“ANALYSISANDEVALUATIONOF THE

MANAGEMENT OFKAMAT HOTELS

INDIA LTD’s WORKING CAPITAL OVER A
FIVE-YEAR PERIODAND ITS IMPACT ON
ITS ORGANIZATION’S FUNDING
STRATEGIES.”

SUBMITTED BY

MOHAMMAD SADIK PK

3217MBA16

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 TABLE OF CONTENTS

SL NO CONTENT PG NO
1 INTRODUCTION
1.1 Introduction 4
1.2 Rationale 4
1.2.1 Statement of problem 4
1.2.2 Scope of study 5
1.3 Aims and Objectives 5
1.4 Key terms 6
1.5 Research Design 6
1.6 Structure 6
1.7 Conclusion 7
2 REVIEW OF RELATED LITERATURE
2.1 Introduction 8
2.2 Literature Review 8
2.3 Conclusion 12
3 RESEARCH METHODOLOGY
3.1 Introduction 13
3.2 Research Design 13
3.3 Sampling 14
3.4 Sources of data 14
3.5 Data collection 15
3.6 Data analysis techniques 15
3.7 Ethics 15
3.8 Limitation of data collection 15
3.9 Conclusion 16
4 ANALYSIS AND INTERPRETATION
4.1 Introduction 17
4.2 Company profile 17
4.3 Industry overview 18

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 4.4 Concept of Working capital 19
management
4.4.1 Working capital 19
4.4.2 Components of working capital 20
4.4.3 Working capital management 21
4.5 Ratio analysis 21
4.5.1 Liquidity ratios 21
4.5.2 Profitability ratios 26
4.5.3 Turnover ratios 32
4.6 Conclusion 36
5 CONCLUSIONS AND SUGGESTIONS
5.1 Introduction 37
5.2 Findings 37
5.3 suggestions 39
5.4 conclusion 39
Reference 40

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 CHAPTER 1: INTRODUCTION

1.1 Introduction

This chapter provides an introduction to the thesis. This chapter explains the rationale, key terms,
aims & objective, research design and structure of the project are explained. This chapter
provides the framework of the thesis.

1.2 Rationale of the study

The major problem faced by any developing economy is the inefficiency in utilizing the
available resources. Among the resources, capital is the scarcest one and efficient utilization of
scarce resources helps to reduce the production costs and promotes the growth of the economy.
So, the effective utilization of capital has a great relevance in a developing economy. Fixed
capital and working capital are the components of capital. The fixed capital was given more
importance and ensuring efficiency of fixed capital was a prime consideration. Working capital
management is often neglected and it resulted in partial utilization of capital fund. Liquidity
management has both liquidity and profitability aspects. When current liabilities are reduced
from current assets, it constitutes the working capital. Current assets are controllable to an extent
and efficient utilization of these resources would help to enhance the profitability of a firm. The
efforts made for the optimal utilization of current assets will lead to the effective flow of funds
through the firm by focusing more on inactive inventories. Working capital offers a typical front
for profitability and management. This study focuses on the evaluation of the working capital
management of Kamat Hotels India Ltd.

1.2.1 Statement of problem

The hotel industry is one of the leading top industries in India and hence it is faced by several
problems. Increased competition, changing food habits, cost of operating, hiring the best staff,
shortage of fuel etc are the major problems faced by the hospitality sector. By solving these all
problems only, the sector can maintain profitably. Most of the problems are not easily
controllable. Mismanagement of fixed assets can reduce the profitability of the business in large
size.So, it is very necessary to control and manage the resources available to increase the

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profitability of the industry. Working capital is needed for every industry for day to day
operations. So, the proper management of working capital is important for the success of every
industry. At present, it is very much important for hoteliers to manage the working capital
efficiently and effectively.

1.2.2 Scope of the study

The period of study is confined to the years 2012-2013 to 2016-17 (5 years). The present study
has been focused on examining the KamatHotel ’s financing and control management of the
working capital.

1.3 Key terms

Working capital: According to Weston & Brigham - “Working capital refers to a firm’s
investment in short-term assets, such as cash amounts receivables, inventories etc”.

Management of working capital:It is the management of working capital components like cash,
inventories, finished goods, creditors, accounts payable, accounts receivables etc. in simple
terms, working capital management is how the current assets and current liabilities are managed.

Trend Analysis: Trend Analysis, also referred to as Time series is the ratio which indicates the
direction of change. This analysis is important in the applicability of the items in profit and loss
accounts. For trend analysis, the use of index numbers is generally adopted

Ratio Analysis: The ratio analysis is one of the most powerful tools of financial analysis. It is
used as a device to analyze and interpret the financial of the enterprise.

Profitability Ratios: Profitability ratios are financial metrics that are used to measure the ability
of a business to generate returns relative to its expenses incurred. Having a higher profitability
ratio compared to a competitor or a better ratio than the previous financial year indicates that the
company is performing well.

Liquidity Ratios: The term liquidity means a company’s ability to pay off its financial liabilities
when they became due. Liquidity ratio is a metrics used to measure the ability of a firm to meet

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its short-term obligations. There are three common ratios in liquidity ratios; current ratio, quick
ratio or acid-test ratio and cash ratio.

Turnover Ratios: Turnover ratios are financial ratios that measure an asset’s activity or efficiency
in generating or turning-over cash.

1.4 Aims & Objectives

1. To study the concept of working capital management

2. To understand the process of working capital management in Kamat Hotels India Ltd
3. To check whether the company is having enough working capital to face any kind of
contingencies
4. To assess liquidity position, long-term solvency, operational efficiency and overall
profitability of Kamat Hotels
5. To compare the performance of working capital of the current year with previous years.

1.5 Research Design

According to Andrew B Kurumba (2018), “research design is the set of methods and procedures
used in collecting and analyzing measures of the variables specified in the research problem”.

Every research should undergo a research design and it depends on the study type, research
problem etc. The research design is a framework through which research questions are to be
answered.

In this research, two types of research designs are used. Descriptive research is used to show the
current situation of KHIL and analytical research is used to analyze the ratios and to interpret the
results of the study.

1.6 Structure

Structure means chapterization to the study. There are mainly five chapters in this study.

CHAPTER ONE: INTRODUCTION

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Chapter one is the introductionto the study. What the project all about is discussed briefly in this
chapter. The rationale of the study, statement of the problem, the scope of the study, aims, and
objectives of the study are discussed.

CHAPTER TWO: LITERATURE REVIEW

Reviews from related literature, researches, studies, books, etc are explained in this chapter.

CHAPTER THREE: RESEARCH METHODOLOGY

Type of research to be done and how the data to be collected for the study is described in detail
in this chapter. About the sources of data, data analysis methods, data analysis techniques and
also about the ethics andlimitations of the study is discussed in this chapter.

CHAPTER FOUR: ANALYSIS AND INTERPRETATION

The chapter deals with the company history, industry overview, concept of working capital,
components of working capital, working capital management. After the collection of data, it is to
be analyzed and interpreted and it is done in this chapter.

CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS

This chapter gives the general conclusion of the thesis. Based on the conclusion
recommendations are listed.

1.8 Conclusion

This chapter provided a general outline of the project. The ratio analysis is used as a tool for
analyzing the obtained information. As the study is based on secondary sources no sampling is
used. Descriptive as well as analytical research design opts for the study. The study is mainly
based on five objectives. And the thesis is structured in five chapters.

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 CHAPTER 2: REVIEW OF RELATED LITERATURE

2.1 Introduction

Working capital management is the discipline of management which pervades all walks of
economic life whether, in a household or in an enterprise, in the public domain or in service. In
the absence of working capital, all economic activities shall come to a halt (Hrishikes
Bhattacharya, 2014).

A literature review is the comprehensive study and interpretation of literature that addresses a
specific topic. Exploration of existing research and the methods used to investigate the area will
add to the understanding of the topic (Helen Aveyard, 2014).

This chapter helps to find out the gaps in the previous research studies so far done and finding a
path for the study in the same topic. This chapter is reviewing the previous studies carried out in
analyzing the efficiency of working capital management in connection with liquidity,
profitability,and efficiency.

2.2 Literature Review

1. Moshin Khan (2017) carried out a study entitled “Working Capital Management in Meat
Processing Industry A Case Study of Allana Group of Companies” assesses the management of
working capital in the Meat Processing Industry. The study reveals that the financial decision
regarding working capital management is very significant for the firms especially for Meat
Processing industry because of the direct influences between liquidity and profitability.

2.Ghosh, S.P. (1983) carried out a study entitled ―Working capital in crane manufacture-a case
study assessed the contemporary working capital management practices in crane manufacturing
industry in India. This research emphasized that the management of individual components of
working capital was not organized properly. The efficiency of short-term debt payment of
selected companies was not satisfactory. This research work also exposed that the credit
management policy of the crane manufacturers was not effective and therefore it generated
unembellished problems in the supervision of working capital along with liquidity.

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3.Khandelwal, N. M. (1985) has guided in his study ―Working capital Management in Small
Scale Industries on Small Scale Industries (SSI) in Jodhpur industrial estate for the period of 5
years from 1976 to 1980 pointed out the working capital management practices of the small-
scale industries. This study covered 40 multigroup units which were selected based on purposive
sampling from 162 S.S.I units working in Jodhpur Industrial Estate at the end of 1974. The data
which is relevant to the study was composed of the secondary sources. The study propounded
that the instantaneous liquidity position of the selected units was not adequate or pleasing for the
period of study. Moreover, this study presented that the liquidity of inventory, as well as the
quality of receivables, was not adequate. This study revealed that only the textile industry was
solvent in this Industry-wise study. This study entitled for better inventory management.

4. Toni M. Whited (1992) have propounded in his paper entitled ―Debt, Liquidity Constraints,
and Corporate Investment: Evidence from Panel Data that problems of asymmetric information
in debt market affect financially unhealthy firms' ability to acquire outside finance and as a
result, their allocation of real investment expenditure over time. The hypothesis was tested by
estimating the Euler equation of an optimizing model of investment including the effect of a debt
constraint greatly recovers the Euler equation's performance in comparison to the standard
specification. When the sample was split based on two measures of financial distress, the
standard Euler equation fits well with the prior unconstrained groups, but it is rejected for the
others.

5. S.M. Fazzari and B.C. Petersen (1993), in their paper entitled ―Working Capital and Fixed
Investment: New Evidence on Financing Constraints obtained a new test for financial constraints
in investment by giving emphasis to the abandoned role of working capital used as a source of
funds. It is described in this paper that when the firm suffers the financial constraints, the
working capital can be utilized as a source of liquidity to run for equalization of the fixed
investment comparative to cash -flow jolts. The results of this paper exposed that regressed in a
fixed investment. Moreover, their study also makes available the basis of condemnation of
previous research on financial constraints which expound that the cash flow might be a simple
proxy shift in investment demand.

6. Smith and Begemann (1997) highlighted in their study that profitability and liquidity
embraced the salient objectives of working capital management. The difficulty ascended because

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of the enlargement of the firm's returns which could utterly threaten its liquidity, and the
detection of liquidity has a propensity to dilute returns. The article describes the difference
between the measures of both traditional and alternative working capital and returns on
investment(ROI) in an industry listed on the Johannesburg Stock Exchange (JSE). The problem
under examination was to establish whether the more recently developed unconventional
working capital concepts showed enhanced association with return on investment to that of
traditional working capital ratios or not. As per the results of the study, there was no significant
difference between the independent variables during the years under study. The results of their
stepwise regression supported that total current liabilities divided by funds flow accounted for
most of the variability in ROI. According to statistical test results, two ratios shows the greatest
difference with return on capital employed and the ratios are current liabilities divided by funds
flow and working capital leverage ratio. Well-known liquidity concepts such as the current and
quick ratios registered insignificant relations whilst only one of the newer working capital
concepts, the complete liquidity index, indicated significant associations with return on
investment.

7. Ahmed (1998) empirically studied on ―Responses in output to monetary shocks and the
interest rate: A rational expectations model with working capital revealed that when the interest
rate was included, money loses its predictive power on output. The author explained the findings
by using rational expectations model, where production decisions of firms required debt-financed
working capital. To represent the effect of the supply side, the cost of working capital and the
interest rate were taken into consideration. Further, it was observed that monetary shocks affect
the interest rate, which in turn affects the price and output produced by firms. Moreover, the
model showed that this could cause the predictive power of monetary shocks on output to
diminish when the interest rate is used in empirical analysis. In addition, this model also explains
the effects of monetary policy on the price level through supply side (cost-push) factors.

8. Howorth and Westhead (2003) in their paper entitled ―The focus of working capital
management in UK small firms suggested that small companies should focus on the areas of
working capital management where they expect to improve marginal returns. They highlighted
the difficulties of establishing causality and reported implications for academic’s policy-maker
and practitioner Principal Component Analysis has been used in their study that helped in the

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identification of four distinct ‗types ‘of companies regarding the pattern of working capital
management. The study focused on the four variables that include cash management, stock,
debtors and routines respectively whereas fourth ‗type ‘were less likely to take-up any working
capital management routines. Moreover, multinomial logistic regression analysis suggested that
the selected independent variables successfully discriminated between the four types ‘of
companies. Further, the study discussed the influences on the amount as well as focus on the
working capital management.

9. Santanu Kr. Ghosh (2004) in their paper entitled ―Working Capital Management efficiency:
A Study on the Indian Cement Industrytried to inspect the efficiency of working capital
management of the Indian cement companies during 1992-93 to 2001-2002. For assessing the
efficiency of working capital management three index values i.e. performance index, utilization
index and overall efficiency index were considered, in place of using some common working
capital management ratios. This Study also tested the efficiency levels of individual firms during
the period of study using industry norms. The findings of the study point out that the Indian
cement Industry did not perform extraordinarily well during this period.

10. Filbeck. et.al (2005) propounded the study on ―An analysis of working capital
management results across industries. They have investigated that Firms are able to decrease
financing costs and upsurge the funds accessible for enlargement by minimizing the number of
funds tangled up in current assets. The authors provided visions into the recital of measured
firms across key constituents of working capital management by using the CFO magazine ‘s
annual Working Capital Management survey. Eventually, they discovered that significant
variances exist between industries in working capital dealings across the time. Furthermore, they
revealed that these measures for working capital change significantly within industries across the
time.

11. An attempt has been made by an author named as Zakaria (2009) in his paper entitled
Dynamic and Static Corporate Liquidity Measurement: A Case of Malaysian Small and Medium
Enterprises to evaluate the static and dynamic liquidity of Malaysian Small and Medium
Enterprises. In fact, this study promoted the issue of inspecting the relationship between
earnings, cash flow and corporate liquidity in Malaysian SMEs. Although making an allowance
for the dynamic dimension of corporate liquidity, the study specified that both earnings and cash

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flow had effects on corporate liquidity in small and medium businesses in Malaysia. But, the
static measures, the current ratio and quick ratio did not record any significant relationshipwith
corporate liquidity. Eventually, the study recommended for improving the authority in the
management of corporate liquidity of SME.

12. Chauhan, et.al (2017) propounded in their study on the topic entitled ―Financial constraints
and optimal working capital–evidence from an emerging market. They have purposively
investigated the existence of an optimal or target level of working capital for the Indian
manufacturing firms, and whether firms intensely follow the target or not. This paper used the
cash conversion cycle as a measure of net working capital and employs partial-adjustment
dynamic panel models to test its target-following behavior. Empirical results of the study
revealed that there was no evidence of the systematic target-following behavior of working
capital for the Indian manufacturing firms. Furthermore, the results hold true even after dividing
the sample into four groups depending on the sign and magnitude of deviation. The results
further show that lack of target-following tendency was not quite influenced by varying firm-
specific characteristics and, therefore, it seems to be a systematic feature across firms in India.
Moreover, the findings implied that even though an optimal working capital might exist,
emerging market firms may not be able to actively pursue it because of several financial
constraints and managerial considerations.

2.3 Conclusion

After reviewing the related studies in working capital management and referring books it is
evident that for any company to attain growth, increase its profitability and create a long-term
shareholder value efficient working capital management is vital.

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 CHAPTER 3: RESEARCH METHODOLOGY

3.1 Introduction

The word ‘research’ has multiple meanings and its precise definition varies from discipline to
discipline and expert to expert. Across disciplines and experts, however, there seems to be
agreement with respect to the functions it performs, that is, to find answers to your research
questions (Ranjit Kumar, 2014). The methods used for carrying out a research are known as
research methods. Research methodology is considered as a systematic way to find a solutionto a
research problem. This chapter deals with the research methodology used in the study.

3.2 Research Design

“A research design is the arrangement of conditions for corrections and analysis of data in a
manner which aims to combine relevance to the research purpose with economy in procedure”

In this research descriptive research as well as analytical research design is being used.

Descriptive research:Surveys, fact-finding inquiries of different kinds, etc are included in

descriptive research and the major purpose of descriptive research is, it providesa descriptionof
the as it exists at present. The methods of research utilized in descriptive research are survey
methods of all kinds, including comparative and correlational methods.

Analytical Research: In the analytical research, the researcher uses facts or information already
available, and analyze these to make a critical evaluation of the material. The analytical research
usually concerns itself with cause-effect relationships. As for example, examining the
fluctuations of international trade balance is an example of descriptive research; while examining
why and how trade balance move in a way over time is an example of analytical research.
(Tejinder Jeet Singh et al., 2014)

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3.3 Sampling

Sampling is a method used in statistical analysis in which some portion of a large population is
selected for a study. In simple words, the sample is selected from a population for study. The
methodology used for sampling depends on the type of study it undergoes.

In this study, secondary data is used and hence no sampling is required.

3.4Sources of data

Which all ways the data is collected is discussed through sources of data. There are mainly two
sources of data are used for the projects: primary data and secondary data.

Primary data

The original data collected at source. The data is collected directly through interviews,
questionnaires,surveys;observations, experimentations etc and these data are not subject to any
further processing or manipulations. This data is highly useful to record the natural behavior of
the person from which data is collected anddoes not affected by past behavior or future
upcoming. It is not so possible to collect primary data whenever needed because it is highly
time-consumingand it is an expensive method. Only limited information can be gathered as
because one cannot compel anyone to reveal the data or information hence the data it is highly
confidential.

The study is purely based on secondary data and hence no primary data is used for this purpose.

Secondary data

The type of data which is already collected and analyzed by someone else other than the user is
the secondary data. The data which is always available while we are searching. It is from both
published and unpublished records. As the data is easily available certain things are to be
checked before taking the data for further processing. Reliability, suitability, and adequacy of
data are to be checked before using secondary data.

Secondary data is used for this study. Annual reports, auditor’s report, analyst’s reports,
newspaper reports, journals, related books, and internet are certain sources of secondary data.

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3.5 Data collection

Data can be collected from either primary sources or through secondary sources. For this present study,
secondary sources are used. Plenty of data can be obtained through Secondary sources and it provides
easy access to both published and unpublished data.

For the study, Data is collected through published annual reports from 2013-14 to 2016-17 of Kamat
Hotels India Limited, Certain online websites, published magazines, newspapers, journals etc.

3.6 Data analysis techniques

Collected data need to be further analyzed for the research study using various tools and techniques.

The technique used to analyze the workingcapital management of KHIL is Ratio analysis.

The various accounts of financial statements (the balance sheet and the income statement) can be used to
provide critical information about the company to financial managers, bankers, investors and other
interested parties. Ratio analysis allows us to quickly examine a company’s financial statements to
determine how performance has changed over and/or against its competitors. (James Sagner – 2014).

Tabulation method is used for the interpretation of ratios over the 5 years of study.

3.7 Ethics

According to the Josephson Institute, ethics is defined as:

“Standards of conduct that indicate how one should behave based on moral duties and virtues”

The study is strictly based on OBU guidelines and violating those guidelines may cause ethical
issues. The data collected for this project is secondary in nature and hence the results of the
analysis should keep confidential. So, the data is only to be used for the study purpose otherwise
it can cause ethical issues.

3.8 Limitation of Data Collection

 Secondary data is used for the study,so the availability of data is limited.
 The calculated ratios are showing some fractioned difference.
 The study is based on historical data and information provided in the annual reports of
2012-13 to 2016-17.

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  The study is based on ratio analysis and ratios are not futuristic.

3.9 Conclusion

The chapter is all about the research methodology adopted for the study. As because of the use of
secondary data, no sampling is done. Sources of data, Data collection, data analysis techniques
used for the study is mentioned and discussed the business ethics.

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 CHAPTER 4 ANALYSIS AND INTERPRETATION

4.1 Introduction

The analysis is defined as “ a detailed examination of anything complex in order to understand

its nature or to determine its essential features through a study.” This chapter analyzes the
working capital management of KHIL in three areas; liquidity analysis, profitability ratio,and
turnover ratios.

4.2 Company Profile

Kamat Hotels India Ltd or KHIL is established in 1986 and it got a certificate of commencement
on 31st March 1986. The company is one among the Kamat Group and the Group have 80 years
of experience in various business and has a wonderful past and heading towards a brighter future.
Other than luxury hotels, Kamat is engaged in family leisure and sports clubs, travel business,
catering and educational institutions, departmental stores and of course restaurants. Kamat Group
is headed by Dr. Vithal Venkatesh Kamat, who has been contributing much moreto the growth of
the Group.Now he is the Chief Mentor of the next generation, Mr. Vishal Kamat and the host of
Professional team members who work under his guidance and experience.

KHIL is a public listed company and in the year 1994, Kamat Group made an acquisition of
Plaza Hotels Private Ltd and named as The Kamat Plaza. It is a four-star hotel. After the public
issue in 1994, Kamat Plaza Hotel has decided to expand and upgrade from four-star to five-star
property. For that, an architect named Mr. D M Upasni and Lynn Wilson, an interior designer
from the USA are hired by the company. As every industry’ important aspect is marketing,
hospitality industry also gives importance to marketing. So the management of KHIL decided to
keep the position in the market little differently. Hence a new brand was born which was so far
not headed by the Asian Continent and the brand named as a “green hotel” which was
environmentally sensitive right from brick to paper and also well looked after of every little
guest coming towards the hotel. As per the research studies made by KHIL, 87 percent of the
international travelers prefer green hotel and hence the management has decided to tie up with
HVS ECO SERVICES OF HVS International, Newyork, an international firm.

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An Ecotel hotel named The Orchid is the most globally recognized brand of KHIL. The Orchid
is Asia’s first five-star hotel which is environmentally sensitive and has won 95+ international
and national awards. Fort Jadhavgadh is the one and only heritage hotel of Maharashtra which
gives truly and completely Maratha royal heritage experience. It is an ideal place for weddings
and event conferences and it the first jewel of Kamat Group Heritage collection. The second
jewel in Kamat Group heritage collection is the Mahodadhi palace and is located at Odisha. The
hotel is 150 years old and also accommodated great guests like Netaji Subash Chandra Bose,
King of Puri etc.. One of the world’s famous Sun Temple, Lotus Konark is much more visited
and it is a tourist attraction place and it also forms a part of Kamat Group.

4.3 Industry overview

Tourism is a fast-growing sector in this present society. India is one of the greatestplaces
where tourists’ attractions are more. Because of the heavy flow of tourist,India's main source
of fund is from foreign exchange. India is the third largest foreign exchange earner and it is
from the tourism industry. This growth of the tourism industry helped the hospitality sector in
many ways, as many of the tourists needs accommodation and food for the days they spend in
India.

Since 2009, India is one ofthefavoritedestinations of tourists and it will also continue towards
2018 according to the World Travel and Tourism Council (WTTC). India has ranked the
sixth place in both tourism and hospitality by World Economic Forum in the Travel and
Tourism Competitiveness Report.

Highest Foreign Direct Investment of India is from the tourism and hospitality sector and it is
one among the top 10 sectors in India. As per the data published by Department of Industrial
Policy and Promotion (DIPP), the tourism and hospitality sector achieved Foreign Direct
Investment of around US$ 10.6 billion from 2000 April to 2017 September.

Tourism industry onits ownand the Indian government have taken several steps and efforts to
make India a worldwide tourism hub. The Indian government has introduced a “Project
Mausam” and in that 39 Indian Ocean Countries are linked according to their culture and
economy. For the citizens of 161 countries, from April 2017 onwards an electronic tourist

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visa facility has been made available and it can be easier for tourists to make visiting. Earlier
the e-Tourist Visa (e-TV) was available to 113 countries and the government has now
introduced only to 161 countries.

It is only due to the increased growth of travel and tourism, the hotel industry in India flourishes.
The hotel sector is bounced to grow largely because of the rising foreign and domestic tourists
happened because of an increase in the tourism sector. Due to the huge upcoming population,
large budget hotels emerge in India to cater to them and to make available the stay which is quite
affordable. Similarly, international companies are also planning to set such huge luxurious hotels
in order to make a profit. Due to the imbalanced nature of growth in domestic and foreign
tourists, an equal number of rooms are not been available and it is the latest source of
opportunity for growth.

4.4 CONCEPT OF WORKING CAPITAL MANAGEMENT

4.4.1 WORKING CAPITAL

Though in a somewhat different form,the concept of working capital was first evolved by Karl
Marx. Marx used the term ‘variable capital’ meaning outlays for payrolls advanced to workers
before the goods they worked on were complete. He contrasted this with ‘constant capital’ which
according to him, is nothing but ‘dead labor’, i.e., outlays for raw materials and other instruments
of production produced by labor in earlier stages which are now needed for live labor to work
within the present stage. This ‘variable capital’ is nothing but a wage fund which remains
blocked- in terms of financial management- in work-in-process along with other operating
expenses until it is released through the sale of finished goods. Although Marx did not mention
that workers also gave credit to the firm by accepting periodical payment of wages which funded
a portion of work-in-process, the concept of working capital, as we understand today, was
embedded in his ‘ variable capital’.

But with the evolution of the concept came the controversy about the definition of working
capital. Guthmann and Dougal defined “working capital as the excess of current assets over
current liabilities”. This view was elaborated by Park and Gladson when they defined working
capital as “the excess of current assets of a business over current items owed to employees and
others”. Gole also held the same view. This concept of working capital, as has been commonly
19
understood by the accountants, is more particularly understood as net working capital to
distinguish it from the gross working capital. Walker held that this concept is useful to groups
interested in determining the amount and nature of asset that may be used to pay current
liabilities. These interested groups, as suggested by Walker, mostly composed of creditors,
particularly the supply creditors who may be concerned to know the ‘margin of safety’ available
to them should the realization of current assets be delayed for some reasons. But it is doubtful
whether supply creditors do pay so much attention to this margin of safety which is commonly
indicated by current ratio or more precisely by quick ratio. The falling current ratio and quick
ratio of UK manufacturing companies, during the 1980’s, well below the standard 2 and 1
respectively are indicators of the diminishing reliance on this net concept. It has also been found
that these two ratios based on net working capital have not been found to be very good predictors
of bankruptcy, possibly because they are static indicators.

This accountant’s view of working capital, i.e. net working capital is based on ‘gone concern
approach’ and therefore, does not appeal much to modern finance managers who take on a
‘going concern approach’ where both the current assets and current liabilities have a dynamic
stability. To them, the primary objective of working capital management is to maintain and/or
improve upon this dynamic stability. When a business is going concern, market practices evolve
a pattern by which a portion of sales as also of supplies are never paid for and a minimum level
of inventory never leaves the system because, although there are continuous payment and issues
of inventory, fresh liabilities and assets are contracted continuously according to the established
pattern. The job of a modern finance manager has, therefore, been enlarged from only finding
finance for the business as in olden days to the management of all current assets and current
liabilities to ensure an intra dynamic stability among them and the inter-dynamic relationship
between them. This leads to the gross concept of working capital. (Hrishikesh Bhattacharya –
2014)

4.4.2 COMPONENTS OF WORKING CAPITAL

Fluctuating, revolving and circulating capital is the working capital. There are two components
for working capital. Currentassets and current liabilities.

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Current assets are those assets which can be converted into cash within one year. Assets like
cash, Receivables, inventory, Raw materials, Finished goods, debtors, short-term deposits,
prepaid expenses are current assets.

Current liabilities are a company’sobligations which are due and to be paid within an accounting
period. Current liabilities are sundry creditors, short-term borrowings, accrued expenses, bills
discounted/purchased, bank overdraft, proposed dividend.

4.4.3 WORKING CAPITAL MANAGEMENT

Working capital management is the managing and organizing of a company’s short-term capital
to run the ongoing activities, raising of funds and to ensure liquidity. For the proper management
of working capital, the firm should ensure the efficient utilization of current assets and current
liabilities throughout the business operating cycle. The available funds should be used effectively
and efficiently according to the information gathered. There should be proper planning,
monitoring and management of a company’s receivables, inventories, payables and bank
balances and disbursements.

4.5 Ratio Analysis

Ratio analysis is an analytical technique in assessing the performance of a business enterprise

(Edward I. Altman, 1968). Financial ratio analysis is the process of calculating financial ratios,
which are mathematical indicators calculated by comparing key financial information appearing
in financial statements of a business, and analyzing those to find out reasons behind the
business’s current financial position and its recent financial performance and develop an
expectation about its outlook.Ratios are calculated on the financial information obtained from the
financial statements of a company. The ratios are used for trend analysis and comparing the
financial performance of the current year with previous years or with other organizations.

4.5.1 Liquidity Ratios

Liquidity ratios help to find out the ability of a firm to meet its current liabilities when they
become due and itsnon-current liabilities when they become current. In other words, these ratios

21
analyze the cash levels of a firm and their ability to convert other assets into cash to meet its
liabilities and other current obligations.

0.4

0.35

0.3

0.25
CURRENT RATIO
0.2
QUICK RATIO
0.15 CASH RATIO
0.1

0.05

0
1 2 3 4 5

Figure 1 Liquidity Ratios

Current Ratio

The current ratio measures the ability of a company to meet its current liabilities using its current
assets. As current liabilities became due within a year, t is considered as an important measure of
liquidity.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 ÷ 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

CR 0.3681969 0.20480562 0.08104763 0.120088247 0.217828916

22
Analysis: The current ratio of the company shows a varying trend over the last five years.

FY 2012-13: The current ratio in the year was 0.2178. The ratio was less than zero because the
current liabilities were more than current assets. Compared to the previous accounting period, the
current assets have reduced, and current liabilities have increased significantly.

FY2013-14:Compared to the FY 2012-13 the current ratio has decreased in the FY 2013-14
because the current liabilities have increased and there is a reduction in the value of total current
assets. While taking into consideration the current assets, there is a considerable reduction in
other current assets, which is deceased by rupees 2355.93 lakhs. There is a difference of rupees
389.83 lakhs in short-term loans and advances than the previous year. The current investments
remained the same but there is a decrease in the value of inventory holding. The value of trade
receivables and cash & bank balances have increased compared to the previous financial year.

In the case of current liabilities, except the value of short-term provisions, the other current
liabilities have been increased.

FY 2014-15: There is a further reduction in the current ratio in the year. The analysis of current
assets shows that there is a decrease of rupees thirty thousand in current assets. The value of
inventories has been increased by rupees 36.51 lakhs. The accounts of trade receivables, cash &
bank balances and short-term loans & advances shows a decreasing trend compared to the
previous financial year. Even though there was a major change in the other current assets in the
last year, the company increased their value by rupees 94.9 lakhs. The total amount of current
liabilities has been increased. The company has reduced their short-term borrowings and trade
payables. The other current liabilities have increased by rupees 7633.13 lakhs. There is an
increase in the value of short-term provisions also.

FY 2015-16: There was a remarkable improvement in the current ratio in the year. The reasons
behind this were: there is a reduction in the amount of total current liabilities compared to a
previous financial year and the company increased its current assets. Even though except the
other current liabilities all the other items in current liabilities have increased the considerable
reduction in other current liabilities helped to improve the ratio. Also

23
FY 2016-17:Compared to the previous four financial years, the current ratio in this year was
better. The increase in the value of current assets and a decline in the number of current liabilities
are the reasons for this improved ratio. The company increased its current investments by
72.26%. And the short-term loans and advances also show an increase of Rs 2905.13 lakhs.
Other than these two items all the other current assets have reduced. But the changes in these two
items were significant. When analyzing the current liabilities it shows that the company does not
make any short-term borrowings this year. The trade payables and other current liabilities have
decreased by 5.9% and 27.6% respectively.

Quick Ratio

The quick ratio, otherwise known as acid test ratio, measures the ability of a firm to meet its
current liabilities when they fall due with quick assets. Current assets which can be easily
converted to cash within a short period like 90 days are called quick assets. Cash, cash
equivalents, short-term investments and current accounts receivable are considered as quick
assets.

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 = (𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦) ÷ 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

QR 0.3478479 0.18861136 0.06829422 0.105554196 0.201719488

Analysis: Like current ratio, the quick ratio is not constant through the years.

FY 2012-13:The quick ratio for the year was 0.2017 times. This ratio indicates that the company
does not have enough quick assets to pay off its current liabilities. The current assets excluding
inventories for the year were Rs 5383.76 lakhs. The company had to pay off Rs 26,689.34 lakhs
as current liabilities.

FY 2013-14: The quick ratio was reduced to 0.105 in the year.The account of current liabilities
had a closing balance of Rs 28,397.45 lakhs. The company only had Rs 2,997.47 lakhs of quick

24
assets to pay off its current liabilities of Rs 28,397.45 lakhs. That means the company was not
able to meet its whole current liabilities with its quick assets.

FY 2014-15:This financial year also saw a reduction in the quick ratio.The quick ratio reduced
by 0.03726 times. The quick assets of the company were Rs 2,405 lakhs. The account of current
liabilities had an increase of Rs 6827.64 lakhs.

FY 2015-16:There was an increase of 0.12032 times in the quick ratio. The company was able to
pay off only 18.86% of current liabilities using its quick assets. The quick assets of the company
increased by Rs 2967.9 lakhs. The current liabilities for the year were reduced to Rs 28,486.62
lakhs.

FY 2016-17:The quick ratio for the year was 0.3478 times. There was an improvement in the
ability of the company to meet its current liabilities with quick assets. The current liabilities of
the company had a reduction of 28.36%. The quick assets of the company increased to Rs
7719.69 lakhs.

Cash Ratio

The cash ratio measures the ability of a company to meet its current liabilities with only cash and
cash equivalents. Other than cash and cash equivalents no other current assets are used, so the
ratio is more restrictive than the current ratio and quick ratio.

𝐶𝑎𝑠ℎ 𝑟𝑎𝑡𝑖𝑜 = (𝐶𝑎𝑠ℎ + 𝐶𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠) ÷ 𝑇𝑜𝑡𝑎𝑙 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑖𝑡𝑖𝑒𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

Cash Ratio 0.0143119 0.01758229 0.01890897 0.027941241 0.027612897

Analysis: Over the years, the cash ratio has been decreased.

25
FY 2012-13:The cash ratio in the year was 0.0276 times. The ability of the company to meet its
current liabilities with cash and bank balances was limited.

FY 2013-14: Compared to the previous financial year there is the onlya slight difference in the
ratio. There is an increase of Rs 56.49 lakhs in cash and bank balances. The current liabilities
also increased to Rs 28397.45 lakhs. These were the reasons for that slight difference in the
quick ratio.

FY 2014-15:The cash ratio has reduced to 0.0189 times. The reduction in the value of cash and
bank balances and hike in thecurrent liabilities the company must meet made this change in the
ratio. The cash and bank balance reduced by 19.12%. The account of current liabilities shows an
increase of Rs 6827.64 lakhs.

FY 2015-16: In this financial year also, there is fall in the cash ratio. The ratio reduced to 0.0176
times. That means the ability to meet the current liabilities with its cash and bank balances is
under risk. There is a further decrease of Rs 165.21 lakhs in cash and bank balances. Unlike the
previous years, the account of current liabilities shows a decrease of Rs 6738.47 lakhs.

FY 2016-17:The cash ratio again reduced to 0.0143 times. It is an indication that by every year
the ability of the company to pay off its current liabilities with only cash and bank balances are
reducing. The cash and bank balances show a decrease of Rs 183.24 lakhs. The account of
current liabilities shows a decrease of 28.36%.

4.5.2 Profitability Ratios

Profitability ratios are financial tools mostly used by financial analysts and investors to evaluate
the company’s ability to generate profit relative to revenue, assets, operating expenses and
shareholder’s equity during a period. These ratios help to understand how the company is
utilizing its assets to generate income and value for its shareholders.

26
 3
2
1
PBDIT MARGIN RATIO
0
1 2 3 4 5 RETURN ON ASSETS
-1
-2
RETURN ON CAPITAL
-3 EMPOLYED
-4 RETURN ON NETWORTH
-5
-6
-7

Figure 2 Profitability Ratios

PBDIT Margin Ratio

FY 2016-17 2015-16 2014-15 2013-14 2012-13

PBDIT 0.142185 -0.03666656 -0.48526538 0.460126841 0.416141735
Margin

Analysis: The PBDIT margin of the company shows a fluctuating trend over the last five years.

FY 2012-13: The PBDIT margin of the year was 0.4161 times. The profit before interest, tax,and
depreciation for the year was Rs 5756.06 lakhs. The company generated revenue of Rs 13831.97
lakhsfrom its operations. From the revenue generated from operations, the company was able to
make only 41.614% of PBDIT.

FY 2013-14:Compared to the last financial year, there is a slight variation in the margin. There is
an increase of Rs 412.29 lakhs in PBDIT. Revenue from operations shows a decrease of Rs
426.21 lakhs.

27
FY 2014-15:There is a negative PBDIT margin in the year. This is because the company
incurred a loss even before finance costs, depreciation, exceptional items and tax. And, the
revenue from operations decreased to Rs 13331.53 lakhs. The margin reveals that the company
was unable to create profits out of it revenue from operations.

FY 2015-16:This financial year also shows a negative PBDIT margin. Compared to the previous
financial year the loss incurred by the company was considerably reduced to Rs 553.14 lakhs.
The company managed to reduce its loss. Even though the company incurred a loss before
interest, tax and depreciation there was an increase of Rs 1754.15 lakhs in revenue from
operations.

FY 2016-17:Compared to the previous two financial years the situation was better. The company
managed to create a PBDIT margin of 0.142185 times. This year the company was able to create
a profit of Rs2227.66 lakhs. The revenue from operations increased by Rs 581.66 lakhs.

Return on Assets

The return on assets ratio is also known as return on total assets. It compares the net income of a
firm to its total average assets to measure the net income generated by the total assets during a
specific period. The ratio also measures the efficiency of the firm in managing its assets to earn
profits during a period.

The ROA is helpful for management as well as investors to know the efficiency of the company
in converting its investments in assets into profits as the purpose of any assets of the company is
to produce revenues and earn profits.

In short, this ratio measures how profitable a company’s assets are.

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑎𝑠𝑠𝑒𝑡𝑠 = (𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 ÷ 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠) ∗ 100

FY 2016-17 2015-16 2014-15 2013-14 2012-13

ROA 0.0843596 -0.17726602 -0.10729955 -0.40720508 -0.006975924

Analysis: The Return on Assets of the company has improved over the last five years.

28
FY 2012-13:The ROA of -0.0069 timesindicates that in this financial year the total assets of the
company was not able to generate any income for the company. The company incurred a loss of
Rs 566.39 lakhs in the year. The total assets of the company were Rs 81,192.11 lakhs.

FY 2013-14:This accounting period also creates a negative ROA. This year ROA was not in the
favor of the company because the loss incurred by the company increased to Rs 23260.69 lakhs.
Compared to the previous year the company incurred a huge loss. The account of total assets also
shows a decrease of Rs 24069.32 lakhs.

FY 2014-15:The loss of Rs 5915.45 lakhs and the reduction of Rs 1992.55 lakhs in total assets
resulted in a negative ROA this year. Compared to the previous the ratio was changing.
Throughout the last three year, the company’s ability to generate income from its total assets was
questionable.

FY 2015-16:This financial year also the company shows a negative ROA. The loss incurred by
the company further increased to Rs 8528.27 lakhs. The total asset account shows a
decrease of Rs 7020.23 lakhs.

FY 2016-17:This year ROA of the company was 0.0843 times. Over the last five years, this year
only the company was able to generate income from its total assets. Even though the total assets
of the company show a decrease, but the company managed to earn a profit of Rs 4057.68 lakhs.

Return on Capital Employed

By comparing net operating profit with capital employed the return on capital employed
(ROCE), measures the efficiency of a company in generating profits from its capital employed.
In short, ROCE shows for each dollar of capital employed how many dollars of profits are
generated.

ROCE is considered as a more useful ratio than ROE in evaluating the longevity of a firm. The
ratio also helps to know how well the assets are performing while considering long-term
financing.

29
This ratio is based on two important calculations: operating profit and capital employed. Net
operating profit is often called EBIT or earnings before interest and taxes. EBIT is often reported
on the income statement because it shows the company profits generated from operations. EBIT
can be calculated by adding interest and taxes back into net income if need be.

Capital employed is a convoluted term because it can be used to refer to many different financial
ratios. Most often capital employed refers to the total assets of a company less all current
liabilities. This could also be looked at as stockholders’ equity less long-term liabilities. Both
equal the same figure.

𝑅𝑂𝐶𝐸 = 𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 ÷ 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

ROCE 0.1566245 -0.44056812 -0.32500785 -0.86371824 -0.016818411

Analysis:

FY 2012-13:The financial year shows a negative ROCE. That means the company was not able
to generate profits from its capital employed. The main reason for this was the company incurred
a loss of Rs 566.39 lakhs for the year. The total current liabilities for the year were Rs
26689.34 lakhs. The closing balance of the account of total assets was Rs 81,192.11 lakhs.

FY 2013-14:Compared to the previous accounting period the ratio was again falling. The major
reason was the company incurred a huge loss this year. The current liabilities increased to Rs
28,397.45 lakhs. The total assets of the company reduced to Rs 57,122.79 lakhs.

FY 2014-15:This financial also does not shows any sign of improvement in ROCE. Again, the
company incurred a loss of Rs -5,915.45 lakhs. But the company managed to reduce the number
of its losses. There is an increase of Rs 6827.64 lakhs in current liabilities of the firm. There is a
fall of Rs 1992.55 lakhs in total assets of the company.

30
FY 2015-16:The ROCE for the year was -0.44056 times. The company was still not able to
generate earnings from its capital employed. The company incurred a loss of Rs -
8528.27 lakhs. The account of current liabilities shows a decrease of Rs 6738.47 lakhs. The total
assets of the company reduced by Rs 7020.23 lakhs this year.

FY 2016-17:This year ROCE was in the favor of the company. Somehow the company managed
to earn profit from its capital employed. The profit for the year was Rs 4,057.68 lakhs. The
company managed to reduce its current liabilities to Rs 22,192.72 lakhs. The total assets of the
company also decreased to Rs 48,099.78 lakhs.

Return on Net worth

The return on networth ratio shows the possible return that the shareholders can earn from their
investment in a firm if all the profits generated during a year directly distributed to them. Hence,
the ratio is derived from an investor perspective and this ratio is used to analyze the return on
investment. The ratio helps to know how the company is making use of its shareholders’
investments to generate a returnand the ratio can be used as a tool for comparing the performance
of a firm with its competitors within the same industry.

𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝑙𝑜𝑠𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑁𝑒𝑡 𝑤𝑜𝑟𝑡ℎ =
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝑓𝑢𝑛𝑑𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

Return on -0.570694 0.7636509 2.2411337 -6.06345586 -0.02301388
Net worth

Analysis: The return on net worth shows a fluctuating trend over the years.

FY 2012-13: The return on net worth for the year was -0.02301 times. This year the company
was not able to generate earnings from the investments made by the shareholders.The
shareholders’ fund for the year was Rs 24,610.80 lakhs. But the company incurred a loss of Rs
566.39 lakhs. Hence, for the investors, this financial year was not a desirable one.

31
FY 2013-14:From an investor perspective the situation of the firm was worse compared to the
previous accounting period. The company was not able to generate any income out of the
shareholders’ investments and even they failed to control its losses. There was a considerable
decrease in the shareholders’ funds. The loss for the year was Rs 23260.69 lakhs.

FY 2014-15:For the shareholders, this financial year was the most satisfied one in terms of
earnings among the five years. The ratio increased to 2.241 times. This indicates that the
company was able to provide a return of two times the investments made by the shareholders.

FY 2015-16: The return on net worth changed to 0.763 times. Compared to the previous year
there was a reduction in the ratio. However, the company was able to provide a return for its
shareholders.

FY 2016-17: There was a further fall in the ratio. The company generated a profit of Rs 4057.68
lakhs. But the account of shareholders’ funds shows severalRs -7,110.08 lakhs.

4.5.3Turnover Ratios

40

35

30

25 INVENTORY TURNOVER
RATIO
20 TOTAL ASSET TURNOVER
15 RATIO
WORKING CAPITAL
10 TURNOVER RATIO
5

0
1 2 3 4 5
-5

Figure 3 Turnover Ratios

32
Inventory Turnover Ratio

The inventory turnover ratio shows the efficiency of a company in managing its inventory. The
ratio compares the cost of goods sold with the average inventory for a specific period.

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing the cost of goods sold with the average inventory for a period. This
measures how many times average inventory is “turned” or sold during a period. In other words,
it measures how many times a company sold its total average inventory dollar amount during the
year. A company with $1,000 of average inventory and sales of $10,000 effectively sold its 10
times over.

This ratio is important because total turnover depends on two main components of performance.
The first component is stock purchasing. If larger amounts of inventory are purchased during the
year, the company will have to sell greater amounts of inventory to improve its turnover. If the
company can’t sell these greater amounts of inventory, it will incur storage costs and
other holding costs.
The second component is sales. Sales must match inventory purchases otherwise the inventory
will not turn effectively. That’s why the purchasing and sales departments must be in tune with
each other.

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

FY 2016-17 2015-16 2014-15 2013-14 2012-13

Ratio 34.692958 32.7011185 29.6757413 32.48070167 32.17111292

Analysis:Throughout the last five years the company managed to maintain a stable inventory
turnover ratio to an extent.

FY 2012-13:The inventory turnover ratio for the year was 32.17 times. That means the company
was able to approximately 32 times the inventory sold during the period. The revenue from

33
operations for the year was Rs 13,831.97 lakhs. The total value of the inventory holding of the
company at the end of the accounting period was Rs 429.95 lakhs.

FY 2013-14:The ratio for the year was somewhat like the previous accounting year. The
company turned its inventories about 32 times this year. The revenue from operations shows a
reduction of 3.179%. The value of inventories also changed to Rs 412.73 lakhs.

FY 2014-15:In this year the ratio shows a difference of 2.8049 times compared to the previous
year. The revenue from operations reduced by Rs 74.23 lakhs. But the account of inventories
shows an increase of Rs 36.51 lakhs. These are the reasons behind the change in inventory
turnover ratio.

FY 2015-16:This financial year, the company managed to improve its inventory turnover ratio.
The company created a sale of approximately 32.7 times of its inventory holding. There is an
increase of 11.63% in the revenue generated by the company from its operations.

FY 2016-17:The inventory turnover ratio increased to 34.69 times. The company created a sale
of 34.69 times of its inventory holding. The account of revenue from operations shows an
increase of Rs 581.66 lakhs. There is a decrease of 2.15% in the value of inventories.

Total Assets Turnover Ratio

Total asset turnover is a ratio that measures the assets activity and the firm’s ability to generate
sales through its assets (Alex Sakevych et al., 2015).

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

Ratio 0.3256912 0.29224416 0.23752642 0.193844047 0.159703937

Analysis:Over the five years, the total asset turnover ratio shows a steady improvement.

34
FY 2012-13:The Company was able to generate 0.1597 times of sales through its assets. The
company created revenue of Rs 13,831.97 lakhs from its operations. The average total asset for
the year was Rs 86610.075 lakhs.

FY 2013-14: Kamat Hotels generated 19.38% of revenue through its average total assets. The
ratio increased by 0.0341 times. The revenue from operation was less than the previous year. The
company had average total assets of Rs 69157.45 lakhs.

FY 2014-15:This year also shows an increase in the asset turnover ratio. The ratio increased to
0.2375 times. The firm was able to generate 23.75% sales from its total assets. The average total
assets reduced to Rs 56126.515 lakhs. The revenue from operation decreased by Rs 74.23 lakhs.

FY 2015-16:This financial year showedan increase of 0.0547 times in the ratio. The firm
generated 0.2922 times of sales from its total assets. The account of revenue from operations has
an increase of 11.63% this year. The average total assets for the year were Rs 51620.125 lakhs.

FY 2016-17:Total asset turnover for the year was 0.3256 times. The company generated 32.56%
of sales through its total assets. The ability of the firm to generate revenue from assets is
improving year by year. Rs 48104.895 lakhs was the average total assets for the financial year.
The revenue from operations increased by Rs 581.66 lakhs.

Working capital Turnover Ratio

Working capital turnover ratio, otherwise known as Sales to Working Capital, measures the level
of cash needed to attain a level of sales

. 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 = 𝑆𝑎𝑙𝑒𝑠 ÷ 𝑊𝑜𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

FY 2016-17 2015-16 2014-15 2013-14 2012-13

Ratio -1.1173853 -0.66596387 0.6697528 0.466687601 -0.662589345

35
Analysis:Working capital turnover ratio was changing over the years.

FY 2012-13:The working capital turnover ratio for the year was -0.6625 times. The company
has a negative working capital. This often happens in the hotel industry because the customers
pay for goods immediately. Negative working capital is also an indication of the efficient
business strategy in case of inventory is comparatively low i.e., keeping inventory just to meet
demand.

FY 2013-14:This financial year has a working capital turnover of 0.466 times. The working
capital of the company was Rs -24,987 lakhs. The company generates revenue of Rs 13,405.76
lakhs through sales.

FY 2014-15:The turnover ratio increased to 0.669 times. The revenue from operations reduced
to Rs 13,331.53 lakhs. The company had a working capital of Rs -32370.18 lakhs.

FY 2015-16:This financial year also there was a negative working capital. The ratio was
-0.6659 times. The company holds comparatively less inventory. The revenue from operations
for the year was Rs 15,085.68 lakhs. The working capital for the year was Rs -22,652 lakhs.

FY 2016-17: The working capital turnover ratio for the year was -1.117 times. The company
generated revenue of Rs 15,667.34 lakhs through sales. There was a negative working capital of
Rs 14021 lakhs.

4.6 Conclusion

This chapter analyzed the working capital management of KHIL in terms of profitability ratios,
liquidity ratios,and turnover ratios. To measure the performance of the company trend analysis
carried out where the performance of one year is compared with the previous financial year. The
liquidity analysis shows that there was a fluctuating trend in the ratios where the ratios decreased
to an extent from there it is showing an improvement. Most of the profitability ratios were
negative. This is an indication of inefficiency in the management of working capital and other
assets. Turnover ratios were improving over the last five years.

36
 CHAPTER: 5 SUGGESTIONS, CONCLUSIONS& RECOMMENDATIONS

5.1 Introduction

The chapter is the conclusion part of the thesis. It comprises of findings of the study, suggestions
and the general closing paragraph of the thesis.

5.2 Findings

Liquidity ratios:The liquidity ratios show whether the company’s current assets will be enough
to meet the company’s obligations whenever it becomes due. The ratio measures the ability of a
firm to payoff its short-term obligations. In this study, liquidity ratios of Kamat hotels for the last
five years are done. Mainly three liquidity ratios are analyzed here, current ratio, Quick ratio, and
cash ratio. An ideal current ratio is 2:1 and from this study, it is noted that the current ratio is not
so satisfactory for Kamat hotels. The ratio calculated for the last five years shows below the ideal
ratio. By comparing with the last four years, the company improves the ratio by an increase in
the current assets.The quick ratio is the ratio between quick assets to current liabilities. The ratio
indicates how the quick assets like cash and cash equivalents meet the current liabilities of the
firm. 1:1 is the ideal quick ratio and the KHIL is having a varying quick ratio. The ratio is
approaching towards the ideal ratio from 2013-14 to 2016-17. Cash ratio is a type of liquidity
ratio and in this current liability is paid off only with cash and cash equivalents. Cash ratio is
decreased from 2013-14 to 2016-17 and this happens due to thedecrease in the cash and cash
equivalents.

Profitability ratios:The ratio measures how the firm can generate profit from the investment
made. Profit is measured in terms of the return generated out of the company’s investment. Four
profitability ratios of Kamat hotels for the last five years is analyzed and the ratios are PBDIT
margin, return on assets, return on capital employed, return on investment. PBDIT margin is
showing a decreasing trend from 2012-14 to 2016-17. In the year 2014-15 and 2015-16, the
ratios were negative. Return on assets ratios are fluctuating and it is increased from the four-
yearof losses to profit in the year 2016-17. Return from assets was very less or there is no return
generated during the period from 2013-14 to 2015-16 because it shows a negative trend. Return
on capital employed is increased in the year 2016-17 when it compared with the other four years
of study. On this year the firm is earning some return from the investment it made. Like return on

37
assets, this ratio also shows very low ratios on the other four years. There was a big increase in
return on net worth from 2014-15 to 2015-16 and it then decreases to a negative value in the next
year. In total, from these four profitability ratios, it is evident that the company is making efforts
to increase the return from 2013-14 to 2016-17.

Turnover ratios:The ratio represents how many times the sales of a firm is replacing its current
assets and meeting its current liabilities. The ratio clearly depicts how efficiently the business
utilizes its assets. Three turnover ratios are used here to understand the KHIL’s financial position
and liquidity position. Inventory turnover, total assets turnover and working capital turnover
ratios of KHIL are discussed. The inventory turnover ratio measures the minimum amount of
inventory to be held by the firm in order to support the specified sales. The five-year analysis of
these ratios found that almost equal number of times inventories are turnovers. That means the
inventories are kept almost at equal levels by the firm. The ratio between the company’s sales or
revenue and the company’s assets is the total assets turnover ratio. As per the analysis of this
ratio for the last five years, there is an improvementviewed. More assets turnover ratios favor
good health to the firm. The increased ratio indicates that the firm is financially stable to success
in the future. The working capital turnover ratio measures how effectively a firm uses its
working capital, which is the excess of current assets over current liabilities to support its sales.
By analyzing the working capital turnover ratio of KHIL over the last five years, the ratio has
negatively affected the firm. The ratios are showing a decreasing trend and that too is in negative
figures. This means that the company may be investing too much in accounts receivables and
also in inventories in order to support sales and this can eventually lead to increased bad debts
and idle inventories. After analyzing these three turnover ratios for the past five years, it is noted
that KHIL is improving its investments in the form of revenue which is generated from sales

5.4 SUGGESTIONS

The research done on Analysis and Evaluation of Management of Kamat Hotels India Limited’s
working capital is a sincere attempt. After the research analysis, it is founded that certain areas
need to be improved by the company. The government also needs to support this hotel industry
in different ways as a part of tourism development. Based on the findings, certain suggestions
have been made to the company and by making over it can lead to the betterment of working
capital management.

38
  It is foundthat the company is allowing more credit period for the customers and it leads
to an increase in several debtors. Allowing credit is good but the period should be
reduced and by offering a cash discount it can encourage early settlement of debtors.

 KHIL is a public limited company and it must be observed that presently many services
are offered by the banks and it is not at all used by the company. The banking sector is
more advanced now and it is offering many services like bank overdrafts, bills
discounting, bank guarantee, etc. By availing this services company can solve the
liquidity problem up to a limit. Hence the KHIL can become more transparent and
adaptive to the economic changes.

 Nowadays, hotels are many and hence competitions among them are increased. Due to
this, thereis no uniformity in the hotel room rates. Tourists are exploiting more out of it.
So, maintain an applicable and affordable pricing policy to retain customers and to attain
the market position.

 As the working capital of the company is negative, the company must raise funds
immediately by either borrowing money or sell more of its products to satisfy its current
obligations.

 The governmentneeds to take initiative and to help in the tourism development by

providing proper assistance from the Ministry of Tourism.

5.5 Conclusion

The purpose of the study was to carry out to measure the efficiency of working capital
management of Kamat Hotels India Ltd. The study was carried out for five financial years; from
2012-13 to 2016-17. The study helped to gain in-depth knowledge of working capital concepts,
its components and the relevance of efficient working capital management in the success of any
organization. The study analyzed the efficiency of KHIL in managing their working capital and
it is found that the company is improving its performance over the last years.

39
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41
 ANNEXURE

BALANCE SHEET AS ON 31ST MARCH 2017,2016,2015,2014,2013

Particulars 31st March 2017 31st March 2016 31st March 2015 31st March 2014 31st March 2013
EQUITIES AND LIABILITIES
shareholders' funds
(a) share capital 2,417.26 2,417.26 2,417.26 2,417.26 1,968.19
(b) reserves and surplus -9,527.34 -13,585.02 -5,056.75 1,418.95 22,642.61
Total -7,110.08 -11,167.76 -2,639.49 3,836.21 24,610.80
Share Application Money Pending Allotement 185 2,186.10

Non-Current Liabilities:
(a) Long Term Borrowings 31,272.87 28,887.36 19,501.42 21,344.03 21,771.59
(b) Deferred Tax Liabilities (Net) 0 0 0 541.19 2,372.02
(c) Other Long Term Liabilities 1,570.02 1,761.88 2,877.33 2,679.59 3,416.72
(d) Long Term Provisions 174.25 141.91 165.89 139.32 145.54
Total 33,017.14 30,791.15 22,544.64 24,704.13 27,705.87

Current Liabilities:
(a) Short-Term Borrowings 0 772.43 704.41 767.27 754.56
(b) Trade Payables 2,336.01 2,473.83 1,342.91 2,123.24 1,865.40
(c) Other Current Liabilities 19,650.70 25,086.38 33,028.53 25,395.40 23,941.33
(d) Short-Term Provisions 206.01 153.98 149.24 111.54 128.05
Total 22,192.72 28,486.62 35,225.09 28,397.45 26,689.34
Total Equities and liabilities 48,099.78 48,110.01 55,130.24 57122.79 81,192.11

ASSETS
Non-Current Assets:
(a) Fixed Assets:
(i) Tangible Assets 30,479.79 31,635.16 32,788.95 35,215.65 36,621.38
(ii) Intangible Assets 31.56 29.78 31.97 48.12 60.7
(iii) Capital Work-in-Progress 34.32 21.35 0 16.59 117.52
Total Fixed Assets 30,545.67 31,686.29 32,820.92 35,280.36 36,799.60
(b) Non-Current Investments 9.03 552.08 9,879.84 9,879.84 9,879.84
(c) Long-Term Loans and Advances 1,222.14 1,879.34 1,421.67 401.62 20,509.36
(d) Other Non-Current Assets 8,151.65 8,158.08 8,152.90 8,150.77 8,189.60
Total 39,928.49 42,275.79 52,275.33 53,712.59 75,378.40

Current Assets:
(a) Current Investments 15 4.16 4.7 5 5
(b) Inventories 451.6 461.32 449.24 412.73 429.95
(c)Trade Receivables 778.07 1,013.02 1,160.28 1502.43 1199.45
(d) Cash and Bank Balances 317.62 500.86 666.07 793.46 736.97
(e) Short Term Loans and Advances 6,482.44 3,577.31 426.25 643.11 1,032.94
(f) Other Current Assets 126.56 277.55 148.37 53.47 2,409.40
Total 8,171.29 5,834.22 2,854.91 3,410.20 5,813.71
Total Assets 48,099.78 48,110.01 55,130.24 57,122.79 81,192.11 92028.04

42
STATEMENT OF PROFIT AND LOSS ACCOUNT

Particulars 31st March 2017 31st March 2016 31st March 2015 31st March 2014 31st March 2013
INCOME
Revenue from Operations 15,667.34 15,085.68 13,331.53 13,405.76 13,831.97
Other Income 785.47 731.65 599.34 2,273.30 2,455.29
Total Revenue 16,452.81 15,817.33 13930.87 15,679.06 16,287.26

EXPENSES
Cost of Food and Beverages Consumed 1,298.20 1,365.08 1,263.95 1,371.68 1,529.65
Employee Benefits Expense 3,526.42 3,617.45 3,220.43 3,269.46 3,567.56
Other Expenses 5,497.54 6,161.47 6,129.77 4,869.57 5,433.99
Finance Costs 2,647.54 3,946.43 7,948.21
Depreciation and Amortisation Expense 1,255.45 1,280.04 1,837.84
Total Expenses 14,225.15 16,370.47 20,400.20 9510.71 10531.2

Profit/ (Loss) before Finance Costs, Depreciation, Exceptional Items and Tax: 2,227.66 -553.14 -6,469.33 6,168.35 5,756.06
Less: Finance Costs 5,735.27 5,950.64
Depreciation and Amortisation Expenses 1,438.52 1,474.64
Profit/ (Loss) Before Exceptional Items and Tax 2227.66 -553.14 -6469.33 -1,005.44 -1,669.22
Add: Exceptional Items 1,830.02 -8092.3 0 -23,805.16 752.57
Profit/ (Loss) Before Tax 4057.68 -8,645.44 -6469.33 -24,810.60 -916.65
Tax Expense:
Current Tax (under MAT) 11.2 117.18 252 152
Prior Period Adjustments - Income Tax 0 -117.17 26.09 28.92 28.56
Deferred Tax 0 0 -541.19 -1,830.83 -530.82

Less: Excess MAT Credit Entitlement - Earlier years -11.2 -155.96

0 -8528.27 -553.88 -1,549.91 -350.26
Profit/(Loss) for the year 4057.68 -8528.27 -5,915.45 -23,260.69 -566.39

43
RATIO CALCULATION
LIQUIDITY RATIOS
CURRENT RATIO
QUICK RATIO
CASH RATIO
PROFITABILITY RATIOS
PBDIT MARGIN RATIO
PBIT MARGIN RATIO
RETURN ON ASSETS
RETURN ON CAPITAL EMPOLYED
RETURN ON NETWORTH
TURNOVER RATIOS
INVENTORY TURNOVER RATIO
TOTAL ASSET TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
2017 2016 2015 2014 2013
0.3681969 0.20480562 0.08104763 0.120088247 0.217828916
0.3478479 0.18861136 0.06829422 0.105554196 0.201719488
0.0143119 0.01758229 0.01890897 0.027941241 0.027612897
0.142185 -0.03666656 -0.48526538 0.460126841 0.416141735
0.0843596 -0.17726602 -0.10729955 -0.40720508 -0.006975924
0.1566245 -0.44056812 -0.32500785 -0.86371824 -0.016818411
-0.570694 0.7636509 2.2411337 -6.06345586 -0.02301388
34.692958 32.7011185 29.6757413 32.48070167 32.17111292
0.3256912 0.29224416 0.23752642 0.193844047 0.159703937
-1.1173853 -0.66596387 0.6697528 0.466687601 -0.662589345
44