SUMMER TRAINING REPORT

ON
“CASH MANAGEMENT”
IN

Submitted in partial fulfillment of the requirement of degree in

BACHELOR OF BUSINESS ADMINISTRATION

SESSION 2008-2011

SUBMITTED TO SUBMITTED BY

Mr. RAVI KUMAR SANDEEP NAGAR

FINANCE FACULTY B.B.A (VTH SEMESTER)

College Roll No. :

Registration no :

INSTITUTE OF MANAGEMENT & TECHNOLOGY

(Approved by AICTE & affiliated to Maharishi Dayanand University, Rohtak)
Near Sai Dham, Tigaon Road, Faridabad- 121002
NBA-AICTE Accredited Institute.
 TABLE OF CONTENTS

 ACKNOWLEDGE MENT

 PREFACE

 STUDENT DECLARATION

 OBJECTIVE OF THE TRAINING

 ABOUT TRACTOR INDUSTRY

• INTRODUCTION

• FUTURE OF TRACTOR INDUSTRY

• MARKET SHARE OF THE TRACTOR INDUSTRY

• TRACTOR INDUSTRY PERFORMANCE

 COMPANY’S PROFILE

• ESCORTS SYMBOL

• MISSION

• QUALITY POLICY

• BACKGROUND OF THE BUSINESS

• BOARD OF DIRECTORS

• OUTLINE OF ESCORTS

• SUBSIDERIES

• BANKERS

 AGRI MACHINERY GROUP

• INTRODUCTION

• AGRI MACHINERY GROUP CONTRIBUTION

2
 • MODERNIZATION OF AGRI- MACHINERY GROUP

• PRODUCTS

• COMPANY’S FUTURE

 CASH MANAGEMENT

• INTRODUCTION

• CASH FLOW MANAGEMENT

• CASH MANAGEMENT SYSTEM

• IMPORTANCE OF CASH MANAGEMENT

• CASH MANAGEMENT STRATEGIES

• CASH OUTFLOW

• CASH INFLOW

 CASH FLOW STATEMENT

• IMPORTANCE

• DAILY CASH FLOW REPORT

 CASH BUDGET

 BANK RECONCILIATION

 CASH RATIOS

 RECEIVABLES MANAGEMENT

 PAYABLE MANAGEMENT

 RECOMMENDATIONS

 LIMITATIONS

 BIBLIOGRAPHY

3
 ANNEXURES

ACKNOWLEDGEMENT

At the outset I would like to thank the Management of ESCORTS AGRI

MACHINERY GROUP for the wholehearted co-operation and guidance extended by
them, which made my summer training project possible.

I would like to thank Mr. Bharat Madan (Chief Financial Officer), Mr. S.K
Aggarwal (Head Employees Relations), and Mrs. Kiran Chopra (Chief Secretary &
System Manager) for providing me this opportunity to carry out the project.

I am very grateful to my project guide Mr.pulak sinha (finance Manager;

Finance Department) Escorts Limited (AMG PLANT-1) for his support and
suggestions, which led to the completion of this project.

I would also like to thank Mr. B.B khanna , Mr. M.M. Halder , Mr. Nitin
Aggarwal , Mr. Vijay Nehra , Mr. Rajeev Khandelwal , Mr. Sunil Bhatia, Mr. R.N
katyal, Mr.Ajay Wadhawan , Mrs Saroj and Mr. R.K. Kukreja and other staff
members for their support and cooperation.

4
 STUDENT DECLARATION

I, student of “Bachelor in Business Administration” M.D UNIVERSITY, ROHTAK

hereby declare that the dissertation/thesis entitle ‘Study of Cash Management’ of the
Escort Agri Machinery Group (AMG) submitted in fulfillment of the training; is my
original work and is not submitted for the award for any other degree, fellowship or
similar title or prize.

SANDEEP NAGAR

5
 EXECUTIVE SUMMARY

If the development capital is what establishes a business, cash flow is what keeps
it going. One of the most common downfalls of business is unexpectedly high
running cost. What is important is not just the size of operating costs, but the cash
flow-that is when money has to be paid out in relation to the stream of income
arriving in. Thus cash flow management is of prime importance.

Escorts Ltd. is the holding company of the Escorts Group. Post restructuring,
agri - machinery or tractors have become the focus area of operations. Other business
i.e. two- wheelers, IT, Telecom, construction equipment, are controlled through
subsidiaries and joint venture. Post hive off of its pistons business to a joint venture
with a foreign collaborator, Escorts is focusing on its ‘core competence’ of tractors.
Escorts have strong hands in house engineering skills, a wide distribution/service
network and brand franchise.

The project is small attempt to study the cash management in Escorts Agri -
Machinery group. Added to this fact that mechanization level in India is currently
very low as compared to the world standards.

To analyze the performance, published balance sheets of Escorts Limited,

CASH FLOW STATEMENTS are been used. This project report is based on
financial data up to 2009-10 only. The financial year for escorts is from 01/10/20XX
to 31/09/20XX. Escorts is maintaining the following records which is indicative of
its professional approach:

 Maintaining proper set of accounting records.

 Maintaining an accurate cash book with bank statement

 Daily cash inflow & cash outflow.

6
  Marking regular forecast of cash requirement based upon planed sales
volume.

 Ageing of debts/credits with comparisons to previous month

OBJECTIVES OF THE TRAINING

It is well known fact that we remember 20% of what we hear, we remember 40% of
what we see but we remember 75% of what we do.

Undergoing M.B.A is the first step to prepare myself as a manager and visualize the
ever-dynamic business world and my main objective while taking up the training was
to familiarize myself with the working of the finance department of Escort Agri
Machinery Group (AMG)

To present study in Escort Agri machinery group mainly focus on the following:

 Resources of cash inflow of the company.

 Cash flow factors which have effect of cash inflow.

 Cash flow statement in the company.

 Cash flow management in the company

7
 ABOUT THE TRACTOR INDUSTRY

INTRODUCTION

India’s long-term economic prospects, even today, depend to a large extend on the
agricultural sector, which contributes a quarter to the gross domestic project and
provides livelihood to 2/3 of the population. A gradual and perceptible shift from
subsistence farming to enterprise farming is harbinger of modernization of the
agriculture economy and this will increase the contribution of the sector to the overall
GDP in the time to come. The central government as well as several state
governments is giving due priority to agriculture and rural developments.

A tractor is a product, which has maximum utility in the agricultural sector. The
tractor industry is segmented on the basis of the power of the tractor engine measured
in terms of horsepower (HP). The maximum consumption is for 30-40 HP tractors.
With the increase in the availability of low cost finance for longer tenures, the sale of
the tractors is expected to go up. The new trend observed in this sector is the shift in
consumption from majority in the northern states to other parts of the country, too.
The soil in the northern states is alluvial in nature and thus requires a low powered
tractor for tilling it. However, states located in the western and southern parts of the
country where the soil being late rite or black etc. is harder and needs high-powered
tractors.

Tractor industry in India has passed through various hazes before reaching
where it is today. During 1945 to 1960 demand was met entirely through import.
There were 37,000 tractors by 1960. Production began in 1861 with five
manufactures producing a total of 880 units per year. By 1965 it increased to over

8
5,000 units per year and by 1970 annual production rose to more than 20,000 units.
Six new manufacturing were established during 1971-1980. In 1971 Escorts also
started local manufacturing of Ford Tractors in collaboration with Ford, UK. During,
1990 annual production rose to 1, 40,000 units making India an exporter to countries,
mainly to Africa. After De-licensing of tractor industry, production exceeded 2,
55,000 units in 1997.

The growth of the industry over the last three decades resulted in the entry of
several new entrants including all the major multinational companies. The industry
now consists of 14 manufactures with an aggregate installed capacity of
approximately 4.50 lack tractors. In the tractor industry, following are the key
manufacturers:

 Mahindra& Mahindra Limited (M&M),

 Gujarat Tractors Limited,

 Tractors and Farm Equipment Limited,

 Hindustan Machine Tools Limited,

 Bajaj Tempo Limited

In 1999-2000. Since then, however the industry declined to a level of

1.72 lack tractors in the year 2002-2003, a decline of 33.3% over three years.

Despite the step decline in the industry, Escorts consciously decided to

aggressively reduce channel inventory further by approximately 3,500 units reduces
in the previous year. This has not only impacted their revenue and profit adversely
but has also enabled the company to balance the cash flow of company effectively.

Tractors form an integral part of farm mechanization and have a crucial role to
play in increasing agriculture productivity. In India, 90% of the tractors are financed
by banks- credit at concessional rates. Availability of credit therefore is the most
crucial factor, impacting tractor demand. Increased use of irrigation facilities, shift
towards multi-cropping, consolidation of lands holdings, promotion of cooperatives
and higher investment in agriculture also contributes to higher tractor demand.

9
 Future of Tractor industry

The tractor industry in India has been on a growth trajectory since the second
half of 2003-04, after going through a minimum variation for consecutive years. The
key factors driving this growth are increasing farm incomes, aggressive financing
resulting in easy availability of low-cost credit, sharp inventory correction and strong
export growth.

The demand in tractor industry is expected to grow mainly due to the

agricultural sector, with the expected increase in agricultural production. Also, the
shift in trend for demand towards higher HP tractors is expected to continue. This will
be further strengthened by the launch of several new models. In the next 2-3 year,
demand for tractors is expected to increase significantly in the eastern states, where
traditionally, tractor usage has been low. Exports are expected to increase
significantly as several Indian players are targeting the “hobby farming” segment in
the U.S, which is considerably large. Also, tractors of most Indian manufacturers
comply with the emission standards accepted in the U.S. Most exports are likely to be
through overseas partnerships or joint ventures. McKinley has also forecasted tractor
population requirements of 75 lacs over the next 18 years vs. current population of 26
lacs. The extension of the 150 per cent deduction on R&D expenditure up to march
10
31, 2009, in the Budget 2009-010 will also benefit the industry in terms of new
product development besides increase in the area under irrigation under the Bahrat
Nirman Project and the micro irrigation scheme.

MARKET SHARE OF TRACTOR

INDUSTRY

For the year 2009-2010

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 ESCORTS

7.26% 13.65%
1.30%
6.63% MAHINDRA
&
MAHINDRA
8.14% PTL

1.37%
TAFE
28.17%
8.82%
HMT
1.36%

15.20% SONALIKA
8.00%

FML

L&T

FORD NEW
HOLLAND

OTHERS
TRACTOR INDUSTRY PERFORMANCE

EICHER
COMPANY 2006-2007 2008-2009 2009-2010

ESCORT 11138 23200 20950

12
FARMTRAC 18287 32800 26900

TOTAL(ESCORT + 29425 56000 47850

FARMTRAC)

MAHINDRA & MAHINDRA 85028 102500 98700

PTL 31396 30010 28040

TAFE 52400 53400

EICHER 27700 25450

HMT 7900 6500 4770

SONALIKA 32017 36200 30920

BTL(FML) 4464 5050 4820

L&T 19951 19720 28530

FORD NEW HOLLAND 13214 19400 23250

8450 7195 4520

TOTAL INDUSTRY 302435 362675 350300

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 COMPANY’S

PROFILE

ESCORTS SYMBOL

14
The Escorts symbol means more than a seen by eye. It has been prepared with certain
objective in mind and is symbol in more than one way.

The philosophy behind Escorts and the ‘e’ in the Escorts is “enterprise”. The hexagon
is a symbol of productivity. Precision when interposed as a nut. It symbolizes a craft
man ship and mending productivity. The sprains super imposed on the hexagon
represent the workers and the people of Escorts. This forms the letter ‘E’ the first of
Escorts a company even of more changing unveiling the future

MISSION

For an Enterprise business mission embodies of its endeavor, which acts as a

guiding light for continuous development & growth.

Mission of ESCORTS is:

15
 Engineering Changes through core competency for greater synergy reinforcing
bonds with customers & establishing powerful symbiotic relationship with
international allies, preparing global market. The company wants to make a lasting
difference to its shareholders, its customers, its business associates, its employee and
the country as a whole. The company also gives better quality and better technology
to customer and treats every customer as “special” to build respect for, and loyalty to,
Escorts.

QUALITY POLICY

We shall strive to continuously improve to meet the ever – rising expectation of

our customers at the lower cost. Each one of us must fulfill the need of our customer,
both internal and external with the highest degree of commitment thereby creating a
quality organization geared to ensure total customer satisfaction and the sustained
health and prosperity of our business.

Customer Orientation: To fulfill the requirement of our internal and external

customer.

Process Orientation: To optimize and harmonize interrelated process rather than

individual function.

Preventive Behavior: To prevent the mistake to happen.

BACKGROUND AND BUSINESS

The Escorts Group, with Escorts Limited as its flagship company, is among India’s
leading corporations operating in the diverse field of agri machinery, construction &
material handling equipment, automotive & railway ancillaries information
technology and financial services. The group has 15 modern manufacturing facilities

16
& an extensive marketing network spread across the country. The genesis of Escorts
goes back to 1944 when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launched
a small agency house, Escorts Agents Ltd., in Lahore. The company’s principal
activities were trading and representing leading overseas manufacturers for the sale of
their products in India. One of its dealerships was for the “Massey Ferguson” brand
of tractors.

In December 1959, Escorts agents ltd. was converted into a public limited
company and was renamed as Escorts Limited (EL). In January 1960, EL decided to
set up manufacturing facilities for making tractors in India under the “Escorts” brand
name in the 25-40 Horsepower categories. EL promoted Escorts Tractors Limited in
1969 as joint venture with Ford Motor Company of USA for the manufacturing of
‘Ford’ series of tractors. The tractors manufactured were in the 45-50 HP range and
ETL became the market leader in this segment with a share of above 50%.
Consequent to FMC’s disposal of tractors operations to Ford New Holland, USA,
Ford new holland acquired the shares of FMC in ETL. Following an agreement in
1995 to end the joint venture association, EL acquired the entire stake of ford new
holland in August 1995, making escorts tractors ltd. a subsidiary of Escorts Ltd.

Over the years, Escorts has sured ahead and evolved into one of India’s largest
conglomerates. Till 1993-94, all these activities were being carried out in various
divisions of EL. EL undertook a major restructuring exercise between 94-98 spinning
off the divisions into separate companies.

The restructuring exercise-comprised consolidation of the agri-machinery

business by merger of ETL with EL and having off various divisions into separate
companies. Biwheeler division was spun off to Escorts Yamaha Motors Ltd.,
construction equipment division to Escorts construction equipment Ltd.,
telecommunication equipment division to Escorts communication Ltd., EL booked
gains of Rs. 2091 million over the four year period 1994-95 to 1997-98 though the
sale of these the sale of these divisions.

17
 The main products of Escorts group currently comprise of agri-machinery,
information technology, health care, financial services, railway components, auto
components, construction and material handling equipment.

BOARD OF DIRECTORS

Managing Director &Chairman Mr. Rajan Nanda

18
Joint Managing Directors Mr. Nikhil Nanda

Directors Dr. M.G.K. Menon

Dr. S.A. Dave

Dr. P.S. Pritam

Mr. S.C. Bhargava

Sr.Vice President-

Law & Company Secretary Mr. G.B. Mathur

Exec. Vice President &

Group Chief Financial Officer Mr. R.K.Budhiraja

OUTLINE ORANISATION – ESCORTS GROUP

Chairman & Managing Director – Sh. Rajan Nanda

Secretariat

Flagship Operating Division

19
 Escorts Limited Faridabad

Agri Machinery
Engineering International
Business

Corporate Center Faridabad Escorts Research Institute of

Farm
Center, Faridabad
Mechanization,
Bangalore

Personnel Finance Project Escorts Heart Research

Escorts Medical
Institute, New Delhi Center,
Faridabad

Administration and Law Export and

Security Communication

Associates Companies Subsidiary

ompanies

OUTLINE ORANISATION – ESCORTS LIMITED

Chairman & Managing Director – Sh. Rajan Nanda

Secretriat

Corporate Office Registered Office

Corporate Center, Faridabad New Delhi
20
Personnel Finance

Project Law

Administration Export and

and Security Communication

Agri Machinery Automotive

Ancillaries
Marketing Division and Railway Equipment
Division

Farmtrac Division Escorts Tractor Division

SUBSIDERIES

Escorts Asset Management Ltd.

Escorts Automotive Ltd.

Escorts Class Ltd.

Escorts Construction Equipment Ltd.

Escorts Heart Institute and Research Centre Ltd

21
Escorts Hospital and Research Centre Ltd.

Escorts Securities Ltd.

Escorts Telecommunication Ltd.

Esconet Services ltd.

Cellnext Solutions Pvt. Ltd.

I Serv India Solutions Pvt. Ltd.

Escosoft Technologies Ltd.

Escosoft Technologies (USA) Ltd.

Escosoft Technologies (UK) Pvt. Ltd.

Escosoft Singapore Pvt. Ltd.

E-Soft (Mauritius) Holdings Ltd.

Escotel Mobile Communication Ltd.

Escotel Telecommunication Ltd.

Escorts Agrimachiner

BANKERS

22
IDBI BANK.

ABN AMRO BANK N.V.

BANK OF BARODA.

CITIBANK, N.A.

DEUTSCHE BANK AG.

HONGKONG & SHANGHAI BANKING CORPORATION LIMITED.

HDFC BANK LIMITED.

PUNJAB NATIONAL BANK.

STATE BANK OF INDIA.

STATE BANK OF TRAVANCORE.

AGRI MACHINERY GROUP

23
 INTRODUCTION

Having pioneered farm mechanization in the country, Escorts has played a

pivotal role in the agricultural growth of India for over five decades. One of the
leading tractor manufacturers of the country, Escorts produces tractors in the 27-75
HP range and has already sold over 6 lakh tractors. Escorts AGRI MACHINERY
GROUP (AMG) was set up in 1960 and they rolled out their batch of tractors in 1965
under the brand name of Escorts. Today its tractors are marketed under three brand
names, viz. Escort, Powertrac and Farmtrac.

Escorts Brand of tractors is symbolic of reliability and enjoys the confidence of the
farming community for the last 40 years.

Powertrac Brand of tractors is the most fuel-efficient tractor in their respective

categories that offer excellent value for money and have helped the farmer improve
their quality of life.

Farmtrac Brand is the most powerful premium range of tractors that give maximum
productivity to the farmers.

Spanning these three brands, the company has a full range of

tractors to cater to the domestic as well as overseas markets. The
company is developing state-of-the-art highly fuel efficient engines with
the assistance of AVL of Australia and have also entered into a Joint

24
venture with CARRARO SPA of Italy for the manufacturing of
transmission and axles.

To sustain the present momentum and to realize the future goals,

Escorts has invested Rs. 60 crore towards strengthening new product.
Development programs and enhancement of R&D capabilities.
Additionally, Rs.400 crore has been invested towards modernization of
its manufacturing facilities bringing them to international standards. The
company has one of the most comprehensive distribution networks
comprising of over 500 dealership / outlets and 30 area offices spread
across the country. It has a manufacturing capacity of 75000 tractors per
annum. Escorts Agri Machinery Group is looking at forward and
backward integration through genetic engineering.

In line to their vision for becoming a major player in sub 100 HP

segment by 2011 in the global markets, they have increased their reach
from a major regional player to major global markets, which stretch from
North America to Australia covering all the continents. Despite the strict
competition by other major tractor manufactures they have been able to
gain constant volumes in the global market. Their target for this year is to
export 25% volumes of their total production volumes.

AGRI MACHINERY GROUP

CONTRIBUTION

25
AMG contribution is Almost Half of the Total Revenues of Escort Group.

AMG
23%
Auto Ancilliary
Parts
56% Railway
12%
Equipments
9%
Construction

MODERNIZATION OF

AGRI MACHINERY GROUP

Escorts Agri Machinery Group (AMG) has invested over US $7.5 million in
state of the Art & Research and Development Center. Virtual prototypes of

26
components and aggregate assemblies are made and assembled on computer
workstations using 3D technology. Their performance is checked on computers using
simulation techniques thus saving a lot of time for the end-user as well as lowering
development costs. The R&D center uses advanced 3D modeling, analysis and
simulation software for engines, transmission and vehicles. Physical prototypes are
then extensively tested for performance, durability and reliability. Facilities include a
high –technology engine laboratory featuring fully computerized test-beds with on
line control, data collection, and analysis.

PRODUCTS

27
Escorts Farmtrac
E-325 Josh F T –30
E-335 F T –35
E-335P F T –45
E-430 F T –45Live PT
E-430XL F T –50DB
E-435 F T –50
E-440(6+2 & 8+2)PT F T –60
E-440(6+2 & 8+2)XL F T –60DB
E-450 F T –60Deluxe
E-450(8+2)PT F T –60Live PT
E-450(8+2)XL F T –70

28
 COMPANY’S FUTURE

The growing domestic demand for food gains and agri products promises a very
good future for company’s business. With exemption of excise duty on tractors and
growing importance of agriculture sector in the growth of Indian economy India can
become a major exporter of agri products and increased demand both domestic and
export will call for increased yields. Tractors population today is concentrated in
10% of villages and even today 70% of the villages do not have tractor .Crisil infa has
estimated an annual demand 3.0 lacks to 3.20 lakhs of tractors by 2007-08 vs. 2.4
lakhs in 2006-07. All these show great potential for growth in the industry and thus
in the company

29
 CASH

MANAGEMENT

INTRODUCTION

Cash is the important current asset for the operation of the business. Cash is a
medium of exchange to purchase the goods and services and to discharge the
liabilities. Cash is the basic input needed to keep the business running on a
continuous basis; it is also the ultimate output expected to be realized by selling the
service or product manufactured by the firm. The firm should keep sufficient cash,
neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations
while excessive cash will simply remain idle, without contributing anything towards
the firm’s profitability. Thus a major function of the financial manager is to maintain
a sound cash position.

30
 Cash is the money which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm, and
balances in its bank accounts. Sometimes near cash terms, such as marketable
securities or bank time deposits, are also included in cash. The basic characteristic of
near cash asset is that they can readily be converted into cash. Generally, when a firm
has excess cash, it invests it in marketable securities. This kind of investment
contributes some profit to the firm.

CASH FLOW MANAGEMENT

Cash flow management is a process of monitoring, analyzing, and adjusting one’s

business cash flows. The most important aspect of cash flow management is avoiding
extended cash shortages, caused by having too great a gap between cash inflows and
outflows. Therefore, one needs to perform a cash flow analysis on a regular basis,
and use cash flow forecasting so that one can take the steps necessary to head off cash
flow problems.

Cash management involves the efficient collection, disbursement and temporary

investment of cash. The treasurer department of a company is usually responsible for
the firm’s cash management system. A cash budget, instrumental in the process, tell
us how much cash we likely to have it, and for how long.

In cash flow management I studied many statements like as follows:

Cash flow Statement

Cash Budget

31
 CASH MANAGEMENT SYSTEM

With timely information reporting a firm can generate significant income by

properly managing collections, disbursement cash balance and cash equivalents
investment,

Collection Disbursement

Cas
h

Cash
Equivalents

32
 Control Through Information Report

IMPORTANCE OF CASH

MANAGEMENT

Cash management assumes more important than other current assets because
cash is the most significant and the least productive asset that a firm holds. It is
significant because it is used to pay the firms obligations. However cash is
unproductive. Unlike fixed assets or inventories, it does not produce goods for sale.
Therefore, the aim of cash management is to maintain adequate control over cash
position to keep the firm sufficiently liquid and to excess cash in some profitable
way.

Cash management is also important because it is difficult to predict cash flow

accurately, particularly the inflows and there is no perfect coincidence between the
inflows or outflows of cash. During some periods, cash outflows will exceed cash
inflows, because payments for taxes, dividends, or seasonal inventory build up. At
other times, cash inflows will be more than cash payments because there will be large
cash sales and debtors may be realized in large sums promptly.

Cash management is significant because cash constitutes the smallest portion of

the total current assets, yet management’s considerable time is devoted in managing
it.

33
 CASH MANAGEMENT STRATEGIES

The firm should develop appropriate strategies for cash management. The firm
should evolve strategies regarding the following four facets of cash management:

Cash planning cash inflow and outflow should be planned to project cash surplus or
deficit for each period for each period of the planning period. Cash budget should be
prepared for this purpose.

Managing the cash flows the flow of cash should be properly managed. The cash
inflows should be accelerated while, as far as possible, the cash outflows should be
decelerated.

Optimum cash level the firms should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be matched to
determine the optimum level of cash balances.

Investing surplus cash the surplus cash balances should be properly invested to
earn profits. The firm should decide about the division of such cash balance between
short-term investment opportunities such as bank deposits, marketable securities, or
inter- corporate lending.

34
 CASH OUTFLOW

For cash management, the control of cash outflows, which is directly related
to organizational arrangements for budget execution, can pose more difficulties than
the control of cash inflows. However, issues related to cash management should not
be confused with issues related to the distribution of responsibilities for accounting
control and administration of the payment system. The major purpose of controlling
cash outflows is to ensure that there will be enough cash until the date payments are
due and to minimize the costs of transactions, while keeping cash outflows
compatible with cash inflows and fiscal constraints. The first condition for ensuring
that cash outflows fit fiscal constraints is good budget preparation and budget
implementation covering both cash and obligations. However, during budget
implementation, cash outflows must also be regulated through cash plans to smooth
cash outflows.

35
 CASH INFLOW

It is necessary to minimize the interval between the time when cash is received
and the time it is available for carrying out expenditure programs. Collected revenues
need to be processed promptly and made available for use. When tax collection is
done by the tax administration offices (or by Treasury offices) the administrative
organization of these offices may have to be reviewed and their equipment
modernized.

Commercial banks by virtue of the banking sector infrastructure are often able to
collect revenues more efficiently than tax offices, which should therefore focus
instead on tracking taxpayers. When revenues are collected by commercial banks,
arrangements must be defined to foster competition and ensure prompt transfer of
collected revenues to government accounts. Systems of bank remuneration through
float, which consists of authorizing the banks to keep the revenues collected for a few
days, present inconveniences. Stringent rules to ensure prompt transfers must be
established. Moreover, bank remuneration through fees is more transparent and
promotes competitive bidding. An appropriate system of penalties for taxpayers is
also an important element in avoiding delays in revenue collection.

36
 CASH FLOW STATEMENT

Meaning:

IT IS a summary of firm’s cash receipts and cash payments during period of

time.

The purpose of cash flow statement is to report a firm’s cash inflow and outflows,
during a period of time, segregated in to three categories: operating, investing and
financing activities.

The statement of cash flow explains changes in cash and cash equivalent such as
treasure bill and the activities that increase and decrease cash. The cash flow
statement may be presented using either a “direct method” (Which is encouraged by
financial accounting standards board) or an “Indirect Method” (which is likely to be
the method followed by good majority of firms). The only difference between the
direct and indirect method of presentation concern the reporting of operating
activities; the investing and financing activities section would be identical under
either method. Under the direct method, operating cash flow reported directly by
major classes of operating cash receipts (from customers) and payment (to suppliers
and employees). A separate indirect reconciliation of Net income to net cash flow
from operating activities must be provided. The reconciliation starts with reported net
income and adjusts this figure for non-cash income statement items and related
changes in balance sheet items to determine cash provides by operating activities.

37
Cash flow statement has three activities like as follow:

Operating Activities:- Shows impact of transactions not defined as investigation or

financing activities. These cash flows are generally the cash effects or transaction that
enter into the determination of net income. Thus, we see items that not all statement
users might think of as ‘operating’ flows-items such as dividends and interest
received, as well as interest paid.

Investing Activities:- Shows impact of buying and selling fixed assets or equity
securities of other entities.

Financing Activities:- Shows impact of all cash transactions with shareholders

and the borrowing and repaying transactions with lenders.

38
 IMPORTANCE

 The effects of cash and non-cash investing and financing transaction.

 A manager can assess the reason for differences between net income and net
cash flow from operating activities.

 It is also helpful for a company to generate future net cash inflows from
operations to pay debts, interest and dividends.

 It gives indication to a company’s need for external financing.

 A cash flow statement is straightforward and easy to

Understand.

 It gives a strong indication of how viable the company will be over time.

 The extent of success or failure of cash planning can be known by comparing

the actual cash statement with the budgeted cash flow statement and remedial
measures can be taken.

 It discloses the volume and the speed at which cash flows in different
segments of the business

39
 DAILY CASH FLOW REPORT

The Daily Cash Flow report is prepared with an objective to keep incessant check
on the cash flows of the firm, which includes both inflow and outflow cash. The cash
flows are planned to project cash surplus or deficit for each period i.e daily, monthly,
quarterly, semi-annual & annual basis. The framework of report highlights all the
effects, which lead to cash surplus or deficit. It is a measure, which calculates the
details of daily transaction in terms of sale and purchase, which further includes the
means through which they take place.

At Escorts-AMG, the daily cash flow report is designed in a format suiting their
requirements .The sales of tractors is their primary goal which includes exports as
well. The bills are presented for desired collection from various channels i.e dealers,
stockiest, distributors through which the tractors are supplied in the market. Besides
tractors they also deal in engines, backend, implements which are included in the
category of other receipts. The receipts are other than collections as they aren’t
generated through sales. Next come the payments, which are made in discharge of
financial obligation towards various suppliers, bank payments, excise duty, salary &
wages etc.

Through the various collections, receipts and payment, we are now in a position
to derive the surplus or deficit which is the result of above transactions. The surplus
balance shows that the collections & receipts are more than payments and vice-a-
versa in case of deficit. Though surplus is an indicator of sound financial position and
deficits the other way round, but excess surplus is also not considered healthy which
has reasons to it like inventory pile up and so on.
40
 The last component of the cash flow report is the outstanding debtors, which is
calculated by subtracting billing & collection from opening o/s of debtors in
domestic, export and other categories. This way the day to day cash transactions are
maintained through the cash flow report which leads to proper functioning of an
organization’s resources both men & material.

COMPONENTS

The annual cash flow statement at Escort- AMG is prepared for the fiscal period
commencing from 01/10/20XX to 31/09/20XX. They are also maintaining the daily
cash flow report with a purpose of keeping constant check on the daily flow of cash
i.e cash inflow and cash outflow, for different products categories, their parts and
other miscellaneous.

The main products at ESCORTS – AMG are “ TRACTORS “ which are available in
three major categories:

Farmtrac

Powertrac

Escorts

These products are sold into the market through intermediaries like dealers, stockists
and distributors , these parties charge a commission for the services provided by
them.

Among these parties dealers are given priority over the stockists & distributors for the
delivering the product to the end customer and the commission also varies in the
same manner.

41
The following are the transactions that take place in the daily cash flow report under
the following main heads:

 Particulars,

 Year to date i.e the very first day of the financial year till the previuos months
end (in which the daily report is being made),

 The previous month,

 Plan for the ongoing month,

 The particular day for which the report is being made,

 Month to date (from the beginning of the current month till the day for which
report is being made).

SALES – This includes the number of tractors sold in the domestic boundaries as
well as overseas.

BILLING – It is the process of sending accounts to customers for goods or services.

The document used is called an invoice, the invoice may be attached to the goods or
forwarded separately. The average sale value of each tractor is calculated as a follows

42
 Total sales of tractors

Number of tractors sold

COLLECTION – The collections is recovered from all those parties to whom the
products are being sold. The parties involved are :

Tractors ( Direct ) – This includes the sale made through dealers to the end
customer, for which a predetermined amount is given as commission to the opposite
party. If the dealer fails to make the sale till the due date than he has to pay interest on
it thereon.

Tractors ( Stockiest ) – This includes the sale made through stockiest, who doesn’t
sell the product by themselves but sells them through dealers. The credit period
allowed to stockiest by the company is less in comparison than that of dealers,
which yields to faster generation of income .

Tractors (Channel financing ) – This system is adopted to improve the working

capital of the company by avoiding inventory pile up and earning speedy collections.
Furthermore, Channel Financing is an innovative option for extending working
capital finance to dealers who have business relationships with large companies.
Channel Financing is the mechanism through which a Bank / Financial Institution
meets the various

43
 Channel Financing could cover: -

Discounting of trade bills drawn by a company & accepted by its dealers/

distributors/ channel partners.

Providing overdraft facility to the dealers/ distributors who have business

dealings with large corporate.

OTHER RECEIPTS : An acknowledgment (usually tangible) that payment has been

made. The below mentioned are the transactions included in it :

Bill discounting : it is a major activity with some of the smaller banks. Under this
type of lending, bank takes the bill drawn by borrower or his (borrower’s) customer
and pay him immediately deducting some amount as discount / commission. The
bank then present the bill to the borrower’s customer on the due date of the bill and
collect the total amount. If the bill is delayed, the borrower or his customer pays the
bank a predetermined interest depending upon the terms of the transaction.

The following entries could be passed in the co.’s books:

Sales bill discounting : Following entries are passed during the sales

44
 Made by the company:

Party a/c dr. ..........

To sales a/c ...........

(Being sale made on credit)

Bank a/c dr. ..........

Bank charges a/c dr. …….

To party a/c ……..

( being payment recived)

Purchase bill discounting : Following entries are passed in the books

purchases made by the company :-

Purchase a/c dr. ……

To party a/c ……

( being purchases made)

Party a/c dr. ……

To bill discounting supplier a/c ……

( being paid to party through bank )

45
Bill discounting supplier a/c dr. …….

To bank a/c ……

( being payment made to bank)

Letter of credit : The LC can also be the source of payment for a transaction,
meaning that redeeming the letter of credit will pay an exporter. Letters of credit are
used primarily in international trade transactions of significant value, for deals
between a supplier in one country and a customer in another. The parties to a letter of
credit are usually a beneficiary who is to receive the money, the issuing bank of
whom the applicant is a client, and the advising bank of whom the beneficiary is a
client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled
without prior agreement of the beneficiary, the issuing bank and the confirming bank.
In this 100 % payment is not given to the supplier by the bank due to loss in
transition , rejection & shortage . in if loss doesn’t occur than 100 % is given to the
supplier on the due date.

Packing credit : when we receive an export order from countries , than we can avail
loan from bank at nominal interest as packing credit loan. It provides the exporters
with working capital between the time of the receipt of order and the time of
shipment to arrange for production or procurement of goods. Pre-shipment finance is
of particular importance to small scale manufacturers and exporters who do not
possess sufficient financial resources to meet the expenditure involved in the
production of goods for export.

Pre shipment finance is normally provided by the commercial banks. As in

the case of many other advances the bank takes into consideration a number of factors
before making the necessary other advances to exporters viz., (1) honesty, integrity
and capital of the borrower, (2) exporter’s experience in the line, (3) security offered,
46
(4) the margin of interest (5) the bank’s experience about the exporter to ensure that
his name does not appear on the caution list of the Reserve Bank.

Pre- shipment : when the company receives order

Post shipment : when assignment is dispatched from the company.

CASH BUDGET

MEANING
A forecast of estimated cash receipts and disbursements for a specified period of
time.

A cash budget is arrived at through a projection of future cash receipts and cash
disbursements of the firm over interval of time, it reveals the timing and amount of
expected cash inflows and outflows over the period. With this, the firm will be able
to determine its future cash needs, and exercise control over the cash and liquidity of
the firm. Though the cash budget may be prepared almost any interval of time, its
monthly projection are most common.

In short, we can say that cash budget is a forecast of a firms future cash flows
arising from collection and disbursement, usually on a monthly basis..

The key to the accuracy of most cash budgets is the sales forecast. This forecast
can be either internal or external analysis, in internal approach, sales representatives
are asked to project sales for the forthcoming period, We can then consolidate these
sales estimates for the product line. The estimates for the various product lines are
then combined in to an overall sales estimate for the firm. The basic problem with an
internal approach is that it can be too myopic, often significant trends in the economy
and in the industry are overlooked.

47
 Many companies use an external analysis as well, in external approach economic
analysts make forecast of the economy and of industry sales for several years to
come. They may use regression analysis to estimate the association between industry
sales and the economy in general. After these basic predictions of business
conditions and the industry are made. The next step is to estimate the market share
by individual products, price that are likely to prevail and the expected reception of
new product. By this way we can prepare an external forecast.

For Effective Cash Budget

 A firm may be able to delay its capital expenditure or its payment for
purchase,

 Purpose of cash budget should be to determine the timing and magnitude of

prospecting financing needs so that the most appropriate method of financing
can be arranged,

 A decision to obtain long term financing should be based on long-range funds

requirement.

 On the basis of cash budget the manager should be able to plan to invest
excess funds in cash equivalents.

BANK RECONCILIATION

Bank reconciliation involves comparing the company’s record of transactions and

balances to the bank’s record of transactions and balances. The company should go
through every transaction in their account and make sure the company and the bank
agree on the transaction.

It’s important to go through the process of bank reconciliation. If the company

doesn’t, than it is taking few risks. Without bank reconciliation, the company may not
48
have a clear idea of how much cash is available in their accounts. They might bounce
Cheques and incur overdraft charges.

Without bank reconciliation, the company also expose yourself to risk.

People may be stealing from the company’s account. If they never look through each
transaction, they’ll never know about it. If they don’t notify the bank quickly enough,
they may be out of luck. The same goes for bank mistakes. With regular bank
reconciliation the company can find problems quickly and make them go away.

Bank reconciliation can be done manually, in excel & there’s electronic bank
reconciliation as well.

Though the manual way for handling company’s large bank accounts is not
appropriate, it is helpful when there are less transactions. But still it important for any
manager to learn it as it is the basic form of doing it.

For reconciling the company’s record of transaction with the bank balances ,
there are three essential requirements :

 Bank book

 Bank statement

 Bank reconciliation statement of preceding month

Than the above transactions needs to be tally & unmatched have to be reconciled
accordingly. Below is an example of how is it done manually:-

49
B A N K R E C O C IL IA T IO N S T A T E M E N T
A S O N 3 1 .0 5 .0 9
A /C N O 0 0 0 3 8 1 4 0 0 0 0 0 1 5 6 GL CODE

D E S C R IP T IO N
B a l a s p e r b a n k b o o k A S O N 3 1 .0 5 .0 9
O p e n in g b a l 8 3 3 8 2 . 9D1R .
LE S S : M A Y 2009 B A LA NCE 2 7 2 6 9 5C5R . -2 6 4 3 5 7C2R .
A D D : A m o u n t c r. B y u s b u t n o t d3 r.6 3b4y1 0bD3aRn.k 3634103

L E S S : A m o u n t d r. b y u s b u t n o t 3c7r.2 2b5y 4Cb9Ra .n k 3722549

A D D : A m o u n t c r. B y b a n k b u t n o2t8 d3 r.2 1b1Dy4Ru.s 2832114

L E S S : A m o u n t d r. b y b a n k b u t n4 o1 t9 c8 r.9 . 6B8y u s 4 1989.68

B a la n c e a s p e r b a n k s t a t e m e n t 5 8106.87

50
DETAILS OF CHEQUE ISSUED BUT NOT PRESENTED FOR PAYMENT
S.NO VCH. DT. VCH. NO. CHQ.NO. CHQ.AMT.
7770 22/5/2009 86410 pcl loan LIQ. 3565791.98
7771 22/5/2009 86400 SA/SP/34 941
7774 31/5/2009 86301 B/C&INTT ON 59369.98
7766 12/5/2009 85683 BANK CHARGE 4000
2/4/2009 BANK CHARGE 4000
3634102.96

DETAILS OF AMOUNT DEPOSITED BUT NOT CREDITED BY BANK

S.NO VCH. DT. VCH. NO. CHQ.NO. CHQ.AMT.
7754 22/5/2009 155 Sa/35 3704227.2
7749 1/5/2009 371 33796(bank ch.) 7667
7752 11/5/2009 372 33913(bank ch.) 5466
7755 22/5/2009 156 sa/sp/34 2927.15
7757 26/5/2009 157 tanj/37 2261.15
3722548.5

DETAILS OF AMT. CREDITED BY BANK

S.NO VCH. DT. VCH. NO. CHQ.NO. CHQ.AMT.
19/5/2009 1390022 2832113.94
2832113.94

DETAILS OF AMOUNT DEBITED BY BANK

S.NO VCH. DT. VCH. NO. DESCRIPTION CHQ.AMT.
1/5/2009 1210003 2206
4/5/2009 1240001 5515
4/5/2009 1240011 607.15
5/5/2009 1250005 2206
5/5/2009 1250001 2758
8/5/2009 1280029 607.15
9/5/2009 1290007 2206
11/5/2009 1180001 1103
12/5/2009 132000 1103
14/5/2009 1340024 607.15
19/5/2009 1320001 1103
19/5/2009 1390022 607.15
22/5/2009 560001 20753.93
26/5/2009 1460014 607.15
41989.68

51
 CASH RATIOS

MEANING

Cash ratios are also important tool of cash control. There are various ratios
which explain the efficiency of cash management or vice-versa. They are the acids
test ratio, cash ratio, receivables turnover ratio, inventory turnover ratio, cash
turnover ratio etc.

These are calculated as –

LIQUIDITY RATIOS –

Liquidity ratio measures the ability of the firm to meet its current obligations. It
is necessary to strike a proper balance between high liquidity and lack of liquidity. A
high degree of liquidity means that a firm’s fund will be unnecessarily tied up in
current assets. Whereas lack of liquidity, implies failure of a company to meet its
obligations due to lack of sufficient liquidity.

The ratios, which are used for the analysis of Escorts liquidity position in this
report, are:

 Current Ratio

 Quick Ratio

CURRENT RATIO

Current ratio is calculated by dividing current assets by current liabilities:

Current ratio = Current Assets

Current Liabilities

2006-07 2007-08

Current Ratio 1.12 1.16

52
From the above table it can be interpreted that Escorts liquidity position is not
constant. As a conventional rule a current ratio of 2:1 or more is considered
satisfactory because in a worse situation, even if the value of current assets become
half, the firm will be able to meet its obligations. Current ratio refers to a margin of
safety for creditors therefore higher the current ratio, the greater the margin of safety.

QUICK RATIO

Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon without a loss of value. Inventories are considered to be less liquid
therefore calculating quick ratio they are deducted from current assets.

Quick Ratio = Current Assets – inventory

Current liabilities

2006-07 2007-08

Quick Ratio 0.90 0.99

Escorts quick ratio in the current year has decreased in comparison to previous year,
yet it can be considered to be satisfactory, as it is 1:1 times of current liabilities.
Although quick ratio is more penetrating test of liquidity than current ratio. Yet it
should be used cautiously, as all debtors may not be liquid and cash may be
immediately needed to pay operating expenses.

53
The value of quick ratio is decreasing every year. The satisfactory level of the quick
ratio is 1:1. This shows the worse situation of the company. The current liabilities are
more than the quick assets.

ACTIVITY RATIOS –

Activity Ratios are used to evaluate the efficiency with which the firm manages and
utilizes its assets. The ratios are called Turnover Ratios as they indicate the speed
with which the firm manages and utilizes its assets.

Activity ratios, which are used to analyze Escorts effectiveness in Asset utilization,
are

 Inventory Turnover Ratio

 Fixed Assets Turnover Ratio

 Working Capital Turnover Ratio

 Debtors Turnover Ratio

 Creditors Turnover Ratio

INVENTORY TURNOVER RATIO

It indicates the efficiency of the firm in producing and selling its product. It is
calculated by dividing sales by avg. inventory. In a manufacturing company inventory
of finished goods is used to calculate inventory turnover.

54
Inventory Turnover = Cost of goods sold

Avg. Inventory

2006-07 2007-08

Inventory turnover 14.42 15.10

If the company is comfortably meeting the customer needs with 9.73 days inventory
of finished goods, all India basis.

It is a good achievement for the Escorts Limited.

FIXED ASSETS TURNOVER RATIO

A firm’s ability to produce a large volume of sales for a given amount of net assets is
the most important aspect of its operating performance. Unutilized or underutilized
assets increase the firm’s need for costly financing as well as expenses for
maintenance and upkeep. Fixed assets turnover is calculated by dividing net sale by
net fixed assets.

Fixed Assets Turnover = Sales

Fixed Assets

2006-07 2007-08

F.A.T 2.29 2.35

Escorts fixed asset turnover have increased in 2003-04. The fixed asset turnover of
2.78 implies that it is producing Rs.2.78 of sales for one rupee of capital employed.

55
The higher the ratio, more it is satisfactory…

It should be interpreted very cautiously because the denominator of the ratio includes
fixed asset net of depreciation. Thus old assets with lower book value may create a
misleading impression of high turnover without any improvement in sales

DEBTORS TURNOVER RATIO

Debtor’s turnover indicates the number of times debtors’ turnover each year. Higher
the value of Debtors turnover, the more efficient is the management of credit. The
liquidity position of the firm depends on the quality of the debtors to a great extent.

Debtors Turnover = Credit Sales

Avg. Debtors

2006-07 2007-08

Debtors Turnover 4.44 4.29

Escorts debtors turnover is quite lower. The debtor’s turnover ratio is high at 2003-04
. The ratio is decreasing. Also the debt collection period has its own importance. The
debt collection period of Escorts was 76 days in 2003-04 but it has increased to 95
days . This does not show the satisfactory level. The shorter the collection period, the
better the quality of debtors, since a short collection period implies prompt payment
by debtors.

A too low collection period is also not necessarily favorable as it may indicate a very
restrictive collection and credit policy. Because of the fear of bad debt loses the firm
may be selling to those only whose financial conditions are sound and who are very
prompt in making the payments.

56
CREDITOR TURNOVER RATIO

Creditors Turnover = Total Purchases

Creditors

2006-07 2007-08

Creditors Turnover 3.55 3.45

Though the days are very high and apparently appears to substitute right collection,
this extended credit has its own drawback like:

 High interest inbuilt in cost system.

 Sub-quality creditors may be accepted.

 Quality of material may be accepted.

The payment period of Escorts Limited is 90 days in 2007-08, which is more

reasonable than previous years. This helps to make good quality product and also
better relationship with suppliers.

57
WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio has its own significance in the business organizations.
It shows the efficiency of the firm. How much sale that the company get with the
utilization of the limited working capital.

Working Capital Turnover = Net Sales

Net Working Capital

2006-07 2007-08

Working.Cap.Turn. 113.45 28.30

In the case of working capital turnover ratio Escorts is significantly going very
downward. This is a very dangerous point of the firm. The company should try to
improve it earlier. It shows that the company requires more money to generate sales.

58
 RECEIVABLE MANAGEMENT

The term receivable is defined as “debt owed to the firm by customers arising
from sales of goods in the ordinary course of business”. The sale of goods on credit is
an essential part of modern day business. The credit sales are generally made on open
account in the sense that there are no formal obligations through a financial
instrument. However extension of credit involves risks and cost. Management should
weigh the benefits as well as the cost to determine the goal of receivable
management. The benefits from receivables are the increased sales and profits
anticipated because of more liberal policy. When firm extend trade credit, i.e. invest
in receivables, they intend on increase the sales level. The motive of liberal credit
policy can be either growth oriented or sales retention. The extension of credit has a
major impact on sales, costs and profitability. Other things being equal, a relatively
liberal policy and therefore higher investments in receivables will produce larger
sales. However the cost will be higher with liberal policies then with more stringent
measures. Therefore account receivable management should aim at a trade- of
between profit and risk.

The costs associated with the extension of credit and account receivables are

 collection cost

 capital cost

 delinquency cost

 default cost

59
 DECISION AREAS

CREDIT POLICIES

The credit policy of a firm provides the framework to determine

whether or not to extend credit to a customer and also how much credit to extend. It
has two broad dimensions, the first is credit standard and second is the credit analysis.
Credit standards represent the basic criteria for the extension of credit to customers.
The trade- off with reference to credit standards covers collection costs, average
collection period, level of bad debts losses and level of sales. With a relaxed credit
standard the collection costs, bad debts expenses and sales goes up and in reverse
case vice-versa happens. The second aspect of credit policy is credit analysis. It
begins with obtaining credit information of the customers and ends up with the
analysis of the obtained credit information. Information can be collected either
internally or externally. Internal source of credit information is derived from the
records of the firm. The analysis of credit information should cover both qualitative
as well as quantitative aspects. The quantitative aspect is based on the available
financial statements whereas qualitative aspects cover the quality of management.

CREDIT TERMS

The second decision area in accounts receivable management is the credit

terms. After the credit standard have been establish and the credit worthiness of the
customers is assessed, the management of a firm must determine the terms and
conditions on which trade credit will be made available. Credit terms have three
components : credit period, cash discount and cash discount period. Credit period is
the duration of time for which trade credit is extended whereas cash discount is the
amount by which the over the due amount will be reduced thus benefiting the
customer. The credit terms like the credit standard affect the profitability as well as

60
the cost of the firm therefore a firm should determine the credit terms on the basis of
cost-benefit trade-off.

COLLECTION POLICIES

The collection policies refer to the procedures followed to collect

account receivable when after expiry of the credit period they become due. This
policy covers two aspects : first is the degree of effort to collect the over due and
second is the type of collection efforts.

Escort Limited has a zero debt credit policy. However it is giving the following
facilities to its dealers to promote the sales, as liberal credit policy has a direct impact
on sales.

CHANNEL FINANCE FACILITIES

The company arranges these facilities with various bankers for the
company dealers to support their cash needs. The goods are sold on credit against
hundis. Hundis can be drawn for 50 or 75 or 90 days subject to qualifying criteria of
bank.

CREDIT FACILITIES

Escort provides thirty days interest free credit to the dealers. For this in respect of all
hundis the company bears 30 days interest and the remaining cost of interest, delayed
payment charges are borne by the dealers.

61
PENALTY ON BOUNCING OF HUNDIES / CHEQUES

Bouncing of hundis/ cheques drawn in favor of the company is

viewed very strongly and usually following actions are taken.

 Tractor supplies are suspended and restored only after all dues are cleared.

 All charges debited by the bank such as collection charges, penal interest are
debited to the dealer.

 The bank extending channel financing policy have clearly stated that if a
dealer has two or more bouncing he will be black listed and his limit will be
withdrawn with immediate effect. Company also makes sales to such dealers
only against letter of credit or demand draft.

CASH DISCOUNT ON EARLY PAYMENT

Cash discount of 1% is payable on tractors dispatched against funds available

in the form of letter of credit or demand draft. Interest is charged/ paid at 12% per
annum on outstanding/ credit balance early payment incentive.

62
 PAYABLE MANAGEMENT

Creditors are a vital part of effective cash management and should be

managed carefully to enhance the cash position. Purchasing initiates cash outflows
and an over-zealous purchasing function can create liquidity problems. A better
strategy is to shrink the vendor base radically, then use one’s clout to negotiable
longer terms with the vendors. Vendor rationalization is a process that can pay off in
a big way. Apart from the question that who should authorize purchasing in the
company – should it be tightly managed or spea among a number of (junior) people?
The following comes under good payable management.

 Purchase quantities should be geared to demand forecasts.

 Order quantities should be used which takes account of stock holding and
purchasing costs.

 The cost to the company of carrying stock should be clearly defined.

 A Company should have alternative sources of supply. It should get quotes

from Major suppliers and shop around for the best discounts, credit terms and
reduce dependence on a single supplier.

63
RECOMMENDATIONS

64
 LOANS AND ADVANCES

Special efforts should be made to analyze loans & advances, which are between
35% to 56% of current assets. This can be classified between production / operation
relation related and non-production / operation related. No production related cases
might be financed from other sources like debenture etc. and treated separately.

INVENTORY

Inventory should be reviewed constantly to identify show / dead / obsolete item

and then disposed . Optimum level should be revised periodically, keeping in view,
distance of suppliers, production lead time of supplier, transport problem if any and
reliability of suppliers. This will help to avoid obsolesce and dead inventory.

DEBTORS

A study may be conducted if required by experts to pinpoint

reason behind Escorts high correction period of 95 days in 2007-08 against 50 days of
Mahindra & Mahindra. It is due to quality of products, quality of customer, the
segment of customers marketing effort, distribution pattern or other reasons.

CREDITORS

Though high payout days may be appartenly beneficial for the company. It has it very
heavy long term cost like high interest cost, bad credit ratings and shyness of good
quality / standard suppliers.

65
RATIOS

The company should try to improve its current situation. The ratios, which are
taken in this research to evaluate the company’s position, are Current ratio, Quick
ratio and Activity ratio. These ratios show the actual position of the company. The
Quick ratio is declining since 2001-02 till now. There is a drastic declining in the
working capital turnover ratio. This ratio goes to –ve position in current year
compared to previous. The Debts collection period is 359 days for Exporters. This
shows the poor collection policy. The current ratio is 1.12 in 2006-07, which is not
upto the ideal ratio. This shows that the current assets are equal to the current
liabilities. Not satisfactory.

OTHERS –

 More attention must be given to market forecasts can be made and the surplus
of inventory is reduced to minimum

 Company should not follow the competitors only. New products should be
produced for the farmers having low income and small holdings.

 Proper market survey should be carried out. The company should explore the
export market to study the present and prospective demand.

 Proper inventory plans should be made in order to reduce the carrying cost.

 New market strategies should be devised from time to time. This is because,
even if the tractor is of good quality, the competitors may produce the same
product with additional features and at lower prices.

66
 Marketing network should be enhanced. Company should also produce more
tractors of higher H.P. But new developments should be made continuously in
order to survive in this competitive world.

LIMITATIONS

67
 LIMITATION

Although every effort has been in to collect the relevant information

through the sources available, still some relevant information could not be gathered.

Busy Schedule of Concerned Executives: The concerned executives were having

very busy schedule because of which they were reluctant to give appointment.

Time: The time duration could not provide ample opportunity to study every detail of
working capital management of the company.

Unawareness: Executives were unaware of many terms related to working capital

study while asking to them.

Confidential Information: As the company on account of confidential report has not

disclosed some figures. Moreover, in some cases separate accounts of division are not
separately maintained thereby, leading to restrictions in study.

68
 BIBLIOGRAPHY

BOOKS

Financial Management- S.K Gupta

Management Accountancy-D k Gole

Cost and Management Accountancy, S.N.Maheshwari

Financial Management And Policy, James C.Van Horne

WORLD WIDE WEB

www.escortsagri.com

www.economictimes.com

www.planware.com

www.icraindia.com

Other than Web

M.I.S of the company

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Annual Reports

ANNEXURES

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 PROFIT AND LOSS ACCOUNT
1SToct 2007- 30th September 1st oct 2006 – 30th sept
2008 2007
Operating income 2,012.00 2,092.04
Material consumed 1,470.66 1,540.01
Manufacturing expenses 47.68 50.79
Personnel expenses 202.63 204.02
Selling expenses 114.57 118.63
Adminstrative expenses 69.12 57.45
Expenses capitalised - -
Cost of sales 1,904.66 1,970.90
Operating profit 107.34 121.14
Other recurring income 0.04 20.85
Adjusted PBDIT 107.38 141.99
Financial expenses 55.93 89.78
Depreciation 42.87 44.97
Other write offs - 3.32
Adjusted PBT 8.58 3.92
Tax charges 47.13 -10.89
Adjusted PAT -38.55 14.81
Non recurring items 17.56 -21.25
Other non cash adjustments 32.86 -
Reported net profit 11.87 -6.44
Earnigs before appropriation -133.59 -145.46
Equity dividend - -
Preference dividend - -
Dividend tax - -
Retained earnings -133.59 -145.46

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BALANCE SHEET AS ON…..
1ST OCT 2008- 30th SEPT 2009 1st OCT 2007 – 30TH SEPT 2008
Equity share capital 90.71 83.69
Share application
- -
money
Preference share
- -
capital
Reserves & surplus 645.49 563.38
Secured loans 422.63 414.04
Unsecured loans 14.44 31.10
Total 1,173.27 1,092.21
Gross block 1,415.93 1,436.96
Less : revaluation
466.46 471.90
reserve
Less : accumulated
593.41 583.24
depreciation
Net block 356.06 381.82
Capital work-in-
14.43 13.40
progress
Investments 425.79 425.13
Current assets, loans
1,131.98 1,325.61
& advances
Less : current
776.14 1,069.68
liabilities & provisions
Total net current
355.84 255.93
assets
Miscellaneous
11.00 15.93
expenses not written
Total 1,163.12 1,092.21
Book value of
494.53 493.87
unquoted investments
Market value of
1.98 3.31
quoted investments
Contingent liabilities 168.40 318.74
Number of equity
sharesoutstanding 907.09 836.94
(Lacs)

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 CASH FLOW STATEMENT

PARTICULAR MARCH MARCH

(2008) (2007)
CASH FLOW FROM OPERATING ACTIVITIES
N.P BEFORE TAX 26.14 -17.33
Adjustment for:
provision for doubtful debts , obsolescence inventory & 16.36 1.89
advances
Gain on sale of long term investment -1.22
Gain on sale of asset -4.8 -0.13
Depreciation 42.87 44..97
Assets w/off 11.64 8.08
Interest expense 62.2 72.22
Dividend income 0.04 -0.02
Interest income 12.93 -20.82
Operating profit before change in w.capital 141.52 87.64
Adjustment for:
Trade & receivable -65.36 -168.61
Money in escrow account 20.09
Inventory -43.68 13.79
Trade payable 58.02 67.05
Misc.expenditure -3.21 -7.5
Op.profit after change in w.capital -34.14 -95.27
Cash generated from operating activities 107.38 -7.63
Less-Direct taxes/refunds -6.25 -17.85
NET CASH FLOW FROM OPERATING ACTIVITIES 101.13 -25.48
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets -7.5 0.86
Proceeds from sale of fixed. Assets 14.26 -30.95
Loss on sale of investment -30.64
ement in loan & advances -3.9 -16.27
Sale of investment -0.66 32.33
Short term deposits with schedule banks 8.58 -2.31
Interest received 3.21 20.7
Dividend received -0.04 0.02
NET CASH FLOW FROM INVESTING ACTIVITIES 16.69 4.38
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from share capital & securities premium 40.32 114.44
Proceeds/repayment from long- term borrowings 234.09 80.6
Less:repayment of long term borrowing -41.68 -0.54
Proceed/repayment from short-term borrowing -46.83 -146.82
Interest paid -66.27 -77.4
NET CASH USED IN FINANCING ACTIVITIES -114.46 -23.72
Net increase / decrease in cash & cash equivalents (30.03 -44.82
OPENING CASH BALANCE 60.83 105.65

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CLOSING CASH BALANCE 30.8 60.83

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