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WORKING CAPITAL:
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM).
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increase current liabilities. A negative net working capital will occur when Current Liabilities are in excess of Current Assets.
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MEETING UNSEEN CONTINGENCIES: Adequacy of working capital enables a company to meet the unseen contingencies successfully.
Thus, the operating cycle starts from cash and then again restarts from cash. Need for working capital depends upon period of operating cycle. Greater the period more will be the need of working capital. Period of operating cycle in a manufacturing concern is greater than a period of operating cycle in a trading concern because in trading units cash is directly converted into finished goods.
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CASH RAW MATERIAL WORK-IN-PROGRESS FINISHED GOODS DEBTORS & BILLS RECEIVABLES Operating cycle (nature of working capital)
Because of the time involved in a operating cycle, there is a need of working capital in the form of current assets. Firms have to keep adequate stock of raw-material to avoid risk of non-availability of raw materials. Similarly, concerns must have adequate stock of finished goods to meet the demand in market on continuous basis and to avoid competition which necessitates the money tied up in debtors and bills receivables. In addition to all these, concerns have to necessarily keep cash to pay the manufacturing expenses etc. and to meet the contingencies.
fluctuates from time to time. However, to carry on day-to-day operations of the business without any obstacles, a certain minimum level of raw materials, work-inprogress, finished goods and cash must be maintained on a continuous basis. The amount needed to maintain current assets on this minimum level is called permanent working capital or regular working capital. The amount involved as permanent working capital has to be met from long term sources of finance, eg. Capital, debentures, long term loans etc.
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(b) Temporary working capital: any amount over and above the permanent level of working capital is called is called temporary, fluctuating or variable working capital. Due to seasonal changes level of business activity is higher than normal during some months of the year and therefore, additional working capital will be required along with the permanent working capital it is so because during peak season demand rises and more stock is to be maintained to meet the demand. Similarly, the amount of debtors increases due to excessive sales. Additional working capital thus needed is known as temporary working capital because once the season is over; the additional demand will be no more. Need for temporary working capital should be met from short term of finance, e.g. Short term loans etc. so that it can be refunded when it is not required.
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enterprise fall between these two extremes, that is between public utilities and trading concerns. 2) SIZE OF THE BUSINESS: Larger the size of business enterprise, greater would be the need for working capital. The size of a business may be measured in terms of scale of its business operation. 3) GROWTH AND EXPANSION: As business enterprise grows, it is logical to expect that a larger amount of working capital will be required. Growing industries require more working capital than those that are static 4) PRODUCTION CYCLE: Production cycle means the time span between the purchase of raw material and its conversion into finished goods. The longer the production cycle the larger will be the need of working capital because the funds will be tied up for longer period in work in progress. 5) BUSINESS FLUCTUATIONS: Business fluctuations may be in the direction of boom and depression. During boom period the firm will have to operate at full capacity to meet the increased demand which in turn, leads to increase in level of inventories and book debts. Hence, the need for working capital in boom conditions is bound to increase. The depression phase of business fluctuations has exactly an opposite effect on the level of working capital requirement . 6) CREDIT POLICY RELATING TO SALES: If a firm adopts liberal credit policy in respect of sales, the amount tied up in debtors will also be higher. Obviously, higher book debts mean more working capital. On the other hand, if the firm follows tight credit policy, the magnitude of working capital will decrease. Working Capital Management Page
7) CREDIT POLICY RELATING TO PURCHASE: If a firm purchases more goods on credit, the requirement for working capital will be less. In other words, if liberal credit terms are available from the suppliers of goods, the requirement for working capital will be reduced and vice-versa 8) AVAILABILITY OF RAW-MATERIAL: If the raw material required by the firm is available easily on a continuous basis, there will be no need to keep a large inventory of such materials and hence the requirement of working capital will be less. On the other hand, if the supply of raw material is irregular, the firm will be compelled to keep an excessive inventory of such material which will result in high level of working capital. 9) AVAILABILITY OF CREDIT FROM BANKS: If the firm can get bank credit facility in case of need, it will operate with less working capital. On the other hand, if such facility is not available, it will have to keep large amount of working capital.
10) VOLUME OF PROFIT: The net profit is a source of working capital to the extent it has been earned in cash. Higher net profit would generate more internal funds thereby contributing the working capital pool. 11) LEVEL OF TAXES: Full amount of cash profit is not available for working capital purposes. Taxes have to be paid out of profits. Higher the amount of taxes less will be the profits available for working capital. Working Capital Management Page
12) DIVIDEND POLICY: Dividend policy is a significant element in determining the level of working capital in an enterprise. The payment of dividend reduces the cash and thereby, affects the working capital to that extent. On the contrary, if the company does not pay dividend but retains the profit, more would be the contribution of profits towards the working capital pool. 13) DEPRICIATION POLICY: Although depreciation does not result in outflow of cash, it affects the working capital indirectly. In the first place, since the depreciation is allowable expenditure in calculating net profits, it affects the tax-liability. In the second place, higher depreciation also means lower disposable profits and ,in turn, a lower dividend payment. Thus, outgo of cash is restricted to that extent. 14) PRICE LEVEL CHANGES: A change in price level also affects the working capital requirements. If the price level is rising, more funds will be required to maintain the existing level of production
15) EFFECIENCY OF MANAGEMENT: efficiency of management is also a significant factor to determine the level of working capital. Management can reduce the need for working capital by the efficient utilization of resources. It can accelerate the pace of cash cycle and thereby use the same amount working capital again and again very quickly
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1) OPERATING CYCLE METHOD: operating cycle is the time span the firm requires in the purchase of raw material, conversion of raw material in work in progress and finished goods, conversion of finished goods into sales and in collecting cash from debtors. Larger the time span of operating cycle, larger the investment in current assets. Hence the time period for each stage of operating cycle is computed on the basis of cost of each item. Following factors should be considered while forecasting working capital requirement on the basis of operating cycle method: (i) (ii) (iii) (iv) (v) (vi) cost of raw material, wages and overheads Period during which raw material remains in store before it is issued for production purpose. Period of operating cycle Period during which finished goods is stored before sale. Period of credit allowed to debtors and period of credit allowed by suppliers. Time lag in payment of wages and overheads. (vii) minimum cash balance required to be maintained. A certain percentage of contingencies may also be added to the above estimates to determine the working capital requirements. On the basis of operating cycle, the working capital can be forecasted in the following way:
Statement Showing Working Capital Requirements Current assets: (i)stock of raw material:
Cost of yearly consumption of raw material x average inventory period (weeks/months) 52weeks/12 months
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average time span of W-I-P (weeks/months) 52 weeks/12 months (weeks/months) 52 weeks/12 months Average time span of W-I-P
+ yearly manufacturing and administrative overheads(ex. Dep) x 50 100 x (weeks/months) 52 weeks/12 months
(iv) debtors:
Working capital tied up in debtors should be estimated on the basis of cost of sales(ex. Dep): Cost of goods produced (i.e. raw material + wages + manufacturing, admn. & selling overhead) X average debt collection period (weeks/months) 52 weeks/12months
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(ii)
wages:
Average time lag in payment of wages x (weeks/months) 52 weeks/12months
Yearly wages
If wages are paid at the end of each month, the average time lag in the payment of wages will approximate to half a month. This is so because 1st days wages are paid on the 30th day of each month, extending credit for 29 days, the 2nd days wages are, again paid on the 30th, extending credit for 28 days, and so on. Thus, average time lag will approximate to half a month.
(iii)
overheads:
average time lag in payment of overheads (weeks/months) 52 weeks/12months
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ADD:
2) FORECASTING OF CURRENT ASSETS AND CURRENT LIABILITIES METHOD: According to this method, an estimate is made of forthcoming periods current assets and current liabilities on the basis of factors like past experience, credit policy, and payment policy of the previous year. First of all, such estimate is made for each current asset on the basis of each month and then monthly requirements are converted into yearly requirements of current assets. The estimated amount of current liabilities is deducted from this amount in order to estimate the requirement of working capital. A certain percentage of contingencies may also be added to this amount. 3) CASH FORECASTING METHOD: Under this method estimate is made of cash receipts and payments for the next period. Estimated cash receipts are added to the amount of working capital which exists at the beginning of the year and estimated cash payments are deducted from this amount. The difference will be the amount of the working capital. 4) PROJECTED BALANCE SHEET METHOD: Under this method, an estimate is made of assets and liabilities for a future date and a projected balance sheet is prepared for that future date. The difference in CA and CL shown in projected balance sheet will be the amount of working capital.
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Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the inter relationships between them. Its operational goal is to manage the current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. The term working capital refers to the net working capital i.e. current assets minus current liabilities with reference to the management of working capital, net working capital represents that part of the current assets which are financed with the long term funds The level of NWC has a bearing on the profitability as well as the risk in the sense of the inability of the firm to meet obligations as and when they become due. Therefore, the trade off between profitability and risk is an important element in the evaluation of the level of NWC of the firm. In general, the higher the NWC the lower the risk, as also the lower is the profitability and vice-versa. Thus, the NWC measures the degree of risk in the management of working capital. Apart from the profitability-risk trade-off, the determination of the finance mix is the second ingredient of the theory of working capital management. The financing mix refers to the proportion of current assets to be financed by current liabilities and long term sources. One approach to determine the financing mix is hedging approach, acc. to which long term funds should be used to finance the fixed portion of the current assets and the purely temporary requirements should be met out of short term funds. This approach is high profit, high risk financing mix. Acc. to the second approach, namely the conservative approach, the estimate requirements of the current assets should be financed from long term sources and the short term funds should be used only in emergency situation. The conservative approach is a low-profit, low risk combination. Neither of the two is suitable for efficient working capital management. A trade off between these two extremes provides a financing plan between these two approaches, and therefore, an acceptable financing strategy from the view point of the management of working capital.
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CASH MANAGEMENT
Cash management is one of the key areas of working capital management. There are 4 motives of holding cash (i) (ii) (iii) (iv) transaction motive precautionary motive speculative motive compensating motive
the transaction motive refers to the holding of cash to meet anticipated obligations whose time is not perfectly synchronized with cash receipts. The cash balances held in reserve for random & unforeseen fluctuations in cash flows are called as precautionary balances. The speculative motives indicates the desire of a firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business. The compensating motive means keeping the bank balance sufficient to earn a return equal to the cost of free service provided by the banks. The basic objectives of cash management are to reconcile two mutually contradictory and conflicting tasks: to meet the payment schedule & to minimize funds committed to cash balances. Cash budget is probably the most important tool in cash management. It is a device to help a firm to plan & control the use of cash. The cash position of a firm as it moves from one period to another period is high lighted by cash budget. A cash budget has normally three parts, namely, cash collections, cash payments and cash balances. The major sources of cash receipts and payments are operating and financial. The operating sources are repetitive in nature while the financial sources are non-recurring. Working Capital Management Page
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MANAGEMENT OF RECEIVABLES
It deals with those transactions which deals with the billing of customers who owe money to a person, company or organization for goods & services that have been provided to the customers under receivables management, we consider the position of our debtor. Before extending the credit to him, personal interaction with him is done & information is is collected like the references, bank account information etc. & if it seems that person is reliable then he could be extended credit. Then some other factors are also considered like financial position of the debtor, reputation of the Debtors in the market, credit paying capacity of the person etc. there should be proper agreement between the debtor and the company for the repayment terms. But if the debtor fails to pay the money then the help of law or muscle power can also be used but the action should be taken within 3 years of extending credit. The management of receivables involves crucial decision in three areas: (i) credit policy (ii) credit terms (iii) collection policies. The credit policies of the firm provides the framework to determine whether to or not to extend credit to a customers and how must credit to extend. The two broad dimensions of credit policy decision of a firm are credit standards and credit analysis, the term credit standards represent the basic criterion for the extension of credit to customers. The criterion, and therefore, standards can be tight /restrictive or liberal/non-restrictive. The credit analysis component of credit policies includes obtaining credit information from different sources and its analysis. The second decision area in receivables management is the credit terms, the credit terms specify the repayment terms, comprising credit period, cash discount, if any, and cash discount period.
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The third area involved in the management of receivables is collection policies. It refers to the procedure followed to collect accounts receivable when they become due. The two relevant aspects are the degree of efforts to collect the over dues and the type of collection effort. The framework of analysis of all the three decision areas in receivable management is to secure a trade-off between the costs & benefits of the measurable effects on the sales volume, capital cost due to change in accounts receivable, collection costs, and bad debts and so on. The alternative will be selected when the benefits exceed the costs.
INVENTORY MANAGEMENT
The term inventory refers to assets which will be sold in future in the normal course of business operations. The assets which the firm stores as inventory in anticipation of need are raw materials, work-in-progress, semi-finished goods, and finished goods. The objective of inventory management consist of two counter balancing parts, namely, to minimize investments in inventory and to meet the demand for products by efficient production and sales operations. In operational terms, the goal of inventory management is to have a trade-off between costs and benefits at different levels of inventory. The costs of holding inventory are ordering cost and carrying costs. The major benefits of holding inventory are in the areas of purchasing, production and sales. The non-mathematical inventory management techniques illustrated here are (i) ABC system (ii) EOQ (iii) re-order point (iv) safety stock
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The first step in inventory control process is classification of different types of inventories to determine the type and degree of control required for each. The ABC system is a widely used classification technique to identify various items of inventory for purposes of inventory control. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep a more rigorous control on items that are (i) more costly (ii) slowest turning while items that are less expensive should be given less control effort. On the basis of the cost involved, the various inventory items are, according to this system, categorized into three items (1) A (2) B (3) C. the items included in group A involved the largest investment. Therefore, inventory control should be most rigorous and intensive and the most sophisticated inventory control techniques should be applied to these items. C group consists of items of inventory, which involve relatively small investments although the number of items is fairly large. These items deserve minimum attention. B group stands mid way. It deserves less attention than A but more than C. employing less sophisticated techniques can control it. The task of inventory management is to properly classify all the inventory items into one of these three groups. The typical breakdown of inventory items is shown in following table:
Group (%)
No. of Items
Inventory Value
A B C
15 30 55 ----
70 20 10 ---
100
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Some points stand out from above table. While group A is the least important than in terms of the no. of items, it is by far the most important in terms of investments involved. With only 15% of the number, it accounts for as much as 70% of the total value of inventory. The firm should direct most of its inventory control efforts to the items included in this group. The items comprising B group accounts for 20% of the investment in inventory. They deserve less attention than A, but, more than C, which involves only 10% of the total value although number wise its share is as high as 55%.
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outs. A firm should place neither too large nor too small orders. On the basis of trade-off between benefits derived from the availability of inventory and the cost of carrying that level of inventory, the appropriate or optimum level of the order to be placed should be determined. The optimum level of inventory is popularly referred as economic order quantity (EOQ). It is also known as economic lot size. The EOQ may be defined as that level of inventory order that minimizes the total cost associated with inventory management.
RE-ORDER POINT
The EOQ technique determines the size of an order to acquire inventory so as to minimize the carrying as well as the ordering costs. In other words, the EOQ provides an answer to the question: how much inventory should be ordered in one lot? Another important question pertaining to efficient inventory management is : when should the order to procure inventory be placed? This aspect of inventory management is covered under the order point problem. The reorder point is stated in terms of the level of inventory at which an order should be placed for replenishing the current stock of inventory. In other words, reorder point may be defined as that level of inventory when fresh order should be placed with the suppliers for procuring additional inventory equal to the economic order quantity. Although some sophisticated re-order point formulae are available, it is based on following assumptions: Constant daily usage of inventory & fixed lead time. In other words, the formulae assume condition of certainty. The re-order point = lead time in days x average daily usage of inventory. The term lead-time refers to the time normally taken in receiving the delivery of inventory after placing orders with the suppliers. It covers the time span from the point when a decision to place an order for the procurement of inventory is made to the actual receipt of the inventory by the firm. Another way of saying it is that the lead time consists of the number of days required by the suppliers to receive and process the orders as well as the number of days during which the goods will be in
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transit from the supplier. The lead time may also be called as the procurement time of inventory. The average usage means the quantity of inventory-consumed daily. We can, therefore, define re-order point as that inventory level, which should be equal to the consumption during the lead-time.
OUTSOURCING
A few years ago there was a tendency on the parts of many companies to manufacture all components in hours. Now more and more companies are adopting the practice of out-sourcing. Out-sourcing is a system of buying parts and components from outside rather than manufacturing them internally. Many Working Capital Management Page
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companies have developed a single source of supply, and many others help developing small and middle sized suppliers of components that they require. Tata motors has, for example, developed a number of ancillary units around its manufacturing sites that supplies parts and components to its manufacturing plant. With the help of tata motors, ancillaries are able to maintain the high quality of manufactured components. The car manufacturing company, maruti,, which is now controlled by Suzuki of japan, has the similar system of supply.
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After the first indigenous tractor, manufactured by PTL in India, was successfully launched in 1974, it has been on its way to becoming a blue chip company. Besides tractors, the company also manufactures Swaraj Combine Harvesters, Agricultural Implements. Automotive Castings, Forklifts. Over the year, PTL has won national and international acclaim and recognition for outstanding performance and contribution in many diverse fields. MOREOVER PTL WAS RATED AS THE BEST COMPANY OF THE YEAR 1989 BY FINANCIAL EXPRESS. Mazda Motors Corporation of Japan, established in 1920 is an enterprise of international repute. Mazda started manufacturing trucks as back in 1931. Today, this enterprise has the distinction of being the only company in the world producing reciprocating petrol and diesel engines as well as the revolutionary rotary engines. Mazda is ever seeking the new areas of product excellence and innovations. It adheres audaciously to a 2000 checkpoints inspection before declaring any vehicle road worthy. The use of robots, latest technology, and world-class production facilities enables Mazda to produce vehicle of outstanding quality and performance. No wonder Mazda has won Appreciation all over the world for quality products that are rolling out of its plants.
The factory Swaraj Mazda Limited is located at Village Asron district Nawanshahar (Punjab) near the city of Ropar and at a distance of 45 km from the capital city of Chandigarh. The plant has captivating site. It spreads over a quaint, sprawling 100 acres of land ringed by Shivalik Hills on three of its sides and river Satluj on the other. The desolate slit hill has been leveled for construction. Work at the plant began at a great tempo and the first vehicle rolled out of the production line in a record time of one year of laying the foundation stone.
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The LCV are manufactured in five attractive colours- Santos Red, Nile blue, Light Beige, White and Golden Yellow. In addition to these, any other colours can be made on demand. Swaraj Mazda vehicles are not only strong but also fuel-efficient. Prominent among the load carriers Swaraj Mazda is also manufacturing:1. 4 wheel drives; 2. Extended wheel- base long- chassis Mini Buses which carry up to 44 passengers. 3. Deluxe Buses carrying to 40 passengers; 4. Ambulances 5. Mobile Reverse- Osmosis and Electro dialysis Units for the Central Salt and Mineral Chemical Research Institute. 6. CNG Buses with Safety & Eco grades. 7. Integrated Garbage collection and disposal system for urban centers; 8. Hydraulically operated dumpers; 9. Mobile fair priced vans; 10. Sky Lift Vehicles Swaraj Mazda gives due attention to the marketing part and the employees are highly qualified and trained to fit the job. Swaraj Mazda has a vast Network of 150 dealers spread throughout the country including A&N Islands. Zonal offices have been opened in Chandigarh, Lucknow, Ahmedabad, Mumbai, and Chennai. This helps substantially in sales promotion, Export promotion, especially for Hi-tech products, is also being emphasized.
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Discipline and its rigid enforcement without discrimination is an important Hallmark of Swaraj Mazda. It is of great significance in evolving work culture. All the employees, irrespective of their position and status have to punch their cards when they report for duty. As a result, strict punctuality has become a way of life and work with them. To ensure Industrial peace, i.e. absence of strikes and lockouts, Swaraj Mazda believes in making a contended labour force with a very low rate of absenteeism and turnover. Reasonably fair wages and various perks like subsides uniform and transport, mess facilities go a long way in creating identification with the job. Earnestness, Sincerity and Spirit of corporation pervades the entire atmosphere of the company. The happy absence of Industrial dispute in the enterprise speaks volume for the success of the firm and cultivation of work culture. Work culture or work ethos is given very high precedence. It is fully recognized that the objectives of the concern- higher and higher production, productivity and indigenization can be attained through commitment into commonness of GOAL in each and every member of the Swaraj family. The entire planning is undertaken in such a way so as to inculcate the spirit of dedication in each member, whether he is skilled or semi-skilled worker or belongs to the managerial cadre. Many effective steps are taken to bring this about. Important amongst them are: 1. Common canteen and mess for all. Same meals are served to all and in identical utensils. Everybody has to stand in a queue to get his or her meals. 2. Common uniform is there for all the members irrespective of their status. 3. No separate cabins for the members of higher hierarchy. All the members of a department or a section therefore sit and work in one hall with the Manger facing the staff. Every employee carries his or her files, thus inculcating the spirit of dignity of labour in the staff.
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competitive markets. This guiding philosophy is dictating every facet of project implementation both in physical facilities and the human side.
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Yash paul Mahajan Y Watanabe R P Sehgal E Seto Harkirat Singh T Hashimoto H Yamaguchi M Tabuchi P K Nandy A K Thakur Pankaj Bajaj Steven Enderby Gopal Bansal
Managing Director Whole-time Director Whole-time Director Director Director Director Director Director Director Director Director Director Company Secretary
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supply situation was even better than expected giving a boost to demand for commercial vehicles (CV). While CV sales in the first half at 2,38,000 were low, the second half saw accelerated demand and sales achieved were at a robust level of 3,38,400. Consequently, total industry sales for the year at 5,76,000 (4,27,000) were an all time high. The Companys performance reflected that growth with sales rising to 10,133 vehicles from 8,020 in 2008-09, giving operating revenue of Rs. 722.23 crores (Rs. 546.95 crores). Demand for the Companys ultra luxury buses saw only marginal improvement from last year: market penetration has proven difficult even though new products two air-conditioned buses on Isuzu platform and one on Mazda chassis - were well received. Having regard to the slack demand for new products, capital spending in the year on the Expansion Project was restricted to bare minimum, at Rs. 2.87 crores. The Directors continue to believe that these products will achieve the sale volumes forecast in that Project.
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A noteworthy feature of the Years performance was highly successful efforts on collection of receivables, at Rs 878 crores, the highest in recent years, thereby achieving the stringent targeted levels of dealer dues.
Operating Profit at Rs 57.93 crores (Rs 28.06 crores) was gained from the increase in volume of sales, enhanced by a planned judicious product-mix, timely restructuring of vehicle prices and close vigil on expenditure. It is in the above background that the Directors report the following summary of results for the year 2009-10.
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Vehicles
%age share
Truck Bus AMB Special Applications Truck Bus Spp. Appl. ABM
62% 34% 3% 1%
SML is 3rd player in LCV segment with 15% market share. Out of this 15% large market share is covered by SML trucks with 6762 units (62%) in LCV segment. Sales of bus vehicles are 3706 units with 34% market share. Ambulance vehicles
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have 3% market share by a sale of 297 units. Swaraj Mazda special Application has just 1% market share in LCV segment.
2005-06
2006-07
2007-08
2008-09
2009-10
17007 11466
22680 14208
25928 15164
30936 16048
29331 16821
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49260
61324
70032
75237
72823
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The above Table and Graph shows the %age of market share of different companies in LCVs segment. All these companies are competitors in 5-10 Ton GVW in LCV sector. Telco is a market leader having 40% market share. Telco has local technology. Eicher stands at 2nd place with 23% market share. Swaraj Mazda is the 3rd player with 15% market share in LCV segment. Mahindra & Mahindra holds 12% market share it stands at 4th place. Force motors have 6% & Ashok Leyland has just 4% market share in LCV segment.
LIMITED
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(Rs. Crore)
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
ACTUALS Sales (Nos.) Passengers Applications Goods Applications Total Net Operating Revenue Material Cost %age Contribution Per Vehicle Rs. Expenditure Employees Cost Per Vehicle Rs. %age Manufacturing & Others Per Vehicle Rs. %age Selling & Distribution Per Vehicle Rs. %age 14.4 (23144) 4.8% 10.4 (16715) 3.5% 24.9 (40019) 8.4% 18.3 (22590) 4.9% 11.4 (14072) 3.1% 33.7 (41600) 9.1% 19.2 (18679) 4.0% 12.7 (12355) 2.7% 37.2 (36190) 7.8% 20.4 (16514) 3.5% 13.6 (11009) 2.3% 34.6 (28009) 5.9% 22.3 (18760) 3.6% 15.3 (12871) 2.5% 26.4 (22209) 4.3% 26.7 (24629) 4.4% 16.9 (15589) 2.8% 22.0 (20293) 3.6% 2104 4118 6222 297.8 228.0 76.6% 2512 5589 8101 372.3 278.0 74.7% 3715 6564 10279 477.7 368.1 77.1% 4516 7837 12353 589.9 474.2 80.4% (93661) 5475 6412 11887 613.1 513.8 83.8% (83537) 5714 5127 10841 605.5 504.5 83.3% (93165)
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Royalty Total Expenses Per Vehicle Rs. %age Operating Profit Margin Interest Cash Profit Depreciation Profit Before Tax Margin Corporate Tax Profit After Tax Paid-up Equity Capital EPS (Rs) Book Value Dividend (%age)
2.3 52.0 (83574) 17.5% 17.8 6.0% 5.8 12.0 1.6 10.4 3.5% 3.7 6.7 10.5 6.4 17.9 25%
3.2 66.6 (82212) 17.9% 27.7 7.4% 3.1 24.6 2.1 22.5 6.0% 7.9 14.6 10.5 13.9 26.8 45%
4.4 73.5 (71505) 15.4% 36.1 7.6% 1.6 34.5 2.1 32.4 6.8% 11.4 21.0 10.5 20.0 38.9 70%
2.8 71.4 (57800) 12.1% 44.3 7.5% 4.0 40.3 2.5 37.8 6.4% 13.6 24.2 10.5 23.0 53.4 75%
64.0 (53840) 10.4% 35.3 5.8% 7.3 28.0 2.7 25.3 4.1% 8.5 16.8 10.5 16.0 63.2 55%
65.6 (60511) 10.8% 35.4 5.8% 9.3 26.1 2.9 23.2 3.8% 7.1 16.1 10.5 15.3 72.1 55%
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(97348) (105518)
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%age Operating Profit Margin Interest Cash Profit Depreciation Profit Before Tax Margin Corporate Tax Profit After Tax Paid-up Equity Capital EPS (Rs) Book Value Dividend (%age)
10.3% 48.5 6.2% 12.0 36.5 3.5 33.0 4.2% 10.0 23.0 10.5 21.9 -
10.3% 12.6 8.2% 3.0 9.6 0.8 8.8 5.8% 2.8 6.0 10.5 5.7 -
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30th AS AT 31st MARCH PARTICULARS OPENING STOCK FACTORY PORT SHIPMENT CONS-PRODUCTION CLOSING STOCK KITS STOCK LOCATION FACTORY PORT KIT STOCK TOTAL 1146 1000 2146 1361 1040 2401 3496 6000 9496 7350 2260 9610 4895 1340 6235 4782 420 5202 647 1000 8700 10347 8201 2146 1146 1000 10480 12626 10225 2401 1361 1040 19480 21881 12385 9496 3496 6000 12060 21556 11946 9610 7350 2260 7540 17150 10915 6235 4895 1340 1620 7855 2653 5202 2006 2007 2008 2009 2010 June 2010
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June PARTICULARS OPENING STOCK PRODUCTION SALES INCLUDES : GOODS APPLICATIONS PASSANGER APPLICATIONS INS. CLAIM RECD./CAPITAL. VEH. STOCK LOCATION -BONDED / SAC -BODY BUILDER -MKTG. -TOTAL AVERAGE PER MONTH : -PRODUCTION -SALE 683 675 852 857 1032 1029 996 991 910 903 884 894 77 105 423 605 52 107 389 548 118 89 371 578 30 57 549 636 88 30 590 708 123 113 441 677 2512 8101 1 3715 10279 3 4516 12353 2 5475 11887 1 5714 10841 2 1429 2682 2 5589 6564 7837 6412 5127 1253 2005 506 8201 8707 2006 605 10225 10830 2007 548 12385 12933 2008 578 11946 12524 2009 636 10915 11551 2010 708 2653 3361
CASH FLOW STATEMENT OF SWARAJ MAZDA LIMITED FOR THE LAST 5 YEARS
particulars 2005-06 2006-07 2007-08 2008-09 2009-10 Page
46
857.96
3947.45
760
523
6599.06
1654 1622 1510 1372 1855 2360 2978 3723 4777 5899 6126
97
125
125
91
90
137
178
277
361
443
353
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Margin 5.9% 7.7% 8.3% 6.6% 4.9% 5.8% 6.0% 7.4% 5.8% 7.5% 5.8% Interest 40 65 60 45 80 47 44 39 51 57 80 58 120 31 246 16 280 40 403 73 280
Cash Profit 57
Margin 3.4% 3.7% 5.3% 3.2% 2.7% 3.4% 4.0% 6.6% 4.6% 6.8% 4.6% Depreciatio n Profit Before Tax 46 (PBT) Margin 2.8% 3.0% 4.6% 2.3% 2.0% 2.8% 3.5% 6.0% 4.1% 6.4% 4.1% Extra Ordinary Item Income Tax Profit After Tax (PAT) Dividend - Rate - Outflow - Payout Ratio Equity Share Capital Net Worth Earnings (5) 7.2 44 4.7 111 6.4 136 2.4 152 2.7 174 3.8 188 6.5 281 13.9 408 20.0 561 23.1 663 16.0 105 105 105 105 105 105 105 105 105 105 105 ------------10% 13 46% 15% 17 43% 25% 26 38% 45% 53 36% 70% 83 40% 75% 90 37% 55% 66 39% --8 5 9 25 36 79 114 136 85 29 -6 --------49 69 31 37 65 104 225 253 378 253 11 11 11 13 14 15 16 21 21 25 27
75
49
67
26
28
40
68
146
168
242
168
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Per Share (Rs.) Book Value Per Share (Rs.) Return on Avg. Net Worth ---20.8 % 19.8 % 24.4 % 37.3 % 62.2 % 60.9 % 50.0 % 27.5 % -4.2 10.6 13.0 14.5 16.6 17.9 26.8 38.9 53.5 63.2
Particular Source of Funds Share Capital Reserves & Surplus Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities Application of Funds Fixed Assets Gross Block Less : Accumulated Depreciation Working Capital Management
201003 200903 200803 200703 200603 14.48 175.25 189.73 80.00 10.49 86.03 96.53 10.49 83.09 93.58 13.57 10.49 65.17 75.66 29.50 80.29 10.49 55.82 66.32 68.36 45.12
4.63 151.29
69.00 129.00
84.63 220.29 142.57 109.79 113.48 274.36 316.81 236.15 185.45 179.80
48.64 29.91
45.91 26.62
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Provision for impairment of Assets Net Fixed Assets Capital Work In Progress Total Fixed Assets Investments Current Assets Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Total Current Assets Current Liabilities & Provisions Current Liabilities Provisions Total Current Liabilities & Provision Net Current Assets Miscellaneous Expenditure written off Total Assets
125.08 127.85
372.41 349.12 493.69 394.55 448.13 199.53 144.96 195.61 181.62 226.71 23.60 15.20 161.60 73.10 64.22 223.13 160.16 357.20 254.72 290.93 149.28 188.96 136.48 139.83 157.19 0.00 0.00 0.00 0.00 0.00 274.36 316.81 236.15 185.45 179.80
Particular Income Sales Other Income Increase/Decrease in stocks Total Income Expenditure Total Expenditure
201003 200903 200803 200703 200603 775.24 5.74 5.84 786.82 728.62 599.84 7.03 17.18 624.05 595.06 758.83 6.38 14.12 779.33 725.37 687.38 4.99 2.31 694.68 659.14 700.42 3.19 6.22 709.84 674.48
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Operating Profit Interest Gross Profit Depreciation Profit Before Tax Provision for Tax Deferred Tax Fringe Benefit Tax Net Profit Adjustments Below Net Profit Statutory Appropriations Profit & Loss Brought Forward Appropriations Profit & Loss Carried Forward EPS (in Rs) Book Value (in Rs) Preference Dividend (in Rs) Equity Dividend in % Equity Dividend in (Rs.) Corporate Dividend Tax Contingent Liability Extra-Ordinary Items
58.20 19.13 39.07 8.64 30.43 0.00 8.97 0.00 21.46 0.00 0.00 17.28 8.92 29.82 14.82 131.04 0.00 40.00 5.79 0.98 64.77 0.06
28.99 19.02 9.98 5.84 4.14 0.00 -1.15 0.50 4.79 0.00 0.00 14.58 2.09 17.28 4.56 91.99 0.00 15.00 1.57 0.27 34.63 0.00
53.96 11.96 42.00 3.30 38.70 13.80 -0.90 0.60 25.20 0.00 0.00 13.13 23.75 14.58 24.02 89.18 0.00 55.00 5.77 0.98 32.53 0.00
35.53 9.42 26.11 2.89 23.22 7.34 -0.72 0.51 16.09 0.00 0.00 11.29 14.25 13.13 14.39 72.10 0.00 55.00 5.77 0.98 1.03 0.00
35.36 7.36 28.00 2.71 25.28 8.60 -0.80 0.70 16.78 0.00 0.00 9.58 15.08 11.29 16.00 63.20 0.00 55.00 5.77 0.81 15.30 0.78
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3)
CKD agreement
Right to manufacture and sell T-3500 diesel series models WT-48, WT-49 & WT50. Right to use the well knows mazda trademark and patents. To provide complete drawings, technical information and know-how for manufacture, sale & service Modifications in product and components to suit Indian operating conditions. Provide guidance on selection of plant and equipment. Provide guidelines on plant layout, services and facilities. Provide support on development of vendors. Provide continued information on development and improvements. Train adequate number of SML personnel at their facilities. Depute adequate number of swaraj mazda corporations experts to SML for training of counter-part personnel, establish manufacturing processes, vendor development etc.
ROYALTY AGREEMENT:
Royalty agreement made on 5th day of October, 1984 between mazda motor corporation ( formerly called Tokyo kogyo company limited), accompany organized and existing under the laws of japan (called licensor) and swaraj vehicles limited, a company organized and existing under the laws of republic of India and having its registered office at phase iv, S.A.S nagar, district ropar, Punjab, the republic of India (called licensee). Licensee shall pay licensor the royalty listed in addendum (B), which shall be in the net amount of the deduction of all the taxes and duties, if levied in territory, for each unit of CKD vehicles assembled and/or manufactured and
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shipped out of licensees plant for sale or its own use , provided that the royalty including Indian taxes per/each unit of CKD vehicle shall not exceed 1.5% of the net ex-factory selling price of the vehicle minus landed cost of imported CKD part used therein and the cost of standard bought out components namely tyres, tubes, wheel rims, batteries and shock absorbers.
Initially royalty provided for here in above was payable for a maximum period of 10 years which was ended in September 1994. later the agreement had again been extended two times for 5 years on the same terms and condition
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CKD AGREEMENT
In case of CKD agreement, MC will send the CKD agreement through SC against the letter of credit in five products WT_48, WT-49, and WT-50, WV-26,ZT-54.
PRODUCT MIX
The product selected by the Swaraj Mazda for introduction in India in 1985 was the latest, state of art technology of Japan, which had been introduced there in March 1984. The company started with a 30% of local content. Starting with one standard product i.e. truck, Swaraj Mazda has over the years, on the strength of their own R&D, have developed various variants of the same. The company is manufacturing Light Commercial Vehicles in four-wheel base i.e. 2515MM, 2815MM, 3335MM. All the version and the models are being fabricated on these wheelbases. Swaraj Mazda T3500 vehicles have been tested by Vehicles Research and Development Establishment (VERD), a designated authority by Government of India under Ministry of Defence. VERD tests the companys vehicles at frequent intervals and issue certificates confirming it the Indian road standards laid down by Government of India from time to time. Vehicles are fuel efficient and meet emission norms. The range of products now includes Buses, Ambulances, Police Vans, Dumpers, Sky Lifts, Dumper placer, Delivery vans, Bottle Carriers, Mobile Ration Shops, Fire Tenders, CNG Buses & Trucks etc. as a result of such wide range of products the companys products are very popular with both private and government customers. In addition to the above SML is adding up 4 wheel drive & CNG vehicles as with the changes which take places in the market CNG has more powerful engine more torque at low rpm thus higher pick up, Grade ability & fuel efficient.
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There exists a detailed & elaborate system of Quality Assurance on every product, covering the manufacturing activity in plant & at the vendors end. The Quality Control development manned by highly qualified & trained manpower is fully involved in development of local components in addition to the routine activity of incoming material inspection, in house inspection & pre delivery inspection (b) Localisation:At the time of inception, production stated with 30% local content keeping in view the govt. of India guidelines, Swaraj has now achieved a local content 75% & such critical parts as starter motor, crankshafts, connecting rods, transmission gears are all in the local list now. (c) Manufacturing Methods:All vehicles of Swaraj Mazda are based on the modern chassis manufacturing method using a welded box construction. The chassis is much stronger despite of its being. (d) Efficiency:The vehicle is powered by a Fuel Efficient, Direct Injection Engine of 86.5HP running at a comparatively low RPM of 3000 thereby giving a long engine life. (e) Better Manoeuvrability in SML vehicles due to shorter wheel base makes it also suitable for narrow hilly roads. (f) Average consumption of diesel of Swaraj Mazda Super Truck is 8 kms per liter in consumption to its competitors TATA 709 is 5.5 kms per liter, Eicher 10.90 is 6 kms per liter & Ashok Leyland Cargo 909 is 5.5 kms per liter.
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(g) Fuel consumption per month of Swaraj Mazda Super Truck is 312 litre in comparison to TATA 709 is 455 litre, Eicher 10.90 is 416.67 litres & Ashok Leyland cargo 909 is 45.45 litres. (h) Swaraj Mazda vehicle has more Lugging power & allows easy handling of the hilly terrain. (i) In addition to sedimentor which removes water from fuel, Swaraj Mazda has two diesel filters causing more filtration & thus more F.I pump life. (j) Its oil by pass filter increases the sup capacity resulting on oil temperature, better oil filtration & increases oil change period, hence lower down time & maintenance cost.
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CONCLUSION
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It should always be borne in mind that the success or failure of a Company depends upon the amount of shareholders' value that a Company generates. Financial Control is a measure that reflects the absolute amount of shareholders' value created or destroyed during each year. Control has no steering failures like Return On Investment 1(ROI) and Earning per Share (BPS). In the case of ROI and EPS, maximizing these measures might not lead to optimal outcome or maximum shareholder value. Thus, I strongly believe that the implementation of Financial Control helps the Company in the following ways: Reduction in cost of capital and increase in the net operating profit after tax by better working capital management and by keeping optimum balance of debt and equity in the capital structure. Cost control and cost reduction in the area of controllable expenses. Reduction in capital employed with specific targeted reductions in book debts, inventories etc. Effective utilization of fixed assets to derive the promised return from Investments. To maximize shareholders> value. Working Capital Management Page
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To improve capital efficiency and over-all business performance. To encourage greater be-owner and entrepreneurial behaviours among employees. To guide in decision making.
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SUGGESTIONS
The implementation of Financial Control and performance in this Organization follows the suggested steps given below: 1)The adoption of a fully articulated Financial Control and performance program - a measurement program, a management system plus an incentive compensation plan together with a through going training operation is often critical to a corporation's success. 2) Organizational architecture before Financial Control and performance can boost performance. 3) An Financial Control and performance incentive plan is essential and it should reach as far down in the organization as possible. The best incentive plans are uncapped; limiting awards limits potential exertion and thus potential achievements. 4) A comprehensive training program is essential. It should not be limited to top executives but should infiltrate all managerial levels and ideally reach down to working level. the
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5) Financial Control and performance program must have full and fervent backing of the CEO. The CEO must not only identify value creation as the mission of the company but also seize every opportunity - the annual budget meeting, a monthly operations review or the annual shareholder's meeting - to preach the benefits of Financial Control and performance The Head- Finance should be especially committed. Because they have to deal simultaneously with standard accounting practices, these specialists may have even greater problem focusing on value creation than CEO newly introduced to Financial Control and performance
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