LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

Report on Summer Training

“Working capital Management at Organization”

Submitted to:- Submitted by:-

Lovely Professional University Dinesh Kumar
10901690
RT1901B50
 ACKNOWLEDGEMENT:-

The successful completion of this work depended on the availability of detailed Information on the
structure and workings of the training and the induction process of Yamaha Motors. In the course of this
research, I benefited from the generous participation of the employees of the organizations, which
allowed me open access to their staff and operations and provided useful feedback on the research
process and the preparation of the report.

I am grateful for the assistance of all who contributed to this research. In particular I would like to thank
my industry guides Ms. seema madam and (Assistant Manager, IYM) for their support and guidance

LPU was increased my spectrum of knowledge in this field is the result of their constant supervision and
direction that has helped me to absorb relevant and high quality information

I would like to thank the HR team of Yamaha Motors for their continued support and valuable insights
throughout the course of my winter training.

Lastly, I would like to express my heartfelt appreciation to all those people who have in their own way
contributed towards the compilation of this report with their suggestions, criticisms and advice.

Thanking you,

Dinesh Kumar
CHAPTER-1
 Introduction
 Gross working capital and net working capital
 Types of working capital
 Determinants Of working capital
 Sources’ of working capital

CHAPTER-2
 Research Methodology
 Research Design
 Objectives
 Limitation

CHAPTER-3
 Industry Profile
 Company Profile
 SWOT Analysis
 Recent Launches
 Finance Department

CHAPTER-4 :-Literature Review

CHAPTER -5 :-

 COMPARISON OF OPERATING CYCLE OF YAMAHA WITH BAJAJ

AUTO LTD.
 Analysis of Working capital
 Cash Management
 Inventory Management
CHAPTER-6 :-

 Findings
 Suggestions
 Conclusion
 Bibliography
 EXECUTIVE SUMMERY

The major objective of the study is to proper understanding the working capital of Yamaha & to
suggest measures to overcome the shortfalls if any.

Funds needed for short term needs for the purpose like raw materials, payment of wages and
other day to day expenses are known as working capital. Decisions relating to working capital
(Current assets-Current liabilities) and short term financing are known as working capital
management. It involves the relationship between a firm’s short-term assets and its short term
liabilities. By definition, working capital management entails short-term definitions, generally
relating to the next one year period.

The goal of working capital management is to ensure that the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.

Working capital is primarily concerned with inventories management, Receivable

management, cash management & Payable management.
Inventories management at Yamaha.

Yamaha is a large scale manufacturing company involved in mining of Bauxite and production
of Aluminum. Therefore, it has to maintain large quantity of inventories at production units for
its smooth running and functioning.

Yamaha has been accumulating huge cash surpluses over last several years, which enables the
organization to maintain adequate cash reserves and to generate required amount of cash.
 Introduction
Working capital management
Working capital management is concerned with the problems arise in attempting to manage the
current assets, the current liabilities and the inter relationship that exist between them. The term
current assets refers to those assets which in ordinary course of business can be, or, will be,
turned in to cash within one year without undergoing a diminution in value and without
disrupting the operation of the firm. The major current assets are cash, marketable securities,
account receivable and inventory. Current liabilities ware those liabilities which intended at there
inception to be paid in ordinary course of business, within a year, out of the current assets or
earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-
draft, and outstanding expenses.

The goal of working capital management is to manage the firm s current assets and current
liabilities in such way that the satisfactory level of working capital is mentioned. The current
should be large enough to cover its current liabilities in order to ensure a reasonable margin of
the safety.

Definition:-
According to Guttmann & Dougall- Excess of current assets over current liabilities .

According to Park & Gladson- The excess of current assets of a business (i.e. cash, accounts
receivables, inventories) over current items owned to employees and others (such as salaries &
wages payable, accounts payable, taxes owned to government) .

Need of working capital management

The need for working capital gross or current assets cannot be over emphasized. As already
observed, the objective of financial decision making is to maximize the shareholders wealth. To
achieve this, it is necessary to generate sufficient profits can be earned will naturally depend
upon the magnitude of the sales among other things but sales can not convert into cash. There is
a need for working capital in the form of current assets to deal with the problem arising out of
lack of immediate realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity. Technically this is refers to operating or cash cycle. If the
company has certain amount of cash, it will be required for purchasing the raw material may be available
on credit basis. Then the company has to spend some amount for labour and factory overhead to convert
the raw material in work in progress, and ultimately finished goods. These finished goods convert in to
sales on credit basis in the form of sundry debtors. Sundry debtors are converting into cash after expiry of
credit period. Thus some amount of cash is blocked in raw materials, WIP, finished goods, and sundry
debtors and day to day cash requirements. However some part of current assets may be financed by the
current liabilities also. The amount required to be invested in this current assets is always higher than the
funds available from current liabilities. This is the precise reason why the needs for working capital arise
Gross working capital and Net working Capital

There are two concepts of working capital management

1. Gross working capital

Gross working capital refers to the firm s investment I current assets. Current assets are the assets which
can be convert in to cash within year includes cash, short term securities, debtors, bills receivable and
inventory.

2. Net working capital

Net working capital refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for payment within an accounting
year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or
negative

Efficient working capital management requires that firms should operate with some amount of net
working capital, the exact amount varying from firm to firm and depending, among other things; on the
nature of industries.net working capital is necessary because the cash outflows and inflows do not
coincide. The cash outflows resulting from payment of current liabilities are relatively predictable. The
cash inflow are however difficult to predict. The more predictable the cash inflows are, the less net
working capital will be required.

The concept of working capital was, first evolved by Karl Marx. Marx used the term variable capital
means outlays for payrolls advanced to workers before the completion of work. He compared this with
constant capital which according to him is nothing but dead labour . This variable capital is nothing
wage fund which remains blocked in terms of financial management, in work- in-process along with other
operating expenses until it is released through sale of finished goods. Although Marx did not mentioned
that workers also gave credit to the firm by accepting periodical payment of wages which funded a
portioned of W.I.P, the concept of working capital, as we understand today was embedded in his variable
capital .
Type of working capital
The operating cycle creates the need for current assets (working capital). However the need does not
come to an end after the cycle is completed to explain this continuing need of current assets a destination
should be drawn between permanent and temporary working capital.

1) Permanent working capital

The need for current assets arises, as already observed, because of the cash cycle. To carry on business
certain minimum level of working capital is necessary on continues and uninterrupted basis. For all
practical purpose, this requirement will have to be met permanent as with other fixed assets. This
requirement refers to as permanent or fixed working capital

2) Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating or variable,
working capital. This portion of the required working capital is needed to meet fluctuation in demand
consequent upon changes in production and sales as result of seasonal changes

Determinants of working capital

The amount of working capital is depends upon a following factors
There is no specific method to determine working capital requirement for a business. There are a number
of factors affecting the working capital requirement. These factors have different importance in different
businesses and at different times. So a thorough analysis of all these factors should be made before trying
to estimate the amount of working capital needed. Some of the different factors are mentioned here below
:-

Nature of business : Nature of business is an important factor in determining the working capital
requirements. There are some businesses which require a very nominal amount to be invested in fixed
assets but a large chunk of the total investment is in the form of working capital. There businesses, for
example, are of the trading and financing type. There are businesses which require large investment in
fixed assets and normal investment in the form of working capital.

Size of business : It is another important factor in determining the working capital requirements of a
business. Size is usually measured in terms of scale of operating cycle. The amount of working capital
needed is directly proportional to the scale of operating cycle i.e. the larger the scale of operating cycle
the large will be the amount working capital and vice versa.

Manufacturing Cycle: As is evident from the very word, manufacturing cycle means the starting of the
cycle with the purchase of raw material and ends when finished products are churned out. An extended
manufacturing time span means larger tie up of funds hence more working capital. So the shortest
manufacturing cycle should be chosen.

Business Fluctuations: Most business experience cyclical and seasonal fluctuations in demand for their
goods and services. These fluctuations affect the business with respect to working capital because during
the time of boom, due to an increase in business activity the amount of working capital requirement
increases and the reverse is true in the case of recession. Financial arrangement for seasonal working
capital requirements are to be made in advance.

Production Policy: As stated above, every business has to cope with different types of fluctuations.
Hence it is but obvious that production policy has to be planned well in advance with respect to
fluctuation. No two companies can have similar production policy in all respects because it depends upon
the circumstances of an individual company.

Firm’s Credit Policy: The credit policy of a firm affects working capital by influencing the level of book
debts. The credit term are fairly constant in an industry but individuals also have their role in framing
their credit policy. A liberal credit policy will lead to more amount being committed to working capital
requirements whereas a stern credit policy may decrease the amount of working capital requirement
appreciably but the repercussions of the two are not simple. Hence a firm should always frame a rational
credit policy based on the credit worthiness of the customer.

Availability of Credit: The terms on which a company is able to avail credit from its suppliers of goods
and devices credit/also affects the working capital requirement. If a company in a position to get credit on
liberal terms and in a short span of time then it will be in a position to work with less amount of working
capital. Hence the amount of working capital needed will depend upon the terms a firm is granted credit
by its creditors.

Growth and Expansion activities : The working capital needs of a firm increases as it grows in term of
sale or fixed assets. There is no precise way to determine the relation between the amount of sales and
working capital requirement but one thing is sure that an increase in sales never precedes, the increase in
working capital but it is always the other way round. So in case of growth or expansion the aspect of
working capital needs to be planned in advance.

Price Level Changes: Generally increase in price level makes the commodities dearer. Hence with
increase in price level the working capital requirements also increases. The companies which are in a
position to alter the price of these commodities in accordance with the price level changes will face less
problems as compared to others. The changes in price level may not affect all the firms in same way. The
reactions of all firms with regards to price level changes will be different from one other.

SOURCES OF WORKING CAPITAL

The company can choose to finance its current assets by
1) Long term sources 2) Short term sources 3) A combination of them.

Long term sources of permanent working capital include equity and Preference shares, retained
earning, debentures and other long term debts from public deposits and financial institution. The
long term working capital needs should meet through long term means of financing. Financing
through long term Means provides stability, reduces risk or payment. And increases liquidity of
the business concern.

Various types of long term sources of working capital are summarized as follow;
Issue of shares *
Retained earnings
Issue of debentures *
Long term debt

Other sources: sale of idle fixed assets, securities received from employees and
Customers are examples of other sources of finance.

SHORT TERM SOURCES OF TEMPORARY WORKING CAPITAL

Temporary working capital is required to meet the day to day business
expenditures. The variable working capital would finance from short term sources
of funds. And only the period needed. It has the benefits of, low cost and
establishes closer relationships with banker.

SOURCES OF TEMPORARY WORKING CAPITAL

Commercial bank
Public deposits
Various credits
Reserves and other funds

ADVANTAGES OF ADEQUATE WORKING CAPITAL

Increase in debt capacity and goodwill
Increase in production inefficiency
Exploitation of favorable opportunities
Meeting contingencies adverse changes
Available cash discount
Solvency and efficiency fixed assets.
Attractive dividend to shareholders

CIRCULATION SYSTEM OF WORKING CAPITAL

In the beginning the funds are obtained from the issue of shares, often supplemented by long
term borrowings. Much of these collected funds are used in purchasing fixed assets and
remaining funds are used for day to day operation as pay for raw material, wages overhead
expenses. After this finished goods are ready for sale and by selling the finished goods either
account receivable are created and cash is received. In this process profit is earned. This account
of profit is used for paying taxes, dividend and the balance is ploughed in the business.

Working capital is considered to efficiently circulated when it turns over quickly. As circulation
increases, the investment in current assets will decrease. Current assets turnover ratio speaks
about the efficiency of YAMAHA in the utilization of current assets. Fast turnover current assets
results in a better rate on investment.

Table showing Current assets turnover ratio

Year Ratio (in times)

2006 1.78

2007 2.98

2008 1.98

Average: 2.24

The ratio average is 2.24 times in the study period of 3 years. In 2002 current assets turnover
ratio is highest one i.e. 2.98 during the 3 year study. Reasons being during this year company has
achieved sales growth 44.36% over the previous year and additional activity needs more funds.

Research methodology
Research methodology is a way to systematically solve the research problem. It may be understood as a
science of studying now research is done systematically. In that various steps, those are generally adopted
by a researcher in studying his problem along with the logic behind them. It is important for research to
know not only the research method but also know methodology. The procedures by which researcher go
about their work of describing, explaining and predicting phenomenon are called methodology. Methods
comprise the procedures used for generating, collecting and evaluating data. All this means that it is
necessary for the researcher to design his methodology for his problem as the same may differ from
problem to problem. Data collection is important step in any project and success of any project will be
largely depend upon now much accurate you will be able to collect and how much time, money and effort
will be required to collect that necessary data, this is also important step.
Data collection plays an important role in research work. Without proper data
available for analysis you cannot do the research work accurately.

RESEARCH DESIGN
The research is exploratory in nature

Types of data collection

There are two types of data collection methods available.

1. Primary data collection

2. Secondary data collection

1) Primary data
The primary data is that data which is collected fresh or first hand, and for first time which is
original in nature. Primary data can collect through personal interview, questionnaire etc. to
support the secondary data.

2) Secondary data collection method

The secondary data are those which have already collected and stored. Secondary data easily get
those secondary data from records, journals, annual reports of the company etc. It will save the
time, money and efforts to collect the data. Secondary data also made available through trade
magazines, balance sheets, books etc.

This project is based on primary data collected through personal interview of head of account
department, head of SQC department and other concerned staff member of finance department.
But primary data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the company,
supported by various books and internet sides. The data collection was aimed at study of working
capital management of the company

 
OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working capital is managed
effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove
bottlenecks if any the company can not earn profits and increase its turnover. With this primary objective
of the study, the following further objectives are framed for a depth analysis.

1. To study the working capital management of company.

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

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

Ratios.

4. To study the working capital components such as receivables accounts,

Cash management, Inventory position

5. To study the way and means of working capital finance of the company.

6. To estimate the working capital requirement of Jain Irrigation System

Ltd

7. To study the operating and cash cycle of the company

SCOPE & LIMITATIONS OF THE S TUDY

Scope of the study
The scope of the study is identified after and during the study is conducted. The study of working capital
is based on tools like trend Analysis, Ratio Analysis, working capital leverage, operating cycle etc.
Further the study is based on last 5 years Annual Reports of Jain Irrigation Systems Ltd. And even factors
like competitor s analysis, industry analysis were not considered while preparing this project.

Limitations of the study

Following limitations were encountered while preparing this project:

1) Limited data:-
This project has completed with annual reports; it just constitutes one part of data collection i.e.
secondary. There were limitations for primary data collection because of confidentiality.

2) Limited period:-
This project is based on five year annual reports. Conclusions and recommendations are based on
such limited data. The trend of last five year may or may not reflect the real working capital
position of the company

3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their
Financial information. Industry figures were also difficult to get.

INDUSTRY PROFILE

AUTOMOBILE INDUSTRY TILL DATE

The automobile industry is one of the biggest industries in the world. Being a major revenue and
job generating sector it drives the economies of some of the superpowers of the world. In India
the automobile industry has grown by leaps and bounds since the advent of the liberalization
era the automobile industry and especially the two wheeler segment has grown by leaps and
bounds.

The liberalization has done away with primitive and prohibitive practices of licensing and
restricted foreign investment have been done away with. The result of which was the entry of
foreign players into the Indian market. The two wheeler segment was largely dominated by
Automobile Products of India (API) and Enfield in the 50s. Later on towards the end of the 50s
Bajaj Autos began importing Vespa scooters from Italian company Piaggio. In the following
decades the automobile industry in India was mainly dominated by scooters with API and later
Bajaj dominating the market. There were very few products and choices available as far as
motorcycle is concerned and Enfield bullet and Rajdoot dominated the market.

The 80s saw the entry of Japanese companies in the Indian market with the opening up of the
market to foreign companies. Hero Honda and TVS Suzuki are companies formed in this era of
market reform. The market was still predominantly scooter dominated and Bajaj and LML were
the leading brands producing the products at that time. Scooter was viewed as a more family
and utility friendly vehicle than motorcycle and hence was preferred.

The Japanese companies not only collaborated with Indian companies to produce the already
existing products but also brought in new technology as a result of which the ever conquering
100cc bikes which were extremely fuel efficient with 4 stroke engines were launched in India.
These proved to be highly successful as they provided a cheap and affordable means of
personal transport to all those who could not buy a car. The flourishing middle class took a great
liking for these bikes and the bike sales in India began to grow exponentially year on year
leading to Hero Honda becoming the leader in the two wheeler industry in India and the largest
producer of two wheelers in the world.

The post 90s era was the era of liberalization and weakening of restrictive measures. The
government went on an overdrive to support the industry and all FDI regulations and licensing
was abolished. 100% FDI was allowed in the automobile industry and the excise duty was also
considerably reduced to its current level of 12% on two wheelers.
All these factors combined with the rising fuel prices, the increasing dispensable incomes of
households, easy access to finance, etc. have led to two wheeler industry becoming the
backbone of the automobile industry in India.

The two wheeler industry in India forms a major chunk of the automobiles produced in India.
According to Society of Indian Automobile Manufacturers statistics for the year 2008 – 2009,
two – wheelers comprise 76.49% of market share among the vehicles produced in India.

The production share of two wheelers is quite similar to the market share. The two wheeler
industry comprises around 74% of the total automobiles produced in India. The SIAM data for
the year 2008-09 states that 8,418,626 two wheelers were produced during the year against a
total of 11,175,479vehicles produced during the year.

SEGMENTATION OF TWO WHEELER

A Two Wheeler Sector Sub-Segmenting in the three Segments

1. Motorcycle
2. Scooter
3. Mopeds

Breakup of the Industry by Segment

Mopeds
Scooters 5%
12%

Motorcycles
Scooters
Mopeds

Motorcycles
83%
Domestic Market Share 2008 – 09

Commercial Vehicles 3.95%

Total Passenger Vehicles 15.96%

Total Two Wheelers 76.49%

Three Wheelers 3.60%

Domestic Market Share 2008-09

The Domestic Market Share of Two wheelers in 2008-09

PAST YEAR REPORT

In the past year the sales of the automobile segment has taken a setback and the two wheeler
segment has not proved to be any exception. The two wheeler segment has suffered a setback
of over 7% during the past fiscal year but there have been signs of recovery in the current year.

Comparative analysis of sales of

automobiles
8,000,000
6,000,000
4,000,000 Comparative analysis of
sales of automobiles
2,000,000
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Comparative Analysis of Domestic Sales of Automobiles 2008-09

 Sales trend of automobiles for the last several years

Production Trend

If we compare to the last year production of two wheelers it was around 8,026,681 out of
10,853,930 but this year we have got growth of 1.78%, this year production of two wheelers is
around 8,418,626 out of 11,175479 total automobile productions.
 Production Trend Of Automobiles
9,000,000
8,000,000
7,000,000
6,000,000 Passenger Vehicles
5,000,000 Commercial Vehicles
4,000,000 Three wheelers
Two wheelers
3,000,000
2,000,000
1,000,000
0
3 4 5 6 7 8 9
2 -0 3 -0 4 -0 5 -0 6 -0 7 -0 8 -0
2 00 2 00 2 00 2 00 2 00 2 00 2 00

The Production trend of Automobiles for several years

The total sale of two wheelers in India has touched a figure of 7.86 million units by March, 2007,
up 11.42% from the previous fiscal figures of 7.05 million. Production during the period reached
8.63 million units.

The production of two wheelers in India is expected to reach a staggering 17.85 million units by
2011-12, more than double of the current production level.

The two-wheeler production capacity is to reach 22.31 million units in 2011-12 compared with
10.78 million in 200

COMPANY PROFILE

About India Yamaha Motor Pvt. Ltd.

Yamaha made its initial foray into India in 1985. Subsequently, it entered into a 50:50 joint
venture with the Escorts Group in 1996. However, in August 2001, Yamaha acquired its
remaining stake as well, bringing the Indian operations under its complete control as a 100%
subsidiary of Yamaha Motor Co., Ltd, Japan.
India Yamaha Motor operates from its state-of-the-art-manufacturing units at Faridabad in
Haryana and Surajpur in Uttar Pradesh and produces motorcycles both for domestic and export
markets. With a strong workforce of 2000 employees, India Yamaha Motor is highly customer-
driven and has a countrywide network of over 400 dealers.

The company pioneered the volume bike segment with the launch of its 100 cc 2-stroke
motorcycle RX 100. Since then, it has introduced an entire range of 2-stroke and 4-stroke bikes
in India. Presently, its product portfolio includes Crux (100cc), Alba (106cc) and Gladiator
(125cc).

VISION

To establish YAMAHA as the "exclusive & trusted brand" of customers by "creating Kando"
(touching their hearts) - the first time and every time with world class products & services
delivered by people having "passion for customers".

MISSION

We are committed to:

Be the Exclusive & Trusted Brand renowned for marketing and manufacturing of YAMAHA
products, focusing on serving our customer where we can build long term relationships by
raising their lifestyle through performance excellence, proactive design & innovative technology.
Our innovative solutions will always exceed the changing needs of our customers and provide
value added vehicles.

Build the Winning Team with capabilities for success, thriving in a climate for action and
delivering results. Our employees are the most valuable assets and we intend to develop them
to achieve international level of professionalism with progressive career development. As a
good corporate citizen, we will conduct our business ethically and socially in a responsible
manner with concerns for the environment.
Grow through continuously innovating our business processes for creating value and knowledge
across our customers thereby earning the loyalty of our partners & increasing our stakeholder
value.

CORE COMPETENCIES

Customer #1

We put customers first in everything we do. We take decisions keeping the customer in mind.

Challenging Spirit

We strive for excellence in everything we do and in the quality of goods & services we provide.
We work hard to achieve what we commit & achieve results faster than our competitors and we
never give up.

Team-work

We work cohesively with our colleagues as a multi-cultural team built on trust, respect,
understanding & mutual co-operation. Everyone's contribution is equally important for our
success.

Frank & Fair Organization

We are honest, sincere, open minded, fair & transparent in our dealings. We actively listen to
others and participate in healthy & frank discussions to achieve the organization's goals.

OVERVIEW

FOUNDED: July 1, 1955

CAPITAL: 48,302 million yen (as of March 31, 2008)

PRESIDENT: Takashi Kajikawa

EMPLOYEES: 46,850 (as of December 31, 2007)

PARENT: 9,019 (as of December 31, 2007)

SALES: 1,756,707 million yen (from Jan 1, 2007 to Dec 31, 2007)

PARENT: 799,209 million yen (from Jan 1, 2007 to Dec 31, 2007)

SALES PROFILE

Sales (%) by product category (consolidated)

Sales (%) by region (consolidated)

MAJOR PRODUCTS& SERVICES:

 Manufacture and sales of motorcycles, scooters, electro-hybrid bicycles, boats, sail

boats, Water Vehicles, pools, utility boats, fishing boats, outboard motors, diesel
engines, 4-wheel ATVs, side-by-side vehicles, racing karts, golf cars, multi-purpose
engines, generators, water pumps, snowmobiles, small-sized snow throwers,
automotive engines, intelligent machinery, industrial-use remote control helicopters,
electrical power units for wheelchairs, helmets.

 Biotechnological production, processing and sales of agricultural and marine products

and microorganisms.
  Import and sales of various types of products, development of tourist businesses and
management of leisure, recreational facilities and related services.

HEADQUARTERS: 2500 Shingai, Iwata-shi, Shizuoka-ken, Japan

CORPORATE PHILOSOPHY

For society, for the world …

Yamaha works to realize
our corporate mission of creating Kando

Yamaha Motor is a company that has worked ever since its founding to build products defined
by the concepts of “high-quality and high-performance” and “light weight and compactness” as
we have continued to develop new technologies in the areas of small engine technology and
FRP processing technology as well as control and component technologies.
It can also be said that our corporate history has taken a path where “people” are the
fundamental element and our product creation and other corporate activities have always been
aimed at touching people’s hearts. Our goal has always been to provide products that empower
each and every customer and make their lives more fulfilling by offering greater speed, greater
mobility and greater potential.
Said in another way, our aim is to bring people greater joy, happiness and create Kando* in
their lives. As a company that makes the world its field and offers products for the land, the
water, the snowfields and the sky, Yamaha Motor strives to be a company that “offers new
excitement and a more fulfilling life for people all over the world” and to use our ingenuity and
passion to realize peoples’ dreams and always be the ones they look to for “the next Kando.”
What is Kendo?

Kendo is a Japanese word for the simultaneous feeling of deep satisfaction and intense
excitement that people experience when they encounter something of exceptional value.\

SWOT ANALYSIS

A scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S) or
weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats
(T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and
capabilities to the competitive environment in which it operates. As such, it is instrumental in
strategy formulation and selection. The following diagram shows how a SWOT analysis fits into
an environmental scan:

SWOT Analysis Framework

Environmental Scan

          / \           

Internal Analysis       External Analysis

/ \                  / \

Strengths   Weaknesses       Opportunities   Threats

SWOT Matrix

SWOT ANALYSIS FOR THE TWO WHEELER INDUSTRY

 Strength

 Established brands, Strong Brand

Name

 Fuel efficient
Weaknesses

 Style statement
 Extremely price sensitive

 Convenient in heavy traffic

 Short PLC

 Cheap and affordable

 High R and D costs

 Easy and cheap finance availability

 Patents

 Good reputation among customers

Threats
Opportunities

 The Rs.1 Lakh car

 Growing premium segment

 Cut throat competition

 Increasing dispensable income

 Increasing number of players in the

 Environmental concerns
market

 Exports increasing
 Rising raw material costs

 Very strong demand in the 100cc.

 Increasing rates of interest on
segment dominated by limited
finance
players.
SWOT ANALYSIS FOR INDIA YAMAHA MOTORS

Strength

 Size and scale of parent company.

 Effective Advertising Capability Weaknesses

 Committed and dedicated staff.  Small showrooms.

 High emphasis on R and D.  Not much emphasis on aggressive

selling.
 Experience in the market.
 Weak product diversity.
 Established brand.

 Established market channel.

 Power, Speed & Acceleration

Opportunities Threats

 Growing premium segment.  Cut throat competition

 Global expansion into the Caribbean  Increasing number of players in the

& Central America. market

 Expansion of target market (include  Rising raw material costs

women).
 Increasing rates of interest on
 Increasing dispensable income.
 finance
 st
1 mover advantage.

RECENT LAUNCHES

YAMAHA FZ-S

Yamaha FZ-S 150cc, a recently launched bike by the industry giant Yamaha. After the grand
success of FZ-16 Yamaha has finally launched its modified version (FZ-S) in India. This
fabulous bike is equipped with all the necessary features one may think of. It stands ahead in
style and performance not only in its segment but beyond. This bike is best suited for those who
want elegance and power in one. It is designed and engineered with the capacity for active and
aggressive enjoyment of around-town street riding and styling, bringing a sense of pride for the
owner of the bike. It is especially designed to satiate riders' desire for style and fashion. It is
popularly referred as the “Stylish Macho Street Fighter” (Lord of the Streets).

The primary features of Yamaha FZ-S include:

  European international design
 Stainless steel body
 Aerodynamic muscular design
 High torque rate
 Carbon pattern meter console
 Latest graphics
 Disk brakes
 Electric start starting system
 Electronic fuel injection system

YAMAHA YZF R15

This is the latest offering from the Yamaha stable. The YZF R15 is the first truly sports bike
launched in India. The looks and design have been done keeping the bigger R1 in mind and
hence the resemblance.

The bike is priced at Rs.97,500 (ex-showroom) across India. It boasts of the first liquid cooled 4
valve engine in the two wheeler category which gives it better performance and power. It is a
150cc bike having enough power to bring chills to the rider when he revs up the accelerator.
 FINANCE DEPARTMENT
Yamaha India Ltd has an efficient finance department Headed by a finance manager and he is
assisted by the deputy manager, finance.
Finance manager is responsible for shaping the fortunes of the company,
preparing budgets, raising funds, keeping different accounts etc. YM is having a management
information system to assist the finance department. The finance department is dividing into
different sections like general accounts, costing bills, establishment and provident fund accounts
section, each having its own functions.

DEPUTY FINANCE MANAGER

DFM controls the costing process. Various costs such as material costs and production cost are
assessed. Fixed capital and working capital are also planned by this department. A comparative
study on budgeting control is made. The various areas coming under DFM are as follows;
AOGA: The main area coming under this section is finalization of accounts and preparation of
profit and loss account and balance sheet. Different vouchers, journals and ledgers are also
maintained under this area. Bank, cash, payroll etc also come under this department. Based on
the above data, ratio analysis is done.

AOEDP: This area mainly deals with hardware and software programs of the Computers. Any
problems with computers are mainly analyzed by this Department.

AO Bills: Under this area, first a quotation is collected from various companies. If it is
accepted, make purchase orders, contains the specifications, date, place etc. Receiving repots are
given. Income, Sales tax and VAT are verified in this area.

Senior Accounts Officer: The SAO deals with sales accounting. He also
maintains the account of sundry debtors, sales tax, VAT, etc.

Finance Manager: The function of finance manager is to have an overall control of the
above departments. The various sections coming under finance department are explained below;

GENARAL ACCOUNTS SECTION

In this section, a large number of general accounts are kept. These include;
general journal in which the transaction are entered first. Standard journal in which all recurring
items are entered (salary, wages, excise duty), Cash book in which all cash receipts and
payments are recorded, Sundry debtors and Sundry creditors ledger, Bank book in which all
bank payments and receipts are entered, Subsidiary ledger, which include individual accounts
maintained by each department. A trial balance is prepared every 4 months.

BILL SECTION

In this section, all payments for purchase are recorded. This includes bills
payable to suppliers and contractors. In case supplier demand advance, it is paid and properly
accounted. Sundry creditors ledger and supplier account are kept in this section. At the end of the
year, the accounts are ratified and send to the general accounts section. In this section, separate
cost records are kept and maintained, and cost audit is conducted every year, both internally as
well as by Government nominees.

COSTING SECTION

Budgeting and budgetary control is the main function of the costing section
where both revenue and capital expenditure budget are prepared. Capital
expenditure is prepared based on the total asset incurred for all the items in all debts. Revenue
budget is prepared on the basis of estimates for production, sales and expenditure. The balance
sheet with total assets and liabilities is prepared and total cash flow is found
 LITERATURE REVIEW
Working capital is usually defined to be the difference between current
assets and current liabilities. However, we will modify that definition when we measure working
capital for valuation purposes. In a perfect world, there would be no necessity for current assets
and liabilities because there would be no uncertainty, no transaction costs, information search
costs, scheduling costs, or production and technology constraints. The unit cost of production
would not vary with the quantity produced. Borrowing and lending rates shall be same. Capital,
labour, and product market shall be perfectly competitive and would reflect all available
information, thus in such an environment, there would be no advantage for investing in short
term assets. These real world circumstances introduce problem’s which require the necessity of
maintaining working capital.

  WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a 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 of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1.     Ratio analysis.

 2.     Fund flow analysis.

1.    RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or working capital position
of a firm. The following ratios can be calculated for these purposes:

1. Current ratio.

2. Quick ratio

3.  Absolute liquid ratio

4.  Inventory turnover.

5.  Receivables turnover.

6.  Payable turnover ratio.

7.  Working capital turnover ratio.

8.  Working capital leverage

9.  Ratio of current liabilities to tangible net worth.

2.    FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from which
additional funds were derived and the use to which these sources were put. The fund flow
analysis consists of:

 
 a.      Preparing schedule of changes of working capital

b.     Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working

capital) business enterprise between beginning and ending of the financial dates.

3.    WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and polices to be

pursued in the future period time. Working capital budget as a part of the total budge ting
process of a business is prepared estimating future long term and short term working
capital needs and sources to finance them, and then comparing the budgeted figures with
actual performance for calculating the variances, if any, so that corrective actions may be
taken in future. He objective working capital budget is to ensure availability of funds as
and needed, and to ensure effective utilization of these resources. The successful
implementation of working capital budget involves the preparing of separate budget for
each element of working capital, such as, cash, inventories and receivables etc.  

ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm
to meet its obligations in time. The short term obligations of a firm can be met in time
only when it is having sufficient liquid assets. So to with the confidence of investors,
creditors, the smooth functioning of the firm and the efficient use of fixed assets the
liquid position of the firm must be strong. But a very high degree of liquidity of the
firm being tied – up in current assets. Therefore, it is important proper balance in regard
to the liquidity of the firm. Two types of ratios can be calculated for measuring short-
term financial position or short-term solvency position of the firm.
 1.     Liquidity ratios.

2.     Current assets movements ‘ratios.

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 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. To
measure the liquidity of a firm, the following ratios can be calculated:

1.     CURRENT RATIO

2.     QUICK RATIO

3.     ABSOLUTE LIQUID RATIO

1.   CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and
its most widely used to make the analysis of short-term financial position or liquidity of
a firm. It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS 

CURRENT LIABILITES

The two components of this ratio are:

 1)     CURRENT ASSETS

2)     CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors,
inventories and work-in-progresses. Current liabilities include outstanding expenses,
bill payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability
to pay its current obligations in time. On the hand a low current ratio represents that the
liquidity position of the firm is not good and the firm shall not be able to pay its current
liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets
double the current liabilities is considered to be satisfactory.

CALCULATION OF CURRENT RATIO

Year 2006 2007 2008

Current Assets 81.29 83.12 13,6.57
Current Liabilities 27.42 20.58 33.48
Current Ratio 2.96:1 4.03:1 4.08:1

                                                                              (Rupees in crore)

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 increased from 2006 to 2008. The current ratio of
company is more than the ideal ratio. This depicts that company’s liquidity position is
sound. Its current assets are more than its current liabilities.

2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be
defined as the relationship between quick/liquid assets and current or liquid liabilities.
An asset is said to be liquid if it can be converted into cash with a short period without
loss of value. It measures the firms’ capacity to pay off current obligations
immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

Where Quick Assets are:

1)           Marketable Securities

2)           Cash in hand and Cash at bank.

3)           Debtors.

A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms’
liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if

quick assets are equal to the current liabilities then the concern may be able to meet its
short-term obligations. However, a firm having high quick ratio may not have a
satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm
having a low liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

e                                                             (Rupees in Crore)

 Year 2006 2007 2008
Quick Assets 44.14 47.43 61.55
Current Liabilities 27.42 20.58 33.48
Quick Ratio 1.6 : 1 2.3 : 1 1.8 : 1

Interpretation:

       A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time. The ideal quick ratio is   1:1. Company’s quick ratio is more
than ideal ratio. This shows company has no liquidity problem.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately
or in time. So absolute liquid ratio should be calculated together with current ratio and
acid test ratio so as to exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute Liquid Assets includes :

Absolute liquid ratio =      absolute liquid assets

                                             CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

.                                                          (Rupees in Crore)

Year 2006 2007 2008

Absolute Liquid Assets 4.69 1.79 5.06
Current Liabilities 27.42 20.58 33.48
Absolute Liquid Ratio .17 : 1 .09 : 1 .15 : 1

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 RATIOS

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. These are :

1.                 Inventory Turnover Ratio

2.                 Debtors Turnover Ratio

3.                 Creditors Turnover Ratio

4.                 Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high
amount of debtors due to slow credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore the movement of current
assets, it is important to calculate the turnover ratio.

1.                 INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of finished goods so as

to meet the requirements of the business. But the level of inventory should neither
be too high nor too low. Because it is harmful to hold more inventory as some
amount of capital is blocked in it and some cost is involved in it. It will therefore
be advisable to dispose the inventory as soon as possible.
 inventory turnover ratio =      cost of good sold
                                                     Average inventory

Inventory turnover ratio measures the speed with which the stock is converted
into sales. Usually a high inventory ratio indicates an efficient management of
inventory because more frequently the stocks are sold ; the lesser amount of
money is required to finance the inventory. Where as low inventory turnover ratio
indicates the inefficient management of inventory. A low inventory turnover
implies over investment in inventories, dull business, poor quality of goods, stock
accumulations and slow moving goods and low profits as compared to total
investment.

average stock  =   opening stock + closing stock

2

                                                      (Rupees in Crore)

Year 2006 2007 2008

Cost of Goods sold 110.6 103.2 96.8
Average Stock 73.59 36.42 55.35
Inventory Turnover Ratio 1.5 times 2.8 times 1.75 times

Interpretation :

       These ratio shows how rapidly the inventory is turning into receivable through
sales. In 2007 the company has high inventory turnover ratio but in 2008 it has reduced
to 1.75 times. This shows that the company’s inventory management technique is less
efficient as compare to last year.

2.                 INVENTORY CONVERSION PERIOD:

Inventory conversion period =   365 (net working days)

                                               inventory turnover ratio
 Year 2006 2007 2008
Days 365 365 365
Inventory Turnover Ratio 1.5 2.8 1.8
Inventory Conversion Period 243 days 130 days 202 days

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 decreasing. This shows the efficiency of management to convert the inventory
into cash.

3.                 DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to increase its sales and
a liberal credit policy may result in tying up substantial funds of a firm in the form of
trade debtors. Trade debtors are expected to be converted into cash within a short
period and are included in current assets. So liquidity position of a concern also
depends upon the quality of trade debtors. Two types of ratio can be calculated to
evaluate the quality of debtors.

a)       Debtors Turnover Ratio

b)      Average Collection Period

Debtors Turnover Ratio = Total Sales (Credit)

                                               Average Debtors

Debtor’s velocity indicates the number of times the debtors are turned over during
a year. Generally higher the value of debtor’s turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors. Whereas a low debtors
turnover ratio indicates poor management of debtors/sales and less liquid debtors. This
ratio should be compared with ratios of other firms doing the same business and a trend
may be found to make a better interpretation of the ratio.
AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

                                                        2

Year 2006 2007 2008

Sales 166.0 151.5 169.5
Average Debtors 17.33 18.19 22.50
Debtor Turnover Ratio 9.6 times 8.3 times 7.5 times

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 decreasing year to year. This shows that company is not utilizing its
debtor’s efficiency. Now their credit policy becomes liberal as compare to previous
year.

4.                 AVERAGE COLLECTION PERIOD :

Average Collection Period =    No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the average number of days for
which a firm has to wait before its receivables are converted into cash. It measures the
quality of debtors. Generally, shorter the average collection period the better is the
quality of debtors as a short collection period implies quick payment by debtors and
vice-versa.

Average Collection Period =    365 (Net Working Days)

Debtors Turnover Ratio
Year 2006 2007 2008
Days 365 365 365
Debtor Turnover Ratio 9.6 8.3 7.5
Average Collection Period 38 days 44 days 49 days
 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. It shows that the firm has Liberal Credit policy. These changes in policy are due
to competitor’s credit policy.

5.                 WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of utilization of net

working capital. This ratio indicates the number of times the working capital is
turned over in the course of the year. This ratio measures the efficiency with
which the working capital is used by the firm. A higher ratio indicates efficient
utilization of working capital and a low ratio indicates otherwise. But a very
high working capital turnover is not a good situation for any firm.

Working Capital Turnover Ratio =           Cost of Sales

Net Working Capital

  Working Capital Turnover       =                   Sales        

                                                 Networking Capital

Year 2006 2007 2008

Sales 166.0 151.5 169.5
Networking Capital 53.87 62.52 103.09
Working Capital Turnover 3.08 2.4 1.64

Interpretation:

          This ratio indicates low much net working capital requires for sales. In
2008, the reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the
company requires 60 paisa as working capital. Thus this ratio is helpful to forecast the
working capital requirement on the basis of sale.
INVENTORIES

(Rs. in Crores)

Year 2005-2006 2006-2007 2007-2008

Inventories 37.15 35.69 75.01

Interpretation :

       Inventories is 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 2005-2006 is 45%, in 2006-2007 is 43% and in 2007-2008 is 54% of
their current assets. The company should try to reduce the inventory upto 10% or 20%
of current assets.

CASH BNAK BALANCE :

(Rs. in Crores)

Year 2005-2006 2006-2007 2007-2008

Cash Bank Balance 4.69 1.79 5.05

Interpretation:

       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 2006 the cash is 4.69
crores but in 2007 it has decrease to 1.79. The result of that it disturb the firms
manufacturing operations. In 2008, it is increased upto approx. 5.1% cash balance. So
in 2008, the company has no problem for meeting its requirement as compare to 2007.

DEBTORS:

(Rs. in Crores)

Year 2005-2006 2006-2007 2007-2008

 Debtors 17.33 19.05 25.94

Interpretation :

       Debtors constitute a substantial portion of total current assets. In India it constitute
one third of current assets. The above graph is depict 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.

CURRENT ASSETS :

(Rs. in Crores)

Year 2005-2006 2006-2007 2007-2008

Current Assets 81.29 83.15 136.57

Interpretation :

       This graph shows that there is 64% increase in current assets in 2008. This increase
is arise because there is approx. 50% increase in inventories. Increase in current assets
shows the liquidity soundness of company.

CURRENT LIABILITY:

(Rs. in Crores)

Year 2005-2006 2006-2007 2007-2008

Current Liability 27.42 20.58 33.48
 Interpretation :

       Current liabilities shows company short term debts pay to outsiders. In 2008 the
current liabilities of the company increased. But still increase in current assets are more
than its current liabilities.

NET WOKRING CAPITAL:

(Rs. in Crores)

Year 2005-2006 2006-2007 2007-2008

Net Working Capital 53.87 62.53 103.09

Interpretation:

       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 increase in working capital. The increase in working
capital arises because the company has expanded its business.

COMPARISON OF OPERATING CYCLE OF YAMAHA

WITH BAJAJ AUTO LTD.
Operating cycle

A direct result of our interest in both liquidity and activity ratios in the concept of a firm’s operating
cycle. A firm’s operating cycle is the length of time from the commitment of cash for purchases until the
collection of receivables resulting from the sale of goods or services. It is as if we start a stop watch when
the purchase raw material and stop the watch only when we receive cash after the finished goods have
been sold. The time appearing on our watch (usually in days) is the firm’s operating cycle.

Operating Cycle (Bajaj Auto Ltd.) 2007

Operating Cycle (Yamaha Motor India Pvt. Ltd.) 2007

Total 120 days (Approx.)

Operating Cycle (Bajaj Auto Ltd.) 2008

Total 45 days (Approx.)

Operating Cycle (Yamaha Motor India Pvt. Ltd.) 2008

Total 75 days (Approx.)

Our Analysis clearly indicates that Yamha has improved its operating cycle in the year 2008. It need to
improve its operating cycle in coming years to achieve profitability.
 CASH MANAGEMENT

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis It is also the ultimate output expected
to be realised by selling the service or product manufactured by the firm. The firm should keep
sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s operations while
excessive cash will simply remain idle, without contributing anything towards the firm’s
profitability. Thus a major function of the Financial Manager is to maintain a sound cash
position.

Cash is the money which a firm can disburse immediately without any restriction The term cash
includes currency and cheques held by the firm and balances in its bank accounts. Sometimes
near cash items, such as marketable securities or bank time deposits are also included in cash.
The basic characteristics of near cash assets is that they can readily be converted into cash. Cash
management is concerned with managing of:

i) Cash flows in and out of the firm

ii) Cash flows within the firm

iii) Cash balances held by the firm at a point of time by financing deficit or inverting surplus
cash.

Sales generate cash which has to be disbursed out. The surplus cash has to be invested while
deficit cash has to be borrowed. Cash management seeks to accomplish this cycle at a minimum
cost. At the same time it also seeks to achieve liquidity and control. Therefore the aim of Cash
Management is to maintain adequate control over cash position to keep firm sufficiently liquid
and to use excess cash in some profitable way.

The Cash Management is also important because it is difficult to predict cash flows accurately.
Particularly the inflows and that there is no perfect coincidence between the inflows and
outflows of the cash. During some periods cash outflows will exceed cash inflows because
payment for taxes , dividends or seasonal inventory build up etc. On the other hand cash inflows
will be more than cash payment because there may be large cash sales and more debtors
realisation at any point of time. Cash Management is also important because cash constitutes the
smallest portion of the current assets, yet management’s considerable time is devoted in
managing it. An obvious aim of the firm now-a-days is to manage its cash affairs in such a way
as to keep cash balance at a minimum level and to invest the surplus cash funds in profitable
opportunities. In order to resolve the uncertainty about cash flow prediction and lack of
synchronisation between cash receipts and payments, the firm should develop appropriate
strategies regarding the following four facets of cash management.

1. Cash Planning :- Cash inflows and cash outflows should be planned to project cash surplus
or deficit for each period of the planning period. Cash budget should prepared for this
purpose.

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

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

4. Investing surplus cash :- The surplus cash balance should be properly invested to earn
profits. The firm should decide about the division of such cash balance between bank
deposits, marketable securities and inter corporate lending.

The ideal Cash Management system will depend on the firm’s products, organisation structure,
competition, culture and options available. The task is complex and decision taken can effect
important areas of the firm.

Functions of Cash Management:

Cash Management functions are intimately, interrelated and intertwined Linkage among different
Cash Management functions have led to the adoption of the following methods for efficient Cash
Management:

 Use of techniques of cash mobilization to reduce operating requirement of cash

 Major efforts to increase the precision and reliability of cash forecasting.
  Maximum effort to define and quantify the liquidity reserve needs of the firm.
 Development of explicit alternative sources of liquidity
 Aggressive search for relatively more productive uses for surplus money assets.
The above approaches involve the following actions which a finance manager has to perform.

1. To forecast cash inflows and outflows

2. To plan cash requirements

3. To determine the safety level for cash.

4. To monitor safety level for cash

5. To locate the needed funds

6. To regulate cash inflows

7. To regulate cash outflows

8. To determine criteria for investment of excess cash

9. To avail banking facilities and maintain good relations with bankers

Motives for holding cash:

There are four primary motives for maintaining cash balances:

1. Transaction motive

2. Precautionary motive

3. Speculative motive

4. Compensating motive

1. Transaction motive :- The transaction motive refers to the holding of cash to meet
anticipated obligations whose timing is not perfectly synchronised with cash receipts. If
the receipts of cash and its disbursements could exactly coincide in the normal course of
operations, a firm would not need cash for transaction purposes. Although a major part of
 transaction balances are held in cash, a part may also be in such marketable securities
whose maturity conforms to the timing of the anticipated payments.

2. Precautionary motive :- Precautionary motive of holding cash implies the need to hold
cash to meet unpredictable obligations and the cash balance held in reserve for such
random and unforeseen fluctuations in cash flows are called as precautionary balances.
Thus, precautionary cash balance serves to provide a cushion to meet unexpected
contingencies. The unexpected cash needs at short notice may be the result of various
reasons as : unexpected slowdown in collection of accounts receivable, cancellations of
some purchase orders, sharp increase in cost of raw materials etc. The more unpredictable
the cash flows, the larger the need for such balances. Another factor which has a bearing
on the level of precautionary balances is the availability of short term credit.
Precautionary cash balances are usually held in the form of marketable securities so that
they earn a return.

3. Speculative motive :- It refers to the desire of a firm to take advantage of opportunities

which present themselves at unexpected movements and which are typically outside the
normal course of business. The speculative motive represents a positive and aggressive
approach. Firms aim to exploit profitable opportunities and keep cash in reserve to do so.
The speculative motive helps to take advantage of :In opportunity to purchase raw
materials at a reduced price on payment of immediate cash; A chance to speculate on
interest rate movements by buying securities when interest rates are expected to decline;
delay purchases of raw materials on the anticipation of decline in prices; etc.

4. Compensation 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 clearances of cheques, supply of credit information, transfer of
funds, etc. While for some of the services banks charge a commission of fee for others
they seek indirect compensation. Usually clients are required to maintain a minimum
balance of cash at the bank. Since this balance can not be utilised by the firms for
transaction purposes, the bank themselves can use the amount for services rendered. To
be compensated for their services indirectly in this form, they require the clients to
always keep a bank balance sufficient to earn a return equal to the cost of services. Such
 balances are compensating balances. Compensating balances are also required by some
loan agreements between a bank and its customer.

CASH MANAGEMENT: OBJECTIVES

The Basic objective of cash management are two fold : (a) to meet the cash disbursement
needs(payment schedule); and(b) to minimise funds committed to cash balances. These are
conflicting and mutually contradictory and the task of cash management is to reconcile them.

Meeting the payments schedule :- A basic objective of the cash management is to meet the
payment schedule, i.e. to have sufficient cash to meet the cash disbursement needs of the firm.
The importance of sufficient cash to meet the payment schedule can hardly be over emphasized.
The advantages of adequate cash are : (i) it prevents insolvency or bankruptcy arising out of the
inability of the firm to meet its obligations; (ii) the relationship with the bank is not strained; (iii)
it helps in fostering good relations with trade creditors and suppliers of raw materials, as prompt
payment may also help their cash management; (v) it leads to a strong credit rating which
enables the firm to purchase goods on favorable terms and to maintain its line of credit with
banks and other sources of credit; (vi) to take advantage of favorable business opportunities that
may be available periodically; and (vi) finally the firm can meet unanticipated cash expenditure
with a minimum of strain during emergencies, such as strikes , fires or a new marketing
campaign by competitors.

Minimising funds committed to cash balances :- The second objective of cash management is
to minimise cash balances. In minimising cash balances two conflicting aspects have to be
reconciled. A high level of cash balance will, ensure prompt payment together with all the
advantages, but it also implies that large funds will remain idle ultimately results less to the
expected. A low level of cash balances, on the other hand, may mean failure to meet the.
payment schedule. that aim of cash management should be to have an optimal amount of cash
balances.
Cash management techniques and process

The following are the basic cash management techniques and process which are helpful in better
cash management.

Speedy cash collection: In Managing cash efficiently the cash in flow process can be
accelerated through systematic planning and refined techniques. These are two broad approaches
to do this which are narrated as under:

Prompt payment by customer: One way to ensure prompt payment by customer is prompt
billing with clearly defined credit policy. Another and more important technique to encourage
prompt payment the by customer is the practice of offering trade discount/cash discount.

Early conversion of payment into cash: Once the customer has makes the payment by writing
its cheques in favor of the firm, the collection can be expedited by prompt encashment of the
cheque. It will be recalled that there is a lack between the time and cheque is prepared and
mailed by the customer and the time funds are included in the cash reservoir of the firm.

Concentration Banking: In this system of decentralised collection of accounts receivable, large

firms which have a large no. of branches at different places, select some of these which are
strategically located as collection centers for receiving payment for customers. Instead of all the
payments being collected at the head office of the firm, the cheques for a certain geographical
areas are collected at a specified local collection centers. Under this arrangement the customers
are required to send their payments at local collection center covering the area in which they live
and these are deposited in the local account of concerned collection, after meeting local
expenses, if any. Funds beyond a predetermined minimum are transferred daily to a central or
disbursing or concentration bank or account. A concentration banking is one with which the firm
has a major account usually a disbursement account. Hence this arrangement is referred to as
concentration banking.

Lock-Box System:- The concentration banking arrangement is instrumental in reducing the time
involve in mailing and collection. But with this system of collection of accounts receivable,
processing for purposes of internal accounting is involved i.e. sometime in elapses before a
cheque is deposited by the local collection center in its account. The lock-box system takes care
of these kind of problem, apart from effecting economy in mailing and clearance times. Under
this arrangement, firms hire a post office box at important collection centers. The customers are
required to remit payments to lock-box. The local banks of the firm, at respective places, are
authorised to open the box and pick up the remittance received from the customers. Usually the
authorised banks picks up the cheques several time a day and deposit them in the firm’s account.
After crediting the account of the firm the banks send a deposit 4epo slip along with the list of
payments and other enclosures, if any, to the firm by way of proof and record of the collection.

Slowing disbursements: A basic strategy of cash management is to delay payments as long as

possible without impairing the credit rating/standing of the firm. In fact, slow disbursement
represents a source of funds requiring no interest payments. There are several techniques to delay
payment of accounts payable namely (1) avoidance of early payments; (2) centralized
disbursements; (3) floats; (4) accruals.

Avoidance of early payments: One way to delay payments is to avoid early payments.
According to the terms of credit , a firm is required to make a payment within a stipulated
period. It entitles a firm to cash discounts. If however payments are delayed beyond the due date,
the credit standing may be adversely affected so that the firms would find it difficult to secure
trade credit later. But if the firm pays its accounts payable before the due date it has no special
advantage. Thus a firm would be well advised not to make payments early i.e. before the due
date.

Centralised disbursements: Another method to slow down disbursements is to have centralized

disbursements. All the payments should be made by the head office from a centralized
disbursement account. Such an arrangement would enable a firm to delay payments and conserve
cash for several reasons. Firstly it involves increase in the transit time. The remittances from the
head office to the customers in distant places would involve more mailing time than a
decentralised payment by a local branch. The second reason for reduction in operating cash
requirement is that since the firm has a centralized bank account, a relatively smaller total cash
balance will be needed. In the case of a decentralised arrangement, a minimum cash balance will
have to be maintained at each branch which will add to a large operating cash balance. Finally,
schedules can be tightly controlled and disbursements made exactly on the right day.
Float :- A very important technique of slow disbursements is float. The term float refers to
amount of money tied up in the cheques that have been written, but have yet to be collected and
encashed. Alternatively, float represents the difference between the bank balance and book
balance of cash of a firm. The difference between the balance as shown in the firm’s record and
the actual bank balance is due to transit and processing delays. there is time lag between the
issue of a cheque by the firm and its presentation to its bank by the customer’s bank for payment.
The implication is that although a cheque has been issued cash would be required later when the
cheque resented forencashment. Therefore, a firm can send remittance although it does not have
cash in its bank at the time of issuance of cheque. Meanwhile, funds can be arranged to make
payments when the cheque is presented for collection after a few days. Float used in this sense is
called cheque kitting.

Accruals :- Finally, a potential tool for stretching accounts payable is accruals which are defined
as current liabilities that represents a service or goods received by a firm but not yet paid for. for
instance, payroll, i.e. remuneration to employees, who render services in advance and receive
payment later. In a way they extend credit to the firm for a period at the end of which they are
paid, say, a week or month. The longer the period after which payment is made , the greater the
amount of free financing and the smaller the amount of cash balances required. Thus, less
frequent payrolls, i.e. monthly as compared to weekly, are an important sources of accruals.
They can be manipulated to slow down disbursements.

Determining the optimum level of cash balance:

Cash balance is maintained for the transaction purposes and additional amount may be
maintained as a buffer or safety stock.

The Finance manager should determine the appropriate amount of cash balance. Such a decision
is influenced by trade-off between risk and return. If the firm maintains a small cash balance , its
liquidity position becomes week and suffers from a paucity of cash to make payments. But a
higher profitability can be attained by investing released funds in some profitable opportunities.
When the firm runs out of cash it may have to sell its marketable securities, if available, or
borrow. This involves transaction cost.
On the other hand if the firm maintains a higher level of cash balance, it will have a sound
liquidity position but forego the opportunities to earn interests. The potential interest lost on
holding large cash balance involves opportunities cost to the firm. Thus the firm should maintain
an optimum cash balance, neither a large nor a small cash balance.

To find out the optimum cash balance the transaction cost and risk of too small balance should
be matched with opportunity costs of too large a balance should be matched with opportunity
cost of too large a balance. Figure shows this trade-off graphically. If the firm maintains larger
cash balances its transaction cost would decline, but the opportunity cost would increase. At
point X the sum of two costs is minimum. This is the point of optimum cash balance. Receipts
and disbursement of cash are hardly in perfect synchronisation. Despite the absence of
synchronisation it is not difficult to determine the optimum level of cash balance.

If cash flows are predictable it is simply a problem of minimising the total costs - the transaction
cost and the opportunity cost.

The determination of optimum working cash balance under certainty can thus be viewed as an
inventory problem in which we balance the cost of too little cash ( transaction cost) against the
cost of too much cash( opportunity cash)

Cash flows, in practice, are not completely predictable. At times they may be completely random
. Under such a situation, a different model based on the technique of control theory is needed to
solve the problem of appropriate level of working cash balance.

With unpredictable variability of cash flows, we need information on transaction costs,

opportunity costs and degree of variability of net cash flows to determine the appropriate cash
balance. Given such data the minimum and maximum of cash balances should be set. Greater the
degree of variability, higher the minimum cash balance. Whenever the cash balance reaches a
maximum level, the differences between maximum and minimum levels should be invested in
marketable securities. When balance is falls to zero, marketable securities should be sold and
proceed should be transferred to the working cash balances.
Evaluation of cash management performances

To assess the cash management performance this phase is divided as follows:

a) Size of Cash

b) Liquidity and Adequacy of cash

3) Control of cash

A) Size of cash : The quantum of cash held by YAMAHA during the study period is presented
in the table. The trend percentage also calculated and shown in the table:

Year Cash Trend

2006 82.20 100

2007 10.64 -87.83

2008 5.63 -93.15

Size of cash balance (Rs. in Crores)

Source : Annual report

100

80

60

40

20
Cash
0
Trend
-20

-40

-60

-80

-100
2006 2007 2008
Size of sales (Rs. in Lacs)

Sales Trend
Year

2006 785.65 100

2007 1134.23 44.36

2008 903.92 15.05

Source Annual Reports

1200

1000

800

Sales
600
Trend

400

200

0
2006 2007 2008

(C) Control of Cash:

One of the major objective of cash management from the stand point of increasing return on
investment is to economize on the cash holding without impairing the overall liquidity
requirements of the firms. This is possible by effecting tighter controls over cash flows. The
following ratio have been applied to assess the efficiency of cash control:

# Cash to Current Assets ratio

# Cash turnover ratio

# Cash to current liabilities ratio

Cash to Current assets ratio

Year Cash to CA ratio

2006 26.89

2007 4.29

2008 1.95

Average : 9.43

Source : Annual Reports

30

25

20

15

10

0
2006 2007 2008
Conclusion : It can be inferred from the above table that cash to current assets ratio is decreasing
which shows dark position of liquidity, which ultimately affect the operational efficiency of the
firm.

Cash to Current Liability Ratio (%)

Year Cash to CL ratio

2006 57.21

2007 7.76

2008 4.85

Average: 23.27

Source : Annual Reports

60

50

40

30

20

10

0
2006 2007 2008
Conclusion:

Cash to current liability ratio shows the cash balance maintained by company at a certain point
of time for meeting its current liabilities. The lesser the ratio, proves the efficiency of the
company for maintaining liquidity at a minimum level of cash balance. It is reducing during the
study period and is at the minimum level of 4.85% in the year 2003.

Overall conclusion : The analysis of financial data reveals that the company has very sound
position regarding liquidity and solvency as shown by the current and quick ratios. The cash to
current liabilities ratio is nearly on decreasing trend shows the efficiency of operations.
 MANAGEMENT OF INVENTORY

Inventories are the stock of the product made for sale by the company or semi finished goods or
raw materials. Inventory of finished goods which are ready for sale is required to maintain
smooth marketing operation. The inventory of raw material and work in progress is required in
order to maintain an unobstructed flow of material in the production line. These inventories
serve as a link between the production and consumption of goods.

The aspect of management of inventory is especially important in respect to the fact that in
country like India, the capital block in terms of inventory is about 70% of the current assets. It is
therefore, absolutely imperative to manage efficiently and effectively in order to avoid
unnecessary investment in them. Although to maintain low inventories may prove to be
profitable but to maintain very low inventories may prove risky on the contrary.

This aspect of management if tackled in a proper way may prove to be a boon its effective and
efficient management would result in the maintaining of optimum level of inventories. At this
level the profitability of the organisation will not be jeopardised at the cost of inventory.

Now from the above stated facts it is clear that maintaining of optimum level of inventory
involves huge cost, so why should keep the inventories at all. Basically there are three main
reasons for which inventories are stocked and they are:-

1. Transaction Motive: This motive lays emphasis on maintaining of inventories in order

to maintain a smooth and unobstructed supply of materials for the sales and production
operations.

2. Precautionary Motive : This motive emphasises on the stocking goods in order to guard
against the uncertainties of future i.e. unpredictable changes in the forces of demand,
supply and other forces.

3. Speculative Motive: This motive influences the decisions regarding the increase or
decrease in the level of inventory in order to take advantage of price fluctuations.

A company should maintain adequate stock of materials for a continuous supply to the factory
for an uninterrupted production. It is not possible for a company to procure raw material
instantaneously whenever needed. A time lag exists between demand and supply of material.
Also, There exists a uncertainty in procuring raw material in time at many occasions. The
procurement of materials may be delayed because of factors beyond company’s control e.g.
transport disruption, strike etc. Therefore, the firm should keep a sufficient stock of raw material
at a time to have streamline Other factors which may incite us to keep stock of inventories is the
quantity discounts, expected rise is price.

The work in process inventory builds up because of the production cycle. Production cycle is the
time span between the introduction of raw material in to the production and the emergence of
finished goods at the completion of production cycle. Till the production cycle completes, the
stock of work in process has to be maintained.

Efficient firms constantly try to make the production cycle smaller by improving their
production techniques.

The stock of finished goods has to be held because production and sales are not instantaneous. A
firm can not produce immediately when goods are demanded by customers. Therefore to supply
finished goods on regular basis, their stock has to maintained for sudden demand of customers,
in case the firm sales are seasonal in nature, substantial finished goods inventory should be kept
to meet the peak demand. Failure to supply products to customer, when demanded, would mean
loss of the firm’s sales to the competitors.

The basic objective in holding raw material inventory is separate purchase and production
activities and in holding finished goods inventory is to separate production and sales activities. If
raw material inventory is not held, purchase would have to be made regularly at the time of
usage. This would mean production intereptions and high cost of ordering.

A sufficiently large inventory has to be maintained of finished goods so as to meet the

fluctuating demands. If a close link is maintained between the sales and the production
department then an organisation can do with a small inventory also. In the process, inventory is
also necessary because production can not be instantaneous. But it should be seen that the size of
production cycle should be small.
Objectives of Inventory Management

In the modern business world there is practically nothing that is done without objective. The
objective is also one that would help the organisation in reaching its goals in a better way. Hence
it can be inferred that the importance given to management of inventory in the business world is
not devoid of a concrete reasons behind it.

The two main reasons behind all this are, firstly, to maintain a inventory big enough that the
production and sales operation are carried on without any hindrance and secondly, to minimise
the investment in inventory, in order to maximise the profits. Both, excessive as well as
inadequate inventory level are not good. They are the two danger points that a company should
try to avoid and should always try to maintain optimum level of inventory. The excessive
investment in the inventory has the following drawbacks:

# Unnecessary tie up of firm’s fund and loss of profit.

# Excessive carrying cost.

# The risk of liquidity.

The over investment of funds in inventory eat up the precious funds which could have been put
to some profitable use. The carrying cost incurred, can not be ignored, this is the cost of storage,
handling insurance, recording and inspecting. These all costs incurred in order to have large
inventories impair the profitability of the firm. Another danger of carrying excessive inventory is
the deterioration, obsolescence and pilferage of raw materials.

Maintaining inadequate inventory is also dangerous. The consequences of under investment in

inventory are

# Production hold ups;

# Failure to meet commitment

If the inventory of finished goods is not adequate than the demand of customer is peak periods
may be left unmet and it the under investment is in the area of raw materials that is likely that the
production process may be held up frequently.
The aim of inventory management, thus should be to avoid excessive and inadequate level of
inventory and to maintain sufficient inventory for smooth production and sales operation efforts
should be made to place an order at the right time to right source to acquire right amount at the
right price and for right quantity. The aspects of a effective inventory management should take
care of are as:

 Ensure continuous supply of material to facilitate uninterrupted production.

 To maintain sufficient stocks of raw material in the periods of short supply and evident price
rise.
 To maintain sufficient inventory of finished goods for smooth sales operation.
 Minimise carrying cost and time.
 Control investment and keep it to the optimum level.
Before discussing the inventory control technique, here is the discussion of the various terms
such as economic order quantity, carrying cost etc.

1. Economic Order Quantity : It is the inventory level which minimises the total of
ordering and carrying cost. Determining economic order quantity involves two types of
costs i.e. ordering cost and carrying cost.

2. Ordering Cost : This is used especially in the case of raw materials and is included in
the cost incurred in acquiring the raw material. It is proportional to the number of orders
and inversely proportional to the size of inventory. Apart from the cost of acquired raw
material this also includes requisitioning, purchasing order, transporting receiving,
inspecting and sorting cost.

3. Carrying Cost : This is used in the case of all types of inventories. there are the costs
which are incurred for holding a given amount of inventory, they include opportunity
cost of funds invested is inventories insurance, taxes, storage cost and the cost of
deterioration and obsolescence. It is directly proportional to the size of inventory.

4. Reorder Points: Reorder point is the inventory level at which an order must be placed to
replenish the inventory and evade the risk of running out of raw material. To determine
the reorder point under uncertainty we should know the lead time, the average usage,
economic order quantity etc.
5. Safety Stocks: It is difficult to predict usage and the lead time accurately. The demand
for material is never constant. Similarly the actual delivery time may be different firm the
normal lead time. In case of increased usage or delivery delayed, there is bound to be
problem of stock out. Stockout can prove to be costly affair for a company. Therefore in
order to guard against the stock out, the company may keep some buffer stock as a
cushion against expected increased and/or delay in delivery .This buffer stock is called as
safety stock.

The various techniques or approaches used are the management of inventory by different firms
to calculate the economic order quantity are here given below: -

1). Trial and Error Approach : This is the technique to resolve the economic order
quantity problem. In this technique we take the annual requirement, purchasing cost per
unit, ordering cost per order and carrying cost per unit for the computation of economic
order quantity. We suppose a constant usage and then considering different sizes of
orders and calculate the different total costs. The order corresponding to the minimum
total cost has the economic order quantity.

2). EOQ Model: This is quite an easy approach to calculate the economic order quantity
than the trial and error approach. Here we find the economic order quantity with the help
of the formula

EQ = Sqrt (2AO / C)

Where A -> Total Annual Requirement

O -> Ordering cost order

FINDINGS

The study conducted on working capital management of YAMAHA shows the evaluation of
management performance in this regard. Major findings and suggestions thereon are narrated as
under:

Findings:

 Current assets comprise/a significant portion i.e. 30.89% (average for three years of
study) of total investment in assets of the company. There is fluctuating and rather
increasing trend of this ratio during the period which shows management in-efficiency in
managing working capital in relation to total investment. Further current assets to fixed
assets ratio also shows on fluctuating trend during the study period which substantiate
above mentioned criterion of in-effectiveness in management of working capital by the
company.
 Current assets turnover ratio for the first three years of study shows fluctuating trend
which is due to significant increase in sales. In 2002 current assets turnover ratio is
highest one i.e. 2.98 during the study, reasons being during this year company has
achieved sales growth 44.36% over the previous year.
 The ratio used for analysis of liquidity position are current ratio and quick ratio. These
ratio reveals that company has sound liquidity position throughout the period of study.
Both the ratio shows fluctuating trend within reasonable limit but these ratio are higher
than conventionally accepted norms i.e. 2:1 in case of current ratio & 1:1 in case of quick
ratio, which shows ineffectiveness of the management in managing current/quick assets
in relation to current liabilities.
 The ratios used for cash management are cash to current assets ratio, cash to current
liabilities ratio. Cash to current liabilities also shows decreasing trend and cash to current
assets ratio also shows decreasing trend. All these ratios reveals that management has no
definite cash policy.
 Inventory turnover ratio depict the fluctuating trend which indicates the accumulation of
inventory in turn which cause loss to the company by way of deterioration of stock,
 interest loss on blockage of stock etc. Further composition of inventory reveals that
portion of individual element of inventory has fluctuating trend which indicates that
management has no policy in respect of inventory management.
 Debtors Turnover ratio reveals an decreasing trend during the period of study and
average collection period ranges from 38 to 46 days. Keeping in view of TWO
WHEELER industry trend credit period of 41 days is quite very higher. It reveals that
management has no specific policy in respect of debtors management.

SUGGESTIONS
  The increasing liabilities should be controlled by the company and adequate
measures are to be taken henceforth.
 Inventory management of the company is not satisfactory. Therefore the
company should reduce the holding period as much as possible.
 The liquidity position of the company being unsatisfactory should be tried to
be in par with required ratio.
 The debtors of the company is fluctuating over the years, company should
adopt a competent credit policy to attract the customers. Increasing debtors
is a solution to over come the liquidity problem.
 The company can reduce the cost of production and try to improve its
profitability.
 The operating expenses of the company must be put to check as there exist a
wide gap between gross profit and net profit. The net profit ratio is also
under the ratio requirements. This should be brought to control for the
effective running of the company.
 The cash management should be done effectively as a major portion
comprises of current assets which are present in the company.
 High creditors’ payment period will affect the regular supply of raw
materials, so company can make necessary steps to pay its creditors at
reasonable time period.

CONCLUSION
This can be concluded that overall composition includes the highest factor of finished goods
and that is too on increasing trend. Moreover, the inventory level is maintained for 77 days for
the year 2003 that is the highest during the study period. The to overall position of inventory is
that adequate on following basis:

 The factor of finished goods in the composition of inventory in total is at higher level and
also having an increasing trend.
 The stock is also very slow moving and the stock retention period is on fluctuating trend.
The above two factors increases the cost of production and decreases the profitability, therefore,
these should be taken in to consideration for better productivity and efficiency of operation.
BIBLIOGRAPHY

 Kevin .S, securities and portfolio management,

First edition (2008), Prentice hall India Pvt Limited.

 Shashi K. Gupta, Sharma R.K, Management

Accounting, 10th edition (2005), Kalyani Publishers.

 Khan M.Y, Jain P.K, Financial Management,

4th edition (2004), Tata McGraw Publishing Company Limited.

 Khan M.Y. and Jam P.K., Financial Management

 Banerjee, Cash Management
 Kulkarni P.V., Financial Management
 Pandey I.M. Financial Management
 Dalal Street Journal
 Annual Report - YAMAHA
 www.tcckerala.com
 www.moneycontrol.com