capital:The net working capital of a firm may be positive or negative. a) The positive net working capital represents the excess of current assets over current liabilities. b) Sometimes the net working capital turn be negative when current liabilities are exceeding the current assets. The negative working capital position will adversely affect the operations of the firm and its profitability. The chronic negative working capital situation will lead to closure of business and the enterprise is said to be technically insolvent.
Disadvantages of negative working capital:The disadvantages suffered by a company with negative working capital are as follows: a) The company is unable to take advantage of new opportunities or adopt to changes.
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KARNATAKA SOAPS AND DETERGENT LIMITED b) Fixed assets cannot be used effectively in situations of working capital shortage. c) The operating plans cannot be achieved and will reduce the profitability of the firm. d) It will stagnate the growth of the firm. e) Employee morale will be lowered due to financial difficulties. f) The operating inefficiencies will creep into daily activities. g) Trade discounts are lost. A company with ample working capital is able to finance large stocks and can, therefore, place large orders. h) Cash discounts are lost. Some companies will try to persuade their debtors to pay early by offering them a cash discount, off the price owed. i) The advantages of being able to offer a credit line to customers are foregone. j) Financial reputation is lost result in noncooperation from trade creditors in times of difficulty. k) There may be concerted action by creditors and will apply to court for winding up. l) It would be difficult to get adequate working capital finance from banks, financial institutions. Working capital requirement:There is no set of universally applicable rules to ascertain working capital needs of a business organization. Factors which influence the need level are discussed below: *Nature of business - If we look at the balance sheet of any trading organization, we find major part of the resources are deployed on current assets, particularly stock-in trade. Where as in case of a transport organization, major part of funds would be locked up in fixed assets like motor vehicles, spares and work sheet etc. and the working capital should negligible. The service organizations need lesser working capital than trading and financial organizations. Therefore the requirement of working capital depends upon the nature of business carried by the organization.
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KARNATAKA SOAPS AND DETERGENT LIMITED *Manufacturing cycle - Time span required for conversion of raw materials into finished goods is a block period. The period, in reality extends a little before and after the WIP. This cycle determines the need of working capital. In case of industries with long manufacturing process or production cycle, more funds are required for working capital. The industries involved in quick conversion of raw materials into finished units or having lesser production cycle requires lesser amount of working capital. *Production process - In case of labour intensive industries high working capital is needed. But in case of capital intensive industries the production process is faster and it requires lesser amount of working capital due to lesser conversion costs. *Business cycle - This is another factor which determines the need level. Barring exceptional cases, there are variations in the demand for goods/services by any organization. Economic boom or recession etc., have their influence on the transactions and consequently on the quantum of working capital required. More working capital is needed during peak or boom conditions. But in case of economic recession or low inflator conditions, the company requires low moderate working capital. *Seasonal variations - Variation apart, seasonality factor creates production or even storage problem. Mustard and many other oil seeds are Rabi crops. These are to be purchased in a season to ensure continuous operation of oil plant.Furthur there are woolen garments which have demand during winter only. But manufacturing operation has to be conducted during the whole year resulting in working capital blockage during off season. *Scale of operations - operational level determines working capital demand during a given period. Higher the scale, higher will be the need for working capital. However, pace of sales turn over (quick or slow) is another. Quick turnover calls for lesser investment in inventory, while low turnover rate necessitates larger investment. *Inventory policy - The traditional production systems generate more stocks of finished goods and high levels of raw materials and WIP stocks are maintained and the stock holding period is also more. In such cases more working capital is needed. The adoption of JIT, supply chain management, vendor management will drastically reduce the levels of raw materials, WIP and finished goods stocks and therefore, less amount of funds are invested in inventory. *Credit policy - Credit policy of the business organization includes to whom, when and to what extent credit may be allowed. Amount of money locked up in account receivables has its impact on working capital. The liberal credit period and follow up procedures will increase in investment in debtors balances and simultaneously increase
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KARNATAKA SOAPS AND DETERGENT LIMITED the working capital requirement, than concerns resorting to strict credit and collection procedures. *Accessibility to credit - Creditworthiness is the precondition for assured accessibility to credit. Accessibility in banks depends on the flow of credit i.e., the level of working capital. *Business standing - In case of newly established concerns the materials are required to be purchased in cash and the sales are to be made on credit basis. Such new concerns require high levels of working capital. But the established companies can negotiate for credit terms with suppliers and sell the products at lesser credit period to customers. Therefore, it requires less working capital than concerns with lesser business standing. *Growth of business - Growth and diversification of business call for larger volume of working .The need for increased working capital does not follow the growth of business operations but precedes it. Working capital need is in fact assessed in advance in reference to the business plan. *Market conditions - In a buyers market i.e., the market with fierce competition, the companies are forced to sell on credit, with liberal credit and collection policies. This increases the level of investment in working capital due to increased debtors balances and its administration costs. But if the sellers market prevails, the quick disposal of stocks, high percentage of cash sales, strict credit and collection policies etc.reduces the need for working capital. *Supply situation - In easy and stable supply situation, no contingency plan is necessary and precautionary steps in inventory investment can be avoided. But in case of supply uncertainties, lead time may be longer necessitating larger basic inventory, higher carrying cost and working capital need for the purpose. Aggressive approach cannot be adopted in such situation. *Environment factors - Political stability brings in stability in money market and trading world. Things mostly go smooth .Risk ventures are possible with enhanced need for working capital finance. Similarly, availability of local infrastructure facilities like road, transport, storage and market etc., influence business and working capital need as well. Working capital management in seasonal industries:In the seasonal industries, the level of working capital requirement will not be similar all through the year. In times of off-season, the working capital requirement and the levels of investment in current assets and liabilities are very low.
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KARNATAKA SOAPS AND DETERGENT LIMITED During season, the firms requirement of working capital is at peak level. Let us look at the sugar industry. The crushing season in year will remain for 5 to 6 months time. During the season the plant is expected to work at full capacity with triple shift working and the requirements of stocks of raw materials is very high and resultant increase in stocks of sugar. The requirement for payment of labour, expenses and maintenance is also higher. There will not be immediate sale of sugar and finished stock inventory would be much higher. After the completion of the crushing season, the plant will be closed and only upkeep and maintenance of plant will be incurred and the level of current assets and current liabilities comes down and the working capital requirement would be very low. For efficient management of working capital, the Finance manager should be able to properly estimate the season and off-season requirements of working capital. For this he has to take the following precautions: a) Preparation of projected cash flow statement showing the cash flow for peak season, normal season and off-season requirements. b) Make proper arrangements with the banks and other sources of finance to meet the short-term needs of season. c) Make proper arrangement for meeting the contingencies of higher level requirements than the projected levels of requirement d) Proper and careful assessment of working capital requirements for the season and off-season requirement. e) Care to be taken to reduce the level of investments in current assets after the season is completed. The Finance manager of a seasonal industry should be extra cautions while assessment of working capital of a firm. Working capital requirement during periods of inflation:One of the objective of working capital management is to determine and maintain the optimum level of investment in current assets for increase of return on capital employed. While determination of working capital requirements, moderate inflation rate can be ignored, but high rates of inflation will be considered otherwise, wrong setting of working capital level will hamper the smooth flow of working and profitability of the concern. When the inflation rate is high, it will have its direct impact on the requirement of working capital as explained below: a) Inflation will cause to show the turnover figure at higher level even if there is no increase in the quantity of sales. The higher the sales means the higher levels of balances in receivables.
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KARNATAKA SOAPS AND DETERGENT LIMITED b) Inflation will result in increase of raw material prices and hike in payment for expenses and a result, increase in balances of trade creditors and creditors for expenses. c)Increase in valuation of closing stocks result in showing higher profits but without its realization into cash causing the firm to pay higher tax, dividends and bonus. This will lead the firm in serious problems of funds shortage and firm may unable to meet its short-term and long-term obligations. d) Increase in investments in current assets means the increase in requirement of working capital without corresponding increase in sales or profitability of the firm. Keeping in view of the above, the Finance manager should be very careful about the impact of inflation in assessment of working capital requirements and its management. Determinants of working capital:Sources of Working capital:The sources of Working capital are of two types. They are: a) Internal Sources b) External sources a) Internal Sources:1. Retained Earnings 2. Depreciation Fund 3. Using the resource meant for taxation. b) External Sources:1. Bank credit 2. Customer Advances 3. Short-term public deposits 4. Installment credit 5. Factoring 6. Commercial papers 7. Indigenous bankers 8. Trade credit
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KARNATAKA SOAPS AND DETERGENT LIMITED 9. Outstanding expenses. Steps in Determination of Working Capital:The individual components method of estimation of Working capital involves the following steps: Step 1 - Identify the various items of current assets and current liabilities which consist in determination of Working capital. The current assets include inventory of raw materials, WIP and finished goods sundry Debtors, prepaid expenses, desired cash balance etc.The current liabilities include creditors for raw Materials, stores and consumables, creditors for wages, creditors for expenses, etc. Step 2 - a) Estimate the holding period of each item stock i.e., raw materials, work-inprogress and finished goods. b) Estimate the collection period of sundry debtors. c) Estimate the desired cash balance time for meeting the requirements of day to day operations. d) Estimate the payment deferral period of creditors for raw materials. e) Estimate the log in payment of wages and expenses. Step 3 - 1) Determine the raw material, labour and overhead cost per unit. 2) Determine the operating level. 3) Determine the percentage of conversion cost incurred on WIP. 4) Determine the cost of sale and selling price per unit. Step 4 - Ascertain the value of each item of current assets and current liabilities taking into account the Information in step 2 and step 3. Step 5 - Put the values of current assets and current liabilities in a statement form and ascertain the net working Capital (i.e., current assets current liabilities) after adding up the desired cash balance and amount needed for meeting contingencies.
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Working capital needs of different types of business:The quantum of working capital requirements is closely related to the nature of business of the firm, which in turn, is related to the operating cycle. For example, in a bakery unit, the requirement may be very low, as the operating cycle may hardly be for one or two days. Similarly, in case of an electric supply company, or a transport company or a company that is still in a sellers market, working capital requirements much less such. This is due to the shorter operating cycle, which is due to the fact that sales for such businesses is mainly on cash basis. As the result the time lag between credit sales and collection of accounts receivables is cut down. As against this, a company manufacturing heavy machine tools or turbines will naturally be having a much longer operating cycle, as it would be selling mostly on credit, and consequently would require a much higher level of working capital. Also for such businesses, the value of raw material inventory, finished goods inventory and credit sales is high due to the costly nature of products they deal in. Seasonal industries, such as those manufacturing woolen clothes and blankets, geysers, etc., may require a much higher level of working capital in peak seasons and a much lower requirement during slack seasons. Table 21-1 demonstrates this relationship between current assets (working capital) and total assets for different industrial sectors. As can be seen in the table, the highest level of working capital/current assets is maintained by trading firms. This is because investment in the inventory of finished goods is the single most significant investment for such firms. Table showing the Current assets to total assets ratio for different industries Industries Current assets to total assets (%)
Trading Medicines Machinery Engineering
75-77 65-70 60-68 60-65
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KARNATAKA SOAPS AND DETERGENT LIMITED Sugar Rubber Aluminum Paper Cement Electricity Gen. and supply Shipping 59-65 50-55 45-50 40-45 32-35 25-30 15-18
Table-2.1 `Estimation of Working Capital Requirements:Accurate estimation of working capital requirements is of tremendous importance, as the funding of working capital requirements depends upon this estimate. Estimation is essentially a projection that depends on both past data and the projected level of activity for which the working capital is required. It requires information from varied sources. The production department provides inputs on the rate of material consumption and labour usage and on production overheads based on past performance. The stores section provides data on average inventory held by the firm in the past, while the marketing department provides sales projections for the period for which working capital is to be estimated. The personnel department submits information about the salary bill and other manpower-related costs, and the accounts department provides an estimate of the various overheads likely to be incurred for the period. Working capital essentially refers to funds that need to be blocked in the various stages of the firms value chain (i.e., the different components of current assets), to carry out the desired level of activity in a smooth and efficient manner. Its estimation requires the estimation of funds blocked in the different components of current assets and the duration of their blockage. The operating cycle and its
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KARNATAKA SOAPS AND DETERGENT LIMITED components (ICP, RCP and PDP) that have been discussed from the basis of such estimation. Estimation of working capital can be stated as a four step process: Step 1:- Determining the duration of blockage of funds. This gives the time period for which the money will be tied up in the various components of the operating cycle. It is the same as estimating the time it takes to complete one stage in the operating cycle and transferring the output of this stage to the succeeding stage. Hence it is alternatively referred to as conversion period. The duration of the different component of the operating cycle can be estimated as follows: Duration of Raw Material (DRM):Average Raw Material Inventory = -----------------------------------------Raw material consumed --------------------------360
Duration of Work-in-process (DWIP):= Work-in-process inventory ----------------------------------Cost of production ----------------------360 Duration of Finished goods (DFG):= Finished goods inventory ---------------------------------
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KARNATAKA SOAPS AND DETERGENT LIMITED Cost of goods sold ----------------------360 Duration of Accounts Receivable (DAR):= Average debtors ---------------------Credit sales -------------360 Duration of Accounts payable (DAP):= Average Creditors ----------------------Credit purchase ------------------360
The Raw material inventory has been divided by the raw material consumed, given in the extract of profit and loss account, to get Duration of Raw material. The work-inprogress inventory and finished goods inventory have been divided by the sum of raw material, wages and overheads to arrive at the Duration of work-in-process and Duration of Finished goods respectively. Duration of Raw materials, Duration of work-in-process and Duration of Accounts Receivable denote the total time period it takes to convert the raw material inventory, the work-in-process inventory, and the receivables (or debtors) into their next stages, and eventually into realization of cash. The longer the duration, the more the blockage of funds in the three components of inventory, and the more the blockage, the more the requirement for working capital. If the estimation is to be done on a weekly or monthly basis, the denominator should be divided by 52 or 12 respectively.
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KARNATAKA SOAPS AND DETERGENT LIMITED Step 2:- Estimation of weights of the different components of operating cycle in the total funds to be blocked in working capital. The weights can be computed as follows:
Weight of Raw Material (WRM):-
Raw Material and Stores cost per unit ---------------------------------------------Selling price per unit
No. of days in a year has been taken as 360 as a denominator. This is for the ease of computation and also due to the assumption that there are atleast 5 days in a year when there is no business activity. However, readers may take 365 days in the denominator instead of 360 Weight of work-in-process (WWIP):= Raw material and Store cost per unit (Processing cost per unit)*.52 --------------------------------------Selling price per unit Weight of finished goods (WFG):= Cost of goods sold unit -----------------------------Selling price per unit Weight of Accounts Receivable (WAR):= Cost of sales per unit --------------------------Selling price per unit
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Weight of Accounts Payable for credit purchase of material (WAP):-
Raw Material and Stores cost per unit -----------------------------------------------Selling price per unit
Step 3:- Determination of weighted operating cycle (WOC). WOC can be computed as follows: WOC=DRM * WRM + DWIP * WWIP + DFG * WFG + DAR * WAR DAP * WAP Step 4:- Computation of working capital requirements is as follows:
Working Capital Requirement = Sales per day * WOC + cash Balance required Methods of Estimating Working Capital:Usually there are two methods followed for Estimating Working Capital requirements: 1) Conventional Method:In this method, cash inflows and outflows are matched with each other. Greater emphasis is laid on liquidity and greater importance is attached to current ratio, liquidity ratio, etc. which pertains to the liquidity of the business. 2) Operating cycle method:Operating cycle refers to the length of the time involved between the Sales and their actual realization in cash. In other words, it is the cycle time required in conversion of: a) b) c) d) Cash to Raw materials Raw materials to Work-in-process Accounts receivables to cash Work-in-process to finished goods
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KARNATAKA SOAPS AND DETERGENT LIMITED e) Finished goods to accounts receivables The operating cycles of a manufacturing company involves the following phases: a) Purchase of resources such as Raw material, labor, power and fuel etc with cash b) Conversion of Raw materials into Work-in-process into finished goods c) Sales of finished product either for cash or on credit. Credit sale create book debts for collection d) Conversion of book debts into cash. Operating Cycle Concept and its relevance for working capital management:Working capital is the life blood of any business, without which the fixed assets are inoperative. Working capital circulates in the business, and the current assets can change from one form to the other. Cash is used for procurement of raw materials and stores items and for payment of operating expenses, then Converted into work-in-progress, then to finished goods. When the finished goods are sold on credit terms receivables balances will be formed. When the receivables are collected, it is again converted into cash. The need for working capital arises because of time gap between production of goods and their actual realization after sales. This time gap is called technically called as operating cycle or working capital cycle. The operating cycle of a company consists of time period between the of inventory and the collection of cash from receivables. The operating cycle is the length of time between the companys outlay on raw materials, wages and other expenses and inflow of cash from sale of goods. Operating cycle is an important concept in management of cash and management of working capital. The operating cycle reveals the time that elapses between outlay of cash and inflow of cash. Quicker the operating cycle less amount of investment in working capital is needed and it improves the profitability. The duration of the operating cycle depends on the nature of industry and the efficiency in working capital management. The operating cycle refers to the length of time necessary to complete the following cycle. FIGURE: CASH CYCLE
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Cash
Purchase of Raw Material
Accounts receivable
W.I.P.
Sales
Finished Goods
Chart-2.1 The operating cycle, is the total duration taken to complete one cycle of operation i.e., the time it takes to turn the investment of cash (for the purchase of raw materials and finished goods) back into cash (through collection of accounts receivables ). For manufacturing firms, it typically consists of three activities: procurement of inputs, transformation of inputs into outputs, and distribution (selling) of output. The total time involved in operating cycle can be broken up into the following three constituents: . Inventory conversion period (ICP):The total time involved from the procurement of inputs till the conversion of inputs into outputs is called inventory conversion period. It consists of three successive stages raw material conversion period, work-in-progress conversion period and finished goods conversion period. Receivables conversion period (RCP):Time lag in converting credit sales into cash is called receivable conversion period. It depends on the credit period offered to customers and collection efforts of the firm. It is alternatively referred to as Accounts Receivable conversion period, Debtor conversion period, or Book Debts conversion period.
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KARNATAKA SOAPS AND DETERGENT LIMITED Payables conversion period (PDP):The period for which the firm can defer its payments deferred period. The longer the period, the lesser would be the firms need to seek working capital financing from external sources. The operating cycle, can be subdivided into the gross operating cycle and the net operating cycle. The gross operating cycle (GOC) refers to the total time involved from the procurement of inputs to the realization of cash on account of sales. It can be represented as an equation as follows: GOC=ICP+RCP The net operating cycle (NOC) implies the net time for which the working capital needs to be arranged. It ignores the period for which the firm is able to defer payables (PDP). The firm does not need financing for the period it defers its payables, as it is getting financed indirectly by those deferrals. The longer this period, the lesser is the firms reliance on direct sources of working capital financing. NOC can mathematically be represented as: NOC=GOC+PDP The operating cycle in part determines how long it takes for a firm to generate cash from its current assets and, therefore, the risk and costs of its investments in current assets, or working capital. The length of the operating cycle depends on the technology adopted. Adopting an improved production technology normally causes a reduction in the conversion time. Similarly, an improved supply chain reduces the lead delivery time. The firms credit policies also effect its operating cycle. Normally a relaxation in the credit policy elongates the operating cycle. Another concept closely related to operating cycle is the cash conversion cycle. Normally, the term operating cycle is used to refer to the GOC. While the term cash conversion cycle or the cash cycle means the NOC. It is the period for which the firm is required to arrange for finance for its working capital needs. Techniques Adopted by Firms to cut down their operating cycle:Returns, such as return on investment (ROI), return on equity (ROE), profit margin, etc., depend on two basic factors: 1. Profit margin and 2. Asset efficiency (turn over)
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KARNATAKA SOAPS AND DETERGENT LIMITED Cost reduction and improvement in assets turnover assume significance because enhancing the profit margin through volume increase may not viable beyond a certain point in a competitive market situation. Most of the firms. in view of increased competition that puts downward pressure on their selling price and margins per unit, are focusing upon cost control /reduction besides improving their asset efficiency as part of their overall corporate strategy. Operating cycle management assumes importance in this context. Firms across the board are lying to cut down their operating cycle so that they can reduce the blockage of funds in their value chain. The blocked funds thus freed can be redirected either towards more yielding investments or to pay back the firms existing liabilities which realigns their debt-equity ratios and reduces future interest burdens. Sometimes outsourcing is taken recourse to cut down the operating cycle. This also brings down the cost of operations, as the firms need not to focus upon all activities down the value chain, but only on those activities in which they have core competency, and outsource the other activities/ processes at lesser cost to firms that have core competence in such processes. The prominent techniques that the firms are taking recourse for cutting down their operating cycle are: Outsourcing of various processes (such as production, distribution, collection, etc.) Setting up vendor-managed inventories Reducing the collection float by using banks with accelerated clearing capabilities Bringing about technology upgradation to achieve reductions in the conversion period for in-house operations. The above said periods are ascertained as following: a) Raw Material Holding Period: Average raw material stock -------------------------------------------------Average consumption of raw material/365 b) Work-in-progress Period: Average work-in-progress ---------------------------------Average cost of goods/365 c) Finished Goods Holding Period:
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Average finished goods stock --------------------------------------Average cost of goods sold/365 d) Receivables Collection Period: Average receivables --------------------------Average sales/365 e) Creditors payment period: Average creditors -----------------------------------------------Average purchase of raw materials/365 The knowledge of operating cycle is essential for smooth running of the business without shortage of working capital. The working capital requirement can be estimated with the help of duration of operating cycle. The longer the operating cycle, the larger the working Capital requirements. If depreciation is excluded from expenses in the operating cycle the net operating cycle represents cash conversion cycle. The length of operating cycle is the indicator of efficiency in management of short term funds and working capital. The operating cycle calls for proper monitoring of external environment of the business. Changes in government policies like taxation, import restrictions, credit policy of central bank etc., will have impact on the length of operating cycle. It is the task of Finance manager to manage the operating cycle effectively and efficiently. Based on the length of operating cycle, the working capital finance is done by the commercial banks. The reduction in operating cycle will improve the cash conversion cycle and ultimately improve the profitability of the firm. Working capital Financing policies:The financing of working capital is very crucial to management of working capital as it makes a significant impact on the firms profitability and liquidity position. Theoretically, there can be three possible approaches to working capital financing:
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KARNATAKA SOAPS AND DETERGENT LIMITED matching, conservative, and aggressive. The mix of short-term and long-term sources of working capital financing varies in each approach, and consequently, the impact of each of the three approaches on the profitability and liquidity position of the business also varies. Matching Approach:This is the conventional approach to financing. As per this approach, the duration of requirement of funds should be matched with the duration of the sources of financing. That is while the fixed assets and the permanent (core) current assets must be financed by long-term sources of finance, the temporary current assets alone should be financed by short-term sources of funds. This approach follows the middle path of working capital financing. Conservative Approach:This approach favours maximum reliance on long-term sources of financing. A firm following this approach would finance not only its fixed assets and its permanent working capital from long-term sources, but would also partly finance its temporary (seasonal) working capital requirements from long-term sources. The conservative approach is termed as a low profitability and high liquidity approach to working capital financing because more reliance on long-term funds impacts returns adversely, although its strengthens the liquidity position of the business. Aggressive Approach:Aggressive Approach to working capital financing favours maximum reliance on short-term sources for working capital financing. The working capital financing policy of a firm is said to be aggressive if it finances a part of its permanent working capital requirements from short-term sources. This is a high profitability and low liquidity approach to working capital financing. Although the terminology matching, conservative and aggressive may not be standard and universally applicable, the idea behind classifying the working capital financing policy of firms under these three broad categories is to make working capital financing policies across firms and over time comparable for the purposes of analysis and decision making. A firm may be more aggressive in its working capital financing vis-vis other firms in the sector, or compared with its own financing policy in the past.
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KARNATAKA SOAPS AND DETERGENT LIMITED Working capital policy:The overall working capital policy depends on two factors; the level of current assets (that we refer to as current assets policy) and the financing of current assets (that can be alternatively referred to as working capital financing policy or level of current liabilities). Whether the working capital policy of the firm is aggressive or conservative in relation to its policy in the past or vis--vis its competitors depends upon its current assets policy and current assets financing policy. Depending upon the level of current assets and their financing, working capital of the firms can be categorized into one of the four quadrants.
If the firm on one hand maintains low level of current assets while on the other it depends more on short-term sources of financing its overall working capital policy is termed as aggressive. Firms that maintain a higher level of current assets and also rely heavily on long-term sources for financing their current assets fall in quadrant 1 and their working capital policy is termed as conservative. Other firms would fall in either quadrant 2 or 3 and are said to have a moderate working capital policy. As firms evolve and as the competition intensifies, the firms become more cost conscious and start focusing on better resource utilization, they move towards quadrant 4 and their working capital policy normally becomes more aggressive.. Moreover with the growing size of the firms and long years of performance their credibility increases. Also, they establish good relations with suppliers and bankers. This cuts down the uncertainty with respect to supply of inputs and short-term sources of financing and as a result it does away with the need to carry extra level of current assets. Significance of the Working Capital:The Working Capital need arises for the following purpose: For purchasing Raw materials, components and spare parts For paying Wages and salaries To incur day-to-day expenses and overhead costs like fuel, power and office expenses etc. To meet selling costs of packing advertising etc To finance operations during the time gap between sale of goods on credit and realization of money from customers of the firm. To maintain inventories of Raw materials, Work-in-progress, Spare parts and finished goods To finance investments in Current Assets for achieving the growth target.
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KARNATAKA SOAPS AND DETERGENT LIMITED To incur day-to-day expenses and overhead costs like fuel, power and office expenses etc.
PROBLEMS ASSOCIATED WITH EXCESS WORKING CAPITAL. Several dangers are associated with excess working capital, they are, Excess working capital results in idle funds and there by lowers the profitability of the business If the excess working capital takes the form of unnecessary accumulation of inventories, there may be mishandling wastage, theft etc. of inventories, may reduce the profit of the firm. Excess working capital makes the management co placement in there work. This may contribute to managerial inefficiency. If the excess working capital takes the firm of huge accounts receivable, the inference is that the credit policy of the firm is defective and the collection of debts is not efficient. Further, in such a situation, there may be higher incidence of bad debts, which will adversely affect the profit of the firm. When inventories accumulate because of excess working capital, the tendency to speculative profits grows the tendency to speculative profits may lead to liberal dividend policy. The liberal dividend policy may make it difficult for the firm to keep up the dividend, especially when it false to make speculative profits. PROBLEMS ASSOCIATED WITH INADEQUATE WORKING CAPITAL. Inadequate capital makes sit difficult for the firm to execute the operating plans to achieve the profit target. Inadequate capital makes it difficult for the firm to undertake profitable activities. This will result in stagnation in the growth of the firm. When there is shortage of working capital, it will be difficult for the firm to meet the dayto-day commitments. As a result, operation inefficiency may creep in day to day operations of the firm. When a firm has shortage of working capital, it may not be able to enjoy attractive credit terms from the suppliers and creditors. When a concern fails to meet its day-to-day financial commitments due to inadequate working capital. There is the danger of the firm losing its reputation. When a firm suffers from inadequate capital fixed assets may not be utilized efficiently. This will result in reduction in the return on investments.
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KARNATAKA SOAPS AND DETERGENT LIMITED Inadequate working capital causes interruptions in production, which will adversely affect the profitability of the enterprise. When it becomes fancifully for a concern to meet its day-to-day commitments, due to scarcity of funds, inefficiently may creep into the daytoday management of the concern. The Danger steps of holding inadequate Working Capital: Inadequate working capital makes it difficult for the firm to execute the operating plans to achieve profit targets This makes it difficult for the firm to undertake profitable projects because of nonavailability of working capital and stagnates growth of the firm. Due to shortage of funds it will be difficult to meet day-to-day commitments, which resulting in operating inefficiencies Fixed assets are under utilized, when a firm suffers from inadequacy of working capital, resulting in reduction in the rate of return on investment. Firms is unable to avail attractive credit opportunities , etc. from suppliers and creditors because of shortage of working capital There is a danger of the firm loosing its reputation in the market when it fails to meet short-term obligations due to lack of working capital To avoid the consequences if holding both excess and inadequate working capital, firm has to maintain a right amount of working capital on a continuous basis. In short, every business must maintain adequate working capital without affecting its solvency and profitability positions. LITERATURE SURVEY: Working Capital Management is a significant in Financial Management due to the fact that it plays a pivotal role in keeping in the wheels of business enterprise running. Working Capital Management is concerned with Short-term Financial Decision, Shortage of Funds for Working Capital has caused money business to fail and in many cases has retarded their growth, so the need for skilled working capital Management has thus become greater in recent years.
59
According to the institute of charted accounts of India, Working Capital is regarded as day-to-day, Working Capital means the funds available for day-to-day operations of an enterprises. Working Capital means Current Assets - MEAN, MALOTT; Working Capital refers to a firms investment in Short-term Assets, Cash, Short-term Securities, Accounts Receivables and Inventories. - WESTON & BRINHAN The sum of Working Capital is the Sum of Business - J.S. N. DILL
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RESEARCH METHODOLOGY Title of the Study:A study on Working Capital Management in KS&DL Limited at Bangalore. Statement of the problem:The Financial management of a business firm is entirely responsible to ensure its top management that the Working Capital managed in such a way that it takes care of the needs of day-to-day operations besides winning over the confidence of its stakeholders. An attempt has been made through this study as to know, whether the finance managers of KS&DL were successful in managing Working Capital effectively. Research methodology:Research methodology is a systematic way for solving any research problem. It is a science of analyzing how research is done scientifically. It studies the various steps that are generally adopted by a researcher is studying the research problem. The study has been undertaken for a period of three years commencing the year 2005-06 to 2007-08. The secondary data is collected by Profit and Loss Accounts and Balance Sheet of three years of KS&DL have been properly analyzed by applying the ratio analysis technique to analyze the working capital portion of the company. So as to achieve the objectives of the study.
Research Design:Working capital management with respect to unit under study has collected from the audit Balance Sheet and published reports of the company for the last three years. A part of information pertaining to receivables management was collected through response forms data about the company. Sample Size:Sample size is used in the analysis of Working Capital Management in three years financial data from companys books of accounts.
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KARNATAKA SOAPS AND DETERGENT LIMITED Field Work:The area of study is Bangalore and the scope of study confines to Karnataka Soaps and Detergents Limited. Types of data used:Sources of data:It has been carried out by tapping two sources of data i.e., Primary data Secondary data Both Primary Data and Secondary Data are used in this study. Primary data:The primary data are those, which are, collected a fresh for the first time and thus happen to be original in character. The primary data collection involves the collecting of information for the first time by observation, experimentation and through questionnaire in the original form by the researching himself or his nominees. Such data are published by authorities who themselves are responsible for their collection. Secondary data:The secondary data are those which have been collected by some other and which have been processed. Generally speaking secondary data are information which have been previously collected by some organization to satisfy its own need. But the department under reference for an entirely different reason is using it. It is also collected through Internet, Profit and Loss Account and Balance Sheet of the company. Data has been gathered from the following sources: The internal sources of the company Annual reports of the company for the year 2005-08 Profit and loss account and Balance Sheet Manuals provided by the company books and articles
Statistical tools:1. Percentage Analysis 2. Tables and Bar Graphs 3. Charts
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Limitations of the study: The span of study is confined to only three years. The comparison of various ratios may not have the same conditions, which may result in unrelated comparisons. The other limiting factor being the confidential in nature of certain aspects. The study was conducted to the extent of information provided. Time constraint: - It is not possible to study in detail the finance operations of the company.
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KARNATAKA SOAPS AND DETERGENT LIMITED Analysis and Interpretation of data Evaluating the Financial Performance of KS&DL Ltd Schedule showing the working capital for financial years Calculation of Net Working Capital Particulars/years A. Current Assets Inventories Sundry Debtors Cash and Bank balances Loans and Advances Total Current Assets or Gross Working Capital B. Current Liabilities Liabilities Provisions Total Current Liabilities (A-B) Net Working Capital Table -5.1 2007 34,12,14,224 6,88,37,157 19,57,15,651 9,44,58,527 70,02,25,559 2008 35,08,55,723 8,08,73,641 31,23,45,581 255132909 7,25,46,525 215257572 81,66,21,470 1041372586 2009 407452487 163529618
17,07,06,357 9,82,39,572 26,89,45,929 43,12,79,630
28,00,39,861 12,85,27,890 40,85,67,751 40,80,53,719
246650794 204956560 451607354 589765232
Decrease in Working Capital. Comparative Balance Sheet for the years 2007-08 and 2008-09 Particulars/years A. Current Assets Inventories Sundry Debtors 29,60,12,822 14,63,46,670 407452487 163529618 111439665 17182948 2008 2009 Increase in WC Decrese in WC
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KARNATAKA SOAPS AND DETERGENT LIMITED Cash and Bank balances Loans and Advances Total Current Assets or Gross Working Capital B. Current Liabilities Liabilities Provisions Total Current Liabilities (A-B) Net Working Capital Table -5.2 33,43,85,423 255132909 10,49,44,640 215257572 88,16,89,555 1041372586 159683031 110312932 79252514
30,87,52,365 16,67,70,640 47,55,23,005 43,12,79,630
246650794 204956560
62101571 246650794 23915651
451607354 40,80,53,719 589765232
Increase in Working Capital in the year 2009 Graph showing the changes in Current Assets and Current Liabilities:-
45000000 40000000 35000000 30000000

Inventories
25000000 20000000 15000000 10000000 50000000 0 2008 2009
Sundry Debtors Cash and Bank balance Loans and Advances
Chart-5.1
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35000000 30000000 25000000 20000000 15000000 10000000 50000000 0 2008 2009 Increase in the Working Capital in the year 2009
Liabilities Provisions Column1
Chart-5.2 Graph showing the changes in Current Assets and Current Liabilities:45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 50000000 0 2007 2008 2009
Sundry Debtors Cash and Bank balance Loans and Advances Inventories
Chart-5.3
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35000000 30000000 25000000 20000000 15000000 10000000 50000000 0 2007 2008 2009
Liabilities Provisions Column1
Chart-5.4
Interpretation:1. The Comparative Working Capital results of the years 2007, 2008 and 2009 is in the increase position. 2. There is a decrease in the Current Liabilities so the Working Capital is in the increasing level. 3. There is a increase in the current Assets and decrease in the current liabilities so working capital is not in a good position 4. The financial performance of the company is not good.
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KARNATAKA SOAPS AND DETERGENT LIMITED Liquidity Ratios:Liquidity of a firm refers to its ability to pay short-term liabilities from the short-term assets. Current assets are defined as those assets that are convertible into cash within types of liquidity Ratios are: 1. 2. 3. 4. 5. 6. 7. Current Ratio Acid Test Ratio Debt Equity Ratio Inventory Turn Over Ratio Debtor Turn Over Ratio Working Capital Turn Over Ratio Creditors Turn Over Ratio
1.CURRENT RATIO: This is the widely used ratio. It is the ratio of current assets and current liabilities. It shows a firms ability to cover its current liabilities with its current assets. It is also known as two in one ratio or working capital ratio. It expresses the relationship between current assets and current liabilities. It can be expressed as follows; Current ratio = Current assets Current liabilities TABLE SHOWING CURRENT RATIO: Year Current assets Current liabilities Current Ratio 2006-2007 81,66,21,470 40,85,67,751 1.99:1 2007-2008 88,16,89,555 47,55,23,005 1.85:1 2008-2009 1041372586 451607354 2.3:1
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KARNATAKA SOAPS AND DETERGENT LIMITED Table 5.3
Current Ratio
2.5 2 1.5 Current Ratio 1 0.5 0 2006-2007 2007-2008 2008-2009
Chart-5.5 Analysis on current ratio: From the above table and graph it can be analyzed that in 2006-07 it was 1.99 and in 2007-08& 2008-09 it has decreased to 1.85 and 2.3. Interpretation on Current ratio: The ideal current ratio is 2:1. Current ratio indicates the companys present financial position. In the year 2006-2007 the current ratio was 1.99 this is not a healthy sign for the company and where as in 2007-2008 and in 20082009 it has decreased eventually to the level of 1.85:1 and 2.3:1 2. ACID TEST RATIO: This ratio tries to overcome the defect of the current ratio. This ratio considers the qualitative aspects of the current assets. It projects relatively clear picture than the current ratio. This distinguishes the relative liquidity of the different current assets. This is called quick ratio, as it is a measurement of a companys ability to pay off its current liabilities. The acid test ratio is the ratio of quick current assets and quick current liabilities as: Acid Test Ratio = Currents assets - Inventories Current Liabilities TABLE SHOWING ACID TEST RATIO:
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KARNATAKA SOAPS AND DETERGENT LIMITED Year Current assets Inventory Total Current liabilities Acid test ratio 2006-2007 81,66,,21,470 (35,08,55,723) 46,57,65,747 40,85,67,751 1.13:1 2007-2008 88,16,89,555 (29,60,12,822) 58,56,76,733 47,55,23,005 1.23:1 2008-2009 10,41,37,2586 (40,74,52,487) 633920099 451607354 1.40:1
Table -5.4 3.Debt-Equity Ratio: This ratio indicates the relationship between loan funds and net worth of the company, which is known as gearing. If the proportion of debt to equity is low, a company is said to be low-geared, and vice versa. A debt-equity ratio of 2:1 is the norm accepted by financial institutions for financing of projects. Higher debt-equity ratio of 3:1 may be permitted for highly capital intensive industries like petrochemicals, fertilizers, power etc. The higher the gearing, the more volatile the return to the shareholders. Debt-Equity ratio = Debt Equity TABLE SHOWING DEBT-EQUITY RATIO Year Debt Equity Debt equity ratio Table-3.5 Analysis on Debt-equity ratio: The above table shows debt- equity ratios for the period.
In the year 2006-2007 it was 0.44:1, where as in 2007-2008 it has decreased to 0.22:1 and eventually in 2008-2009 it declines to 0.325:1.
2006-2007 14,66,24,556 33,32,91,293 0.44:1
2007-2008 10,03,60,972 455047041 0.22:1
2008-2009 190711112 585940129 0.325:1
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Debt equity ratio

0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2006-2007 2007-2008 2008-2009
Debt equity ratio
Chart-5.6 Interpretation on Debt-equity ratio: The actual Debt-equity ratio is compared with the standard or ideal Debt-equity ratio of 1:2. In this company the Debt-equity ratio is less than the standard ratio in all the years. This is an indication that the financial structure of the concern is weak. 4.Inventory turnover ratio: A considerable amount of a companys capital may be tied up in the financing of raw materials, work-in-progress and finished goods. It is important to ensure that the level of stocks is kept as low as possible, consistent with the need to fulfill customers orders in time. Inventory turnover ratio = Sales
Average inventory TABLE SHOWING INVENTORY TURNOVER RATIO Year Net Sales Average Inventory Inventory turnover ratio 2006-2007 1,04,43,74,470 34,60,34,974 3.01 2007-2008 1,28,64,62,008 32,34,34,273 3.97 2008-2009 1533703531 351732654.5 4.36
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Inventory turnover ratio

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2006-2007 2007-2008 2008-2009
Inventory turnover ratio
Chart-5.7
Analysis on inventory turnover ratio: The above table shows the inventory turnover ratio. In the year 2006-2007 taken as the base year,3.01 times. In 2007-2008, 3.97 times in 2008-2009, 4.36 times and there is slight increase turnover time compared to years of 07-08 & 08-09. Interpretation on inventory turnover ratio: the inventory turnover ratio is increasing over the year. In the year 2008-2009 there is improvement in control over inventories than the previous year. 5. Debtors turnover ratio: Debtors turnover, which measures whether the amount of resources tied up in debtors in reasonable and whether the company has been efficient in converting debtors into cash. The formula is: Debtors turnover ratio = Credit sales Average Debtors TABLE SHOWING DEBTORS TURNOVER RATIO Year Net credit sales 2006-2007 1,04,43,74,470 2007-2008 1,28,64,62,008 2008-2009 1533703531
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KARNATAKA SOAPS AND DETERGENT LIMITED Average sundry debtors Debtors turnover ratio 7,48,55,399 11,36,10,115.5 154938144
13.95
11.32
9.89
Table5.7 Analysis on Debtors turnover ratio: The above table shows the percentage of Debtors turnover ratio. Year 2006-2007 is taken as a base year, 13.95% in the year 2007-2008 is 11.32 and in the year 2008-2009 it has decreased to 9.89%.
Debtors turnover ratio

14 12 10 8 6 4 2 0 2006-2007 2007-2008 2008-2009
Debtors turnover ratio
chart-5.8 Interpretation on Debtors turnover ratio: The above graph indicates Debtors turnover ratio for the period. In the year 2006-2007 it was 13.95% and where as in 2007-2008 there was an decrease and in 2008-2009 there was decrease in debtors. 6. Working capital turnover ratio: This ratio is calculated as follows: Working capital turnover ratio = Sales
Working Capital TABLE SHOWINGWORKING CAPITAL TURNOVER RATIO Year Sales 2006-2007 1,04,43,74,470 2007-2008 1,28,64,62,008 2008-2009 1664701541
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KARNATAKA SOAPS AND DETERGENT LIMITED Working capital Working capital turnover ratio Table-3.8 Analysis on working capital turnover ratio: The above table shows the working capital turnover ratio. Year 2006-2007 is taken as the base year is 2.55 times in 20072008 is 3.16 times , and in 2008-2009 it is 2.823 times. 40,80,53,719 2.55 40,61,66,550 3.16 589765232 2.823
Working capital turnover ratio

3.5 3 2.5 2 1.5 1 0.5 0 2006-2007 2007-2008 2008-2009
Working capital turnover ratio
Chart-5.9 Interpretation on working capital turnover ratio: Inventory to working capital, which helps to measure the short-term solvency of a company. The working capital turnover ratio has gradually been decreased. 7. Creditors turnover ratio: It indicates the speed with which the payment for credit purchases is made to creditors. This ratio is calculated as follows: Creditors turnover ratio = Credit Purchases Average Creditors TABLE SHOWING CREDITORS TURNOVER RATIO Year Credit Purchase 2006-2007 5,74,58,701 2007-2008 8,29,09,923 2008-2009 56632624
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Average Creditors
4,75,84,558
7,01,84,312
69771273.5
Creditors Turn over Ratio 1.20 1.18
0.812
Table-5.9 Analysis on Creditors turnover ratio: The above table shows the percentage of creditors turnover ratio. Year 2006-2007 is taken as the base year, 1.20 in 2006-2007, 1.18 in 2007-2008, and in 2008-2009 it has slightly decreased to 0.812.
Creditors turnover ratio

1.2 1 0.8 0.6 0.4 0.2 0 2006-2007 2007-2008 2008-2009
Creditors turnover ratio
Chart-5.10
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KARNATAKA SOAPS AND DETERGENT LIMITED Interpretation on creditors turnover ratio: It shows the creditors turnover ratio, in 2006-2007 was 1.20% and where as in year 2007-2008 there is increase in creditors and in the year 2008-2009 there is slight decrease in creditors.
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KARNATAKA SOAPS AND DETERGENT LIMITED Summary of Findings:On the basis of Analysis and Interpretation the following findings have come to light. 1. Growth of Working Capital is volatile year to year it is average sign of the industry. 2. The current Ratio is increase than in the year 2006-07 and it has been decreased in remaining years which is more than ideal ratio, it is accepted in the industry as they need to keep more stock of vehicles for display. 3. Working Capital Turnover Ratio is increasing over the years, which is a unhealthy trend. 4. There is free communication between staff and staff to top level managers. 5. The company is gradually developing. 6. There is no consistency in earning profit. 7. Compare to the above factors in spite of the loss for the year 2007-08, 2008-09 Suggestions:-
The company should take effective steps to increase the profit, which is helpful for its future growth and expansion. The company should try to minimize the operating expenses which enable the company to save lots of money in order to increase Gross profit.
Company must try to control the indirect costs like manufacturing expenses and should reduce the wastages.
Company enjoying gradual increase in sales but still it has to implement management techniques and marketing techniques to maximize the sales.
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KARNATAKA SOAPS AND DETERGENT LIMITED Conclusions:The study was undertaken to analyze the financial statements and financial performance and to suggest the measures to improve the current performance.
1. The organization should take proper steps to increase the sales, which is helpful for its upcoming growth and expansion.
2. Liquidity position of the company is deposited compared from Current Ratio to Liquidity Ratio. This shows the excess of idle funds in the company i.e., company is having more stock which is ideal. So, the company should make the great attempts to make use of Current Assets more effectively.
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KARNATAKA SOAPS AND DETERGENT LIMITED

INDIAN ACADEMY SCHOOL OF MANAGEMENT STUDIES

Signature of the Principal

Indian Academy School of Management Studies

KARNATAKA SOAPS AND DETERGENT LIMITED

Indian Academy School of Management Studies

KARNATAKA SOAPS AND DETERGENT LIMITED

Indian Academy School of Management Studies

Indian Academy School of Management Studies

Indian Academy School of Management Studies

KARNATAKA SOAPS AND DETERGENT LIMITED

Indian Academy School of Management Studies

Indian Academy School of Management Studies

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1. Hindustan Levers Limited. 2. Tata Oil Mills (Taken over by HLL)

Indian Academy School of Management Studies

KARNATAKA SOAPS AND DETERGENT LIMITED

Indian Academy School of Management Studies

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TRADEMARK OF KS & DL:

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Conservation of energy Conservation of Surrounding Conservation of resources.

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NAME OF THE PRODUCT

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GIFT RANGE SBT SJR 06 IN 01 GOLD SIXER

OTHERS Washing Half Bar Washing Sandal Baby Wash DETERGENTS

NAME OF THE PRODUCT Mysore detergent powder

UNITS IN GRAMS 1000

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UNITS IN GRAMS 20, 50, 100, 300 100, 200, 400

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b. Mysore Sandal Special shop (75gm)

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KARNATAKA SOAPS AND DETERGENT LIMITED

c. Mysore Sandal Baby Soap (75gm)

d. Three-In-One Gift Pack (SJR) 3Tabs (150gm each)

e. Mysore Sandal Gold Soap (125gm)

f. Mysore Rose Soap (100gm)

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KARNATAKA SOAPS AND DETERGENT LIMITED

g. Six-In-One Gift Pack- 6Tabs (150gm each)

h. Mysore Sandal Gold sixer 6 Tabs (125gm each)

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j. Mysore Sandal Classic Soap (75gm)

k. Mysore Jasmine Soap (100gm)

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KARNATAKA SOAPS AND DETERGENT LIMITED DETERGENTS:

SANDALWOOD OIL: In 5ml, 10ml,20ml, 100ml,500ml,2kg,5kg,20kg,and 25kg packing.

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KARNATAKA SOAPS AND DETERGENT LIMITED HLL KSDL 70% 11%

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KARNATAKA SOAPS AND DETERGENT LIMITED MAN POWER DETAILS: