Ashok Leyland Project
Ashok Leyland Project
Ashok Leyland Project
ACKNOWLEDGEMENT
No work can be carried out without the help and guidance of various persons. I
am happy to take this opportunity to express my gratitude to those who have been
helpful to me in completing this project report.
At the outset I would like to thank Mr. R. Venugopal (GM Finance Ashok
Leyland) for this wonderful opportunity. I am very grateful to MR. R.
Venkatachalam (Dy. Manager Finance) and Mr. R. Padmanabhan (Manager
Finance) for timely help concerning various aspects of project. I also thanks to all
staff members of account department for help me to complete the project.
Lastly I would like to thank my parents, friends and well wishers who encouraged
me to do this project and all those who contributed directly or indirectly in
completing this project to whom I am highly obliged to.
PREFACE
I know that training is for the development and enhancement of the
knowledge in this particular field. It can never be possible to make a
mark in todays competitive era only with theoretical knowledge when
industries are developing at global level, practical knowledge of
administration and management of business is very important. Hence,
practical study is of great importance to M.B.A. student.
TABLE OF CONTENT
Chapter
Content
Executive Summary
1.
Page No.
Industry Profile
Company Profile
Introduction
Types of sales
Distribution channel
Production of Kesoram Cement
Sales promotion
Kesoram cement advantages
Awards
Findings
Suggestion
Bibliography
EXECUTIVE SUMMARY
The management of the working capital is an integral part of management analysis due to
risk involved with it and return on investment of the concern is based on how will the
working capital is properly managed. The ability to gain insight through the study of
financial statement is vital to sound financial decision making. The basic data with which
analyst must work are found in financial statement.
So the ability to understand, interpret and use this information is the basic to an
understanding of finance. Various stake holders of business are keenly interested to know
regarding the financial position of the firm. To know the financial health of the
company/business, analysis of financial statement is a necessary. Fixed assets are
essential for running of the business where as current assets plays a very vital role in
meeting day to day operations. Hence the scope of managing the current assets increases
as the business operation increases. Here the question of WORKING CAPITAL
MANAGEMENT rises. With the help of tools & technique of financial statement
analysis, one can know the liquidity, solvency and profitability position of the company.
Working capital management involves the relationship between a firms short term asset
and its long term liabilities. The goal of working capital management is to ensure that the
firm is able to continue its operations and that it has the ability to both maturing short
term debt and upcoming operations expenses. Analysts look at as signs of a company's
efficiency and financial strength. Understanding a company's cash flow health is essential
to making investment decisions. A good way to judge a company's cash flow prospects is
to look at its working capital management (WCM). The better the company manage its
working capital, the less the company needs to borrow. Even companies with cash
surpluses need to manage working capital to ensure that those surpluses are invested in
ways that will generate suitable return for investors.
Chapter 4 deals with analysis of the data which is being collected from the
company, and also about the inference of the data. It also includes the
forecasting of the various datas.
Chapter 5 deals with the analysis and calculation of forecasted sales, cash etc.
and schedule of changes in WC.
Chapter 6 relates to the findings from the data, and deals with suggestions
given by the researcher.
Chapter 7covers the conclusion, which gives the ultimate result of the study.
Chapter8 deals with Bibliography, it includes the various sources from which
information is collected, and the annexure.
CHAPTER -1
OBJECTIVE AND RESEARCH METHODOLOGY
To study the optimum level of current assets and current liabilities of the
Company.
To study the liquidity position through various working capital related Ratios.
To study the way and means of working capital finance of the Ashok Leyland
Ltd.
RESEARCH METHODOLOGY
It is important for research to know not only the research method but also know
methodology. The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.
Research Design
A research design is the arrangement of the condition for collection and analysis of
data. Actually it is the blueprint of the research project.
Research design used will be Exploratory type.
Data Collection
Primary Data:
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal
The analysis will be made with the help of the secondary data collected from the
company.
Because of the companys policy of maintaining secrecy some amount of data was
not made available to which could have helped me in making my project report
better.
The study is academic in nature.
Last five years balance sheet will be taken into consideration.
The final conclusion can be also affected by some of the extraneous variables.
CHAPTER - 2
COMPANY PROFILE
INTRODUCTION:
We are the 2nd largest manufacturer of commercial vehicles in India, the 4th largest
manufacturer of buses in the world and the 16th largest manufacturer of trucks globally.
With a turnover in excess of US $ 2.3 billion (2012-13) and a footprint that extends
across 50 countries, we are one of the most fully-integrated manufacturing companies
this side of the globe.
Over 70 million passengers use our buses to get to their destinations every day while over
700,000 trucks keep the wheels of economies moving. With the largest fleet of logistics
vehicles deployed in the Indian Army and significant partnerships with armed forces
across the globe, we help keep borders secure.
Headquartered in Chennai, India, our manufacturing footprint spreads across the globe
with 8 plants; including one at Ras Al Khaimah (UAE). Our Joint Venture partners
include Nissan Motor Company (Japan) for Light Commercial Vehicles, John Deere
(USA) for Construction Equipment, Continental AG (Germany) for Automotive
Infotronics and the Alteams Group for the manufacture of high-press die-casting extruded
aluminum components for the automotive and telecommunications sectors.
3.4 VISION:
3.5 MISSION:
3.6 VALUES:
1. CUSTOMERS:
We value our customers and will constantly endeavour to fulfil their needs by
proactivity offering them products and service appropriate to their diverse
applications.
2. EMPLOYEE:
We consider our employee as our most valuable asset and are committed to
provide full encouragement and support to them to enhance their potential and
contribution to the companys business.
3. VENDORS:
Our vendors are our valued partners in our business development and we will
work with them in a spirit of mutual co-operation to meet our business
objectives.
4. DISTRIBUTERS:
Our distributers are the vital between the company and the customers and we
are committed to advice and support our distributers to continuously upgrade
their infrastructure, skills and capability to serve our customers better.
5. SHAREHOLDERS:
We value the trust reposed in us by our shareholders and strive unstintingly to
ensure a fair and reasonable return on their investments.
6. SOCIETY:
We are committed to add to the wealth and well-being of our society by
enhancing the quality of life and contributing to this economic development
while maintaining the highest level of environmental and safety standards.
International
Speedy
Value creator
Innovative
Ethical
MANUFACTURING FACITILITIES
(Source: www.ashokleyland.com)
Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mother Plant
accounting for over 40% ALL production. The plant manufactures a wide range of
vehicles and house production facilities for important aggregates such as Engines,
Gear Box, Axles and other key in-house components. Number of
employees in ennore plant are 4146 and number of models manufactured are 132.
Ashok Leyland is the flagship company of the hinduja group and is the second
largest manufacturer of commercial vehicles in India.
Ashok motor was set up in 1948 for the assembly of Austin cars. The company
name and objective changed with equity participation by British Leyland and
Ashok Leyland commenced manufacturer of commercial vehicles in 1955. It has
since than grown as a reputed manufacturer of quality automotive products
ranging from light commercial vehicles to heavy duty vehicles and for
automotive, industrial and marine applications. In 1987, the overseas hold by
Land Rover Leyland International Holidays Ltd(LRLIH) was taken over by a
joint venture between the Hinduja group, Non-Resident Indian Transitional group
and IVECO (since July 2006,the Hinduja group is 100% stake holder of LRLIH).
Ashok Leyland also acquired truck business unit of Avia, Prague (Czech
The products of the company are of proven design for durability and reliability
and are hence very popular both in Indian and overseas markets. In recent years
the product range is upgraded in to the latest technological development in the
world, for which the company has the technical support from IVECO (FIAT
group), Italy for manufacture of IVECO cargo range of vehicles; Hino Motors,
Japan for manufacture of fuel efficient engines; and ZF , Germany for
manufacture of synchromesh gear boxes.
In the journey towards the Global standard of Quality , Ashok Leyland has
reached a major milestone in 1993 , when it became the first in Indias
automobile industry to win ISO 9002 Certification. The more comprehensive ISO
9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for
all vehicle manufacturing units in 2002. It has also become the first Indian
automobile company to receive the latest ISO/TS 16949 corporate certification
which is specific to the auto company.
The marketing headquarter is at Chennai and the sales and services network,
dealer network and spare parts warehouse spread throughout India with regional
sales office and services centre located in all major cities and towns in the
country. The products are also exported to a range of overseas countries.
products. The services function is carried out by qualified personal whose skills
are continuously upgraded through training to meet the servicing requirements of
newer or improved products. The design function is carried out by the product
Development Division operating through 4 centres viz. Product Development
(Ennore) for R&D related to Ashok Leyland engines, Technical centre
vellivoyalchavadi for design, proto-type developments of vehicle, vehicles and
components testing; Engine R&D (Hosur) for design and development of Hino
engines and Advanced Engineering (Chennai) for research related to future
products.
The manufacturing units of the company are located at Ennore (TN), Hosur
(TN), Alwar (Rajasthan) and Bhandara (MR). The Ennore , Hosur (plant - 1),
Hosur (plant-ii), Ambattur , Alwar and Bhandara manufacturing units are certified
ISO 9001:2000 and QS 9000:1998 certification by Indian register Quality
system.
Ashok Leyland is also the 1st auto mobile company to receive the ISO/TS
16949 corporate certification in June 2006. TS 16949 reckon the nuances of
automobile Industry and is more customer centric. It integrates the salient
concepts of all the QMS standards has been accepted recognized and followed by
all automobiles manufactures in USA , Europe and Asia.
Ashok Leyland has also obtained ISO 27001 certificates for its Ennore Data
canter and Advanced Engineering group located in Chennai. Ennore data centre
obtained the certificate in May 2005 and advanced engineering in April 2007.
The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by
independent India. Pandit Jawaharlal Nehru, India's first Prime Minister
persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive
manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the
assembly of Austin Cars. The Company's destiny and name changed soon with
equity participation by British Leyland and Ashok Leyland commenced
manufacture of commercial vehicles in 1955
(Source: www.ashokleyland.com)
Since then Ashok Leyland has been a major presence in India's commercial
vehicle industry with a tradition of technological leadership, achieved through
tie-ups with international technology leaders and through vigorous in-house
R&D.
became the design philosophy of the Company, which in turn has moulded
consumer attitudes and the brand personality.
In February 1979, the Company made a public issue of 49, 61,349 No. of equity
shares of Rs.5 each at a premium of Rs.3 per share.
In 1983, the Company entered into an agreement for a joint venture in Sri Lanka
for the assembly and progressive manufacture of Ashok Leyland vehicles. ACL
proposed to create facilities for body building and assembly of panels for frontend structures for truck and business in order to cater to the requirements. Then
the Company entered into a technical collaboration with Hino Motor Ltd., Japan
for their w series engines.
In 1986, DGTD registration for the manufacture of metal cutting and grinding
machines at the Hosur and Alwar plants was obtained. A Prototype of a rear
engine bys chassis according to the specifications laid down by special working
group for use In State Transport Undertakings was acknowledge by the latter
during the year
In 1994, the Company issued 10,771,908 GDRs at issue price of US$12.79 per
GDR for a total value of US $137.773 million. Each GDR represents 3 equity
shares of RS. 10 Each.32, 315,724 shares issued through GDRs. The Company
entered into a technical collaboration with Hino Motor Ltd., Japan for their W
series Engines.
In 1998, Ashok Leyland has introduced The Panther, a low floor bus which
has been indigenously designed to cater to the needs of the common masses and is
based on the parameters set by the Central institute of Road Transport and the
Association of State Road Transport Undertakings. The Ashok Leyland Ltd., the
commercial vehicles major, has entered into an agreement with the leading USbased management consultant, A T Kearney, to Kick-start the process reengineering work in the companys various production units. Ashok Leyland
Limited is developing a new range of low floor chassis in the passenger vehicle
sector for more convenient urban transportation. The Ministry of Defences
Vehicle Factory in Jabalpur has signed manufacturing agreements with Ashok
Leyland & Tata Electric and Locomotives Company (Telco) recently.
In 1999, the Company would enter into an alliance with dealers of tractor on a
temporary basis. The Company was talking to tractor manufacturers including
Mahindra & Mahindra, Eicher, TAFE and Punjab Tractors in this
connection.
In 2000, the Company launched of two interactive Internet initiatives, one for
domestic parts operations and the other for exports. Ashok Leyland has
announced a voluntary retirement scheme for its unionized staff. Ashok
Leyland Limited (ALL) and Maruti Udyog Ltd have been selected for the IRTE
National Award, in recognition of their efforts towards promoting the cause of
road safety, traffic management and environment protection.
In 2002, Ashok Leyland Ltd has informed that Mr. G. Boschetti ceased to be a
Director on our Board. Mr. Marc Petit also ceased to be an Alternate Director to
Mr. G Boschetti Mr. R Sorce has been appointed as a Director in the place of
Mr. G Boschetti
In 2003, Leyland has reported a 70% increase in its sales. Ashok Leyland set to
increase HINO engine platform through in-house product development, to
deliver higher horsepower in tune with improving road infrastructure. Ashok
Leyland Ltd has supplied 25 buses to Afghanistan which is a part of Indian
Governments Assistance to the war-ravaged Afghanistan. Leyland bagged $46
million truck supply contract from the United Nations.
In 2004, Ashok Leyland unveils new range of buses and trucks in a bid. It
launches Ecomet, a light commercial vehicle, in the Andhra Pradesh market.
Ashok Leylands Hosur unit bags CIIs awards in safety, health and environment.
Ashok Leyland Ltd (ALL) and Indian Oil Corporation (IOC) have joined hands
to offer freight management services across the country. Ashok Leyland Ltd signs
a collaboration agreement with ZF of Germany local manufacturing of ZFs 9speed synchromesh gearbox. Now, Wipro InfoTech has signed up with Ashok
Leyland for strategic cost reduction.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness.
The 5, 00,000 vehicles we have put on the roads have considerably eased the
additional pressure placed on road transportation in independent India.
In the populous Indian metros, four out of the five State Transport Undertaking
(STU) buses come from Ashok Leyland. Some of them like the double-decker and
vestibule buses are unique models from Ashok Leyland, tailor-made for highdensity routes.
The blueprint prepared for the future reflected the global ambitions of the
company, captured in four words: Global Standards, Global Markets. This was at
a time when liberalisation and globalisation were not yet in the air. Ashok Leyland
embarked on a major product and process up gradation to match world-class
standards of technology.
QUALITY POLICY:
Ashok Leyland is committed to achieve customer satisfaction, by anticipating and
delivering superior value to the customers in relation to their own business,
through the products and services offered by the company and comply with
statutory requirements.
ENVIRONMENTAL POLICY:
We at ashok Leyland committed personal environmental measures.
1. We follow all legal reasons.
2. Adopt pollution prevent technology in design and manufacturing projects.
3. Conserve all resources such as power, water, oil, gas, compressed air etc...,
and optimise their usage through scientific methods.
4. Provide clean working environment to employees.
5. Set and review objectives and targets for continually improving environment.
electricity and other motive power to motors and other things. To develop, design,
programme, conduct feasibility studies, act as advisor, retainers, consultants and /
or agents to all projects and to engage in project survey, implementation, progress
monitoring and turnkey installation.
To promote any other Company for the purpose of acquiring all or any of the
property and liabilities of this Company of for any other purpose which may seem
directly or indirectly calculated to benefit this Company and to buy, sell, contract
to buy or sell and deal in shares, stocks, debentures and securities of all kinds. To
invest or deposit or deal with the moneys of the Company not immediately
required for the purposes of its business in such manner as may from time to time
be determined.
PRODUCT PROFILE:
1. Buses
2. Trucks
3. Engines
4. Defence & Special Vehicles
CHAPTER -3
THEORETICAL FRAMEWORK OF WORKING CAPITAL MANAGEMENT
Working capital is one of the most important requirements of any business
concern. Working capital can be compared with the blood of human beings. As human
cannot survive without blood, in the same way no business concern can survive without
working capital.
Working capital management deals with maintaining the levels of working capital
to optimum, because if a concern has inadequate opportunities and if the working capital
is more than required then the concern will lose money in the form of interest on the
blocked funds. Therefore working capital management plays a very important role in the
profitability of a company.
The term working capital stands for that part of the capital, which is required for
financing the current needs of the company. It is usually invested in raw material stock
(both finished and semi finished). Accounts receivable, saleable securities and in cash.
Capital in all these forms is constantly being converted into cash and this cash flow out
again in exchange for other forms of working constantly turned over. Management of
working capital usually involves planning and controlling these current assets.
wealth. This is possible only when the company earns sufficient profits. The amount of
such profits largely depends upon the magnitude of sales. However do not convert into
cash instantaneously. These are always a time gap between the sale of goods and their
actual realization in cash. Working capital is required in order to sustain the sales
activities in this period. In case adequate working capital is not available for this period,
the company will not be in a position to purchase raw material, pay wages and other
expenses required for manufacturing the goods. Therefore sufficient amount of working
capital is to be maintained at any point of time.
There is a direct relationship between risk and profitability, higher the risk higher
is the profitability, while lower the risk lowers is the profitability.
On accounts of the above principle, an increase in the ratio of current assets to total assets
will results in the decline of the profitability of the firm. This is because investment in
current assets as stated above is less profitable than in the fixed assets. However an
increase in the ratio would decrease the risk of the firm of the becoming technically
insolvent. On the other hand a decrease in the ratio of current assets to total assets would
increase the profitability of the firm. However these increase the risk of the becoming
technically insolvent on accounts of its possible inability in meeting its commitments in
time due to shortage of funds.
working
capital
refers
to
the
minimum
amount
of
time is devoted to the day to day internal operations of the firm; this
may be appropriately subsumed under the heading Working Capital
Management
bulk when the prices are lower and by holding inventories for higher
prices.
B. MANUFACTURING CYCLE:
An extended time span, between the raw material purchase and
the completion of the manufacturing process yielding the finished
product, will obviously mean a larger tie-up of funds in the form of
enhanced working capital needs. In such cases management should
endeavor to contain the intervening period and effect economy in
working capital needs, through process changes where possible, or
though effective organization and coordination at all levels of
enterprise activity to ensure that the operating cycle time is minimal.
Frequent changes in set-ups, waiting for material, tools or instructions
and
accumulations
of
work-in-progress
have
the
inevitable
F. PRODUCTION POLICIES:
To off-set the problems of having to find funds to support the
mounting inventory levels of finished goods until they got off-loaded in
the peak seasonal, some companies report to diversification of
activities, enabling production of the main product to follow the
seasonal pattern of demand.
G. COMPETITIVE CONDITION:
In a competitive market, wining and retaining customers
to
continuous
reinforce
review
internal
there of
generation.
Forward
are absolutely
planning
necessary for
and
such
companies.
I. PROFIT LEVELS:
By the very nature of things, some enterprises generate high
margins compared to others. The product category and the firms
position in the market may have conferred this advantage. Other may
have struggle in a highly competitive environment. But, profits cannot
be considered as available cash at the end of the period. Even as the
companys operations are in progress cash is used up for augmenting
stocks, books debts and cash inflows, at short intervals, assume
importance. For the projected surpluses, appropriate effective uses can
be planned. The funds application then occurs by design and not be
accident.
J. TAXATION:
Tax liability is inescapable element in working capital planning. It
is a shore-term liability in cash. Advance taxes may have to be
remitted in installments. On the basis of estimated profits. Period of
high taxation impose additional stain on working capital. To be able to
get the best out of the operating plans of the company in advance and
steer the resources towards research and development. Exports or
other direction, which promise tax, benefits and promote the
companys earnings.
K. DIVIDEND POLICY:
Management has to preserve cash resources, but at the same
time, it cannot fail to satisfy investor expectations, market prestige for
the shares of the company has also to be nurtured and maintained in
its long-run interests. During periods of low profits, maintained of
L. RESERVES POLICY:
One of the cherished goal of enterprise management is to build
up adequate reserves out of profits, the urge of retain profits may as a
major constraint on the dividend policy, the funds position getting
priority of consideration over dividend policy.
M. DEPRECIATION POLICY:
Depreciation policy centers on the determination of the amount
to be provided as depreciation charge to make up the ultimate
resource
for
replacement
for
worn
out
obsolete
assets.
The
even operating expenses will grow for given levels of activity. Some
companies may be able to compensate parts of these cost increases
through increase in prices levels on working capital position will vary
from company to company depending on the nature of its, operations
and its standing in the market.
O. OPERATING EFFICIENCY:
There is an obvious relationship between the operating efficiency
of a company and its working capital position. Waste elimination,
improved co-ordinate to cut delays, higher efficiency in operations and
fuller utilization of resources are among the initiatives taken to avert
erosion of profits. They also have the effect of getting more out of a
given volume of working capital. Efficiency of operations accelerates
the pace of the cash cycle, and improves the working turnover. It
releases the pressure on working capital by improving profitability and
aiding added internal generation of funds. With a multiplicity of factors
exerting varied degrees of influence on working capital status, the
management has to alert to the developments, internal, external and
environmental, and has to plan and review constantly its working
needs and storages.
The operating cycle involves 3 phases: Acquisition of resources such as raw material, labour, power and
fuel.
Manufacture of the product which includes conversion of raw
material into work in progress into finished goods
Sale of a product either for cash or on credit. Credit sales create
account receivables for collection.
The faster the business expands the more cash it will need for
working capital and investments. Good management of working capital
will generate cash, will help to improve profits and reduce risks.
A. CASH MANAGEMENT
cycle-
cash,
inventory,
receivables
and
cash.
Its
effective
cash
inflows
and
budgeting
Proper investment of surplus cash
outflows
through
cash
B. INVENTORY MANAGEMENT
whenever
needed,
proved
adequate
cushion
for
C.
DEBTORS MANAGEMENT
If company doesnt manage debtors, they (debtors) will begin to manage the
company. Profits only come from paid sales. A customer does not pay is not a customer.
D.
CREDITORS MANAGEMENT
RATIO ANALYSIS
and
predicting
future
facilitated
by
comparison.
evaluate the efficiency and performance of any business unit. The one
of the most frequently used yardsticks is ratio analysis. Ratio analysis
involves the use of various methods for calculating and interpreting
financial ratios to assess the performance and status of the business
unit. It studies the numerical or quantitative relationship between two
variables or items.
Ratio Analysis is the systematic process of determining and
interpreting the numerical relationship of various pairs of items derived
from the financial statements of a business.
Absolute figures do not convey much tangible meaning and is
not meaningful while comparing the performance of one business with
the other.
It is very important the base (or denominator) selected for each
ratio is relevant with the numerator. The two must be such that one is
closely connected with and influenced by the other.
Importance of Ratio Analysis:Ratio Analysis stands for the process of determining and
presenting the relationship of items and group of items in the financial
statements. It is an important technique of financial analysis. It is a
way by which financial stability and health of a concern can be judged.
Main points of importance are as follows:
Useful in financial position analysis:Accounting ratios reveal the financial position of the
concern. This helps the banks, insurance companies and other
Useful in simplifying accounting figures:Accounting ratios simplify, summarize and systematize the
accounting figures in order to make them more understandable
and in lucid form. They highlight the inter-relationship, which
exists between various segments of the business as expressed
by accounting statements. Often the figures standing alone
cannot help them convey any meaning and ratios help them to
relate with other figures.
Useful in assessing the operational efficiency:Accounting ratios help to have an idea of the working of a
concern. The efficiency of the firm becomes evident when
analysis is based on accounting ratios. They diagnose the
financial health by evaluating liquidity, solvency, profitability,
etc. This helps the management to assess financial requirements
and the capabilities of various business units.
Useful in forecasting purposes:If accounting ratios are calculated for a number of years,
then a trend is established. This trend helps in setting up plans
and forecasting.
Useful in locating the weak spots of the business:It gives great assistance in locating the weak spots in the
Chapter - 4
DATA ANALYSIS AND INTERPRETATION
Working capital is the life blood and centre of business. Adequate amount of
working capital is very much essential for the smooth running of the business.
And the most important part is the efficient management of working capital in
right time. The liquidity position of the firm is totally effected by the management
of working capital. So, a study of changes in the uses and sources of working
capital is necessary to evaluate the efficiency with which the working capital is
employed in a business. This involves the need for working capital analysis.
2005
2006
increase
decrease
inventories
5680.81
9025.61
3344.8
sundry debtors
4587.66
4243.37
344.29
7966.82
6028.76
1938.06
3337.34
3026.39
310.95
(A)
21572.63
22324.13
liabilities
9611.87
11468.95
1857.08
provisions
2044.8
2616.21
571.41
(B)
11656.67
14085.16
(A-B) WORKING
9915.96
8238.97
CURRENT
ASSESTS
balances
CURRENT
LIABILITIES
CAPITAL
increasing in WC
TOTAL
9915.96
1676.99
1676.99
9915.96
5021.79
5021.79
TABLE 1
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
The above table shows that there has been decrease in the working capital to
the extent of 1676.99 from the year 2005to 2006.
CURRENT
ASSETS
inventories
sundry debtors
2006
2007
INCREASE
9025.61
4243.37
10703.21
5228.75
1677.6
985.38
DECREASE
cash
and
bank
balances
loan & advances
(A)
6028.76
4349.39
3026.39
22324.13
6695.79
26977.14
CURRENT
LIABILITIES
Liabilities
11468.95
16516.25
Provisions
2616.21
1042.3
(B)
14085.16
17558.55
(A-B) WORKING
CAPITAL
Increasing in WC
8238.97
9418.59
TOTAL
9418.59
1679.37
3669.4
5047.3
1573.91
1179.62
1179.62
9418.59
7906.29
7906.29
TABLE 2
The above table shows that there has been increase in need for working capital
to the extent of 1179.62 from the year 2006 to 2007.
PARTICULARS
CURRENT
ASSETS
inventories
sundry debtors
cash and bank
balances
loan & advances
(A)
2007
2008
INCREASE DECREASE
10703.21
5228.75
4349.39
12239.14
3758.35
4513.7
1535.93
6695.79
26977.14
8241.385
28752.581
1545.595
1470.4
164.31
CURRENT
LIABILITES
liabilities
16516.25
19267.084
2750.834
provisions
1042.3
3452.31
2410.01
(B)
17558.55
22719.394
9418.59
6033.19
(A-B) WORKING
CAPITAL
increasing in WC
TOTAL
9418.59
3385.4
3385.4
9418.59
6631.235
6631.235
TABLE 3
( SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. The above table shows that there has been decrease in need for working
capital to the extent of 3385.40 from the year 2007to 2008.
2008
2009
INCREASE
CURRENT
ASSETS
inventories
12239.14
13300.144
1061
sundry debtors
3758.35
9579.742
5821.391
4513.7
880.836
3632.865
8241.385
7895.44
346.25
(A)
28752.581
31656.14
liabilities
19267.084
18688.641
5784.43
provisions
3452.31
2680.82
771.49
(B)
22719.394
21369.461
PARTICULARS
CURRENT
LIABILITIES
DECREASE
(A-B) WORKING
6033.19
10286.679
CAPITAL
increasing in WC
4253.5
TOTAL
10286.68
4253.5
10286.68
8232.32
8232.32
TABLE - 4
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. The above table shows that there has been increase in need for working capital
to the extent of 4253.50 from the year 2008 to 2009.
PARTICULARS
2009
2010
INCREASE DECREASE
CURRENT
ASSETS
Inventories
Sundry debtors
Cash and bank
balances
Loan & advances
(A)
7895.44 9604.60
31656.14 41403.10
CURRENT
LIABILITIES
Liabilities
18688.64 25920.60
7231.96
2680.82
1006.08
Provisions
(B)
(A-B) WORKING
CAPITAL
Increasing in WC
TOTAL
13300.14 16382.40
9579.74 10226.90
880.84
5189.20
3082.26
647.16
4308.36
1709.16
3686.90
21369.46 29607.50
10286.68 11795.60
1508.92
1508.92
11795.60 11795.60
9746.94
9746.96
TABLE 5
INFERENCE:
1. 1 The above table shows that there has been increase in need for working
capital to the extent of 1508.92 from the year 2009 to 2010
YEAR
CURRENT
CURRENT
NET.WORKING
ASSETS
LIABILITIES
CAPITAL
2008-09
21572.63
11656.67
9915.96
2009-10
22324.13
14085.16
8238.97
2010-11
26977.14
17558.55
9418.59
2011-12
28752.58
22719.39
6033.19
2012-13
31656.16
21369.46
10286.70
2013-14
41403.10
29607.50
11795.60
TABLE - 6
( SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 1
INTERPRETATION:
1. Net working capital of Ashok Leyland Ltd is maintained balanced in all years.
2. Except in 2007-08. In this year the net working capital is very low.
3. 2009-2010 net working capital is high.
2. WORKING CAPITAL TURN OVER RATIO (Rs. IN MILLIONS)
YEAR
SALES
2008-09
41818.97
NET.WORKIN
TURN OVER
CAPITAL
RATIO
9915.96
4.22
2009-10
52476.57
8238.97
6.37
2010-11
71681.76
9418.59
7.61
2011-12
77425.80
6033.19
12.83
2012-13
66666.40
10286.70
5.81
2013-14
78726.00
11795.60
6.67
TABLE : 7
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 2
INTERPRETATION:
1. The working capital turnover ratio of Ashok Leyland Ltd is increasing from
2004-05 to 2007-08. But suddenly there is a dip in 2008-09.
2. In the year 2007-08, the performance of Ashok Leyland Ltd is in peak
position.
3. In the year 2008-09 Indian automobile industry was slowed down due to
market slowdown.
CURRENT
ASSETS
21572.63
TOTAL ASSETS
CA/TA RATIO
33654.54
0.64
2005-06
22324.13
36852.79
0.61
2006-07
26977.14
44632.32
0.60
2007-08
28752.58
55399.53
0.52
2008-09
31656.16
78265.80
0.40
2009-10
41396.83
92768.65
0.45
TABLE: 8
INTERPRETATION:
1. This CA to TA ratio is of reducing tendency.
2. In 2004-05 it is highest and in 2009-10 it is lowest.
3. The portion of current assets is reducing year by year.
CURRENT
LIABILITIES
TO
TOTAL
LIABILITIES
(Rs.
MILLIONS)
YEAR
CURRENT
TOTAL
CL/TL RATIO
LIABILITIES
LIABILITIES
2004-05
11656.67
33847.86
0.34
2005-06
14085.16
36925.86
0.38
2006-07
17558.55
44877.50
0.39
2007-08
22719.39
55622.43
0.41
IN
2008-09
21369.46
78362.67
0.27
2009-10
29607.56
92820.45
0.32
TABLE: 9
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 4
INTERPRETATION:
1. CL to TL ratio is increasing from 2004-05 to 2007-08.
2. There is a decrease in 2008-09.
3. But company is capable of recovering. in 2009-2010
4. 2007-08 has highest ratio.
CURRENT
ASSETS
LIABILITIES
2004-05
21572.63
11656.67
1.85
1.55
2005-06
22324.13
14085.16
1.58
1.55
2006-07
26974.14
17558.55
1.54
1.55
2007-08
28752.58
22719.39
1.27
1.55
2008-09
31656.16
21369.46
1.48
1.55
2009-10
41396.83
29607.56
1.40
1.55
YEAR
TABLE: 10
RATIO
INDUSTRY
AVERAGE
CHART: 5
INTERPRETATION:
1. Here industry ratio is 1.55.
2. Except in 2007-08 remaining all years companys current ratio is almost
near to industry average ratio.
3. In the year 2006-07 company had power to affect the industry.
6. LIQUID RATIO (Rs. IN MILLIONS)
CURRENT
QUICK ASSETS
2004-05
15891.82
11656.67
1.36
1.07
2005-06
13298.52
14085.16
0.94
1.07
2006-07
16270.93
17558.55
0.93
1.07
2007-08
16513.44
22719.39
0.73
1.07
2008-09
18356.02
21369.46
0.86
1.07
2009-10
25014.43
29607.56
0.84
1.07
LIABILITIES
RATIO
INDUSTRY
YEAR
TABLE: 11
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 6
INFERENCE:
1. Here industry ratio is 1.07
AVERAGE
GROSS PROFIT
SALES
GROSS PROFIT
RATIO
2004-05
10689.73
41818.97
25.56
2005-06
13390.00
52476.57
25.52
2006-07
16410.70
71681.76
22.89
2007-08
18298.30
77425.80
23.63
2008-09
14321.60
59810.74
23.94
2009-10
19544.85
72447.10
26.98
TABLE: 12
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 7
INFERENCE:
From the table shown above gross profit of the firm is satisfactory in all the
years except in 2006-07.
But it was recovered very soon by next year and it is still doing well.
8. NET PROFIT RATIOS: (Rs. IN MILLIONS)
YEAR
NET PROFIT
SALES
NET PROFIT
RATIO
2004-05
2714.10
41818.97
6.49
2005-06
3273.20
52476.57
6.24
2006-07
4412.86
71681.76
6.16
2007-08
4693.10
77425.80
6.06
2008-09
1899.96
59810.74
3.18
2009-10
4236.80
72447.10
5.85
TABLE: 13
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 8
INFERENCE:
From the data given in the above table it is clear that the net profit of the
company is almost maintained constant except in the year 2008-09.
Due to market slow down the net profit of the company effected.
But in 2009-10 it shot up as the company recovered very fast.
4.2 MANAGING WORKING CAPITAL:
4.2.1 INVENTORY MANAGEMENT:
Inventories are goods held for eventual sale by a firm. Inventories are thus one of
the major elements, which help the firm in obtaining the desired level of sales.
Kinds of inventories:
Inventories can be classified into 3 categories. They are,
a) Raw materials:
These are goods, which have not yet been committed to production in a
manufacturing firm. They may consist of basic raw materials or finished
goods.
b) Work in progress :
Features of inventory:
A comparison of inventory with other positive components of working capital
would reveal it has some special features of its own.
On an average, it accounts for lions share of firms investment in WC.
The risk factor is holding inventory generally is higher than that of holding
other items of current assets.
Although holding of a more and more inventory may be desirable from the
point of view of functional managers, it affects adversely short-term liquidity.
It involves many types of costs associated with it viz... Acquisition cost,
carrying cost, short cost, etc
It is the only item of current assets, which has direct influence on the prices,
and income of a firm
Motives of inventory:
Ashok Leyland ltd holds inventory to achieve the following 3 motives.
Transaction motives:
It emphasizes the Ashok Leyland ltds need to maintain inventories to
facilitate smooth production and sales operations.
Precautionary motive:
It necessities the ALLs need to maintain inventories to guard against the risk
of unpredictable changes in demand and supply forces and other conditions.
Speculative motive:
It influences the decision to increase or decrease inventory levels in Ashok
Leyland ltd to take advantage of price fluctuations.
Objectives of inventory management:
There should be optimal levels of investment for any asset, whether it is plant,
cash or inventories. Again, inadequate inventories will disrupt production and loss
sales. All this calls for an effective inventory program.
The main adjectives are:
1) To ensure that materials are available for use in production and production
services, as and when required.
2) To ensure that finished goods and available for delivery to customers to fulfill
orders.
3) To minimize investments in inventories to maximize profitability.
4) To protect the inventory against deterioration, obsolescence and unauthorized
use.
5) To enable the management to make costs and consumptions between
operations and periods.
2. ABC analysis:
From the point of view of monitoring info for control it becomes extremely
difficult to consider each one of these items. The ABC analysis comes in quite
handy and enables the management to concentrate attention and keep a close
watch on a relatively less number of items which account for a high
percentage of the value of annual usage of all items of inventory.
A firm using ABC system segregates its inventory into 3 groups. A,B and C.
A) The A items are those in which it has the largest rupee investment.
B) The B group items consist of the items accounting for the next largest
investment.
C) The C group typically consists of larger no: of items accounting for a
small rupee investment.
% in value
% in quantity
70-80%
5-10%
10-20%
10-20%
5-10%
70-80%
In Ashok Leyland:
Category
% in value
% in quantity
75.5%
8%
15%
12%
7.5%
72.2%
3. FSN analysis:
In Ashok Leyland according to FSN analysis the items are categorized as
follows:
1. 0-1 = Non Moving
2. 1-3 = Crawling
3. 3-6 = Slow Moving
4. 6-9 = Moderate Fast Moving
5. 9-12 = Fast Moving
Determination of quantity for which the order should be placed is one of the
important problems concerned with efficient Inventory Management. EOQ refers
to the size of the order, which gives maximum economy in purchasing in an item
of Raw materials or finished products. It is fixed mainly after taking into account
the following cost.
Ordering cost
Inventory carrying cost
Assumptions:
1. The firm knows with certainly the annual usage or demand of the particular
items of inventories.
2. The rate at which the firm uses the inventories or makes sales is constant
throughout the year.
3. The order for replenishment of inventory is placed exactly when inventories
reach zero level.
system. JIT inventory system means all inventories whether of raw materials,
WIP & Finished goods are received in time to go into production, manufacture
parts are completed into products and products are shipped to customers. In
JIT environment the flow of goods is controlled by pull down approach.
9. Flexible Manufacturing System (FMS):
The basis features of FMS are automated flow of materials to the cell and
automated removal of finished items from the cell. Cells are linked together
by automated material handling system and flow of goods is controlled by a
system.
RATIO ANALYSIS:
1. INVENTORY PROPORTION: Rs. IN MILLIONS)
CHART 9
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. Raw materials consumed are increasing from year by year.
2. WIP increased in first 2 years and then started decreasing.
3. FG is in increasing condition. There is a rapid change in the year 2005-06.
4. Total inventory is increasing from year to year. There is rapid change in the
year 2005-06.
SALES
INVENTORY
ITR
2004-05
41818.97
5375.11
7.78
2005-06
52476.57
7353.21
7.14
2006-07
71681.76
9864.41
7.27
2007-08
77425.80
11471.17
6.75
2008-09
59810.74
12769.64
4.68
2009-10
72447.10
16382.40
4.42
TABLE:14
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 11
INFERENCE:
1. During the 2004-05 the company has very high inventory ratio of 7.78, which
means more capital is being locked up in the inventory.
2. But from the year 2005-10 the ratio was decreased from 7.14 to 4.42.
YEAR
DAYS
ITR
2004-05
360.00
7.78
46.00
2005-06
360.00
7.14
50.00
2006-07
360.00
7.27
50.00
2007-08
360.00
6.75
53.00
2008-09
360.00
4.68
77.00
2009-10
360.00
4.42
81.45
PERIOD
TABLE: 15
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 12
INFERENCE:
1. Inventory holding period was good from 2004-05 to 2007-08. But in 2009-10
it was just increased.
RAW
MATERIALS
AVG RAW
MATERIALS
RM TR
2004-05
30020.40
2109.99
14.23
2005-06
40645.83
2517.31
16.15
2006-07
54081.14
3290.86
16.43
2007-08
57480.59
4041.34
14.22
2008-09
43218.57
4777.52
9.05
2009-10
52552.32
5593.15
9.40
TABLE:16
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 13
INFERENCE:
1. In 2006-07 RM TR is maximum.
2. From 2004-05 to 2006-07 it was increased.
3. From 2006-07 to 2008-09 it was decreased.
YEAR
DAYS
RTR
2004-05
360.00
14.23
25.00
2005-06
360.00
16.15
22.00
2006-07
360.00
16.43
22.00
2007-08
360.00
14.22
25.00
2008-09
360.00
9.05
40.00
2009-10
360.00
9.40
38.30
TABLE: 17
(SOURCE: ANNUAL REPORTS OF COMPANY)
PERIOD
CHART:14
INFERENCE:
1. Raw material holding period is constant in all years.
2. But it was slightly increased in 2008-09.
COST OF
PRODUCTION
AVG WIP
WIP TR
2004-05
31153.39
809.35
38.49
2005-06
36685.58
1174.86
31.23
2006-07
54439.03
1266.19
42.99
2007-08
58198.15
1117.77
52.07
1040.65
43.51
2203.20
23.88
2008-09
45279.034
2009-10
52612.25
TABLE: 18
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFRENCE:
1. In 2007-08 WIP TR is highest. Remaining all years it was similar.
2. In 2009-10 it is lowest.
WIP HOLDING
YEAR
DAYS
WIP TR
2004-05
360.00
38.49
9.35
2005-06
360.00
31.23
11.53
2006-07
360.00
42.99
8.37
2007-08
360.00
52.07
6.91
2008-09
360.00
43.51
8.27
2009-10
360.00
23.88
15.08
PERIOD
TABLE: 19
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. WIP holding period is highest in 2009-10.
2. WIP holding period is lowest in 2007-08.
COST OF GOODS
SOLD
AVG FG
FG TR
2004-05
31129.24
2104.76
17.35
2005-06
39086.57
3293.18
15.42
2006-07
55271.06
4909.69
12.74
2007-08
59127.50
5790.38
11.81
2008-09
45489.14
6360.11
8.33
2009-10
52902.25
6461.90
8.19
TABLE: 20
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART:17
INFERENCE:
1. Finished goods turnover ratio is decreasing from 2004-05 to 2009-10.
2. 2009-10 is the lowest and 2004-05 is the highest.
DAYS
FG TR
FG HOLDING
PERIOD
2004-05
360.00
17.35
21.00
2005-06
360.00
15.42
23.00
2006-07
360.00
12.74
28.00
2007-08
360.00
11.81
30.00
2008-09
360.00
8.33
43.00
2009-10
360.00
8.19
43.97
TABLE: 21
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART:18
INFERENCE:
1. Finished goods holding period is highest in 2009-10.
2. Finished goods holding period is lowest in 2004-05.
INVENTORY
CURRENT ASSETS
INV TO CA RATIO
2004-05
5680.81
21572.63
0.26
2005-06
9025.61
22324.13
0.40
2006-07
10703.21
26977.14
0.40
2007-08
12239.14
28752.58
0.43
2008-09
13300.14
31656.16
0.42
2009-10
16382.40
41403.10
0.40
TABLE: 22
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 19
INFERENCE:
1. In 2004-05, 26% of current assets are inventory. It was the least.
2. In 2007-08, 43% of current assets are inventory. It was highest.
Great majority of firms does not demand immediate cash payment when goods or
services are sold to their regular and credit worthy customers. Because of this
practice, most sales require the firm to maintain debtors account for customer or a
group of them for some period. Accordingly, debtors or receivables occupy a
significant role in firms current assets structure usually next to inventories.
Objectives of Maintaining Receivables:
Achieving growth in sales and profits. If a firm allows sales, it will usually be
able to sell more goods or services then if it insists on immediate cash
payment. Similarly, an additional sale normally results in higher profits for the
firm. This proportion will hold goods only when the marginal contribution or
gross margin greater than the additional cost associated with the administering
the credit policy.
Meeting competition:
The above 2 objectives have a single purpose, that is generate larger flow of
operating revenue and hence profit, than would be achieved in the absence of
a commitment of the funds to debtors. Extension of credit involves cost and
risk management should weigh benefits against cost. The optimum point may
be considered as the point where the return on investment in further funding
of receivables is less than the cost of funds raised that additional credit (i.e.
cost of capital).
Cost of Maintaining Receivables:
Credit sales, and hence maintaining of debtors, involve certain costs. They are:
Cost of financing debtors.
Collection costs
Delinquency costs
Default costs
Credit Policy:
The credit policy relating to sales and purchase also affects the working capital.
The credit policy influences requirement of working capital in 2 ways.
determining the level of book debts. The credit sales result in higher book debts.
Higher book debts mean more working capital. On the other need, for working
capital is less. The working capital requirements of a business are, thus affected
by the terms of purchase and sale, and the role given to credit by a company in its
dealing with creditors and debtors. Similarly, collection procedure will differ from
customer. With the permanent but temporary defeating customers, the firm may
not be very strict in following the collection procedures. The credit evaluation
procedure involves the following steps:
1. Credit information
2. Credit investigation
3. Credit limits and
4. Collection procedure
For effective management of credit, a firm should lay down clear-cut guidelines
and procedures for granting credit to individual customers and collecting
individual accounts.
Size of Receivables:
An analysis of the percentage of receivables in relation assets indicates the
recovery efficiency of the company. Moreover, the % receivable in relation to
sales indicates the firm credit sales requirements. However, this kind of analysis
reveals the overall operational efficiency of the company in relation to credit sales
and their recovery.
RATIO ANALYSIS:
I. TO ANALYZE EFFICIENCY:
1. ACCOUNTS RECEIVABLES TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR
SALES
AVG DEBTORS
RTR
2004-05
41818.97
4321.93
9.68
2005-06
52476.57
4415.52
11.88
2006-07
71681.76
4736.06
15.14
2007-08
77425.80
4493.55
17.23
2008-09
59810.74
6669.04
8.97
2009-10
78726.00
9900.15
7.95
TABLE: 23
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART: 20
INFERENCE:
1. Receivables turnover ratio is highest in 2007-08.
2. Receivables turnover ratio is lowest in 2009-10.
YEAR
DAYS
RTR
DEBTORS
COLLECTION
PERIOD
2004-05
360.00
9.68
37.00
2005-06
360.00
11.88
30.00
2006-07
360.00
15.14
24.00
2007-08
360.00
17.23
21.00
2008-09
360.00
8.97
40.00
2009-10
360.00
7.95
45.28
TABLE: 24
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. Receivables management in Ashok Leyland is very efficient. From 2004-05 to
2007-08 debtors collection period was decreasing.
2. But in the year 2009-10 the collection period increased to more than 100%
YEAR
DCP
AVG INVST IN
RECEIVABLES
2004-05
116.00
37.00
4298.00
2005-06
146.00
30.00
4373.00
2006-07
199.00
24.00
4779.00
2007-08
215.00
21.00
4517.00
2008-09
166.00
40.00
6646.00
2009-10
218.68
45.28
9901.83
TABLE: 25
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. From 2004-05 to 2007-08 the investment on receivables is constant.
2. In the year 2008-09 it is slightly increased.
3. Then in 2009-10 it increased more than 50% approx.
3.1. CREDITORS TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR
PURCHASES
AVG CREDITORS
CTR
2004-05
30413.01
5494.04
5.54
2005-06
41067.86
6636.96
6.19
2006-07
55206.21
8528.47
6.47
2007-08
57856.49
11531.35
5.02
2008-09
44315.03
12013.00
3.69
2009-10
52017.40
13362.75
3.89
TABLE: 26
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. 2006-07 year has highest creditor turnover ratio.
2. 2008-09 year has lowest creditor turnover ratio.
DAYS
CTR
CREDITORS
COLLECTION
PERIOD
2004-05
360.00
5.54
65.00
2005-06
360.00
6.19
58.00
2006-07
360.00
6.47
56.00
2007-08
360.00
5.02
72.00
2008-09
360.00
3.69
98.00
2009-10
360.00
3.89
92.54
TABLE:27
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART:24
INFERENCE:
1. In the year 2006-07 creditors collection period is low 56.
2. In the year 2008-09 the creditors collection period is very high 98.
RECEIVABLES
CURRENT ASSETS
REC TO CA
RATIO
2004-05
4587.66
21572.63
0.21
2005-06
4243.37
22324.13
0.19
2006-07
5228.75
26977.14
0.19
2007-08
3758.35
28752.58
0.13
2008-09
9579.74
31656.16
0.30
2009-10
10220.61
41403.10
0.25
TABLE: 28
INFERENCE:
1. From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year.
2. But in the year 2008-09 it is the highest.
2. Precautionary motive:
There may be some uncertainty about magnitude and timing of cash inflows
from sale of goods and services, sale of assets and insurances of purchases.
Like flows on account of purchases and other obligations, to protect it against
such uncertainties, a firm may require some cash balances.
3. Speculative motive:
Firms would like to tap profit-making opportunities arising from fluctuations
in commodity prices, security prices, interest rates and foreign exchange rates
cash-rich firm is prepared to exploit such speculative earnings, may require
additional liquidity. However, for most firms there reserve borrowing capacity
and marketable securities would suffice to meet their speculative needs.
4. Compensating motive:
Yet another motive to hold cash balances is to compensate banks for providing
certain services and loans. Banks provide a variety of services to business
firms, such as clearance of cheques, supply of credit information, transfer of
funds, and so on. While for some of these services bank charges a commission
or free, for others they seek indirect compensation usually, clients are required
to maintain balances of cash at the bank. Since, clients this balance cannot be
utilized by the firms for transaction purposes. The banks themselves can use
the amount to earn a return. Such balances are compensatory balances.
RATIO ANALYSIS:
I. TO ANALYZE OVERALL EFFECIENCY:
1. CASH TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR
SALES
CTR
BALANCE
2004-05
41818.97
5608.28
7.46
2005-06
52476.57
6997.79
7.50
2006-07
71681.76
5189.08
13.81
2007-08
77425.80
4431.55
17.47
2008-09
59810.74
2697.30
22.17
2009-10
78726.00
3035.00
25.94
TABLE: 29
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. Cash turnover ratio is kept on increasing from the year 2004-05 to 2009-10.
2. There is a constant growth in increase.
1.2 CASH HOLDING PERIOD: (Rs. IN MILLIONS)
YEAR
DAYS
CTR
CASH HOLDING
PERIOD
2004-05
360.00
7.46
48.00
2005-06
360.00
7.50
48.00
2006-07
360.00
13.81
26.00
2007-08
360.00
17.47
21.00
2008-09
360.00
22.17
16.00
360.00
25.94
14.00
2009-10
TABLE: 30
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. From the table given above in 2004-05 and 2005-06 the cash holding period is
very high 48days.
2. But from 2006-07 to 2009-10 it is decreased from 26 days to 14 days.
CASH
CURRENT
CASH RATIO
LIABILITIES
2004-05
7966.82
11656.67
0.68
2005-06
6028.76
14085.16
0.43
2006-07
4349.39
17558.55
0.25
2007-08
4513.70
22719.39
0.20
2008-09
880.84
21369.46
0.04
2009-10
5189.20
29607.56
0.18
TABLE: 31
INFERENCE:
1. From the above table it is clear that cash ratio that is cash availability is
decreasing from year by year.
2. In the year 2008-09 it is just 0.04.
CASH
CURRENT ASSETS
CASH TO CA
RATIO
2004-05
7966.82
21572.63
0.37
2005-06
6028.76
22324.13
0.27
2006-07
4349.39
26977.14
0.16
2007-08
4513.70
28752.58
0.16
2008-09
880.84
31656.16
0.03
2009-10
5189.20
41403.10
0.13
TABLE: 32
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART:29
INFERENCE:
From the above table it is clear that percentage of cash in current assets is very
FG Holding Period
RM HP
2004-05
25.00
2005-06
HP
OPERATING
FG HP
DCP
CCP
8.00
21.00
37.00
65.00
26.00
22.00
9.00
23.00
30.00
58.00
26.00
2006-07
22.00
7.00
28.00
24.00
56.00
25.00
2007-08
25.00
6.00
30.00
21.00
72.00
10.00
2008-09
40.00
7.00
43.00
40.00
98.00
32.00
2009-10
38.30
12.24
34.85
45.28
92.54
38.13
TABLE 33
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART:30
INFERENCE:
From the table given above it is clear that,
In 2007-08 it is very low that is 10. It is best one.
In 2009-10 it is increased from 10 to 38.
There is a rapid change in operating cycle.
CYCLE
Chapter 5
ESTIMATION OF WORKING CAPITAL
1. TIME SERIES ANALYSIS
3. FORECASTS
SALES(Y)
X*X
X*Y
Ye=a+bX
2005-06
52476.57
-2.00
4.00
-104953.14
68024.17
4062.78
59898.61
2006-07
71681.76
-1.00
1.00
-71681.76
68024.17
4062.78
63961.39
2007-08
77425.80
0.00
0.00
68024.17
4062.78
68024.17
2008-09
59810.74
1.00
1.00
59810.74
68024.17
4062.78
72086.95
2009-10
78726.00
2.00
4.00
157452.00
68024.17
4062.78
76149.73
total
340120.87
0.00
10.00
40627.84
68024.17
4062.78
80212.51
2010-11
0.00
3.00
TABLE 34
(SOURCE: ANNUAL REPORTS OF COMPANY)
CHART:31
INFERENCE:
The estimated value of sales for the year 2010-11 is 80212.51
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
II. FORECASTING OF CURRENT ASSETS:
1. INVENTORY: (Rs. IN MILLIONS)
YEAR
INVENTORY
X*X
X*Y
Ye=a+bX
(Y)
2005-06
9025.61
-2.00
4.00
-18051.22
12330.10
1731.05
8868.00
2006-07
10703.21
-1.00
1.00
-10703.21
12330.10
1731.05
10599.05
2007-08
12239.14
0.00
0.00
12330.10
1731.05
12330.10
0.00
2008-09
13300.14
1.00
1.00
13300.14
12330.10
1731.05
14061.15
2009-10
16382.40
2.00
4.00
32764.80
12330.10
1731.05
15792.20
total
61650.50
0.00
10.00
17310.51
12330.10
1731.05
17523.25
2010-11
3.00
TABLE: 35
CHART: 32
INFERENCE:
The estimated value of inventory for the year 2010-11 is 17523.25
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
The accuracy of forecasting is very good
CASH(Y)
X*X
X*Y
Ye=a+bX
2005-06
6028.76
-2.00
4.00
-12057.52
4192.38
-514.77
5221.91
2006-07
4349.39
-1.00
1.00
-4349.39
4192.38
-514.77
4707.15
2007-08
4513.70
0.00
0.00
4192.38
-514.77
4192.38
2008-09
880.84
1.00
1.00
880.84
4192.38
-514.77
3677.61
2009-10
5189.20
2.00
4.00
10378.40
4192.38
-514.77
3162.84
total
20961.89
0.00
10.00
-5147.67
4192.38
-514.77
2648.08
2010-11
3.00
0.00
TABLE: 36
CHART: 33
INFERENCE:
The estimated value of cash for the year 2010-11 is 2648.08
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
Only in 2007-08 accuracy is less.
SUNDRY
X*X
X*Y
Ye=a+bX
DEBTOR
(Y)
2005-06
4243.37
-2.00
4.00
-8486.74
6606.16
1630.55
3345.07
2006-07
5228.75
-1.00
1.00
-5228.75
6606.16
1630.55
4975.62
2007-08
3758.35
0.00
0.00
6606.16
1630.55
6606.16
2008-09
9579.74
1.00
1.00
9579.74
6606.16
1630.55
8236.71
2009-10
10220.60
2.00
4.00
20441.20
6606.16
1630.55
9867.25
total
33030.81
0.00
10.00
16305.45
6606.16
1630.55
11497.80
2010-11
0.00
3.00
TABLE: 37
CHART:34
INFERENCE:
The estimated value of sundry debtors for the year 2010-11 is 11497.80
LOANS
&
X*X
X*Y
Ye=a+bX
ADVANCE(Y)
2005-06
3026.39
-2.00
4.00
-6052.78
7092.72
1435.61
4221.51
2006-07
6695.79
-1.00
1.00
-6695.79
7092.72
1435.61
5657.11
2007-08
8241.39
0.00
0.00
7092.72
1435.61
7092.72
2008-09
7895.44
1.00
1.00
7895.44
7092.72
1435.61
8528.33
2009-10
9604.60
2.00
4.00
19209.20
7092.72
1435.61
9963.93
total
35463.60
0.00
10.00
14356.07
7092.72
1435.61
11399.54
2010-11
0.00
3.00
TABLE: 38
INFERENCE:
The estimated value of loans and advances for the year 2010-11 is 11399.54
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
III.CURRENT LIABILITIES:
1. LIABILITIES: (Rs. IN MILLIONS)
YEAR
LIABILITIE X
X*X
X*Y
Ye=a+bX
S(Y)
2005-06
11468.95
-2.00
4.00
-22937.90
18372.32
3107.58
12157.16
2006-07
16516.25
-1.00
1.00
-16516.25
18372.32
3107.58
15264.74
2007-08
19267.08
0.00
0.00
18372.32
3107.58
18372.32
2008-09
18688.64
1.00
1.00
18688.64
18372.32
3107.58
21479.89
2009-10
25920.65
2.00
4.00
51841.30
18372.32
3107.58
24587.47
total
91861.58
0.00
10.00
31075.79
18372.32
3107.58
27695.05
2010-11
0.00
3.00
TABLE: 39
CHART: 36
INFERENCE:
The estimated value of liabilities for the year 2010-11 is 27695.05
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
The accuracy of forecasting is very good.
PROVISIO
X*X
X*Y
Ye=a+bX
NS(Y)
2005-06
2616.21
-2.00
4.00
-5232.42
2695.71
377.99
1939.73
2006-07
1042.30
-1.00
1.00
-1042.30
2695.71
377.99
2317.72
2007-08
3452.31
0.00
0.00
0.00
2695.71
377.99
2695.71
2008-09
2680.82
1.00
1.00
2680.82
2695.71
377.99
3073.70
2009-10
3686.91
2.00
4.00
7373.82
total
13478.55
0.00
10.00
3779.92
2010-11
3.00
2695.71
377.99
3451.69
2695.71
377.99
3829.68
TABLE: 40
INFERENCE:
The estimated value of provisions for the year 2010-11 is 3829.68.
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
For this forecasting accuracy is less.
5.4 ESTIMATION OF SCHEDULES OF CHANGES IN WORKING
CAPITAL: (Rs. IN MILLIONS)
2010
2011
inventories
16382.40
17523.25
1140.85
sundry debtors
10226.90
11497.80
1270.90
5189.20
2648.08
9604.60
41403.10
11399.54
liabilities
25920.60
27695.05
1774.45
provisions
3686.90
3829.68
142.78
(B)
29607.50
31524.74
PARTICULARS
INCREASE
DECREASE
CURRENT ASSETS
2541.12
1794.94
43068.67
CURRENT
LIABILITIES
(A-B) WORKING
11795.60
11543.93
CAPITAL
increasing in WC
TOTAL
11795.60
251.67
251.67
11795.60
4458.36
4458.36
TABLE: 41
INFERENCE:
Estimation shows that there is a increase in current assets.
Estimation shows that there is a increase in current liabilities.
The entire table shows the estimation of schedule of changes of working
capital.
Chapter 6
SUMMARY OF FINDINGS SUGGESTIONS
FINDINGS:
6.1 STATEMENTS SHOWING SCHEDULE OF CHANGES IN WORKING
CAPITAL:
1. There has been increase in the working capital for the year 2004-05.
2. There has been decrease in the working capital for the year 2005-06.
3. There has been increase in the working capital for the year 2006-07.
4. There has been decrease in the working capital for the year 2007-08.
5. There has been increase in the working capital for the year 2008-09.
6. There has been increase in the working capital for the year 2009-10
year 2005-06.
In 2004-05 raw materials consumption is the major part of inventory.
In 2005-06 finished goods is the major part of inventory. This was a good sign
to firm.
In 2006-07 finished goods is high and there was an equal ratio of change in
raw materials and finished goods up to 2007-08.
In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
In 2009-10 finished goods is same as previous year but WIP has increased.
During the 2004-05 the company has very high inventory ratio of 7.78, which
means more capital is being locked up in the inventory.
But from the year 2005-10 the ratio was decreased from 7.14 to 4.42.
Inventory holding period was good from 2004-05 to 2007-08. But in 2008-10
it has just increased.
In 2006-07 RM TR is maximum.
From 2004-05 to 2006-07 it was increased.
From 2006-07 to 2008-09 it was decreased.
Raw material holding period is constant in all years.
But it was slightly increased in 2008-09.
In 2007-08 WIP TR is highest. Remaining all years it was similar.
In 2005-06 it is lowest.
WIP holding period is highest in 2009-10.
WIP holding period is lowest in 2007-08.
Finished goods turnover ratio is decreasing from 2004-05 to 2008-09.
2008-09 is the lowest and 2004-05 is the highest.
Finished goods holding period is highest in 2008-09.
Finished goods holding period is lowest in 2004-05.
2) RECEIVABLES MANAGEMENT:
Receivables turnover ratio is highest in 2007-08.
Receivables turnover ratio is lowest in 2009-10
Receivables management in Ashok Leyland is very efficient. From 2004-05 to
2007-08 debtors collection period was decreasing.
But in the year 2009-10 the collection period increased slightly.
From 2004-05 to 2007-08 the investment on receivables is constant.
In the year 2008-09 it is slightly increased.
In year 2009-10 it increased up to 50 %.
2006-07 year has highest creditor turnover ratio.
2008-09 year has lowest creditor turnover ratio.
In the year 2006-07 creditors collection period is low 56.
In the year 2008-09 the creditors collection period is very high 98.
From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year. But in the year 2008-09 it is the highest.
3) CASH MANAGEMENT:
Cash turnover ratio is kept on increasing from the year 2004-05 to 2009-10.
There is a constant growth in increase.
From the table given above in 2004-05 and 2005-06 the cash holding period is
very high 48days.
But from 2006-07 to 2009-10 it is decreased from 26 days to 14 days.
From the above table it is clear that cash ratio that is cash availability is
RECOMMENDATIONS:
Recommendations can be use by the firm for the betterment increased of the firm
after study and analysis of project report on study and analysis of working capital.
Company should raise funds through short term sources for short term
requirement of funds, which comparatively economical as compare to long
term funds.
Company should take control on debtor s collection period which is major part
of current assets.
Company has to take control on cash balance because cash is non earning
assets and increasing cost of funds.
Company should reduce the inventory holding period with use of zero
inventory concepts.
Company should make a policy in respect of investment of excess cash, if
any; in marketable securities and overall cash policy should be introduced.
Management should develop a credit policy and proper self realization system
from customers so that efficient and effective management of accounts
receivable can be ensured. This will significantly improve the profitability and
liquidity of the company.
Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company is increasing sales volume per year which supported to
company to increase the market share year by year.
Chapter 7
CONCLUSION
CONCLUSION:
Working capital management is important aspect of financial management. The
study of working capital management in Ashok Leyland ltd , has revealed that the
current ration was as per the standard industrial practice but the liquidity position
of the company showed an increasing trend. The study has been conducted on
working capital ratio analysis, working capital leverage, working capital
components which helped the company to manage its working capital efficiency
and affectively.
Working capital of the company was increasing and showing positive working
capital per year. It shows good liquidity position.
Positive working capital indicates that company has the ability of payments of
short terms liabilities.
Current assets are more than current liabilities indicate that company used
long term funds for short term requirement, where long term funds are most
costly then short term funds.
Current assets components shows sundry debtors were the major part in
The company is matured one and it has contributed towards the countries growth
and development and will also continue to perform and contribute to the whole
nation. To conclude company has sound and effective management of working
capital, which helps them to control the cost and increase the profit.
Chapter 8
Appendices
BIBLIOGRAPHY:
BOOKS REFERRED:
M.Y. KHAN AND P.K. JAIN 5th EDITION-MANAGEMENT
ACCOUNTING NOIDA:-- Tata McGraw-Hill Publication
I. M. PANDEY 2008 - FINACIAL MANAGEMENT- NEW DELHI;-Vikas Publishing House Pvt Ltd.
WEBSITES:
Available from : www.ashokleyland.com [accessed on 15 june2010]
Available from : www.mentormyproject.com [accessed on 15 june2010]
Available from : www.scribd.com [accessed on 15 june2010]
Available
from
www.managementparadise.com[accessed
june2010]
Available from : www.bizstats.com [accessed on 15 june2010]
Available from : www.findarticles.com [accessed on 15 june2010]
Available from : www.britannica.com [accessed on 15 june2010]
on
15
ANNEXURE
BALANCE SHEET:
(Rs.IN
MILLIONS)
PARTICULARS
2004-05
2005-06
2006-07
2008-08
2008-09
2009-10
Capital
1,189.29
1,221.59
1,323.87
1,330.34
1,330.34
1,330.34
Reserves And
10,489.36
12,902.94
17,621.81
20,159.48
33,408.65
35,357.23
11,678.65
14,124.53
18,945.68
21,489.83
34,738.99
36,687.57
Secured Loans
2,634.96
1,846.91
3,602.16
1,902.40
3,044.13
7,115.66
Unsecured Loans
6,169.10
5,072.37
2,801.82
6,972.61
16,537.31
14,923.32
8,804.06
6,919.28
6,403.98
8,875.01
19,581.44
22,038.98
Source Of Funds
Shareholders Fund
Surplus
Loan Funds
Deferred
Liability
765.48
Deferred Tax
1,708.48
1,796.89
1,969.29
2,538.20
2,634.37
3,845.36
Liability-Net
Foreign Currency
38.41
(124.50)
Monetary Item
Translation
Difference-Net
Total
22,191.19
22,840.70
27,318.95
32,903.03
56,993.21
63,212.89
20,022.50
21,384.99
26,201.97
29,424.38
49,532.72
60,186.33
11,084.04
11925.28
13131.64
14,168.88
15,541.56
17,690.74
Net Block
8938.46
9432.71
13070.33
15,255.50
33,991.16
42,495.59
Capital Work-In-
851.55
1414.17
2374.91
5,292.45
9,982.89
5614.69
9790.01
10846.88
15445.24
20,547.95
43,974.06
48,110.28
2291.9
3681.78
2210.94
6,098.99
2,635.57
3261.54
5680.81
9025.61
10703.21
12239.14
13,300.14
16382.4
4587.66
4243.37
5228.75
3758.35
9,579.74
10220.61
7966.82
6028.76
4349.39
4513.7
880.836
5189.2
Application Of
Funds
Fixed Assets
Gross Block
Less
Depreciation
Progress
Investments
Current Assets,
Loans And
Advances
Inventories
Sundry Debtors
Cash And Bank
Balances
Loans And
3337.34
3026.39
6695.79
8241.39
7,895.44
9604.62
21572.63
22324.13
26977.14
28752.58
31,656.14
41396.83
Liabilities
9611.87
11468.95
16516.25
19267.08
18,688.64
25920.65
Provisions
2044.8
2616.21
1042.3
3452.31
2,680.82
3686.91
11,656.67
14085.16
17558.55
22,719.39
21,369.46
29607.56
9915.96
8238.97
9418.59
6033.187
10,286.68
11789.27
193.32
73.07
244.18
222.91
Advances
Less Current
Liabilities And
Provisions
Net Current
Assets
Miscellaneous
96.88
51.74
Expenditure
Total
22,191.19
22,840.70
27,318.95
32,903.03
56,993.21
63,212.83