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This document explores the efficient management of working capital in the competitive market environment, focusing on the practices of Kirloskar Brothers Limited, a leading Indian company. It analyzes the components of working capital management, including cash, inventory, receivables, and payables. The study also highlights the importance of permanent, regular, and variable working capital, and emphasizes the significance of effective working capital planning and control to enhance profitability and maintain a balance between growth, profitability, and liquidity. The findings can provide valuable insights for students, researchers, and professionals interested in understanding the dynamics of working capital management in the corporate sector.
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Submitted To SAVITRIBAI PHULE PUNE UNIVERSITY, PUNE In partial fulfilment of the requirement for the Degree of Master of Commerce (In Business Administration) Submitted By Ms. Divya Shriprakash Soman Under the guidance of Dr.S.S Pokharna PG Centre Marathwada Mitra Mandal’s College of Commerce, Pune 2020 - 2021
I hereby declare that the Project titled ‘A Study Of Working Capital Management in Kirloskar Brothers Limited, Pune’ is written and submitted by me to Marathwada Mitramandal’s College Of Commerce, Pune towards the partial fulfillment of M.Com Degree in the year 2020 - 21. The report is an original work based on secondary data and the information obtained from Kirloskar Brothers Limited Pune. The contents provided are true. This Project has not been submitted to any other university or for any course requirements. PLACE: PUNE DIVYA S. SOMAN DATE:
Working Capital is the required for carrying out day to day business operations. The present day competitive market environment calls for an efficient management of working capital. Proper management of working capital is essential to a company’s fundamental financial health and operational success as a business. A hallmark of good business management is the ability to utilize working capital management to maintain a solid balance between growth, profitability and liquidity. The Project titled ‘A Study of Working Capital Management in Kirloskar Brothers Limited ’ aims to study the various aspects of Working Capital Management. This study is based on Kirloskar Brothers Limited (KBL) Pune, which is a pump manufacturing company involved in engineering and manufacture of systems for fluid management. The period considered for the study is five years i.e from Financial year 2015-16 to 2019-20. The research methodology adopted for this study is secondary source of data which include annual reports and other proprietary reports of Kirloskar Brothers Limited. This project tries to evaluate how the management of working capital is done in Kirloskar Brothers Limited through Intra Firm Ratio Analysis and Comparative Statement Analysis. The study of working capital management has shown that Kirloskar Brothers Limited has a fairly strong working capital position. The Company is also enjoying reasonable profits.
Sr. No. List of Figures Sr. No.
Financial management can be divided into two broad areas of responsibility as the management of long-term capital and the management of short-term funds or working capital. Working capital means the funds available and used for day-to-day operations of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. Efficient management of working capital is an essential pre–requisite for the successful operation of a business enterprise and improving its rate of return on the capital invested in short-term assets. The components of Working Capital Management are as follows:
1. Nature of Companies : Needs for working capital are determined by the nature of an enterprise. Small companies have smaller proportions of cash, receivables and inventory than large corporation. This difference becomes more marked in large corporations. A public utility, for example, mostly employs fixed assets in its operations, while a merchandising department depends generally on inventory and receivable. 2. Nature and Size of Business : The working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very less investment in fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy the varied and continues demand of their customers. 3. Time : The level of working capital depends upon the time required to manufacturing goods. If the time is longer, the size of working capital is great. Moreover, the amount of working capital depends upon inventory turnover and the unit cost of the goods that are sold. 4. Volume of Sales : This is the most important factor affecting the size and components of working capital. The volume of sales and the size of the working capital are directly related to each other. As the volume of sales increase, there is an increase in the investment of working capital-in the cost of operations, in inventories and receivables. 5. Terms of Purchases and Sales : If the credit terms of purchases are more favourable and those of sales liberal, less cash will be invested in inventory. With more favourable credit terms, working capital requirements can be reduced. 6. Business Cycle : Business expands during periods of prosperity and declines during the period of depression. Consequently, more working capital required during periods of prosperity and less during the periods of depression. 7. Liquidity and Profitability : If it is interested in improving its liquidity, it can increase the level of its working capital. However, this policy is likely to result in a reduction of the sales volume, and therefore, profitability. A firm should choose between liquidity and profitability and decide about its working capital requirements accordingly. ➢ COMPONENTS OF WORKING CAPITAL MANAGEMENT 1. CASH MANAGEMENT Cash management is one of the most important areas in the day-to-day management of the firm‘s deals with the management of working capital, which is defined as all the short term assets used in daily operations. This consists primarily of cash, marketable securities, accounts receivable and inventory. The balances in these accounts can be highly volatile as they respond very quickly to changes in the firm‘s operating environment. Healthy circulation of cash in the entire business operation is the basis of business solvency. Ultimately every transaction in a business results
either in an inflow or an outflow of cash. There should be sufficient cash with a firm all the time to meet the needs of the business. If the cash balance with a firm at any time is surplus or deficit, it is obvious that the finances are mismanaged. Cash Management needs strategies to deal with various facets of cash. Following are some of its facets.
2. INVENTORY MANAGEMENT Inventory constitutes an important item in the working capital of many business concerns. Inventory is a major item of current assets. The term inventory refers to the stocks of the product of a firm is offering for sale and the components that make up the product Inventory is stores of goods and stocks. This includes raw materials, work-in-process and finished goods. Raw materials consist of those units or input which are used to manufactured goods that require further processing to become finished goods. Finished goods are products ready for sale. The classification of inventories and the levels of the components vary from organisaion to organisation depending upon the nature of business. 3. RECEIVABLES MANAGEMENT Management of Receivables refers to planning and controlling of debt owed to the firm from customer on account of credit sales. When large amounts of money is tied up in receivables, there are chances of bad debts. On the contrary, if the investment in receivables is low, the sales may be low since competitors offer liberal terms. Therefore, management of receivables require proper policies and their implementation. There are basically three aspects of receivables management:
In today’s competitive world maintaining financial strength on a day to day basis has become a challenge. Every firm wants to see themselves financially sound. The financial attributes like liquidity, solvency and profitability can be improved by effective implementation of the working capital management. Working capital supports the day to day operations of the firm. As it includes items like cash, inventory, receivables, payables etc the working capital shows the activities of the companies. Empirical studies have shown that ineffective management of working capital as one of the major cause of industrial sickness. So, efficient management of working capital is one of the important indicators of financial soundness. 2.2 STATEMENT OF PROBLEM This Project report tries to evaluate how the management of working capital is carried out in Kirloskar Brothers Limited,Pune. 2.3 OBJECTIVES OF THE STUDY:
The study is based on secondary data which is collected from the annual reports and other proprietary reports of Kirloskar Brothers Ltd. Ratio Analysis and Comparative Statement Analysis is used for analysis of the data. The data is presented using various graphs and charts. 2.8 LIMITATIONS OF STUDY This study is based on secondary data. The period of study is restricted to 5 years.
working capital in a systematic way while overall ACC shows appropriate management of working capital. Kaur Harsh V. and Singh Sukhdev (2013 ) This article focuses on cash conversion efficiency and setting up the operating cycle days. The study tests the relationship between the working capital attain and profitability calculated by income to current assets and income to average total assets. Authors did study with companies listed in BSE 200 that is spread over 19 industries for the period 2000 to 2010.At the end, the study lay emphasis on that proficient management of working capital notably affects profitability. Mr.V.Venkatachalam (2016) , the researcher conducted a study on “Working Capital Management on Mahindra and Mahindra Private Limited”. The main objective of the study is to analyze whether the companies are viable in the long run through ratio analysis and statement of changes in working capital. He concluded that the overall working stability-soundness of the company has improved over the years very well. Akash B. Selkari and Omdeo Ghyar (2016) conducted a “Study on Working capital of Mahindra and Mahindra Ltd” for a period of 3 years from 2015-18. To study the working capital of the company ratio analysis technique was used. They came to an end that the working capital of the company was satisfactory because of maintaining proper inventory levels, cash, and other current assets and a decrease in the current liabilities and provisions Singh et al. (2017) indicated that WCM is negatively connected with corporate profitability, which means an aggressive WCM policy leads to higher profitability Dr.V. Bhuvaneswari (2020) highlighted the working capital which will determine whether the position of the company from the working capital point of view is sound and satisfactory. She concluded that the overall working stability, soundness and overall financial performance have improved over the years.
Kirloskar Group, is an Indian conglomerate headquartered in Pune, Maharashtra, India. The company exports to over 70 countries over most of Africa, Southeast Asia and Europe. The flagship & holding company, Kirloskar Brothers Ltd established in 1888, is India's largest maker of pumps and valves. ➢ NATURE OF BUSINESS Kirloskar Brothers Limited (KBL) is a pump manufacturing company involved in engineering and manufacture of systems for fluid management. The market leader in fluid management, KBL provides fluid management solutions for large infrastructure projects in the areas of water supply, power plants, irrigation, oil & gas and marine & defence. The company engineers and manufactures industrial & petrochemical, agriculture & domestic pumps, valves and hydro turbines. ➢ HISTORY OF THE COMPANY Established in 1888 and incorporated in 1920, KBL is among the pioneers of industrial revolution in India. From developing the country’s first plough to being India’s first manufacturer of centrifugal pumps, KBL, with its rich legacy extending over a span of 130 years, has many “firsts” to its credit. Be it India’s first diesel engine, electric motor, lathe or the specialised Concrete Volute Pump (CVP), KBL’s long list of revolutionary achievements and contribution to the Indian industry is impeccable. The foundation of Kirloskar Brothers was laid by founder, Shri Laxmanrao Kirloskar and his brothers, Shri. Ramuanna Kirloskar, in the form of a small bicycle shop in 1896, which later went on to pioneer an industrial revolution in India with the establishment of Kirloskar Brothers Limited. If Shri Laxmanrao sowed the seeds of industrialisation in the country with the establishment of Kirloskar Brothers Limited, his son, Shri Shantanurao Kirloskar, who joined his father’s business in 1936, ensured its growth and expansion under his leadership. From selling bicycles in 1888, the company, under the leadership of Shri Shantanurao, later divested into a conglomerate group of companies. This included the establishment of Mysore Kirloskar Ltd. and Kirloskar Electric Company, founded by Shri Rajaram Kirloskar and Shri Ravi Kirloskar in 1941 and 1946, respectively. From a humble beginning in a tiny factory-shed in Kirloskarvadi in 1910, the group has taken giant steps towards becoming one of India’s top multinational conglomerates over the last century. KBL’s transformation from being the country’s leading pump manufacturer to one of the market leaders in the global pumping industry is remarkable. The company under Shantanurao Laxmanrao Kirloskar achieved one of the highest growth rates in Indian history, with 32,401% growth of assets from 1950–1991. In 1988, Rajiv Gandhi, the then Prime Minister of India released a commemorative stamp marking the Kirloskar Group's 100th anniversary. ➢ ACQUISITIONS AND JOINT VENTURES
commissioned the world's second largest water supply system, with the world's highest head in Andhra Pradesh.
Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the firm’s ability to meet its current obligations. These are analysed by looking at the amounts of current assets and current liabilities in the balance sheet. 1) CURRENT RATIO A Current Ratio is that liquidity ratio with which we can identify a company's ability to pay its short term obligations or those that are to be due within one year. Current Ratio = Current assets Current Liabilities Conventionally, a current ratio of 2:1 is considered satisfactory. This ratio can be considered as safe and conservative because even if the current assets get reduced to half, then also the company will be able to clear off its short term debts and liabilities. A very high current ratio indicates that a company is unable to utilize its assets efficiently. A persistent trend of poor current ratio (of less than 1) is a warning signal of impending sickness. Table 1 ( Amounts in Million Rupees) Year Current Assets(Amt.) Current Liabilities(Amt.) Current Ratio(in times) 2015 - 16 10668.068 9759.669 1. 2016 - 17 11026.936 9875.649 1. 2017 - 18 13041.904 10609.414 1. 2018 - 19 14085.748 11462.187 1. 2019 - 20 15058.757 12370.614 1.
