STUDY ON WORKING CAPITAL MANAGEMENT

AT KKR GROUP OF COMPANIES

(NIRAPARA) OKKAL

Submitted by
AMRUTHA K BABU
Commerce Pedagogy
 CONTENTS

No Title Page
No
1 ABSTRACT 1
2 INTRODUCTION 2-4
3 THEORETICAL FRAMEWORK 5
4 COMPANY PROFILE 6
5 DATA ANALYSIS AND INTERPRETATION 7-17
6 FINDINGS, SUGGESTIONS AND CONCLUSION 18-20
APPENDIX
BIBLIOGRAPHY
 ABSTRACT

The researcher concludes that Working Capital is the controlling nerve of a

firm. No business can be successfully run without adequate amount of Working
Capital. In ordinary parlance Working Capital is taken to be the fund available for
meeting day to day requirements of an enterprise. Working Capital management is
concerned with two factors viz. the level of current assets to be held and the type of
assets and the method by which these assets are financed. Since investment in current
assets represents a substantial portion of total investment, the study of Working
Capital Management becomes important. n this work an attempt is made to calculate
the necessary ratios and preparing the statements which will help in the analysis and
interpretation of the working capital management. To find out the factors influencing
working capital in K.K.R. group of companies. The data obtained was analyzed using
standard financial and statistical techniques. The study is purely based on the annual
report. Working Capital Management is an essential part of financial management.
Here researcher studied various ratios relating to measurement of the working capital
such as liquidity ratio, profitability ratio, solvency ratio, activity ratio etc from the
year 2009-2010 to 2013-14. This study is conducted to analyze whether this firm is
employing its Working Capital effectively and efficiently for its smooth functioning.
The researcher to reach a conclusion that the working capital amount shows that the
company is in a position to meet its day to day obligations.

1
 INTRODUCTION
Working Capital may be regarded as the lifeblood of business. Every business needs
funds for two purposes. Long term funds are required to create production facilities though
purchase of fixed assets, such as plant, machinery, land, building etc, funds are also needed
for short term purpose for the purchase of raw materials, payment of wages and other day to
day expense etc. these funds are also known as Working Capital is also revolving or
circulating capital or short-term capital.

Working Capital needs are generally financed through outside sources. So continuous
care is necessary to utilized them in the best way. The main objectives of the study are to
analyze and evaluate liquidity position of the company, to analyze the components of
Working Capital of the company, to assess the impact of Working Capital on profitability, to
determine the amount of Working Capital of the company for another two years and to
understand the solvency position of the company.

The researcher chooses KKR GROUP OF COMPANY - NIRAPARA the study due to
following reasons.

To analyze liquidity, profitability and solvency position of the company.

To analyze investments in current assets.

For internal and external analysis of company.

The purpose of this study is to analyze the working capital management of the KKR
GROUPPVT LTD (NIRAPARA)- Okkal and to know the factors affecting its day to day
operations and working capital

STATEMENT OF THE PROBLEM

The project entitled, A STUDY ON WORKING CAPITAL MANAGEMENT OF

KKR GROUP OF COMPANIES (NIRAPARA) -OKKAL comprises liquidity, profitability
and solvency position of the company. The study progress by making use of Ratio Analysis
and Trend Analysis for analysing liquidity, profitability and solvency of the firm

SCOPE OF THE STUDY

2
 The study is intended to obtain a view of the working capital management practice of
KKR GROUP OF COMPANIES (NIRAPARA)- OKKAL and critically examine the factors
which led to the changes in the profitability of the concern. The financial strength and
weakness of business organization should be assessed. This is one of the important functions
of a financial analyst. In this project work an attempt is made to calculate the necessary ratios
and preparing the statements which will help in the analysis and interpretation of the working
capital management. These interpretations will help the firm to find out the changes and can
also take better decisions to improve in future utilisation of working capital.

OBJECTIVES OF THE STUDY

To study the Working capital management of KKR GROUP OF

COMPANIES( NIRAPARA) based on the past five years data provided by the
company
To analyze the liquidity, solvency and profitability position of the company
To evaluate the trend analysis over a period of time.
To know whether there is permanent, temporary working capital.
To find out the working capital necessary to cover the cost of operating in the
enterprise.
To find out the factors influencing working capital in K.K.R. group of companies.

RESEARCH METHODOLOGY OF THE STUDY

For the successful completion of the present study the researcher opted analytical
method. The data obtained was analyzed using standard financial and statistical techniques.
The principal techniques of analysis used in the project are ratio analysis. The P&L account
and balance sheet of the company have been analyzed with the help of the data obtained in
the financial statements.

TOOLS OF DATA ANALYSIS

The tools were used for data analysis as follows:

Liquidity ratios
Profitability ratios
Solvency ratios
Activity ratios

ASSUMPTION OF THE STUDY

3
 The data given by the company official are true and unbiased
The data collected from various secondary sources are true

LIMITATIONS OF THE STUDY

The study is purely based on the annual report

The availability of the data and information are limited due to the time factor
The study is only for one particular company. So inter firm comparison is not possible
due to non-availability of data regarding other enterprises.
Financial statements are generally based on historical cost. The Current positions are
ignored.
The busy work schedule of officers restricted to get detailed information.

THEORETICAL BACKGROUND OF THE STUDY

Working Capital is the lifeblood of business and the controlling nerve centre of the
business. To run a business efficiently, an adequate amount of Working Capital is very
4
essential. Thus Working Capital management forms an integral part of overall corporate
management. Working Capital is the amount of funds, which the company should have in
order to finance its day-to-day operations.

The finance manager is constantly engaged in endeavouring to maintain a sound

working capital position. Excessive Working Capital leads to un remunerative use of scarce
resources and inadequate Working Capital interprets the smooth flow of business activity
and profitability. The balance allocation of the Working Capital funds between inventories,
book debts and other components of Working Capital is crucial phase as Working Capital
Management.

The profitability and solvency are two objectives of the Working Capital Management.
The survival and growth of the company thus depends upon the ability to meet the two sets of
profitability and solvency. If the liquid assets are adequate to pay off the current liabilities,
financial soundness is automatically created and its credit reputations are sustained Working
Capital Management is concerned with the problems that arise in attempting to manage the
current assets, current liabilities and the inter-relationship that arise between them.

COMPANY PROFILE-INTRODUCTION
The K.K.R group was set up in 1976 by Mr.K.K.Karnan, a man who set out with
the vision to bring quality rice in to the traditional homes of Kerala in South India. A venture
which started out with traditional method of boiling, sun drying and milling, grew into one of

5
the most modern rice processing houses in India with the latest world-class technology today.
KKR Mills boats of a state of the art plant with the highest level of technology in the world ,
ensuring product that meet the most stringent and hygienic standards.

The K.K.R group is now all set to become a name o reckon with in foods. The
group has plans to set up a food park with in facilities to process and manufacture a wide
range of food products like spices, pickles and other products for world markets.

The factory of KKR Mills is located in the green, pollution-free Okkal Township,
near Kochi in Kerala in South India. The facility is equipped with the least technology in the
world for every aspect of processing of paddy-right from destining, cleaning, drying, de-
husking, bran-removal, polishing and finally sorting this infrastructure of a around 25 core of
rupees in one of the largest in India.

KKR Mills is the only rice mill in South India to use the Z-sortex machine capable
of optical inspection for quality control. This machine scans every grain of optical inspection
for quality control. This machine scans every grain of rice and removes discoloured, broken
and immature rice, ensuring that only rice that meets the specification calibrated in the
computer mission is selected for packaging. The result beautiful rice of even size, colour and
bran that is a feast for the eyes and a wholesome meal. Nirapara the brand name in which
KKR Mills markets rice, is today the largest selling Brand in Kerala and has become a
household name .

DATA ANALYSIS AND INTERPRETATION

These are the tools used for the study of Working Capital Management.

RATIO ANALYSIS

6
 It is an important technique of financial analysis. In financial analysis a ratio is used
as an index for evaluating the financial position and performance of a firm. A ratio helps the
analyst to make judgment about the firms financial position and performance. In simple
language, ratio is on number expressed in term of another and can be worked out by dividing
one number in to the other.

CLASSIFICATION OF RATIOS:

Several ratios calculated from accounting data can be grouped into various classes
according to financial activity or functions to be evaluated. As stated earlier the parties
interested in financial analysis are shorter and long term creditors and owners and
management short term creditors main interest is the liquidity position or the short term
solvency of the firm. Long term creditors more interested in the long term solvency and
profitability of the firm. In view of the requirement of the various users of ratio we many
classify them in to following categories.

1. Liquidity Ratios: Current ration, quick ration, absolute liquid ratio.

2. Probability Ratios: Net profit ratio, operating ratio, gross profit ratio.
3. Solvency Ratios: Debt- Equity ratio, Proprietary ratio
4. Activity Ratio: Fixed asset turnover ratio, Working capital turnover ratio, Debtors
turnover ratio, Inventory turnover ratio and Creditors turnover ratio

RATIO ANALYSIS

CURRENT RATIO
Current Ratio = Current Assets
Current Liabilities

7
 CURRENT
YEAR CURRENT ASSET RATIO
LIABILITIES

2009-2010 435764886 289786315 1.503746

2010-2011 609398932 449686813 1.355163

2011-2012 556084198 542733613 1.024599

2012-2013 406078970 442814063 0.917042

2013-2014 142095793 144150951 0.985743

TABLE 4.1

RATIO
1.6
1.4
1.2
1
0.8
RATIO
0.6
0.4
0.2
0

Chart 4.1

INTERPRETATION

The above chart and graph exhibits the current ratio of the company ,which is showing a
fluctuating trend from 2009-2014. It was 1.5 it was good to the firm as he ideal Ratio is 2:1
and then it reaches to 1.2 and then 2012 - 2013 declines 1.3. This indicates that the firm is
having high liquidity position and hence it can meet its obligations or liabilities.

QUICK RATIO
Quick ratio = quick asset
current liabilities

Year Quick asset Current Liabilities Ratio

8
 2009-2010 239372555 289786315 0.82603126
2010-2011 385006584 449686813 0.856166054
2011-2012 265782084 542733613 0.489710012
2012-2013 125891705 442814063 0.284299248
2013-2014 135781255 144150951 0.941937976

Table 4.2

RATIO

1
0.9
0.8
0.7
0.6
0.5 RATIO
0.4
0.3
0.2
0.1
0

Chart 4.2

INTERPRETATION

The above chart and graph exhibits the Quick Ratio of the company, which is showing
a fluctuating trend from 2009-2014. It was 0.08 it was good the firm as he ideal Ratio is 1:1
and Then it reaches to 0.5 and hen 2013-2014 decline 0.94 this indicates that the firm is
having sound financial position and hence it can meet its obligations or liabilities and meet its
liabilities from liquid assets.

ABSOLUTE LIQUIDITY RATIO

Absolute liquidity ratio = Cash + Market Securities

Current Liabilities

Year Cash Current Ratio

Liabilities

9
 2009-2010 60577563 289786315 0.209042

2010-2011 38847825 449686813 0.086389

2011-2012 250850 542733613 0.000462

2012-2013 2579713 442814063 0.005826

2013-2014 2271205 144150951 0.015756

Table 4.3

RATIO

0.25

0.2

0.15 RAIO

0.1

0.05

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Chart 4.3

INTERPRETATION
Generally absolute liquidity ratio 0.75:1 is considered ideal and represent a
satisfactory financial position for all 5 consecutive years current liabilities is less than cash
current liabilities decreasing year after year.

RATIO OF CURRENT ASSET TO FIXED ASSET

Current Asset o fixed asset ratio = Current Asset

Fixed asset

10
 Year Current Fixed Asset Ratio
Asset

2009-2010 435764886 35873621 12.14722

2010-2011 609398932 32045984 19.01639
2011-2012 556084198 32678730 17.0167
2012-2013 406078970 31601108 12.85015
2013-2014 142095793 1497788 94.87043

Table 4.4

RATIO

100
80
60
40
RATIO
20
0

Chart 4.4

INTERPRETATION
From the above chart for all years current asset is grater than fixed asset. ratio
increasing year after year .in the year 2013-2014 ratio is miserable state compared to other
years i shows slight variations .

PROFITABILITY RATIO

Net Profit Ratio = Net Profit x 100

Net Sale

11
 Year Net Profit Net Sale Ratio

2009-2010 288694 429590976 0.067202

2010-2011 91660 452568460 0.020253
2011-2012 217160 499926204 0.043438
2012-2013 6123720 547563064 1.118359
2013-2014 72415.93 375469773 0.019287

Table : 4.5

RATIO

1.2

0.8

0.6 RATIO

0.4

0.2

0
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

Chart : 5.5

INTERPRETATION
From the above chart during the two years the firm has 1.11 % profit in the year 2012-
2013 the firm has high net profit during the year 2013-2014 it shows net profit is 0.019.

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GROSS PROFIT RATIO

Gross Profit ratio = Gross profit x 100

Net sales

Year Gross Profit Net Sale Ratio

2009-2010 521757 429590976 0.121454

2010-2011 174187 452568460 0.038489
2011-2012 1301771 499926204 0.260393
2012-2013 8123972 547563064 1.48366
2013-2014 194027 375469773 0.051676

Table 4.6

RATIO
1.6

1.4

1.2

1
RATIO
0.8

0.6

0.4

0.2

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Chart: 4.6

INTERPRETATION

From the above chart the firm has lowest gross profit in the year 2010-2011 and it
indicate the of cost of production of the company is very high in the year 2011-2012 gross
profit is slightly improved compared to the year 2013-2014 has profitability ratio of 0.0516.

13
OPERATING RATIO

Operating Ratio = Operating cost x 100

Net Sales

COST OF OPERATING NET

YEAR GOODS SOLD EXPENSE SALES RATIO
2009-2010 429069219 12121945 429590976 102.7
2010-2011 462394273 15420524 452568460 105.57
2011-2012 498624433 0 499926204 99.739607
2012-2013 539439092 0 547563064 98.51634
2013-2014 375275746 0 375469773 99.948324

Table: 4.7

RATIO
106
104
102
100
98 RATIO
96
94

Chart 4.7

INTERPRETATION

14
 The ratio is used to measure the general profitability of the concern .Lower the ratio
of he year 2012-2013,105.5 the more profitable are the operations indicating an efficient
control over costs and an appropriate selling profit.

FIXED ASSET TO CAPITAL EMPLOYED RATIO

Fixed Asset to Capital Employed = Fixed Asset

Capital Employed

CAPITAL
YEAR FIXED ASSET RATIO
EMPLOYED
2009-2010 35873621 23214000 1.545344
2010-2011 32045984 23214000 1.380459
2011-2012 32678730 28214000 1.158245
2012-2013 31601108 28214000 1.120051
2013-2014 1497788 1650000 0.90775

TABLE 4.8

RATIO
1.6
1.4
1.2
1
0.8
0.6 RATIO
0.4
0.2
0

CHART 4.8

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INTERPRETATION
The ratio is used to measure the general profitability of the concern. Lower the ratio
of the year 2013-2014, 0.907 the more profitable are the operations indicating an efficient
control over costs and an appropriate selling profit.

DEBT EQUITY RATIO

Debt Equity Ratio = Debt

Equity

YEAR DEBT EQUITY RATIO

2009-2010 148338099 30948847 4.793009
2010-2011 15868808 31040507 0.511229
2011-2012 18132631 31257667 0.580102
2012-2013 12986290 37381387 0.3474
2013-2014 1656378 8353286 0.198291

TABLE 4.9

RATIO
5
4
3
2 RATIO
1
0

CHART - 4.9

INTERPRETATION
16
 I t shows a quiet satisfactory performance than the remaining years .high debt equity
ratio implies a greater claim of owners than creditors. in the year 2009-2010 it shows high in
the ratio and 2013-2014 it was .198.

CURRENT ASSET TO FIXED ASSET RATIO

Current asset to fixed asset ratio = Current asset

Fixed asset

Year Current asset Fixed asset Ratio

2009-2010 435764886 35873621 12.14722
2010-2011 609398932 32045984 19.01639
2011-2012 556084198 32678730 17.0167
2012-2013 406078970 31601108 12.85015
2013-2014 142095793 1497788 94.87043

Table :4.10

RATIO
100
80
60
40 RATIO
20
0

Chart 4.10

INTERPRETATION

17
 From this ratio of current asset to fixed asset ratio increasing and in the year 2009-
2010 in decreasing and its 12.14 and in that year current asset and current liabilities shows a
high ratio in he year 2013-2014 94.87 is shows a fluctuating year to year.

FINDINGS
Working Capital Management is an essential part of financial management. Here researcher
studied various ratios relating to measurement of the working capital such as liquidity ratio,
profitability ratio, solvency ratio, activity ratio etc from the year 2009-2010 to 2013-14.

The current ratio of the firm shows high, it indicates that the firm can meet its
obligations or liabilities.
Nirapara shows a favourable quick ratio, so the firm can meet its liabilities from
liquid assets
The absolute liquidity ratio of Nirapara was below the ideal standard. It indicates that
the firm has a unsatisfactory financial position.
Net Profit ratio of the firm was quite satisfactory.
The firm providing lower earning availability to the equity share holders of the
company.
The profitability to total fund or investments of Nirapara was fluctuating and it was a
quite satisfactory.
The quite satisfactory debt-equity ratio of the firm indicates that the firm has a
unfavourable solvency position.
The instability proprietary ratio of the firm indicates that the creditors have higher
risk.
The lower Debtors turnover ratio which shows an ineffective management of debtors
and the firm is in a illiquidity position.
Fluctuating Working Capital turnover ratio indicates that the firm is not properly
employing Working Capital

18


SUGGESTIONS
This study is conducted to analyze whether this firm is employing its Working Capital
effectively and efficiently for its smooth functioning.

1. The liquidity position of the firm can be improved by way of proper utilization of
current and liquid assets.
2. Net profit ratio shows high fluctuations; the researcher recommends to the firm to
take remedial measures in order to overcome this situation.
3. The company could increase the net profit by reducing the cost of production,
operating expenses and by increasing the sales. By doing so, the firm can maintain
adequate cash and bank balances.
4. The debtors of the company is decreasing over the years, company could adopt a
competent credit policy to attract the customers. Increasing debtors is a solution to
overcome the liquidity problem.
5. The company can reduce the cost of production and try to improve its profitability.
6. The working capital ratio fluctuating year by year, so the company should increase the
working capital turnover ratio.
7. The company should maintain quick ratio to the ideal ratio 1:1
8. The sale of company is increasing year by year. If the company is trying to reduce the
cost of production it can earn more profit.

19
 CONCLUSION

The study was conducted to analysis working capital managed in K.K.R. Mills Pvt.
Ltd. (Nirapara). The financial statement of the company is analysed and interpreted. The
analysis and interpretation of data relating to working capital management of the company
helped the researcher to reach a conclusion that the working capital amount shows that the
company is in a position to meet its day to day obligations.

20
 BIBILIOGRAPHY

C.R.KOTHARI, Research Methodology, Second Edition, New Age

International Publishers, New Delhi, 1990.

I.M PANDEY , Financial Management, Second Edition, Vikas publishing

house pvt ltd, New Delhi ,2003.

M.Y. Khan, P.K. Jain, Management Accounting, fourth edition, Tata

McGraw hills publishing, New Delhi, 2007.

S.P Guptha, Statistical Method, Thirteenth edition, Sultan Chand & Sons
Publishers, New Delhi ,2001.

Prasanna Chandra, Financial Management, Sixth Edition, Tata-MC

Graw-Hill Publishing Company Limited, New Delhi, 2004.
 APPENDIX

1. CURRENT RATIO

Current Ratio = Current Assets

Current Liabilities

2. QUICK RATIO

Quick Ratio = Quick Assets

Current Liability

3. ABSOLUTE LIQUID RATIO

Absolute liquidity ratio = Cash + Market Security

Current Liabilities
4. RATIO OF CURRENT ASSET TO FIXED ASSET

Current ratio to fixed Asset ratio = Current Asset

Fixed Asset
5. NET PROFIT RATIO

Net Profit Ratio = Net profit x 100

Net sales
6. GROSS PROFIT RATIO

Gross Profit ratio =
Gross profit 100
Sales
7. . OPERATING RATIO

Operating ratio = Cost of goods sold + Operating expenses 100

Sales

Cost of goods sold = Opening Stock + Purchases +

Direct Expenses - Closing Stock.

8. DEBT- EQUITY RATIO

Debt- Equity Ratio = Debt i.e. Outsiders fund

Equity Shareholders Fund

9. PROPRIETARY RATIO
 Proprietary ratio = Share holders fund

Total asset

Share holders fund = Equity share capital + Preference share capital +

Reserve & surplus Fictitious asset

10. FIXED ASSETS TO TURNOVER RATIO

Fixed Assets to Turnover ratio = Net sales

Fixed assets

11. WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio = Net sales

Net working capital

12. DEBTORS TURNOVER RATIO

Debtors turnover ratio = Net Sales

Average Debtors

13. INVENTORY TURNOVER RATIO

Inventory turnover ratio = Cost of goods sold / Average inventory

Average inventory = Opening Stock+ Closing Stock