WORKING CAPITAL MANAGEMENT REPORT

WORKING CAPITAL MANAGEMENT

A REPORT ON WORKING CAPITAL MANAGEMENT

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WORKING CAPITAL MANAGEMENT

CSREM Paralakhemundi Connecting Through knowledge

A REPORT ON WORKING CAPITAL MANAGEMENT TWO WHEELER AUTOMOBILE INDUSTRIES

Submitted to: Prof. Dr.Anita Patra Patra

January 5, 2010

Group Members: Ansuman Behera

(s0804)

Manoj Kumar Das (s0835) Sulagna Mohanty (s0866)

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WORKING CAPITAL MANAGEMENT

CONTENTS PAGE NO. CHAPTER 1: INTRODUCTION 1.1 Introduction

1 1 2 4 6 7

1.2 Industry Analysis 1.3 Current Scenario 1.4 Firm Analysis 1.5 Objective of the study 1.6 Study Design and Methodology CHAPTER 2: COMPARATIVE BALANCESHEETANALYSIS 2.1 Comparative Balance Sheet of Hero Honda Motors Ltd. 2.2 Comparative Balance Sheet of Bajaj Auto Ltd. 2.3 Comparative Balance Sheet of TVS Motors Company 2.4 Comparative Balance Sheet of LML. Ltd. 2.5 Comparative Balance Sheet of Suzuki Motors Ltd.

7 9 11 13 15

CHAPTER 3: RATIO ANALYSIS 3.1 Ratio Analysis of Hero Honda Motors Ltd.

17 19 22 24 26

3.2 Ratio Analysis of Bajaj Auto Ltd. 3.3 Ratio Analysis of TVS Motors Company Ltd. 3.4 Ratio Analysis of LML Ltd. 3.5 Ratio Analysis of Suzuki Motors Ltd. CHAPTER 4: INTRA-FIRM ANALYSIS Hero Honda Motors Ltd

29 35 36 37

CONCLUSION REFERENCE ANNEXTURE

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DECLARATION

We hereby declare that the project report entitled “WORKING CAPITAL MANAGEMENT” is our sincere effort. This Report is being submitted by us, at CSREM, Paralakhemundi, for the partial fulfillment of the course, Working Capital Management, and the report has not been submitted to any other educational institutions for any other purpose.

Signature

• Ansuman Behera • Manoj Kumar Das • Sulagna Mohanty

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WORKING CAPITAL MANAGEMENT

ACKNOWLEDGEMENT In preparing this report a considerable amount of thinking and informational inputs from various sources were involved. We express our sincere gratitude to everyone who contributed towards making this Project report possible. Our sincere gratitude goes to our faculty guide Prof.Dr.Anita Patra for her inspiration, cooperation to complete the project report. Under her brilliant untiring guidance we are able to complete the project successfully in time. In spite of having a very busy schedule, she made sure in every way that we acquire the best possible exposure and knowledge during our project. We are greatly thankful and obliged to all our faculties of Centurion School of Rural Enterprise Management (CSREM) for guiding us throughout the project. We also thankful to our friends, many others who have helped us a lot, without their encouragement and cooperation we would never have been completed our project.

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CHAPTER 1 1.1 INTRODUCTION Every business needs funds for two purposes for its establishment and to carry out its day- today operations. Long terms funds are required to create production facilities through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day – to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firm’s capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital. 1.2 INDUSTRY ANALYSIS Two Wheeler Market in India: India became the second largest two wheeler manufacturer in the world starting in the 1950s with the Automobile Products of India (API) that manufactured the Lambrettas and Bajaj Auto Ltd.The Indian two wheeler market has a size of over Rs 100,000 million. The Indian two wheeler segment contributes the largest volumes amongst all the segments in automobile industry. Though the segment can be broadly categorized into 3 sub-segments viz; scooters, motorcycles and mopeds; some categories introduced in the market are a combination of two or more segments e.g. scooterettes and step thru’s. The market primarily comprises five players in the two wheeler segment with most of the companies having foreign collaborations with well-known Japanese firms earlier. But most of the companies are now planning 100% subsidiaries in India. In the last four to five years, the two-wheeler market has witnessed a marked shift towards motorcycles at the expense of scooters. In the rural areas, consumers have come to prefer sturdier bikes to withstand the bad road conditions. In the process the share of motorcycle 6

WORKING CAPITAL MANAGEMENT

segment has grown from 48% to 58%, the share of scooters declined drastically from 33% to 25%, while that of mopeds declined by 2% from 19% to 17% during the year 2000-01. The Euro emission norms led the existing players in the two stroke segment to install catalytic converters. All the new models are now being replaced by 4-stroke motorcycles. Excise duty on motorcycles has been reduced resulting in price reduction, which has aided in propelling the demand for motorcycles. Fierce competition has also forced players to cut prices in certain models 1.3 CURRENT SCENARIO Motorcycle sales grew by an annual average of 27% over from 1995-2002, and constituted nearly 66% of total two wheeler sales in F2002, up from just 24% in F1995. Average monthly motorcycle sales have increased five-fold since F1995 to almost 250,000 units in F2002. Now Hero Honda is the current market leader with a 49% market share. Hero Honda has been an early entrant in the 4 stroke segment of the two wheeler industry. With a right mix of product styling and pricing the company helped garner a larger market chunk of the 4stroke market as compared to Bajaj Auto. A shifting consumer preference towards motorcycles also enabled the fast growth of the company in the last few years. Hero Honda motorcycle sales jumped 40.6% in April at 135,961 units from 96,672 units it sold in the corresponding month last year. The change in product mix in favor of higher value products has resulted in improved realization for the company the growing popularity of the passion model appears to be the key factor behind improvement in unit realization. Taking into account the recent trend in performance, the company appears well positioned to retain its top position in the motorcycle market and also sustain the recent rate of growth. Bajaj auto ltd is the second biggest manufacturer of motorcycles. The company’s recent indigenous launch in 4-stroke segment viz; the 150 / 180 cc pulsar which has practically snatched the market share of the bikes like Hero Honda CBZ, Suzuki Fiero, Lml adreno etc, and it appears that pulsar would rule this segment till the time there are some new launches in this segment by other manufacturers, for bajaj pulsar has been the major contributor for the rise in its motorcycle sales along with its other popular models such as boxer, caliber croma etc. well coming to the third largest share holder in the motorcycle segment which is the tvs motors, which has emerged as a ‘victor’ after the Suzuki break up, riding high on the success, of it’s motorbike by the same name. Tvs victor is the first indigenously produced motorcycle from tvs motors. Infact with a six week waiting period, even six months after its launch, tvs motors plans to double its production capacity. 7

WORKING CAPITAL MANAGEMENT

The motorcycle market can be further segmented on the basis of the price tags which are the economy, executive and the premium segments. Basically all the three leading companies have a presence in all of these sectors. Clearly, the race to the number one spot in the motorcycle segment has been a one sided one. But times are changing, Given the fact that bajaj is positioning itself at all feature and price points, it does have every model to satisfy the needs of a prospective motorcycle buyer, and also has the privilege of being the only one in the cruiser segment but except for the two bikes i.e boxer ct and pulsar no other Bajaj models seem to be on the line of prosperity and the recently launched dawn by Hero Honda is a direct threat to the market of boxer ct price competitively at rs 37,000/- which is just Rs 2,000/more than the boxer ct but then again boxer ct already enjoys a vast market share and is very popular especially in the rural areas it will be a tough job for dawn to displace this bike from its current position a lot remains to be seen by the feedback that it receives from riders. The pulsar has taken the market by storm in the premium segment it has clearly displaced the CBZ and the other models of this segment and looks like the things will remain this way for some time but there are tough times ahead since Hero Honda plans to launch a new bike in this segment by the end of this year which means that there is a lot to look ahead from a consumers point of view. Bajaj Auto which was negotiating with top European motorcycle brand Triumph for an alliance/acquisition has now decided to put those plans on the backburner and instead focus its attention on its KTM brand. It has raised its stake in Austrian based KTM sport motor cycle upto 25.86%.

Hero Honda, Bajaj and TVS Motors have cut prices of their vehicles by upto Rs 2000, 2100 and Rs 2000 respectively on account of Cenvant cut as part of the fiscal package benefit.

TVS Motors has launched Apache RTR 160RD which now comes with a factory fitted 200mm Rear Petal Disc Brake.

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1.4 FIRM ANALYSIS Hero Honda Motors: “Hero”

is the brand name used by the Munjal brothers for their flagship company Hero

Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda company,India.This company was referred to Ashdeep singh(Badal) from CIIS college. During the 1980s, the company introduced motorcycles that were popular in India for their fuel economy and low cost. A popular advertising campaign based on the slogan 'Fill it - Shut it - Forget it' that emphasised the motorcycle's fuel efficiency helped the company grow at a double-digit pace since inception. Hero Honda has three manufacturing facilities based at Dharuhera and Gurgaon in Haryana and at Haridwar in Uttarkhand. These plants together are capable of churning out 3.9 million bikes per year. Hero Honda’s has a large sales and service network with over 3,000 dealerships and service points across India. Hero Honda’s customer loyalty program, the Hero Honda Passport Program, claim to be one of the largest programs of its kind in the world with over 3 million members. The 2006 Forbes 200 Most Respected companies list has Hero Honda Motors ranked at 108. Bajaj Auto: The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range of industries, spanning automobiles (two-wheelers and three-wheelers), home appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship company, Bajaj Auto, is ranked as the world's fourth largest two- and three- wheeler manufacturer and the Bajaj brand is well-known across several countries in Latin America, Africa, Middle East, South and South East Asia. Founded in 1926, at the height of India's movement for independence from the British, the group has an illustrious history. The integrity, dedication, resourcefulness and determination to succeed which are characteristic of the group today, are often traced back to its birth during those days of relentless devotion to a common cause. Jamnalal Bajaj, founder of the group, was a close confidant and disciple of Mahatma Gandhi. In fact, Gandhiji had adopted him as his son. This close relationship and his deep involvement in the independence movement did not leave Jamnalal Bajaj with much time to spend on his newly launched business venture. His son, Kamalnayan Bajaj, then 27, took over the reigns of business in 1942. He too was close to Gandhiji and it was only after Independence in 1947, that he was able to give his full attention to the business. Kamalnayan Bajaj not only consolidated the group, but also 9

WORKING CAPITAL MANAGEMENT

diversified into various manufacturing activities. The present Chairman of the group, Rahul Bajaj, took charge of the business in 1965. Under his leadership, the turnover of the Bajaj Auto the flagship company has gone up from Rs.72 million to Rs.46.16 billion (USD 936 million), its product portfolio has expanded and the brand has found a global market. He is India's one of the most distinguished business leaders and internationally respected for his business acumen and entrepreneurial spirit.

TVS Motors Company Ltd: TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in the world, with annual turnover of more than USD 1 billion in 2008-2009, and is the flagship company of the USD 4 billion TVS Group. TVS Motor currently manufactures a wide range of two-wheelers from mopeds to racing inspired motorcycles. TVS has always stood for innovative, easy to handle, environment friendly products, backed by reliable customer service. No wonder, then, that our 15 million customers on the road have a reason to smile.

Suzuki Motors Ltd.: SUZUKI MOTORCYCLE INDIA PRIVATE LIMITED is a subsidiary of Suzuki Motor Corporation, Japan where in we are having the same manufacturing philosophy of VALUE PACKED PRODUCTS right from the inception. SMIPL will be manufacturing two wheelers best suited for the valuable Indian customers covering all segments. Suzuki have installed there manufacturing plant in Gurgaon (Haryana) having the annual capacity of 1, 75,000 units. Total land area of the facility at Gurgaon is 37 acres out of which the present plant is constructed in an area of 6.5 acres of land. The remaining area of 30.5 acres is left for land development and future expansion. They are having total number of employees 490. Mission: The core philosophy of SUZUKI is to provide “VALUE-PACKED PRODUCTS”. Since the founding of SUZUKI Motor Corporation, the Organization’s endeavour has always been to provide “VALUE-PACKED PRODUCTS” as one of the manufacturing philosophies

SUZUKI believes that “VALUE-PACKED PRODUCTS” come from the effort to carry out Product development from customer’s point of view. This policy has been in effect since Company’s inception and has helped the Organization to meet customer’s needs. As a result, 10

WORKING CAPITAL MANAGEMENT

SUZUKI’s Products have become well received throughout the World. SUZUKI is fully committed to create Products that meet customer’s demand by utilizing its dynamic, longnurtured technological advantage coupled with its fresh and active human resources. • •

Develop products of superior value by focusing on the customers Establish a refreshing and innovative company through teamwork

•

Strive for individual excellence through continuous improvement

LML India: LML, formerly known as Lohia Machines Private Limited, is India's leading manufacturers and has 30% of the market share. The company first started its technical collaboration with ARCT, France and got involved in synthetic Yarn Manufacturing Machines. LML became a public limited company in 1978. In 1984 LML started its scooter project after signing technical agreement with Piaggio of Italy. LML's joint venture with Piaggio ended in 1999. Soon after, an agreement was signed with Daelim Motor Company of South Korea to manufacture 4-stroke motorcycles. Indian Ministry of Science and Technology, recognized the company in 2000 for its remarkable success, in introducing new models of scooters in the market with more fuel-efficient engines, new electrical systems, latest emission norms, upgraded technology and better styling

1.5 OBJECTIVE OF THE STUDY The following are the main objective which has been undertaken in the present study: 1. To analyze each firm’s working capital working capital.

and to calculate various ratios relating to

2. To analyze one intra-firm’s working capital by taking three years balance sheet and profit and loss account. 1.6 STUDY DESIGN AND METHODOLOGY Our report based on secondary data were collected from the annual report of Hero Honda Motors, Bajaj Auto Ltd, TVS Company Ltd, LML Ltd and Suzuki Ltd company website and Economics Time websites,etc

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CHAPTER 2 ANALYSIS OF COMPARATIVE BALANCE SHEET

2.1 Comparative Balance Sheet of Hero Honda Motors Ltd for the year ending December 31,2008 and 2009 Year ending 31 December (In Million Rupees)

2009

2008 Increase/Decrease

Percentages

Liabilities Share Capital Reserves & Surplus Net Worth(1) Secured Loans(2) Unsecured Loans(3) Total Liabilities(1+2+3)

399.40 399.40 37608.10 29463.00 38007.50 29862.40 0.00 0.00 784.90 1320.00 38792.40 31182.40

0.00 8145.10 8145.10 0.00 -535.10 7610.00

0.00 27.65 27.28 -40.54 24.40

25162.70 19387.80 9425.60 7825.20 15737.10 11562.60 1205.40 4084.90 33687.50 25668.20

5774.90 1600.40 4174.50 -2879.50 8019.30

29.79 20.45 36.10 -70.49 31.24

3268.30 1499.40 2195.70 3258.00 10221.40

3171.00 2974.40 1310.90 1963.70 9420.00

97.30 -1475.00 884.80 1294.30 801.40

3.07 -49.59 67.50 65.91 8.51

16789.30 5269.70 22059.00 11837.60 0.00 38792.40

14555.70 4997.60 19553.30 10133.30 0.00 31182.40

2233.60 272.10 2505.70

15.35 5.44 12.81

-1704.30 0.00 7610.00

16.82

Assets Fixed Assets Gross Block (-) Acc. Depreciation Net Block(A) Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs. Inventories Sundry Debtors cash and Bank Loans and Advances (I) Current Liabilities & Provisions Current Liabilities Provisions (II) Net Current Assets(I-II) (D) Misc.Expenses(E) Total Assets(A+B+C+D+E)

24.40

Analysis of Comparative Balance Sheet of Hero Honda Motors 1. The net current assets or working capital in the year 2008 and 2009 is negative. That is -11837.60 and -10133.30 million rupees. It shows that current asset is less than the current liabilities by this amount. In other words a part of fund from short term has been used in fixed assets after investing full amount of short term funds on it. It reveals that the working capital financing policy is aggressive. 12

WORKING CAPITAL MANAGEMENT

2. Current assets are called as operating assets because these assets are coming due to the operating activities. Similarly the current liabilities are called as the operating liabilities. Among all the operating assets, cash has been increased by maximum amount. That is 884.80 million rupees which is 67.50% more than previous year. 3. But the amount of loan and advances has been increased from 1963.70 million rupees to the 3258.00 million rupees which is 65.91% high. It shows the more amounts of cash has been kept in hand instead of investing in short term securities. That cash may be ideal.

4. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills payables. This has been increased by 2233.60 million rupees which is 15.35% percent over last year.

5. The provisions shown here may be provision for bad debt, discount on debtor and Taxation purpose. This amount has been increased by 272.10 million rupees which is 5.44%.

6. The inventory level has been increased by 97.30 million rupees which is 3.07 percent and sundry debtor has been decreased by 1475.00 million rupees which is 49.59 percent than previous year

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2.2 Comparative Balance Sheet of Bajaj Auto Ltd for the year ending December 31,2008 and 2009 Year ending 31 December (In Million Rupees)

2009

2008 Increase/Decrease

Percentages

Liabilities Share Capital

1446.80

1446.80

0.00

0.00

Reserves & Surplus

17250.10

14429.10

2821.00

19.55

Net Worth(1)

18696.90

15875.90

2821.00

17.77

0.00

69.50

-69.50

-100.00

Unsecured Loans(3)

15700.00

13273.90

2426.10

18.28

Total Liabilities(1+2+3)

34396.90

29219.30

5177.60

17.72

Secured Loans(2)

0.00

Assets

0.00

Fixed Assets

0.00

Gross Block

33502.00

29946.80

3555.20

11.87

(-) Acc. Depreciation

18079.10

17260.70

818.40

4.74

Net Block(A)

15422.90

12686.10

2736.80

21.57

1064.80

347.40

717.40

206.51

18085.20

18571.40

-486.20

-2.62

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs.

0.00

Inventories

3388.40

3496.10

-107.70

-3.08

Sundry Debtors

3586.50

2753.10

833.40

30.27

cash and Bank

1368.70

560.70

808.00

144.11

Loans and Advances

15670.90

10996.80

4674.10

42.50

(I)

24014.50

17806.70

6207.80

34.86

Current Liabilities & Provisions

0.00

Current Liabilities

13782.00

11851.90

1930.10

16.29

Provisions

12241.50

8340.40

3901.10

46.77

(II)

26023.50

20192.30

5831.20

28.88

Net Current Assets(I-II) (D)

-2009.00

-2385.60

376.60

-15.79

1833.00

0.00

1833.00

34396.90

29219.30

5177.60

Misc.Expenses(E) Total Assets(A+B+C+D+E)

14

17.72

WORKING CAPITAL MANAGEMENT

Analysis of Comparative Balance Sheet of Bajaj Auto Ltd 1. The net current assets or working capital in the year 2008 and 2009 is negative. That is -2009.00 and -2385.60 million rupees. It shows that current asset is less than the current liabilities by this amount. In other words a part of fund from short term has been used in fixed assets after investing full amount of short term funds on it. It reveals that the working capital financing policy is aggressive.

2. Current assets are called as operating assets because these assets are coming due to the operating activities. Similarly the current liabilities are called as the operating liabilities. Among all the operating assets, cash has been increased by maximum amount. That is 808.00 million rupees which is 144.11% more than previous year. 3. But the amount of loan and advances has been increased from 10996.80 million rupees to the 15670.90 million rupees which is 42.50% high. It shows the more amounts of cash has been kept in hand instead of investing in short term securities. That cash may be ideal.

4. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills payables. This has been increased by 1930.10 million rupees which is 16.29% percent over last year.

5. The provisions shown here may be provision for bad debt, discount on debtor and Taxation purpose. This amount has been increased by 3901.10 million rupees which is 46.77%.

6. The inventory level has been decreased by 107.70 million rupees which is 3.08 percent and sundry debtor has been increased by 833.40 million rupees which is 30.27 percent than previous year

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2.3 Comparative Balance Sheet of TVS Motors Company Ltd for the year ending December 31,2008 and 2009 Year ending 31 December (In Million Rupees)

2009

2008 Increase/Decrease

Percentages

Liabilities Share Capital

237.50

237.50

0.00

0.00

Reserves & Surplus

7893.80

7978.30

-84.50

-1.06

Net Worth(1)

8131.30

8215.80

-84.50

-1.03

Secured Loans(2)

6224.20

4526.80

1697.40

37.50

Unsecured Loans(3)

2835.60

2136.60

699.00

32.72

17191.10

14879.20

2311.90

15.54

Total Liabilities(1+2+3)

0.00

Assets

0.00

Fixed Assets

0.00

Gross Block

18653.60

17909.70

743.90

4.15

(-) Acc. Depreciation

8694.20

7744.90

949.30

12.26

Net Block(A)

9959.40

10164.80

-205.40

-2.02

404.30

265.70

138.60

52.16

4777.10

3389.60

1387.50

40.93

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs.

0.00

Inventories

3205.50

4053.80

-848.30

-20.93

Sundry Debtors

1815.60

878.60

937.00

106.65

cash and Bank

420.50

37.30

383.20

1027.35

Loans and Advances

4271.10

3428.70

842.40

24.57

(I)

9712.70

8398.40

1314.30

15.65

Current Liabilities & Provisions Current Liabilities

0.00 7760.80

7257.10

503.70

6.94

654.90

609.90

45.00

7.38

(II)

8415.70

7867.00

548.70

6.97

Net Current Assets(I-II) (D)

1297.00

531.40

765.60

144.07

753.30

527.70

225.60

42.75

17191.10

14879.20

2311.90

15.54

Provisions

Misc.Expenses(E) Total Assets(A+B+C+D+E)

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Analysis of Comparative Balance Sheet of TVS Motor Company Ltd 1. The net current assets or working capital in the year 2008 and 2009 is positive. That is 1297.00 and 531.40 million rupees. It shows that current asset is more than the current liabilities by this amount. In other words a part of fund from long term sources has been used in current asset after investing full amount of short term funds on it. It reveals that the working capital financing policy is conservative.

2. Current assets are called as operating assets because these assets are coming due to the operating activities. Similarly the current liabilities are called as the operating liabilities. Among all the operating assets, cash has been increased by maximum amount. That is 383.20 million rupees which is 1027.35% more than previous year. 3. The inventory level has been decreased by 848.30 million rupees which is 20.93 percent and sundry debtor has been increased by 937.00 million rupees which is 106.65 percent than previous year.

4. But the amount of loan and advances has been increased from 3428.70 million rupees to the 4271.10 million rupees which is 24.57% more. It shows the more amounts of cash has been invested in short term securities.

5. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills payables. This has been increased by 503.70 million rupees which is 6.94 percent over last year.

6. The provisions shown here may be provision for bad debt, discount on debtor and Taxation purpose. This amount has been increased by 45.00 million rupees which is 7.38%.

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2.4 Comparative Balance Sheet of LML Ltd for the year ending December 31,2008 and 2009 Year ending 31 December (In Million Rupees)

2009

2008 Increase/Decrease

Percentages

Liabilities Share Capital

1987.78

1987.78

0.00

0.00

Reserves & Surplus

-3672.54

-3099.99

-572.55

18.47

Net Worth(1)

-1684.76

-1112.22

-572.54

51.48

1241.44

1130.26

111.18

9.84

178.52

169.57

8.95

5.28

-264.80

187.62

-452.42

-241.14

Secured Loans(2) Unsecured Loans(3) Total Liabilities(1+2+3)

0.00

Assets

0.00

Fixed Assets

0.00

Gross Block

5134.04

5134.38

-0.34

-0.01

(-) Acc. Depreciation

3668.70

3466.19

202.51

5.84

Net Block(A)

1465.33

1668.19

-202.86

-12.16

183.92

184.80

-0.88

-0.48

0.09

0.09

0.00

0.00

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs. Inventories

0.00 980.86

1024.77

-43.91

-4.28

Sundry Debtors

63.53

69.82

-6.29

-9.01

cash and Bank

115.15

77.88

37.27

47.86

Loans and Advances

405.61

426.44

-20.83

-4.88

1565.15

1598.91

-33.76

-2.11

(I) Current Liabilities & Provisions Current Liabilities

0.00 3389.96

3142.63

247.33

7.87

89.33

121.74

-32.41

-26.62

(II)

3479.30

3264.37

214.93

6.58

Net Current Assets(I-II) (D)

-1914.15

-1665.46

-248.69

14.93

0.00

0.00

0.00

-264.80

187.62

-452.42

Provisions

Misc.Expenses(E) Total Assets(A+B+C+D+E)

18

-241.14

WORKING CAPITAL MANAGEMENT

Analysis of Comparative Balance Sheet of LML Ltd 1. The net current assets or working capital of 2008 and 2009 is negative figure. That is 1914.15 and 1665.46 million rupees. It shows that current liability is more than the current assets of the company by this amount. It means a part of current liabilities is taken for investment on fixed assets. That can be called as aggressive mode of working capital of financing. 2. Current assets are called as operating assets because these assets are coming due to the operating activities. Similarly the current liabilities are called as the operating liabilities. Among all the operating assets, cash has been increased by 37.27 million rupees which is 47.86% more than previous year. 3. The inventory level has been decreased by 43.91 million rupees which is 4.28% less than the previous year percentages and sundry debtor has been decreased by 6.29 million rupees which is 9.01 percent than previous year.

4. But the amount of loan and advances has been decreased from 426.44 million rupees to the 405.61 million rupees which is 4.88% less. It shows the more amounts of cash has been kept in hand instead of investing in short term securities. That cash may be ideal.

5. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills payables. This has been increased by 247.33 million rupees which is 7.87 percent over last year.

6. The provisions shown here may be provision for bad debt, discount on debtor and Taxation purpose. This amount has been decreased by 32.41 million rupees which is 26.62%.

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WORKING CAPITAL MANAGEMENT

2.5 Comparative Balance Sheet of Suzuki Motors Ltd for the year ending December 31,2008 and 2009 Year ending 31 December (In Million Rupees)

2009

2008 Increase/Decrease

Percentages

Liabilities Share Capital

119.98

119.98

0.00

0.00

Reserves & Surplus

1719.52

1620.49

99.03

6.11

Net Worth(1)

1839.50

1740.47

99.03

5.69

Secured Loans(2)

1049.62

809.96

239.66

29.59

300.00

300.00

0.00

0.00

3189.12

2850.42

338.70

11.88

Unsecured Loans(3) Total Liabilities(1+2+3)

0.00

Assets

0.00

Fixed Assets

0.00

Gross Block

4296.65

3631.00

665.65

18.33

(-) Acc. Depreciation

2175.57

1941.48

234.09

12.06

Net Block(A)

2121.09

1689.79

431.30

25.52

448.27

396.89

51.38

12.95

4.04

0.00

4.04

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs.

0.00

Inventories

854.86

924.97

-70.11

-7.58

Sundry Debtors

557.08

253.61

303.47

119.66

cash and Bank

112.62

74.95

37.67

50.26

Loans and Advances

303.35

263.45

39.90

15.15

1827.91

1516.97

310.94

20.50

(I) Current Liabilities & Provisions Current Liabilities Provisions (II) Net Current Assets(I-II) (D) Misc.Expenses(E) Total Assets(A+B+C+D+E)

0.00 1153.21

660.74

492.47

74.53

58.97

92.49

-33.52

-36.24

1212.19

753.23

458.96

60.93

615.72

763.75

-148.03

-19.38

0.00

0.00

0.00

3189.12

2850.42

338.70

20

11.88

WORKING CAPITAL MANAGEMENT

Analysis of Comparative Balance Sheet of Suzuki Motor Company Ltd 1. The net current assets or working capital in the year 2008 and 2009 is positive. That is 763.75 and 615.72 million rupees. It shows that current asset is more than the current liabilities by this amount. In other words a part of fund from long term sources has been used in current asset after investing full amount of short term funds on it. It reveals that the working capital financing policy is conservative.

2. Current assets are called as operating assets because these assets are coming due to the operating activities. Similarly the current liabilities are called as the operating liabilities. Among all the operating assets, cash has been increased by 37.67 million rupees which is 50.26% more than previous year. 3. The inventory level has been decreased by 70.11 million rupees which is 7.58 percent and sundry debtor has been increased by 303.47 million rupees which is 119.66 percent than previous year.

4. But the amount of loan and advances has been increased from 263.45 million rupees to the 303.35 million rupees which is 15.15% more. It shows the more amounts of cash has been invested in short term securities. That cash may be properly utilized.

5. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills payables. This has been increased by 492.47 million rupees which is 74.53 percent over last year.

6. The provisions shown here may be provision for bad debt, discount on debtor and Taxation purpose. This amount has been decreased by 33.52 million rupees which is 36.24%.

The above analysis shows that the Hero Honda company’s growth rate is high but the liquidity position is not so good and the company follows the aggressive policy. Their current liability is more than the current assets. In 2009 the company earns 11681.80 million rupees of profit and LML Company gets loss in last two years. Bajaj and TVS and Suzuki Company are earning good profit also and maintain the liquidity of the firm. Many firms working capital is negative.

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WORKING CAPITAL MANAGEMENT

CHAPTER 3 RATIO ANALYSIS 3.1 Hero Honda Motors Ltd

Liquidity Ratio Current Ratio Liquid Ratio Absolute Liquid Ratio Solvency Ratio Debt Equity Ratio Activity Ratio Inventory Turnover Ratio Debtor Turnover Ratio Working Capital Turnover Ratio Profitability Ratio Gross Profit Ratio Net Profit Ratio

2008

2009

0.48 0.32 0.17

0.46 0.32 0.25

0.04

0.02

9 times 33 times -12 times

10 times 55 times -11 times

0.13 0.08

0.14 0.09

1. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. Other hand this firm have the below the as a normal ratio like 2:1. It means low current ratio may be due to the following reasons: 2. There may not be sufficient fund to pay off liabilities. The business may be trading beyond its capacity. The resources may not warrant the activities. The Hero Honda Company follows the aggressive strategy. This company has fewer current assets over the current liabilities. 3. The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s capacity to pay off current obligations immediately and is a more rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has not sound liquidity position to meet the immediate obligations. The firm mainly emphasizes on purchasing fixed assets. 4. Absolute Ratio’s acceptable norm for this ratio is 50% or .05:1 or 1:2. Re 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm has not up to the standard to meet the liquidity of the firm. In 2008 is 0.17 and 2009 is 0.25 which is slightly increase but not maintaining the liquidity position.

22

WORKING CAPITAL MANAGEMENT

5. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory and 0.04 and 0.02 ratio is considered to be satisfactory for the shareholders because it indicates that the firm has not been able to use low-cost outsider’s fund to magnify their earning. This ratio shows the solvency position is very good. 6. Inventory turnover ratio shows that the firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirement of the business. But the level of inventory should neither be too high nor too low. It is harmful to hold more inventory for the following reason: In 2008 and 2009 has 9 and 10 times respectively used and replaced. It shows increases in inventory turnover ratio, it means good sign for the firm. Increase in turnover indicates the efficient management of inventory because more frequent the stock are sold, the lesser amount o money is required to finance the inventory. Increase (9 to10 times) in turnover implies that less investment in inventories, good quality of product, efficient business, stock accumulation and high profit as compared to total investments This type of turnover may be the result of very low level of inventory which results in shortage of goods in relation to demand and position of stock-out or the turnover may be high due to a conservative method of valuation inventories at lower values or the policy of the firm being to buy frequently in small lots. This type of turnover of inventory does not necessary imply higher profits. The profit may be decrease due to excessive cost incurred in replacing stock in small lots, stock-out situations, selling inventories at low prices. 7.

Debtor turnover ratio velocity indicates the number of times the debtors are turned over during a year. The debtor turnover ratio increase from 33 times to 55 times which shows high turnover for the firm. The higher the value of debtor’s turnover the more efficient is the management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales. It also depends upon the liquidity position of this concern to pay its short-term obligation in time. The high inventory turnover shows the company has good brand name and the customers are loyal.

8. Working Capital Turnover Ratio indicates the velocity of the utilization of net working capital. It indicates the number of times the working capital is turnover in the course of a year.The negative working capital indicates that the firm has fewer current assets over current liabilities over the period of time. It indicates the in efficient utilization of working capital and management. 23

WORKING CAPITAL MANAGEMENT

9. Gross profit ratio measures the relationship of gross profit to net sales. One percentage increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces its products. Higher the ratio its better result but in this firm the ratio is 0.13 and 0.14 in 2008 and 2009 respectively, which shows there is no high profit, it means average profit. Gross profit ratio is low; it may be the overvaluation closing stock and undervaluation of opening stock. It may be high expenses. 10. Net Operating Ratio establishes a relationship of various expenses to net sales. It indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This firm has .08 and .09 ratio in the year 2008 and 2009 respectively; it indicates the 0.1 increase in net profit ratio. This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, it should kept in mind that the performance of profits must also be seen in relation to investment or capital of the firm and not only in relation to sales. This ratio is low, it may be recession effect.

3.2 Bajaj Auto Ltd

Liquidity Ratio Current Ratio Liquid Ratio Absolute Liquid Ratio Solvency Ratio Debt Equity Ratio Activity Ratio Inventory Turnover Ratio Debtor Turnover Ratio Working Capital Turnover Ratio Profitability Ratio Gross Profit Ratio Net Profit Ratio

2008

2009

0.88 0.71 0.57

0.92 0.79 0.65

0.84

0.84

27 times 22 times -19.45

25 times 27 times -39.59

0.12 0.09

0.12 0.09

1. Liquidity Ratio refers to the ability of a concern to meet its current obligation as and when these become due. The current ratio increases from 0.88 to 0. 92 in 2008 to 2009 respectively. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. Other hand this firm have the below the as a normal ratio like 2:1 but in this firm the current assets is lesser than the current liability. It means low current ratio may be due to the following reasons: There may not be sufficient fund to pay off liabilities. It may 24

WORKING CAPITAL MANAGEMENT

be short term loans are not sufficient to meet the current obligations. The business may be trading beyond its capacity. The resources may not warrant the activities. The Bajaj Auto Ltd follows the aggressive strategy. This company has fewer current assets over the current liabilities. 2. The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s capacity to pay off current obligations immediately and is a more rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has not sound liquidity position to meet the immediate obligations. This firm’s liquid ratio is increases from 0.71 to 0.79 in 2008 to 2009 respectively. It shows that the firm immediate obligation is good. The firm mainly emphasizes on purchasing fixed assets. 3. Absolute Ratio’s acceptable norm for this ratio is 50% or 1:2. Re 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm meet the liquidity of the firm. In 2008 is 0.57 and 2009 is 0.65 which is slightly increase. The 0.57 and 0.65 is quite satisfactory because it is higher than the rule of thumb. 4. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory. In this firm 0.84 and 0.82 ratio is considered to be satisfactory for the shareholders because it indicates that the firm has not been able to use low-cost outsider’s fund to magnify their earning. This ratio shows the solvency position is very good. It is harmful to hold more inventory for the following reason: In 2008 and 2009 has 27 and 25 times respectively used and replaced. It shows increases in inventory turnover ratio, it means good sign for the firm but too much high turnover of inventory may not be necessarily always imply a favourable situation. 5. The high inventory turnover may be result of a very low level of inventory which results in shortage of goods in relation to demand and position of stock-out or the turnover may be high due to a conservative method of valuing inventories. Indicates the efficient management of inventory because more frequent the stock are sold, the lesser amount o money is required to finance the inventory. Increase (27 to 25 times) in turnover implies that less investment in inventories, good quality of product, efficient business, stock accumulation and high profit as compared to total investments This type of turnover of inventory does not necessary imply higher profits. The profit may be decrease due to excessive cost incurred in replacing stock in small lots, stock-out situations, selling inventories at low prices.

25

WORKING CAPITAL MANAGEMENT

6.

Debtor turnover ratio velocity indicates the number of times the debtors are turned over during a year. The debtor turnover ratio increase from 22 times to 27 times which shows high turnover for the firm. The higher the value of debtor’s turnover the more efficient is the management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales. It also depends upon the liquidity position of this concern to pay its short-term obligation in time. The high debtor turnover shows the company has good brand name and the customers are loyal.

7. Working Capital Turnover Ratio indicates the velocity of the utilization of net working capital. It indicates the number of times the working capital is turnover in the course of a year. The negative working capital indicates that the firm has fewer current assets over current liabilities over the period of time. It indicates the in efficient utilization of working capital and management. 8. Gross profit ratio measures the relationship of gross profit to net sales. One percentage increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces its products. Higher the ratio its better result but in this firm the ratio is 0.12 and 0.12 in 2008 and 2009 respectively, which shows there is 12 percent gross profit on sales, it means good profit in competitive pricing. Gross profit ratio is low; it may be the overvaluation closing stock and undervaluation of opening stock. It may be high expenses but maintaining the consistency profit. 9.

Net Operating Ratio establishes a relationship of various expenses to net sales. It indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This firm has .09 and .09 ratio in the year 2008 and 2009 respectively; it indicates that no increase in net profit ratio. This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, it should kept in mind that the performance of profits must also be seen in relation to investment or capital of the firm and not only in relation to sales but in the period of recession they maintaining the profit. This ratio is low, it may be recession effect.

26

WORKING CAPITAL MANAGEMENT

3.3 TVS Motors Company Ltd

Liquidity Ratio Current Ratio Liquid Ratio Absolute Liquid Ratio Solvency Ratio Debt Equity Ratio Activity Ratio Inventory Turnover Ratio Debtor Turnover Ratio Working Capital Turnover Ratio Profitability Ratio Gross Profit Ratio Net Profit Ratio

1.

2008

2009

1.07 0.55 0.44

1.15 0.77 0.56

0.81

1.11

32 times 8 times 71.72

27 times 10 times 40.15

0.01 0.00

0.02 0.01

The Current Ratio increases from 1.07 to 1.15 in 2008 to 2009 respectively. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. Other hand this firm have the below the as a normal ratio like 2:1. The current ratio of 1.07 and 1.15 means that current assets are 1.07 and 1.15 times of current liabilities. The TVS Motors Company Ltd follows the conservative method. This company has more current assets over the current liabilities.

2. The Liquid Ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s capacity to pay off current obligations immediately and is a more rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has not sound liquidity position to meet the immediate obligations. This firm’s liquid ratio is increases from 0.55 to 0.77 in 2008 to 2009 respectively. It shows that the firm immediate obligation is not good. The firm mainly emphasizes on purchasing fixed assets. 3. Absolute Ratio’s acceptable norm for this ratio is 50% or 1:2. Re 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm meet the liquidity of the firm. In 2008 is 0.44 and 2009 is 0.56 which is slightly increase. The 0.44 is not satisfactory but in 2009 is 0.57 is quite satisfactory because it is higher than the rule of thumb. 4. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory. In this firm 0.81 in 2008 is quite satisfactory but in 2009 is 1.11 ratios is considered to be not 27

WORKING CAPITAL MANAGEMENT

satisfactory for the shareholders because it indicates that the firm has not been able to use low-cost outsider’s fund to magnify their earning. This ratio shows the solvency position is very good. 5. The Inventory Turnover Ratio in 2008 and 2009 has 32 and 27 times respectively used and replaced. It shows increases in inventory turnover ratio, it means good sign for the firm but too much high turnover of inventory may not be necessarily always imply a favourable situation. The high inventory turnover may be result of a very low level of inventory which results in shortage of goods in relation to demand and position of stock-out or the turnover may be high due to a conservative method of valuing inventories. Indicates the efficient management of inventory because more frequent the stock are sold, the lesser amount o money is required to finance the inventory. Decrease (32 to 27 times) in turnover implies that less investment in inventories, good quality of product, efficient business, stock accumulation and high profit as compared to total investments This type of turnover of inventory does not necessary imply higher profits. The profit may be decrease due to excessive cost incurred in replacing stock in small lots, stock-out situations, selling inventories at low prices. 6. Debtor turnover ratio velocity indicates the number of times the debtors are turned over during a year. The debtor turnover ratio increase from 8 times to 10 times which shows high turnover for the firm. The higher the value of debtor’s turnover the more efficient is the management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales. It also depends upon the liquidity position of this concern to pay its short-term obligation in time. The high inventory turnover shows the company has good brand name and the customers are loyal. 7. Working Capital Turnover Ratio indicates the velocity of the utilization of net working capital. It indicates the number of times the working capital is turnover in the course of a year. The working capital indicates that the firm has more current assets over current liabilities over the period of time. It indicates the efficient utilization of working capital and management. 8. Gross profit ratio measures the relationship of gross profit to net sales. One percentage increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces its products. Higher the ratio its better result but in this firm the ratio is 0.1 and 0.2 in 2008 and 2009 respectively, which shows there is less gross 28

WORKING CAPITAL MANAGEMENT

profit in comparison to other firm on sales, it means good profit in competitive pricing. Gross profit ratio is low; it may be the overvaluation closing stock and undervaluation of opening stock. It may be high expenses but maintaining the consistency profit. 9. Net Operating Ratio establishes a relationship of various expenses to net sales. It indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This firm has 0 and .01 ratio in the year 2008 and 2009 respectively; it indicates that one percentage increase in net profit ratio. In 2008 the gross profit ratio is zero; it may be the recession or low sales. This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, it should kept in mind that the performance of profits must also be seen in relation to investment or capital of the firm and not only in relation to sales but in the period of recession they maintaining the profit. This ratio is low, it may be recession effect.

3.4 LML Ltd.

Liquidity Ratio Current Ratio Liquid Ratio Absolute Liquid Ratio Solvency Ratio Debt Equity Ratio Activity Ratio Inventory Turnover Ratio Debtor Turnover Ratio Working Capital Turnover Ratio Profitability Ratio Gross Profit Ratio Net Profit Ratio

2008

2009

0.49 0.18 0.15

0.45 0.17 0.15

-1.17

-0.84

1 times 11 times -0.40

1 times 17 times -0.62

-0.61 -0.90

-0.34 -0.52

1. The current ratio decreases from 0.49 to 0.45 in 2008 to 2009 respectively. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. Other hand this firm have the below the as a normal ratio like 2:1 but in this firm the current assets is lesser than the current liability. It means low current ratio may be due to the following reasons: There may not be sufficient fund to pay off liabilities. It may be short term loans are 29

WORKING CAPITAL MANAGEMENT

not sufficient to meet the current obligations. The business may be trading beyond its capacity. The resources may not warrant the activities. The LML Ltd follows the aggressive strategy. This company has fewer current assets over the current liabilities. 2. The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s capacity to pay off current obligations immediately and is a more rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has not sound liquidity position to meet the immediate obligations. This firm’s liquid ratio 0.18 to 0.17 in 2008 to 2009 respectively. It shows that the firm immediate obligation is poor. 3. Absolute Ratio’s acceptable norm for this ratio is 50% or 1:2. Re 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm meet the liquidity of the firm. In 2008 and 2009 the ratio is constant in 0.15. The 0.15 is not satisfactory because it is lower than the rule of thumb. 4. The Debt Equity Ratio is negative which shows that the company running in loss. 5. In this firm has one time inventory turnover ratio which is shows the inefficient of working capital and management. The company has less production and the product of the company is not running in the market. 6.

Debtor turnover ratio velocity indicates the number of times the debtors are turned over during a year. The debtor turnover ratio increase from 11 times to 17 times which shows high turnover for the firm. The higher the value of debtor’s turnover the more efficient is the management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales, it recover the money which is invest before. It also depends upon the liquidity position of this concern to pay its short-term obligation in time.

7. Working Capital Turnover Ratio indicates the velocity of the utilization of net working capital. It indicates the number of times the working capital is turnover in the course of a year. The negative working capital indicates that the firm has fewer current assets over current liabilities over the period of time. It indicates the in efficient utilization of working capital and management and their product demand is very low. 8. Gross profit ratio measures the relationship of gross profit to net sales. The company facing loss and repaying outsiders’ liabilities. It may be their product is not up to the

30

WORKING CAPITAL MANAGEMENT

mark or not compete with other brand or their product has high price in comparison to other firms 9. Net Operating Ratio establishes a relationship of various expenses to net sales. It indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. The firm has incurring expenses loss but still running because if they are stop the production, they may be face the fixed cost 3.5 Suzuki Motors Ltd.

Liquidity Ratio Current Ratio Liquid Ratio Absolute Liquid Ratio Solvency Ratio Debt Equity Ratio Activity Ratio Inventory Turnover Ratio Debtor Turnover Ratio Working Capital Turnover Ratio Profitability Ratio Gross Profit Ratio Net Profit Ratio

2008

2009

2.01 0.79 0.45

1.51 0.80 0.34

0.64

0.73

7 times 25 times 7.99

9 times 17 times 10.07

0.11 0.04

0.07 0.02

1. The current ratio increases from 2.01 to 1.51 in 2008 to 2009 respectively. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. Other hand this firm have the below the as a normal ratio like 2:1. The current ratio of 2.01 and 1.51 means that current assets are 2.01 and 1.51 times more than the current liabilities. The Suzuki Motors Company Ltd follows the conservative method. This company has more current assets over the current liabilities. 2. The Liquid Ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s capacity to pay off current obligations immediately and is a more rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has not sound liquidity position to meet the immediate obligations. This firm’s liquid ratio is increases from 0.79 to 0.80 in 2008 to 2009 respectively. It shows that the firm immediate obligation is not good. The firm mainly emphasizes on purchasing fixed assets.

31

WORKING CAPITAL MANAGEMENT

3. Absolute Ratio’s acceptable norm for this ratio is 50% or 1:2. Re 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm meet the liquidity of the firm. In 2008 is 0.45 and 2009 is 0.34 which is slightly decrease. Two years absolute ratio is not satisfactory 4. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory. In this firm 0.64 and 0.73 is quite satisfactory but this ratios is considered to be satisfactory for the shareholders because it indicates that the firm has not been able to use lowcost outsider’s fund to magnify their earning. This ratio shows the solvency position is very good. 5.

The Inventory Turnover Ratio in 2008 and 2009 has 7 and 9 times respectively used and replaced. It shows increases in inventory turnover ratio, it means good sign for the firm but too much high turnover of inventory may not be necessarily always imply a favorable situation. The high inventory turnover may be result of a very low level of inventory which results in shortage of goods in relation to demand and position of stock-out or the turnover may be high due to a conservative method of valuing inventories. Indicates the efficient management of inventory because more frequent the stock are sold, the lesser amount o money is required to finance the inventory. Increase (7 to 9 times) in turnover implies that more investment in inventories, good quality of product, efficient business, stock accumulation and high profit as compared to total investments This type of turnover of inventory does not necessary imply higher profits. The profit may be increase for less cost incurred in replacing stock in small lots, stock-out situations, selling inventories at low prices.

6. Debtor turnover ratio velocity indicates the number of times the debtors are turned over during a year. The debtor turnover ratio increase from 25 times to 17 times which shows high turnover for the firm. The higher the value of debtor’s turnover the more efficient is the management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales. It also depends upon the liquidity position of this concern to pay its short-term obligation in time. The high inventory turnover shows the company has good brand name and the customers are loyal. 7. Working Capital Turnover Ratio indicates the velocity of the utilization of net working capital. It indicates the number of times the working capital is turnover in the course of a year. The working capital indicates that the firm has more current assets

32

WORKING CAPITAL MANAGEMENT

over current liabilities over the period of time. It indicates the efficient utilization of working capital and management. 8. Gross profit ratio measures the relationship of gross profit to net sales. One percentage increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces its products. Higher the ratio its better result but in this firm the ratio is 0.11 and 0.7 in 2008 and 2009 respectively, which shows there is less gross profit in comparison to other firm on sales and in 2009 less profit in comparison to 2008, it means good profit in competitive pricing. Gross profit ratio is low; it may be the overvaluation closing stock and undervaluation of opening stock. It may be high expenses but maintaining the consistency profit. 9.

Net Operating Ratio establishes a relationship of various expenses to net sales. It indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This firm has 0.4 and .02 ratio in the year 2008 and 2009 respectively; it indicates that two percentage increase in net profit ratio. In 2008 the gross profit ratio is 0.4; it may be the sales and in 2009 may be inventory cost is high for that net profit will less. This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, it should kept in mind that the performance of profits must also be seen in relation to investment or capital of the firm and not only in relation to sales but in the period of recession they maintaining the profit.

From the above analysis of different ratio of different companies, we have got Hero Honda and Bajaj has follows aggressive policy and TVS and Suzuki follows conservative policy but LML running with loss. The good liquidity position is maintaining by Suzuki and TVS among the five firms. The entire firm’s have maintaining good solvency ratio except LML Ltd. All the four firms are maintaining good inventory and debtor turnover ratio except LML Ltd and two firms are maintaining good working capital ratio like Suzuki and TVS Motors. Four firms are maintaining good profitability ratio except LML Ltd. Hero Honda and Bajaj maintaining good profit in the recession period also.

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WORKING CAPITAL MANAGEMENT

CHAPTER 4 INTRA-FIRM ANALYSIS OF HERO HONDA MOTORS

Balance Sheet of Hero Honda Motors Ltd For the year ending December 31, 2008, 2007 and 2009 Year ending 31 December (In Million Rupees)

2007

2008

2009

Share Capital Reserves & Surplus Net Worth(1) Secured Loans(2) Unsecured Loans(3)

399.40 24301.20 24700.60 0.00 1651.70

399.40 29463.00 29862.40 0.00 1320.00

399.40 37608.10 38007.50 0.00 784.90

Total Liabilities(1+2+3)

26352.30

31182.40

38792.40

18006.3 6351 11655.3 1899.2 19738.7

19387.80 7825.20 11562.60 4084.90 25668.20

25162.70 9425.60 15737.10 1205.40 33687.50

Liabilities

Assets Fixed Assets Gross Block (-) Acc. Depreciation Net Block(A) Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs. Inventories Sundry Debtors cash and Bank Loans and Advances (I) Current Liabilities & Provisions Current Liabilities Provisions (II)

2755.80 3352.50 357.80 2680.40 9146.50

3171.00 2974.40 1310.90 1963.70 9420.00

3268.30 1499.40 2195.70 3258.00 10221.40

11715.00 4372.40 16087.40

14555.70 4997.60 19553.30

16789.30 5269.70 22059.00

Net Current Assets(I-II) (D)

-6940.90

-10133.30

-11837.60

Misc.Expenses(E) Total Assets(A+B+C+D+E)

0.00 26352.30

0.00 31182.40

0.00 38792.40

A) LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assts. The current assets should either be liquid or near about liquidity. These 34

WORKING CAPITAL MANAGEMENT

should be convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. If current assets can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then the liquidity position is bad. 1) Current Ratio Year Current Assets Current Liabilities Current Ratio

2007 2008 2009 9146.50 9420.00 10221.40 16087.40 19553.30 22059.00 0.57 0.48 0.46

Interpretation: - As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for last three years it has decreased from 2007 to 2009. The current ratio of company is less than the ideal ratio. This depicts that company’s liquidity position is not sound. Its current assets are less than its current liabilities. 2) Quick Ratio Year Quick Assets Current Liabilities Quick Ratio

2007 2008 2009 6390.70 6249.00 6953.10 16087.40 19553.30 22059.00 0.40 0.32 0.32

Interpretation: - A quick ratio is an indication that the firm is liquid and has the less confidence to meet its current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is less than ideal ratio. This shows company has liquidity problem. 3) Absolute Liquid Ratio Year Absolute Liquid Assets Current Liabilities

2007

2008

2009

357.80

1310.90

2195.70

16087.40 19553.30 22059.00

Absolute Liquid Ratio

0.02

35

0.07

0.10

WORKING CAPITAL MANAGEMENT

Interpretation: - These ratio shows that company carries a small amount of cash. But there is nothing to be worried about the lack of cash because company has reserve, borrowing power & long term investment. In India, firms have credit limits sanctioned from banks and can easily draw cash.

(B) CURRENT ASSETS MOVEMENT RATIO Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, large is the amount of sales and profits. Current assets movement ratios measure the efficiency with which a firm manages its resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose, a number of turnover ratios can be calculated. 1) Inventory Turnover Ratio Year Cost of goods sold/Sales Average Stock Inventory Turnover Ratio

2007 123253.80 4032.20 30.57times

2008 2009 103450.10 99059.50 4548.90 4805.15 22.74times 20.62times

Interpretation: - This ratio shows how rapidly the inventory is turning into receivable through sales. In 2007 the company has high inventory turnover ratio but in 2009 it has reduced to 20.62 times. This shows that the company’s inventory management technique is less efficient as compare to last two years. 2) Inventory Conversion Period Year Days Inventory Turnover Ratio Inventory Conversion Period

2007 2008 2009 365.00 365.00 365.00 30.57 22.74 20.62 11.94days 16.05days 17.71days

Interpretation: - Inventory conversion period shows that how many days’ inventories takes to convert from raw material to finished goods. In the company inventory conversion period is increasing. This shows the inefficiency of management to convert the inventory into cash. 36

WORKING CAPITAL MANAGEMENT

3) Debtor Turnover Ratio Year Sales Average Debtors Debtor Turnover Ratio

2007 123253.80 4790.80 25.73times

2008 103450.10 4650.65 22.24times

2009 99059.50 2986.60 33.17times

Interpretation: - This ratio indicates the speed with which debtors are being converted or turnover into sales. The higher the values or turnover into sales. The higher the values of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is increasing year to year. This shows that company is utilizing its debtor’s efficiency. Now their credit policy becomes efficient as compare to previous year. 4) Average Collection period Year Days Debtor Turnover Ratios Average Collection Period

2007 365.00 25.73 14days

2008 365.00 22.24 16days

2009 365.00 33.17 11days

Interpretation: - The average collection period measures the quality of debtors and it helps in analyzing the efficiency of collection efforts. It also helps to analysis the credit policy adopted by company. In the firm average collection period increasing year to year but in 2009 it came down. It shows that the firm has previously Liberal Credit policy but now it recovery. These changes in policy are due to competitor’s credit policy. 5) Working Capital Turnover Ratio Year Sales Net Working Capital Working Capital Turnover Ratio

2007 123253.80 -6940.90 -17.76

2008 103450.10 -10133.30 -10.21

2009 99059.50 -11837.60 -8.37

Interpretation: - This ratio indicates high net working capital requires for sales. This company having negative working capital because, they have more current liabilities over current assets. It shows that the short term loans are not sufficient and more money are invested in 37

WORKING CAPITAL MANAGEMENT

the purchase of fixed assets. Thus this ratio is helpful to forecast the working capital requirement on the basis of sale. Inventory Year Inventories

2006-2007 2007-2008 2008-2009 2755.80 3171.00 3268.30

Inventories are a major part of current assets. If any company wants to manage its working capital efficiency, it has to manage its inventories efficiently. The graph shows that inventory in 2006-2007 is 30%, in 2007-2008 is 33% and in 2008-2009 is 31% of their current assets. The company should try to reduce the inventory upto 10% or 20% of current assets. Cash & Bank Balance Year Cash & Bank Balance

2006-2007 2007-2008 2008-2009 357.80 1310.90 2195.70

Cash is basic input or component of working capital. Cash is needed to keep the business running on a continuous basis. So the organization should have sufficient cash to meet various requirements. The above graph is indicate that in 2007 the cash is 357.80 million but in 2008 it has increase to 1310.90. The result of that it easy for the firms manufacturing operations. In 2009, it is increased upto 2195.70 million cash balance. So in 2009, the company has no problem for meeting its requirement as compare to 2008. Debtors Year Debtors

2006-2007 2007-2008 2008-2009 3352.50 2974.40 1499.40

Debtors constitute a substantial portion of total current assets. In India it constitute one third of current assets. The above graph is depicting that there is increase in debtors. It represents an extension of credit to customers. The reason for increasing credit is competition and company liberal credit policy.

38

WORKING CAPITAL MANAGEMENT

Current Assets Year Current Assets

2006-2007 2007-2008 2008-2009 9146.50 9420.00 10221.40

This graph shows that there is 92% increase in current assets in 2009. This increase is arising because there is approx. 50% increase in inventories. Increase in current assets shows the liquidity soundness of company. Current Liabilities Year Current Liabilities

2006-2007 2007-2008 2008-2009 16087.40 19553.30 22059.00

Current liabilities shows company short term debts pay to outsiders. In 2009 the current liabilities of the company increased. It is not good sign for the company. Net Working Capital Year Net Working Capital

2006-2007 2007-2008 2008-2009 -6940.90 -10133.30 -11837.60

Working capital is required to finance day to day operations of a firm. There should be an optimum level of working capital. It should not be too less or not too excess. In the company there is negative in working capital. The negative in working capital arises because the company has purchase many fixed assets and the short debt is not sufficient to meet the current liabilities. From the above discussion we get, in 2009 the Hero Honda gets more profit and increase its business but the liquidity position is better in comparison to previous two years.

39

WORKING CAPITAL MANAGEMENT

CONCLUSION After studying the components of working capital management system of Hero Honda Motors, Bajaj Auto Ltd, TVS Company Ltd, LML Ltd and Suzuki Ltd. It is found that the TVS and Suzuki have good liquidity position but profit is low and other Hero Honda and Bajaj having liquidity position is poor but LML is running with loss. Out of five companies four of companies are following aggressive policy. Hero Honda and Bajaj are competing well at the domestic as well as the international level and it is among the low cost producer’s two wheelers. Two wheeler markets is a saturated market in India and cut-throat completion among the firms. Among the five companies Hero Honda made more profit in 2009 is 11681.80 million rupees than other companies and LML is suffering is loss due to the demand of his product and inefficient management. The company is a matured one and it has contributed well in the countries growth and development and will also continue to perform and contribute to the whole nation. The Profit is less due to recession, miss management of fund, not proper Management of working capital. After the in intra-firm analysis of Hero Honda we found that in 2009 the firm earns 11681.80 million rupees which is high profit in comparison to last two years but the liquidity position is not good. Mainly short term borrowing is not sufficient to meet the immediate obligations and the use more fund in the fixed assets. We found that the working capital is negative which shows the current assets less than the current liabilities. The Hero Honda gets maximum market share in the two wheelers market. Overall the financial position of Hero Honda is good.

40

WORKING CAPITAL MANAGEMENT

REFERENCE •

http://www.suzukimotorcycle.co.in/suzuki_india.asp

•

http://www.suzukimotorcycle.co.in/mission_statement.asp

•

http://www.herohonda.com/

•

http://www.automobileindia.com/two-wheelers/lml-india/

•

http://www.bajajauto.com/

•

http://www.tvsmotor.in/

•

http://en.wikipedia.org/wiki/Working_capital

•

Gupta,Shashi. K & Sharma,R.K. 2003, Management Accounting, Kalyani Publishers, Delhi.

•

Gupta, Shashi, K & Mehra, Arun. 2004, Financial Analysis and reporting, Kalyani Publisher, Delhi

41

WORKING CAPITAL MANAGEMENT

ANNEXURE-1 Profit and Loss Account of Hero Honda Motors for the year ending December 31,2007,2008 and 2009 Year ending 31 December (In Million Rupees) 2007

2008

2009

99059.50 837.30 99896.80 72524.60 16475.20 -1959.90 12019.60 137.60 11882.00 1397.80 11321.50

103450.10 888.50 104338.60 74795.00 17032.90 -2055.50 13677.70 134.70 13543.00 1603.20 12828.30

123253.80 1085.60 124339.40 88200.50 12278.50 5244.60 17530.20 130.40 17399.80 1806.60 16678.80

Tax

3882.10

4424.00

4997.00

Net Profit

7439.40

8404.30

11681.80

Other Non-Recurring Income Reported Profit

1139.50 8578.90

1274.50 9678.80

1135.80 12817.60

Equity Dividend

3394.70

3794.10

3993.80

Sales Other Income Total Income Raw Material Cost Excise Other Expenses Operating Profit Interest Name Gross Profit Depreciation Profit Bef.Tax

42

WORKING CAPITAL MANAGEMENT

Balance Sheet of Hero Honda Motors Ltd for the year ending December 31,2007,2008 and 2009 Year ending 31 December (In Million Rupees)

2007

2008

2009

Share Capital Reserves & Surplus Net Worth(1) Secured Loans(2)

399.40 24301.20 24700.60 0.00

399.40 29463.00 29862.40 0.00

399.40 37608.10 38007.50 0.00

Unsecured Loans(3)

1651.70

1320.00

784.90

26352.30

31182.40

38792.40

Fixed Assets Gross Block (-) Acc. Depreciation Net Block(A) Capital Work in Prg.(B)

18006.30 6351.00 11655.30 1899.20

19387.80 7825.20 11562.60 4084.90

25162.70 9425.60 15737.10 1205.40

Investments ( C)

19738.70

25668.20

33687.50

Inventories

2755.80

3171.00

3268.30

Sundry Debtors

3352.50

2974.40

1499.40

cash and Bank

357.80

1310.90

2195.70

Loans and Advances

2680.40

1963.70

3258.00

(I)

9146.50

9420.00

10221.40

Current Liabilities Provisions

11715.00 4372.40

14555.70 4997.60

16789.30 5269.70

(II)

16087.40

19553.30

22059.00

Net Current Assets(I-II) (D)

-6940.90

-10133.30

-11837.60

0.00

0.00

0.00

26352.30

31182.40

38792.40

Liabilities

Total Liabilities(1+2+3)

Assets

Current Assets, Loans & Advs.

Current Liabilities & Provisions

Misc.Expenses(E) Total Assets(A+B+C+D+E)

43

WORKING CAPITAL MANAGEMENT

ANNEXURE-2 Profit and Loss Account of Bajaj Auto Ltd for the year ending December 31,2007,2008 and 2009 Year ending 31 December (In Million Rupees) 2007

2008

2009

94202.40

88271.50

87001.70

Other Income

3579.30

2504.00

1639.00

Total Income

97781.70

90775.50

88640.70

Raw Material Cost

69704.00

66921.90

65265.90

Excise

13216.70

10295.10

6100.70

Other Expenses

-2012.50

202.40

4708.00

Operating Profit

13294.20

10852.10

10927.10

53.40

51.60

210.10

Gross Profit

13240.80

10800.50

10717.00

Depreciation

1902.60

1739.60

1297.90

Profit Bef.Tax

14913.60

11553.70

11058.10

4900.90

3787.80

3016.10

10012.70

7765.90

8042.00

2358.30

-208.10

-1497.00

Reported Profit

12371.00

7557.80

6545.00

Equity Dividend

4047.30

2893.70

3183.00

Sales

Interest Name

Tax Net Profit Other Non-Recurring Income

44

WORKING CAPITAL MANAGEMENT

Balance Sheet of Bajaj Auto Ltd for the year ending December 31,2007,2008 and 2009 Balance Sheet of Bajaj Auto Ltd

2007

2008

2009

1011.80

1446.80

1446.80

Reserves & Surplus

54331.40

14429.10

17250.10

Net Worth(1)

55343.20

15875.90

18696.90

224.60

69.50

0.00

Unsecured Loans(3)

16029.70

13273.90

15700.00

Total Liabilities(1+2+3)

71597.50

29219.30

34396.90

Gross Block

31785.40

29946.80

33502.00

(-) Acc. Depreciation

19049.40

17260.70

18079.10

Net Block(A)

12736.00

12686.10

15422.90

1076.20

347.40

1064.80

64475.30

18571.40

18085.20

Inventories

3097.00

3496.10

3388.40

Sundry Debtors

5298.30

2753.10

3586.50

cash and Bank

834.80

560.70

1368.70

Loans and Advances

29252.40

10996.80

15670.90

(I)

38482.50

17806.70

24014.50

Current Liabilities

16834.60

11851.90

13782.00

Provisions

28337.90

8340.40

12241.50

(II)

45172.50

20192.30

26023.50

Net Current Assets(I-II) (D)

-6690.00

-2385.60

-2009.00

0.00

0.00

1833.00

71597.50

29219.30

34396.90

Liabilities Share Capital

Secured Loans(2)

Assets Fixed Assets

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs.

Current Liabilities & Provisions

Misc.Expenses(E) Total Assets(A+B+C+D+E)

45

WORKING CAPITAL MANAGEMENT

ANNEXURE-3 Profit and Loss Account of TVS Motors Company Ltd for the year ending December 31,2007,2008 and 2009 Year ending 31 December (In Million Rupees) 2007

2008

2009

38549.60

32195.00

36709.20

745.30

673.00

761.60

Total Income

39249.90

32868.00

37470.80

Raw Material Cost

29459.00

24763.80

28140.90

Excise

6184.80

4640.30

3379.90

Other Expenses

1506.30

2337.80

3977.60

Operating Profit

1399.50

453.10

1210.80

Interest Name

423.50

114.70

646.10

Gross Profit

976.00

338.40

564.70

Depreciation

876.00

945.90

1028.90

Profit Bef.Tax

826.50

46.00

277.90

Tax

242.50

36.00

0.20

Net Profit

584.00

10.00

277.70

78.80

307.70

33.10

Reported Profit

662.80

317.70

310.80

Equity Dividend

201.90

166.30

166.30

Sales Other Income

Other Non-Recurring Income

46

WORKING CAPITAL MANAGEMENT

Balance Sheet of TVS Motors Company Ltd for the year ending December 31, 2007,2008 and 2009 Year ending 31 December (In Million Rupees)

2007

2008

2009

237.50

237.50

237.50

Reserves & Surplus

7855.20

7978.30

7893.80

Net Worth(1)

8092.70

8215.80

8131.30

Secured Loans(2)

4461.60

4526.80

6224.20

Unsecured Loans(3)

1874.00

2136.60

2835.60

14428.30

14879.20

17191.10

14830.10

17909.70

18653.60

(-) Acc. Depreciation

6859.30

7744.90

8694.20

Net Block(A)

7970.80

10164.80

9959.40

Capital Work in Prg.(B)

2058.30

265.70

404.30

Investments ( C)

3447.40

3389.60

4777.10

Inventories

3965.60

4053.80

3205.50

Sundry Debtors

1114.00

878.60

1815.60

cash and Bank

865.60

37.30

420.50

Loans and Advances

2660.70

3428.70

4271.10

(I)

8605.90

8398.40

9712.70

7742.20

7257.10

7760.80

497.30

609.90

654.90

8239.50

7867.00

8415.70

Net Current Assets(I-II) (D)

366.40

531.40

1297.00

Misc.Expenses(E)

585.40

527.70

753.30

14428.30

14879.20

17191.10

Liabilities Share Capital

Total Liabilities(1+2+3)

Assets Fixed Assets Gross Block

Current Assets, Loans & Advs.

Current Liabilities & Provisions Current Liabilities Provisions (II)

Total Assets(A+B+C+D+E)

47

WORKING CAPITAL MANAGEMENT

ANNEXURE-4 Profit and Loss Account of LML Ltd for the year ending December 31,2007,2008 and 2009 Year ending 31 December (In Million Rupees) 2007

2008

2009

3261.60

628.47

1116.46

23.75

45.38

14.11

Total Income

3285.34

673.84

1130.56

Raw Material Cost

2574.33

470.53

799.39

391.61

23.18

59.66

Other Expenses

1400.40

328.50

384.89

Operating Profit

-1104.75

-193.74

-127.48

291.27

189.25

255.10

-1396.02

-382.99

-382.57

Depreciation

390.57

228.58

204.02

Profit Bef.Tax

-1762.84

-566.20

-572.49

794.93

0.00

3.54

-2557.77

-566.20

-576.02

73.93

0.13

3.48

Reported Profit

-2483.84

-566.07

-572.55

Equity Dividend

0.00

0.00

0.00

Sales Other Income

Excise

Interest Name Gross Profit

Tax Net Profit Other Non-Recurring Income

48

WORKING CAPITAL MANAGEMENT

Balance Sheet of LML Ltd for the year ending December 31, 2007,2008 and 2009 Year ending 31 December (In Million Rupees)

2007

2008

2009

1987.78

1987.78

1987.78

-2533.92

-3099.99

-3672.54

Net Worth(1)

-546.14

-1112.22

-1684.76

Secured Loans(2)

1057.52

1130.26

1241.44

66.31

169.57

178.52

577.68

187.62

-264.80

Gross Block

5135.25

5134.38

5134.04

(-) Acc. Depreciation

3240.44

3466.19

3668.70

Net Block(A)

1894.81

1668.19

1465.33

190.21

184.80

183.92

0.18

0.09

0.09

1025.69

1024.77

980.86

Sundry Debtors

47.76

69.82

63.53

cash and Bank

109.01

77.88

115.15

Loans and Advances

461.89

426.44

405.61

1644.35

1598.91

1565.15

3040.20

3142.63

3389.96

111.67

121.74

89.33

(II)

3151.87

3264.37

3479.30

Net Current Assets(I-II) (D)

-1507.52

-1665.46

-1914.15

0.00

0.00

0.00

577.68

187.62

-264.80

Liabilities Share Capital Reserves & Surplus

Unsecured Loans(3) Total Liabilities(1+2+3)

Assets Fixed Assets

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs. Inventories

(I) Current Liabilities & Provisions Current Liabilities Provisions

Misc.Expenses(E) Total Assets(A+B+C+D+E)

49

WORKING CAPITAL MANAGEMENT

ANNEXURE-5 Profit and Loss Account of Suzuki Motors Ltd for the year ending December 31,2007,2008 and 2009 Year ending 31 December (In Million Rupees) 2007

2008

2009

6469.24

6627.07

6944.73

13.26

11.11

10.72

Total Income

6482.49

6638.18

6955.45

Raw Material Cost

4696.98

4677.08

5298.77

Excise

1080.01

1113.79

921.14

Other Expenses

-64.92

2.45

92.98

Operating Profit

757.17

833.76

631.84

79.83

108.72

145.91

Gross Profit

677.34

725.04

485.93

Depreciation

275.21

325.14

315.65

Profit Bef.Tax

400.07

411.00

181.00

Tax

115.82

125.30

49.59

Net Profit

284.25

285.70

131.41

-6.21

56.00

2.71

Reported Profit

278.04

286.26

134.12

Equity Dividend

47.99

47.99

29.99

Sales Other Income

Interest Name

Other Non-Recurring Income

50

WORKING CAPITAL MANAGEMENT

Balance Sheet of Suzuki Motors Ltd for the year ending December 31,2007, 2008 and 2009 Year ending 31 December (In Million Rupees)

2007

2008

2009

119.98

119.98

119.98

Reserves & Surplus

1390.37

1620.49

1719.52

Net Worth(1)

1510.35

1740.47

1839.50

Secured Loans(2)

961.25

809.96

1049.62

Unsecured Loans(3)

300.00

300.00

300.00

2771.60

2850.42

3189.12

Gross Block

3314.22

3631.00

4296.65

(-) Acc. Depreciation

1664.83

1941.48

2175.57

Net Block(A)

1649.39

1689.79

2121.09

226.16

396.89

448.27

0.00

0.00

4.04

Inventories

990.92

924.97

854.86

Sundry Debtors

280.97

253.61

557.08

cash and Bank

76.59

74.95

112.62

276.56

263.45

303.35

1625.04

1516.97

1827.91

658.47

660.74

1153.21

70.52

92.49

58.97

(II)

728.99

753.23

1212.19

Net Current Assets(I-II) (D)

896.06

763.75

615.72

0.00

0.00

0.00

2771.60

2850.42

3189.12

Liabilities Share Capital

Total Liabilities(1+2+3)

Assets Fixed Assets

Capital Work in Prg.(B) Investments ( C) Current Assets, Loans & Advs.

Loans and Advances (I) Current Liabilities & Provisions Current Liabilities Provisions

Misc.Expenses(E) Total Assets(A+B+C+D+E)

51