Chapter - I: Industrial Profile Company Profile Theoretical Background

Working Capital Management
CHAPTER I
Industrial profile Company profile Theoretical background

SVU Department of management studies, T.P.T. 1
INDUSTRIAL PROFILE
SVU Department of management studies, T.P.T.
GENERAL INTRODUCTION INDUSTRY PROFILE

INDUSTRIAL BACKGROUND BIRTH OF AUTOMOBILES IN THE WORLD Your automobile is probably the second most important investment made, after the home. The simple or swanky addition to your persona has a fascinating history and makes interesting reading. The cars on the road today are the products of consistent progression, from horse-drawn carts to modern day automobiles. The primary function has always been transporting passengers, with the help of a built-in motor or engine. The use of these babies on the road for flaunting is restrained mostly to the rich, who can afford the burn-out of fuel for a frivolous indulgence. Automobiles or motor-cars are designed to seat between one and eight people. The beginning of usage of automobile dated back four thousand years ago when people learned to use wheel for transportation. People during that period used carts made of wood. Then with the beginning of Iron Age, people mastered themselves and started using vehicles made of metals and these vehicles are strong and can carry heavy loads. Then with the air of technology blowing the world they started developing vehicles that can run by power source. The first was Guido da Vigevano in 1335. It was a windmill-type drive to gears and thus to wheels. Vitoria designed a similar vehicle that was also never built. Later Leonardo da Vinci designed Clock work driven tricycle with their steering and a differential mechanism between the rear wheels. In the early 15th century, the Portuguese arrived in Chaina and the interaction or two cultures led to a variety of new technologies, including the creation of a wheel that turned under its own power. By the 1600s, small steam-powered engine models were developed, but it was another century before a full-sized engine-powered vehicle was created. James Watt when invented the steam engine in 1705, which were revolutionary and it started a revolution around the world. Although by the mid-15 th century the idea of a self-propelled vehicle had been put into practice with the SVU Department of management studies, T.P.T. 3
Working Capital Management development of experimental vehicles powered by means of springs, clockworks, and the wind. Nicolas-Joseph Cygnet of France is considered to have built the first true automobile in 1769. Designed by Cygnet and constructed by M.Brezin, it is also the first vehicle to move under its own power for which there is a record. Evans was the first American who obtained a patent for a self-propelled carriage. During the 1830s, the steam vehicles had made great advances. But stiff competition from railway companies and crude legislations in Britain forced the poor steam vehicle gradually out of use on roads. Carl Benz and Gottlieb Daimler, both Germans, share the credit of changing the transport habits of the world, for their efforts laid the foundation of the great motor industry, as we know it today. First, Carl Benz invented the petrol engine in 1885 and a year later Daimler made a car driven by motor of his own design and the rest is history. France too had joined the motoring scenario by 1890 when two Frenchmen Pan hard and Leasers began producing vehicles powered by Daimler engine, and Daimler himself, possessed by the automobile spirit, went on adding new features to his engine. He built the first V-Twin engine with a glowing platinum tube to explode the cylinder gas-the very earliest form of sparking plug. Charles Duryea built a motor carriage in America with petrol engine in 1982, followed by Elwood Haynes in 1894, thus paving the way for motorcars in that country. For many years after the introduction of automobiles, three kinds of power sources were in common use: steam engines, gasoline or petrol engines, and electrics motors. In ten years from the invention of the petrol engine, the motorcar had evolved itself into amazing designs and shapes. By 1898, there were 50 automobilemanufacturing companies in the United States, a number that rose to 241 by 1908. In that year, Henry Ford revolutionized the manufacture of automobiles with his assembly-line style of production and brought out the Model T, a car that was inexpensive versatile, and easy to maintain.
Working Capital Management Herbert Austin and William Morris, two different carmakers, introduced mass production methods of assembly in the UK, thus paving the way for a revolution in the automobile industry. Austin Seven was the worlds first practical four-seater hutch bag car which brought the pleasures of motoring to many thousands of people who could not buy a larger, more expensive car. Even the bull-nose Morris with front mounted engine became the well-loved model and one of the most popular cars in the 1920s. Automobile manufactures in the 1930s and 1940s refined and improved on the principles of Ford and other pioneers. Cars were generally large, and many were still extremely expensive and luxurious; many of the most collectible cars date from this time. The increased affluence of the United States after World War II led to the development of large, petrol consuming vehicles, while most companies in Europe made smaller, more fuel-efficient cars. INDIAN HISTORY OF AUTOMOBILES Although, vehicles has been used in India many years ago it was in the limelight. In the early days, Indians has been using bullock carts and caravan as their vehicles. They were also using ships that used to run wind. But along with the course of time they were introduced to modern technology and the engineered themselves along with the world. The Indian two-wheeler industry made a small beginning in the earl 50s when Automobile products of India (API) started manufacturing scooters in the country. But today, India is the second largest manufacturer and producer of two wheelers in the world. It stands next only to Japan and china in terms of the numbers of twowheelers produced In 1948,Bajaj Auto began trading in important Vosper scooters and threewheelers. Finally. In 1960, it set up a shop to manufacture them in technical collaboration with pigeon of Italy. The agreement in 1971. In the initial stages, API dominated the scooter segment; Bajaj Auto later overtook it. Although various government and private enterprises entered the fray for scooters, the only new player that has lasted till today is LML. Under the regulated regime, foreign companies were not allowed to operate in India. It was a complete seller market with the waiting
Working Capital Management period for getting a scooter from Bajaj Auto being as high as 12 years. The motorcycles segment was no different, with only three manufacturers viz Enfield, Ideal java and Escorts. The two-wheeler market was opened to foreign competition in the mid-80s. And Then market leaders-Escorts and Enfield- were caught unaware by the Onslaught of the 100cc bikes of the four Indo-Japanese joint ventures. With the availability of fuel-elf efficient low power bikes, demand swelled, resulting in Hero Honda then the only producer of four stroke bikes (100cc category), gaining a top slot. The first Japanese motorcycles were introduced in the early eighties. TVs Suzuki and Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. These two players initially started with assembly of CKD kits, and later on progressed to indigenous manufacturing. In the 90s the major growth for motorcycle segment was brought in by Japanese motorcycles, which grew at a rate of nearly 25% in the last five years. The industry had a smooth ride in the 50s, 60s and 70s when the Government prohibited new entries and strictly controlled capacity expansion. The industry saw a sudden growth in the 80s. Enfield Bullet had a close competition with another sturdy bike named Rajdoot; as the bike was strong enough to handle the rough Indian roads. When heavy motorcycles were the order of the day, a relatively lighter bike had caught on the imagination of the Indian two wheeler user. Ind-Suzuki bike launched by the then TVS Suzuki group was an instant hit; however the bike could not sustain its initial success due to the high import content in the vehicle and less of localization. In scooters Bajaj Chetak has been hugely responsible for adding momentum to the transport system of the country, till today it remains one of the most successful brands to have come out of the Bajaj stable. Similarly LML Motors enjoyed a reasonable success with the launch of LML select which came with new age technology and improved performance. The industry witnessed a steady growth of 14% leading to a peak volume of 1.9mn vehicles in 1990. In 1990, the entire automobile industry saw a drastic fall in demand. SVU Department of management studies, T.P.T. 6
Working Capital Management India is one of the very few countries manufacturing three-wheelers in the word. It is the worlds largest manufacturer and seller of three-wheelers. Bajaj Auto commands a monopoly in the domestic market with a market share of above 80%, the rest is shared by Bajaj Tempo, Graves Ltd and Scooters India. A variometric scooter helped in providing ease of use to the scooter owners. India has also got a very huge segment in four wheeler vehicles and has influenced the world as an attractive market for four wheeler segment. It has also companies which produces trucks and buses. India growth rate is causing every automobile company to get along with it. RISING INDIA With the rising levels of per capita income of people, the Indian two wheeler market offers a huge potential for Growth. This growth is relevant in the light of the fact that 70 percent of Indias populating is below the age 35 years and 150 million people will be added to the working Population in the next five years. The number of women in the urban work force is also increasing; this will lead to the Growth of gearless scooters. INCREASE IN INDIAS ECONOMEY AND GROWTH The growth prospects of the Indian rural economy offer a significant opportunity for the motorcycle industry in India. The penetration of motorcycles amongst rural households with income levels grater the US$ 2,200 per annum has already increased to over 50 per cent. The current target Segment for two wheelers, i.e., households belonging to the Income category of US$ 2,200 12,000 is expected to grow at a CAGR of 10 per cent. GREATER AFFORDABILITY OF VEHICLES The growth in two-wheeler sales in India has been driven by an increase in affordability of these vehicles. An analysis of the price trends indicates that prices have more or less stagnated in the past. This has been part of the marketing strategy adopted by the manufacturers to gain volume, as well as conscious efforts adopted to bring down costs. The operating expenses of leading manufacturers have declined by around 15 per cent in the last five years. With greater avenues of financing, the customers capacity to own a two wheeler has improved.
Working Capital Management LACK OF PUBLIC TRANSPORT SYSTEMS The economic boom witnessed in the country and the increased migration to urban areas have increased the traffic congestion in Indian cities and worsened the existing infrastructure bottlenecks. Inadequate urban planning has meant that transport systems have not kept pace with the economic boom and the growing urban population. This has increased the dependence on personal modes of transport and the two wheelers market has benefited from this infrastructure gap. FACTORS AFFECTING THE MARKET Post 1991, the Indian two-wheeler industry comprising of motorcycles, scooters and cars opened up tremendously. The Indian motorcycle industry has expanded at a 24% CAGR over the last five years, It Captured almost 80% of the market primarily at the cost of the scooter and Moped segment. The scooter segment though has witnessed a revival with the launch of scooty aimed at young women and adolescents. Purchasing Power is relatively high with buyers becoming more
discriminating. Reliability and economy have become more of a hygiene factor. Buyers now demand two-wheelers that fit their personality thus increasing the scope for differentiation and branding. Provision of financing through EMIs has provided a means to satisfy the need of posses a convenient and stylish mode of transport in the form of a two-wheeler. This has resulted in higher growth in the 125-150cc segment. With the introduction of Government policies such as reduction in excise duty from 16% to 12% and allowing for 100% FDI Barriers to entry has reduced. However, the investment required for setting up large distribution channels and service stations can be a major entry barrier. Another significant entry barrier is the brand building required. Thus, initially foreign players set up Joint Ventures with indigenous companies. After establishing their brand they have launched their own line of products. E.g. Honda with Hero Group and Yamaha with Escorts. RISING CUSTOMER EXPECTATIONS The growth witnessed by the Indian two wheeler industry has attracted a number of new entrants to the market and it is expected that the Indian industry will
Working Capital Management become more competitive in the future. The excess of products introduced in the past has also raised customer expectations with respect to reliability, styling, performance and economy. Inflation is a big factor that may play a part in moving the loyalties and aspirations of people away from the four to the much cheaper and economical two wheeler segment. Moreover, the constantly increasing prices of oil and increasing interest rates on finance are not helping the cause either. Environmental Concerns are also quite big on the agenda these days and do play a part in the preference of concerns are also quite big on the agenda these days and do play a part in the preference of consumers choices. The rising global temperatures along with daily snippets in the national and international media about the thinning of ozone and imminent environmental disaster have all contributed to the making of a present day environmentally conscious consumer. ENVIRONMENTAL AND SAFETY ISSUES The increasing demand for two wheelers will need to be managed to address issues relating to overcrowding of roads. Another problem is the insufficient infrastructure for inspection to ensure adherence to emission norms. As the industry grows, it is important to regulate the sale of used two wheelers in a more organized manner for which a mechanism needs to be evolved. Unregulated sale of two wheelers, especially in the rural areas, are likely to create issues related to emissions and safety of vehicles.
COMPANY PROFILE
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COMPANY PROFILE
SUZUKI MOTORCYCLES GLOBAL HISTORY In 1909, Michio Suzuki founds the Suzuki Loom Company in Hamamatsu, Japan. He builds industrial looms for the thriving Japanese silk industry. 1937 to diversify activities, the company experiments with several interesting small car prototypes, but none go into production because the Japanese government declares civilian automobiles non essential commodities at the onset of WWII. Suzuki produced its first motorcycle in 1954 called the Collide (90cc). Suzuki built small capacity bikes during the 50s and 60s and had only small export success until the introduction of the X6 (T20 super six) which gave Suzuki much name credibility. With a well established name Suzuki dared enter the big bike market and in 1967 Suzuki introduced T500. In 1971 the GT7 the Water Buffalo was introduced in 1971 in America and the kettle in Britain both the same GT750 bike and the start for Suzuki to enter the super bike market. Most bikes produced around the middle 70s had enough power but lacked a steady frame. The introduction of the Suzuki GS 1000 in 1978 changed this problem once and for all. Suzuki pulled a stunt within the motorcycle market by introducing the GSX-R750, which was such a direct copy of their formula race bike with the only difference that this GSX was, road legal. It turned the super sport motorcycle market upside down and dominated the way super bikes would look for the future. In 1997 the TL 1000S is the first Suzuki sport bike with a V-Twin engine. It will be followed a year later by a racier R version. In 1999 mat MladinA wins the AMA Super bike Championship, beginning a run of unprecedented dominance. Mladin will win five more times, and more sharp edged, the company is one of the first to recognize what might be called the semi-sport market, as opposed to the first to recognize what might be called the semi-sport market, as opposed to the super sport market. In 1999 Suzuki introduced the Hayabusa; Suzuki calls the Hayabusa the ultimate aerodynamic sports bike. Its powered by a 11298cc liquid-cooled DOHC in line 4- cylinder engine that becomes the darling of land speed racers. This sent the Honda Blackbird packing and became the worlds fastest production bike at a whopping 190 mph (307 km/h). in 2001 Suzuki introduced and upgrade GSX-R750 engine and created the
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Working Capital Management GSX-R 1000 (998cc), which is a super bike with outstanding performance. In 2003 the GSX-R 1000 was restyled but still kept its position as a super class bike. In 2005 Suzukis original 4 stroke motocross, the RM-Z450, is equipped with a 4stroke 449cc engine, which features the Suzuki Advanced Sump system (SASS). Troy Courser gives Suzuki its first and only (so far) world Super bike Championship. In 2006 the M109R, Suzukis flagship V-90.5mm stroke. In 2008 the B-king is launched, powered by the 1340cc Hayabusa engine, the B-King is Suzukis flagship big Naked bike. Suzuki says it has the top-ranked power output in the naked category. SUZUKI MOTORCYCLES INDIA HISTORY Suzuki Motorcycle India Pvt. Ltd. engages in manufacturing two wheelers. The companys products include motorcycles and scooters. It offers its products through a network of dealers. The company was incorporated in 1997 and is based in Gurgaon, India. Suzuki Motorcycle India Pvt. Ltd. Operates as the subsidiary of Suzuki motor Corp. Suzuki Motor Corporation (SMC), a global giant of motorcycle manufacturing is headquartered in Japan. It holds major stake in its Indian subsidiary, Suzuki Motorcycle India Private Limited (SMIL), SMIL was set up after Suzukis re-reentry into the Indian two-wheeler market after it severed ties with partner TVS in 2000-01. Suzuki was then the technology provider in the erstwhile joint venture company TVS Suzuki. Suzuki Motorcycle India Pvt. Ltd. (SMIL) is the latest entry into the already crowded Indian two-wheeler segment with players like Hero Honda, Bajaj Auto, Honda, and TVS. SMIL have started their Indian operations with a 125cc mass market motorcycle. It has made an initial investment of Rs 200 corers to start their Indian operations. Company sources have revealed that Suzuki would follow up this 125cc bike with a high performance 150-cc sibling in 2010. Their setup in Gorgon has the capabilities of manufacturing one lakh motorcycles and they are ready to step that up massively if the situation arises. They already have setup 40 dealerships around the country.
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Working Capital Management PLANT AREA & PRODUCTION CAPACITY They have installed their manufacturing plant in Gurgoan (Haryana) having the annual capacity of 2, 50,000 units. Total land area of the facility at Gurgaon is 37 acres out of which the present plant is constructed in an area of 6.5 acres of land. The remaining area of 30.5 acres is left for land development and future expansion. MISSION OF SUZUKI The core philosophy of Suzuki is to provide VALUE-PACKED PRODUCTS Since the founding of Suzuki Motor Corporation; the Organizations Endeavour has always been to provide VALUE-PACKED PRODUCTS as one of the manufacturing philosophies. Suzuki believes that VALUE-PACKED PRODUCTS come from the effort to carry out product development from customers point of view. This policy has been in effect since companys inspection and has helped the organization to meet customers needs. AS a result, Suzukis products have become well received throughout the world. Suzuki is fully committed to create products that meet customers demand by utilizing its dynamic, long-nurtured technological advantage coupled with its fresh and active human resources. Develop products of superior value by focusing on the customers Establish a refreshing and innovative company through team work Strive for individual excellence through continuous improvement. GROWTH REPORT It has reported a growth of 47.66% in sales in the month of November 09 at 14745 units compared to 9986 units same month last year. It has sold 14806 units in December 09 listing a strong growth of 61% over its sales in December 08 despite recession. This increase of sales is attributed to the tremendous response from the new products GS 150R and ACCESS 125.
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Working Capital Management It has reported 93% growth in sales during the month of January 2010.IT has sold 20441 units in January 10 listing a strong growth of 93% over its sales in January 09. It has sold 21752 units in March 10 listing an impressive growth of 76% over its sales in March 09. The increase of sales is attributed to the tremendous response from the new product Gs 150r and ACCESS 125. It has great plans for the coming year and this is only the beginning. Their objective is to offer quality products and customer satisfaction to consumers. This growth momentum will further accelerate in coming months. ENVIRONMENT The philosophy of keeping environment first is properly percolated downwards. To comply with all applicable legislations and setting standards thereof remains only a beginning. Company thrives to discover and invent mechanisms for better environment management systems and its a continuous process which is managed by a separate wing of experts and specialist in the field. CARE FOR EMPLOYEE The company takes very good care of the employee by providing them well designed working environment. Company try to maintain zero accident record through regular safety audit, frequent training for staff, line associates and contractors. To take care of the health of all our employees, they maintain all international parameters and standards for drinking water, treated water, ambient air shop floor, office and the outside SIZUKI-APPLE AUTO AGENCY PVT. LTD Suzuki-Apple Auto Agency Pvt. Ltd. Was set up in Bangalore on 31st March, 2005 as a dealership company to by, sell, stock, display, deal I and dispose of all types of motor vehicles and their parts and accessories. It is a private limited company and has automobile workshops, servicing stations, and garage or repair shops for the purpose of undertaking, cleaning, servicing and repairing of vehicles. The authorized capital of the company is Rs 25, 00, 000 divided in to 25000 Equity shares of Rs 100 each. The first directors of the company are sri. C. Chandra Shekhar, Smt. N. Sobha
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Working Capital Management and Sri N. Jayaram. NO invitation is issued to the public to subscribe for any shares in or debentures of the company. It has got the authorization to sell Suzuki products in the market. It is selling Suzuki products such as Suzuki sling shot Motorcycle, GS150r in the 150cc segment of motorcycle, Zeus 125cc in the 125cc segment of motorcycle, ACCESS 125 in the scooty segment all over in Bangalore and has a good management system who works efficiently. It has got wide range of products of Suzuki Company and it also does advertisement to promote sales. It is the last stop store for Suzuki lovers. It has got good number of employees in various departments such as sales department, accounts department, maintenance department, marketing department, etc and they take very good care of the employees. They provide flexible timing of working hours and provide incentives and benefits to their employees. They train their employee and always see to maintain customer satisfaction. They carry out parts inspection to ensure the product, the dimensional, material, aesthetic & performance being maintained. While servicing of vehicles they take utmost care to make sure that it is done in well manner and is up to the expectation of the customer. For carrying out inspection they have sophisticated machines and equipments. They also encourage customer feedback and suggestions. Overall it can be regarded as one of the best dealership company in Bangalore.
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THEORETICAL BACKGROUND
WHAT IS FINANCE? SVU Department of management studies, T.P.T. 16
Working Capital Management Finance is the set of activities dealing with the management of funds. More specifically, it is the decision of collection and use of funds. It is a branch of economics that studies the management of money and other assets. Finance is also the science and art of determining if the funds of an organization are being used properly. Through financial analysis, companies and businesses can take decisions and corrective actions towards the sources of income and the expenses and investments that need to be made in order to stay competitive. DEFINITION Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. The term finance may thus incorporate any of the following: The study of money and other assets The management of those assets As a verb, to finance is to provide funds for business.
NEED OF FINANCE A basic level of financial understanding for business managers and decision makers should incorporate financial planning, costing and budgeting. The following areas of business finance may be considered essential; Understanding financial reports: Profit and Loss, The Balance Sheet, Cash Flow Statements. Key financial ratios: Profitability, Capital Turnover, Return On Capital, Current Ratios. Business finance: The Business Cycle, Planning, Year End Activities, Expense Control. Budgeting and Costing: Budget monitoring and control, Variance Analysis, Cost planning and control. Finance is a powerful factor in the success of any business. Most businesses fail not due to poor levels of business but due to poor cash management. As a
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Working Capital Management business leader, you are probably not looking to become a finance expert, but want to apply financial awareness to your situational leadership decisions. You will want to find a coach or trainer that can explain it simply without the financial jargon yet in a way that adds real value to your leadership skills. TYPES OF FINANCE Finance which acts as the lifeblood in the modern business types is one of the most important consideration for an entrepreneur company. While Implementing expanding, diversifying, modernizing or rehabilitating any project the meaning of finance is better understood. Generally the Business enterprises need funds to meet different types of needs. All the financial needs of a business may be broadly grouped into three categories, which are as follows: Long-term financial need :- Here the requirements of funds are for a period exceeding 5-10 year. Investments in plant, machinery, land, buildings, etc, are considered as long term financial needs. Medium term financial needs:- In case of the medium term financial needs the time constraint is fixed at a period exceeding one year but not exceeding 5 years. In is fulfilled from the medium term sources and thus the demand of medium term financial needs are generated. Short term financial needs:- Financial needs dealing with financing the current assets such as stock, debtors, cash, etc comes under this category. Meeting the working capital requirements comes under this. Here the accounting period is of one year. SCOPE OF FINANCE In modern business society the scope of finance is not so narrow. The scope of finance function is not confined simply to the raising of funds. If we confine the scope of finance function to the process of raising funds it cannot and does not provide answer to many problems which arise after the funds are collected. Scope of finance deals with the application of finance knowledge in different areas of organization. SVU Department of management studies, T.P.T. 18
Working Capital Management Various decisions regarding 1) Acquisition of assets, 2) Specific form of assets where money is to be invested and 3) The composition of its liabilities They are covered under the scope of finance function. These three questions cover almost all finance functions of a firm and affect the three major decisions. They are:a) Investment Decisions b) Financing Decisions c) Dividend Decisions Investment Decisions: Investment decisions are concerned with investment of financial resources in log term assets. The investments are made for expansion modernization setting up of new plant R&D expenditure and replacement of old machinery. Investment decisions are strategies decisions for company as it involves investment of fund for long time but company will start to realize return for that investment after a long time period. Financial Decisions:- Financial decisions involve raising of funds from different sources like equity share holders preference share holders and debt sources. In fact this decision is related with determining the optimum capital structure. Some key issues of financing decisions making are :What mix of debt and equity to be used? Can value of company be changed by changing the capital structure? What is optimal debt equity mix? Dividend Decisions: - Dividend decision of a company is crucial financial decisions. Dividend decision of a company determines the amount of earnings to be distributed to the shareholders and amount to be retained in the firm. Dividend policy of a company significantly affects the market value of the stock of the company.
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Working Capital Management OBJECTIVE OF FINANCE Long term target /projections planning. Financial Monitoring & tracking. Financial Planning for sick diversified or modernized companies. Management Decisions Support for finance & Planning. Financial Planning and Budgeting for fresh and existing companies. Project Appraisal & Feasibility Analysis.
FINANCIAL GOALS 1) Profit Maximization: - Profit earning is the main aim of every economic activity. A business being an economic institution must earn profit to cover its costs and provide funds for growth. No business can survive without earning profit. Profit is a measure of efficiency of a business enterprise. Profits also serve as a protection against risks which cannot be ensured. The accumulated profits enable a business to face risks like fall in prices, competition from other units, adverse government policies etc. Thus, profit maximization is considered as the main objective of business. The following arguments are advanced in favor of profit maximization as the objective of business : When profit earning is the aim of business then profit maximization should be the obvious objective. 1. Profitability is a barometer for measuring efficiency and economic prosperity of a business enterprise. 2. Economic and business conditions do not remain same at all times. There may be adverse business conditions like recession, depression, severe competition etc. A business will be able to survive under unfavorable situation, only if it has some past earnings to rely upon. Therefore, a business should try to earn more and more when situation is favorable. 3. Profits are the main sources of finance for the growth of a business. So, a business should aim at maximization of profits for enabling its growth and development.
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Working Capital Management 4. Profitability is essential for fulfilling social goals also. A firm by pursuing the objective of profit maximization also maximizes socio- economic welfare. 2) Wealth Maximization: - Wealth maximization is the appropriate objective of an enterprise. When the firm maximizes the stockholders wealth, the individual stockholder can use this wealth to maximize his individual utility. It means that by maximizing stockholders wealth the firm is operating consistently towards maximizing stockholders utility. A stockholders current wealth in the firm is the product of the number of shares owned, multiplied with the current stock price per share. This objective helps in increasing the values of shares in the market. The shares market price serves as a performance index or report card of its progress. It also indicates how well management is doing on behalf of the shareholder. However, the maximization of the market price of the shares should be in the long run. Every financial decision should be based on cost benefit analysis. If the benefit is more than the cost, the decision will help in maximizing the wealth. 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.
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Working Capital Management DIFINITION: 1. According to Guttmann & Dougall Excess of current assets over current liabilities. 2. According to Park & Gladson The excess of current assets of a business (i.e. cash, accounts receivable, inventories) over current items owned to employees and other (such as salaries & wages payable, accounts payable, taxes owned to government). NEED OF WORKING CAPITAL 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 as\rising out of lack o 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 labor 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. 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
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Working Capital Management Explain this continuing need of current assets a destination should be draw 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 change. DETERMINANTS OF WORKING CAPITAL The amount of working capital is depends upon a following factors: 1. Nature of business Some businesses are such, due to their very nature, that their requirement of fixed capital is more rather than working capital. These businesses sell services and not the commodities and that too on cash basis. As such, no founds are blocked in piling inventories and also no funds are blocked in receivables. E.g. public utility services like railways, infrastructure oriented project etc. there requirement of working capital is less. On the other hand, there are some more money is blocked in inventories and debtors. 2. Length of product on cycle In some business like machine tools industry, the time gap between the acquisition of raw material till the end of final production of finished products itself is quit high. As such amount may be blocked either in raw material or work in progress or finished goods or even in debtors. Naturally there need of working capital is high. 3. Size and growth of business
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Working Capital Management In very small company the working capital requirement is quit high due to high overhead, higher buying and selling cost etc. as medium size business positively has edge over the small companies. But if the business start growing after certain limit, the working capital requirements may adversely affect by the increasing size. 4. Profitability The profitability of the business may be very in each and every individual case, which is in turn its depend on numerous factors, but high profitability will positively reduce the strain on working capital requirement of the company, because the profits to the extend that they earned in cash may be used to meet the working capital requirement of the company. 5. Operating efficiency If the business is carried on more efficiently, it can operate in profits which may reduce the stain on working capital; it may ensure proper utilization of existing resources by eliminating the waste and improved coordination etc. RATIO ANALYSIS Ratio analysis shows the relationship between two items expressed mathematically. It helps to make quantitative and qualitative judgment with regard to concerns financial position and performance. Ratio analysis help the outsiders just like creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of the company to pay them interest and dividend etc. Ratios are calculated from current year numbers and are then compared to previous year. 1. Current Ratio (CR): The CR is used primarily to determine a companys ability to pay back its short term liabilities (debt and payables) with its short term assets (cash, inventory, accounts receivable). A standard ratio of 2:1 is considered favorable. 2. Quick Ratio (QR): Quick Ratio also known as acid test ratio or liquidity ratio is more rigorous test to liquidity than the current ratio. The two determinants are Quick assets and quick liabilities. Quick asset includes inventories and Quick liabilities are excluded of bank overdraft. Quick ratio may be defined as the relationship between quick assets and quick liabilities. The ideal ratio for this is 1
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Working Capital Management 3. Absolute Liquidity Ratio: Also known as Super Quick ratio is a ratio where inventories and receivables are excluded from current assets and only absolute liquid assets such as cash in hand, cash at bank and readily realized securities are taken into consideration. The desirable norm for this ratio is 1:2 i.e., Re. 1 worth of absolute liquid assets are sufficient for Rs. 2 worth of current liabilities. 4. Fixed Assets Turnover Ratio: This ratio indicates the extent to which the investments in fixed assets contribute towards sales compared with previous period. It indicates whether the investment in fixed assets has been judicious or not. 5. Current assets over total Assets: This ratio indicates the contribution made by the current assets over the total assets. There should be average amount current assets as compared to total assets because too much amount of current assets locked would raise the risk and care should be taken to see where the division really requires. 6. Working Capital Turnover Ratio: Working capital of a concern is directly related to sales. The current assets like debtors, bills receivable, cash and stock changes with increase or decrease in sales. The ratio measures the efficiency with which the working capital is being used by a firm. 7. Cash to Current Assets Ratio: - This ratio indicates the relationship between cash and current assets. It is that cash in well balanced company should not be less than 5 percent to 10 percent of current assets. It helps to determine the minimum level of cash monthly control of cash and historical records gives the indication of trends. 8. Debtors Turnover Ratio: Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words, it indicates the member of times average debtors are turned over during a year. 9. Average Debt collection Period: The average collection period represents the average collection number of days for which a firm has to wait before its receivables are converted into cash. 10. Stock Turnover Ratio: Stock turnover ratio reveals the number of times the stock in trade is turned over in business during a particular period. High turnover indicates the quick turnover of finished goods. It enables the firm judge the adequacy of current
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Working Capital Management ratio. However, a relatively high turnover ratio indicates a very low level of inventory and frequent stock outs. 11. Stock Conversion Period: This indicates the clearing period of the stocks. It is calculated by dividing number of days with the stock turnover ratio. 12. Sundry Creditors to inventory Ratio: This ratio shows the extent to which inventories are procured through credit purchase and also explains the extent of inventory obtained through cash purchase. If the ratio is more than one it denote the entire inventory is purchased on credit. 13. Inventory to Net Working capital: Inventory to working capital indicates the relationship between inventory and working capital. A reduction in inventory results in small percentage of reduction in working capital and vice versa. A lower ratio indicates a sound working capital position. The standard norm for this ratio is 1:1, Preferably the inventory should be lower than the working capital. CURRENT ISSUES The automotive industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the worlds most important economic sectors by revenue. Around the world, there were about 806 million cars and light trucks on the road in 2007, consuming over 26-0 billion gallons of gasoline and diesel fuel yearly. This results in huge amount of pollution. These create a negative impacts fall on those social groups who are also least likely to own and drive cars. So, environmental pollution is one of the most concerned issue that is surrounding the industry, maximum pollution is released by automobiles which is why different countries have set standard for vehicles to lessen these harsh effects. Now-a-days every automobile industry is taking this matter into concern and are coming up with low emission vehicle and electric vehicles. These new kind of vehicles creates less pollution. Moreover, vehicles which use hydrogen as fuel are also developed which creates no smoke but water and is very suitable for environment. Safety is also another issue and R&D is happening in this field to make the vehicles safe to ride by inputting technologies like air bags, rapid brake system, distance tracing system, GPS, etc. Moreover work is going on to develop self driving remote vehicle to make the journey safer and even. SVU Department of management studies, T.P.T. 26
CHAPTER II
Need for the study Scope of the Study Objectives of the Study Research Methodology Limitations of the Study
27
NEED FOR THE STUDY

The problems which are common to most of the corporate entities Capacity Utilization Mainly working requirements of capital They the importance of the study revels as to how efficiently
the working capital has been used so for in the organization.
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SCOPE OF THE STUDY

Working capital forms a significant investment in every manufacturing industry. This study is to cover the significance of working capital in a manufacturing industry which is specific to that study unit and not available to others. The study is to analyze the operating cycle and how different management affects it.
29
OBJECTIVES OF THE STUDY

The purpose of doing the study is to make a vivid investigation of the working of the company from inception till date. To access the company trend for the past four year. To find out the movement of funds utilized by the company. To overview the liquidity position of the company. To evaluate inventory management. To access the debt paying capacity of the company.
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REASEARCH METHODOLOGY The data collected for this research can be classified as follows: 1) Primary data collection method: The primary data is that data which is collected fresh or first hand, and for first time which is original in nature. 2) Secondary data collection method : The secondary data are those which have already collected and stored. Secondary data are easily acquired from secondary data such as records, journals, annual reports, Secondary data also made available through trade magazines, balance sheets, books etc. The project is based on secondary information collected through five years annual report of the company, supported by various books and internet sites. The data collection was aimed at study of working capital management of the company. RESEARCH MEASURE TOOL Ratio analysis: Tables Graphs
31
LIMITATIONS OF THE STUDY

Following limitations were encountered while preparing this project: 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. Limited period: this project is based on four year annual reports. Conclusions and recommendations are based on such limited data. The trend of last four year may or may not reflect the real working capital position of the company.
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CHAPTER III
Data analysis & Interpretation
33
DATA ANANYSIS AND INTERPRETATION

LIST OF RATIOS 1. Current Ratio 2. Quick Ratio 3. Absolute Liquidity Ratio 4. Fixed Asset Turnover Ration 5. Current Asset over total Asset Ratio 6. Working Capital Turnover Ratio 7. Cash to Current Asset Ratio 8. Debtors Turnover Ratio 9. Average Collection Period 10. Stock Turnover Ratio 11. Average Stock Turnover Ratio 12. Creditor to Inventory Ratio 13. Inventory to Net Working Capital Ratio
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Working Capital Management WORKING CAPITAL ANALYSIS Statement showing changes in working capital of Suzuki apple auto agency pvt.ltd during the year 2006 2007
Change in working Particulars 2006 2007 Capital Increase CURRENT ASSETS: Cash Sundry Debtors Stock Bills Receivables Total Current assets(A) CURRENT LIABILITIES: Provisions Sundry Creditors Bills Payables Other current liabilities & expenses Total Current Liabilities(B): WORKING CAPITAL(A-B) Current assets-current liabilities Net Increase in Working capital 17,14,417 64,19,479 .INTERPRETATION 64,19,479 22,18,702 17,14,417 22,18,702 16,08,971 47,05,062 19,05,563 64,19,479 6,18,715 4,98,480 2,10,796 2,80,980 5,68,972 5,19,705 2,56,541 5,60,345 49,743 21,225 45,745 2,79,365 8,49,980 19,20,661 31,81,942 3,61,450 63,14,003 10,12,820 26,18,716 44,90,006 2,03,500 83,25,042 1,62,840 6,98,055 13,08,0642 1,57,950 Decrease
From the above table it observed that the working capital of the company has increased to Rs.64, 19,479 in the year 2007 from Rs.47, 05,062 in the year 2006. Because the current assets have increased than current liabilities and the net working capital has increased to Rs.17, 14,417.
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Change in working Particulars 2007 2008 Capital Increase CURRENT ASSETS: Cash Sundry Debtors Stock Bills Receivables Total Current assets(A) CURRENT LIABILITIES: Provisions Sundry Creditors Bills Payables Other current liabilities & expenses Total Current Liabilities(B): WORKING CAPITAL(A-B) Current assets-current liabilities Net Increase in Working capital 64,19,479 .INTERPRETATION 6,74,935 64,19,479 6,74,935 39,74,294 3974,294 19,05,563 64,19,479 58,79,860 57,44,544 5,68,972 5,19,705 2,56,541 5,60,345 9,82,005 15,69,676 8,99,089 24,29,090 4,13,033 10,49,971 6,42,548 18,68,742 10,12,820 26,18,716 44,90,006 2,03,500 83,25,042 4 17,75,453 45,92,292 50,53,159 2,03,500 1,16,24,40 7,62,633 19,73,576 5,63,153 Decrease
From the above table it observed that the working capital of the company has decreased from Rs.64, 19,479 in the year 2007 to Rs.57, 44,544 in the year 2008. Because the current liabilities has increased and the net working capital has decreased to Rs.6, 74,935.
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Change in working Particulars 2008 2009 Capital Increase CURRENT ASSETS: Cash Sundry Debtors Stock Bills Receivables Total Current assets(A) CURRENT LIABILITIES: Provisions Sundry Creditors Bills Payables Other current liabilities & expenses Total Current Liabilities(B): WORKING CAPITAL(A-B) Current assets-current liabilities Net Increase in Working capital 57,44,544 .INTERPRETATION 15,43,953 57,44,544 15,43,953 37,11,340 37,11,340 58,79,860 57,44,544 80,15,637 42,00,591 9,82,005 15,69,676 8,99,089 24,29,090 11,02,819 18,55,946 14,60,750 35,96,122 1,20,814 2,86,270 5,61,661 11,67,032 4 17,75,453 45,92,292 50,53,159 2,03,500 1,16,24,40 8 24,37,897 53,47,235 34,77,596 9,53,500 1,22,16,22 6,62,444 7,54,943 7,50,000 15,75,563 Decrease
From the above table it observed that the working capital of the company has decreased from Rs.57, 44,544 in the year 2008 to Rs.42, 00,591 in the year 2009. Because the current liabilities has increased and the net working capital has decreased to Rs.15, 43,953.
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Change in working Particulars 2009 2010 Capital Increase CURRENT ASSETS: Cash Sundry Debtors Stock Bills Receivables Total Current assets(A) CURRENT LIABILITIES: Provisions Sundry Creditors Bills Payables Other current liabilities & expenses Total Current Liabilities(B): WORKING CAPITAL(A-B) Current assets-current liabilities Net Increase in Working capital 42,34,142 84,34,733 .INTERPRETATION 84,34,733 63,23,962 42,34,142 63,23,961 80,15,637 42,00,591 58,24,285 11,02,819 18,55,946 14,60,750 35,96,122 19,09,496 9,96,214 17,99,016 11,19,559 8,59,732 24,76,732 8,06,677 3,38,266 8 24,37,897 53,47,235 34,77,596 9,53,500 1,22,16,22 8 53,23,547 46,75,632 32,04,323 10,55,516 1,42,59,01 28,85,650 1,02,016 6,71,603 2,73,273 Decrease
From the above table it observed that the working capital of the company has increased to Rs.84, 34,733 in the year 2009 from Rs.42, 00,591 in the year 2010. . Because the current assets have increased than current liabilities and the net working capital has increased to Rs.42, 34,142.
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Change in working Particulars 2010 2011 Capital Increase CURRENT ASSETS: Cash 7 Sundry Debtors 2 Stock 3 Bills Receivables 6 Total Current assets(A) CURRENT LIABILITIES: Provisions Sundry Creditors Bills Payables Other current liabilities & expenses Total Current Liabilities(B): WORKING CAPITAL(A-B) Current assets-current liabilities Net Increase in Working capital 2,88,079 87,22,812 .INTERPRETATION 87,22,812 15,02,125 2,88,079 15,02,125 58,24,285 84,34,733 46,12,789 87,22,812 19,09,496 9,96,214 17,99,016 11,19,559 20,80,149 4,05,411 12,80,314 8,46,915 5,90,803 5,18,702 2,72,644 1,70,653 1,42,59,01 8 1,33,35,60 1 10,55,51 11,75,492 1,19,976 32,04,32 30,28,401 1,75,922 46,75,63 41,51,214 5,24,418 53,23,54 49,80,494 3,43,053 Decrease
From the above table it observed that the working capital of the company has increased from Rs.84, 34,733 in the year 2010 to Rs.87, 22,812 in the year
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Working Capital Management 2011. . Because the current assets have increased than current liabilities and the net working capital has increased to Rs.2, 88,079.
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Current Ratio:
The CR is used primarily to determine a companys ability to pay back its short term liabilities (debt and payables) with its short term assets (cash, inventory, accounts receivable). A standard ratio of 2:1 is considered favorable. TABLE 1 Table showing Current Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula: Current Assets Current Ratio = -------------------Current Liabilities Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Current assets 83,25,042 1,16,24,404 1,22,16,228 1,42,59,018 1,33,35,601 Current liabilities 19,05,563 58,79,860 80,15,637 58,24,285 46,12,789 Ratio 4.36:1 1.98:1 1.52:1 2.45:1 2.89:1
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Working Capital Management GRAPH 1 Graph showing Current Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11
CURRENT RATIO
5 4 RATIO 3 2 1 0 2006-07 2007-08 2008-09 YEAR 2009-10 2010-11 1.98 1.52 2.45 2.89 Ratio 4.36
Interpretation The above graph indicates that the current ratio of the company was more than standard in the year 2006-07 and after, it has decreased in the year 2007-08 and was near to standard, and in 2008-09 it has decreased following an increase in the year 2009-10. an increase in the year 2010-11Hence, there is an ups and down trend in the current ratio.
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Quick Ratio:
Quick Ratio also known as acid test ratio or liquidity ratio is more rigorous test to liquidity than the current ratio. The two determinants are Quick assets and quick liabilities. Quick asset includes inventories and Quick liabilities are excluded of bank overdraft. Quick ratio may be defined as the relationship between quick assets and quick liabilities. The ideal ratio for this is 1 TABLE 2 Table showing Quick Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula:
Quick Ratio = Quick Assets (Current Assets (Inventories + Prepaid Expenses) -----------------------------------------------------------------------------Quick Liabilities (Current Liabilities Bank Overdraft)
Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Quick Assets 38,35,036 65,71,245 87,38,632 1,10,54,695 1,20,13,753 Quick Liabilities 18,64,406 58,10,414 80,15,637 58,24,285 46,12,790 Ratio 2.06:1 1.13:1 1.09:1 1.89:1 2.60:1
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Working Capital Management GRAPH 2 Graph showing Quick Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 QUICK RATIO
3 2.5 RATIO 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 YEAR 2009-10 2010-11 1.13 1.09 2.06 1.89 Ratio 2.6
Interpretation In this graph quick ratio was double the standard in the year 2006-07 and it decreased in the year 2007-08 and 2008-09 touching nearly to standard in 2008-09 and it again bounced up, reflecting an increase and decrease in the movement.
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Absolute Liquid Ratio

Also known as Super Quick ratio is a ratio where inventories and receivables are excluded from current assets and only absolute liquid assets such as cash in hand, cash at bank and readily realized securities are taken into consideration. The desirable norm for this ratio is 1:2 i.e., Re. 1 worth of absolute liquid assets are sufficient for Rs. 2 worth of current liabilities. TABLE 3 `Table showing Absolute Liquidity Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula: Cash in hand and cash at bank + Marketable securities Absolute Liquidity Ratio = ----------------------------------------------------------------Current Liabilities Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Quick Assets 10,12,820 17,75,453 24,37,897 53,23,547 1,20,13,753 Quick Liabilities 19,05,563 58,79,860 80,15,63 58,24,285 46,12,789 Ratio 0.53:1 0.30:1 0.30:1 0.91:1 2.60:1
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Working Capital Management GRAPH 3 Graph showing Absolute Liquidity Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11
ABSOLUTE LIQUID RATIO 3 RATIO 2.5 2 1.5 1 0.5 0 0.53 0.3 0.3 0.91 Ratio 2.6
2006-07 2007-08 2008-09 2009-10 2010-11 YEAR Interpretation The above graph indicates that the absolute liquidity ratio of the company was 0.53 with regard to 1 in the year 2006-07 and after that it has decreased in the year 2007-08 and 2008-09 and it has again increased in the year 2009-10. Hence, there is an ups and down trend in the absolute liquidity ratio.
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Working Capital Management Fixed Assets Turnover Ratio: This ratio indicates the extent to which the investments in fixed assets contribute towards sales compared with previous period. It indicates whether the investment in fixed assets has been judicious or not. TABLE 4 Table showing Fixed Asset Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11 Formula Fixed Asset Turnover Ratio = Net Sales ----------------------Fixed Assets
Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Net Sales 4,58,69,570 5,56,69,956 9,49,29,062 12,29,30,200 18,07,44,421 Fixed Assets 15,80,731 44,39,180 44,39,180 36,44,013 61,90,072 Ratio 29.02 40.93 21,38 33.73 29.1
GRAPH 4 SVU Department of management studies, T.P.T. 47
Working Capital Management Graph showing Fixed Asset Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11
FIXED ASSETS TURNOVER RATIO

45 40 35 30 25 20 15 10 5 0
40.93 33.73 29.02 21.38 29.1
RATIO
Ratio
2006-07
2007-08
2008-09
2009-10
2010-11
YEAR
INTERPRETATION The above graph indicates that the fixed asset turnover ratio of the company was less in the year 2006-07 and after that it has increased in the year 2007-08 and it has decreased in the year 2008-09 and was the lowest and then it has again increased in the year 2009-10. Hence, there is a variation trend in the fixed asset turnover ratio.
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Working Capital Management Current assets over total Assets: This ratio indicates the contribution made by the current assets over the total assets. There should be average amount current assets as compared to total assets because too much amount of current assets locked would raise the risk and care should be taken to see where the division really requires. TABLE 5 Table showing Current Assets over Total Assets Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11 Formula Current Assets over Total Assets Ratio = Current Assets -------------------- x 100 Total Assets Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Current Assets 83,25,773 1,16,24,404 1,22,16,228 1,42,59,018 1,33,35,601 Total Assets 99,05,773 1,29,48,361 1,66,55,408 1,79,03,031 1,95,59,550 Ratio(in%) 84.04 89.53 73.35 79.64 68.17
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Working Capital Management GRAPH 5 Graph showing Current Assets over Total Assets Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 CURRENT ASSETS TURNOVER RATIO
100 80 RATIO 60 Ratio 40 20 0
2006-07 2007-08 2008-09 2009-10 2010-11 84.04 89.53 73.35 79.64 68.17
YEAR
INTERPRETATION The above graph indicated that the current assets over total assets of the company was lowest in the year 2006-07 and after the it has maximized in the year 2007-08 and it has decreased in the year 2008-09 and then it has again increased in the year 2009-10. Hence, there is an up and down trend in the current assets over total assets ratio.
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Working Capital Management Working Capital Turnover Ratio: Working capital of a concern is directly related to sales. The current assets like debtors, bills receivable, cash and stock changes with increase or decrease in sales. The ratio measures the efficiency with which the working capital is being used by a firm. TABLE 6 Table showing Working Capital Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11 Formula
Working Capital Turnover Ratio = Net Sales ---------------------------------------------------------Working Capital (Current Assets Current Liabilities)
Amount (Rs)
Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
Net Sales 4,58,69,570 5,56,69,956 9,49,29,062 12,29,30,200 18,07,44,4421
Working Capital 64,19,479 57,44,544 42,00,591 84,34,733 87,22,812
Ratio(in Times) 7.14 9.69 22.60 14.57 20.72
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Working Capital Management GRAPH 6 Graph showing Working Capital Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 WORKING CAPITAL TURNOVER RATIO
25 20 RATIO 15 10 5 0
2006-07 2007-08 2008-09 2009-10 2010-11 9.69 7.14 14.57 22.6
20.72
Ratio
YEAR
INTERPRETATION The above graph indicated that the working capital turnover ration of the company was higher in the year 2006-07 and after that it has minimized in the year 2007-08 and it has increased in the year 2008-09 and then it has again decreased in the year 2009-10. Hence, there is a fluctuation trend in the working capital turnover ratio.
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Cash to Current Assets Ratio: - This ratio indicates the relationship between cash and current assets. It is that cash in well balanced company should not be less than 5 percent to 10 percent of current assets. It helps to determine the minimum level of cash monthly control of cash and historical records gives the indication of trends. TABLE 7 Table showing Cash to Current Assets Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11 Formula Cash to Current Assets Ratio = Cash ---------------------- x 100 Current Assets Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Cash 10,12,820 17,75,453 24,37,897 53,23,547 94,44,024 Current Assets 83,25,042 1,16,24,404 1,22,16,228 1,42,59,018 1,33,35,601 Ratio (in%) 12.16 15.27 19.95 37.33 70.81
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GRAPH 7 Graph showing Working Capital Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 CASH TO CURRENT ASSETS RATIO
80 70 60 RATIO 50 40 30 20 10 0
2006-07 2007-08 2008-09 2009-10 2010-11 12.16 15.27 19.95 37.33 70.81
Ratio
YEAR
INTERPRETATION The above graph indicates that the cash to current assets ratio of the company was high in the year 2006-07 at 26.41 and after that it has decreased in the year 200708 and was the lowest and it has increased in the year 2008-09 and then it has again increased in the year 2009-10 where it is the highest. Hence, there is a variation trend in the cash to current assets ratio
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Debtors Turnover Ratio: Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words, it indicates the member of times average debtors are turned over during a year. TABLE 8 Table showing Debtors Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula Debtors Turnover Ratio = Net Sales ----------------Average Debtors Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Net Sales 4,58,69,570 5,56,69,956 9,49,29,062 12,29,062 18,07,44,421 Average Debtors 26,18,716 45,92,292 53,47,235 46,75,632 76,22,272 Ratio (in Times) 17.52 12.12 17.75 26.29 23.71
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Working Capital Management GRAPH 8 Graph showing Debtors Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 DEBITORS TURNOVER RATIO
35 30 25 RATIO 20 15 10 5 0
2006-07 2007-08 2008-09 2009-10 2010-11 17.52 12.12 17.75 26.29 23.71
Ratio
YEAR
INTERPRETATION The above graph indicates that the debtors turnover ratio is low in 2007-08, 2008-09 and 2009-10. The lowest was in the year 2007-08. In 2009-10 the debtors turnover ratios increased and attain the highest.
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Working Capital Management Average Debt collection Period: The average collection period represents the average collection number of days for which a firm has to wait before its receivables are converted into cash. TABLE 9 Table showing Average Collection Period of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula Average Collection Period = Number of Working Days (365 days) ----------------------------------------------Debtors Turnover Ratio
Amount (Rs)
Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
No. of working Days 360 360 360 360 360
Debtors Turnover Ratio 17.52 12.12 17.75 26.29 23.71
Ratio (in days) 20.54 29.70 20.28 13.69 15.18
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Working Capital Management GRAPH 9 Graph showing Average Collection Period of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 AVERAGE COLLECTION PERIOD RATIO
40 35 30 RATIO 25 20 15 10 5 0
2006-07 2007-08 2008-09 2009-10 2010-11 20.54 29.7 20.28 13.69 15.18
Ratio
YEAR
INTERPRETATION The above graph indicates that the average collection period is highest in 2007-08 and in 2006-07 and 2008-09 it was almost the same time period but in 200910 the debt collection period was lowest.
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Stock Turnover Ratio: Stock turnover ratio reveals the number of times the stock in trade is turned over in business during a particular period. High turnover indicates the quick turnover of finished goods. It enables the firm judge the adequacy of current ratio. However, a relatively high turnover ratio indicates a very low level of inventory and frequent stock outs. TABLE 10 Table showing Stock Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula Stock Turnover Ratio = Net Sales ----------------Inventory Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Net Sales 4,58,69,570 6,56,69,956 9,49,29,062 12,29,30,200 18,07,44,421 Inventory 44,90,006 50,53,159 34,77,596 32,04,323 53,41,667 Ratio (in times) 10.21 11.02 27.30 38.36 33.83
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Working Capital Management GRAPH 10 Graph showing Stock Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 STOCK TURNOVER RATIO
50 40 RATIO 30 20 10 0
2006-07 2007-08 2008-09 2009-10 2010-11 10.21 11.02 27.3 38.36 33.83
Ratio
YEAR
INTERPRETATION The above graph reflects that the stock turnover ratio has increased from 200607 to 2009-10 and was the highest in 2010-11
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Working Capital Management Stock Conversion Period: This indicates the clearing period of the stocks. It is calculated by dividing number of days with the stock turnover ratio. .TABLE 11 Table showing Average Stock Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2009-10
Formula Average Stock Turnover Ration = Number of working days (365 days) -------------------------------------------Stock Turnover Ratio Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 No. of working Days 360 360 360 360 360 Stock Turnover Ratio 10.21 11.02 27.30 38.36 33.83 35.25 33.66 13.18 9.38 10.64 Ratio (in days)
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Working Capital Management GRAPH 11 Graph showing Average Stock Turnover Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 AVERAGE STOCK TURNOVER RATIO
45 40 35 30 25 20 15 10 5 0
35.25
33.66
RATIO
Ratio
13.18 9.38 10.64
2006-07
2007-08
2008-09
2009-10
2010-11
YEAR
INTERPRETATION The above graph indicates that the average stock turnover ratio has decreased from 2006-07 to 2009-10 and was the highest in 2006-07 and slowly started falling down and reached the lowest in 2010-11
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Working Capital Management Sundry Creditors to inventory Ratio: This ratio shows the extent to which inventories are procured through credit purchase and also explains the extent of inventory obtained through cash purchase. If the ratio is more than one it denote the entire inventory is purchased on credit TABLE 12 Table showing Creditors to Inventory Ratio of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula Creditors to Inventory Ratio = Sundry Creditors -------------------------Inventory Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Sundry Creditors 5,19,705 15,69,676 18,55,946 9,96,214 4,05,411 Inventory 44,90,006 50,53,159 34,77,596 32,04,323 53,41,667 Ratio (in times) 0.11 0.31 0.53 0.31 0.07
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Working Capital Management GRAPH 12 Graph showing Creditors to Inventory Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 CREDITORS TO INVENTORY RATIO
0.6 0.5 0.4 RATIO 0.3 0.2 0.1 0
2006-07 2007-08 2008-09 2009-10 2010-11 0.11 0.31 0.31 0.53
Ratio
0.07
YEAR
INTERPRETATION The above graph indicates that in 2006-07 the creditors to inventory turnover ratio was the least and then it increased in 2007-08 and 2008-09 and reached the highest in 2008-09 and again dropped in 2009-10.
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Working Capital Management Inventory to Net Working capital: Inventory to working capital indicates the relationship between inventory and working capital. A reduction in inventory results in small percentage of reduction in working capital and vice versa. A lower ratio indicates a sound working capital position. The standard norm for this ratio is 1:1, Preferably the inventory should be lower than the working capital TABLE 13 Table showing Inventory to Net Working Capital of Suzuki Apple Auto Agency Pvt. Ltd. From the year 2006 07 to 2010-11
Formula Inventory to Net Working Capital = Inventory ----------------------------- x 100 Net Working Capital
Amount (Rs) Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Inventory 44,90,006 50,53,159 34,77,596 32,04,323 53,41,667 Net working Capital 64,19,479 57,44,544 42,00,591 84,34,733 87,22,812 96.94 87.96 82.78 37.98 61.23 Ratio (in %)
65
Working Capital Management GRAPH 13 Graph showing Inventory to Net Working Capital Ratio of Suzuki Apple Auto Agency Pvt. Ltd. from the year 2006-07 to 2010-11 INVENTORY TO NET WORKING CAPITAL RATIO
100 80 RATIO 60 40 20 0
2006-07 2007-08 2008-09 2009-10 2010-11 37.98 69.94 61.23 87.96
82.78
Ratio
YEAR
INTERPRETATION The above graph indicates that the inventory to net working capital ratio has increased from 2006-07 to 2007-08 and after that it has decreased in the consecutive years, i.e., 2008-09 and 2009-10 and was the lowest in 2010-11.
66
CHAPTER IV
FINDINGS SUGGESTIO NS
67
CONCLUSIO N BIBLIOGRAPHY
FINDINGS
1. The company current ratio in the all years is up to the standards in 2007 it is 4:1, but in the year 2008, 2009 is not good 2. The company current asset over total assets ratio was high in all the years with sudden up and down movement and reflects that there might be high amount of current assets locked up which should be treated efficiently. 3. The working capital ratio has increased in the consecutive three years starting from 2006-07 to 2008-09 reflecting increase in the sales and decrease in the working capital. But, it again increased in the year 2009-10 because of increase in the working capital. 4. The cash to current asset ration has increased in all the years because of increase of cash reflecting the contribution of cash in current assets. 5. The debtors turnover ratio has shows a fluctuation in its trend and though there is an increase from 2007-08 to 2008-09 it was very low in all the years and it s because of increase in the debtors. 6. The average collection period more in the year 2006-07 to 2008-09 with an average of 20 days but in the year 2009-10 it decreased and can be said that there is an improvement in 2009-10. 7. The stock turnover ratio has increased thoroughly during all the years which mean that the inventory is appropriately maintained. 8. The average stock turnover ratio has also decreased which means that there is an improvement in maintaining the inventory.
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Working Capital Management 9. The inventory to working capital ratio indicates that the ratio is more in the year 2007-08 and 2008-09 because there was good proportion of inventory as to working capital but it decreased in the year 2009-10 because of low inventory to working capital.
SUGGESTIONS
A study of the working capital management is of prime importance for both internal and external analysis. Hence the study is undertaken to analyze the working capital management of Suzuki-Apple Auto Agency Pvt. Ltd. This chapter has been designed to recapitulate the key findings of the study as well as to make suitable recommendation if any to improve the working capital performance of the company. Suzuki-Apple Auto Agency Pvt. Ltd. current ratio was found to be higher in 2006-07 and 2009-10. Higher the ratio reflects an excess investment in current assets. Quick ratio and the absolute liquidity ratio is also high in 2006-07 and 200910 and it is because of increasing sundry debtors and deposits and cash and bank balances. To reduce this they should increase their investments, rather than blocking money which would increase their returns. The debtors turnover ratio in all the years is low and the company should try to increase it by taking proper measure to collect debt timely. The stock turnover ratio of the company has increased from year to year and indicates the company is managing inventory in a well manner. They need to concentrate on their debt collection method as and should device new technique to accumulate it quickly in order to avoid bad debts
69
70
CONCLUSION
The company on an overall basis has maintained good liquidity position although they should take care to be with the standard. them. They purchase their inventory mostly via cash which abstain them They should try to maintain their cash holding position in accordance
with current assets and should try not to hold to many funds and should utilize
from increasing liability and should try to keep it up
71
BIBLIOGRAPHY
A) Books Referred
S.No. 1. 2.
Title of the Book Management Accounting Cost & Financial Analysis
Authors Name Shashi K. Gupta & R.K. Sharma S.P.Jain & K.L.Narang
Name of the Publication Kalyani Publishers Kalyani Publishers
Year of Publication 2006 2007
B) Journals / Magazines / Company Reports / Newspapers 1. Economic Times. 2. Company Reports C) Websites: 1. www.google.com 2. www.wikipedia.com 3. www.suzukimotorcycles.com
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Chapter - I: Industrial Profile Company Profile Theoretical Background

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Working Capital Management

Industrial profile Company profile Theoretical background

Working Capital Management

SVU Department of management studies, T.P.T.

Working Capital Management

GENERAL INTRODUCTION INDUSTRY PROFILE

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

Working Capital Management

SVU Department of management studies, T.P.T.

Working Capital Management

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

Working Capital Management

WHAT IS FINANCE? SVU Department of management studies, T.P.T. 16

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

Working Capital Management

SVU Department of management studies, T.P.T.

Working Capital Management

NEED FOR THE STUDY

the working capital has been used so for in the organization.

SVU Department of management studies, T.P.T.

Working Capital Management

SCOPE OF THE STUDY

SVU Department of management studies, T.P.T.

Working Capital Management

OBJECTIVES OF THE STUDY

SVU Department of management studies, T.P.T.

Working Capital Management

SVU Department of management studies, T.P.T.

Working Capital Management

LIMITATIONS OF THE STUDY

SVU Department of management studies, T.P.T.

Working Capital Management

Data analysis & Interpretation

SVU Department of management studies, T.P.T.

Working Capital Management

DATA ANANYSIS AND INTERPRETATION

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

Working Capital Management

SVU Department of management studies, T.P.T.

SVU Department of management studies, T.P.T.

Working Capital Management