Working Capital Management

Working Capital Management
INTRODUCTION
Working capital management is the device of finance. It is related to current assets
and current liabilities. Working capital is very significant for playing day to day expenses
and long term liabilities.
The term Working Capital refers to the day to day requirements of the business.
The business needs WC for the procurement of raw materials, payment of wages and other
direct costs. The maintenance of WC is inevitable in every firm. The maintenance of WC
helps the firm in smooth production of goods and services.
The amount of WC varies from business to business. It depends upon the nature and
size of the business.
MEANING AND CONCEPT OF WORKING CAPITAL MANAGEMENT

Working capital is that part of companys capital which is used for purchasing raw
material and involve in sundry debtors. We all know that current assets are very important for
proper working of fixed assets. Suppose, if you have not any more money to buy raw
material, then your machinery will no use for any production without raw material.
From this example, we can understand that working capital is very useful for
operating any business organization. We can also take one more liquid item of current assets
that is cash. If you have not cash in hand, then you cannot pay for different expenses of
company, and at this time, many business works may delay for not paying certain expenses.
If we define working capital in very simple form, then we can say that working capital is the
excess of current asset over current liabilities.
National School of Business, Bangalore
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TYPES OF WORKING CAPITAL
Working Capital can be broadly classified into several categories are as follows.
1. GROSS WORKING CAPITAL
Total or gross working capital is that working capital which is used for all the
current assets. Total value of current assets will equal to gross working capital.
The following are the important components of gross working capital are as follows:
Cash in hand
Cash at bank
Account receivables (B/R & Sundry debtors)
Marketable securities ( Short term investments)
Inventory ( raw materials, work in progress & finished goods)
Income receivables
Prepaid expenses
2. NET WORKING CAPITAL

Net Working capital is the excess of current assets over current liabilities.
Net working capital=Total Current Assets-Total Current Liabilities
WC may be defined in two ways;
The excess of current assets over the current liabilities
The amount of long term funds invested in current assets.
Generally the amount of net WC is lesser than the amount of gross WC. It is
generally considered as the real WC of the firm. This is because the gross WC does
not involve the current assets.
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3. PERMANENT WORKING CAPITAL
Permanent Working Capital is that amount of capital which must be in cash or
current assets for continuing the activities of business.
FEATURES
Continue to exit for a longer period of time.
Required to meet permanent obligations along with other fixed assets.
Classified on the basis of the time factor
4. TEMPORARY WORKING CAPITAL

Sometimes, it may possible that we have to pay fixed liabilities, at that time
we need working capital which is more than permanent working capital, then this
excess amount will be temporary working capital. In normal working of business
we dont need such capital.
FEATURES
It is an extra working capital needed for changing production and sales activities.
It is created to meet liquidity requirements.
It is needed for short period.
5. BALANCE SHEET WORKING CAPITAL

The balance sheet working capital is one, which is calculated from the items
appearing in the balance sheet. Both gross working capital and net working
capital are the examples of balance sheet working capital.
6. CASH WORKING CAPITAL

The firms cash working capital required to make payments to its suppliers to
incur day to day expenses and to pay salaries, wages, interest and dividends etc.
the items of cash working capital appear in the profit and loss account.
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OPERATING CYCLE
Working capital is required because of the time between sales and their actual
realization in cash. This time gap is technically termed as operating cycle of the business.
In case of the manufacturing company, the operating cycle is the length of time necessary to
complete the following cycle of events,
Conversion of cash into raw materials
Conversion of raw materials into work in progress
Conversion of work in progress into finished goods
Conversion of finished goods into accounts receivables
Conversion of accounts receivables into cash
This cycle will be repeated again and again
The operating cycle of manufacturing business can be shown as given in the following chart.
Account Receivables
Sales
Cash
Finished goods
Raw materials
Work in progress
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In the case of the trading firm the operating cycle will include the length of time taken for
Conversion of cash into stock
Conversion of stock into debtors
Conversion of debtors into cash
Account receivables
Cash
Sales
Finished goods
WORKING CAPITAL POLICY

Two important issues in Working Capital Policy are:
What should be the level of investment in Current Assets?
What mix of long term, financing and short term financing should the firm employ to
support Current Assets?
LEVEL OF CURRENT ASSETS

Under a flexible policy, it is also referred to as conservative policy the investment in
current assets will be high. This means that the firm maintains a huge balance of cash and
marketable securities carries large amount of inventories, and generous terms of credit to
customer which leads to a high level of debtors. Under a restrictive policy, it is also referred
to as aggressive policy the investment in current assets is low. This means that the firm keeps
a small balance of cash and marketable securities, with small amounts of inventories and
offers stiff terms of credit which leads to a low level of debtors.
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MANAGEMENT OF WORKING CAPITAL
Management will use a combination of policies and techniques for the management
of Working Capital. These policies aims at managing the Current Assets such as cash and
cash equivalents, inventories and debtor and the short term cash flows and returns are
acceptable.
CASH MANAGEMENT
Identify the cash balance which allows for the business to meet day to day
expenses, but reduces cash holding cost.
INVENTORY MANAGEMENT
Identify the level of inventory which allows for uninterrupted production but
reduces the investment in raw materials- and minimizes reordering cost- and hence
increases cash flow. Besides this, the lead times, the time in production should be
lowered to reduce Work in Progress(WIP) and similarly, the Finished Goods should
be kept on as low level as possible to avoid over production like Supply chain
management, just in time, Economic order quantity(EOQ).
FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

There are number of factors influencing the working capital requirements of a
business are as follows:
1. NATURE OF BUSINESS
The working capital requirement of a firm is closely related to the nature of its
business. A service firm, like an electricity undertaking or a transport corporation,
which has a short operating cycle and which sells predominantly on cash basis, has a
modest working capital requirement. On the other hand, a manufacturing concern like
a machine tools unit, which has a long operating cycle and which sells largely on
credit, has a very substantial working capital requirement.
2. SEASONALITY OF OPERATIONS
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Firms which have marketed seasonally in their operations usually have highly
fluctuating working capital requirements. To illustrate, consider a firm manufacturing
ceiling fans. The sale of ceiling fans reaches a peak during the summer months and
drops sharply during the winter period. The working capital need of such a firm is
likely to increase considerably in summer months and decrease significantly during
the winter months. Electric bulbs, tubes and CFL lamps have fairly even sales round
the year, tends to have stable working capital needs.
3. PRODUCTION POLICY
A firm marketed by pronounced seasonal fluctuations in its sales may pursue a
production policy which may reduce the sharp variations in working capital
requirements. For example, a manufacturer of ceiling fans may maintain a steady
production throughout the year rather than intensify the production activity during the
peak business season. Such a production policy may dampen the fluctuations in
working capital requirements.
4. MARKET CONDITIONS
The degree of competition prevailing in the market-place has an important
bearing on working capital needs. When competition is intense, a larger inventory of
finished goods is required to promptly serve customers who may be inclined to wait
because other manufacturers are ready to meet their needs. Further, generous credit
terms may have to be offered to attract customers in a highly competitive market.
Thus, working capital needs tend it be high because of greater investment in finished
goods inventory and accounts receivable.
5. CONDITIONS OF SUPPLY
The inventory of raw materials, spares and stores depends on the conditions of
supply. If the supply is prompt and adequate, the firm can manage with small
inventory. However, if the supply is unpredictable and scant, then the firm, to ensure
continuity of production would have to acquire stocks as and when they are available
and carry larger
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6. PRODUCTION POLICIES
The production policies pursued by the management have significant effect on
the requirements of WC of the business. The production schedule has a great
influence on the level of inventories. The decision of the management regarding
automation etc, will also have its effect on WC requirements in case of labor
intensive industries the WC requirements will be more in case of capital intensive of
highly automation plant, the requirements of long term funds will be more.
7. NATURE OF THE BUSINESS
WC also depends upon the nature of the business. The public utility like
railways, electricity etc, have very little need of WC since, most of their transactions
are on cash basis and moreover, they will not require large inventories. On the other
hand, ordinary manufacturing and trading concerns require sufficient WC since they
have no invest substantially in inventories and debtors.
8. LENGTH OF THE MANUFACTURING PROCESS

Longer the manufacturing process, higher will be the requirements of WC
and vice versa. This is because of the reason that highly capital intensive industries
require a large amount of WC to run their sophisticated and long term production
process. On the same principle, a trading concern requires a much lower WC than the
manufacturing concern.
9. CREDIT POLICY
A company, which allows liberal credits to its customer may have a higher
sales but will need more WC as compared to a company which has a efficient debt
collection, machinery and observing strict credit terms. This is because in the case of
former company, a substantial amount of its funds will get tied up in its sundry
debtors. The WC can also be effected by the credit facilities enjoyed by the company.
10. RAPIDITY OF TURNOVER

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There is a high degree of correlation between the quantum of WC and the
speed with which the sales are affected. A company having a high rate of turnover
will need lower amount of WC as compared to a company, which has a lower
turnover.
Example, in case of jewelers, the turnover is slow. Not only they have to maintain a
high inventory of jewelry of different types but also the amount of inventory is slow.
Thus, the WC requirements of jeweler will be higher than those of a greater.
11. SEASONAL FLUCTUATION
A number of industries manufacturer will sell goods during certain seasons.
For example, the sugar industry produces practically all the sugar in between
December and April and hence the WC requirements of this industry will be higher
during this period as compared to any other period. Similarly, the woolen textile
industry makes its sales generally in winter; hence its WC requirements during this
period will be more.
12. FLUCTUATION OF SUPPLY

Certain companies have to obtain and maintain large reserves of raw materials
due to their irregular supply. In such a case large quantity of raw materials has to be
kept in store to avoid possibilities of the production process coming to a dead hall,,
thus, the WC requirements of such industries would be large.
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ESTIMATION OF THE AMOUNT OF DIFFERENT CONSTITUENTS
OR COMPONENTS OF WORKING CAPITAL:
Since WC is the excess of current assets over current liabilities, forecast of WC
requirements can be made only after estimating the amount of different constituents of WC,
they are as follows;
INVESTORS:
The term inventories include stock of raw materials, work in progress and finished
goods. The estimation of each of them will be made as follows;
STOCK OF RAW MATERIALS:

The average amount of raw materials to be kept in stock will depend upon the
quantity of raw materials required for production during a particular period
WORK IN PROGRESS:
The cost of work in progress includes stock of raw materials, wages and
overheads. In determining the amount of work in progress, the period for which
goods will be in the course of production process is most important.
FINISHED GOODS:
The period for which the finished goods have to remain in the warehouse
before sales is an important factor for determining the amount licked up in finished
goods.
SUNDRY DEBTOR:
The amount of funds locked up in sundry debtors will be computed on the basis of
credit sales and the time lag in collecting payments.
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CASH AND BANK BALANCES:
The amount of money to be kept as cash in hand cash at bank can be estimated on basis
of past experience. Every businessman knows the amount that he will require for meeting his
day to day payments.
SUNDRY CREDITORS:
The lag in payment to suppliers of raw materials, goods, etc., and the likely credit
purchases to be made during the period will help estimating the amount of creditors.
OUTSTANDING EXPENSES:
The term lag in payment to wages and other expenses will help in estimating the
amount of outstanding expenses.
METHODS OF MAKING WC FORECASTS:

By considering the total amount of current assets and total current liabilities.
By considering only the cash costs of current assets and current liabilities.
APPROACHES FOR DETERMINING FINANCING MIX
1. HEDGING APPROACH OR MATCHING APPROACH:

According to this approach the maturity of the sources of funds should match
with the nature of assets to be financed. It divides the requirements of total WC funds
into three categories.
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TEMPORARY OR VARIABLE WC
The permanent WC requirement should be financed by long term funds while
temporary or seasonal WC requirement should be financed out of short-term funds.
THE CONSERVATIVE APPROACH

According to this approach all requirement of funds should be financed by
long term sources. The short term sources should be used for emergency
requirements. The conservative approach is less risky, but more costly as
compared to the edging approach.
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2. THE AGGRESSIVE APPROACH
According to this approach, the firm uses more short term sources for requirements of
funds. Under this approach, the firm finances a part of its current assets with short term
financing. Some extremely aggressive firms may even finance a part of their fixed assets
with short term financing. The relatively more use of short term financing makes the firm
more risky
IMPORTANCE OR ADVANTAGE
OF ADEQUATE WORKING
CAPITAL
SOLVENCY OF THE BUSINESS:

Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production.
GOODWILL:
Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.
EASY LOANS:
Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
CASH DISCOUNTS:
Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.
REGULAR SUPPLY OF RAW MATERIALS:

Sufficient working capital ensures regular supply of raw material and
continuous production.
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REGULAR PAYMENT OF SALARIES, WAGES AND OTHER DAY TO DAY

COMMITMENTS
It leads to the satisfaction of the employees and raises the morale of its
employees, increases their efficiency, reduces wastage and costs and enhances
production and profits.
EXPLOITATION OF FAVORABLE MARKET CONDITIONS

If a firm is having adequate working capital then it can exploit the favorable
market conditions such as purchasing its requirements in bulk when the prices are
lower and holdings its inventories for higher prices.
EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its
business operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working capital
positions are bad for any business. However, it is the inadequate working capital which is
more dangerous from the point of view of the firm.
DISADVANTAGES OF INADEQUATE WORKING CAPITAL:

Every business needs some amounts of working capital. The need for working capital
arises due to the time gap between production and realization of cash from sales. There is an
operating cycle involved in sales and realization of cash. There are time gaps in purchase of
raw material and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
For the purpose of raw material, components and spares.
To pay wages and salaries.
To incur day-to-day expenses and overload costs such as office expenses.
To meet the selling costs as packing, advertising, etc.
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INDUSTRY PROFILE
AUTO INDUSTRY:
On the canvas of the Indian economy, automotive industry occupies a prominent
place. Due to its deep forward and backward linkages with several key segments of the
economy, automotive industry has a strong multiplier effect and is capable of being the
driver of economic growth. A sound transportation system plays a pivotal role in the
countrys rapid economic and industrial development. The well developed Indian automotive
industry ably fulfills this catalytic role by producing a wide variety of vehicles, passenger
cars, light medium and heavy commercial vehicles, multi-utility vehicles such as jeeps,
scooters, motorcycles, mopeds, three wheelers, tractors etc..
Automotive Industry comprises of automobile and auto component sectors and is one
of the key drivers of the national economy as it provides large-scale employment, having a
strong multiplier effect. Being one the largest industries in India, this industries has been
witnessing impressive growth during the last two decades. It has been able to realize its
potential. This has significantly increased automotive industrys contribution to overall
industrial growth in the country.
The automotive industry (including components & tyres) has already attained a
turnover of US$ 48.86 billion. The industry provides
Direct and indirect employment to 13.1million people. The contribution of the
automotive industry to GDP has been rise from 2.77% in 1992-93 to 4.14% in 2008-09. The
industry is also making a contribution of 17% indirect taxes to the government.
GROWTH DRIVERS OF INDIAN AUTOMOBILE MARKET:
Rising industrial and agricultural output
Rising per capita income
Favorable demographic distribution with rising working population and middle class
urbanization
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Increasing disposable incomes in rural agri-sector
Availability of a variety of vehicle models meeting diverse needs and preferences
Greater affordability of vehicle
Easy finance schemes
Favorable government policies
Robust production
INDIAS POSITION IN WORLD PRODUCTION:
Well-developed, globally competitive auto ancillary industry
Establishment automobile testing and R & D centre
Among one of the lowest cost producers of steel in the world
Worlds second largest manufacturer of two wheelers
Fifth largest manufacturer of commercial vehicles
Manufactures largest number of tractors in the world
AUTO COMPONENT:
The auto components industry production, in India, is estimated at around Rs 1212
billion in 2009-10. The industry has been reducing its dependence on the domestic
automobile industry over the long time; it also continues to maintain its ability of being costcompetitive and technically proficient in niche segments. These factors along with foray of
Indian auto component players in the international markets through acquisitions have
enhanced the industrys popularity among international original equipment manufacturers
(OEMs) in terms of their outstanding needs. Currently domestic OEMs account for around
67% of the total auto component production off takes, whereas the replacement and export
segments account for around 21% and 12% respectively. The industry is largely fragmented
with over 558 players operating in the organized segment and many unorganized players
catering to the replacement demand. However, with auto OEMs adopting vendor
rationalization, proportion of the organized segment is likely to increase over the long term.
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In the long term, exports are expected to grow at a faster pace as global OEMs are expected
to implement cost rationalization strategies by increasing their sourcing from low cost
regions.
AUTOMOBILE INDUSTRY:
Automobile Industry wheels the growth of the economy. And the evolution of the
automobile component industry predictably followed the evolution of the automobile of the
auto industry itself.
A second phase in the evolution saw many established Indian companies tie up with
western manufacturers for technical collaboration. In some cases, efforts at export were
initiated, usually with the help of the foreign collaborated.
The auto component industry received a major boost along with the auto ancillary in
the 1980s. Annual growth was usually over ten percent and industry wide sales more than
doubled between 1984-1985 and between 1989-1990. Industry sales figures from 1988-1989
included 39 percent related to engine components, 24 percent for transmission and steering
parts, 17 percent for suspensions and brake parts, and about 8 percent for auto electrical
parts.
The arrival of the Japanese in the Indian industry (for cars, trucks and two-wheeler)
saw a major source of joint- ventures emerges in the 1980s.
In automobile industry, particularly in MCV (medium commercial vehicles) and
HCV (heavy commercial vehicle ) segment, the shift is towards multi axle vehicles due to its
carrying capacities and effectiveness. This trend is likely to continue during the years to
come. However rising cost of steel is a cause of concern for number of vehicles sold in the
market.
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INDUSTRY COMPONENTS:
The auto ancillary industry can be divided into six main segments:
ENGINE PARTS:
Engine assembly, fall into 3 broad categories namely core engine parts, fuel
delivery system, and others. This also includes products such as Pistons, Piston Rings,
Engine Valves, Carburetors, and Diesel-based Fuel Delivery systems.
ELECTRICAL PARTS:
The main products in this category include starter motors, generators, spark
plugs and distributors.
DRIVE TRANSMISSION & BRAKING PARTS:
These include Brakes, Leaf Springs, Shock Absorbers
EQUIPMENT:
This includes headlights, Dashboard instruments
OTHERS:
Sheet metal components and plastic molded parts are two of the major
components in this category.
INDUSTRY GROWTH:
The Rs. 126.80 billion Indian Auto ancillary industry witnessed a growth in output of
5.4% in value terms FY-98-99.
FY 98-99 signaled after a 2years shrimp in demand growth fuelled by a showdown in
automobile growth. The favorable bend continues through FY-99-2000, on the back of
enhanced demand from the automobile sector of random sample survey of 33auto tanks
ancillaries companies conducted by the business world magazine revealed that automobiles
ancillaries companys recorded 20% higher sales during Apr-June 1999 are compared to the
same period during the previous year.
While demand growth in the auto ancillary industries is as same drives by the growth
in demand for automobiles, replacement demand accounts for the bulk of the growth in the
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auto ancillary industry 65-68% of market for auto ancillaries original equipment
manufacturer. Suppliers account for 25% of the demand the balance 1-10% is accounted for
by exports.
COMPANY PROFILE
Established in 1981, Automotive Axles Limited (AAL) is a joint venture of a Fortune
500 company, Kalyani Group and Arvin Meritor Inc., USA (formerly the automotive
division of Rockwell International Corporation). With manufacturing facilities located at
Mysore, the company is currently the largest independent manufacturer of Rear Drive Axle
Assemblies in the country. Over the years, AAL has developed an impressive domestic OEM
clientele that includes Ashok Leyland, Telco, Vehicle Factory, Jabalpur, Mahindra &
Mahindra, Volvo and Bharat Earth Movers. AAL exports axle parts to USA, and Italy.
The infrastructure at AAL spans highly specialized manufacturing processes
involving Friction Welding, CO2 Welding, CNC Machining, Flexible Machine Centers and a
range of specially built machines for production of Axles and Brakes. The facilities also
comprise Gleason Gear Manufacturing Equipment backed by a modern Heat Treatment Shop
including Continuous Carburizing and Sealed Quench Furnaces.
PROMOTERS OF AAL
ARVIN MERITOR
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ArvinMeritor, Inc. is a premier global supplier of a broad range of integrated systems,
modules and components to original equipment manufacturers and the aftermarket for the
transportation and industrial sectors.
The company serves commercial truck, trailer and specialty original equipment
manufacturers (OEMs) and certain aftermarkets, and light vehicle manufacturers.
Arvin Industries Inc. established its reputation as a global manufacturer of automotive
components and systems. Arvin consistently ranked as a leading manufacturer of automotive
exhaust system; ride and motion control products, air, oil, and fuel filters and gas-charged
life supports.
KALYANI GROUP
The Kalyani Group is one of the leading Industrial Houses in India, with a sharp
focus on primarily four sectors, viz. Engineering Steel, Automotive & Non-Automotive
Components, Renewable Energy & Infrastructure and Specialty Chemicals. The Group's
Annual Turnover is over USD 2.4 billion and has joint ventures with some of the world
leaders such as ArvinMeritor, USA, Carpenter Technology Corporation, USA, Hayes
Lemmerz, USA, FAW Corporation, China, Gerdau SA, Brazil etc
Bharat Forge Limited, the flagship company of the group is a global forging
conglomerate. With a global capacity of over 750,000 TPA spread across 12 locations and 6
countries - four in India, three in Germany, one each in Sweden, Scotland, USA and two in
China, Bharat Forge has the capability to meet the global demands of its customers with
seamless engineering and design support. BFL manufactures a wide range of safety and
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critical components for the automotive, railways, energy, construction equipment, oil & gas
and several other industrial sectors.
BACKGROUND AND INCEPTION OF THE COMPANY:
On 06.11.1978 a letter of intent was issued by the Government to Bharat Forge Ltd.,
Pune for Establishing Automobile Axles and Brakes project at Mysore.
AAL was incorporated on 24.09.1981 with the Registration of the companies. On
30.05.1981, the certificate was obtained from the Government to start the business. The letter
of intent was converted into Industrial license on 01.04.1982. Commercial production started
in July1984.
In 03.12.1981 the foundation stone of the AAL plant at Mysore was laid by Mr.
M.D.Walkar, President, Automotive operations Rockwell International Corporation USA and
R J.Shenoy, Chairman & Managing Director of Ashok Leyland Ltd., Madras presided over
the function. The construction of the Factory, Administration block, Medical block and
Canteen has been completed in record time of about 8 months.
For Implementation of the Company's project, an Agreement has been entered into
with Rockwell international corporation USA (Rockwell) for Technical Assistance. Rockwell
and l3harath forge have agreed to subscribe up to 40% each in the Equity capital of the
company which has been approved by the Government of India.
It started its first production in 1982 and is the largest independent manufacturer of
Rear Drive Axle assemblies in the country now.
NATURE OF THE BUSINESS CARRIED:

AAL is a private based Manufacturing company, which is established at outskirts of
Mysore. The company produces Axles and Brake Assemblies for Heavy and Commercial
vehicles weighing between, 6 ton to 13 tones gross weight.
Meritor automotive was created as an independent publicity trade entity in October

1997.
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It is the 26th largest automotive components manufacturer in the world.
It has premier customers in 5 countries.
PRODUCTS MANUFACTURED AT AAL:
Single Drive axles
Tandem Drive axles
Non Drive axles
Brake assemblies
VISION, MISSION AND QUALITY POLICY

VISION:
To be a world class automotive tier organization through total employee involvement
by:
Exceeding business plan objectives.
Providing value for customers through innovative solution quality product and
exceptional services.
Continues improvement of quality management system
MISSION:
To identify the customer expectation and productivity to build customers

relationship
To build quality as a competitive edge in market
To innovate and develop new product ahead of market demand
To establish development oriented human resources system and practices in

order to build and nurture employee relation and involvement
To outperform competitor strategies by developing customers loyalty with

differentiated products, supervises services and competitive pricing.
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Exceed our financial growth objective through aggressive implementation of our

business plan.
Establish and implement suitable environment and safety practice system to fulfill
our business plan. .
QUALITY POLICY:
AAL is aiming to be a world class Automotive Tier I organization through total
employee involvement by:
Exceeding business plan objectives providing value to customers through
innovative solution, production quality & exceptional services.
Continual improvement of QMS.
Out Perform Competitors strategies by developing Customer Loyalty with
differentiated products, superior service and competitive Pricing.
Co-ordination in all departments to serve customers, in time every time.
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PRODUCT PROFILE
Products manufactured at AAL are based on technology provided by Arvin Meritor
Inc., USA, through Meritor HVS (India) Ltd, India.
Tandem Drive Axle
Non Drive Axle
Single Drive Axle

With manufacturing facilities located at Mysore, the company is currently one of the
largest independent manufacturer of Rear Drive Axle Assemblies in the country and with
more than 20 years of axle-producing experience and advanced gearing technology from
Meritor HVS(India) Ltd, has been manufacturing reliable, long-life heavy duty drive axles .
This capability allows the company to meet the steer, drive and trailer axle requirements of
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customers in the addressed markets. The Marketing & Field Service Support is provided by
Meritor HVS (India) Ltd.
SINGLE REAR DRIVE AXLES:
AAL offers a broad selection of single rear drive axles ranging from 6000 kg to
14000 kg GAWR for Truck, Bus, Tractor & construction vocations.
Features
Hypoid- Generic gearing
Optional standard wheel ends for compatibility
With both drum brakes and Optional driver-controlled differential lock.
TANDEM DRIVE AXLES:

Because of vehicles use in the mining & Tractor applications are often required to
carry extremely heavy loads, AAL offers the following variety of single-reduction tandem
drive axles with GAWR capacities from 19000 kg to 28000 kg). AAL tandem axles are built
to handle the heavy loads while helping to reduce maintenance and operating costs.
Features:
Hypoid-Generic gearing.
Rigid differential cases.

Tapered roller bearings
NON DRIVE AXLES:

This axles does not have drive but used along with Drive axles to increase the vehicle
load capacity
AREA OF OPERATION:
AAL operates in both global market and national market.
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AAL CUSTOMERS:
OWNERSHIP PATTERN
AAL is a Joint venture between Kalyani group and Meritor, USA.AAL was promoted
as a Joint venture by the Kalyani group and Rockwell Corporation, USA (35.52% stake) in
1981. AAL is a 30.30 crore project at Hootagalli, Mysore. AAL entered the capital market
with a public issue.
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SHARE HOLDING PATTERN BY OWNERSHIP:
Table No.1.1 showing ownership pattern
Ownership
No. of shares held
Share holding %
Promoters
10,735,081.00
71.04
Bodies Corporate
1,734,318.00
11.48
FIs/Banks
113
FIIs
24,976.00
0.17
NRIs/OCB
49,495.00
0.33
Mutual Funds
1,384,668.00
9.16
Others
1183324 7.83
7.83
Total
15,111,975.00
100
Non Promoter (Public)
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GENERAL SHAREHOLDER INFORMATION:
Table No. 1.2 showing General shareholder information

Annual General Meeting
Date & Time: every January at 12.30 p.m

Venue
: Registered office
Hootagalli Industrial area
Off Hunsur Road, Mysore
Financial year
1st October to 30th September every year
Listing
Bombay Stock Exchange Limited, Phiroze jeejeebhoy

Towers, Dalal street, Mumbai
Stock Codes
BSE-505010 NSE-AUTOAXLES
Demat ISIN Number: INE449A01011
Dematerialization
The companys equity shares are under compulsory

demat trading, dematerialized shares accounted for
63.44% of total equity.
Share Capital
151,119,750
Chairman
B.N.Kalyani
President
Ashok Rao
Product
Axles
COMPETITORS INFORMATION
Axle India
American Axles
Tata Motors
INFRASTRUCTURE FACILITIES:
AAL has 50acres of land allotted by KIADB at Hootagalli, Mysore, of which 18 acres
have been utilized. The infrastructural facilities include;
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TRAINING CENTRE:
The new training centre up, on the model of a finishing school with infrastructure
for CNC machining, material handling, welding, assembly and disassembly along
with simulation for off line programming
OCCUPATIONAL HEALTH CENTRE:

The new occupational health centre which is modeled after a mini hospital, with
the facilities viz. recovery room, ECG machines, X-ray viewer, eye and color vision
testing apparatus, etc.
Rain water harvesting:

The company has framed an environment policy which commits us to contribute
to the creation of a better environment
Nursery and medical plants:
World Environment Day (WED-2006) was celebrated in a company on 5th June 2006. To
mark the occasion, a nursery of medical plants and a nursery of ornamental plants
inaugurated in the premises.
.
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QUALITY OBJECTIVES:
1. CUSTOMER SATISFACTION:
Supply state of the art Products/Services to Customers that meet their
expectations for Quality, Technology, Time, and Responsiveness.
2. QUALITY:
Continually improve Effectiveness and Efficiency of Quality Management
Systems to maintain a distinguishable competitive Edge as viewed by Customers.
3. HUMAN RESOURCES DEVELOPMENT:

Establish and Implement leading edge Human Resource Systems and
Practices to meet the business objective through Training, Empowerment, and
Motivation in achieving Total Employee Involvement.
4. COMPETITION:
(Neutralize) Out Perform Competitors strategies by developing Customer
Loyalty with differentiated products, superior service and competitive Pricing
5. FINANCIAL PERFORMANCE:
Exceed our financial and growth objectives through aggressive
implementation of our Business Plan
6. ENVIRONMENT & SAFETY:

Establish and implement suitable environment and safety practices/ systems to
fulfill our social objectives.
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ACHIEVEMENTS AND AWARDS
Company efforts have been recognized at various levels. Some of the distinguished
recognitions that have include:
1. Gold card for honest payer from Karnataka power transmission corporation ltd in
1999.
2. Exports award from SBI in 2005.
3. Honest tax payer award from government of Karnataka in 2005.
4. Revd up award from QAD during Dec 2005.
5. First prize at the horticultural show during Dasara of 2006.
Following rankings by the industry magazine out of the top manufacturing companies in
2006 :
Overall financial risk-103
Overall operating efficiemcy-100
Overall growth-204
Overall profitability-169
WORK FLOW MODEL

The work flow model gives the brief idea of how the raw material comes in to
organization, how it is converted in to the finished goods and how the final products are
packed. The following work flow model of AAL is shown in the following figure.
The process can be depicted in the following flowchart the Workflow Model of AAL.
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Chart No. 1.1 showing Work flow model
Marketing Dept. Gets Order
Production Planning Control
Bill of Material
Placing Indent to Purchase

department
Quotation call
Selection of vendor
Purchase order
Inward Stores
Quality Control
Inspection
Rejected
Accepted
Main Stores
Production Planning Centre
Assembly
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Customer
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FUTURE GROWTH AND PROSPECTUS:
AAL has a strong market position in the Medium and Heavy Commercial vehicle
(M&HCY) axle segment, its strong financial position characterized by strong operating
margin, moderate gearing, comfortable coverage and liquidity are a few Indicators. It also
factors in the technical support that AAL derives from one of its promoters, Meritor HVS
Ltd, USA.
While the strong growth registered by MCV&HCV segment in the last three years has
favorably impacted AAL's performance, a slowdown in CV industry would impact AAL's
profitability. However structural changes in the industry like the shift towards multi axles
vehicles coupled with AAL's advantageous market position are expected to positively impact
AAL's performance in the Short to Medium term.
Industry factors like structural shirt towards multi axles vehicles and the positive
performance of players like Eicher Motors and Swaraj Mazda are expected to create
additional demand and market for AAL thus cushioning it from adverse impact in the short to
medium term.
Growth in the MCV&HCV segment along with AAL's ability to maintain and grow its
presence in the existing and emerging players in the MCV&HCV OEM segment would
determine future growth of the company. With limited threat from competition in the short to
medium term, AAL is in a good position to benefit from its favorable relationship with the
OEMs.
FUTURE PLANS OF AAL ARE:

Attainment of organizational excellence by developing and inspiring the true
potential of employees.
AAL is Human capital and providing Opportunities for Growth, Innovations and
Enrichment. To create a value based Organization by inculcating a Culture of Learning,
Creativity, and Team work and aligning business priorities with the aspiration of our people
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leading to the development of an empowered responsive and competent Human capital.
MCKENSYS 7S FRAME WORK

MCKENSYS 7S MODEL:
The 7S model can be used in a wide variety of situations where an alignment perspective
is useful, for example to help you:
Improve the performance of a company.
Examine the likely effects of future changes within a company.
Align departments and processes during a merger or acquisition.
Determine how best to implement a proposed strategy.
The Seven Elements:

The McKinsey 7S model involves seven interdependent factors which are categorized
as either "hard" or "soft" elements:
Hard Elements
Soft Elements
Strategy
Shared Values
Structure
Skills
Systems
Style
Staff
"Hard" elements are easier to define or identify and management can directly
influence them: These are strategy statements; organization charts and reporting lines; and
formal processes and IT systems.
"Soft" elements, on the other hand, can be more difficult to describe, and are less
tangible and more influenced by culture. However, these soft elements are as important as the
hard elements if the organization is going to be successful.
The way the model is presented in the Figure below depicts the interdependency of
the elements and indicates how a change in one affects all the others.
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STRATEGY:
Strategy is a plan for an organization, which formulates to gain a substantial
advantage over the competition. Strategy is the art of devising and employing a system of
activities that mobilizes all resources towards a valuable goal. Strategy is the determination
of basic long term goals and objectives of an enterprise, and the adoption of course of action
and the allocation of resources available for carrying out these goals.
In other words, the route that the organization has chosen for its future growth; a plan
an organization formulates to gain a competitive advantage.
Waste elimination strategy:
The majority of quality efforts focus on two things: quality control, based on
standards and inspection and quality prevention, based on techniques such as error profiling.
Most people do not realize the effect that the overall manufacturing system has on quality.
Waste elimination in the manufacturing environment usually thought of in terms of cost
reduction, can have a dramatic positive impact on improving quality.
Systematic elimination is a cornerstone of lean systems thinking. Unfortunately,
waste elimination is typically viewed as an opportunity to improve efficiency v\s the equally
important measure of effectiveness. A relentless focus on eliminating waste will have
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profound effect on the quality of product, the company provides.
STRUCTURE:
Structure is the one of the framework in which the activities of the organizations
members co-ordinate. Automotive Axle Ltd possess flat organization structure as it consists
of less member of levels, departmentalisation is done on the basis of different activities that
have to be carried out in the manufacturing of axles.
The president and whole time director, Mr.AshokRao, who is directly answerable to
board, look after the companys overall management. The president looks after all the
operations. Among the board of directors, 6 are in non-executive status.
There is a downward communication of information in the company. The information
flows from top level management to low level management. The president and whole time
director have the sole authority in the organization. He enjoys all the power.
He gives instruction to their executives director and to the middle level manager who
in turn gives instruction to the lower level management.
VARIOUS DEPARTMENTS AT AAL:
1. Stores Department
2. Purchase Department
3. Manufacturing Engineering
4. Production Department
5. Quality Assurance (QA)
6. Technical Department
7. Industrial Engineering and Production Department (lED)
8. Human Resource Department (HRD)
9. Finance Department
10. Marketing Department
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Chart No.1.2 Showing organization structure of the company
President Whole
time Director
Chief Financial
Officer & Co.
Secretary
Divisional
Manager IT /MIS
Financial
Controller
GM-MFG.
Engg&Qt
Qt.
Assurance
Management
Representatives
Excise & Legal
Materials
Secretarial
SQA
GM-Strategic
Sourcing
Mfg.
Engg&IndE
ngg
Capex
New
Products
GM Material
GM Prod &
Maintenance
New Source
Dept
Prod. Shops
Dev.
Activities
for New
Products
Prod. Shops
2011-2012
Div. Mgr HRD
Plant
Engineer
PPS/MPS &
Stores
Company
Metallurgist
Admin.
&Pres Off
Security
Page 37

SYSTEM:
A system is defined as a process or set of processes that links and orders activities to
enable work to be done and goals to be achieved. System in simple words is the formal and
informal procedures including compensation systems, management information systems, and
capital allocation systems that govern everyday activity.
System refers about all the rules, regulations, and procedures both formal and informal
that complement. It includes:
MANAGEMENT INFORMATION SYSTEM:
Systems function is responsible for:
Monitoring implementation of MFG / PRO.
Provide all hardware and software, and other facilities connected with data
transmission.
Protect the entire information heritage and guarantee the data integrity,
confidentiality, and selected access to the information.

INVENTORY CONTROL SYSTEM:
AAL follows Just-in-time inventory (JIT). Customers of AAL place orders and the
Production is based on these orders. Suppliers of Raw Material situated within 10 kilometer
of surrounding Area of the Company.
In this system, the production activity of the company is planned upon the actual
demand, rather than predetermined schedule. This system enables the market place to pull the
necessary items from the plant, as against the conventional system of pushing the product to
the market.
This JIT system is similar to the conventional made-to-order procedures, with the
customers specifying their requirements. This system emphasizes the fact that the production
of a product should occur just-in-time and not earlier or later.
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Attendance system
The company has installed one electronic attendance system for recording of incoming
& outgoing timing of the employees at the entrance of the shop floor. This system operates
through swiping of the identity cum attendance card at the beginning of the shift (15 min
before) and again swiping -of the same -just after end of the shift by each employee who is
on companys roll. This electronic attendance system is in turn interfaced to a computer,
installed in the HR dept. The electronic attendance card for swiping purpose is also used as
Identity card of the concerned employee. This card is only issued to the permanent
employees of the company from HR dept.
Shift timings:
Shift
Timing
A shift
7.00 AM to 3.00 PM
B shift
3.00 PM to 11.00 PM
C shift
11.00 PM to 7.00 AM
G shift
8.30 AM to 5.00 PM
All employees are required to report for duty 15 minutes before the beginning of the
shift. An employee working in a place in any shift cannot leave the work place at the end of
his/her shift without handing over the charges to the reliever.
Out Pass:
Staff can go outside during office hour only after submitting the Out Going
Pass(duly signed by the concerned H.O.D) at the Security Department.
SHARED VALUES
It means that employees share its same guiding values and mission, that is, on
excellently managed company has a driving propose and philosophy that is known and
practiced by everyone.
The values shared by the member of an organization are:
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1. Continuous innovation.
2. Empowerment of working force.
3. Open culture.
4. Focus on and belief in employees
5. Additional benefits given by the company to its employees.
6. Installing a sense of responsibility in each employee.
STYLE:
Style is one of the seven levels, which top managers can use to bring out
organization change. Organization differ from each other in their style of working in an
organization, according to the Mckensys frame work becomes evidently through the pattern
of actions taken by members of the top management team over a period of time. The aspects
of business must emphasized by members of the top management tend to be given more
attention by people down in organization.
Style of leadership or relationship refers to the manner in which an individual uses his
or her talents, values, knowledge, judgment and attitudes -to lead and relate to others. Style
expresses the persons character. Style is the leadership approach; also the way in which the
employees in the organization present themselves to the outside world, to suppliers, and
customers. In simple words, a style is the pattern of behavior, which a leader adopts in
influencing the behaviour of his followers (Subordinates) in the organization context.
a. TOP DOWN / BOTTOM UP APPROACH:
AAL practices both, Top-down & Bottom-up approach of Decision Making. The
Major decisions pertaining to the Organization are taken by the Top Management. Suppose A
breakdown of machine occurs & the machine has to be replaced, the higher level
management is informed about it. The top management decides on the replacement of the
machine. Suppose a minor problem pertaining to the canteen facilities occurs, this is solved
by the low & Middle Management, who have the Authority to take Decisions. Here the
bottom-up approach is adopted.
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b. PARTICIPATIVE/AUTHORITATIVE APPROACH:
AAL adopts both Participative & Authoritative style of Decision making. The
Decisions which are Strategic in nature are taken by the Top Management. Here the
Authoritative Leadership style is adopted.
The decisions other than strategic ones are taken mutually by Top & Middle
Management. The Top Management consults the Functional heads, regarding decisions
effecting the functioning of the organization. This facilitates for Effective Management of the
Organization. Here the style is participative. Purchase Department also called Procuring
Materials Department has to meet the daily requirements of production.
STAFF:
Staffing is the process of acquiring human resources for the organization and assuring
that they have the potential to contribute the achievement of organization goals.
The company is accommodating various employees, they comprise of staff,
personnel, workers and trainees, most of them are from Mysore City. The company continues
to have cordial and harmonious relations with its employees. The company has various
training programmes organized to be in line with changing business environment. Several
training programmes, standard to the need of the individual employees and also to meet the
requirements of ISO 9001, QS 9000, ISO 14001 and TS 16949 certifications.
To further enhance employee involvement, suggestion scheme was launched in the
year 2003. Employees have been trained in areas like technical, soft skills, visit to leading
industries to understand the best practices, TS 16949 awareness programme.
The total manpower of AA L is 2,500 at present. This includes trainees, casuals and
peripherals.
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Management Staff
500
Workmen
655
Total manpower
1,155
Government Apprentice Trainers
95
Total
1,250
Others Casual
1,100
Total (Including Casuals)
2,350
Peripherals
150
Total (Including Peripherals)
2,500
Roles of Management Staff

It includes different department employees like purchase, sales, accounts, personnel.
They are the responsible persons of an organization; they contribute towards the day to day
working of the organization. Every department consists of one department heads.
Workmen
It includes the employee who works as engineers supervision and lab technician. The
engineers and supervisors have overall responsibility for implementing and maintenance of
the quality system in the quality control department.
Trainers
In AAL on and off job training is given by the experts and skilled workers .the trainee
will be under the vigilance of expert skilled workers. Off the job training is given if special
skills are required.
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SKILL:
A skill is the ability, knowledge, understanding, and judgment to accomplish a task.
Skills may be defined as what the company does best; the distinctive capabilities and
competencies that resides in their organization.
The company has got an advantage over other OEMs due to the fact that the
company produces solo and Tandem Rear Drive Axles which already high brand value. The
company implemented QMS and has got ISO 9001& QS 9000 certification and based on
their improved skills achieved TS 16949 Certification. The company has been running under
3 skills and achieved 100% capacity utilization. Based on skills the company is aiming future
plans in Area of R & D of the company. The Company provides different Training
programmes to Employees for efficient & effective production of quality products.
On-the-job Training:
The workers' arc trained, and provided assistance on the machines while they are
working on them. Necessary skills required to work on the machines are imparted by
training, while the workers arc working.
Off-The-Job Training:
The workers are also provided off the job training facilities like,
Training programme at Government Tool Room & Training centre (GTTC) on

CNC programming.
Classroom Instructions.
Certificate programme in business management.
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SWOT ANALYSIS
A Screening of internal and external environment is an important part of the strategic
planning process, Environmental factors internal to the firm called internal environmental
factors (Strengths, weakness ),and external to the firm called external environmental factors
(opportunities, threats ),such an analysis of the strategic environment is referred to as a
SWOT analysis, it is also known as Environmental Scanning.
The SWOT analysis provides information that is helpful in matching its resources to
the competitive advantage in which it operates.
STRENGTHS:
Strength is like a key factors in which it is operates its business to compete with
other competitors to survive and growth in the market.
AALS Strengths in the market are:
Single largest integrated axles manufacture in india
Introduce a new product with the changing customer requirement
The products lined up over next one year include Two-speed axle,
Planetary Hub reduction axles, High End Coach Axles and Off Highway Axles.
Strong brand name
It has upper hand in the sale of Axles to Arvin Meritor
More than 71% of the business can be carried out in domestic only
Favorable access to distribution networks.
Capability (entire marketing plan is done by Arvin Meritor)
It has provide value added products to customer
Provide his wide range of services to customer like Ashok-leyland
SML ISUZU, VOLVO, TATA NOTORS, BEML, etc.
It exports major parts to foreign countries like USA, China, France
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WEAKNESS:
A weakness is a limitation in resources, skills and capabilities that seriously impedes
effective performance of the business of the organization.
Major weakness of AAL Ltd are:
A slowdown in the Commercial Vehicle Industry would impact AALS profitability.
OEMS internal cost (TATA motors) is relatively less expensive due to their
depreciated assets.
Inability to meet their customer demand due to more demand in the market.
OPPORTUNITIES:
An opportunity is a favorable situation in the firms environment. Major opportunities of
AAL ltd are:
An unfulfilled customer need.
Arrival of new Technique
Removal of International Trade Barriers
Increased Demand of Axles.
Emerging customers like Eicher motors, Swarajmazda motors and Mahindra &
Mahindra, Ashok Leyland.
Expansion of new business like purchase of break units, this helps to explore their
marketing opportunities in all over the country.
Growing commercial vehicle segment due to improved infrastructural segments in
Indian market.
The higher range products gaining more prominence.
The company has embarked upon a major drive to introduce new products, with the
changing customer requirements. The products line up over the next one year include
Two-speed axle, Planetary Hub reduction axles, High end coach axle and off highway
axles,
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Introduction of these axles will ensure a healthy product portfolio
and enhanced value propositions to their customer base.
THREATS:
A threat is a major unfavorable situation in the firms environment. It is a key
impediment to the firms current and desired future position. Major threats of AAL are;
New regulations
Increased Trade Barriers
Increasing price of raw materials Ex: Steel
New Entrants (competitors)
An emerging competition Axles india ltd. (TVS Ltd.)
Emerging competition from overseas company Axle manufacturing ( Indian based
company, collaboration with TONGIL, a Korean based company)
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LITERATURE REVIEW
The purpose of this chapter is to present a review of literature relating to the working
capital management. Although working capital is an important ingredient in the smooth
working of business entities, it has not attracted much attention of scholars. Whatever
studies have conducted, those have exercised profound influence on the understanding of
working capital management good number of these studies which pioneered work in this area
have been conducted abroad, following which, Indian scholars have also conducted research
studies exploring various aspects of working capital. Special studies have been undertaken,
mostly economists, to study the dynamics of inventory investment which often represented
largest component of total working capital. As such the previous studies may be grouped into
three broad classes
1) Studies conducted abroad,
(2) studies conducted in India, and
(3) Studies relating to determine of inventory
Investment
Studies on Working Capital Management
Studies adopting a new approach towards working
capital management are reviewed here.
Sagan in his paper (1955),
perhaps the first theoretical paper on the theory of working capital management,
emphasized the need for management of working capital accounts and warned that it could
vitally affect the health of the company. He realized the need to build up a theory of
working capital management. He discussed mainly the role and functions of money
manager inefficient working capital 48management. Sagan pointed out the money managers
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operations were primarily in the area of cash flows generated in the course of business
transactions. However, money manager must be familiar with what is being done with the
control of inventories, receivables and payables because all these accounts affect cash
position. Thus, Sagan concentrated mainly on cash component of working capital. Sagan
indicated that the task of money manager was to provide funds as and when needed and to
invest temporarily surplus funds as profitably as possible in view of his particular
requirements of safety and liquidity of funds by examining the risk and return of various
investment opportunities. He suggested that money manager should take his decisions on the
basis of cash budget and total current assets position rather than on the basis of traditional
working capital ratios. This is important because efficient money manager can avoid
borrowing from outside even when his net working capital position is low. The study pointed
out that there was a need to improve the collection of funds but it remained silent about the
method of doing it. Moreover, this study is descriptive without any Moreover, this study is
descriptive without any empirical support.
Realising the dearth of pertinent literature on working capital management, Walker
in his study (1964)
made a pioneering effort to develop a theory of working capital management by empirically
testing, though partially, three propositions based on risk-return trade-off of working capital
49management. Walker studied the effect of the change in the level of working capital on the
rate of return in nine industries for the year 1961 and found the relationship between the level
of working capital and the rate of return to be negative. On the basis of this observation,
Walker formulated three following
Propositions:
Proposition I If the amount of working capital is to fixed capital, the amount of risk
the firm assumes is also varied and the opportunities for gain or loss are increased. Walker
further stated that if a firm wished to reduce its risk to the minimum, it should employ
only equity capital for financing of working capital; however by doing so, the firm reduced
its opportunities for higher gains on equity capital as it would not be taking advantage of
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leverage. In fact, the problem is not whether to use debt capital but how much debt capital to
use, which would depend on management attitude towards risk and return. On the basis of
this, he developed his
second proposition.
Proposition II:
The type of capital (debt or equity) used to finance working capital directly affects
the amount of risk that a firm assumes as well as the opportunities for gain or loss. Walker
again suggested that not only the debt-equity ratio, but also the maturity period of debt would
affect the risk-return trade-off. The longer the period of debt, the lower be the risk. For,
management would have enough opportunity to acquire funds from operations to meet the
debt obligations. But at the 50same time, long-term debt is costlier. On the basis of this, he
developed his third proposition:
Proposition III:
The greater the disparity between the maturities of a firms debt instruments and its
flow of internally generated funds, the greater the risk and vice-versa. Thus, Walker tried to
build-up a theory of working capital management by developing three prepositions.However,
Walker tested empirically the first proposition only. Walkers Study would have been more
useful had he attempted to test all the three propositions. Weston and Brigham (1972)
further extended the second proposition suggested by Walker by dividing debt into
long-term debt and short-term debt. They suggested that short-term debt should be used in
place of long-term debt whenever their use would lower the average cost of capital to the
firm. They suggested that a business would hold short-term marketable securities only if
there were excess funds after meeting short-term debt obligations. They further suggested
that current assets holding should be expanded to the point where marginal returns on
increase in these assets would
just equal the cost of capital required to finance such
increases.
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DATA ANALYSIS AND INTERPRETATION
ANALYSIS OF FINANCIAL STATEMENT

Table No.3.1 showing analysis of Financial Statement
Standard
RATIOS
2007-08
2008-09
2009-10
Ratio
Liquidity Ratios
a) Current Ratio
2:1
1.87:1
2.29:1
2.69:1
b) Quick Ratio
1:1
1:1
1.35:1
1.66:1
a) Debt Ratio
30%
72%
78%
b) Debt Equity Ratio
2:1
0.5067
0.341
0.4129
1.5067
1.341
0.4129
Leverage Ratios
c) Capital Employed to Net worth

Ratio
Activity Ratios
a) Inventory Turnover Ratio
8times
08.53
03.97
05.40
b) Debtor Turnover Ratio
13.02
04.33
05.92
c) Total Assets Turnover
02.09
00.90
01.78
d) Working Capital Turnover
08.55
03.24
04.53
Profitability Ratios
a) Gross Margin Ratio
11.45%
04.76%
09.86%
b) Net Margin Ratio
07.46%
03.62%
06.60%
c) Return on Equity
32.83%
55.45%
46.22%
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ANALYSIS OF THE ABOVE RATIO
1. LIQUIDITY RATIOS:
a. Current Ratio: Current ratio may be defined as the relationship between current
assets and current liabilities, this ratio also known as working capital ratio. It is a
measure of general liquidity and is most widely used to make the analysis of a shortterm financial position or liquidity position or liquidity of a firm. It is calculated by
dividing current assets by current liabilities. The ideal current ratio is 2:1 but it differs
from company to company, in this company it is 1.80:1 in 2006-07 through it is lower
than standard it is growing from 1.80 to 2.69 which is more satisfactory.
b. Quick Ratio:
Quick ratio is also known as acid test or liquid ratio, the term liquidity refers to the
ability of a firm to pay its short-term obligations as and when they become due. It
establishes a relationship between quick or liquid assets and current liabilities.
Normally quick ratio standard is 1:1 it is more rigorous and penetrating rest of
liquidity position. The quick ratio of AAL in 2006-07 was 1.12 higher than the
standard and also it is observed that there is decrease in the ratio in 2007-08 and there
after it increased. It shows that the company can convert its current assets quickly in
order to meet its current liabilities.
2. LEVERAGE RATIO:
a. Debt ratio:
It is used to analyze the long term solvency of a firm. The debt ratio mentioned in the
table means that lenders have financed to that extent. The percentage of debt is 45%
in 2006-07, 30%in 2007-08, 72% in 2008-09 and 78% in 2009-10. It obviously
implies that owners have provided the remaining finances. And it clearly shows that
in the last 2 years lenders have contributed more funds than owners.
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b. Debt Equity Ratio:
The debt equity ratio is fluctuating and the debt position is more than equity. The
company might be taking the advantage of financial leverage to maximize their profit and
return. Debt equity ratio is also known as External-Internal equity ratio, it is used to
analyze the long-term solvency of the firm. Debt-equity ratio expresses the relationship
between debt and equity. The standard ratio for the debt equity mix is 2:1 compared to
that of the last year; the debt equity ratio has increased. It indicates that the financial
position of the company is not very sound.
c. Capital Employed to Net worth Ratio:
It is another alternative way of expressing the basic relationship between debt and
equity. It helps in knowing the contribution of lenders and owners together for each
rupee of owners contribution.
3. ACTIVITY RATIOS
a. Inventory Turnover Ratio
Inventory turnover ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover velocity indicates efficient management of inventory
because more frequently the stocks are sols; the lesser amount of money is required to
finance the inventory. A low inventory turnover ratio indicates an inefficient management of
inventory. A very high turnover of inventory does not necessarily imply higher profits.
The profits may be low due to excessive cost incurred in replacing stock in small
lots, stock-out situations, selling inventories at very low prices etc. It was 7.99 in 2006-07
and it is increased to 8.53 in 2007-08. And then there is fall in the ratio to 3.97 in 2008-09
and slowly increased in the year 2009-10 to 5.4
2011-2012
Page 52

a. Debtors Turnover Ratio
Debtors turnover ratio indicates the velocity of debt collection of the firm. In simple
words, it indicates the number of time the debtors are turned over during a year. Generally,
the higher value debtors turnover the more efficient management of debtors/sales or more
liquid are the debtors. Similarly, a low debtor turnover implies inefficient is the management
of debtors/sales and less liquid debtors. But a precaution is needed while interpreting a very
high ratio may imply a firms inability due to lack of resources to sale on credit thereby
losing sales and profits.
In AAL the debtor turnover ratio in the year 2006-07 was 7.60 times and since then it
has been increased to 13.02 in 2008, now in 2009-10 ratio reduced to 5.92 times. The trend
shows they should manage the debtors efficiently.
c. Working Capital Turnover Ratio

Working capital turns over ratio indicates the velocity of the utilization of
networking capital. This ratio indicates the number of times the working capital is turned
over in the course of a year. This ratio relates to net current assets to sales. It indicates
whether working capital has been effectively used in making sales or not.
The standard norm is 8 times. This ratio indicates that for one rupee of sales the
amount the organization need for net current assets. AALs working capital turnover ratio in
the year 2006-07 was 6.83 times & it has increased to 8.55 times in the year 2007-09 which
is higher than the previous years. It indicates that there is proper utilization of working
capital in that year. Due to recessionary period there is a fall in the turnover ratio in the year
2008-09 of 3.24 and slowly increased in the year 2009-10 i.e., 4.53 times.
2011-2012
Page 53

4. PROFITABILITY RATIOS:
a. Gross margin ratio:
The first profitability ratio in relation to sales is the profit margin. It is calculated by
dividing the gross profit by sales. The gross profit margin reflects the efficiency with which
management produces each unit of product. There was a declining trend from 2006 till 2009
i.e., from 13.41% to 4.76% and then it increased to 9.86%. There was a fall in the margin due
to a fall in the price in the market or may be inefficiency in the utilization of resources by the
company.
b. Net profit margin:

Net profit margin ratio establishes a relationship between net profit and sales and
indicates managements efficiency in manufacturing, administering and selling the products.
This ratio is the overall measure of the firms ability to turn each rupee sales into net profit. If
the net margin is inadequate, the firm will fail to achieve satisfactory return on shareholders
funds. This ratio also indicates the firms capacity to withstand adverse economic conditions.
A firm with a high net margin ratio would be in an advantageous position to survive in the
face of falling selling prices, rising costs of production or declining demand for the product.
A high net profit margin can make better use of favorable conditions, such as rising selling
prices, falling costs at a faster rate.
c. Return on equity:
A return on shareholders equity is calculated to see that profitability of owners
investment. The shareholders equity or net worth will include paid up share capital, share
premium and reserves and surplus less accumulated losses. ROE indicates how well the firm
has used the resources of owners. This ratio is, thus of great interest to the present as well as
the prospective shareholders and also of great concern to management, which has the
responsibility of maximizing the owners welfare.
2011-2012
Page 54

TO KNOW THE EFFICIENCY OF AAL BY COMPARING DIFFERENT RATIOS
ANALYSIS OF INVENTORY AT AAL
RATIO ANALYSIS
In order to analyze the financial position of a company there are various tools and
techniques. Among them, one of the most popular way of analysis and interpretation of
financial statement is Ratio analysis.
These are point or indicators of financial strength, soundness, position and weakness
of an enterprise and helps in concluding the exact financial position of concern. It is powerful
tool of financial analysis used to diagnose the financial health of the firm.
Some of the turnover ratios that are used to know the efficiency of inventory
management in AAL are as follow.
Inventory turnover ratio
Inventory conversion period
Raw material turnover ratio
Finished goods turnover ratio
Work-in-process turnover ratio
Current assets turnover ratio
Total assets turnover ratio
Fixed assets turnover ratio
2011-2012
Page 55

CHART SHOWING DIFFERENT TYPES OF RATIOS:
TOTAL SIZE OF THE INVENTORY
Table No. 3.2 showing total inventory maintained at AAL for the past 4 Years
Raw
Work-in-
Finished
Stores
Materials( )
Progress( )
Goods( )
Spares( )
2006-2007
453,435,106
206,505,966
23,576,756
76,734,002
2007-2008
565,657,953
137,938,152
86,063,039
85,470,687
2008-2009
372,360,517
125,015,696
30,554,982
71,729,344
2009-2010
664,339,994
142,337,405
21,464,741
74,622,177
Year
&
TOTAL SIZE OF THE INVENTORY

700,000,000
600,000,000
500,000,000
Raw Materials
400,000,000
Work-in-Progress
300,000,000
Finished Goods
200,000,000
Stores & Spares
100,000,000
0
2006-2007
2007-2008
2008-2009
2009-2010
Chart No.3.1 showing Total size of Inventory

Interpretation:
2011-2012
Page 56

As we can see from above, investment on inventories has been maintained at a steady
balance. There is a downfall of raw materials in the year 2009 from previous year which was
due to less consumption and recession in the automobile industry. Management of inventory
system would be looking into a more advanced and systematic way of increasing the Input to
output conversion.
INVENTORY TO WORKING CAPITAL
Inventory to working capital ratio, defined as a method to show what portion of a
companys inventories is financed from its available cash, is essential to businesses which
hold inventory and survive on cash supplies. A low value of 1 or less of inventory to working
capital means that a company has high liquidity of current asset.
Table No. 3.3 showing ratio of inventory to working capital
Year
2006-2007
2007-2008
2008-2009
2009-2010
Inventory( )
760,251,830
875,129,831
599,660,539
902,764,317
Working Capital( )
889,179,134
873,163,787
820,834,623
1,473,552,300
0.86
0.73
0.61
Inventory to working
capital Ratio
2011-2012
Page 57

INVENTORY TO WORKING CAPITAL RATIO
1.2
1
1
0.86
0.8
0.73
Inventory
0.61
0.6
Working
capital
0.4
0.2
0
2006-2007
2007-2008
2008-2009
2009-2010
Chart No. 3.2 showing Inventory to WC

Interpretation:
It is an important indicator of a companys operation efficiency. This ratio determines
the connection between inventories to working capital. It was 0.86 times in the year 2006-07
but it is reduced to 0.61 times in year 2009-10 which shows that lower the ratio, the higher
the liquidity of a company is.
INVENTORY TURNOVER RATIO

Inventory turnover ratios are stock turnover ratio which indicates number of times
stock is turn over during a year. In other words it is ratio between sales and average inventory
or closing inventory. A slow turn over result in over investment in inventory and rapid
turnover contributes a high working capital. A high level of inventory amounts to
unnecessary tie-up of funds, impairment of profits and increased costs.
Formula used to calculate ITR = Net sales/closing inventory
2011-2012
Page 58
Table No.3.4 showing inventory turnover ratio

Year
2006-07
Net sales( )
6,071,948,684 7,468,481,318 2,663,042,384 6,679,949,978
Closing inventory( )
760,251,829
875,129,831
671,599,461
1,237,474,792
Ratio
7.99
8.53
3.97
5.4
42.18
90.79
66.69
Inventory
2007-08
2008-09
2009-10
holding
period=365days/ITR(In 45.07
days)
INVENTORY TURNOVER RATIO

9
8
8.53
7.99
7
6
5.4
5
3.97
Net Sales
Closing
Inventory
3
2
1
0
2006-07
2007-08
2008-09
2009-10
Chart No. 3,3 showing inventory turn over ratio
2011-2012
Page 59

Interpretation:
Inventory turnover ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover velocity indicates efficient management of inventory
because more frequently the stocks are sold; the lesser amount of money is required to
finance the inventory. A low inventory turnover ratio indicates an inefficient management of
inventory. A very high turnover of inventory does not necessarily imply higher profits.
The profits may be low due to excessive cost incurred in replacing stock in small lots,
stock-out situations, selling inventories at very low prices etc. It was 7.99 in 2006-07 and it is
increased to 8.53 in 2007-08. And then there is fall in the ratio to 3.97 in 2008-09 because of
recession and slowly increased in the year 2009-10 to 5.4. The company holds the inventory
as mentioned in the above table 2.3. The low inventory turnover ratio implies excessive
inventory levels compared to those warranted by production and sales activities or indicates
slow-moving inventory.
RAW MATERIAL TURNOVER RATIO
Table No. 3.5 showing raw material turn over ratio
Year
2006-07
2007-08
2008-09
Materials consumed( )
4,232,175,644
5,214,018,254
1,754,148,545 4,743,006,541
401,581,518
509,546,529
469,009,235
518,350,255
10.54
10.23
3.74
9.15
34.16
35.18
96.25
39.34
Average raw material

inventory( )
Ratio
Raw material holding
period=360 days/RMTR
2011-2012
2009-10
Page 60

RAW MATERIAL TURNOVER RATIO
12
10.54
10.23
10
9.15
Average raw
material
inventory
Marerial
consumed
8
6
3.74
4
2
0
2006-07
2007-08
2008-09
2009-10
Chart No.3.4 showing Raw material turn over ratio

Interpretation:
This ratio indicates the relationship between the material consumed and the average
raw material inventory. In the year 2006-07 it was 10.54 and it is declined to 9.15 in the year
2009 -10. But there was a sudden fall in the ratio from 10.54 to 3.74 in the year 2008-09
because of external environmental factor i.e. recessionary period.
The Raw material holding period has increased from 34.16 days in 2006-07 to 96.2
days in 2008-09 and decreased to 39.34 days during the year 2010.
WORK IN PROGRESS TURNOVER RATIO

Work-in-progress inventories represent products that need more work before they
become finished products for sale. They are semi-manufactured products. Longer the
production cycles, greater the volume of work-in-progress and vice-versa. It is calculated by
dividing the WIP inventory by the cost of production and then multiplying the result by 360
days.
2011-2012
Page 61

Table No. 3.6 Work in progress turnover ratio
Year
2006-07
Cost of production( )
5,071,512,908 6,396,475,429 2,275,017,171 5,776,556,156
Average
W-I-P
Inventory( )
Ratio
W-I-P
2007-08
2008-09
2009-10
180,792,200
172,222,059
131,476,924
133,676,687
28.05
37.14
17.3
43.21
9.69
20.8
8.33
holding
period(360 days/ W-I-P 12.83

ratio)
WORK IN PROCESS TURNOVER RATIO

50
43.21
45
40
37.14
35
30
28.05
25
20
Cost of
production
17.3
Average WIP
Inventory
15
10
5
0
2006-07
2007-08
2008-09
2009-10
Chart No.3.5 Showing WIP turn over ratio
2011-2012
Page 62

Interpretation:
The working in process at AAL has decreased in 2008 from 28.05 to 17.30 again in
2009 it has increased to 43.21.
The WIP holding period of AAL which is 12.83 days in the year 2007 which has
increased to 20.80 in 2008-09 later it decreased to 8.33 in the year 2010.
The suggested norm is that the WIP conversion period should be less than 15 days.
But this period is high in the year 2008-09 because of external factor. Situation may also be
the result of weak inventory management and hence is liable to affect the profitability of the
firm.
CURRENT ASSETS TURNOVER RATIO

Table No. 3.7 showing current Asset turn over ratio
Year
2006-07
2007-08
2008-09
2009-10
Net sales( )
6,071,948,684
7,468,481,318
2,663,042,384
6,679,949,978
Current assets( )
2,003,454,540
1,880,548,953
1,455,684,226
2,344,798,713
Ratio
3.03
3.97
1.83
2.85
2011-2012
Page 63

CURRENT ASSETS TURNOVER RATIO
4.5
3.97
4
3.5
3.03
2.85
3
2.5
Net Sales
1.83
Current
assets
1.5
1
0.5
0
2006-07
2007-08
2008-09
2009-10
Chart No.3.6 showing CATR
Interpretation:
The current assets turnover ratio shows the company is using its current assets in efficient
manner to achieve targeted sales. There are small ups and downs in the ratio from 20072010.
TOTAL ASSETS TURNOVER RATIO

Table No. 3.8 showing Total asset turn over ratio
Year
2006-07
2007-08
2008-09
2009-10
Net sales( )
6,071,948,684
7,468,481,318
2,663,042,384
6,679,949,978
Total assets( ) 3,519,000,199
3,567,259,259
2,977,912,375
3,751,939,932
2.09
0.89
1.78
Ratio
1.73
2011-2012
Page 64
TOTAL ASSETS TURNOVER RATIO

2.5
2.09
2
1.78
1.73
1.5
Net Sales
0.89
0.5
0
2006-07
2007-08
2008-09
2009-10
Chart No. 3.7 showing Total asset turn over ratio

Interpretation:
The total assets turnover shows how the total assets of company are utilized to achieve the
targeted sales. By looking at above calculations the assets are used in better way.
FIXED ASSETS TURNOVER RATIO
Table No. 3.9 showing Fixed Asset Turn Over Ratio
Fixed
assets
turnover ratio
Net sales( )
Net fixed assets(
)
Ratio
2006-07
2007-08
2008-09
2009-10
6,071,948,684
7,468,481,318
2,663,042,384
6,679,949,978
1,515,545,659
1,686,710,306
1,522,228,149
1,407,141,219
4.0064%
4.4278%
1.7494%
4.7471%
2011-2012
Page 65
FIXED ASSETS TURNOVER RATIO

4.7471
5
4.5
4.4278
4.0064
4
3.5
3
2.5
Net fixed
assets
1.7494
Net Sales
1.5
1
0.5
0
2006-07
2007-08
2008-09
2009-10
Chart No. 3.8 showing Fixed Asset Turn over Ratio

Interpretation:
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value
of fixed assets (on the balance sheet). It indicates how well the firm is using its fixed assets to
generate sales. The higher the ratio, the better, because a high ratio indicates the business has
less money tied up in fixed assets for each rupee of sales revenue. A declining ratio may
indicate that the business is over-invested in plant, equipment, or other fixed assets.
The ratio here shows an increasing trend except in the year 2008-09 because of
recession. The fixed assets are generating greater sales revenue for this company.
2011-2012
Page 66

INVENTORY TO TOTAL ASSETS
Table No. 4.0showing Inventory to Total asset
Year
2006-07
2007-08
2008-09
2009-10
Inventory( )
760,251,829
875,129,831
671,599,461
1,237,474,792
Total assets( )
3,519,000,199 3,567,259,259 2,977,912,375
3,751,939,932
Percentage
22%
33%
25%
23%
INVENTORY TO TOTAL ASSETS

35%
33%
30%
25%
25%
23%
22%
20%
15%
Inventory
10%
Total
assets
5%
0%
2006-07
2007-08
2008-09
2009-10
Chart No. 3.9 showing Inventory to Total asset

Interpretation:
AALs inventories percentage with the total assets has increased from 22 in the year
2007 to 33 in the year 2010.
The studies have suggested that ratio of inventory to total assets should be
concentrated in the 16 to 30 percentage range.
2011-2012
Page 67

INVENTORY TO CURRENT ASSETS
Table No. 4.1 showing Inventory to current Asset
Year
2006-07
2007-08
2008-09
2009-10
Inventory( )
760,251,829
875,129,831
671,599,461
1,237,474,792
Current assets( )
2,003,454,540 1,880,548,953
1,455,684,226
2,344,798,713
Percentage
38%
46%
53%
47%
INVENTORY TO CURRENT ASSETS

60%
53%
47%
50%
40%
46%
38%
Inventory
30%
Current
assets
20%
10%
0%
2006-07
2007-08
2008-09
2009-10
Chart No. 4.0 showing Inventory to CA

Interpretation:
The share of inventory in the total current assets indicates how much liquidity of a
firm is locked up in inventory. Inventory is generally, less liquid than other current assets. As
such, the inventory is the most non-liquid current asset.
AALs inventories percentage with the current assets has increased from 38% in the
year 2007 to 53% in the year 2010.
2011-2012
Page 68

The quality and liquidity of current assets are largely dependent on the composition
of current assets. Lower the percentage of inventory to the current assets, greater the liquidity
of current assets and vice-versa. Thus, a low ratio is better than a high ratio.
The various ratios calculated above are the important parameters used to evaluate the
performance of inventory management techniques. It has a direct relationship with the profit
earning capacity of a firm.
Inventory as a percentage of current assets, total assets and inventory in terms of
months value of production, are all important parameters that reflect the adequacy or
otherwise of the inventory holdings.
Financial Ratios
The following table lists out the key financial ratios for 2007-08,08-09 and 09-10
Particulars
2007-08(%)
2008-09(%)
2009-10(%)
PBT/Total Income
11.35
4.68
9.80
PAT/Total Income
7.41
3.57
6.56
Return on Capital employed
23.06
4.39
16.06
Return on Net worth
32.84
5.53
21.63
Earnings Per Shares Rs.
36.91
6.39
29.17
Dividend Pay Out Ratio
20.60
50.00
34.00
Table No. 4.1 showing financial ratio
2011-2012
Page 69

Interpretation:
From the above statement the income of the company will be more in the 2007-08,
because of increase in turn over, it decrease in the year 2008-09 because of recession in that
period.
CALCULATION OF NET WORKING CAPITAL:

Net working capital = Current Assets-Current liabilities
2007 = 2,003,454,541-1,114,275,407
889,179,134
2008 = 1,880,548,953-1,007,385,166
873,163,787
2009 = 1,462,832,056-641,997,433
820,843,623
2010 = 2,344,798,713-871,246,413
1,473,552,300
2011-2012
Page 70
1,600,000,000
1,400,000,000
1,200,000,000
1,000,000,000
800,000,000
Series 1
600,000,000
400,000,000
200,000,000
0
2007
2008
2009
2010
Chart No. 4.1 Showing Net Working Capital

Interpretation:
In the above chart shows that an increase in working capital will increase the
operating efficiency of the business and decrease in working capital will decrease the
operating efficiency of the business. And the same way an increase in current asset shows the
strong financial position of the business and decrease in working capital will shows the
weakness of the business.
2011-2012
Page 71

FINDINGS SUGGESTIONS AND CONCLUSION
FINDINGS
1. The Gross Working Capital of the company was increases over the year because of
increase in Inventories.
2. The Net Working Capital of the company was increased in the year 2006-07,2007-08,
2008-09 but in the year 2009-10 it was decreases because of the increase in current
liabilities.
3. The Standard Current Ratio is 2:1. During the First two years i.e. 2005-06 and 2006-07
company was not maintained good current ratio compared to standard current ratio. In the
year 2007-08 and 2008-09 maintained a good current ratio compared to standard current
ratio. And then 2009-10 current ratios is decreasing because of the increases in the current
liabilities.
4. The Standard Quick Ratio is 1:1 and the company has not reached above standard level in
all the five years. It shows that companys liquidity position is not good.
5. The Current asset turnover ratio decreases in the year 2005-06 and 2006-07 and increase
in the year 2007-08 and 2008-09 increases it shows good sign for the companys growth.
But in the year 2009-10 again it decreases it is not a good sign for the companys growth.
6. Inventory to Net Working Capital Ratio is high in earlier years but in 2007 to 2010 it
decrease it shows that the under utilization of Net Working Capital.
7. An inventory to turn over Ratio is increasing so it means that increasing inventories held
up for sale.
8. Average collection of Debtors is very short it implies prompt payment by debtors.
2011-2012
Page 72

SUGGESTIONS
1. The Gross Working Capital of the company has increases over the year. So, it is good for
the company to meet its short term obligations. So the company needs to maintain the
same Gross Working Capital Position.
2. The Net Working Capital of the company it has increased in the year 2007-08 and 200809. But in the year it has decreases because of the liabilities increases. So, the company
should take care of its Working Capital Position.
3. The Current Ratio Of the company was more than the standard ratio while in the year
2007-08 and 2008-09 but in the year it is less than that of standard Ratio. So, the company
should take care of its Current Ratio.
4. The Quick Ratio of the company is less than the standard ratio, so the company needs to
maintain the standard liquidity position.
5. Company having more inventories so it needs to convert more inventories in to sales.
6. Average collection of Debtors is very short it implies prompt payment by debtors. It
reduces the chances of bad debts. It is better to the company.
2011-2012
Page 73

CONCLUSION
Working capital management is required for the day today operation of the business
Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management
is to manage the current assets and current liabilities of a firm in such a way that a
satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as
both the situations are bad for any firm. There should be no shortage of funds and also no
working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a
firm has a great on its probability, liquidity and structural health of the organization. So
working capital management is three dimensional in nature as
1.
It concerned with the formulation of policies with regard to profitability,

liquidity and risk.
2.
It is concerned with the decision about the composition and level of current
assets.
3.
It is concerned with the decision about the composition and level of current
liabilities
2011-2012
Page 74

ANNEXURE
BALANCE SHEET OF AAL AS AT 30TH SEPTEMBER 2007 TO 2010
Particulars
Sch
2007
2008
2009
2010
No.
SOURCES OF FUNDS
A. Shareholders Funds
a)
Share capital
b) Reserves & Surplus
151,119,750
151,119,750
151,119,750
151,119,750
1,104,850,372
1,547,782,739
1,596,089,987
1,887,618,85
1,255,970,122
1,698,902,489
1,747,209,737
3
2,038,738,60
B. Loan Funds
841,808,890
565,687,810
334,968,312
a)
177,345,781
155,033,794
119,184,071
1,019,154,671
720,721,604
454,152,383
633,122,251
1,29,600,000
140,250,000
141,700,652
73,482,013
2.404,724,793
2,559,874,093
2,343,062,772
706,604,264
Secured Loan
b) Unsecured Loan
C. Deferred
tax
liability
(net)
135,350,652
TOTAL
2,880,693,51
5
APPLICATION OF FUNDS
2,331,610,966
2,735,095,830
2,756,210,597
A. Fixed Assts
959,871,355
1,127,998,848
1,305,057,370
a)
Gross Block at Cost
1,371,739,611
1,607,096,982
1,451,153,227
Less
143,806,048
79,613,324
71,074,922
2,813,748,73
1,515,545,659
1,686,710,306
1,522,228,149
Accumulated
Depreciation
Net Block
1,485,589,99
b) Capital work-in-progress
@ cost
1,328,158,74
5
78,982,474
B. Current Assets, Loans &
a)
Advances
875,129,831
875,129,831
599,660,539
1,407,141,21
Current Assets
651,004,904
651,004,904
671,599,461
Inventory
192,028,587
192,028,587
86,677,370
Sundry Debtors
162,385,631
162,385,631
104,894,686
1,880,548,953
1,880,548,953
1,462,832,056
Cash & Bank

b) Loans & Advances
2011-2012
Page 75

Less: Current Liabilities &
10
853,610,584
853,610,584
554,217,358
902,764,317
Provisions
11
153,774,582
153,774,582
87,780,075
1,237,474,79
1,007,385,166
1,007,385,166
641,997,433
a)
Current Liabilities
b) Provisions
89,716,376
873,163,787
873,163,787
820,834,623
114,843,228
2,559,874,093
2,559,874,093
2,343,062,772
2,344,798,71
Net current Assets
TOTAL
650,037,957
221,208,456
871,246,413
1,473,552,30
0
2,880,693,51
9
2011-2012
Page 76

PROFIT AND LOSS ACCOUNT OF AAL, FOR THE YEAR ENDED 30TH SEPTEMBER 2007,08,09,10
Particulars
Schedule
2007
2008
2009
2010
No.
INCOME
Sales-Gross
6,944,474,039
8,479,599,543 2,907,992,368
7,323,622,368
Less: Excise duty
872,525,355
1,011,118,225 244,949,984
643,672,064
6,071,948,684
7,468,481,318 2,663,042,384
6,679,949,978
Other Income
-operational
12
44,667,209
50,664,440
9,343,378
17,374,011
-others
13
57,901,221
8,571,885
32,365,240
22,948,186
6,174,517,114
7,527,717,643 2,704,751,002
6,720,272,175
EXPENDITURE
Raw Materials Consumed
14
4,232,175,645
5,214,018,254 1,754,148,545
4,743,006,541
Work In Progress
15
( 54,530,676)
14,990,233
( 7,670,908)
Manufacturing, Administrative & 16
931,756,662,
1,171,608,390 533,499,600
1,080,555,899
75,206,409
63,858,774
46,874,483
35,552,339
170,903,725
208,937,965
184,972,134
209,956,144
5,355,511,766
6,673,413,616 2,578,059,889
6,061,400,015
819,005,348
854,304,027
126,691,113
658,872,160
245,700,000
284,000,000
44.645,000
224,500,000
( 16,798,724)
142,518
58,565,127
Selling Expenses
Interest
17
Depreciation
PROFIT BEFORE TAX

Provision for tax
Current tax
-For current year
-For earlier year
Deffered tax
35,432,440
10,650,000
1,450,652
( 6,350,000)
Fringe benefit tax
1,600,000
1,800,000
779,689
( 164,689)
PROFIT AFTER TAX
536,272,908
557,854,027
96,614,496
440,744,331
Add: Balance brought forward
518,417,398
779,987,109
1,167,019,478
1,205,665,276
570,559
from previous year

Add: prsoposed dividend
Profit
Available
For
1,054,690,306
2011-2012
1,337,841,136 1,263,633,974
1,646,980,166
Page 77

Appropriation
APPROPRIATIONS
Proposed dividend
98,227,838
98,227,838
Interim dividend
90,671,850
Tax on dividend
32,103,510
16,693,820
7,017,237
21,334,236
53,700,000
55,900,000
9,661,450
44,100,000
779,987,109
1,167,019,478 1,205,665,276
1,453,094,142
No of Equity shares
15,111,975
15,111,975
15,111,975
15,111,975
EPS= Profit available to Share
35.49
36.91
6.39
29.17
Transfer to general reserve

SURPLUS
CARRIED
18
TO
41,290,011
128,451,788
-
BALANCE SHEET
holder/no of equity shares
Interpretation:
From the above calculation the number of equity share should be 15,111,975 but EPS
is more in the year 2007 an increase in earning per will increase the company market value
and vice-versa
2011-2012
Page 78

BIBLIOGRAPHY
LIST OF TEXT BOOKS REFERRED:
Jain, M Y and Jain P K, Financial Management Texts and Problems, Tata McGraw
Hill Publishing Company Limited, New Delhi, 3rd Edition, 1999
Pandey, I M, Financial Management, Vikas Publishing House Pvt Ltd, 8th Edition,
New Delhi, P K Madhavan, 1999
Bose, Chandra, D, Inventory Management, Prentice-Hall of India Private Limited,

Eastern Economy Edition, New Delhi, Asoke K Ghosh, 2006
Wild, Tony, Best Practice in Inventory Management, Elsevier Private Limited, New
Delhi, Butterworth- Heinemann, 2nd Edition, 2002
LIST OF WEBSITES ACCESSED:
www.autoaxle.com
http://www.accountingformanagement.com/stock_turn_over_ratio.htm#Definition
http://www.indiainbusiness.nic.in/industry-infrastructure/industrialsectors/automobile1.htm
www.google.com
2011-2012
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Working Capital Management

MEANING AND CONCEPT OF WORKING CAPITAL MANAGEMENT

National School of Business, Bangalore