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A REPORT ON

WORKING CAPITAL MANAGEMENT OF


ASHOK LEYLAND LTD
SUBMITTED BY

The Report is submitted as partial fulfillment of the requirement of

ACKNOWLEDGEMENT

It gives me immense pleasure to present this project report on Working Capital


Management carried out at ASHOK LEYLAND Ltd.

No work can be carried out without the help and guidance of various persons. I
am happy to take this opportunity to express my gratitude to those who have been
helpful to me in completing this project report.

At the outset I would like to thank Mr. R. Venugopal (GM Finance Ashok
Leyland) for this wonderful opportunity. I am very grateful to MR. R.
Venkatachalam (Dy. Manager Finance) and Mr. R. Padmanabhan (Manager
Finance) for timely help concerning various aspects of project. I also thanks to all
staff members of account department for help me to complete the project.

I would be failing in my duty if I do not express my deep sense of gratitude to Mr.


______________________ without his guidance it wouldn't have been possible
for me to complete this project work.

Lastly I would like to thank my parents, friends and well wishers who encouraged
me to do this project and all those who contributed directly or indirectly in
completing this project to whom I am highly obliged to.

PREFACE
I know that training is for the development and enhancement of the
knowledge in this particular field. It can never be possible to make a
mark in todays competitive era only with theoretical knowledge when
industries are developing at global level, practical knowledge of
administration and management of business is very important. Hence,
practical study is of great importance to M.B.A. student.

With a view to expand the boundaries of thinking, I have undergone


Project at Ashok Leyland Ltd. I have done this project to study working
capital management. I am sure I could encash this opportunity to the
best of my competence, zeal , perfection and academic knowledge & I
am keen to make it on going journey throughout my life as I strongly
believe that learning is a journey not a destination.

TABLE OF CONTENT
Chapter

Content
Executive Summary

1.

Introduction of working capital management


Need for working capital
Adequacy of working capital

Page No.

Types of working capital


Importance of working capital management
Determinant of working capital
Elements of working capital
Ratio analysis
2

Objective and research methodology


Need for the study
Objective of the study
Research Methodology
Data Collection
Scope of the study
Limitation

Industry Profile

Company Profile
Introduction
Types of sales
Distribution channel
Production of Kesoram Cement
Sales promotion
Kesoram cement advantages
Awards

Data Analysis and interpretation

Findings

Suggestion

Bibliography

EXECUTIVE SUMMARY

The management of the working capital is an integral part of management analysis due to
risk involved with it and return on investment of the concern is based on how will the
working capital is properly managed. The ability to gain insight through the study of
financial statement is vital to sound financial decision making. The basic data with which
analyst must work are found in financial statement.

So the ability to understand, interpret and use this information is the basic to an
understanding of finance. Various stake holders of business are keenly interested to know
regarding the financial position of the firm. To know the financial health of the
company/business, analysis of financial statement is a necessary. Fixed assets are
essential for running of the business where as current assets plays a very vital role in
meeting day to day operations. Hence the scope of managing the current assets increases
as the business operation increases. Here the question of WORKING CAPITAL
MANAGEMENT rises. With the help of tools & technique of financial statement
analysis, one can know the liquidity, solvency and profitability position of the company.

Working capital management involves the relationship between a firms short term asset
and its long term liabilities. The goal of working capital management is to ensure that the
firm is able to continue its operations and that it has the ability to both maturing short
term debt and upcoming operations expenses. Analysts look at as signs of a company's
efficiency and financial strength. Understanding a company's cash flow health is essential
to making investment decisions. A good way to judge a company's cash flow prospects is
to look at its working capital management (WCM). The better the company manage its
working capital, the less the company needs to borrow. Even companies with cash
surpluses need to manage working capital to ensure that those surpluses are invested in
ways that will generate suitable return for investors.

The present study is an attempt to find out soundness of Working Capital


Management at Ashok Leyland Limited and to study how far it handles the financial
resources particularly current assets i.e. Paying capacity of short term obligations. For
this, every possible effort has been made and adequate data has been collected to have a
better conclusion over the study.
CHAPTER SCHEME:

Chapter 1 deals with problem statement, research method, objectives, scope


and limitations of the study.

Chapter 2 covers complete profile of the company. It tends to include the


industry profile and all details about the company.

Chapter 3 deals with theoretical framework of working capital management,


its advances and how it is managed.

Chapter 4 deals with analysis of the data which is being collected from the
company, and also about the inference of the data. It also includes the
forecasting of the various datas.

Chapter 5 deals with the analysis and calculation of forecasted sales, cash etc.
and schedule of changes in WC.

Chapter 6 relates to the findings from the data, and deals with suggestions
given by the researcher.

Chapter 7covers the conclusion, which gives the ultimate result of the study.

Chapter8 deals with Bibliography, it includes the various sources from which
information is collected, and the annexure.

CHAPTER -1
OBJECTIVE AND RESEARCH METHODOLOGY

1.2. THE PROBLEM STATEMENT:


Managing working capital in a manufacturing firm is very difficult and risky
position. It is required to maintain the liquidity position of any firm to be good.
This is the main problem for all firms. So, components of working capital like
inventory management, cash management and receivables management should be
managed well.

Study of the working capital management is important because unless the


Working capital is managed effectively, monitored efficiently planed properly
And reviewed periodically at regular intervals to remove bottlenecks if any the
Company cannot earn profits and increase its turnover.

OBJECTIVE OF THE STUDY:


Following are objectives of the study:

To study the working capital management of Ashok Leyland Ltd.

To study the optimum level of current assets and current liabilities of the
Company.

To study the liquidity position through various working capital related Ratios.

To study the working capital components such as receivables accounts, Cash


management, Inventory position.

To study the way and means of working capital finance of the Ashok Leyland
Ltd.

To estimate the working capital requirement of Ashok Leyland Ltd

To study the operating and cash cycle of the company.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It


may be understood as a science of studying now research is done systematically.
In that various steps, those are generally adopted by a researcher in studying his
problem along with the logic behind them.

It is important for research to know not only the research method but also know
methodology. The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.

Research Design
A research design is the arrangement of the condition for collection and analysis of
data. Actually it is the blueprint of the research project.
Research design used will be Exploratory type.

Data Collection

There are two types of data collection methods available.


Primary data collection
Secondary data collection

Primary Data:
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal

interview, questionnaire etc. to support the secondary data.


This project is based on primary data collected through personal interview of head
of account department, head of SQC department and other concerned staff
member of finance department.

Secondary Data Collection Method:


The secondary data are those which have already collected and stored. Secondary
data easily get those secondary data from records, journals, annual reports of the
company etc. This project is based on secondary information collected through
five years annual report of the company, supported by various books and internet
sides. The data collection was aimed at study of working capital management of
the company
LIMITATIONS OF STUDY

The analysis will be made with the help of the secondary data collected from the
company.
Because of the companys policy of maintaining secrecy some amount of data was
not made available to which could have helped me in making my project report
better.
The study is academic in nature.
Last five years balance sheet will be taken into consideration.
The final conclusion can be also affected by some of the extraneous variables.

1.8. EXPECTATION FROM STUDY:

To be able know the financial position of the company.

To be able know the working capital requirement of the company.

To be capable to help the company in making better decisions.

CHAPTER - 2
COMPANY PROFILE

INTRODUCTION:

We are the 2nd largest manufacturer of commercial vehicles in India, the 4th largest
manufacturer of buses in the world and the 16th largest manufacturer of trucks globally.
With a turnover in excess of US $ 2.3 billion (2012-13) and a footprint that extends
across 50 countries, we are one of the most fully-integrated manufacturing companies
this side of the globe.
Over 70 million passengers use our buses to get to their destinations every day while over
700,000 trucks keep the wheels of economies moving. With the largest fleet of logistics
vehicles deployed in the Indian Army and significant partnerships with armed forces
across the globe, we help keep borders secure.
Headquartered in Chennai, India, our manufacturing footprint spreads across the globe
with 8 plants; including one at Ras Al Khaimah (UAE). Our Joint Venture partners
include Nissan Motor Company (Japan) for Light Commercial Vehicles, John Deere
(USA) for Construction Equipment, Continental AG (Germany) for Automotive
Infotronics and the Alteams Group for the manufacture of high-press die-casting extruded
aluminum components for the automotive and telecommunications sectors.

3.4 VISION:

Achieving leadership in the medium/heavy duty segments of the domestic


commercial vehicle market and a significant presence in the world market through
transport solutions that best anticipate customer needs, with the highest value to
cost.

Be among the top Indian corporations acknowledged nationally and


internationally for

Excellence in quality of its products.


Excellence in customer focus and service.

3.5 MISSION:

Be a leader in the business of commercial vehicles, excelling in technology,


quality, value to customer, fully supported by customer service of the highest
order and meeting national and international environment and safety standards.

Identifying with the customer


Being the lowest cost manufacturer
Global benchmarking our products, processes & people against the best in
the industry.

3.6 VALUES:

1. CUSTOMERS:
We value our customers and will constantly endeavour to fulfil their needs by
proactivity offering them products and service appropriate to their diverse
applications.

2. EMPLOYEE:
We consider our employee as our most valuable asset and are committed to
provide full encouragement and support to them to enhance their potential and
contribution to the companys business.

3. VENDORS:
Our vendors are our valued partners in our business development and we will
work with them in a spirit of mutual co-operation to meet our business
objectives.

4. DISTRIBUTERS:
Our distributers are the vital between the company and the customers and we
are committed to advice and support our distributers to continuously upgrade
their infrastructure, skills and capability to serve our customers better.

5. SHAREHOLDERS:
We value the trust reposed in us by our shareholders and strive unstintingly to
ensure a fair and reasonable return on their investments.

6. SOCIETY:
We are committed to add to the wealth and well-being of our society by
enhancing the quality of life and contributing to this economic development
while maintaining the highest level of environmental and safety standards.

The five Ashok Leyland CORPORATE values are:

International
Speedy
Value creator
Innovative
Ethical

MANUFACTURING FACITILITIES

3.3 COMPANY PROFILE:


ENNORE PLANT:

(My project was carried in ennore plant located in Chennai.)


Ashok Leyland has six manufacturing plants - the mother plant at Ennore near
Chennai, two plants at Hosur (called Hosur I and Hosur II, along with a Press
shop), the assembly plants at Alwar and Bhandara. The total covered space at
these six plants exceeds 450,000 sq m and together employs over 11,500
personnel.

(Source: www.ashokleyland.com)
Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mother Plant
accounting for over 40% ALL production. The plant manufactures a wide range of
vehicles and house production facilities for important aggregates such as Engines,
Gear Box, Axles and other key in-house components. Number of
employees in ennore plant are 4146 and number of models manufactured are 132.
Ashok Leyland is the flagship company of the hinduja group and is the second
largest manufacturer of commercial vehicles in India.

Ashok motor was set up in 1948 for the assembly of Austin cars. The company
name and objective changed with equity participation by British Leyland and
Ashok Leyland commenced manufacturer of commercial vehicles in 1955. It has
since than grown as a reputed manufacturer of quality automotive products
ranging from light commercial vehicles to heavy duty vehicles and for
automotive, industrial and marine applications. In 1987, the overseas hold by
Land Rover Leyland International Holidays Ltd(LRLIH) was taken over by a
joint venture between the Hinduja group, Non-Resident Indian Transitional group
and IVECO (since July 2006,the Hinduja group is 100% stake holder of LRLIH).
Ashok Leyland also acquired truck business unit of Avia, Prague (Czech

Republic effective 19-10-06).

The products of the company are of proven design for durability and reliability
and are hence very popular both in Indian and overseas markets. In recent years
the product range is upgraded in to the latest technological development in the
world, for which the company has the technical support from IVECO (FIAT
group), Italy for manufacture of IVECO cargo range of vehicles; Hino Motors,
Japan for manufacture of fuel efficient engines; and ZF , Germany for
manufacture of synchromesh gear boxes.

In the journey towards the Global standard of Quality , Ashok Leyland has
reached a major milestone in 1993 , when it became the first in Indias
automobile industry to win ISO 9002 Certification. The more comprehensive ISO
9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for
all vehicle manufacturing units in 2002. It has also become the first Indian
automobile company to receive the latest ISO/TS 16949 corporate certification
which is specific to the auto company.

The company has the corporate office register at Chennai.

The marketing headquarter is at Chennai and the sales and services network,
dealer network and spare parts warehouse spread throughout India with regional
sales office and services centre located in all major cities and towns in the
country. The products are also exported to a range of overseas countries.

The marketing personal maintain constant interaction with customers for


application development and feedback for continuous improvement of the

products. The services function is carried out by qualified personal whose skills
are continuously upgraded through training to meet the servicing requirements of
newer or improved products. The design function is carried out by the product
Development Division operating through 4 centres viz. Product Development
(Ennore) for R&D related to Ashok Leyland engines, Technical centre
vellivoyalchavadi for design, proto-type developments of vehicle, vehicles and
components testing; Engine R&D (Hosur) for design and development of Hino
engines and Advanced Engineering (Chennai) for research related to future
products.

The manufacturing units of the company are located at Ennore (TN), Hosur
(TN), Alwar (Rajasthan) and Bhandara (MR). The Ennore , Hosur (plant - 1),
Hosur (plant-ii), Ambattur , Alwar and Bhandara manufacturing units are certified
ISO 9001:2000 and QS 9000:1998 certification by Indian register Quality
system.

The company is also certified to ISO 14001:2000 Environmental Management


System for all the manufacturing units. The Bhandara unit of the company has
won the Golden Peacock Environmental Award 2002 of the world
Environmental Foundation in the Large/manufacturing category.

Ashok Leyland is also the 1st auto mobile company to receive the ISO/TS
16949 corporate certification in June 2006. TS 16949 reckon the nuances of
automobile Industry and is more customer centric. It integrates the salient
concepts of all the QMS standards has been accepted recognized and followed by
all automobiles manufactures in USA , Europe and Asia.
Ashok Leyland has also obtained ISO 27001 certificates for its Ennore Data

canter and Advanced Engineering group located in Chennai. Ennore data centre
obtained the certificate in May 2005 and advanced engineering in April 2007.

HISTORY AND ORIGIN:

The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by
independent India. Pandit Jawaharlal Nehru, India's first Prime Minister
persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive
manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the
assembly of Austin Cars. The Company's destiny and name changed soon with
equity participation by British Leyland and Ashok Leyland commenced
manufacture of commercial vehicles in 1955

(Source: www.ashokleyland.com)

Since then Ashok Leyland has been a major presence in India's commercial
vehicle industry with a tradition of technological leadership, achieved through
tie-ups with international technology leaders and through vigorous in-house
R&D.

Access to international technology enabled the Company to set a tradition to be


first with technology. Be it full air brakes, power steering or rear engine busses,
Ashok Leyland pioneered all these concepts. Responding to the operating
conditions and practices in the country, the Company made its vehicles strong,
over-engineering them with extra metallic muscles. "Designing durable products
that make economic sense to the consumer, using appropriate technology",

became the design philosophy of the Company, which in turn has moulded
consumer attitudes and the brand personality.

The Company was incorporated on 7th September 1948, at Chennai. At first,


they Manufacture Comet Chassis and Leyland Tiger and Titan Chassis and
Leyland Diesel Engines. In July 1955, the name of the Company Was changed
from Ashok Motors Ltd., to Ashok Leyland Ltd.

In June 1956, 4 lakh shares allotted to Leyland Motors. In November 11 lakhs


share issued at par 15, 03,456 shares as rights in prop. 19:40 & 5,96,544 shares to
Leyland Motors to maintain their holding at 40%.Afterwards the Company Issued
many Share allotments and developing their growth.

In February 1979, the Company made a public issue of 49, 61,349 No. of equity
shares of Rs.5 each at a premium of Rs.3 per share.

In 1980, with the collaboration, the Company embarked on a programme of


manufacture of integral buses. The R & D division was also engaged in
developing a new vehicle prime mover with turbocharged engine which in
operation with a Tandem-Axle trailer would enable a GTW of 26T. The
Company also developed a longer integral bus with larger seating capacity. A
technical collaboration agreement was entered into for the manufacture of
synchromesh transmissions to the designs of Azhnradfabrik Friedrichshafen
AG of West Germany.

In 1983, the Company entered into an agreement for a joint venture in Sri Lanka
for the assembly and progressive manufacture of Ashok Leyland vehicles. ACL

proposed to create facilities for body building and assembly of panels for frontend structures for truck and business in order to cater to the requirements. Then
the Company entered into a technical collaboration with Hino Motor Ltd., Japan
for their w series engines.

In 1986, DGTD registration for the manufacture of metal cutting and grinding
machines at the Hosur and Alwar plants was obtained. A Prototype of a rear
engine bys chassis according to the specifications laid down by special working
group for use In State Transport Undertakings was acknowledge by the latter
during the year

In 1987, the Intermediate vehicle with 4-cylinder HINO engine was


introduced in the market under the brand name CHITAL. A test track for
endurance testing of vehicles was also commissioned.

In 1989, the Company introduced Normal Control (Bonneted) vehicle. With


access to superior IVECO TECHNOLOGY, THE Company was evaluating
various contemporary product options that were relevant to the requirements of
Indian road transport industry.

In 1994, the Company issued 10,771,908 GDRs at issue price of US$12.79 per
GDR for a total value of US $137.773 million. Each GDR represents 3 equity
shares of RS. 10 Each.32, 315,724 shares issued through GDRs. The Company
entered into a technical collaboration with Hino Motor Ltd., Japan for their W
series Engines.

In 1998, Ashok Leyland has introduced The Panther, a low floor bus which

has been indigenously designed to cater to the needs of the common masses and is
based on the parameters set by the Central institute of Road Transport and the
Association of State Road Transport Undertakings. The Ashok Leyland Ltd., the
commercial vehicles major, has entered into an agreement with the leading USbased management consultant, A T Kearney, to Kick-start the process reengineering work in the companys various production units. Ashok Leyland
Limited is developing a new range of low floor chassis in the passenger vehicle
sector for more convenient urban transportation. The Ministry of Defences
Vehicle Factory in Jabalpur has signed manufacturing agreements with Ashok
Leyland & Tata Electric and Locomotives Company (Telco) recently.
In 1999, the Company would enter into an alliance with dealers of tractor on a
temporary basis. The Company was talking to tractor manufacturers including
Mahindra & Mahindra, Eicher, TAFE and Punjab Tractors in this
connection.

In 2000, the Company launched of two interactive Internet initiatives, one for
domestic parts operations and the other for exports. Ashok Leyland has
announced a voluntary retirement scheme for its unionized staff. Ashok
Leyland Limited (ALL) and Maruti Udyog Ltd have been selected for the IRTE
National Award, in recognition of their efforts towards promoting the cause of
road safety, traffic management and environment protection.

In 2001, Commercial vehicles manufacturers Ashok Leyland Ltd., Sundaram


Industries Ltd and Irizar of Spain have formed a joint venture company-Irizar
TVS Ltd for bus body building. The JV Company has been set up with a paid-up
capital of Rs. 75 lakhs with equal contribution from the three partners. Ashok
Leylands Ennore unit has received ISO 14001 certification for its environment

management system from Indian Registrar Quality Systems.

In 2002, Ashok Leyland Ltd has informed that Mr. G. Boschetti ceased to be a
Director on our Board. Mr. Marc Petit also ceased to be an Alternate Director to
Mr. G Boschetti Mr. R Sorce has been appointed as a Director in the place of
Mr. G Boschetti

In 2003, Leyland has reported a 70% increase in its sales. Ashok Leyland set to
increase HINO engine platform through in-house product development, to
deliver higher horsepower in tune with improving road infrastructure. Ashok
Leyland Ltd has supplied 25 buses to Afghanistan which is a part of Indian
Governments Assistance to the war-ravaged Afghanistan. Leyland bagged $46
million truck supply contract from the United Nations.

In 2004, Ashok Leyland unveils new range of buses and trucks in a bid. It
launches Ecomet, a light commercial vehicle, in the Andhra Pradesh market.
Ashok Leylands Hosur unit bags CIIs awards in safety, health and environment.
Ashok Leyland Ltd (ALL) and Indian Oil Corporation (IOC) have joined hands
to offer freight management services across the country. Ashok Leyland Ltd signs
a collaboration agreement with ZF of Germany local manufacturing of ZFs 9speed synchromesh gearbox. Now, Wipro InfoTech has signed up with Ashok
Leyland for strategic cost reduction.

Ashok Leyland vehicles have built a reputation for reliability and ruggedness.
The 5, 00,000 vehicles we have put on the roads have considerably eased the
additional pressure placed on road transportation in independent India.

In the populous Indian metros, four out of the five State Transport Undertaking
(STU) buses come from Ashok Leyland. Some of them like the double-decker and
vestibule buses are unique models from Ashok Leyland, tailor-made for highdensity routes.

In 1987, the overseas holding by Land Rover Leyland International Holdings


Limited (LRLIH) was taken over by a joint venture between the Hinduja Group,
the Non-Resident Indian transnational group and IVECO. (Since July 2006, the
Hinduja Group is 100% holder of LRLIH).

The blueprint prepared for the future reflected the global ambitions of the
company, captured in four words: Global Standards, Global Markets. This was at
a time when liberalisation and globalisation were not yet in the air. Ashok Leyland
embarked on a major product and process up gradation to match world-class
standards of technology.

In the journey towards global standards of quality, Ashok Leyland reached a


major milestone in 1993 when it became the first in India's automobile history
to win the ISO 9002 certification. The more comprehensive ISO 9001
certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all
vehicle manufacturing units in 2002. It has also become the first Indian auto
company to receive the latest ISO/TS 16949 Corporate Certification (in July
2006) which is specific to the auto industry.

3.7 POLICIES AND OBJECTIVES OF ASHOK LEYLAND:

QUALITY POLICY:
Ashok Leyland is committed to achieve customer satisfaction, by anticipating and
delivering superior value to the customers in relation to their own business,
through the products and services offered by the company and comply with
statutory requirements.

Towards this, the quality policy of ashok Leyland is to make continual


improvements in the process that constitute the quality management system, to
make them more robust and to enhance their effectiveness and efficiency in
achieving stated objectives leading to:

I). Superior products manufactured as also services offered by the company.


II). Max use of employee potential to contribute to quality and environment by
progressive upgradation of their knowledge and skills as appropriate to their
functions.
III).Seamless involvement from vendors and dealers in the mission of the
company to address customers changing needs and protection of the
environment.

ENVIRONMENTAL POLICY:
We at ashok Leyland committed personal environmental measures.
1. We follow all legal reasons.
2. Adopt pollution prevent technology in design and manufacturing projects.
3. Conserve all resources such as power, water, oil, gas, compressed air etc...,
and optimise their usage through scientific methods.
4. Provide clean working environment to employees.
5. Set and review objectives and targets for continually improving environment.

The Operation and Objectives of the Company are following below:-

To carry on the Business of manufacturers, assemblers of, dealers in, hirers,


repairers ,cleaners, stores, warehouses, pf motor cars, motor cycles, cycle-cars,
motors, scooters, motor-buses and lorries, trucks, tractors, cycles, bicycles, and
carriages, launches, boats and ships, vans aero planes, hydroplanes, and other
vehicles and conveyances of all descriptions for carrying passengers or other
personnel, goods, commodities, produce, cargoes and other things on land or sea
or by air whether propelled or assisted by means of petrol, spirit, steam, gas,
electrical, animal or other powers, and all engines, chassis, bodies, turbines, tanks,
tools, implements, accessories and other things, materials and products used for,
in or in connection with motors and other things. To Buy, sell, let on, hire, repair,
alter and deal in machinery, component parts, accessories and fittings of all kinds
for motors and other things and all articles and things referred to in the above item
hereof or used in or capable of being used in connection with the manufacture,
maintenance and working thereof.

To carry on the business of garage-keepers and suppliers of and dealers in petrol,

electricity and other motive power to motors and other things. To develop, design,
programme, conduct feasibility studies, act as advisor, retainers, consultants and /
or agents to all projects and to engage in project survey, implementation, progress
monitoring and turnkey installation.

To promote any other Company for the purpose of acquiring all or any of the
property and liabilities of this Company of for any other purpose which may seem
directly or indirectly calculated to benefit this Company and to buy, sell, contract
to buy or sell and deal in shares, stocks, debentures and securities of all kinds. To
invest or deposit or deal with the moneys of the Company not immediately
required for the purposes of its business in such manner as may from time to time
be determined.

To guarantee the performance of contracts.

To establish agencies or branches in India or elsewhere and to undertake the


management of any Company or Companies having objects altogether or in part
similar to those of this Company and to take all necessary steps for registering the
Company in any Country as may be thought fit.

To improve, manage, work, develop, lease, mortgage, abandon or otherwise deal


with, all or any part of the part of the property movable or immovable of the
Company and all or any of the rights and concession of the Company The
Company to do all or any of the above things in any part of the world as
Principals, Agents, Contractors, Trustees, Insurers, or otherwise and either alone
or in conjunction with others.

PRODUCT PROFILE:
1. Buses
2. Trucks
3. Engines
4. Defence & Special Vehicles

CHAPTER -3
THEORETICAL FRAMEWORK OF WORKING CAPITAL MANAGEMENT
Working capital is one of the most important requirements of any business
concern. Working capital can be compared with the blood of human beings. As human
cannot survive without blood, in the same way no business concern can survive without
working capital.
Working capital management deals with maintaining the levels of working capital
to optimum, because if a concern has inadequate opportunities and if the working capital
is more than required then the concern will lose money in the form of interest on the
blocked funds. Therefore working capital management plays a very important role in the
profitability of a company.
The term working capital stands for that part of the capital, which is required for
financing the current needs of the company. It is usually invested in raw material stock
(both finished and semi finished). Accounts receivable, saleable securities and in cash.
Capital in all these forms is constantly being converted into cash and this cash flow out
again in exchange for other forms of working constantly turned over. Management of
working capital usually involves planning and controlling these current assets.

NEED FOR WORKING CAPITAL:


The basic objective of financial management is to maximize the shareholders

wealth. This is possible only when the company earns sufficient profits. The amount of
such profits largely depends upon the magnitude of sales. However do not convert into
cash instantaneously. These are always a time gap between the sale of goods and their
actual realization in cash. Working capital is required in order to sustain the sales
activities in this period. In case adequate working capital is not available for this period,
the company will not be in a position to purchase raw material, pay wages and other
expenses required for manufacturing the goods. Therefore sufficient amount of working
capital is to be maintained at any point of time.

ADEQUACY OF WORKING CAPITAL:


A firm must have adequate working capital i.e., as much needed by the firm. It
should neither be excessive or inadequate. Both the situations are harmful to the concern.
Excessive working capital means the firm has idle funds, which earn no profits for the
firm. Inadequate working capital ultimately results in production interruptions and
lowering down of the profitability.
It will be interesting to understanding the relationship between working capital
and risk and return. It is generally accepted that higher levels of working capital decrease
the risk and have the potential of increasing the profitability also.
The principle is based on the following assumptions:

There is a direct relationship between risk and profitability, higher the risk higher
is the profitability, while lower the risk lowers is the profitability.

Current assets are less profitable than fixed assets.

Short-tern funds are less expensive than long term funds.

On accounts of the above principle, an increase in the ratio of current assets to total assets
will results in the decline of the profitability of the firm. This is because investment in
current assets as stated above is less profitable than in the fixed assets. However an
increase in the ratio would decrease the risk of the firm of the becoming technically
insolvent. On the other hand a decrease in the ratio of current assets to total assets would
increase the profitability of the firm. However these increase the risk of the becoming
technically insolvent on accounts of its possible inability in meeting its commitments in
time due to shortage of funds.

TYPE OF WORKING CAPITAL:


Following is the diagram showing types of Working Capital:

Working capital on the basis of requirement:


Permanent working capital
Variable or temporary working capital
Permanent

working

capital

refers

to

the

minimum

amount

of

investment in all current assets which is required at all times to


carryout minimum level of business activities in other words. It
represents the current assets required on a counting basis over the
entire year. The Tendon committee has referred to this type of working
capital as Core current assets.
Temporary working capital refers to that amount of working capital,
which keeps on fluctuating, from time to time on the basis of business

activities. In other words it represents additional current assets


required at different times in the operating year.

Working capital on the basis of concept:


GROSS WORKING CAPITAL:
It is the total of all current assets which include inventories,
sundry debtors, cash in hand & bank, advances, investments, short
term deposits etc.,
NET WORKING CAPITAL:
It is the excess of current assets over current liabilities. Current
liabilities include sundry creditors, advances from customers, provision
for taxation etc.,

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

The task of the financial manager in managing working capital


efficiency is to ensure sufficient liquidity in the operations of the
enterprise. The liquidity of a business firm is measured by its ability to
satisfy short term obligations as they become due.

1. Time devoted to working capital management:-

Surveys indicate that the largest portion of a financial managers

time is devoted to the day to day internal operations of the firm; this
may be appropriately subsumed under the heading Working Capital
Management

2. Investment in current assets:-

Characteristically, current assets represent more than half of


the total assets of the business firm. Because they represent a large
investment and it tends to be relatively volatile, current assets are
worth of the financial managers careful attention.

3. Importance for small firms:-

Working capital management is particularly important for small


firms. A small firm may minimize its investment in fixed assets by
renting or by leasing plant and equipment, but there is no way it can
avoid investment in cash, receivables and inventory. Therefore, current
assets are particularly significant for the financial manager of a small
firm. Further, because a small firm has relatively limited access to the
long term capital markets; it must necessarily rely on trade credit and
short term bank loans, both of which affect net working capital by
increased current liabilities.

4. Exploitation of favorable market conditions:-

Only concerns with adequate working capital can exploit


favourable market conditions such as purchasing its requirement in

bulk when the prices are lower and by holding inventories for higher
prices.

DETERMANTS OF WORKING CAPITAL:


Prudent principal of financial management calls for holing as
small amount of working capital as possible. So long as the firm is not
exposed to undo solvency risks. In order to forecast the working capital
requirements more objectively the financial manager often makes use
of percentage sales methods, trend method, or operating cycle
method. Operating cycle method calls for a precise estimation of the
length of time (in weeks/months) required for converting the raw
material into finished goods and holding the finished stock and debtors
as well. Thus it indirectly takes into account the policy requirements of
inventory and credit management apart from the cash.
A wide variety of factors influence the total investment in
working capital in an enterprise. Significant among them are discussed
herewith.
A. NATURE OF BUSINESS:
The nature of business has an important bearing on its working
capital needs. Some ventures like retail stores, construction companies
etc., require on abundance of working capital in other cases, such as
power generation and supply, the current assets play a minor and
secondary role.

B. MANUFACTURING CYCLE:
An extended time span, between the raw material purchase and
the completion of the manufacturing process yielding the finished
product, will obviously mean a larger tie-up of funds in the form of
enhanced working capital needs. In such cases management should
endeavor to contain the intervening period and effect economy in
working capital needs, through process changes where possible, or
though effective organization and coordination at all levels of
enterprise activity to ensure that the operating cycle time is minimal.
Frequent changes in set-ups, waiting for material, tools or instructions
and

accumulations

of

work-in-progress

have

the

inevitable

consequence of extending the cycle time freezing.

C. CREDIT TERMS TO CUSTOMERS:


The credit terms to customers influence the working capital level
by determining the level of investment in block debts. Management
has to decide on suitable credit policy relevant to each customer based
on the merits of his case. Unduly liberal credit policies and slack
collection procedures or permissive attitude in the matter of collection
of out standing can look up funds that would otherwise be available for
operating needs.
D. VAGARIES IN SUPPLY OF RAW MATERIAL:
The sources of certain raw material are few and irregular and

pose problems in the matter of procurement and holding, using up


moir funds. Materials that are available only in certain seasons have
to be obtained and stored, in advance, for the lean months. The
working capital requirements, in such instances, will show seasonal
fluctuations.
E. SHIFTS IN DEMAND FOR PRODUCTS:
Some manufactured are subject to seasonal fluctuations in sales.
In the interest of utilization of capacity, steady production will have to
be maintained, independent of shifts on demand for finished products.
Finished goods inventories will, therefore pile up during off-season and
will require increased amounts of working capital to be provided.
Financial planning will have to incorporate this pattern of funds
requirement associated with steady production and seasonal seals

F. PRODUCTION POLICIES:
To off-set the problems of having to find funds to support the
mounting inventory levels of finished goods until they got off-loaded in
the peak seasonal, some companies report to diversification of
activities, enabling production of the main product to follow the
seasonal pattern of demand.

G. COMPETITIVE CONDITION:
In a competitive market, wining and retaining customers

satisfaction on a continuing basis will involve extra costs and present a


variety of working capital problems. To offer the customer the benefit
of choice, a variety of products will have to be manufactured and
stocked. This would mean higher levels of inventories in all stages and,
therefore additional working capital funds. More generous credit terms
may have to be extended and the investments in account receivable
may have to be higher, requiring additional funds. The degree of
competition is thus an important factor influencing working capital
requirements

H. GROWTH AND EXPANSION PROGRAMS:


As businesses grow, additional working has to be found. In fact,
the need for increased working capital does not follow the growth in
business activities, but precedes it. An advance planning of working
capital is thus a containing necessary for a growing concern. Or else,
the company may give substantial earning but little cash. With fast
growth they may be under constant financial pressure for external
funds

to

continuous

reinforce
review

internal
there of

generation.

Forward

are absolutely

planning

necessary for

and
such

companies.

I. PROFIT LEVELS:
By the very nature of things, some enterprises generate high
margins compared to others. The product category and the firms

position in the market may have conferred this advantage. Other may
have struggle in a highly competitive environment. But, profits cannot
be considered as available cash at the end of the period. Even as the
companys operations are in progress cash is used up for augmenting
stocks, books debts and cash inflows, at short intervals, assume
importance. For the projected surpluses, appropriate effective uses can
be planned. The funds application then occurs by design and not be
accident.

J. TAXATION:
Tax liability is inescapable element in working capital planning. It
is a shore-term liability in cash. Advance taxes may have to be
remitted in installments. On the basis of estimated profits. Period of
high taxation impose additional stain on working capital. To be able to
get the best out of the operating plans of the company in advance and
steer the resources towards research and development. Exports or
other direction, which promise tax, benefits and promote the
companys earnings.

K. DIVIDEND POLICY:
Management has to preserve cash resources, but at the same
time, it cannot fail to satisfy investor expectations, market prestige for
the shares of the company has also to be nurtured and maintained in
its long-run interests. During periods of low profits, maintained of

steady dividends will involve draining of resources but may needed to


preserve the companys image.

L. RESERVES POLICY:
One of the cherished goal of enterprise management is to build
up adequate reserves out of profits, the urge of retain profits may as a
major constraint on the dividend policy, the funds position getting
priority of consideration over dividend policy.

M. DEPRECIATION POLICY:
Depreciation policy centers on the determination of the amount
to be provided as depreciation charge to make up the ultimate
resource

for

replacement

for

worn

out

obsolete

assets.

The

depreciation charges do not involve any cash flow. Enhanced rates of


depreciation have the effect of reducing profits corresponding, which in
turn can help in holding back distribution of dividends. This process
conserves cash. Depreciation policies, thus, exert influence on the
status of working capital in the enterprise from time to time.

N. PRICE LEVEL CHANGES:


Rapidly rising prices create the need for more funds for
maintaining the present volume of activity. For same levels of
inventories, higher cash outlays are needed. In an inflationary setup,

even operating expenses will grow for given levels of activity. Some
companies may be able to compensate parts of these cost increases
through increase in prices levels on working capital position will vary
from company to company depending on the nature of its, operations
and its standing in the market.

O. OPERATING EFFICIENCY:
There is an obvious relationship between the operating efficiency
of a company and its working capital position. Waste elimination,
improved co-ordinate to cut delays, higher efficiency in operations and
fuller utilization of resources are among the initiatives taken to avert
erosion of profits. They also have the effect of getting more out of a
given volume of working capital. Efficiency of operations accelerates
the pace of the cash cycle, and improves the working turnover. It
releases the pressure on working capital by improving profitability and
aiding added internal generation of funds. With a multiplicity of factors
exerting varied degrees of influence on working capital status, the
management has to alert to the developments, internal, external and
environmental, and has to plan and review constantly its working
needs and storages.

ELEMENTS OF WORKING CAPITAL


Operating Cycle:
Cash flows in a cycle into around and out of a business. It is the

businesss life blood and every managers primary task is to help it


keep flowing and to use the cash flow to generate profits.
If a business is operating profitably, then in theory it should
generate cash surpluses. If it doesnt generate surpluses, the business
will eventually will run out cash and expire.
More businesses fail for lack of cash than for want of profit
Definition:The working capital cycle is the period of time between the
points at which cash is first spent on the production of a product and
the final collection of cash from a customer.

The operating cycle involves 3 phases: Acquisition of resources such as raw material, labour, power and
fuel.
Manufacture of the product which includes conversion of raw
material into work in progress into finished goods
Sale of a product either for cash or on credit. Credit sales create
account receivables for collection.

The faster the business expands the more cash it will need for
working capital and investments. Good management of working capital
will generate cash, will help to improve profits and reduce risks.

Following is the Operating Cycle:-

The investment in current assets is circulating in nature. This


changes the shape from raw material to semi finished goods to
finished goods, debtors and finally to cash. Thus, conversion of working
capital into cash may result in the profit or loss.
Working capital cycle consists of following five steps:
Conversion of cash into raw material.
Conversion of raw material into work- in- progress.
Conversion of work in progress into finished goods.
Time for sale of finished goods.(cash and credit sales)
Time for realization from debtors and bills receivables into
cash.
How can Working Capital Cycle be improved?
Working capital cycle is improved by increasing the rate of stock
turnover and/or cutting back on debt collection period.
Conclusion:The use of other peoples money in business is usually an
expensive resource. Before looking for outside finance, examine own
working capital cycle to make sure that every rupee of own internal
funds is being fully utilized.

A. CASH MANAGEMENT

Cash is both the beginning and the end of working capital

cycle-

cash,

inventory,

receivables

and

cash.

Its

effective

management is the key determinant of efficient working capital


management.
Cash is the most important component of current assets. All
other components such as debtors and inventories ultimately are
converted into cash and this fact further emphasizes the importance of
the management of cash.

Importance of cash:The goal of cash management is to maintain the minimum cash


balance, which provides the firm with sufficient liquidity needed to
meet its financial obligation. At the same time, it should enhance firms
profitability without exposing it to undue risk i.e. it involves trade offbetween risk and profitability. Management of cash is primarily
concerned with following:
Determination of minimum level of cash that an enterprise
should hold.
Controlling cash outflows.
Controlling cash inflows
Matching

cash

inflows

and

budgeting
Proper investment of surplus cash

Cash Conversion Cycle:

outflows

through

cash

The duration between the purchase of a firms inventory and


the collection of accounts receivable for the sale of inventory. It is
known as cash cycle.
Cash conversion cycle = Inventory processing period + Days to collect
Receivables

B. INVENTORY MANAGEMENT

Hold as little as you can


Inventory can be referred to as sum of the nature of raw
materials, fuel and lubricants, spare parts, maintenance consumables,
semi-processed materials and finished goods stock at any point of
time.
In the present study raw materials, work in progress, finished
goods and packing material are included
Inventory control is concerned with acquisition, storage,
handling and use of inventories so as to ensure the availability of
inventory

whenever

needed,

proved

adequate

cushion

for

contingencies, derive maximum economy and minimize wastage and


losses.

Objectives of Inventory Management:Basic objectives of inventory management are to reconcile the


two conflicting requirements: For maximization of shareholders wealth, it is essential to
minimize the firms investment in inventories, and

Sufficient inventory must be available to prevent stock- outs and


production hold-ups.

Inventory management techniques: ABC Analysis


EOQ- Economic Order Quantity
JIT- Just In Time
FMS- Flexible Manufacturing System

C.

DEBTORS MANAGEMENT

Get them to pay you as soon as possible


Every business needs to knowwho owns them moneyhow
much is owed.how long it owesfor what it owes
There is nothing more important than being paid for a product or
service.
When goods or services are sold under an agreement
permitting the customer to pay for them at a later date, the amount
due from customer is recorded as account, representing claim to future
payments of cash from customer.

Objectives of Receivables management: To obtain optimum volume of sales.


To control the cost of credit and keep it as the minimum.

To maintain the optimum level of investment in receivables.


To keep down the average collection period.
Ensuring prompt and accurate billing.

Need for accounts receivable: Sales expansion :


Sales retention :

Management of accounts receivable is as follows: Credit policy


Credit variables
Credit terms
Credit information (Evaluating individual credit applications).
Collection efforts.
Monitoring accounts receivables.

Late payments erode profits and can lead to bad debts.

If company doesnt manage debtors, they (debtors) will begin to manage the
company. Profits only come from paid sales. A customer does not pay is not a customer.

Accounts Receivables = credit sales per day* length of collection period.

D.

CREDITORS MANAGEMENT

Maximize time from receipt to payment

Management of creditors and suppliers is as important as the


management of debtors. However, there is a basic difference between
the approaches to be adopted by the finance manager in these two
cases. Whereas the underlining objective in case of accounts
receivable is to maximize the acceleration of the collection process,
the objective in case of accounts payable is to slow down the payment
process as much as possible. However, it should be noted that delay in
payment of accounts receivable may result in saving of some interests
cost, but it can prove very costly to the firm in the form of loss of credit
in the market. The finance manger has therefore, to ensure that the
payment to creditor is made at the stipulated periods after obtaining
the best credit terms possible.

RATIO ANALYSIS

Diverse group are interested in information found in financial


statements. These groups study the statements carefully, analyze and
interpret the information that relates to their particular interest.
The primary uses of financial statements are evaluating past
performance

and

predicting

future

facilitated

by

comparison.

Therefore, the focus of financial analysis is always on the crucial


information contained in the financial statements. This depends on the
objectives and purposes of such analysis. The purpose of evaluating
such financial statements is different from person to person depending
on its relationship.
The financial analysis always needs certain yardstick to

evaluate the efficiency and performance of any business unit. The one
of the most frequently used yardsticks is ratio analysis. Ratio analysis
involves the use of various methods for calculating and interpreting
financial ratios to assess the performance and status of the business
unit. It studies the numerical or quantitative relationship between two
variables or items.
Ratio Analysis is the systematic process of determining and
interpreting the numerical relationship of various pairs of items derived
from the financial statements of a business.
Absolute figures do not convey much tangible meaning and is
not meaningful while comparing the performance of one business with
the other.
It is very important the base (or denominator) selected for each
ratio is relevant with the numerator. The two must be such that one is
closely connected with and influenced by the other.

Importance of Ratio Analysis:Ratio Analysis stands for the process of determining and
presenting the relationship of items and group of items in the financial
statements. It is an important technique of financial analysis. It is a
way by which financial stability and health of a concern can be judged.
Main points of importance are as follows:

Useful in financial position analysis:Accounting ratios reveal the financial position of the
concern. This helps the banks, insurance companies and other

financial institutions in lending and making investment decisions.

Useful in simplifying accounting figures:Accounting ratios simplify, summarize and systematize the
accounting figures in order to make them more understandable
and in lucid form. They highlight the inter-relationship, which
exists between various segments of the business as expressed
by accounting statements. Often the figures standing alone
cannot help them convey any meaning and ratios help them to
relate with other figures.
Useful in assessing the operational efficiency:Accounting ratios help to have an idea of the working of a
concern. The efficiency of the firm becomes evident when
analysis is based on accounting ratios. They diagnose the
financial health by evaluating liquidity, solvency, profitability,
etc. This helps the management to assess financial requirements
and the capabilities of various business units.

Useful in forecasting purposes:If accounting ratios are calculated for a number of years,
then a trend is established. This trend helps in setting up plans
and forecasting.

Useful in locating the weak spots of the business:It gives great assistance in locating the weak spots in the

business even though the overall performance may be efficient.


Weakness in financial structure due to incorrect policies in the
past or present are revealed through accounting ratios.

Useful in comparison of performance:Through accounting ratios, comparison can be made


between one departments of a firm with another department of
the same firm in order to evaluate the performance of various
departments in the firm. Manager is naturally interested in such
comparison in order to know the proper and smooth functioning
of such departments. Ratios also help him to make any change in
the organizational structure.

Chapter - 4
DATA ANALYSIS AND INTERPRETATION

4.1.0 WORKING CAPITAL:

Working capital is the life blood and centre of business. Adequate amount of
working capital is very much essential for the smooth running of the business.
And the most important part is the efficient management of working capital in
right time. The liquidity position of the firm is totally effected by the management
of working capital. So, a study of changes in the uses and sources of working

capital is necessary to evaluate the efficiency with which the working capital is
employed in a business. This involves the need for working capital analysis.

4.1.1 Statement Showing the Schedule of Changes In Working Capital:

FOR THE YEAR 2005-2006 (Rs. IN MILLIONS)


PARTICULARS

2005

2006

increase

decrease

inventories

5680.81

9025.61

3344.8

sundry debtors

4587.66

4243.37

344.29

cash and bank

7966.82

6028.76

1938.06

loan & advances

3337.34

3026.39

310.95

(A)

21572.63

22324.13

liabilities

9611.87

11468.95

1857.08

provisions

2044.8

2616.21

571.41

(B)

11656.67

14085.16

(A-B) WORKING

9915.96

8238.97

CURRENT
ASSESTS

balances

CURRENT
LIABILITIES

CAPITAL

increasing in WC
TOTAL

9915.96

1676.99

1676.99

9915.96

5021.79

5021.79

TABLE 1
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:

The above table shows that there has been decrease in the working capital to
the extent of 1676.99 from the year 2005to 2006.

FOR THE YEAR 2006-2007 :(Rs. IN MILLIONS)


PARTICULARS

CURRENT
ASSETS
inventories
sundry debtors

2006

2007

INCREASE

9025.61
4243.37

10703.21
5228.75

1677.6
985.38

DECREASE

cash
and
bank
balances
loan & advances
(A)

6028.76

4349.39

3026.39
22324.13

6695.79
26977.14

CURRENT
LIABILITIES
Liabilities

11468.95

16516.25

Provisions

2616.21

1042.3

(B)

14085.16

17558.55

(A-B) WORKING
CAPITAL
Increasing in WC

8238.97

9418.59

TOTAL

9418.59

1679.37
3669.4

5047.3
1573.91

1179.62

1179.62
9418.59

7906.29

7906.29

TABLE 2

(SOURCE: ANNUAL REPORTS OF COMPANY)


INFERENCE:

The above table shows that there has been increase in need for working capital
to the extent of 1179.62 from the year 2006 to 2007.

PARTICULARS

CURRENT
ASSETS
inventories
sundry debtors
cash and bank
balances
loan & advances
(A)

FOR THE YEAR 2007-2008 (Rs. IN MILLIONS)

2007

2008

INCREASE DECREASE

10703.21
5228.75
4349.39

12239.14
3758.35
4513.7

1535.93

6695.79
26977.14

8241.385
28752.581

1545.595

1470.4
164.31

CURRENT
LIABILITES
liabilities

16516.25

19267.084

2750.834

provisions

1042.3

3452.31

2410.01

(B)

17558.55

22719.394

9418.59

6033.19

(A-B) WORKING
CAPITAL
increasing in WC
TOTAL

9418.59

3385.4

3385.4

9418.59

6631.235

6631.235

TABLE 3
( SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. The above table shows that there has been decrease in need for working
capital to the extent of 3385.40 from the year 2007to 2008.

FOR THE YEAR 2008-09 (Rs. IN MILLIONS)

2008

2009

INCREASE

CURRENT
ASSETS
inventories

12239.14

13300.144

1061

sundry debtors

3758.35

9579.742

5821.391

cash and bank


balances

4513.7

880.836

3632.865

loan & advances

8241.385

7895.44

346.25

(A)

28752.581

31656.14

liabilities

19267.084

18688.641

5784.43

provisions

3452.31

2680.82

771.49

(B)

22719.394

21369.461

PARTICULARS

CURRENT
LIABILITIES

DECREASE

(A-B) WORKING

6033.19

10286.679

CAPITAL
increasing in WC

4253.5

TOTAL

10286.68

4253.5
10286.68

8232.32

8232.32

TABLE - 4
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. The above table shows that there has been increase in need for working capital
to the extent of 4253.50 from the year 2008 to 2009.

FOR THE YEAR 2009-10 (Rs. IN MILLIONS)

PARTICULARS

2009

2010

INCREASE DECREASE

CURRENT
ASSETS
Inventories
Sundry debtors
Cash and bank
balances
Loan & advances
(A)

7895.44 9604.60
31656.14 41403.10

CURRENT
LIABILITIES
Liabilities

18688.64 25920.60

7231.96

2680.82

1006.08

Provisions
(B)
(A-B) WORKING
CAPITAL
Increasing in WC
TOTAL

13300.14 16382.40
9579.74 10226.90
880.84

5189.20

3082.26
647.16
4308.36
1709.16

3686.90

21369.46 29607.50
10286.68 11795.60
1508.92

1508.92
11795.60 11795.60

9746.94

9746.96

TABLE 5

(SOURCES ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. 1 The above table shows that there has been increase in need for working
capital to the extent of 1508.92 from the year 2009 to 2010

4.1.2 RATIO ANALYSIS:


I. TO STUDY OVERALL EFFECIENCY OF WORKING CAPITAL:
1. NET WORKING CAPITAL (Rs. IN MILLIONS)

YEAR

CURRENT

CURRENT

NET.WORKING

ASSETS

LIABILITIES

CAPITAL

2008-09

21572.63

11656.67

9915.96

2009-10

22324.13

14085.16

8238.97

2010-11

26977.14

17558.55

9418.59

2011-12

28752.58

22719.39

6033.19

2012-13

31656.16

21369.46

10286.70

2013-14

41403.10

29607.50

11795.60

TABLE - 6
( SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 1
INTERPRETATION:
1. Net working capital of Ashok Leyland Ltd is maintained balanced in all years.
2. Except in 2007-08. In this year the net working capital is very low.
3. 2009-2010 net working capital is high.
2. WORKING CAPITAL TURN OVER RATIO (Rs. IN MILLIONS)
YEAR

SALES

2008-09

41818.97

NET.WORKIN

TURN OVER

CAPITAL

RATIO

9915.96

4.22

2009-10

52476.57

8238.97

6.37

2010-11

71681.76

9418.59

7.61

2011-12

77425.80

6033.19

12.83

2012-13

66666.40

10286.70

5.81

2013-14

78726.00

11795.60

6.67

TABLE : 7
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 2

INTERPRETATION:
1. The working capital turnover ratio of Ashok Leyland Ltd is increasing from
2004-05 to 2007-08. But suddenly there is a dip in 2008-09.
2. In the year 2007-08, the performance of Ashok Leyland Ltd is in peak
position.
3. In the year 2008-09 Indian automobile industry was slowed down due to
market slowdown.

II. TO STUDY THE STRUCTURE OF WC:

CURRENT ASSETS TO TOTAL ASSETS: RS. IN MILLIONS)


YEAR
2004-05

CURRENT
ASSETS
21572.63

TOTAL ASSETS

CA/TA RATIO

33654.54

0.64

2005-06

22324.13

36852.79

0.61

2006-07

26977.14

44632.32

0.60

2007-08

28752.58

55399.53

0.52

2008-09

31656.16

78265.80

0.40

2009-10

41396.83

92768.65

0.45

TABLE: 8

(SOURCE: ANNUAL REPORTS OF COMPANY)

INTERPRETATION:
1. This CA to TA ratio is of reducing tendency.
2. In 2004-05 it is highest and in 2009-10 it is lowest.
3. The portion of current assets is reducing year by year.

CURRENT

LIABILITIES

TO

TOTAL

LIABILITIES

(Rs.

MILLIONS)

YEAR

CURRENT

TOTAL

CL/TL RATIO

LIABILITIES

LIABILITIES

2004-05

11656.67

33847.86

0.34

2005-06

14085.16

36925.86

0.38

2006-07

17558.55

44877.50

0.39

2007-08

22719.39

55622.43

0.41

IN

2008-09

21369.46

78362.67

0.27

2009-10

29607.56

92820.45

0.32

TABLE: 9
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 4

INTERPRETATION:
1. CL to TL ratio is increasing from 2004-05 to 2007-08.
2. There is a decrease in 2008-09.
3. But company is capable of recovering. in 2009-2010
4. 2007-08 has highest ratio.

III. LIQUIDITY RATIOS:

CURRENT RATIO: (Rs. IN MILLIONS)


CURRENT

CURRENT

ASSETS

LIABILITIES

2004-05

21572.63

11656.67

1.85

1.55

2005-06

22324.13

14085.16

1.58

1.55

2006-07

26974.14

17558.55

1.54

1.55

2007-08

28752.58

22719.39

1.27

1.55

2008-09

31656.16

21369.46

1.48

1.55

2009-10

41396.83

29607.56

1.40

1.55

YEAR

TABLE: 10

RATIO

INDUSTRY
AVERAGE

(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 5
INTERPRETATION:
1. Here industry ratio is 1.55.
2. Except in 2007-08 remaining all years companys current ratio is almost
near to industry average ratio.
3. In the year 2006-07 company had power to affect the industry.
6. LIQUID RATIO (Rs. IN MILLIONS)
CURRENT

QUICK ASSETS

2004-05

15891.82

11656.67

1.36

1.07

2005-06

13298.52

14085.16

0.94

1.07

2006-07

16270.93

17558.55

0.93

1.07

2007-08

16513.44

22719.39

0.73

1.07

2008-09

18356.02

21369.46

0.86

1.07

2009-10

25014.43

29607.56

0.84

1.07

LIABILITIES

RATIO

INDUSTRY

YEAR

TABLE: 11
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 6

INFERENCE:
1. Here industry ratio is 1.07

AVERAGE

2. In 2004-05 it is higher and then started to decline slowly up to 2007-08.


3. In 2008-09 it started increasing and came near to the industry average.

III. PROFITABILITY RATIOS:


7. GROSS PROFIT RATIO: Rs. IN MILLIONS)
YEAR

GROSS PROFIT

SALES

GROSS PROFIT
RATIO

2004-05

10689.73

41818.97

25.56

2005-06

13390.00

52476.57

25.52

2006-07

16410.70

71681.76

22.89

2007-08

18298.30

77425.80

23.63

2008-09

14321.60

59810.74

23.94

2009-10

19544.85

72447.10

26.98

TABLE: 12
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 7
INFERENCE:
From the table shown above gross profit of the firm is satisfactory in all the
years except in 2006-07.
But it was recovered very soon by next year and it is still doing well.
8. NET PROFIT RATIOS: (Rs. IN MILLIONS)
YEAR

NET PROFIT

SALES

NET PROFIT
RATIO

2004-05

2714.10

41818.97

6.49

2005-06

3273.20

52476.57

6.24

2006-07

4412.86

71681.76

6.16

2007-08

4693.10

77425.80

6.06

2008-09

1899.96

59810.74

3.18

2009-10

4236.80

72447.10

5.85

TABLE: 13
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 8
INFERENCE:
From the data given in the above table it is clear that the net profit of the
company is almost maintained constant except in the year 2008-09.
Due to market slow down the net profit of the company effected.
But in 2009-10 it shot up as the company recovered very fast.
4.2 MANAGING WORKING CAPITAL:
4.2.1 INVENTORY MANAGEMENT:

Inventories are goods held for eventual sale by a firm. Inventories are thus one of
the major elements, which help the firm in obtaining the desired level of sales.
Kinds of inventories:
Inventories can be classified into 3 categories. They are,
a) Raw materials:
These are goods, which have not yet been committed to production in a
manufacturing firm. They may consist of basic raw materials or finished
goods.
b) Work in progress :

This includes those materials, which have been committed to production


process but have not yet been completed.
c) Finished goods:
These are completed products awaiting sale. They are the final outputs of the
production process in a manufacturing firm. In case of wholesalers and
retailers, they are generally referred to as merchandise inventory.
Benefits of holding inventories:
1) Avoiding losses of sales.
2) Reducing ordering cost.
3) Achieving efficient production runs.

Effects of holding low-costs:


1) No service levels:
Often, customer demand cannot be satisfied, leading to immediate loss of
business.
2) Increased production control costs:
An enterprise may have to rush special production runs, recognize the
schedules, an unordinary high level chasing etc,.
3) Increased replenishment costs:
When operating with low stock levels, average replenishment orders would be
placed frequently.

Effects of holding high stock:


1. Increased storage costs:
a) Increased capital investments, which reduces the capital available for other
activities and project.
b) Increased risk of obsolescence.
2. Increased opportunities for obtaining purchases discounts by bulk ordering.
3. Stable production programs, which result in the maintenance of a steady work
force.
4. High level of service, and
5. Reduction in replacement costs.

Risks and costs associated with inventories:


Holding of inventories exposes a firm to a no: of risks and costs. Risk of holding
inventories can be put as follows.
1. Price decline
2. Product deterioration
3. Obsolescence

The costs of holding inventories are as follows:


a. Materials cost
b. Ordering cost
c. Carrying cost

Features of inventory:
A comparison of inventory with other positive components of working capital
would reveal it has some special features of its own.
On an average, it accounts for lions share of firms investment in WC.

The risk factor is holding inventory generally is higher than that of holding
other items of current assets.
Although holding of a more and more inventory may be desirable from the
point of view of functional managers, it affects adversely short-term liquidity.
It involves many types of costs associated with it viz... Acquisition cost,
carrying cost, short cost, etc
It is the only item of current assets, which has direct influence on the prices,
and income of a firm
Motives of inventory:
Ashok Leyland ltd holds inventory to achieve the following 3 motives.
Transaction motives:
It emphasizes the Ashok Leyland ltds need to maintain inventories to
facilitate smooth production and sales operations.
Precautionary motive:
It necessities the ALLs need to maintain inventories to guard against the risk
of unpredictable changes in demand and supply forces and other conditions.
Speculative motive:
It influences the decision to increase or decrease inventory levels in Ashok
Leyland ltd to take advantage of price fluctuations.
Objectives of inventory management:
There should be optimal levels of investment for any asset, whether it is plant,
cash or inventories. Again, inadequate inventories will disrupt production and loss
sales. All this calls for an effective inventory program.
The main adjectives are:
1) To ensure that materials are available for use in production and production
services, as and when required.
2) To ensure that finished goods and available for delivery to customers to fulfill

orders.
3) To minimize investments in inventories to maximize profitability.
4) To protect the inventory against deterioration, obsolescence and unauthorized
use.
5) To enable the management to make costs and consumptions between
operations and periods.

A good inventory management policy should balance the requirements of


opposing and conflicting demands viz...
To maintain a leverage quality for smooth operations and efficient customers
service.
To maintain only a min possible inventory because inventory holding costs
and the opportunity cost of funds invested in inventory.

INVENTORY CONTROL TECHNIQUES:


1. Determination of stock levels:
A firm should maintain records of various levels of stocks in order to have an
effective management of inventory.
They are:
1. Minimum stock level
2. Maximum stock level
3. Reorder stock level
4. Danger stock level
5. Optimum stock level
6. Free stock level
7. Marginal stock level
8. Physical stock level

Ashok Leyland ltd is following these types of stock levels.

2. ABC analysis:
From the point of view of monitoring info for control it becomes extremely
difficult to consider each one of these items. The ABC analysis comes in quite
handy and enables the management to concentrate attention and keep a close
watch on a relatively less number of items which account for a high
percentage of the value of annual usage of all items of inventory.

A firm using ABC system segregates its inventory into 3 groups. A,B and C.
A) The A items are those in which it has the largest rupee investment.
B) The B group items consist of the items accounting for the next largest
investment.
C) The C group typically consists of larger no: of items accounting for a
small rupee investment.

Standard values for ABC analysis:


Category

% in value

% in quantity

70-80%

5-10%

10-20%

10-20%

5-10%

70-80%

In Ashok Leyland:
Category

% in value

% in quantity

75.5%

8%

15%

12%

7.5%

72.2%

3. FSN analysis:
In Ashok Leyland according to FSN analysis the items are categorized as
follows:
1. 0-1 = Non Moving
2. 1-3 = Crawling
3. 3-6 = Slow Moving
4. 6-9 = Moderate Fast Moving
5. 9-12 = Fast Moving

Determination of economic order quantity (EOQ):

Determination of quantity for which the order should be placed is one of the
important problems concerned with efficient Inventory Management. EOQ refers
to the size of the order, which gives maximum economy in purchasing in an item
of Raw materials or finished products. It is fixed mainly after taking into account
the following cost.

Ordering cost
Inventory carrying cost

Assumptions:

1. The firm knows with certainly the annual usage or demand of the particular
items of inventories.
2. The rate at which the firm uses the inventories or makes sales is constant
throughout the year.
3. The order for replenishment of inventory is placed exactly when inventories
reach zero level.

Determination of optimum production quantity:


The EOQ model can be extended to production runs to determine the optimum
production quantity. The 2 costs involved are:
Setup cost
Inventory carrying cost

6. Determination of optimum Re-order level:


For optimum production quantity, it is important to decide when to order for
the new stock. New goods will arrive before the firm runs out of goods to sell.
To determine Re-order level we should know about:

The load time


The usage rate.

7. Aging Schedule Of Inventory:


By identifying the data of purchase or manufacture of each item of the
inventory is known as aging schedule of inventory.
8. Just In Time (JIT) Inventory System:
Normally high inventories blocking of capital investment, insurance etc. To
minimize that by keeping the inventories at the lowest possible level by JIT

system. JIT inventory system means all inventories whether of raw materials,
WIP & Finished goods are received in time to go into production, manufacture
parts are completed into products and products are shipped to customers. In
JIT environment the flow of goods is controlled by pull down approach.
9. Flexible Manufacturing System (FMS):
The basis features of FMS are automated flow of materials to the cell and
automated removal of finished items from the cell. Cells are linked together
by automated material handling system and flow of goods is controlled by a
system.

RATIO ANALYSIS:
1. INVENTORY PROPORTION: Rs. IN MILLIONS)

CHART 9
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. Raw materials consumed are increasing from year by year.
2. WIP increased in first 2 years and then started decreasing.
3. FG is in increasing condition. There is a rapid change in the year 2005-06.
4. Total inventory is increasing from year to year. There is rapid change in the
year 2005-06.

2. COMPONENTS OF INVENTORY (Rs. IN MILLIONS)

CHART 10 (SOURCE: ANNUAL REPORTS OF COMPANY)


INFERENCE:

1. In 2004-05 raw materials consumption is the major part of inventory.


2. In 2005-06 finished goods is the major part of inventory. This was a good sign
to firm.
3. In 2006-07 finished goods is high and there was an equal ratio of change in raw
materials and finished goods up to 2007-08.
4. In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
5. In 2009-10 rest all are same as previous except the WIP which increased
drastically
2.1. INVENTORY TURN OVER RATIO (Rs. IN MILLIONS)
YEAR

SALES

INVENTORY

ITR

2004-05

41818.97

5375.11

7.78

2005-06

52476.57

7353.21

7.14

2006-07

71681.76

9864.41

7.27

2007-08

77425.80

11471.17

6.75

2008-09

59810.74

12769.64

4.68

2009-10

72447.10

16382.40

4.42

TABLE:14
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 11
INFERENCE:
1. During the 2004-05 the company has very high inventory ratio of 7.78, which
means more capital is being locked up in the inventory.

2. But from the year 2005-10 the ratio was decreased from 7.14 to 4.42.

2.2 INVENTORY HOLDING PERIOD: (Rs. IN MILLIONS)


INV HOLDING

YEAR

DAYS

ITR

2004-05

360.00

7.78

46.00

2005-06

360.00

7.14

50.00

2006-07

360.00

7.27

50.00

2007-08

360.00

6.75

53.00

2008-09

360.00

4.68

77.00

2009-10

360.00

4.42

81.45

PERIOD

TABLE: 15
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 12
INFERENCE:
1. Inventory holding period was good from 2004-05 to 2007-08. But in 2009-10
it was just increased.

3.1 RAW MATERIALS TURN OVER RATIO:(Rs. IN MILLIONS)


YEAR

RAW
MATERIALS

AVG RAW
MATERIALS

RM TR

2004-05

30020.40

2109.99

14.23

2005-06

40645.83

2517.31

16.15

2006-07

54081.14

3290.86

16.43

2007-08

57480.59

4041.34

14.22

2008-09

43218.57

4777.52

9.05

2009-10

52552.32

5593.15

9.40

TABLE:16
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 13
INFERENCE:
1. In 2006-07 RM TR is maximum.
2. From 2004-05 to 2006-07 it was increased.
3. From 2006-07 to 2008-09 it was decreased.

3.2 RAW MATERIALS HODING PERIOD: (Rs. IN MILLIONS)


RM HOLDING

YEAR

DAYS

RTR

2004-05

360.00

14.23

25.00

2005-06

360.00

16.15

22.00

2006-07

360.00

16.43

22.00

2007-08

360.00

14.22

25.00

2008-09

360.00

9.05

40.00

2009-10

360.00

9.40

38.30

TABLE: 17
(SOURCE: ANNUAL REPORTS OF COMPANY)

PERIOD

CHART:14
INFERENCE:
1. Raw material holding period is constant in all years.
2. But it was slightly increased in 2008-09.

4.1 WORK IN PROGRESS TURN OVER RATIO: (Rs. IN MILLIONS)


YEAR

COST OF
PRODUCTION

AVG WIP

WIP TR

2004-05

31153.39

809.35

38.49

2005-06

36685.58

1174.86

31.23

2006-07

54439.03

1266.19

42.99

2007-08

58198.15

1117.77

52.07

1040.65

43.51

2203.20

23.88

2008-09

45279.034

2009-10

52612.25

TABLE: 18
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFRENCE:
1. In 2007-08 WIP TR is highest. Remaining all years it was similar.
2. In 2009-10 it is lowest.

4.2 WIP HOLDING PERIOD: (Rs. IN MILLIONS)

WIP HOLDING

YEAR

DAYS

WIP TR

2004-05

360.00

38.49

9.35

2005-06

360.00

31.23

11.53

2006-07

360.00

42.99

8.37

2007-08

360.00

52.07

6.91

2008-09

360.00

43.51

8.27

2009-10

360.00

23.88

15.08

PERIOD

TABLE: 19
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. WIP holding period is highest in 2009-10.
2. WIP holding period is lowest in 2007-08.

5.1 FINISHED GOODS TURNOVER RATIO: (Rs. IN MILLIONS)


YEAR

COST OF GOODS
SOLD

AVG FG

FG TR

2004-05

31129.24

2104.76

17.35

2005-06

39086.57

3293.18

15.42

2006-07

55271.06

4909.69

12.74

2007-08

59127.50

5790.38

11.81

2008-09

45489.14

6360.11

8.33

2009-10

52902.25

6461.90

8.19

TABLE: 20
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART:17
INFERENCE:
1. Finished goods turnover ratio is decreasing from 2004-05 to 2009-10.
2. 2009-10 is the lowest and 2004-05 is the highest.

5.2 FINISHED GOODS HOLDING PERIOD: (Rs. IN MILLIONS)


YEAR

DAYS

FG TR

FG HOLDING
PERIOD

2004-05

360.00

17.35

21.00

2005-06

360.00

15.42

23.00

2006-07

360.00

12.74

28.00

2007-08

360.00

11.81

30.00

2008-09

360.00

8.33

43.00

2009-10

360.00

8.19

43.97

TABLE: 21
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART:18

INFERENCE:
1. Finished goods holding period is highest in 2009-10.
2. Finished goods holding period is lowest in 2004-05.

6. INVENTORY TO CURRENT ASSETS RATIO: Rs. IN MILLIONS)


YEAR

INVENTORY

CURRENT ASSETS

INV TO CA RATIO

2004-05

5680.81

21572.63

0.26

2005-06

9025.61

22324.13

0.40

2006-07

10703.21

26977.14

0.40

2007-08

12239.14

28752.58

0.43

2008-09

13300.14

31656.16

0.42

2009-10

16382.40

41403.10

0.40

TABLE: 22
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 19
INFERENCE:
1. In 2004-05, 26% of current assets are inventory. It was the least.
2. In 2007-08, 43% of current assets are inventory. It was highest.

4.2.2 RECEIVABLES MANAGEMENT


INTRODUCTION:
The term debtors are defined, as debt owed to the firm by the customers arising
from sale of goods or services in the ordering course of business. Debtors or

receivables are asset accounts representing amounts owed to the firm by


customers from sale of goods or services. It has to be mentioned that the credit
that is open account in the sense that no formal acknowledgement of debt
obligation is required. In fact, a credit sale, which leads to debtors, is treated as
one of the marketing tools.

Great majority of firms does not demand immediate cash payment when goods or
services are sold to their regular and credit worthy customers. Because of this
practice, most sales require the firm to maintain debtors account for customer or a
group of them for some period. Accordingly, debtors or receivables occupy a
significant role in firms current assets structure usually next to inventories.
Objectives of Maintaining Receivables:
Achieving growth in sales and profits. If a firm allows sales, it will usually be
able to sell more goods or services then if it insists on immediate cash
payment. Similarly, an additional sale normally results in higher profits for the
firm. This proportion will hold goods only when the marginal contribution or
gross margin greater than the additional cost associated with the administering
the credit policy.

Meeting competition:

To survive in the competitive market, firm have to establish credit policies


similar to competitors. Thus, by adopting its term of trade to the industry
norms, a firm will avoid of sale from customers who would by elsewhere if
they did not receive the expected credit.

The above 2 objectives have a single purpose, that is generate larger flow of

operating revenue and hence profit, than would be achieved in the absence of
a commitment of the funds to debtors. Extension of credit involves cost and
risk management should weigh benefits against cost. The optimum point may
be considered as the point where the return on investment in further funding
of receivables is less than the cost of funds raised that additional credit (i.e.
cost of capital).
Cost of Maintaining Receivables:
Credit sales, and hence maintaining of debtors, involve certain costs. They are:
Cost of financing debtors.
Collection costs
Delinquency costs
Default costs

Facts affecting size of receivables:


The size of a firm is determined by its:
Level of sales
Credit terms
Collection policies

Credit Policy:
The credit policy relating to sales and purchase also affects the working capital.
The credit policy influences requirement of working capital in 2 ways.

Through credit terms granted by the firm to its customers/buyers of goods.


Credit terms available to the firm from its creditors.

The credit terms granted to customers bearing on magnitude of working capital by

determining the level of book debts. The credit sales result in higher book debts.
Higher book debts mean more working capital. On the other need, for working
capital is less. The working capital requirements of a business are, thus affected
by the terms of purchase and sale, and the role given to credit by a company in its
dealing with creditors and debtors. Similarly, collection procedure will differ from
customer. With the permanent but temporary defeating customers, the firm may
not be very strict in following the collection procedures. The credit evaluation
procedure involves the following steps:
1. Credit information
2. Credit investigation
3. Credit limits and
4. Collection procedure
For effective management of credit, a firm should lay down clear-cut guidelines
and procedures for granting credit to individual customers and collecting
individual accounts.

Size of Receivables:
An analysis of the percentage of receivables in relation assets indicates the
recovery efficiency of the company. Moreover, the % receivable in relation to
sales indicates the firm credit sales requirements. However, this kind of analysis
reveals the overall operational efficiency of the company in relation to credit sales
and their recovery.

RATIO ANALYSIS:
I. TO ANALYZE EFFICIENCY:
1. ACCOUNTS RECEIVABLES TURN OVER RATIO: (Rs. IN MILLIONS)

YEAR

SALES

AVG DEBTORS

RTR

2004-05

41818.97

4321.93

9.68

2005-06

52476.57

4415.52

11.88

2006-07

71681.76

4736.06

15.14

2007-08

77425.80

4493.55

17.23

2008-09

59810.74

6669.04

8.97

2009-10

78726.00

9900.15

7.95

TABLE: 23
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART: 20
INFERENCE:
1. Receivables turnover ratio is highest in 2007-08.
2. Receivables turnover ratio is lowest in 2009-10.

1.2 DEBTORS COLLECTION PERIOD: Rs. IN MILLIONS)

YEAR

DAYS

RTR

DEBTORS
COLLECTION
PERIOD

2004-05

360.00

9.68

37.00

2005-06

360.00

11.88

30.00

2006-07

360.00

15.14

24.00

2007-08

360.00

17.23

21.00

2008-09

360.00

8.97

40.00

2009-10

360.00

7.95

45.28

TABLE: 24
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. Receivables management in Ashok Leyland is very efficient. From 2004-05 to
2007-08 debtors collection period was decreasing.
2. But in the year 2009-10 the collection period increased to more than 100%

2. AVERAGE INVESTMENT IN RECEIVABLES: Rs. IN MILLIONS)

YEAR

SALES PER DAY

DCP

AVG INVST IN
RECEIVABLES

2004-05

116.00

37.00

4298.00

2005-06

146.00

30.00

4373.00

2006-07

199.00

24.00

4779.00

2007-08

215.00

21.00

4517.00

2008-09

166.00

40.00

6646.00

2009-10

218.68

45.28

9901.83

TABLE: 25
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. From 2004-05 to 2007-08 the investment on receivables is constant.
2. In the year 2008-09 it is slightly increased.
3. Then in 2009-10 it increased more than 50% approx.
3.1. CREDITORS TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR

PURCHASES

AVG CREDITORS

CTR

2004-05

30413.01

5494.04

5.54

2005-06

41067.86

6636.96

6.19

2006-07

55206.21

8528.47

6.47

2007-08

57856.49

11531.35

5.02

2008-09

44315.03

12013.00

3.69

2009-10

52017.40

13362.75

3.89

TABLE: 26
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. 2006-07 year has highest creditor turnover ratio.
2. 2008-09 year has lowest creditor turnover ratio.

3.2. CREDITORS COLLECTION PERIOD: (Rs. IN MILLIONS)


YEAR

DAYS

CTR

CREDITORS
COLLECTION
PERIOD

2004-05

360.00

5.54

65.00

2005-06

360.00

6.19

58.00

2006-07

360.00

6.47

56.00

2007-08

360.00

5.02

72.00

2008-09

360.00

3.69

98.00

2009-10

360.00

3.89

92.54

TABLE:27
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART:24
INFERENCE:
1. In the year 2006-07 creditors collection period is low 56.
2. In the year 2008-09 the creditors collection period is very high 98.

II. TO ANALYZE THE STUCTURE:


1. RECEIVABLES TO CURRENT ASSETS RATIO: (Rs. IN MILLIONS)
YEAR

RECEIVABLES

CURRENT ASSETS

REC TO CA
RATIO

2004-05

4587.66

21572.63

0.21

2005-06

4243.37

22324.13

0.19

2006-07

5228.75

26977.14

0.19

2007-08

3758.35

28752.58

0.13

2008-09

9579.74

31656.16

0.30

2009-10

10220.61

41403.10

0.25

TABLE: 28

(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year.
2. But in the year 2008-09 it is the highest.

4.2.3 CASH MANAGEMENT


Introduction:
Cash the most liquid asset, is of vital important of the daily operations of business
firms. While the proportion of corporate assets in the form of cash is very small,
often between 1 & 3% its efficient management is crucial to the solvency of
business in a very important sense. Cash is the focal point of fund flows in
business. In view of its importance, it is generally referred to as the life blood of
a business enterprise.
Need For Holding Cash:
1. Transaction motive:
Firms need cash to meet their transaction needs. The collection of cash (from
sale of goods services, sale of goods, and additional financing) is not perfectly
synchronized with the disbursement of cash (for purchase of goods and
services acquisition of capital assets and meeting other obligations).

2. Precautionary motive:
There may be some uncertainty about magnitude and timing of cash inflows

from sale of goods and services, sale of assets and insurances of purchases.
Like flows on account of purchases and other obligations, to protect it against
such uncertainties, a firm may require some cash balances.

3. Speculative motive:
Firms would like to tap profit-making opportunities arising from fluctuations
in commodity prices, security prices, interest rates and foreign exchange rates
cash-rich firm is prepared to exploit such speculative earnings, may require
additional liquidity. However, for most firms there reserve borrowing capacity
and marketable securities would suffice to meet their speculative needs.

4. Compensating motive:
Yet another motive to hold cash balances is to compensate banks for providing
certain services and loans. Banks provide a variety of services to business
firms, such as clearance of cheques, supply of credit information, transfer of
funds, and so on. While for some of these services bank charges a commission
or free, for others they seek indirect compensation usually, clients are required
to maintain balances of cash at the bank. Since, clients this balance cannot be
utilized by the firms for transaction purposes. The banks themselves can use
the amount to earn a return. Such balances are compensatory balances.

GOALS OF CASH MANAGEMENT:


Precisely speaking, the primary goals of cash management in firm to trade off
between liquidity and profitability in order to maximize long-term profit, this is
possible only when the firm aims at optimizing the use of funds in the working
capital pool. This overall objective can be translated in the following operational
goals.

To specify day to day business requirements.


To provide for scheduled major payments.
To face unexpected cash drains.
To seize potential opportunities for profitable long-term investments.
To meet requirements of bank relationships.
To build image of credit worthiness.
To earn on cash balances.
To minimize the operating cost by cash management.

IMPORTANCE OF CASH MANAGEMENT:


Cash management is one of the critical areas of working capital management and
greater significance because it is most liquid asset used to specify the firms
obligations but it is sterile asset, as it does not yield anything. Therefore, financial
manager maintain its liquidity position without jeopardizing the profitability.

Problem of prognosticating cash flows accurately and absence of perfect


coincidence between the inflows of cash added to the significance of cash
management. In view of above, at one time affirm may experience dearth of cash
because payment of taxes, dividends, seasonal inventory etc, build up while other
times, it may have surfeit of cash stemming out of large out of cash sales and
quick collection of receivables.

It is interesting to observe that in real life management spends his considerable


time in managing cash, which constitute relatively small portion of firms current
assets.

RATIO ANALYSIS:
I. TO ANALYZE OVERALL EFFECIENCY:
1. CASH TURN OVER RATIO: (Rs. IN MILLIONS)

YEAR

SALES

AVG CASH AND

CTR

BALANCE
2004-05

41818.97

5608.28

7.46

2005-06

52476.57

6997.79

7.50

2006-07

71681.76

5189.08

13.81

2007-08

77425.80

4431.55

17.47

2008-09

59810.74

2697.30

22.17

2009-10

78726.00

3035.00

25.94

TABLE: 29
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. Cash turnover ratio is kept on increasing from the year 2004-05 to 2009-10.
2. There is a constant growth in increase.
1.2 CASH HOLDING PERIOD: (Rs. IN MILLIONS)
YEAR

DAYS

CTR

CASH HOLDING
PERIOD

2004-05

360.00

7.46

48.00

2005-06

360.00

7.50

48.00

2006-07

360.00

13.81

26.00

2007-08

360.00

17.47

21.00

2008-09

360.00

22.17

16.00

360.00

25.94

14.00

2009-10

TABLE: 30
(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. From the table given above in 2004-05 and 2005-06 the cash holding period is
very high 48days.
2. But from 2006-07 to 2009-10 it is decreased from 26 days to 14 days.

II. TO ANALZE LIQUIDITY:


1. CASH RATIO: (Rs. IN MILLIONS)
YEAR

CASH

CURRENT

CASH RATIO

LIABILITIES
2004-05

7966.82

11656.67

0.68

2005-06

6028.76

14085.16

0.43

2006-07

4349.39

17558.55

0.25

2007-08

4513.70

22719.39

0.20

2008-09

880.84

21369.46

0.04

2009-10

5189.20

29607.56

0.18

TABLE: 31

(SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. From the above table it is clear that cash ratio that is cash availability is
decreasing from year by year.
2. In the year 2008-09 it is just 0.04.

III. TO ANALYZE STRUCTURE:


1. CASH TO CURRENT ASSETS: (Rs. IN MILLIONS)
YEAR

CASH

CURRENT ASSETS

CASH TO CA
RATIO

2004-05

7966.82

21572.63

0.37

2005-06

6028.76

22324.13

0.27

2006-07

4349.39

26977.14

0.16

2007-08

4513.70

28752.58

0.16

2008-09

880.84

31656.16

0.03

2009-10

5189.20

41403.10

0.13

TABLE: 32
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART:29
INFERENCE:
From the above table it is clear that percentage of cash in current assets is very

less and decreasing from year by year.


In 2008-09 it is just 3%.
4.3 OPERATING CYCLE:
Operating Cycle = Raw Material Holding Period

WIP Holding Period

FG Holding Period

Debtors Collection Period

Creditors Collection Period


(Rs. IN MILLIONS)
WIP
YEAR

RM HP

2004-05

25.00

2005-06

HP

OPERATING
FG HP

DCP

CCP

8.00

21.00

37.00

65.00

26.00

22.00

9.00

23.00

30.00

58.00

26.00

2006-07

22.00

7.00

28.00

24.00

56.00

25.00

2007-08

25.00

6.00

30.00

21.00

72.00

10.00

2008-09

40.00

7.00

43.00

40.00

98.00

32.00

2009-10

38.30

12.24

34.85

45.28

92.54

38.13

TABLE 33
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART:30
INFERENCE:
From the table given above it is clear that,
In 2007-08 it is very low that is 10. It is best one.
In 2009-10 it is increased from 10 to 38.
There is a rapid change in operating cycle.

CYCLE

Chapter 5
ESTIMATION OF WORKING CAPITAL
1. TIME SERIES ANALYSIS

2. LEAST SQUARES METHOD

3. FORECASTS

4. ESTIMATION OF WORKING CAPITAL

5.1 TIME SERIES ANALYSIS:


Time series refer to a series in which one variable is time. A time series is an
arrangement of statistical data in accordance to the time of occurrence or in a
chronological analysis is done primarily for the purpose of making forecasts for
future and also for the purpose of evaluating past performances.

5.2 METHOD OF LEAST SQUARES:


Let us assume Y=a+ (b*X)
Where,
a= Y/n;
And b=XY/(X*X)
Here we are taking for 5years that is 2005-06 to 2009-10.
So the value of n= no: of years
So, n=5.
The base year I am considering for forecasting purpose is 2007-08.
So the value of X is = zero for 2007-08.
Here I am forecasting the values for the year 2010-11.

5.3 FORECASTINGS FOR 2010-11:

II. ESTIMATED SALES PERFORMANCE :(Rs. IN MILLIONS)


YEAR

SALES(Y)

X*X

X*Y

Ye=a+bX

2005-06

52476.57

-2.00

4.00

-104953.14

68024.17

4062.78

59898.61

2006-07

71681.76

-1.00

1.00

-71681.76

68024.17

4062.78

63961.39

2007-08

77425.80

0.00

0.00

68024.17

4062.78

68024.17

2008-09

59810.74

1.00

1.00

59810.74

68024.17

4062.78

72086.95

2009-10

78726.00

2.00

4.00

157452.00

68024.17

4062.78

76149.73

total

340120.87

0.00

10.00

40627.84
68024.17

4062.78

80212.51

2010-11

0.00

3.00

TABLE 34
(SOURCE: ANNUAL REPORTS OF COMPANY)

CHART:31
INFERENCE:
The estimated value of sales for the year 2010-11 is 80212.51
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
II. FORECASTING OF CURRENT ASSETS:
1. INVENTORY: (Rs. IN MILLIONS)
YEAR

INVENTORY

X*X

X*Y

Ye=a+bX

(Y)
2005-06

9025.61

-2.00

4.00

-18051.22

12330.10

1731.05

8868.00

2006-07

10703.21

-1.00

1.00

-10703.21

12330.10

1731.05

10599.05

2007-08

12239.14

0.00

0.00

12330.10

1731.05

12330.10

0.00

2008-09

13300.14

1.00

1.00

13300.14

12330.10

1731.05

14061.15

2009-10

16382.40

2.00

4.00

32764.80

12330.10

1731.05

15792.20

total

61650.50

0.00

10.00

17310.51
12330.10

1731.05

17523.25

2010-11

3.00

TABLE: 35

CHART: 32
INFERENCE:
The estimated value of inventory for the year 2010-11 is 17523.25
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
The accuracy of forecasting is very good

2. CASH: (Rs. IN MILLIONS)


YEAR

CASH(Y)

X*X

X*Y

Ye=a+bX

2005-06

6028.76

-2.00

4.00

-12057.52

4192.38

-514.77

5221.91

2006-07

4349.39

-1.00

1.00

-4349.39

4192.38

-514.77

4707.15

2007-08

4513.70

0.00

0.00

4192.38

-514.77

4192.38

2008-09

880.84

1.00

1.00

880.84

4192.38

-514.77

3677.61

2009-10

5189.20

2.00

4.00

10378.40

4192.38

-514.77

3162.84

total

20961.89

0.00

10.00

-5147.67
4192.38

-514.77

2648.08

2010-11

3.00

0.00

TABLE: 36

CHART: 33
INFERENCE:
The estimated value of cash for the year 2010-11 is 2648.08
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
Only in 2007-08 accuracy is less.

3. SUNDRY DEBTORS: (Rs. IN MILLIONS)


YEAR

SUNDRY

X*X

X*Y

Ye=a+bX

DEBTOR
(Y)
2005-06

4243.37

-2.00

4.00

-8486.74

6606.16

1630.55

3345.07

2006-07

5228.75

-1.00

1.00

-5228.75

6606.16

1630.55

4975.62

2007-08

3758.35

0.00

0.00

6606.16

1630.55

6606.16

2008-09

9579.74

1.00

1.00

9579.74

6606.16

1630.55

8236.71

2009-10

10220.60

2.00

4.00

20441.20

6606.16

1630.55

9867.25

total

33030.81

0.00

10.00

16305.45
6606.16

1630.55

11497.80

2010-11

0.00

3.00

TABLE: 37

CHART:34
INFERENCE:
The estimated value of sundry debtors for the year 2010-11 is 11497.80

Ye=a+bx is forecasted values for all 5 years.


The above chart shows the accuracy of forecasting.
Only in the year 2007-08 forecasting accuracy is less.

4. LOANS AND ADVANCES: (Rs. IN MILLIONS)


YEAR

LOANS

&

X*X

X*Y

Ye=a+bX

ADVANCE(Y)
2005-06

3026.39

-2.00

4.00

-6052.78

7092.72

1435.61

4221.51

2006-07

6695.79

-1.00

1.00

-6695.79

7092.72

1435.61

5657.11

2007-08

8241.39

0.00

0.00

7092.72

1435.61

7092.72

2008-09

7895.44

1.00

1.00

7895.44

7092.72

1435.61

8528.33

2009-10

9604.60

2.00

4.00

19209.20

7092.72

1435.61

9963.93

total

35463.60

0.00

10.00

14356.07
7092.72

1435.61

11399.54

2010-11

0.00

3.00

TABLE: 38

INFERENCE:
The estimated value of loans and advances for the year 2010-11 is 11399.54
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.

III.CURRENT LIABILITIES:
1. LIABILITIES: (Rs. IN MILLIONS)
YEAR

LIABILITIE X

X*X

X*Y

Ye=a+bX

S(Y)
2005-06

11468.95

-2.00

4.00

-22937.90

18372.32

3107.58

12157.16

2006-07

16516.25

-1.00

1.00

-16516.25

18372.32

3107.58

15264.74

2007-08

19267.08

0.00

0.00

18372.32

3107.58

18372.32

2008-09

18688.64

1.00

1.00

18688.64

18372.32

3107.58

21479.89

2009-10

25920.65

2.00

4.00

51841.30

18372.32

3107.58

24587.47

total

91861.58

0.00

10.00

31075.79
18372.32

3107.58

27695.05

2010-11

0.00

3.00

TABLE: 39

CHART: 36
INFERENCE:
The estimated value of liabilities for the year 2010-11 is 27695.05
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
The accuracy of forecasting is very good.

2. PROVISIONS: (Rs. IN MILLIONS)


YEAR

PROVISIO

X*X

X*Y

Ye=a+bX

NS(Y)
2005-06

2616.21

-2.00

4.00

-5232.42

2695.71

377.99

1939.73

2006-07

1042.30

-1.00

1.00

-1042.30

2695.71

377.99

2317.72

2007-08

3452.31

0.00

0.00

0.00

2695.71

377.99

2695.71

2008-09

2680.82

1.00

1.00

2680.82

2695.71

377.99

3073.70

2009-10

3686.91

2.00

4.00

7373.82

total

13478.55

0.00

10.00

3779.92

2010-11

3.00

2695.71

377.99

3451.69

2695.71

377.99

3829.68

TABLE: 40

INFERENCE:
The estimated value of provisions for the year 2010-11 is 3829.68.
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
For this forecasting accuracy is less.
5.4 ESTIMATION OF SCHEDULES OF CHANGES IN WORKING
CAPITAL: (Rs. IN MILLIONS)
2010

2011

inventories

16382.40

17523.25

1140.85

sundry debtors

10226.90

11497.80

1270.90

cash and bank balances

5189.20

2648.08

9604.60
41403.10

11399.54

liabilities

25920.60

27695.05

1774.45

provisions

3686.90

3829.68

142.78

(B)

29607.50

31524.74

PARTICULARS

INCREASE

DECREASE

CURRENT ASSETS

loan & advances


(A)

2541.12
1794.94

43068.67

CURRENT
LIABILITIES

(A-B) WORKING

11795.60

11543.93

CAPITAL
increasing in WC
TOTAL

11795.60

251.67

251.67

11795.60

4458.36

4458.36

TABLE: 41
INFERENCE:
Estimation shows that there is a increase in current assets.
Estimation shows that there is a increase in current liabilities.
The entire table shows the estimation of schedule of changes of working
capital.

Chapter 6
SUMMARY OF FINDINGS SUGGESTIONS

FINDINGS:
6.1 STATEMENTS SHOWING SCHEDULE OF CHANGES IN WORKING
CAPITAL:
1. There has been increase in the working capital for the year 2004-05.
2. There has been decrease in the working capital for the year 2005-06.
3. There has been increase in the working capital for the year 2006-07.
4. There has been decrease in the working capital for the year 2007-08.
5. There has been increase in the working capital for the year 2008-09.
6. There has been increase in the working capital for the year 2009-10

6.2 WORKING CAPITAL RATIO ANALYSIS:


1) To study overall efficiency:
Net working capital of Ashok Leyland Ltd is maintained balanced in all years.
The working capital turnover ratio of Ashok Leyland Ltd is increasing from
200-05 to 2007-08. But suddenly there is a dip in 2008-09.

2) To study the structure of working capital:


The portion of current assets in total assets is reducing year by year.

CL to TL ratio is increasing from 2004-05 to 2007-08.There is a decrease in


2008-09.But company is capable of recovering in 2009-10. 2007-08 has
highest ratio.

3) To study the liquidity of working capital:


Here industry ratio of current ratio is 1.55. Except in 2007-08 remaining all
years companys current ratio is almost near to industry average ratio. In the
year 2006-07 company had power to affect the industry.
Here industry ratio of liquid ratio is 1.07. In 2004-05 it is higher and then
started to decline slowly up to 2007-08. In 2008-09 it started increasing and
came near to the industry average.

4) To study the profitability ratios:


From the table shown gross profit of the firm is satisfactory in all the years
except in 2005-06. But it was recovered very soon by next year and it is still
doing well.
From the data given in the above table it is clear that the net profit of the
company is almost maintained constant except in the year 2008-09. Due to
market slow down the net profit of the company effected.

6.3 MANAGING WORKING CAPITAL:


1) INVENTORY MANAGEMENT:
Raw materials consumed are increasing from year by year.
WIP increased in first 2 years and then started decreasing. But 2009-10 it
again shot up
FG is in increasing condition. There is a rapid change in the year 2005-06.
Total inventory is increasing from year to year. There is rapid change in the

year 2005-06.
In 2004-05 raw materials consumption is the major part of inventory.
In 2005-06 finished goods is the major part of inventory. This was a good sign
to firm.
In 2006-07 finished goods is high and there was an equal ratio of change in
raw materials and finished goods up to 2007-08.
In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
In 2009-10 finished goods is same as previous year but WIP has increased.
During the 2004-05 the company has very high inventory ratio of 7.78, which
means more capital is being locked up in the inventory.
But from the year 2005-10 the ratio was decreased from 7.14 to 4.42.
Inventory holding period was good from 2004-05 to 2007-08. But in 2008-10
it has just increased.
In 2006-07 RM TR is maximum.
From 2004-05 to 2006-07 it was increased.
From 2006-07 to 2008-09 it was decreased.
Raw material holding period is constant in all years.
But it was slightly increased in 2008-09.
In 2007-08 WIP TR is highest. Remaining all years it was similar.
In 2005-06 it is lowest.
WIP holding period is highest in 2009-10.
WIP holding period is lowest in 2007-08.
Finished goods turnover ratio is decreasing from 2004-05 to 2008-09.
2008-09 is the lowest and 2004-05 is the highest.
Finished goods holding period is highest in 2008-09.
Finished goods holding period is lowest in 2004-05.

In 2004-05, 26% of current assets are inventory. It was the least.


In 2007-08, 43% of current assets are inventory. It was highest.

2) RECEIVABLES MANAGEMENT:
Receivables turnover ratio is highest in 2007-08.
Receivables turnover ratio is lowest in 2009-10
Receivables management in Ashok Leyland is very efficient. From 2004-05 to
2007-08 debtors collection period was decreasing.
But in the year 2009-10 the collection period increased slightly.
From 2004-05 to 2007-08 the investment on receivables is constant.
In the year 2008-09 it is slightly increased.
In year 2009-10 it increased up to 50 %.
2006-07 year has highest creditor turnover ratio.
2008-09 year has lowest creditor turnover ratio.
In the year 2006-07 creditors collection period is low 56.
In the year 2008-09 the creditors collection period is very high 98.
From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year. But in the year 2008-09 it is the highest.

3) CASH MANAGEMENT:
Cash turnover ratio is kept on increasing from the year 2004-05 to 2009-10.
There is a constant growth in increase.
From the table given above in 2004-05 and 2005-06 the cash holding period is
very high 48days.
But from 2006-07 to 2009-10 it is decreased from 26 days to 14 days.
From the above table it is clear that cash ratio that is cash availability is

decreasing from year by year.


In the year 2008-09 it is just 0.04
From the above table it is clear that percentage of cash in current assets is very
less and decreasing from year by year.
In 2008-09 it is just 3%.

6.4 OPERATING CYCLE:


From the table given above it is clear that,
In 2007-08 it is very low that is 10. It is best one.
In 2008-10 it is increased from 10 to 38
There is a rapid change in operating cycle.

6.5 TREND ANALYSIS:


It is forecasted that there is an increase in sales of the year 2011 when
compared to the year 2010.
It is forecasted that there is an increase in inventory of the year 2011 when
compared to the year 2010.
It is forecasted that there is a huge decrease in cash and bank balances of the
year 2011 when compared to the year 2010.
It is forecasted that there is a increase in sundry debtors of the year 2011 when
compared to the year 2010.
It is forecasted that there is an increase in loans and advances of the year 2011
when compared to the year 2010
It is forecasted that there is an increase in current assets of the year 2011 when
compared to the year 2010.
It is forecasted that there is an increase in current liabilities of the year 2011
when compared to the year 2010.

RECOMMENDATIONS:
Recommendations can be use by the firm for the betterment increased of the firm
after study and analysis of project report on study and analysis of working capital.

I would like to recommend.

Company should raise funds through short term sources for short term
requirement of funds, which comparatively economical as compare to long
term funds.
Company should take control on debtor s collection period which is major part
of current assets.
Company has to take control on cash balance because cash is non earning
assets and increasing cost of funds.
Company should reduce the inventory holding period with use of zero
inventory concepts.
Company should make a policy in respect of investment of excess cash, if
any; in marketable securities and overall cash policy should be introduced.
Management should develop a credit policy and proper self realization system
from customers so that efficient and effective management of accounts
receivable can be ensured. This will significantly improve the profitability and
liquidity of the company.

Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company is increasing sales volume per year which supported to
company to increase the market share year by year.

Chapter 7
CONCLUSION

CONCLUSION:
Working capital management is important aspect of financial management. The
study of working capital management in Ashok Leyland ltd , has revealed that the
current ration was as per the standard industrial practice but the liquidity position
of the company showed an increasing trend. The study has been conducted on
working capital ratio analysis, working capital leverage, working capital
components which helped the company to manage its working capital efficiency
and affectively.

Working capital of the company was increasing and showing positive working
capital per year. It shows good liquidity position.

Positive working capital indicates that company has the ability of payments of
short terms liabilities.

Working capital increased because of increment in the current assets is more


than increase in the current liabilities.

Companys current assets were always more than requirement it affect on


profitability of the company.

Current assets are more than current liabilities indicate that company used
long term funds for short term requirement, where long term funds are most
costly then short term funds.

Current assets components shows sundry debtors were the major part in

Current assets it shows that the inefficient receivables collection management.


The company has a good operating cycle, liquidity position, and has sufficient
funds to repay its liabilities. It is being found that components of working capital
like inventory management, receivables management and cash management was
managing effectively. It is being found that the production target of the company
has been achieved in time; thereby the profit percentage of company is good.

The company is matured one and it has contributed towards the countries growth
and development and will also continue to perform and contribute to the whole
nation. To conclude company has sound and effective management of working
capital, which helps them to control the cost and increase the profit.

Chapter 8
Appendices

BIBLIOGRAPHY:
BOOKS REFERRED:
M.Y. KHAN AND P.K. JAIN 5th EDITION-MANAGEMENT
ACCOUNTING NOIDA:-- Tata McGraw-Hill Publication

I. M. PANDEY 2008 - FINACIAL MANAGEMENT- NEW DELHI;-Vikas Publishing House Pvt Ltd.

HRISHIKESH BHATTACHARYA 2007 WORKING CAPITAL


MANAGEMENT NEW DELHI: Prentice-Hall of India P.Ltd.

WEBSITES:
Available from : www.ashokleyland.com [accessed on 15 june2010]
Available from : www.mentormyproject.com [accessed on 15 june2010]
Available from : www.scribd.com [accessed on 15 june2010]
Available

from

www.managementparadise.com[accessed

june2010]
Available from : www.bizstats.com [accessed on 15 june2010]
Available from : www.findarticles.com [accessed on 15 june2010]
Available from : www.britannica.com [accessed on 15 june2010]

on

15

Available from : www.indiainfoline.com [accessed on 15 june2010]


Available from : www.bizresearchpapers.com [accessed on 15 june2010]
Available from : www.oppapers.com [accessed on 15 june2010]
Available from : www.allbusiness.com [accessed on 15 june2010]
Available from : www.docstoc.com [accessed on 15 june2010]

ANNEXURE
BALANCE SHEET:
(Rs.IN
MILLIONS)
PARTICULARS

2004-05

2005-06

2006-07

2008-08

2008-09

2009-10

Capital

1,189.29

1,221.59

1,323.87

1,330.34

1,330.34

1,330.34

Reserves And

10,489.36

12,902.94

17,621.81

20,159.48

33,408.65

35,357.23

11,678.65

14,124.53

18,945.68

21,489.83

34,738.99

36,687.57

Secured Loans

2,634.96

1,846.91

3,602.16

1,902.40

3,044.13

7,115.66

Unsecured Loans

6,169.10

5,072.37

2,801.82

6,972.61

16,537.31

14,923.32

8,804.06

6,919.28

6,403.98

8,875.01

19,581.44

22,038.98

Source Of Funds
Shareholders Fund

Surplus

Loan Funds

Deferred
Liability

765.48

Deferred Tax

1,708.48

1,796.89

1,969.29

2,538.20

2,634.37

3,845.36

Liability-Net
Foreign Currency

38.41

(124.50)

Monetary Item
Translation
Difference-Net
Total

22,191.19

22,840.70

27,318.95

32,903.03

56,993.21

63,212.89

20,022.50

21,384.99

26,201.97

29,424.38

49,532.72

60,186.33

11,084.04

11925.28

13131.64

14,168.88

15,541.56

17,690.74

Net Block

8938.46

9432.71

13070.33

15,255.50

33,991.16

42,495.59

Capital Work-In-

851.55

1414.17

2374.91

5,292.45

9,982.89

5614.69

9790.01

10846.88

15445.24

20,547.95

43,974.06

48,110.28

2291.9

3681.78

2210.94

6,098.99

2,635.57

3261.54

5680.81

9025.61

10703.21

12239.14

13,300.14

16382.4

4587.66

4243.37

5228.75

3758.35

9,579.74

10220.61

7966.82

6028.76

4349.39

4513.7

880.836

5189.2

Application Of
Funds
Fixed Assets
Gross Block
Less
Depreciation

Progress

Investments
Current Assets,
Loans And
Advances
Inventories
Sundry Debtors
Cash And Bank
Balances

Loans And

3337.34

3026.39

6695.79

8241.39

7,895.44

9604.62

21572.63

22324.13

26977.14

28752.58

31,656.14

41396.83

Liabilities

9611.87

11468.95

16516.25

19267.08

18,688.64

25920.65

Provisions

2044.8

2616.21

1042.3

3452.31

2,680.82

3686.91

11,656.67

14085.16

17558.55

22,719.39

21,369.46

29607.56

9915.96

8238.97

9418.59

6033.187

10,286.68

11789.27

193.32

73.07

244.18

222.91

Advances

Less Current
Liabilities And
Provisions

Net Current
Assets
Miscellaneous

96.88

51.74

Expenditure
Total

22,191.19

22,840.70

27,318.95

32,903.03

(Source: annual reports of the company)

56,993.21

63,212.83