WORKING CAPITAL MANAGEMENT AT KARTHIK ALLOYS.

LTD

CONTENTS

PAGE
SL.No CHAPTERS
NO.

1 Introduction 1-6

2 Conceptual Framework 7-16

3 Background of sample unit 17-25

4 Analysis and interpretation 26-52

5 Findings, suggestions and conclusion 53-56

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CHAPTER 1
INTRODUCTION:
Introduction of the study
Title of the Project
Objective of the study
Scope of the study
Research methodology
Limitation of the study

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INTRODUCTION:

The project, “WORKING CAPITAL MANAGEMENT – THE CASE STUDY ON

KARTHIK ALLOYS LTD.” deals to ascertain efficiency of working capital management
of the company.
Through this study, an effort has been made to understand working capital
management of KARTHIK ALLOYS LTD.

Working capital may be regarded the life-blood of business. Working capital is

needed to meet the day-to-day requirement of the business unit. The exploitation of
working capital assets is possible only by efficient working capital management. This
study on working capital management is conducted in Karthik Alloys Ltd.

The aim of the present study is to examine the Working Capital management.
“Since the efficiency of the Working Capital management is determined by the efficient
administration of its various components- cash, accounts receivable, accounts payable
and inventory, the study attempts to determine the management of each component”.
Working Capital refers to short term funds required for the purpose of business
operations. The funds used for meeting out the day to day expenses like, purchase of
raw materials, payment of wages and other expenses, stocking of goods, granting of
credit to customers and maintenance of the minimum balance. It is not necessary that
the funds should be in the form of cash only. It can be in the form of near cash items
like, marketable securities, inventories and account receivable.

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 TITLE OF THE PROJECT

“Working capital management - the case study of Karthik Alloys Ltd.”

 OBJECTIVES OF STUDY

1) To study the efficiency of cash management.

2) To study the efficiency of inventory management.
3) To study the efficiency of receivables and payables management of the company.

 SCOPE OF STUDY

Since the decision regarding working capital are of an operating nature not one
time decision, the scope of the study is geared towards identifying important areas of
control and to establish model for better control of the various components of working
capital.

The study would also attempt to identify the various sources available for
financing of working capital.

The study gives a fair idea of improvement in efficiency of working capital

management and also to have proper control over the components of working capital
and managing of efficiency.

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 METHODOLOGY

Observation & Analysis method is adopted for this study. The required
information was collected through secondary sources.

Secondary data were collected from various sources including the Annual
reports & financial statements of the company for the year 2007-08, 2008-09,

2009-10 , 2010-2011 and 2011-12.

Ratio analysis is the major tool for analysing the working capital management of
Karthik Alloys Ltd and also the information for 5 years is collected.

 LIMITATION OF THE STUDY

 This study deals only with the data made available. Hence the result of this
study cannot judge the business of the firm in general
 The study have been influenced by the limitation of the ratio analysis
 The study extensively uses the data provided is the financial reports of the
firm which may also have their own limited perspective
 The analysis made on the working capital management is for a particular
period of time the current assets and current liabilities will change for an
analysis made at any other of time.

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Research Design

Chapter I Introduction

Chapter II Conceptual framework

Chapter III Background of Sample Unit

Chapter IV Analysis and Interpretation

Chapter V Findings, Suggestions & Conclusion

This chapter covered the entire introduction of working capital. It includes

title of the project, objective of the study, scope of the study, research methodology
and limitation of the study. The foregoing chapter highlights on the conceptual
frame work adopted for the present study.

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CHAPTER 2:

Conceptual Framework

 Definitions of Working Capital

 Types of Working Capital
 Importance of Working Capital
 Factors influencing WC requirements
 Tools used

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CHAPTER 2: Conceptual framework:

Finance is the life blood and nerve system of any business

organization which is very much essential to the business organization for smooth
running of the business just like blood circulation which is necessary for the human
body to maintain the life.

 DEFINITIONS OF WORKING CAPITAL

Working capital has been in several ways as given below.

Operating capital: - As the working capital is the capital required to operate the business
and is the capital invested in the current assets, it is called as operating capital.

Circulating capital: - Interchanging word used for working is circulating capital.

Gerestenber suggested this item ‘circulating capital’ as all the assets of business
change from one form to another.

 TYPES OF WORKING CAPITAL

While planning for the Working Capital one has to keep in mind different classification of
Working Capital. They are:

1. Permanent or fixed Working Capital: Permanent Working Capital is the

minimum amount of current assets, which is needed to conduct a business even
during the dullest season of the year. This amount varies from year to year,
depending upon the growth of a company and the stage of the business cycle in
which it operates. It is the amount of funds required to produce the goods and
services, which are necessary to satisfy demand at a particular point. It
represents the current assets, which are required on a continuing basis over the
entire year. It is maintained as the medium to carry on operations at any time.

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2. Temporary or variable Working Capital: Temporary or variable or fluctuating

Working Capital is the amount of Working Capital which is required to meet
seasonal in nature, it means the blocking of Working Capital in stock and it will
take time to convert it into cash. In order to meet special exigencies like,
launching of extensive marketing campaign, for conducting research etc., special
Working Capital is required.

3. Net working capital:

It is the difference between current assets and liabilities. It is the excess of
current assets over current liabilities. This concept enables a firm to determine
the exact amount available at its disposal for operational requirements.

4. Gross working capital:

It refers to the total current assets of the business. It is also known as circulating
capital, because the current assets are rotating in their nature.

5. Negative working capital:

When a current liability exceeds current assets, it is called as negative working
capital.

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 IMPORTANCE OF WORKING CAPITAL

Even though the skills for maintaining the working capital are somewhat unique,
the goals are the same-viz. to make an efficient use of funds for minimizing the risk of
loss to attain profit objectives.

Firstly, the adequate of working capital contributes a lot in raising the credit-standing of
a corporation in terms of favourable rates of interest on bank loan, better terms on
goods purchased, reduced cost of production on account of the receipt of cash
discounts, etc.

Secondly, a company with sufficient working capital is always in a position to take the
advantage of any favourable opportunity either to purchase raw materials or to execute
a special order or to wait for better market position.

In the third place, the ability to meet all reasonable demands for cash without inordinate
delay is a great psychological factor to improve the all rounds efficiency of the business.

Lastly, during slump the demand for working capital, instead of coming down, shoots
up. A good amount of working capital is locked up in the inventories and book debts.
Concerns having ample resources can tide over that period of depression.

Thus, working capital is regarded as one of the conditioning factors in the long run
operations of the firm, which is often inclined to treat it as an issue of short run analysis
and decision making.

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 FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTS

 Nature of business – This is one of the primary factors influencing the working
capital requirements of a firm. Karthik Alloys Ltd is a manufacturing firm, has a
longer operating cycle for manufacturing the products, and investing more funds
in its current assets. Therefore, it requires much more working capital.
 Market conditions – The level of competition existing in the market also
influences working capital requirement. When competition is high, the company
should have enough inventories of finished goods to meet a certain level of
demand. Otherwise, customers are highly likely to switch over to competitor’s
products. It thus has greater working capital needs. When competition is low, but
demand for the product is high, the firm can afford to have a smaller inventory
and would consequently require lesser working capital. But this factor has not
applied in these technological and competitive days.

 TOOLS USED

The study is conducted in Karthik Alloys Ltd to measure the working capital
management of the company. The working capital management is the most important
tool of measure the liquidity position of the company. Every company has to maintain
good management of working capital, so the working capital of Karthik Alloys Ltd since
its establishment is cause of worry, as it has fails to produce desire results. So, this
study is undertaken to observe the management of Working Capital through Ratio
Analysis Technique, because ratio analysis is the important tool to measure the working
capital management. So I had taken the five years annual reports to measure the
working capital management.

Note: we have used the ratio analysis in this project in order to substantiate the
managing of working capital. For this, we used some of the ratios to get the required
output.

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 The following tools have been used in the present study:

1. Current Ratio

2. Quick Ratio

3. Inventory Turnover Ratio

4. Debtors Turnover Ratio

5. Creditors Turnover Ratio

6. Working Capital Turnover Ratio

1 CURRENT RATIO
The current ratio is a measure of the firm's short-term solvency. It indicates the
availability of current assets in rupees for every rupee of current liability. A ratio greater
than one mean that the firm has more current assets than Current claims against them.
As a conventional rule, a current ratio of 2: 1 is considered satisfactory. The current
ratio calculated by dividing Current assets by Current liabilities.

Current Assets
Current Ratio =
Current Liabilities

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2 . QUICK RATIO
Quick ratio establishes a relationship between quick, or liquid, assets and
current liabilities. An asset is said to be liquid if it can be converted into cash
immediately. Liquid assets include cash, debtors, bills receivables and marketable
securities. The quick ratio is found out by dividing quick assets by current liabilities.

Quick Assets (Current assets – Inventory)

Quick Ratio=
Quick Liabilities (Current Liabilities – BOD)

A quick ratio of 1: 1 is considered as a satisfactory current financial condition.

3. INVENTORY TURNOVER RATIO (Times)

This ratio indicates the number of times inventory is replaced during the year. It
measures the relationship between the cost of goods sold and the inventory level.
Inventory turnover indicates the efficiency of the firm in producing and selling its
product. It is calculated by dividing the cost of goods sold by the average inventory.

Cost of Goods Sold

Inventory Turnover =
Average Inventory

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When numbers of days in the year are divided by inventory turnover, we obtain
days of inventory holdings.

Annual Days
Inventory Turnover in Days =
Inventory Turnover Ratio

4. DEBTORS TURNOVER RATIO (Times)

A firm sells goods for cash and credit. When the firm extends credit to its
customers, debtors are created in the firm's account. Debtors are expected to be
converted into cash over a short period of time and, therefore, are included in current
assets.
The liquidity position of the firm depends upon the quality of debtors to a great
extent. In other words, debtor’s turnover ratio is a test of the liquidity of the debtors of a
firm. It shows how many times debtors turn over during the year. Debtors’ turnover is
found out by dividing credit sales by average debtors.

Net Sales
Debtors Turnover =
Average Debtors

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 AVERAGE COLLECTION PERIOD (Days)

The second type of ratio for measuring the liquidity of a firm's debtors is the
average collection period ratio. This ratio is, in fact, Inter-related with, and dependent
upon, the receivables turnover ratio. It is calculated by dividing the days in a year by
the Debtor’s turnover.
Annual days

Average collection period =

Debtors’ turnover

The average collection period measures the quality of debtors since it indicates
the speed of their collection. Shorter the average collection period, the better the trade
credit management and better the liquidity of debtors, as short collection period and
high turnover ratio imply prompt payment on the point of debtors. In general, short
collection period is preferable.

5. CREDITORS TURNOVER RATIO

The creditor’s turnover ratio is an important tool of analysis as a firm can reduce.
Its requirement of current assets by relying on supplier’s credit, a low turnover ratio
reflects liberal credit terms granted by suppliers, high ratio shows that accounts are too
settled rapidly.

Net credit Purchases

Creditors Turnover Ratio =

Average Creditors

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 CREDITORS PAYMENT PERIOD

Annual Days
Creditors Payment Period =
Creditors Turnover Ratio

6. WORKING CAPITAL TURNOVER RATIO

A firm may like to relate net Current assets to sales. It may thus compute
working capital turnover by dividing sales by net working capital. The ratio indicates
how efficiently the working capital of the firm is being utilized.

Net Sales
Working Capital Turnover =
Net working Capital

The reciprocal of the above ratio indicates the amount of working capital needed
for each rupee of sales.

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CHAPTER 3:

Background of the sample unit

 History of Karthik Alloys Ltd

 Company profile
 Vision Statement
 Mission Statement
 Quality Policy
 Objective of the Company
 Product of Karthik Alloys Ltd

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CHAPTER 3: Background of the sample unit :

Karthik Group is a multi unit, multi location and multi product Company manufacturing
Ferro Alloys, M. S. Ingots and steel, with its manufacturing units located at Goa,
Durgapur and Corporate Office at Hyderabad. We are pleased to inform you, Karthik
Alloys is one of the leading Ferro Alloys manufacturers in India and one of the three
Ferro Alloys producers in India to produce Special Alloy i.e. Low / Medium Carbon Silico
Manganese with its own indigenous technology. All manufacturing units are well versed
in all aspects such as experienced staff in fields of Management, Administrative,
Production, Marketing, Purchase, and Finance & Accounts with latest Laboratory
Equipments for total Quality Control.

Ever since our inception, Karthik Group is engaged in manufacturing Ferro Alloys,
M. S. Ingots and steel, with its manufacturing plants situated at Goa, Durgapur and
Corporate Office at Hyderabad. We are one of the major Ferro Alloys manufacturers in
India and one of the three most prominent Ferro Alloys producers in India to
manufacture Special Alloy. Our production plants are well facilitated with the required
amenities for instance experienced and trained workforce for different domains, such as
management, administrative, production, marketing, purchase, finance & accounts,
quality control, R&D Wing. Our group comprises of four sisters concern companies,
whose business activities and production facilities are briefly described below:

Karthik Alloys Limited.

The prominent company of the group, Karthik Alloys Limited, was incepted in the year

1992 and the plant started full-fledged commercial production during the year 1993 in

Goa with a capital outlay of Rs.41.10 millions to produce 3200 metric tonnes of Ferro

Silicon OR 5400 metric tonnes of Low/Medium Carbon Silico Manganese. This unit is

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situated on the Western Coast of India which is close to Marmagoa Ports, therefore it is

ideal for exporting our finished products or importing raw material.

Karthik Induction

Leveraging on vast domain expertise, Karthik Inductions Ltd. started its commercial

production at Kundaim Indl. Estate in the State of Goa during the year 1995. It

commenced our business activities with a capital outlay of Rs.30.00 million to produce

27,600 metric tonnes of Mild Steel Ingots. Additionally, this would be consumed by the

secondary steel producers all over the western coast and also southern part of the

nation, they utilize it for producing construction steel and TMT bars.

Rukmini Impex

Karthik Rukmini Impex Pvt. Ltd. have become a leading business entity engaged in

agency business, trading, import and export business of ferro alloys, steel scrap, non-

ferrous scrap & metals. The organization has carved a distinct niche in this highly

competitive market, under the able guidance of Mr. B. Gopala, he is solely

concentrating on trading, supply, agency and import-export business. He holds good

connection and sources in overseas market, which will be the key in procurement of

material.

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Rukmini Rama

Incorporated in the year 1997, Rukminirama Steel Rollings Pvt. Ltd. has made quite

significant progress, compared with the production of CTD Steel bars in Goa under the

Brand Name R R STEEL. In order to expand the organizational feather, the company

ventured into the production of TMT Steel bars (Thermo Mechanically Treated). As a

testimony of its product quality and brand image the company is accredited with the

prestigious ISI 1786/2008 followed with the coveted international quality and

environmental standards of ISO 9001:2008 (Quality Management System) and ISO

14001:2004 (Environmental Management System). Under the dynamic leadership of B.

Gopala, B. Raghavendra., and Bhupal Brothers, the Group has made immense

progress by venturing into other steel related projects, such as:

Karthik Inductions Ltd., Kundiam

Rukminirama Steel Rollings Pvt. Ltd., (Melting Division) Cuncollin.

Rukminirama Steel Rolling Pvt. Ltd., (Section Division) Cuncolim.

Rukminirama. Steel Rollings Pvt Ltd., (Pellet Division) Hospet

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 HISTORY OF KARTHIK ALLOYS LIMITED

The prominent company of the group, Karthik Alloys Limited, was incepted in the year
1992 and the plant started full-fledged commercial production during the year 1993 in
Goa with a capital outlay of Rs.41.10 millions to produce 3200 metric tonnes of Ferro
Silicon OR 5400 metric tonnes of Low/Medium Carbon Silico Manganese. This unit is
situated on the Western Coast of India which is close to Marmagoa Ports, therefore it is
ideal for exporting our finished products or importing raw material.

With our prime motto to offer optimum quality products to clients, we Karthik Alloys
Limited, commenced our business activities two decades ago although we started
commercial production of Special Alloy during the year 1993 in Goa. Our organization is
proud to be one of the only three most prominent companies of India engaged in
manufacturing Special Alloy. We are situated on the Western Coast of India which is
quite close to Marmagoa Port. Our unit is perfectly suited for exporting our finished
products or importing raw material.

After establishing our production unit in Goa, we set up another unit at Durgapur
(Industrial City) in the state of West Bengal, which has the production capacity of 10700
metric tonnes of high Carbon Ferro Chrome or 6000 metric tonnes of low / medium
Carbon Silico Manganese. This is a kind of exclusive alloy product used for producing
Stainless Steel all over the globe

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 COMPANY PROFILE

Name of Company : Karthik Alloys Ltd

Company Type : Manufacturing

Address : Karthik Alloys Ltd,

Plot No. L6 and L7

Cuncolim Industrial Estate

Cuncolim, Goa – 403 703

India.

Telephone : Ph : (0091) 832 - 2763 402 / 2763 539

Fax : + Fax : (0091) 832 - 2763 264.

Website : http://www.karthikalloyslimited.com/

Commenced Business : year 1992

Number of Employees : 220

Area of industries : 22 acres.

Industry surroundings : 56 acres.

Plant Locations : India.

Company Certification : ISO 9001-2008.

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6. VISION STATMENT
To become an ACE company, i.e. Above Customers Expectation
company.

7. MISSION STATMENT
To enable all those working for Karthik Alloys Ltd to give out their best to
ensure their all round growth as well as that of the organization.

8. QUALITY POLICY
“The Quality policy of Karthik Alloys Ltd Goa is to continuously

improve its products and services to satisfy the needs of its customers
better and to deliver them on time and every time defect free products and
services.”

 ORGANIZATION OBJECTIVES
 To achieve good quality production and customer satisfaction
 To maintain mutual beneficial relationship with suppliers, dealers and
other business associates.
 To focus on providing on time delivery service at competitive
reasonable rate.
 To have a good & healthy relationship with employees at the
organization.

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 Products of Karthik Alloys Limited

1. High Carbon Silico Manganese:

We manufacture and export impeccable quality High Carbon Silico Manganese. An

alloy of silicon and iron, this product comes with the high proportion of iron silicides. Our
High Carbon Silico Manganese is majorly used in manufacturing of steel & foundries.
These products are also used in production of silicon, high-temperature resistant &
corrosion resistant ferrous silicon alloys that are used in electro motors as well as
transformer cores. We manufacture our ferro silicon in the different specifications:
Mn. Silicon Carbon Phos. Sulphur Size
60% 14% 2.5% 0.15% 0.05% As per the requirement
Min. Min. Max. Max. Max. of the customer
65% 15% 2% 0.2% 0.05% As per the requirement
Min. Min. Max. Max. Max. of the customer

2. Medium Carbon Silico Manganese:

We are amongst the popular business entities engaged in manufacturing Medium

Carbon Silico Manganese. This is majorly used in various industries for various
applications. We ensure to make use of high quality tested raw material, which is
secured from well renowned resources. Additionally, we also lay proper attention to the
packaging of the products and it is done using high-grade packaging material. We can
customize the packet sizes as per the demands of the clients.

Mn. Silicon Carbon Phos. Sulphur Size

As per the
0.15 - 0.2% requirement
55% Min 22% Min. 0.5% Max. 0.05% Max.
Max. of the
customer

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3. Low Carbon Silico Manganese:

Low Carbon Silico Manganese is another extensively demanded alloy manufactured by

us. The composition of this Low Carbon Silico Manganese is kept according to the
requirements of the esteemed clients. With the assistance of our ready stock, we can
cater to the urgent needs as well as bulk requirements of our clients. Additionally, we
have a wide distribution network which let us transport our consignments in every part
of India.

Mn. Silicon Carbon Phos. Sulphur Size

As per the
requirement
55% Min 24% Min. 0.2% Max. 0.1-0.15% 0.05% Max.
of the
customer

4. Extra Low Carbon Silico Manganese

Manganese is generally a gray-white metal resembling iron. It is a hard metal and is
quite brittle, fusible with difficulty, but easily oxidized. We are amongst the favorite
companies engaged in manufacturing Extra Low Carbon Silico Manganese. This is
broadly used in different industries for various applications. In order to manufacture
optimum quality products, we make use of high quality tested raw material, which is
procured from well established and reliable resources.

Mn. Silicon Carbon Phos. Sulphur Size

As per the
requirement
55% Min. 28% Min. .1% Max. 0.1- 0.15% 0.02% Max.
of the
customer

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CHAPTER 4:
ANALYSIS

AND

INTERPRETATION

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CHAPTER 4: ANALYSIS AND INTERPRETATION

 CURRENT RATIO
Current Assets
Current Ratio =
Current Liabilities

Table no: 1

The Table Showing Current Ratio

Year Current assets Current liabilities Current ratio

2007-2008 29556852.51 6450288.96 4.58

2008-2009 32704404.30 8943414.24 3.66

2009-2010 36026356.68 13969235.82 2.58

2010-2011 36803353.98 17223217.48 2.13
2011-2012 44593906.33 17341493.54 2.57
Source: Annual Reports of Karthik Alloys Ltd

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Chart: 1

Current ratio
5 4.58

4 3.66
Ratio

3 2.58 2.57
2.13
Current ratio
2

Source: Table No: 1

INTERPRETATION
The above table reveals the current ratio of the firm for five succeeding years. The
current ratio of this firm indicates that the firm has sufficient liquid assets to discharge its
current liabilities on an average. The firm has maintained Rs. 2.5of current assets for
every one rupee of current liability which is more than what s required i.e. 2:1

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 QUICK RATIO (ACID TEST RATIO)

Quick assets

Quick ratio=

Quick liabilities

Quick assets=current asses – Inventory

Table no: 2
The table showing quick ratio

Year Quick Assets Current Liability Quick Ratio

2007-2008 19753274.32 6450280.96 3.06
2008-2009 20176970.41 8943414.24 2.25
2009-2010 23578573.97 13969235.82 1.69
2010-2011 26185954.31 17223217.48 1.52
2011-2012 30283491.31 17341493.54 1.74
Source: Annual Reports of Karthik Alloys Ltd

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Chart:2 The chart showing Quick Ratio

Quick Ratio
3.5
3.06
3

2.5 2.25

2 1.74
Ratios

1.69
1.52
1.5 Quick Ratio

0.5

0
Years

Source: Table No: 2

INTERPRETATION
The table above gives an idea about the quick assets held by the company as against
their current liabilities. Investing more in the liquid assets would affect the profitability.
Since 5 years the ratios of the company are more than the standard ratio (1.1) and it
indicates the sufficient liquidity.

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 INVENTORY TURNOVER RATIO (TIMES)

Cost of goods sold

Inventory Turnover =

Average inventory

Cost of Goods Sold=sales- gross profit

Average inventory=Opening Stock + Closing Stock/2

TABLE NO 3:
The Table Showing Inventory Turnover Ratio

Year Cost of Goods Sold Average Inventory Ratio

2007-08 41900611.48 9163153.15 4.57
2008-09 46990516.78 11165506.04 4.20
2009-10 40143955.81 12386001.71 3.24
2010-11 61939874.08 22289499.35 2.78
2011-12 76366500.66 24326801.00 3.14
Source: Annual Reports of Karthik Alloys Ltd

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Chart 3

Inventory Turnover Ratio

5 4.57
4.2
4
3.24 3.14
3 2.78
Ratios

Ratio
2

0
Year

Source: Table No:3

INTERPRETATION
Inventory turnover ratio measures the liquidity of inventory of the firm. It may be found
from table 3 the inventory turnover of Karthik Alloys Ltd is increasing and decreasing
trend. In the initial years the firm’s performance was better but in 2010-11 it has
declined and again it has increased in 2011-12

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 INVENTORY CONVERSION PETIOD (IN DAYS)

No of days in a year

Inventory conversion period=

Inventory Turnover Ratio

No of days in a year=365 days

Table no:4
The Table Showing Inventory Conversion Period

Year No of days in year I.T.R I.C.P

2007-08 365 4.57 80
2008-09 365 4.20 87
2009-10 365 3.24 113
2010-11 365 2.78 131
2011-12 365 3.14 116
Source: Annual Reports of Karthik Alloys Ltd

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Chart 4:

I.C.P
140 131
113 116
120

100 87
80
80
Days

60 I.C.P

40

20

0
Year

Source: Table No:4

INTERPRETATION:
It is evident from the graph which shows that Inventory conversion Period(days) has
been increased year on year as compared to previous year . The base which shows
that Inventory Conversion period (days) has been increased due to decrease in demand
which intern increases the Inventory conversion period

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 DEBTORS TURNOVER RATIO (IN TIMES)

Total sales

Debtors Turnover Ratio=

Debtors

Table No: 5
The Table Showing Debtors Turnover Ratio

Year Total sales Debtors Ratio

2007-08 60159358.93 14330539.40 4.20
2008-09 63479240.30 13309830.73 4.77
2009-10 55400798.84 16860326.74 3.29
2010-11 88298100.07 18765017.13 4.70
2011-12 107423714.30 27449771.02 3.91

Source: Annual Reports of Karthik Alloys Ltd

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Chart: 5

DTR
6

5 4.77 4.7
4.2
3.91
4
3.29
Ratio

3
Ratio
2

0
Years

Source: Table No: 5

INTERPRETATION
The table 5 shows that the in last five years debtors turnover ratio of Karthik Alloys Ltd.
A firm sells goods for cash and credit. When the firm extends credit to its customers,
debtors are created in the firm’s account. Debtors are expected to be converted into
cash over a short period of time and therefore are included in current asset. The liquidity
position of the firm depends upon the quality of debtors to a great extent. In other
words, debtors turnover during the year.

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 DEBTORS COLLECTION PERIOD

No of Days in Year

Debtors collection period=

Debtors Turnover Ratio

Table no: 6
The Table Showing Debtors Collection Period

Year No of days in a D.T.R D.C.P

year
2007-08 365 4.20 87
2008-09 365 1.77 77
2009-10 365 3.29 111
2010-11 365 4.70 78
2011-12 365 3.91 93
Source: Annual Reports of Karthik Alloys Ltd

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Chart: 6

D.C.P
120 111

100 93
87
77 78
80
Ratios

60
D.C.P
40

20

0
Years

Source: Table No:6

INTERPRETATION

This ratio indicates the number of days in which the debt due is collected from debtors.
Lesser the number of days, the better it is. It is clear from the ratio that the recovery
period or collection period is increasing year on year which is not a good sign, this
shows that the company’s credit management policy is not good.

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WORKING CAPITAL MANAGEMENT AT KARTHIK ALLOYS. LTD

 CREDITORS TURNOVER RATIO

Net purchase

Creditors Turnover Ratio=

Average creditors

Table No: 7
The Table Showing Credit Turnover Ratio

Year Net purchases Average creditors Ratios

2007-08 39001643.73 4166158.59 9.36
2008-09 46956953.26 8075358.48 5.81
2009-10 56428104.10 10942833.85 5.15
2010-11 70908281.16 8749053.60 8.10
2011-12 104351469.66 15290306.16 6.82
Source: Annual Reports of Karthik Alloys Ltd

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Chart 7

CTR
10 9.36
9 8.1
8
6.82
7
5.81
6 5.15
Ratios

5
Ratios
4
3
2
1
0
Years

Source: Table No:7

INTERPRETATION:
It is ratio between net credit purchases and the average amount of creditors outstanding
during the year. A low turnover ratio shows liberal credit terms granted by suppliers
while high ratio shows that accounts are to be settled rapidly it reduces the requirement
of current asset. It shows the short term debts

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WORKING CAPITAL MANAGEMENT AT KARTHIK ALLOYS. LTD

CREDITORS’ PAYMENT PERIOD:

No of days in a year

Creditors payment period=

Creditors’ turnover ratio

Table no : 8

The Table Showing Credit Payment Period

Year No of days in a C.T.R C.P.P

year
2007-08 365 9.36 39
2008-09 365 5.81 63
2009-10 365 5.15 71
2010-11 365 8.10 45
2011-12 365 6.82 54
Source: Annual Reports of Karthik Alloys Ltd

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Chart: 8

C.P.P
80
71
70 63
60 54
50 45
39
Days

40
C.P.P
30
20
10
0
Years

Source: Table No:8

INTERPRETATION

It may be found from table 8 there are ups and downs in a credit payment period of
Karthik Alloys Ltd .in the year 2010-11 the credit payment period of Karthik Alloys Ltd is
high i.e. 71 days. It indicates the company is not maintaining credit payment properly

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WORKING CAPITAL MANAGEMENT AT KARTHIK ALLOYS. LTD

WORKING CAPITAL TURNOVER RATIO

Cost of goods sold

Working capital turnover ratio=

Net working capital

Cost of Goods Sold=Sales-Gross Profit

Net Working Capital=Current Assets-Current liabilities

Table 9

The Table Showing Working Capital Turnover Ratio

Year Cost of goods sold Net working capital Ratio

2007-08 41900611.48 23106563.55 1.81
2008-09 46990516.78 23760990.06 1.98
2009-10 40143955.81 22057120.86 1.82
2010-11 61939874.08 19580136.45 3.16
2011-12 76366500.66 16581992.66 4.61
Source: Annual Reports of Karthik Alloys Ltd

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Chart: 9

Working Capital Turnover Ratio

5 4.61
4.5
4
3.5 3.16
3
Ratios

2.5
1.98 1.82 Ratio
2 1.81
1.5
1
0.5
0
Years

Source: Table No:9

INTERPRETATION

It is the measure to indicate the liquidity of the company. It is evident from the graph that
working capital turnover ratio is low in the past years i.e. from 2007-08 to 2008-09.but in
the year 2011-2012 the working capital turnover ratio is high i.e. 4.61. It shows that
Karthik Alloys Ltd has properly utilised the working capital for making the sales. It
reflects the working capital management is efficient.

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WORKING CAPITAL MANAGEMENT AT KARTHIK ALLOYS. LTD

STATEMENT SHOWING CHANGES IN THE WORKING CAPITAL

Particulars
2007-08 2008-09 Increase Decrease

A)Current
Assets

1.Inventory
9803578.19 12527433.89 2723855.70 ----------------------

2.Sundry
14330539.40 13309830.73 -------------------- 1020708.67
debtors

3.Cash and
3838139.12 3776498.05 -------------------- 61641.07
Bank balance

4.Loans and
163768.45 214811.57 54043.12 ---------------------
advances

5.Other
1420827.35 2875830.06 1455002.71 ---------------------
current assets

TOTAL
29556852.51 32704404.30

B)Current
liabilities

1.Sundry
2674571.66 5657565.52 -------------------- 2982993.86
Creditors
2.Other
current 3775717.30 3285848.72 489868.58 ---------------------
Liabilities
TOTAL
6450288.96 8943414.24

Net working
23106563.55 23760990.06
Capital(A-B)
Source: Annual Reports of Karthik Alloys Ltd

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INTERPRETATIONS

In the above statement shows that changes in the working capital in the year 2008-09
and 2009-10. It reveals how the current assets and current liabilities changes in the two
years. The difference between current assets and current liabilities i.e. net working
capital of the two years 2008-09 & 2009-10 is Rs.23106563.55 & 23760990.06
respectively. It shows the working capital increase Rs.654426.51 in the year 2009-10 as
compared to 2008-09

In the current assets-

a) The inventories increase Rs.2723885.70 which indicates working capital is

increased
b) The sundry debtors decreasing Rs.1020708.67
c) The Karthik Alloys Ltd reduces its cash & bank balance Rs.61641.07 in the year
2008-09
d) Loans and advances increases Rs.51043.12
e) The other current assets are increasing Rs.1455002.71

In the current liabilities-

a) The sundry creditors decreases Rs.2982993.86

b) The other current liabilities increases Rs.489868.58

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL

Particulars Increase Decrease

2008-09 2009-10

A)Current
Assets

1.Iinventories
12527433.89 12447782.71 -------------------- 79651.18

2.Sundry
13309830.73 16860326.74 3550496.01 ---------------------
Debtor
3.Cash &
Bank 3776498.05 3295721.24 ---------------------- 480776.81
Balances
4.Loans &
214811.57 143607.08 --------------------- 71204.49
Advances
5.Other
Current 2875830.06 3278918.91 403088.85 ---------------------
Assets
TOTAL
32704404.30 36026356.68

B)Current
Liabilities
1.Sundry
5657565.52 10493151.40 -------------------- 4835585.88
creditors
2.Other
current 3285848.72 3476084.42 -------------------- 190235.70
Liabilities
TOTAL
8943414024 13969235.82

Net working
23760990.06 22057120.86
capital(A-B)
Source: Annual Reports of Karthik Alloys Ltd

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INTERPRETATION

In the above statement shows that changes in the working capital in the year 2009-10 &
2010-11. It reveals how the current assets & current liabilities changes in the two years.
The differences between current assets and current liabilities i.e. net working capital of
the two years 2009-10 &2010-11 is Rs.23760990.06 &Rs.22057120.86 respectively. It
shows the working capital decrease Rs.1703869.20 in the year 2010-11 as compared to
2009-10

The current assets-

a) The inventories decreases Rs.79651.18

b) The sundry debtors increases Rs.3550496.01
c) The Karthik Alloys Ltd reduces its cash and bank balance Rs.480776.81 in the
year 2009-10
d) Loans & advances decreases Rs.71204.49
e) The other current assets increases Rs.403088.85

In the current liabilities-

a) The sundry creditors decreases Rs.4835585.88

b) The other current liabilities decreases Rs.190235.70

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STATEMENT SHOWING CHANGES IN THE WORKING CAPITAL

Particulars
2009-10 2010-11 Increase Decrease

A)Current
Assets:

1.Inventories
12447782.71 10617399.62 --------------------- 1830383.09

2.Sundry
16860326.74 18765017.13 1904690.39 ---------------------
debtors

3.Cash & 3295721.24

2906573.47 ---------------------- 389147.77
Bank balance

4.Loans &
143607.08 171868.33 28261.25 ---------------------
Advances
5.Other
Current 3278918.91 4342495.38 1063576.47 ---------------------
Assets
TOTAL
36026356.68 36803353.93

B)Current
Liabilities

1.Sundry
10493151.40 1139251.30 -------------------- 899364.90
creditors
2.Other
current 3476084.42 5830701.18 --------------------- 2354616.76
liabilities
TOTAL
13969235.82 17223217.48

Net working
22057120.86 19580136.45
capital(A-B)
Source: Annual Reports of Karthik Alloys Ltd

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INTERPRETATIONS

In the above statement shows that changes in the corking capital in the year 2009-10 &

2010-11. It reveals how the current assets& current liabilities changes in the two years.

The difference between current assets & current liabilities i.e. net working capital of the

two years 2009-10 & 2010-11 is Rs.22057120.86 & Rs.19580136.45 respectively. It

shows the working capital decrease RS.2476984.41 in the year 2010-11 as compared

to 2009-10

In the current assets-

a) The inventories decreases Rs. 1830383.09

b) The sundry debtors increases RS.1904690.39

c) The Karthik Alloys Ltd reduces its cash and bank balance Rs.389147.77 in the

year 2010-11

d) Loans and advances increases Rs.28261.25

e) The other current assets are increases Rs1063576.47

In the current liabilities-

a) The Sundry creditors decreases Rs.899364.90

b) The other current liabilities decreases Rs.2354616.76

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL

Particulars Decreases
2010-11 2011-12 Increases

A)Current
Assets

1.Inventories
10617399.62 14310415.00 3693015.38 --------------------

2.Sundry
18765017.13 24426667.84 5661650.71 ---------------------
Creditors

3.Cash & Bank

2906573.47 3051691.18 145117.71 ---------------------
balance

4.Loans &
171868.33 209474.73 37606.4 ----------------------
advances

5.Other
4342495.38 2453585.58 -------------------- 1888909.80
current asses

TOTAL
36803353.93 44593906.33

B)Current
liabilities

1.sundry
11392516.30 12590488.16 1197971.86
creditors
2.Other
current 5830701.18 3991504.50 1839196.68
liabilities
TOTAL
17223217.48 17341493.54

Net working
19580136.45 27252412.79
capital(A-B)
Source: Annual Reports of Karthik Alloys Ltd

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INTERPRETATIONS

The above estimate shows the changes in the working capital in the year 2010-11 &

2011-12.It reveals how the current assets and current liabilities i.e. changes in the two

years. The difference between current assets & current liabilities i.e. net working capital

of the two years 2010-11 & 2011-12 is Rs.19580136.45 & Rs 27252412.79 respectively.

It shows the working capital increase Rs.8289705.22 in the year 2011-12 as compared

to 2011-2012.

In the current assets-

a) The inventories increase Rs.3693015.38

b) The sundry debtors increase Rs.5661650.71

c) The cash and bank balance increases Rs.145117.71

d) Loans & advances increases Rs.37606.40

e) The other current assets are decrease Rs.1888909.80

In the current liabilities-

a) The sundry creditors increase Rs.1197971.86

b) Other current liabilities decreases Rs.1839196.68

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CHAPTER 5:

FINDINGS,
SUGGESTIONS,
CONCLUSION and
BIBLIOGRAPHY

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CHAPTER 5: FINDINGS, SUGGESTIONS, CONCLUSIONS and

BIBILOGRAPHY

FINDINGS
1. It was found that liquidity ratios of the company are highly liquidating i.e. Ratios
are above the desired standard. It implies that company certainly meets its
obligations; consequently it affects its profitability because of high current assets.
2. Quick ratio was above the standard ratio (1.1), but comparing to previous year, it
gradually declined except the last year
3. The inventory turnover ratio of the Karthik Alloys Ltd has decreased in the year
2010-11 compared to all five years. Low turnover ratio indicates the dead stock.
A low inventory turnover is not good from the viewpoint of liquidity position.
4. The debtors turnover ratio of the Karthik Alloys Ltd is increased 4.70 in the year
2010-11 compared to the year 2000-10 i.e. 3.29. The higher the value of the
debtors turnover, the more efficient is the credit management.
5. The creditors turnover ratio has decreased 6.82 in the years 2011-12 compared
to previous year 2010-11 i.e. 8.10
6. Credit payment period has decreased to 45 days in the year 2010-11compared
to previous years except in the last year it has increased.
7. Working capital turnover ratio of the company has increase to 4.61compared to
previous year 2010-11 i.e. 3.16.

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SUGGESTIONS

1. Current ratio is good and they have to maintain as per standard, otherwise it will
affect the profitability
2. Company has to reduce payables to improve quick assets
3. Inventory turnover ratio is declining year on year. Thus the company should
increase its turnover ratio, otherwise sales will be affected
4. Firm should increase its creditor’s turnover ratio because it will help the company
to discharge the liability.

CONCLUSION
 The study of “working capital management “in the Karthik Alloys Limited is
satisfactory. I got more information on working capital management of the
Karthik Alloys Ltd.
 From the performance evaluation of the company for five years using the
financial information made available one can conclude that the company had
been running its business in a very safe mode by ting fewer risk.
 By finding and suggestions it reveals that the firm’s financial position is not
sound
 Most of the ratios either have declined over years or not up to the standard,
the firm has work on all the ratios
 Thus finally we can say that over the years company’s performance is
declining which warrants the threat to Karthik Alloys Limited

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BIBLIOGRAPHY
BIBLIOGRAPHY
1. Financial management by M.Y.Khan & P.K.Jain
2. Financial management by I.M.Pandey
3. Company records:
Five years audited profit & loss A/C and Balance Sheets of Ltd. KARTHIK
ALLOYS LTD
Websites; http://www.karthikalloyslimited.com/

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