EXECUTIVE SUMMARY

The management of working capital in todays context is a challenging

task. The rising trend of price is the order of the day. Most of the business
concerns are forced to work under the constraints of shortage of funds, more
effective and efficient management of working capital only can ensure survival
of a business enterprise. Thus, working capital management is an integral part
of overall corporate management. A firms profitability is determined mainly
the way in which the working capital is managed. This requires greatest
attention and efforts of the finance manager.
This report is based on a study of working capital management of
karnataka soaps and detergents limited. The project done at karnataka soaps
and detergents limited, tries to find out and understand the functioning of
working capital management of the company. The company carries out its
business through its well-organized and maintained departments.
The report mainly covers on the accounts department, the importance of
working capital management, function of cash management, their way of
working capital maintaining the day-to-day cash management and their method
of managing the important books, statements and manuals.
The study of Stores Department covers the management of stores,
important inventory control technique exercised by the company, material
classification, codification of materials and determination of cost for the

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material. The company maintains quality standards to meet the requirement of

its customers.
Working capital management provides summarized view of the financial
position and operation of the company. Therefore, now a day it is necessary to
all companies to know as well as to show the financial soundness i.e. day to
today activities, position and operation of company to their stakeholders. It is
also necessary to company to know their financial position and operation of the
company.
Thus, we can say that, working capital is a starting point for making
plans before using any sophisticated forecasting and planning.
The working capital management has shown a dramatic improvement in
the period of study. It is learnt that by the various corrective actions initiated by
the company, the performance of the company from the past few years is
moving on the track of profit. During the period of study the company has had
a change in management, which has seen dramatic changes in the handling of
working capital and the overall outlook of the company. The study shows that
the company is gradually moving towards an conservative working capital
management policy rather than an aggressive policy to conclude, a healthly
working capital management is utmost necessary for improving company
financial position and outlook of the industry.

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CHAPTER-I
1.1 INTRODUCTION:
The project is carried out in karnataka soaps and detergents ltd. The
project studies the working capital management in KSDL and evaluates its
financial management performance.
Working capital management is the integral part of overall financial
management. Effectiveness of financial management depends upon the proper
utilization and management of investment of funds in business. Funds can be
invested permanent/long term purposes such as acquisition of fixed assets,
expansion and diversification of business, modernization of plants and
machinery and R&D.
Funds are also needed for short-term purpose that is for day-to-day
operation of the business. Day to day operation includes procurement of raw
materials, payment of wages and meeting and other day-to-day expenses these
funds are known as working capital. It refers to that part of the firms capital,
which is required for financing current assets such as cash, marketable
securities, debtors, inventories, work in progress and finished goods. Working
capital management helps to carryout day-to-day operations of business
smoothly.
Working capital management refers to management of current assets and
current liabilities and the inter-relationship that exists between them. In other
words, it refers to all aspects of administration of both current assets and

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current liabilities. Working capital management is significant facet of financial

management. Because investments in current assets represent a substantial
portion of total investment and investment in current assets and the level of
current liabilities have to be geared quickly to changes in sales.
We hardly find a running business firm which does not require some
amount of working capital even a fully equipped manufacturing firm is sure to
collapse without adequate working capital. Thus, working capital is life blood
of a business. Therefore, both inadequate and excessive working capital is not
good for business.
Finance is the lifeblood of any business, whether it is large or small. An
ambitious plan cannot materialize unless adequate finance is made available.
Hence, finance is considered as the kingpin of a business enterprise.
In a modern money-using economy, finance may be defined as the
provision of money as the time it is wanted.
Business finance is defined as that business activity, which is concerned
with the acquisition and conservation of capital funds in meeting the financial
management of a concern. In short, it is a statement estimating the total amount
of capital required by a concern and determining its composition.
A business has to design scientific financial planning, which covers,
three important aspects,
Estimating the total amount of capital needs
Determining the form and the proposition of the securities to be issued
for

raising funds and

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 Setting the financial objectives and laying down the policies and
procedures i.e., administration of the financial plan.
Financial planning almost confirm to the process of capitalization. Here
a clear distinction needs to be made between capitals and capitalization in a
nutshell, capital implies the money equivalent to tangible and intangible assets
required to be provided for establishing and operating an understanding on a
viable basis. However, capitalization is the process of determination of the
amount of capital to be raised the securities through which the capital is to be
raised and the relative proportions of the various types of securities to be issued
and also the administration of capital. In short, capitalization is equivalent to
the valuation placed upon the fixed capital by the corporation measured by
stocks and bonds outstanding.
The total capital of the concern is employed in two ways, fixed capital
and working capital. The fixed capital is invested in fixed or long run assets.
The quantum of fixed capital needed varies directly with the amount of fixed
assets owned or used by a business. But working capital needs constant
attention, since it always rotates or circulated.
1.1 (a) CONCEPTUAL CLARIFICATION :
Working capital management is the integral part of overall financial
management. Effectiveness of financial management depends upon the proper
utilization and management of investment of funds in business. Funds can be
invested permanent/long term purposes such as acquisition of fixed assets,
expansion of production and diversification of business, modernization of
plants and machinery and research & development.

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Funds are also needed for short-term purpose that is for day-to-day
operation of the business. Day to day operation includes procurement of raw
materials, payment of wages and meeting other day-to-day expenses. These
funds are known as working capital. It refers to that part of the firms capital,
which is required for financing current assets such as cash, marketable
securities, debtors, and inventories, work in progress and finished goods.
Working capital management helps to carryout day-to-day operations of
business smoothly.
We hardly find a running business firm which does not require some
amount of working capital even a fully equipped manufacturing firm is sure to
collapse without adequate working capital. Therefore both inadequate and
excessive working capital is not good for business.
Finance is the lifeblood of any business, whether it is large or small. An
ambitious plan cannot materialize unless adequate finance is made available.
Hence finance is considered as the kingpin of a business enterprise.
In a modern money-using economy, finance may be defined as the
provision of money as the time it is wanted. Business finance is defined as that
business activity, which is concerned with the acquisition and conservation of
capital funds in meeting the financial management of a concern. In short, it is a
statement estimating the total amount of capital required by a concern and
determining its composition.
A business has to design scientific financial planning, which covers,
three important aspects,

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 Estimating the total amount of capital needs

Determining the form and the proposition of the securities to be issued
for raising funds and
Setting the financial objectives and laying down the policies and
procedures i.e. administration of the financial plan.
Financial planning almost conforms to the process of capitalization.
Here a clear distinction needs to be made between capitals and capitalization.
In a nutshell, capital implies the money equivalent to tangible and intangible
assets required to be provided for establishing and operating an understanding
on a viable basis. However, capitalization is the process of determination of the
amount of capital to be raised the securities through which the capital is to be
raised and the relative proportions of the various types of securities to be issued
and also the administration of capital. In short capitalization is equivalent to the
valuation placed upon the fixed capital by the corporation measured by stocks
and bonds outstanding.
The total capital of the concern is employed in two ways fixed capital
and working capital. The fixed capital is invested in fixed or long run assets.
The quantum of fixed capital needed varies directly with the amount of fixed
assets owned or used by a business. But working capital needs constant
attention, since it always rotates or circulated by various means in industry.

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1.1 (b) INDUSTRY OVERVIEW:

The upswing in the Indian Economy has enhanced the demand for the
goods and commodites. The demand for cosmetic products has been increased
due to change in culture and life style of the people, correlated with the growth
of other segments like education, IT & BT, thinking capacity of people,
population, sex descrimination etc., tremendous growth in requirement of
cosmetics like soaps, detergents, perfume, powder, snow etc. The size of
Indian cosmetics industry is over US$25 billion and it accounts for over 6.5%
of GDP. With the GDP growth likely to be around 8% for 3 to 5 years going
forward, the demand for cosmetics will continue to grow with sectors like,
Chemical industry, forest department to supply sandal, etc,
Birth of karnataka soaps and detergents limited
The raising trend in life style of people, the company has commenced
and taken firm roots have been working since past 9 decade. Its providing the
best goods and services to customers from past so many years.

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Table 1.1 : Historical Scenario of karnataka soaps and detergents limited

The industrial history of mysore state can be said to have commenced in
1910-1920. The state had good fortune of having at the helm of affairs
SIR.M.VISVESVARAYA as dewan, whose vision, foresight and enthusiasm
Witnessed the industrial efforescence of the state. The mysore Iron &steel
works at bhadravathi &the sandal oil distillery at mysore & bangalore were
brought into being during his period.SRI.SASTRY who joined the government
soap factory, he condected a number of experiments and evolved a soap
perfume blend using sandal wood oil as main base to manufacture a toilet soap
He worked day and night & made several hundred
batches with different formulae. His efforts were crowend with success and
finally he was able to arrive at a right formula and the famous mysore
Sandal took birth in 1918.

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1.2 THEORETICAL PROSPECTIVE :

(a) IMPORTANCE OF THE WORKING CAPITAL:
The developing economies are generally faced with the problem of
inefficient utilization of resources available to them. Capital is the scarcest
productive resource in such economies and proper utilization of these resources
promotes the rate of growth, cuts down the cost of production and above all
improves the efficiency of the productive system. Fixed capital and working
capital are the dominant contributors to the total capital of the developing
country. Fixed capital investment generates production capacity whereas
working capital makes the utilization of that capacity possible. Thus the study
of working capital behavior occupies an important place in financial
management. Working capital has acquired a great significance and sound
position for the twin objects of Profitability and Liquidity.
(b) WORKING CAPITAL THE FLESH AND BLOOD OF BUSINESS
Every business needs funds for two purpose for its establishment and to
carry out day-to-day operations. Accordingly, funds needed for a business can
be broadly classified under:
Fixed capital (long needs)
Working capital (short-term needs)
Fixed capital forms the skeleton of any business; working capital is its flesh
and blood.

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SHORT
TERM CAPITAL
CURRENT
ASSETS

MEDIUM
TERM
CAPITAL
FIXED
ASSETS

LONG
TERM
CAPITAL

Fig. 1.1: Working Capital Management & Profitability Analysis of

karnataka soaps and detergents limited
Long-term funds are required to create production facilities through
purchase of fixed assets such as plant, machinery, land, building, furniture etc.
Investment in these assets represent a part of the firms capital that is blocked
more or less on a permanent or fixed basis and hence is called fixed capital.
Funds are also required for short-term purpose like purchase of raw materials,
payment of wages, salaries and other expenses. These funds are known as
working capital. Working capital is what makes a company work. It is
impossible to carry on any business only with fixed assets; working capital is a
must. Inadequacy of working capital takes any business to death.

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Working capital management deals with the most dynamic field in

finance, which needs constant interaction between finance and other functional
managers. The finance manager acting alone cannot improve a companys
working capital situation. The ultimate long-term solution for a difficult
working capital does not lie with the banks; rather, it lies with the
manufacturing, marketing and finance activities. Manufacturing has an
important role to play in operating with minimum inventories; the purchase
department should be able to obtain the best possible terms from suppliers. The
marketing department should negotiate with customers for the best terms. The
finance manager should be able to coordinate and achieve optimal utilization of
operating funds at the lowest interest cost. Thus,
Working capital management has come to be known as the cash triangle.

MARKETING (CREDIT)

FINANCE
(CASH FLOWS)

MANUFACTURING (INVENTORY)

Fig. 1.2 : The Cash Triangle

Due to the factors mentioned above the management of working capital
become one of the most significant jobs of the finance manager. In this project
the various components of current assets & liabilities, the extent of funds tied
up in each, the trend of changes in funds tied up with each component, the
efficiency with each component are managed and overall efficiency of working
capital management and its impact on profitability is studied.

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12

(c) CONCEPT OF WORKING CAPITAL :

The term working capital literally means capital used for conducting the
day to day operations. It refers to that part of total capital which is used for
carrying out the routine and regular business operations. In short, it is the
amount of funds used for financing the short-term operations. Short term
operations include stock of raw materials, supplies needed to manufacture,
semi-finished goods awaiting sale, sundry debtors constituting the pending
collections against sales and short-term investment.
According to Hoagland working capital is descriptive of that capital
which is not fixed. But the more common use of the working capital is to
consider it as the difference between the book value of the current assets and
the current liabilities.
Working capital is also termed as circulating capital. Circulating capital
means current assets of a company that are changed in the ordinary course of
business from one firm to another, as for example from cash to inventories to
receivables, receivables into cash.
Working capital referred to as floating capital consist of funds invested
in current assets. Current assets imply those assets which in the ordinary course
of business can be converted in to cash within a short period of time. In the
same way current liabilities are the liabilities payable with in a short-term out
of the day today income.
In short, Working capital is the amount of funds necessary to cover the
cost of operating the enterprise working capital in a going concern, it consist of
cash receipts from sales which are used to cover the cost of current operations.

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13

KINDS
KINDSOF
OFWORKING
WORKINGCAPITAL
CAPITAL

On
Onthe
theBasis
Basisofof
Concepts
Concepts

On
Onthe
theBasis
Basisofof
Time
Time

Gross
Gross
Working
Working
Capital
Capital

Net
NetWorking
Working
Capital
Capital

Regular
Working
Capital

Reserve
Reserve
Working
Working
Capital
Capital

Fixed
Fixed
Working
Working
Capital
Capital

Seasonal
Seasonal
Working
Working
Capital
Capital

Temporary
Temporary
Working
Working
Capital
Capital

Special
Special
Working
Working
Capital
Capital

Fig. 1.3 Above Shows the Kinds of Working Capital

Gross working capital
o The concept of gross working capital is a financial concept. Gross
working capital refers to the total investment in current assets, such as
cash in hand, cash at bank, accounts receivables, stock of finished
goods, work in progress, and stock of raw materials prepaid expenses
etc. working capital is also expressed as circulating or operating or
current capital.

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14

 Net working capital

o The concept of net working is an accounting concept. Net working capital
means net current assets, i.e. the excess of current assets over current
liabilities. It is also referred to as positive working capital. In case current
liabilities excess the current asset it is expressed as negative working
capital or working capital deficit.
Operating cycle or working capital cycle
o In modern business, the concept of working capital has changed a lot. In
the present time a new concept known as operating cycle has emerged and
is gaining popularity. There is much difference between current and fixed
assets, as far as recovery of investment is concerned. Every business
required many years to recover the investment in fixed assets like plant
and machinery and building etc. But investment in current assets is turned
over many times in a year. Investment in current assets is recovered
through a firms operating cycle. When stocks of finished goods are sold
and debtors are collected. Usually firms operating cycle is less than a year.
o The term operating cycle implies the period of time required to convert
sales into cash. As per operating cycle concept working capital is that part
of capital which circulates in different firms such as cash to raw material,
to work in progress, to finished good, to sales, to debtors, to cash. It is
also called circulating capital. The working capital rotates in such a way
that money will be blocked at different stages in different forms till
recovery in the form of cash. The cycle begins with cash and ends with
appreciation or depreciation of cash. This can be called cash conversion
cycle.

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15

The operating cycle of any manufacturing firm has to pass through three
stages.

Assembling of resources like raw materials, labour power and fuel

etc.

Manufacturing the goods i.e. Conversion of raw material into work

in progress into finished goods.

Selling the goods i.e. cash sale/ credit sale. Credit sale creates book
debts or bills receivables.
Purchases

Payment

Credit sales

Collection

RMCP+WIPCP+FGCP
Inventory Conversion

Receivables Conversion

Period

Period

Payables

Net Operating Cycle

Gross Operating Cycle

Fig. 1.4 : Showing operating cycle

RMCP (Raw material conversion period)
WIPCP (Work in process conversion period)
FGCP (Finished goods conversion period)

The operating cycle of the manufacturing concern starts with the

purchase of raw materials and services and ends with the realization of the
cash. The following steps are followed in between these:
Purchase of raw materials and services.
Conversion of raw materials into work in progress.
Conversion of work in progress into finished goods inventory.
Conversion of finished goods stock into sales debtors and receivables.

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 Realization of cash.
This cycle continues again from cash to purchase of raw materials and
so on. The length of operating cycle of a manufacturing firm is the total of
inventory conversion period and receivables conversion period. We can
estimate the inventory period the accounts receivable period and accounts
payable period from the financial statements of the firms. For this the following
formula can be used.
Table 1.2 : Showing the ratios and its formulas
S.No.
1

Ratios

Formulas

Inventory Turnover Ratio (ITR)

Therefore,
Inventory conversion period

Debtors Turnover Ratio (DTR)

= Cost of goods sold

Average inventory
= Number of days in a year
Inventory Turnover Ratio

Net sales
Average debtors

Therefore,

Debtors Turnover Period

= Accounts receivable period

Number of days in a year

Creditors Turnover Ratio

= Net Credit Purchase

Average accounts payable
Or
Net Purchase
Average Crs

(Note: In case of information about credit purchase is not available total

purchases may be assumed to be credit purchase)
Net operating cycle = Inventory conversion period + Accounts receivable
period - Account payable period

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17

t
a
l

c
a
p
w
o
r
k
i
n
g

Temporary
working capital

Am
A
oun
tmof
o
wor
u
kin
gn
t
cap
ital
o
f

Permanent
working capital

Time

Fig. 1.5 : Showing permanent and temporary working capital

TYPES OF WORKING CAPITAL :
Permanent or fixed working capital
o It is the minimum level of working capital in terms of current asset which is
always required by the firm to carry on its business operations. This part of
working capital is fixed irrespective of changes in the operations.
o There is a need for current asset for the smooth flow of operating cycle
which is a continuous process. Hence the need for current asset is felt
regularly. In any business certain fixed portion of current asset is always
required that is referred to as permanent or fixed working capital as core
capital asset thus the permanent working capital is permanently needed for
the business and it is usually financed out of long term funds. This is why
current ratio should be more than one.

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Temporary working
capital
Am
oun
t of
wor
kin
g
cap
ital

Permanent working
capital

Time

Fig. 1.6 : Showing permanent and temporary working capital

Temporary or variable or fluctuating working capital
It is a type of working capital which keeps on fluctuating from time to
time depending on business activities. It indicates the need for additional
current asset required at different times, example
o Additional inventory has to be procured to support sales during peak sales
Period,
o Investment in inventories decreases during depression period.
Thus, it is the extra working capital required to support the changes in
the production and sales activities. It is usually financed from short term
sources of finance such as bank credit.

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COMPONENTS OF WORKING CAPITAL:

The composition of working capital varies from one business to another.
The composition of working capital of trading concern is quite different from
that of manufacturing. The term composition implies the various components
or constituent parts that are included in the working capital, the major
components of working capital are current asset and current liabilities.
Current asset
These are the assets which can be converted into cash within an
accounting year or within the operating cycle whichever is longer. Some of
these assets like stock of finished goods debtors and bills receivables may not
be converted into cash within the required period. Even then these assets are
still included in the list of current assets. Basically, the current asset include
inventories trade debtors, advances, investments, prepaid expenses and cash in
hand and cash at bank.
The components of current asset are shown in the following manner Inventories-raw materials, stores and spares, work in progress, finished
goods etc.
Loans and advances- trade debtors, bills receivables, prepayments like
prepaid expenses- advance payment of taxes.
Investment- government securities, semi government securities, industrial
securities, private deposits.
Cash and bank balances- Fixed deposits with banks, cash at bank- cash in
hand.

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Finished
FinishedGoods
Goods

Accounts
Accounts
receivable
receivable

Wages,
Wages,Salaries
Salaries
factory
overheads
factory overheads

Working
WorkingProcess
Process

Raw
RawMaterials
Materials

Cash
Cash

Suppliers
Suppliers

Fig. 1.7 Current Asset Cycle

Current liabilities
These are the liabilities which are payable within an accounting year.
Usually, all those liabilities which are required to be paid within a year are
regarded as current liabilities. These liabilities include trade creditors, bank
overdraft, provisions for taxes, dividends and bonus, outstanding expenses etc.
Some of these liabilities may not strictly be described as current liabilities but
nevertheless these liabilities are included in the category of current liabilities.
The components of current liabilities are in the following manner Trade dues- Trade creditors, bills payable, outstanding expenses.
Borrowing- Loans from banks, public deposits, bank overdrafts, cash credit.
Advances received
Provisions- Provision for taxation proposed dividend.

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The three important methods of maintaining current assets at optimum

levels are:
Current assets and fixed assets ratio
Liquidity Vs Profitability
Cost benefit Trade off
Current assets to Fixed assets ratio
Optimum level of current assets is required to maximize the share
holders wealth and firm needs fixed and current assets to support particular
level of out put. We can measure the level of current asset by relating it to fixed
asset.
Therefore,
Level of current assets = Current asset
Fixed asset
Current Asset Policies
Mainly there are three policies. The following figure shows the
alternative current asset policies.
Conservative Policy:
Assuming Fixed asset as constant and higher current asset/ fixed asset
ratio indicates conservative policy. It implies that if liquidity is greater, the risk
is lower.
Aggressive Policy:
Lower current asset/ fixed asset ratio indicates aggressive policy. It
implies that if liquidity is lower, the risk is higher.
Average Policy:
It is also called as moderate policy. It lies between conservative and
aggressive policy.

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Conservative policy

Average policy
Lev
el
of
curr
ent
ass
ets

Aggressive policy

Time

Fig. 1.8 Showing alternative current asset policies

Liquidity Vs profitability: Risk Return Off
The current assets holdings will depend upon its working capital policy
that it may follow conservative or aggressive policy. These policies involve risk
return trade offs. Under certainty condition larger investments in current assets
yield lower rate of return and smaller investments yield higher rate of return.
The working capital management policies of a firm largely affect its
profitability, liquidity, and structural health of organization. The most important
aim of working capital management is profitability and solvency.
Solvency refers to ability to maturing obligations. For ensuring solvency
the firm should be very liquid which means it holds large amount of current
assets. Thus liquid firm has less risk of insolvency. Therefore the aim of
working capital policy is to provide enough liquidity to the firm.

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Minimum cost
Total
cost
Cost of
liquidity
Cos
ts

Cost of
illiquidity

Optimum level of current assets

Level of current assets

Fig. 1.9 : Showing cost trade off

To earn higher amount of profitability, the firm has to sacrifice solvency.
Because to maintain liquidity, firm has to in certain cost that, cost tied up in
current assets and that extent investment will idle and it affect the profitability
position. When firm wants to earn higher profitability it has to sacrifice
solvency and this pose firm the greater risk of cash shortage and stock outs. So
the goal of working capital management is to maintain a trade off between
profitability and risk.
Cost benefit Trade Off :
The cost benefit trade off is different way of looking in to risk- return
off in terms of cost of maintaining a particular level of current assets. These are
two types of costs involved in the current assets.
Cost of Liquidity
Cost of ill Liquidity

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Cost of Liquidity
If the firms level of current asset is very high, it has excessive liquidity.
Its return on assets will be low as funds tied up in idle cash and stocks earn
nothing and high levels of debtors (through low rates of rerun) increase with
the level of current assets.
Cost of illiquidity
It is the cost of folding insufficient current assets. The firm will not be
in a position to honor its obligations if it carries too little cash. This may force
the firm to borrow funds at high rates of interest and adversely affect credit
worthiness of the firm and also it pose difficulties in obtaining funds in future.
So in determining the optimum level of current assets the firm should balance
the profitability solvency tangible by minimizing total costs- costs of liquidity
and costs of illiquidity.
The following figure indicates that with level of current assets, the cost
of liquidity increases while the cost of illiquidity decreases and vice versa. The
minimum cost point indicates the optimum level of current assets. Some of the
approaches to the study of working capital analysis or analysis of working
capital can be conducted through a number of devices, such as:
1) Ratio Analysis:
It is simple arithmetical expression of the relationship of one number to
another. The technique of ratio analysis can be employed for measuring short
term liquidity or working capital position of firm.

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2) Fund Flow Analysis:

It is a technical device designated to study the source from which
additional funds were derived and the use to which there sources were put.
Such a statement provides an efficient method for a financial manager to assess
the growth of the firm, its financial needs and to appraise the best way to
finance there needs. It provides insight into the financial operation of firm. This
insight is helpful to a financial manager in analyzing past and future expansion
plan of firm and the impact on liquidity.

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Table 1.3 : Showing the ratios and its formulas and its significance
I

Ratio
Liquidity Ratio

Formula

Significance
It measures

1)

2)

Current Ratio

Quick/liquid ratio

Current Assets

Short term

Current liabilities

solvency of the

Quick assets

firm

Current liabilities
3)

4)

Cash/absolute

Cash+ bank balance

liquid ratio

Current liabilities

Net working

Net working capital

capital ratio

5)

Interval measure

Net asset

= Current assets- inventory X365

Avge daily operating expense

II

Profitability Ratio

1)

Operating expenses =

Operating Expenses X 100

It measures the

ratio

Net Sales

operating
efficiency of the

2)

Return on
investment

3)

Operating profit

X 100

firm

Capital employed

Gross profit margin = Gross profit

X 100

Sales
4)

Net profit margin

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= Profit After tax

X 100
27

Net sales
III Turn Over Ratio
1)

Inventory turnover

Cost of goods sold

To measure the

ratio

Average inventory

efficiency and
effectiveness of

2)

3)

Current assets turn

Net sales

over ratio

Current assets

Working

capital

the firm

Net sales

ratio

Net current assets

IV Leverage Raito
1. Debt Ratio

2. Fixed Assets

3. Debt Equity
Ratio

Total Debt

It measures

Net Assets/ Capital Employed

long term

Fixed Assets

solvency of the

Net worth

firm

Total Debt
Share holders equity or Net worth

3) Working Capital Budget

A budget is a financial and/ or quantitative expression of business plans
and policies to be pursued in the future period of time. Working capital budget,
as a part of total budgeting process of business, is prepared estimating future
long term and short term working capital needs and the source of finance them,
then comparing the budgeted figures with the actual performance for

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calculating variance if any so that corrective actions may be taken in the future.
The objective of working capital budget is to ensure availability of funds as and
when needed and to ensure effective utilization of these resources. However the
first two approaches have been adopted in the analysis of Working Capital.

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CHAPTER- II

RESEARCH DESIGN OF THE STUDY

2.0 INTRODUCTION :
The present study is a micro consigned to KS&DL. It attempts to
analyze and interpret the Working capital management For the purpose of
collecting the required information for research study the following methods
have been adopted the field survey method and case study methods have been
used the interview techniques and non-participant observations were adopted
for the collection of data from the different working capital management
textbooks.
2.1 OBJECTIVES OF THE STUDY :
The main objectives of the study are :
To understand how efficiently the working capital being managed in the
KS&DL.
To study the operating cycle or working capital cycle of the business
To identify the causes directly and indirectly responsible for the
industrial mismanagement in KS&DL
To measure the impact and incidence of mismanagement on working capital
in KS&DL on different areas like production, marketing, and different
components like cash, inventory, receivables etc.

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 To highlight the government policy and institutional approach towards

management of working capital.
To study and analyze the short-term solvency and liquidity position of the
company.
To understand the functioning of different departments in the company.
To understand the concept of Employee Engagement.
To know the importance of Employee Engagement to an organization &
how it helps to increase the levels of performance.
2.2 NEED AND SIGNIFICANCE OF THE STUDY :
It is difficult to decide any inference from the mass of figures in order to
judge accurately, regroup and analyze the figures as disclosed by these
financial statements and also to know the earning capacity, operating efficiency,
and financial condition etc of a concern. The need for working capital arises at
every stage of business concern. A new concern requires a lot of liquid funds to
meet initial expenses like promotion, formation, etc. The amount needed as
working capital in new concern depends primarily on its size and the ambitions
of its promoters. Greater the size of business unit generally larger will be the
need for working capital and the amount of working capital goes on increasing
with the growth the expansion of business up to it attains maturity stage.
Therefore working capital is needed for,
Purchase of raw material, components and spares.
Pay wages and salaries.

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 Incur day to day expenses and over head costs such as fuel, power and
office expenses.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customer.
To maintain the inventories of raw material, work in progress, stores and
spares and finished goods.
The management of assets in any organization is an essential part of
overall management. The enterprise at the time of formation attaches great
importance to fixed assets management as a part of investment decision
making. However, in the overall day-to-day financial management, after the
initial investment, the management given more importance to managing
working capital. It we look at any financial statement it will be evident that the
investment infixed assets remain more or less static but the working capital is
constantly changing or always fluctuating in nature.
2.3 STATEMENT OF THE PROBLEM :
KS&DL is engaged in manufacture of a wide range of cosmetics and
toilet soaps which is even exported e to the various countries around the world.
Since the industry scenario is such that it has a long selling cycle. Hence it has
a continuously increasing turnover. Belongs the operating cycle is long and the
working capital requirements are high. In such a scenario it dwells upon the
managements of the company to play according to the dynamics of the industry
in such a way that it leads to an advantage to the company. The management
should workout the optimal level of working capital, which gives an ideal
trade-off between risk, return and profitability. The short-term solvency of the

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firm depends upon proper management of working capital. This study is

conducted to analyze the efficiency of working capital management and its
impact profitability at KS&DL
2.4 METHODOLOGY :
Methodology is defined as a particular or a set of procedures, the
analysis of

these principles or procedures of enquiry in a particular field.

This chapter gives a clear picture of how the study has been carried on. It
summarizes the procedures followed in this study.
The methodology adopted to collect the information is secondary data is
mainly taken from the annual reports of the company for past four years i.e.
from year 2005-06, year 2006-07, year 2007-08, 2008-09year, And data so
collected was properly analyzed and interpreted to achieve the end objective of
the project study conducted.
2.5 RESEARCH DESIGN :
TYPE OF RESEARCH
This project A Study on Working Capital Management & Profitability
Analysis of KS&DL is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has
to use facts or information already available, and analyze these to make a
critical evaluation of the facts, figures, data or material. The project includes
finding of primary data and secondary data. It includes surveys and fact-finding
enquiries. So, the project basically covers description of state of affairs, as it

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exists at present. Here in this case, the researcher does not have control over the
variables. Here, the job done as a researcher is to use the facts and information
already available.
The research is done with the aid of the annual reports, the company
database textbooks and the observation and interaction being the only source of
primary data whatever is used. The same set information is analyzed to make
the critical evaluation of the material. With the given nature of research this is
an analytical type of research wherein the analysis of the existing set of affairs
are used to arrive the effect of working capital management on the return and
profitability of the company.
INSTRUMENTATION TECHNIQUES
The techniques used for the collections of the financial statements, data
and other information as follows. The primary data were collected by
interaction and observation. The secondary data were collected from the
published annual reports, budgeted manuals and the audited balance sheet and
profit and loss account, database of the company.
DATA COLLECTION
The project makes use of both the primary as well as secondary data.
Primary data were collected by observation and interaction. In the course of
time, the finance manager and his executives, the purchase manager and his
executives and the store manager and his executives provided very appreciable
co-operation during the interaction. As for the secondary data, the various

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published materials were used along with the database. The annual reports,
fact-sheets, budgeted manuals and the audited balance sheet and profit and loss
account, accounting and financial database of the company.
TOOLS USED FOR ANALYSIS OF DATA
The data were analyzed using the following financial tools and techniques
Ratio analysis
Common size statements
Statement of changes in working capital
2.6 REVIEW OF LITERATURE :
LITERATURE REVIEW
There is plenty of literature available on the topic of working capital
management. Many textbooks and the relevant websites provide good coverage
on the subject.
PURPOSE
Literature review is the beginning of the primary data collection. It acts
as a gateway to the familiarity exercise by getting exposed to the study field in
details. Literature review included texts, databases, internet, journals and
dailies. The purpose of literature review is innumerable in research work.
Specific need for references and citations makes secondary data quite valid.
Literature review forms the integral part of larger research. Secondary data
form sole basis for research for research in some instances. Above all,

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secondary data has proven to be less costly, readily available, less time
consuming and less effort required compared to primary data.
Literature review provides support to validate secondary data hence
complementing the filed data conclusion. It has also been observed that
secondary data gives insight into the research details. It is mandatory to
examine secondary data as a prerequisite for accuracy and relevance for
primary data and subsequent analysis.
Literature review heavily relied on published texts, Annual Reports
KS&DL accounting and financial database of the company, fact sheets of the
company, other manuals, internet and revered journals and case studies in the
filed of working capital management were constantly reviewed.
The review of the literature provided a solid guideline to conduct the
study. It provided the secondary data required and the adequate guideline for
the nature of the primary data.
2.7 PLAN OF THE ANALYSIS :
The internship project is divided into five chapters.
Chapter-I deals with a brief introduction of the working capital
management hierarchy. This chapter also including a brief explanation about
the introduction to the top land an overview of the industry in general and
theoretical prospective.
The second chapter provides detailed Research Design of the study,
scope of the study, objective of the study, Research methodology, plan of

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analysis, Research design, statement of the problem, Review of literature,

Limitation of the study, sampling design and data, collection.
The Third chapter provides a detailed profiles of industrial company
profile and product profile.
The fourth chapter provides a detailed Analysis and interpretation of
data.
The chapter fifth provides summary of Findings, suggestions and
conclusion.
2.8 LIMITATIONS OF THE STUDY :
The area covered for the present project is restricted. The project was
considering only the assembling unit Bangalore.
The divisions of the organization are spread. The study is confined to
karnataka soaps and detergents ltd only.
The study is made to the academic purpose only.
Being a student the allotted time for work was only 8 week, certain the
allotted time; maximum effort was put to extract maximum information.
Based on the available information, certain inferences have been drawn.
A matter of policy, certain documents were confidential hence were not
accessible.
But an attempt has been made to make sure that the quality of the report
is not

affected by the limitations.

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Chapter-3
Karnataka soaps and detergents limited (KSDL)
Karnataka soaps and detergents limited [KSDL] a government of
Karnataka
Undertaking company, is involved in the extraction of sandalwood oil & in the
manufacture of soaps, Detergents, Incense Sticks, and Sandal Talc. Having over
9 decades of experience in this
Field, KSDL to-day is one of the largest producers of sandalwood oil and
sandal soap in the world, with a turn-over of RS. 125crores. With the oldest
known perfumery material sandalwood as its main ingredient, the sandal soaps
of KS&DL have a definite niche in the soap market. Gifted by the Maharaja of
Mysore, the Mysore Sandal Soap has credited of adorning the treasure of the
Buckingham Palace in London. Sandal Soaps of KSDL are probably the only
soap in the world with pure natural sandalwood oil.
KSDL is the true inheritor of Indias golden sandalwood legacy, the
sandalwood oil. Sandal wood oil is recommended in ancient ayurvedic texts for
skin care, has excellent antiseptic properties and soothes prickly heat and other
skin rashes too. This is the reason why soaps made out of sandalwood oil are
used all over the world for nourishing and softening the skin. It was the
availability of sandal wood oil, which became a reason to set up a soap factory.
Government soap Factory in Bangalore was established by the Maharaja of
Mysore his Highness Nalwadi Krishnaraja Wodeyar and Diwan
Sir.M.Visvesvarya during the year 1916.The soap making process was

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perfected under the steward ship of eminent scientist Shri S.G. shastry. The
sandalwood Oil Division, Mysore was established during the year 1916 and
Sandalwood Oil Division at shimoga was established during the year 1944.
In 1980, Government of Karnataka integrated the Sandal oil
factories at Mysore and shimoga and Government soap Factory at Bangalore
and formed Karnataka Soaps & Detergents Limited [KSDL], which has been
incorporated as a company under Companys Act of 1956.
KSDLS Bangalore complex has production facilities for Toilet
Soaps and detergents. The factory is located in the yeshwantpur Industrial Area
of Bangalore & lies on Bangalore-Pune Highway. The total campus area of this
soaps &detergents factory is 39 acres and 10 guntasThe built-up area is
26acres.
The soaps plant has one of the largest production facilities in the country with
an installed capacity of 26,000 tones per annum. A unique feature of KSDLs
Soap plant is its flexibility to process as many as ten different varieties of soaps
simultaneously. KSDLs product Range includes toilet soaps coming in
different and district fragnences like Sandal, Jasmine, and Rose etc. All the
soaps are purely environment friendly as they are made from pure vegetable
ingredients. KSDL also undertakes orders for manufacture of soaps as per the
customers specification on mutual understanding.
The detergent plant has an installed capacity of 10,000 tones per
annum. It has sintex plant for the manufacture of detergent cakes & bars. In the

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detergent plant there is also a provision for the manufacture of Detergent

Powders.
Perfumes required for the manufacture of Incense sticks & Talcum
Powder is also prepared in this Bangalore-complex. While the actual
manufacture of incense sticks &Talcum Powder is carried out in factory at
Mysore.
A sophisticated plant was rebuilt in collaboration with M/S Ballestra of
Milan, Italy in 1986 & has has a wholly integrated continuous line facility that
is the process sequence for continuous productivity.
KSDL has a long-standing tradition of maintaining the highest
quality standards right from the selection of raw materials to processing and
packaging of the end product. Its full-fiedged quality control and R&D
Departments single-mindedly pursue quality enhancement and keep pace with
the changing preference and perceptions of customers.
KSDLs products are regularly exported to UAE, Bahrain, USA, Saudi
Arabia, Kuwait, South East Asian countries etc.

The sharabha is a mythological creation from the puranas. It is illustrated as

the body of lion with the head of an elephant. It embodies the combined
virtues of Wisdom, Courage & Strength. It was adopted as the official emblem
of symbolize the philosophy of the Company.

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An ISO 9002 and ISO 14001 company:

KSDL has gained both ISO 9002 and ISO 14001 certificates. KSDL is
committed to customer delight through total quality management system and
through continuous improvement through the involvement of all employees.
KSDL consider quality as one of the principle strategic objective to guarantee
growth and leadership in the markets of its operation. KSDL strives to offer
superior quality product and services.

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PRODUCTS OF COMPANY
KSDLs product range include Toilet soaps, Incense sticks, coming in different
And a distinct fragrance in sandal Rose etc. and also includes Talcum Powder,
Detergent Cake & Detergent Powders.

TOILET SOAPS
KSDL offers a variety of toilet soaps of different fragrances. They create lather
and last for long.

Following are the fragrances that KSDL offers: Mysore Sandal Soap
Mysore Sandal classic soap
Mysore Sandal Rose Soap
Mysore Sandal Baby Soap
Mysore Sandal Gold Soap
Mysore Sandal Herbal Care

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INCENSE STICKS

KSDL offers a quality incense Sticks that apart form spreading fragrance
delivers peace and tranquility. They create an atmosphere of solace when used.

TALCUM POWDER

KSDL offers Talcum powders that are refreshing and gives a cooling effect.
The fragrance Last for long.
The categories available are: Mysore Sandal Talc
Mysore Sandal Baby Talc

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DETERGENTS
Based on quality, safety, and performance, KSDL offers detergents that apart
from whitening the cloth, provides a mild and soothing fragrance to it.

They are available in: Mysore Detergent powder

Mysore Detergent Cake

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