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A Summer Internship Project Report

On

“WORKING CAPITAL MANAGEMENT”


Of
“METRO TYRES”
(For the Partial Fulfillment of the Requirements of Masters of Business Administration
Program under University School of Business, Chandigarh University.)

By

Name of the Candidate – ANIKET BHARDWAJ

University Roll No – 17MBA1373

Faculty Guide Corporate Guide


Ms. Anupal Ms. NIDHI GUPTA
HOD & Faculty Guide Finance Manager
Chandigarh University Metro Tyres, Ludhiana.

Committed to Excellence
University School of Business
(Affiliated to Chandigarh University) Year-: 2018-2019

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DECLARATION

PROJECT IS ORIGINAL WORK

I declare that this project titled Working Capital Management has been worked on, drafted and
finalized by me –Aniket Bhardwaj 17MBA1373 student of MBA 2ndsemester of the batch
2017-2019. This project is an original piece of work and not copied or plagiarized from any other
source of literature, review article or published reference in this regard. This is purely my
Summer Internship Report being submitted in partial fulfilment of the degree of Master in
Business Administration from University School of Business, Chandigarh University and has not
been submitted for the reward of any certificate, diploma, degree, fellowship with any college /
university nor educational institute before this.

In case any part of this work is reported as copied from any another source, I shall be solely
responsible for the same and will be answerable for any action taken in this regard.

Students’ Signature:

Name: ANIKET BHARDWAJ


UID No.: 17MBA1373
Date:

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CERTIFICATE

This is to certify that, Mr./ Ms. _________________________________________, UID


No._______________, a student of MBA __________________, under University School of
Business, Chandigarh University, Gharuan, Punjab, has successfully completed his / her
summer internship project from _____________ to ______________ and his/ her report is titled
“———----------------------------------——–”. Student has carried out the work satisfactorily
under my supervision.

According to the declaration submitted by the student, the report is an authentic work and may
be considered as partial fulfilment towards course credits.
.
I wish him/ her success in life.

Sign of Faculty Supervisor:

(Name of Supervisor)

Designation:____________

Date:

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ACKNOWLEDGEMENT

wish to express my sincere gratitude to Ms .Nidhi Gupta, METRO TYRES, Ludhiana, for
giving this opportunity to have an enriching learning experience in this company and also for his
keen interest, guidance, continuous encouragement, support and help throughout the period of
the project.

My sincere and deep debt of gratitude goes to my internal guide Dr. Anupal Mongia for the
valuable suggestion, and guidance which make possible, to prepare the project.

Before I conclude, let me record my gratitude to my Friends and Classmates for all the helps,
encouragement, information they have given in making this project acquire the present shape and
without whose help I couldn’t have completed the project work.

ANIKET BHARDWAJ

University School of Business,

Chandigarh University,

Gharaun

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CONTEXT

SLNO TITLE Page no

COVER PAGE -

DECLARATION I

CERTIFICATE BY ORGANIZATION Ii

CERTIFICATE BY INTERNAL GUIDE Iii

ACKNOWLEDGEMENT Iv

1 EXECUTIVE SUMMARY 6

2 Company profile of metro tyres 7-13

3 Introduction o the topic 14-27

4 Review of literature 28-31

5 Objectives of the study 32-33

6 RESEARCH METHODOLOGY 34-38

7 ANALYSIS AND INTERPRETATION 39-58

8 FINDINGs 59

9 SUGGESTION 60

10 CONCLUSION 61

11 BIBLIOGRAPHY 62

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EXECUTIVE SUMMARY

The major objective of the study is to proper understanding the working capital of METRO
TYRES & to suggest measures to overcome the shortfalls if any. Funds needed for short term
needs for the purpose like raw materials, payment of wages and other day to day expenses are
known as working capital. Decisions relating to working capital (Current assets-Current
liabilities) and short term financing are known as working capital management. It involves the
relationship between a firm’s short-term assets and its short term liabilities. By definition,
working capital management entails short-term definitions, generally relating to the next one
year period.
The goal of working capital management is to ensure that the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
Working capital is primarily concerned with inventories management, Receivable management,
cash management & Payable management.
Inventories management at METRO TRES:
Metro tyres ltd. is a large scale manufacturing company involved in manufacture of rubber
products Therefore, it has to maintain large quantity of inventories at production units for its
smooth running and functioning.
Cash management at METRO TYRES:
Metro tyres has been accumulating huge cash surpluses over last several years, which enables the
organization to maintain adequate cash reserves and to generate required amount of cash.
Receivables management at METRO TYRES:
Metro tyres has set up its marketing office in Noida in which is controlled in itself apart from
these four manufacturing units are in Ludhiana ,one in gurgaon Haryana and This marketing
office obtains sales order from rubbers tyres users in India as well as global.

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COMPANY PROFILE

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METRO TYRES PROFILE

Metro Tyres Limited is a Public incorporated on 18 January 1974. It is classified as Non-


govt. company and is registered at Registrar of Companies, Delhi. Its authorized share
capital is Rs. 185,000,000 and its paid up capital is Rs. 159,508,032.It is inolved in
Manufacture of rubber products

Metro Tyres Limited's Annual General Meeting (AGM) was last held on 29 September
2017 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was
last filed on 31 March 2017.

Directors of Metro Tyres Limited are Brajindar Mohan Singh, Mukesh Arora, Taruna
Seth, Rummy Chhabra, AnupVerma, Rajender Mohan Malla, Sumrit Chhabra, Man
Singh, Rishinaradamangalam Narayanan Kalyanakrishnan .

Metro Group is a US $140 million conglomerate consisting of Metro Tyres Limited,


Metro International and Metro Ortem Limited. The Group has seven ISO 9001:2008
certified, state-of-the-art manufacturing facilities, producing tyres and tubes for bicycles,
motorcycles, scooters and three wheelers. Metro today has become a leader in the
industry, through expansion in related products and diversifying into lifestyle and
consumer durable products under the brand name 'Ortem'. Technical collaboration with
Germany's Continental AG, has greatly enhanced Metro Group's position and today it is
regarded as a company manufacturing superior quality products. Gradually the company
is increasing its volumes and venturing into overseas markets where it is developing a
niche for its products. Today the group has a presence in more than 53 countries and is
the largest exporter of bicycle tyres and tubes from India. Under the aegis of Metro
Ortem S Limited, the group has diversified into manufacturing a whole range of fans and
other home appliances.

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Company details

Website
http://www.metrogroup.co.in

Headquarters
Noida, UP

Year founded
1968

Company type
Privately Held

Company size
1,001-5,000 employees

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MISSION, VISION & OBJECTIVE

MISSION:

To build a truly professional, Customer Centric, Quality Conscious, Socially responsible


Organisation. And, to achieve this by providing a platform of business experience,
reputation, corporate strength and environment conducive for growth of all. An idiom, we
have successfully followed for nearly five decades.

VISION:

To become a significant player in the Indian Tyre and Appliances Industry with
international footprints.

Philosphy
At Metro Group, we are propelled by our Motto of ‘Growth with Excellence.’ We believe
in maintaining an outstanding reputation through continuous introduction of technology
driven products, technical knowledge transfers and market penetration. Working single-
mindedly towards reaching the highest standard of quality through dedication and
structured work ethic, we focus firmly on enriching our customers and stakeholders lives.
OBJECTIVES OF METRO TYRES

Metro Tyres, our flagship company, has been hailed as “India's Most Promising Brand
for 2014-15.” With an annual manufacturing capacity close to 30 million tyres and 30
million tubes, it has emerged as a key player in both domestic and overseas markets.
Metro has diversified successfully into manufacturing superior quality tyres and tubes for
motorcycles, scooters and three wheelers suitable for any and every climatic conditions.
Germany’s Continental AG entered into a technical collaboration with Metro Tyres in
1999. This has enhanced the quality of our products in the domestic markets and opened
new vistas for us worldwide.

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Partenerships:

Continental AG Tyres Manufacturing Brand in Germany

Mercurio from Mexico

Key Facts about Metro Tyres :

 60% share of cycle rikshaw tyres.


 24% market share of bicycle tyres.
 Has about 51 branches.
 Has about 10000 dealers.
 It has spread business in 53 countries.

Manufacturing Units :

Four units in Ludhiana , Punjab

One unit in Gurugram, Haryana

Two unITS in NCR, Noida.

** Management and Operatons are done in Noida.

Competitors are: Ceat, Apollo, MRF & Vikrant

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Metro Tyres SWOT Analysis

Below is the Strengths, Weaknesses, Opportunities & Threats


(SWOT) Analysis of Metro Tyres :

1. It’s in niche category with manufacturing tyres and other


accessories for Bicycle industry
2. Diversification in home appliance category
3. Good R&D with indigenous processing of Nylon tyres and Butyl
tubes
4. It has seven ISO 9001 certified manufacturing facilities, producing
tyres and tubes for bicycles, bikes, scooters and three wheelers
Strengths 5. 4000 people form a part of the workforce

1. Product portfolio in tyre industry is small


2. Less visibility and promotion as compared to leaders in the tyre
Weaknesses industry

1. Tremendous opportunities being a young company


2. Should position itself as unique Environment friendly brand with
core competency in bicycle tyre manufacturing
3. Diversification and tie-ups with biggest bicycle brands in the
Opportunities country

1. Bicycle industry is ever shrinking with people realizing the


necessity to commute fast at convenience
2. Tough competition in tractor and jeep industry from giants.
3. Cheaper imports from China

4. Volatility in prices of raw materials especially rubber with


Threats production of rubber being less than demand.

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5. Government Policies , export duties, import duties, tax levied on
automobile industries and economic condition of nation as it
determines the sale of automobiles.

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INTRODUCTION AND
OVERVIEW OF PROJECT
UNDERTAKEN

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FINANCIAL ANALYSIS

About Working Capital :

The life blood of business, as is evident, signified funds required for day-to-day operations of the
firm. The management of working capital assumes great importance because shortage of
working capital funds is perhaps the biggest possible cause of failure of many business units in
recent times. There it is of great importance on the part of management to pay particular
attention to the planning and control for working capital. An attempt has been made to make
critical study of the various dimensions of the working capital management of Metro tyres ltd.
Decisions relating to working capital and short term financing are referred to as working capital
management. These involve managing the relationship between a firm's short-term assets and its
short-term liabilities. The goal of Working capital management is to ensure that the firm is able
to continue its operations and that it has sufficient money flow to satisfy both maturing short-
term debt and upcoming operational expenses

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WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and current liabilities. The
major thrust of course is on the management of current assets .This is understandable because
current liabilities arise in the context of current assets. Working Capital Management is a
significant fact of financial management. Its importance stems from two reasons:-
 Investment in current assets represents a substantial portion of total investment.
 Investment in current assets and the level of current liabilities have to be geared quickly to
change in sales. To be sure, fixed asset investment and long term financing are responsive to
variation in sales. However, this relationship is not as close and direct as it is in the case of
working capital components.
The importance of working capital management is affected in the fact that financial manages
spend a great deal of time in managing current assets and current liabilities. Arranging short term
financing, negotiating favourable credit terms, controlling the movement of cash, administering
the accounts receivable, and monitoring the inventories consume a great deal of time of financial
managers.
The problem of working capital management is one of the “best” utilization of a scarce resource.
Thus the job of efficient working capital management is a formidable one, since it depends upon
several variables such as character of the business, the lengths of the merchandising cycle,
rapidity of turnover, scale of operations, volume and terms of purchase & sales and seasonal and
other variations.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

Growth may be stunted. It may become difficult for the enterprise to undertake
profitable projects due to non-availability of working capital.
Implementation of operating plans may become difficult and consequently the
profit goals may not be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to non-
availability of the working capital

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.
Financing Working Capital
Now let us understand the means to finance the working capital. Working capital or current
assets are those assets, which unlike fixed assets change their forms rapidly. Due to this nature,
they need to be financed through short-term funds. Short-term funds are also called current
liabilities. The following are the major sources of raising short-term funds:
i. Supplier’s Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material is paid
after some time, i.e. upon completion of the credit period. Thus, without having an outflow of
cash the business is in a position to use raw material and continue the activities. The credit given
by the suppliers of raw materials is for a short period and is considered current liabilities. These
funds should be used for creating current assets like stock of raw material, work in process,
finished goods, etc.
ii. Bank Loan for Working Capital
This is a major source for raising short-term funds. Banks extend loans to businesses to help
them create necessary current assets so as to achieve the Required business level. The loans are
available for creating the following current Assets:
Stock of Raw Materials
Stock of Work in Process
Stock of Finished Goods
Debtors
Banks give short-term loans against these assets, keeping some security margin. The advances
given by banks against current assets are short-term in nature and banks have the right to ask for
immediate repayment if they consider doing so. Thus bank loans for creation of current assets are
also current liabilities.

iii. Promoter’s Fund


It is advisable to finance a portion of current assets from the promoter’s funds .They are long-
term funds and, therefore do not require immediate repayment. These funds increase the liquidity
of the business.

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Management of Inventory
Inventories constitute the most significant part of current assets of a large majority of companies
in India. On an average, inventories are approximately 60 % of current assets in public limited
companies in India. Because of the large size of inventories maintained by firms maintained by
firms, a considerable amount of funds is required to be committed to them. It is, therefore very
necessary to manage inventories efficiently and effectively in order to avoid unnecessary
investments. A firm neglecting a firm the management of inventories will be jeopardizing its
long run profitability and may fail ultimately.
The purpose of inventory management is to ensure availability of materials in sufficient
quantity as and when required and also to minimize investment in inventories at considerable
degrees, without any adverse effect on production and sales, by using simple inventory planning
and control techniques

Needs to hold inventories:-


There are three general motives for holding inventories:-
Transaction motive emphasizes the need to maintain inventories to facilitate smooth
production and sales operation.
Precautionary motive necessities holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors.
Speculative motive influences the decision to increases or reduce inventory levels to take
advantage of price fluctuations and also for saving in reordering costs and quantity
discounts etc.

Objective of Inventory Management:-


The main objectives of inventory management are operational and financial. The operational
mean that means that the materials and spares should be available in sufficient quantity so that
work is not disrupted for want of inventory. The financial objective means that investments in
inventories should not remain ideal and minimum working capital should be locked in it.

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The following are the objectives of inventory management:-
To ensure continuous supply of materials, spares and finished goods.
To avoid both over-stocking of inventory.
To maintain investments in inventories at the optimum level as required by the
operational and sale activities.
To keep material cost under control so that they contribute in reducing cost of
production and overall purchases.
To eliminate duplication in ordering or replenishing stocks. This is possible with
the help of centralizing purchases.
To minimize losses through deterioration, pilferage, wastages and damages.
To design proper organization for inventory control so that management.
Clear cut account ability should be fixed at various levels of the organization.
To ensure perpetual inventory control so that materials shown in stock ledgers
should be actually lying in the stores.
To ensure right quality of goods at reasonable prices.
To facilitate furnishing of data for short-term and long term planning and control
of inventory

Management of cash
Cash is the important current asset for the operation of the business. Cash is the basic input
needed to keep the business running in the continuous basis, it is also the ultimate output
expected to be realized by selling or product manufactured by the firm.
The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firm’s
manufacturing operations while excessive cash will simply remain ideal without contributing
anything towards the firm’s profitability. Thus a major function of the financial manager is to
maintain a sound cash position.
Cash is the money, which a firm can disburse immediately without any restriction. The term cash
includes coins, currency and cheques held by the firm and balances in its bank account.
Sometimes near cash items such as marketing securities or bank term deposits are also included
in cash. Generally when a firm has excess cash, it invests it is marketable securities. This kind of
investment contributes some profit to the firm.

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Need to hold cash
The firm’s need to hold cash may be attributed to the following three motives:-
The Transaction Motive: The transaction motive requires a firm to hold cash to conduct its
business in the ordinary course. The firm needs cash primarily to make payments for purchases,
wages and salaries, other operating expenses, taxes, dividends, etc.
The Precautionary Motive: A firm is required to keep cash for meeting various contingencies.
Though cash inflows and outflows are anticipated but there may be variations in these estimates.
For example a debtor who pays after 7 days may inform of his inability to pay, on the other hand
a supplier who used to give credit for 15 days may not have the stock to supply or he may not be
in opposition to give credit at present.
Speculative Motive: - The speculative motive relates to the holding of cash for investing in
profit making opportunities as and when they arise. The opportunities to make profit changes.
The firm will hold cash, when it is expected that interest rates will rise and security price will
fall.

COMPONENTS OF WORKING CAPITAL ARE CALCULATED AS FOLLOWS:

1.) Raw Materials Storage Period=


Average stock of raw materials/Average cost of raw material consumption per day.

2.) W-I-P holding period=


Average w-i-p in inventory/Average cost of production per day

3.) Stores and spares conversion period=


Average stock of Stores and spares/Average consumption per day.
4.) Finished goods conversion period=
Average stock of finished goods/Average cost of goods sold per day.

5.) Debtors collection period=


Average book debts/Average credit sales per day.

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6.) Credit period availed=
Average trade creditors/Average credit purchase per day.

Management of Receivables
A sound managerial control requires proper management of liquid assets and inventory. These
assets are a part of working capital of the business. An efficient use of financial resources is
necessary to avoid financial distress. Receivables result from credit sales.

A concern is required to allow credit sales in order to expand its sales volume. It is not always
possible to sell goods on cash basis only. Sometimes other concern in that line might have
established a practice of selling goods on credit basis. Under these circumstances, it is not
possible to avoid credit sales without adversely affecting sales.
The increase in sales is also essential to increases profitability. After a certain level of sales the
increase in sales will not proportionately increase production costs. The increase in sales will
bring in more profits. Thus, receivables constitute a significant portion of current assets of a firm.
But for investment in receivables, a firm has to insure certain costs. Further, there is a risk of bad
debts also. It is therefore, very necessary to have a proper control and management of
receivables.

Needs to hold cash:


Receivables management is the process of making decisions relating to investment in trade
debtors. Certain investments in receivables are necessary to increase the sales and the profits of a
firm. But at the same time investment in this asset involves cost consideration also. Further, there
is always a risk of bad debts too.Thus, the objective of receivable management is to take a sound
decision as regards investments in debtors. In the words of Bolton, S.E., the need of receivables
management is “to promote sales and profits until that point is reached where the return of
investment in further funding of receivables is less than the cost of funds raised to finance that
additional credit.”

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IMPORTANT TERMS

WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every
manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a
business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't
generate surpluses, the business will eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers and holding stocks can represent a
substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-
progress) and Receivables (debtors owing you money). The main sources of cash are Payables
(your creditors) and Equity and Loans.

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Each component of working capital (namely inventory, receivables and payables) has two
dimensions ........TIME ......... and MONEY. When it comes to managing working capital -
TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies
due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory
levels relative to sales), the business will generate more cash or it will need to borrow less money
to fund working capital.
As a consequence, you could reduce the cost of bank interest or you'll have additional free
money available to support additional sales growth or investment. Similarly, if you can negotiate
improved terms with suppliers e.g. get longer credit or an increased credit limit; you
effectively create free finance to help fund future sales.

If you…. Then…….
Collect receivables (debtors) faster You release cash
from the cycle

Collect receivables (debtors) slower Your receivables


soak up cash

Get better credit (in terms of You increase your


duration or amount) from suppliers cash resources

Shift inventory (stocks) faster You free up cash


Move inventory (stocks) slower You consume more
Cash

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It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If
you do pay cash, remember that this is now longer available for working capital. Therefore, if
cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc.
Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water
flowing downs a plug hole, they remove liquidity from the business.
More businesses fail for lack of cash than for want of profit.

Sources of Additional Working Capital

Sources of additional working capital include the following:


Existing cash reserves
Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit
Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch the
financial resources of the business.

This is called overtrading. Early warning signs include:


Pressure on existing cash
o Exceptional cash generating activities e.g. offering high discounts for early cash payment
Bank overdraft exceeds authorized limit
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing

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Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a
cheque).

Handling Receivables (Debtors)


Cash flow can be significantly enhanced if the amounts owing to a business are collected faster.
Every business needs to know.... who owes them money.... how much is owed.... how long it is
owing.... for what it is owed.
Late payments erode profits and can lead to bad debts.
Slow payment has a crippling effect on business; in particular on small businesses who can least
afford it. If you don't manage debtors, they will begin to manage your business as you will
gradually lose control due to reduced cash flow and, of course, you could experience an
increased incidence of bad debt.
The following measures will help manage your debtors:
1. Have the right mental attitude to the control of credit and make sure that it gets the priority it
deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and customers.
4. Be professional when accepting new accounts, and especially larger ones.
5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank
references, industry sources etc.
6. Establish credit limits for each customer... and stick to them.
7. Continuously review these limits when you suspect tough times are coming or if operating in a
volatile sector.
8. Keep very close to your larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or
too old.

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Recognize that the longer someone owes you, the greater the chance you will never get paid. If
the average age of your debtors is getting longer, or is already very long, you may need to look
for the following possible defects:
weak credit judgement
poor collection procedures
lax enforcement of credit terms
slow issue of invoices or statements
errors in invoices or statements
Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention. Look for the warning signs of a future bad debt. For example.........

longer credit terms taken with approval, particularly for smaller orders
use of post-dated checks by debtors who normally settle within agreed terms
evidence of customers switching to additional suppliers for the same goods
new customers who are reluctant to give credit references
Profits only come from paid sales.

The act of collecting money is one which most people dislike for many reasons and therefore put
on the long finger because they convince themselves there is something more urgent or important
that demands their attention now. There is nothing more important than getting paid for your
product or service. A customer who does not pay is not a customer.
Managing Payables (Creditors)
Creditors are a vital part of effective cash management and should be managed carefully to
enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity
problems. Consider the following:
Who authorizes purchasing in your company - is it tightly managed or spread among a
number of (junior) people?
Are purchase quantities geared to demand forecasts?

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Do you use order quantities which take account of stock-holding and purchasing costs?
Do you know the cost to the company of carrying stock?
Do you have alternative sources of supply? If not, get quotes from major suppliers and
shop around for the best discounts, credit terms, and reduce dependence on a single
supplier.
How many of your suppliers have a returns policy?
Are you in a position to pass on cost increases quickly through price increases to your
customers?
If a supplier of goods or services lets you down can you charge back the cost of the
delay?
Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-
time basis?
There is an old adage in business that if you can buy well then you can sell well. Management of
your creditors and suppliers is just as important as the management of your debtors. It is
important to look after your creditors - slow payment by you may create ill-feeling and can
signal that your company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to enhance the future viability
and profitability of your company.

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REVIEW OF LITERATURE

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 Working capital management is that area of finance that is concerned with ensuring
adequate levels of current assets to meet current liabilities (Hampton 2007). The
management of assets and liabilities concerns management of working capital (Khan and
Jain 2007).

 Also, working capital management is an organization’s ability to efficiently control


current assets and current liabilities with a view of maximizing returns on its assets while
minimizing the payment of its liabilities (Adelman and Marks 2007).

 Furthermore, working capital management is concerned with a firm’s decisions which


determine the firm’s composition of working capital. It refers to utilization of current
assets namely: cash, account receivables, and inventory, and current liabilities:
outstanding expenses, account payable, etc (VanHorne and Wachowicz 2008).

 This involves all those activities which concern the firm’s receipts and payment of cash
(Ross, Westerfield, Jaffe and Jordan 2008). Hofmann and Kotzap (2010) concluded that
working capital management includes all aspects of the administration of current assets
and liabilities.

 The composition of working capital is always changing with respect to the phases of
operations. Breadey, Myers and Marcus (2011) propose that net working capital is a
better indicator of current assets and liabilities while cash conversion cycle is considered
as effective and adequate indicator of working capital management.

 The introduction of cash conversion cycle approach by Hager (1976) as a dynamic


method of measuring liquidity as against the traditional static liquidity ratios has received
recommendation by Largay and Stickney (1980). Brealey, Myers and Marcus (2011)
viewed cash conversion cycle as “the longer the production process, the more cash the
firm must keep tied up in inventories.

 In other words, accounts payable reduce net working capital” (p. 181). Richards and
Laughlin (1980) indicate that cash conversion cycle is the interval between the time of
actual cash expenditure for pro duction resources and the time cash is received from the
sale of the product.

 This implies that if the time difference grows longer, then larger investments will have to
be made into working capital (Deloof 2003). This reduces the firm’s flexibility of cash
for other activities (Khan and Jain 2007).

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 A study by Raheman and Nasr (2007) investigated the effect of different components of
working capital management including average collection period, average payment
period, cash conversion cycle, inventory turnover and current ratio on the net operating
profit of firms in Pakistan. The findings indicated a negative relationship between the
various components of working capital and profit.

 Deloof (2003) researched the relationship between working capital management and
profitability of non-financial firms over a five year period between 1992 and 1996. Using
cash conversion cycle, inventory policy and trade credit policy as measures of working
capital management, the conclusion was that if managers are able to reduce the number
of days of accounts receipts and inventory conversion period, it would increase profit,
proving there is a negative relationship between profitability and working capital
management.

 Also, Samiloglu and Demirgunes (2008) conducted a research on manufacturing firms in


Turkey. They showed that account receivable period and inventory conversion period
have significant negative effects on profitability. However, the research revealed cash
conversion cycle has no significant effects on firm’s profit.

 In addition, research works of Padachi (2006), Reheman and Nasr (2007), and
GarciaTeruel and Martinez-Solano (2007) have all proven that in terms of cash
conversion cycle it has significant negative relationship with firm’s profitability.

 Mohamad and Saad (2010) analyzed the effect of working capital management on the
profitability of 172 firms over a five-year period (2003-2007) listed on Bursa Malaysia.
They found negative relationship between working capital management components
(cash conversion cycle, current liabilities to total asset ratio, current assets to current
liability ratio and profitability captured by return on equity (ROE) and return on total
asset (ROA).

 As with Gill et al. (2010) study on manufacturing firms, Nobanee, Abdulatif and Al
Hajjar (2011) examined the impact of cash conversion cycle on non-financial Japanese
firms listed on the Tokyo Stock Exchange from 1990 to 2004.

 The results showed that except for consumer goods and service sector, there is a negative
relationship between the cash conversion cycle and the return on equity. Similar
empirical findings have been obtained by Ebben and Johnson (2011).

30
OBJECTIVE AND NEED OF
THE STUDY

31
OBJECTIVES OF THE STUDY:

 To perceive the intended meaning of working capital management.

 To understand the liquidity position and working capital utilisation of the company.
 To estimate the relationship between working capital and profitability.
 To perceive the significance of various sources of working capital.

 To make an item wise study of the components of the working capital

 To know the level of current assets in relation to current liabilities at METRO TYRES.

 To suggest the steps to be taken to increase the efficiency management of working capital.

32
RESEARCH METHODOLOGY

33
RESEARCHMETHODOLOGY

The procedure adopted for conducting the research requires a lot of attention as it has direct
bearing on accuracy, reliability and adequacy of results obtained. It is due to this reason that
research methodology, which we used at the time of conducting the research, needs to be
elaborated upon. It may be understood as a science of studying how research is done
scientifically. So, the research methodology not only talks about the research methods but also
considers the logic behind the method used in the context of the research study. Research
Methodology is a way to systematically study and solve the research problems. If a researcher
wants to claim his study as a good study, he must clearly state the methodology adapted in
conducting the research the research so that it may be judged by the reader whether the
methodology of work done is sound or not.

Meaning of Research:

Research is defined as “a scientific and systematic search for pertinent information on a specific
topic”. Research is an art of scientific investigation. Research is a systematized effort to gain
now knowledge. It is a careful investigation or inquiry especially through search for new facts in
any branch of knowledge. Research is an academic activity and this term should be used in a
technical sense. Research comprises defining and redefining problems, formulating hypothesis or
suggested solutions. Making deductions and reaching conclusions to determine whether they if
the formulating hypothesis. Research is thus, an original contribution to the existing stock of
knowledge making for its advancement. The search for knowledge through objective and
systematic method of finding solutions to a problem is research.

Research Problem:

The first step while conducting research is careful definition of Research Problem. Every
researcher has to face many problems while conducting any research that’s why problem
statement is defined to know which type of problems a researcher has to face while conducting
any study. It is said that, “Problem well defined is problem half solved.” Basically, a problem
statement refers to some difficulty, which researcher experiences in the context of either a

34
theoretical or practical situation and wants to obtain the solution for the same. The problem
statement here is:-

“TO MAKE A working capital analysis OF metro tyres”

Research Design:

A research designs is the arrangement of conditions for collection and analysis data in a manner
that aims to combine relevance to the research purpose with economy in procedure. Research
Design is the conceptual structure with in which research in conducted. It constitutes the
blueprint for the collection measurement and analysis of data. Research Design includes and
outline of what the researcher will do form writing the hypothesis and it operational implication
to the final analysis of data. A research design is a framework for the study and is used as guide
in collection and analyzing the data. It is a strategy specifying which approach will be used for
gathering and analyzing the data. It also include the time and cost budget since most studies are
done under these two cost budget since most studies are done under theses tow constraints. The
design is such studies must be rigid and not flexible and most focus attention on the following:-

 What is the study about?


 Why is the study being made?
 Where will the study be carried out?
 What type of data is required?
 Where can be required data be found?
 What period of time will the study include?
 What will be sample design?
 What techniques of data collection will be used?
 How will the data be analyzed?
 In what style will the report be prepared?

35
TYPES OF RESEARCH DESIGN:

 EXPERIMENTAL RESEARCH DESIGN


 EXPLORATORY RESEARCH DESIGN
 DESCRIPTIVE & DIAGNOSTIC RESEARCH

They can be described as follows:

 Exploratory Research Design: This research design is preferred when researcher


has a vague idea about the problem the researcher has to explore the subject.
 Experimental Research Design: The research design is used to provide a strong
basis for the existence of casual relationship between two or more variables.
 Descriptive Research Design: It seeks to determine the answers to who, what,
where, when and how questions. It is based on some previous understanding of the
matter.
 Diagnostic Research Design: It determines the frequency with which something
occurs or its association with something else.

RESEARCH DESIGN USED IN THE STUDY:

Descriptive research design is used in this study because it will ensure the minimization of
bias and maximization of reliability of data collected. Descriptive study is based on some
previous understanding of the topic. Research has got a very specific objective and clear cut
data requirements. The researcher had to use fact and information already available through
financial statements of earlier years and analyse these to make critical evaluation of the
available material. Hence by making the type of the research conducted to be both
Descriptive and Analytical in nature. From the study, the type of data to be collected and the
procedure to be used for this purpose were decided.

36
Data Collection Sources :

The process of data collection begins after a research problem has been defined and research
design has been chalked out. There are two types of data –

PRIMARY DATA - It is first hand data, which is collected by researcher itself. Primary data is
collected by various approaches so as to get a precise, accurate, realistic and relevant data. The
main tool in gathering primary data was investigation.

 and observation. It was achieved by a direct approach and observation from the
officials of the company.
 SECONDARY DATA - it is the data which is already collected by someone else.
Researcher has to analyze the data and interprets the results. It has always been
important for the completion of any report. It provides reliable, suitable, adequate and
specific knowledge.

TYPE OF DATA USED IN THE STUDY:

The required data for the study are basically secondary in nature and the data are collected
from:

 The audited reports of the company.


 INTERNET – which includes required financial data collected From metro tyres official
website i.e www.meto tyres.com and some other websites on the internet for the purpose of
getting all the required financial data of the bank and to get detailed knowledge about metro
tyres for the convenience of study.

Limitations of the study


The study is based on secondary data drawn from the secondary sources connected
to the topic. So errors are possible. And the study only covers the accounting
period of last five years and current year was excluded on account of non availability
of data. So the current position of the firm was not taken into consindration

37
ANALYSIS AND
INTERPRETATION

38
DATA ANALYSIS

First of all,various components of working capital as taken from the financial statements o f
METRO TYRES for the 5years is studied.

1.CURRENT ASSETS:

a)Inventories

(Rs in Crores)
PARTICULARS 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
INVENTORIES 1,196 1,381 1,174 1,166 1,127 1,156

INVENTORIES
1,600
1,400
1,200 1,381
1,196 1,174 1,166 1,156
1,000 1,127
AMOUNT

800
600
400
200
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis:Here the figure .1 shows that the total inventory on METRO TYRES was
maximum in the year 2012-13while it was minimum in the year 2015-16. However,
otherwise the inventories over the period remains same. Overall, the picture depicts a
healthy figure.

39
The inventories of METRO TYRES are valued by the following accounting policies:
 Inventory of raw material, including bulk material such as coal and fuel oil are valued at
cost net of tax credit wherever applicable.
 Stores and spares other than those meeting the criteria for recognition as Property,
Plant and Equipment are valued at cost net of tax credit wherever applicable.

 Stores and spares(other than major spares considered as Property, Plant and Equipment)
held but not issued for morethan5years are valued at 5%of the cost.
 Materials and other supplies held for use in the production (other than considered as non-
moving) are not written down below cost, if the finished products in which they will be
incorporated are expected to be sold at or above cost. These are stated below the cost at net
realizable value if the finished products in which they are to be incorporated are sold below
cost.
 Cost of raw materials, stores and spares as stated above are determined on moving
weighted average price.
 Inventories of finished goods, semi-finished goods, intermediary products and work in
process including process scrap are valued at lower of cost and net realizable value. Cost is
generally determined at moving weighted average price of materials, appropriate share of
labor and related overheads.Net realizable value is the estimated selling price in the
ordinary course of business available on the reporting date less estimated cost necessary to
make the sale.
 Inventory of scraps internally generated are valued at net realizable value.

At the time of demonetization the value of current asset eventually increased as the
amount due to debtors was received in the demonetization.

40
b)Tradereceivables (2)
(Rs In Crores)
PARTICULARS 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
TRADE
RECEIVABLES 138.12 142.99 243.57 120.82 235.21 184.25

TRADE RECEIVABLES
300

250
243.57 235.21
200
AMOUNT

150 184.25

138.12 142.99
100 120.82

50

0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis- Herefigure.2 shows that the trade receivables were less in the year 2014-15
and it was highest in the year 2013-14. The sale of goods (Alumina and Aluminum) is
made against either advances received from customer or letter of credit. The advance
received from customer is adjusted on supply of material. There is no credit period
allowed for such sales and accordingly no interest is charged. The average credit period
for sale of wind power is 30 days from the date of metering which is considered as
collection period.
So, the trade receivables mostly constitutes wind power sale and income from other
sources like rent or electricity charges for shops given on rent in townships. The portion of
trade receivables is very negligible in relation to the turnover (2.5% in 2016-17). The
company is able to sell its core products in cash and it is healthy sign for the company.
At the time of demonetization trade receivables decreased because the sales were paid
in advance as the would be debtors cleared their payments in advance with their
demonetized cash.

41
c)CashAndBankBalance (3)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17


Cash And Bank Balance 3504.38 4048.29 4627.98 4933.53 2287.23

Cash And Bank Balance


6000

5000
4933.53
4000 4627.98
AMOUNT

4048.29
3000 3504.38

2000
2287.23
1000

0
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis-Herethefigureno:3show,ifweseethecashandbankbalance,in2015-16,therewere
surplus funds in the company’s account .These surplus funds of Rs 4933.53 Crores was
short term deposit. Company could earn some interest. If them one would have been deposit
current account, the company would not have earn edam interest. However, the cash & bank
balances 2016-17 have been drastically reduced to 2287 crores. This has resulted because of
high dividend payment of Rs 541 croresin 2016-17 and buy back of share worth Rs 2835
crores. The excessive cash was distributed among the own errs and even after hat the cash
balance look attractive. The company’s cash position is very healthy.
In the figure 3 as in 2014 make in India was introduced based upon which at the time of
demonetization to clear the balance of old currency the company invested in new
machinery and increased the inventory of raw material that’s why cash balance falls in
2016-17.

42
d) Other Current Assets(4)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17


OTHER CURRENT ASSETS 193.78 235.3 240.28 233.64 579.94

OTHER CURRENT ASSETS


700
579.94
600
500
Axis Title

400
300 235.3 240.28 233.64
193.78
200
100
0
2012-13 2013-14 2014-15 2015-16 2016-17
Axis Title

Analysis – Here the figure no:4, other current asset are high estin the year2016-17. It
includes

Investments made in mutual fund and joint ventures. The same figure in the year 2015-16 is
lowest. The reason being the current investment in 2016-17 stands out at Rs 1221 crores
while the corresponding figure in 2015-16 was just Rs 66crores.But, during2015-16, non-
current investment in mutual fund was for RS 944 crores.
The reran other two most important It ems in other current assets, which contributes,
maximum towards this. Those are income tax receivables and payments towards sales tax/
VAT demand.

43
e)LoansandAdvances (5)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17


LOANS & ADVANCES 525.00 481.38 607.54 586.67 193.19

LOANS & ADVANCES

607.54 586.67
525.00
AMOUNT

481.38

193.19

2012-13 2013-14 2014-15 2015-16 2016-17


YEARS

Analysis- Here the figure no: 5 show, the loans to employees has increased from Rs 525
Crores.

In 2012-13 to Rs 586 Crores in 2015-16. Normally, the company gives loans to employees so
as to maintain a good relationship with the employees. If the employees get easy loans from
the company, this will help in increasing the productivity of the company. The employees
will be motivate and this will contribute towards the achievement of company’s goal.
However, in the year 2016-17, this figure has been reduced drastically to Rs 193 crores.

44
f)TotalCurrentAssets (6)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17


TOTAL CURRENT ASSETS 7075.81 7426.20 7712.18 7182.02 5655.79

TOTAL CURRENT ASSETS

7426.20 7712.18
7075.81 7182.02
AMOUNT

5655.79

2012-13 2013-14 2014-15 2015-16 2016-17


YEARS

Analysis- Here the figure no.6 show, the total current assets have also increased from Rs
7075.81 Crores in 2012-13 to Rs. 7712.18 Crores in 2014-15 and slightly it has decreased to
Rs.7182.02 Crores in 2015-16. The after in the year 2016-17 again it has decreased
Rs.5655.79 Crores. The ratio of current assets to the total asset is almost 40% in 2016-17,
which depicts a healthy sign for the company.

45
2.CURRENT LIABILITY (7)

a)Liabilities
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
LIABILITIES 3049.26 3095.5 1780.83 1931.83 2534.86

LIABILITIES
3500
3000
3049.26 3095.5
2500
2534.86
AMOUNT

2000
1931.83
1500 1780.83
1000
500
0
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis-In the figure no.7,the current liabilities have slightly increased from Rs2545.7Crores in
2012-13toRs2564.38Crores in2013-14.Then there was sharp decline in liabilities i.e. from Rs
2564.38 Crores in 2013-14 to Rs 1170.21 Crores in 2016-17.There deduction in current liabilities
is a very positive sign For the company as it is able to meet its current obligations in time along
with minimum impact on future

In the figure no.7 at the time of demonetization company take a advance from its customers
after that customers demanded the product ,as the company purchased the achinery with
relate to this company has shortage of funds so company purchased the raw materials from
suppliers on credit so the current liability increased.

46
b)TotalNetProvisions (8)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
TOTAL NET PROVISIONS 162.67 147.25 186.21 277.41 117.07

TOTAL NET PROVISIONS


300
250 277.41
200 0000000000000
AMOUNT

150 186.21
162.67 147.25
100
117.07
50
0
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis- Here in figure no. 8 the net provision has increased from Rs 162.67 Crores in 2012-13 to Rs
277.41 Crores in 2016-17 and suddenly it has decreased to Rs 117.07 Crores in 2016-17.

Here in figure no. 8 at the time of demonetization when the company has the shortage of funds,
company used their provisions that is why total net provisions falls.

47
c)Total Current Liabilities (9)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17


TOTAL CURRENT LIABILITY 3211.93 3242.75 1967.04 2209.24 2651.93

TOTAL CURRENT LIABILITY


3500

3000 3211.93 3242.75


2500
2651.93
AMOUNT

2000 2209.24
1967.04
1500

1000

500

0
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis-In the figure no.9 the total current Liabilities have slightly increased from
Rs3211.93 Crores in2012-13to Rs3242.75Crores in2013-14 .Then it suddenly decreased
toRs1967.04 Crores in 2014-15. Then again it increased to Rs 2651.93 Crores in 2016-17.
The major contributes increase in current liability in 2016-17is trade payables which is
increased from Rs 640crores in2015-16 to Rs 845crores in 2016-17.Again,certain statutory
obligations has also been increased in 2016-17.
In the figure no.9 at the time of demonetization company take a advance from its
customers after that customers demanded the product ,as the company purchased them
machinery with relate to this company has shortage of funds so company purchased the
raw materials from suppliers on credit so the total current liability increased.

48
d)WORKINGCAPITAL (10)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17


TOTAL CURRENT ASSETS(A) 7075.81 7426.2 7712.18 7182.02 5655.79
TOTAL CURRENT LIABILITIES(B) 3211.93 3242.75 1967.04 2209.24 2651.93
WORKING CAPITAL(A-B) 3863.88 4183.45 5745.14 4972.78 3003.86

WORKING CAPITAL(A-B)

5745.14
4972.78
AMOUNT

4183.45
3863.88
3003.86

2012-13 2013-14 2014-15 2015-16 2016-17


YEARS

Analysis-One of the most important points in working capital management is to maintain the
levels of current assets twic e the level of current liabilities.A weak liquidity position and the
solvency of the company A negative working capital means a negative liquidity and may
prove to be harmful for the company’s reputation.
Here ,the figure.10 shows that the working capital was maximumin 2014-15 i.e.Rs
5745.14Crore and the working capital was minimumin 2016-17i.e. Rs 3003.86Crore.There
should be neither excessive working capital nor inadequate working capital.
Excessive working capita will
resultt
 Unnecessary accumulation of inventories.
 It is an indication of defective credit policy
and slack collection period.
 It may degenerate the managerial efficiency.

49
 This may make dividend policy liberal and difficult to cope within future
when it is unable to make speculative profits.
Inadequate working capital may have following repercussion:
 May stagnate growth.

 It may become difficult to implement operating plans and achieve thefirm’s profit target.

 It may become difficult to meet day-to-day commitments.


 The firm’s profitability may deteriorate.
 It may be difficult for the company to avail attractive credit opportunities.
 The firm may lose its reputation when it is not in a position to honors its short-term
obligations.

(A) Analysis of working capital using liquidity ratios-

Liquidity ratio measures the ability of the firm to meet its current obligations
(liabilities).Liquidity

ratio establishes a relationship between cash and other current assets to current
obligations, which will provide a quick measure of liquidity. The failure of a company
to meet its obligations due to lack of sufficient liquidity ,will result in a poor credit
worthiness, loss of creditors’ confidence or even in legal resulting in the closure of the
company. So it is necessary to strike a proper balance between high liquidity and lack
of liquidity.

One of the most important points in working capital management is to maintain


the level as in the figure suggest working capital has maintained a good ratio from
2012-2015 but in 2016-2017 working capital ratio falls due to demonetization.

50
 Current Ratio
(11)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
TOTAL CURRENT ASSETS 7075.81 7426.20 7712.18 7182.02 5621.67
TOTAL CURRENT LIABILITY 3211.93 3242.75 1967.04 2209.24 2651.93
CURRENT RATIO 2.20 2.29 3.92 3.25 2.12

4.50 3.92
4.00
3.25
3.50
3.00
PERCENTAGE

2.20 2.29
2.50 2.12
2.00
1.50
1.00
0.50
0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

CURRENT RATIO

Analysis-The current ratio is one of the best known measures of short term solvency .The main
question this ratio asks : Does your business have enough current assets to meet the payment of
its current debts with a margin of safety for possible losses in current assets?”it is calculated as:

Current ratio=Current Assets /Current Liabilities

The thumb rule2:1 in current ratio is considered to be very ideal and satisfactory .See in the
figure no 11 ,it can be clearly seen that METRO TYRE S has always a better current ratio
and its short term liquidity position is very healthy.
In the figure 11 before the demonetization current ratio on the higher side in 2014-2016
but in 2016 november after the demonetization current asset falls due to lakh of cash
and current liability as they unable to pay some debts.

51
 Quick Ratio
(12)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
TOTAL CURRENT ASSETS(A) 7075.81 7426.2 7712.18 7182.02 5655.79
INVENTORIES(B) 1380.64 1173.66 1165.56 1126.97 1155.93
TOTAL CURRENT LIABILITY( C) 3211.93 3242.75 1967.04 2209.24 2651.93
QUICK RATIO(A-B)/C 1.77 1.93 3.33 2.74 1.70

QUICK RATIO(A-B)/C
3.50 3.33
3.00 2.74
PERCENTAGE

2.50
1.93
2.00 1.77 1.70
1.50
1.00
0.50
0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis – Absolute liquid ratio establishes a relationship between absolute liquid


assets and current liabilities. Absolute liquid asset consists of only cash& cash
equivalents, short term investments. A thumb rule of 0.5 is considered to be ideal and
represents a satisfactory financial position. NALCO has always maintained the ratio way
above 0.5 as clearly indicated in the graph. The position of NALCO in this aspect stands out
in the industry.

In the figure 12 quick ratio on 2015 on a hiher side as they have the required total
current asset and inventories but in 2016 their current liabilities increased from 2209
crores to 2651.93 crores due to demonetization they faced difficulties at that time.

52
 CashRatio (13)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
CASH & BANK BALANCE(A) 3504.38 4048.29 4627.98 4933.53 2287.23
INVESTMENTS(B) 1329.02 1244 950 66 1221.13
TOTAL CURRENT LIABILITIES(C ) 3211.93 3242.75 1967.04 2209.24 2651.93
CASH RATIO(A+B)/C 1.50 1.63 2.84 2.26 1.32

CASH RATIO(A+B)/C
3.00
2.84
2.50
2.26
2.00
AMOUNT

1.63
1.50 1.50
1.32
1.00

0.50

0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

CashRatio=(cashandBankbalances+marketsecurities)/Current
Liabilities
Analysis-Since cash is the most liquid Asset and a financial analyst may examine cash ratio
and its equivalent to current liabilities .Thought the cash ratio of METRO TYRES is varying
in all they years but then also it able to meet its financial requirements .A cash ratio of more
than 1is always a healthy sign for the company as it will be able to meet at its current
liabilities in time along with helping in other capital investments also. However ,higher cash
ratio may indicate idle cash /bank balance which could have utilized elsewhere to earn more
return. Overall, METRO TYRES have a strong cash reserves and it has maintained it
throughout the 5years. FROM 2012 to 2016 the lowest cash ratio was found in 2016
because after the demonetization the company has less cash ratio as in the time of
demonetization when they have the cash they spent it on new machinery for buying.

53
 Absolute Liquid Ratio (14)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
CASH & BANK BALANCE(A) 3504.38 4048.29 4627.98 4933.53 2287.23
INVESTMENTS(B) 1329.02 1244 950 66 1221.13
TOTAL CURRENT LIABILITIES( C) 3211.93 3242.75 1967.04 2209.24 2651.93
Absolute Liquid Ratio(A+B)/C 1.50 1.63 2.84 2.26 1.32

Absolute Liquid Ratio(A+B)/C


3.00 2.84

2.50 2.26
PERCENTAGE

2.00
1.50 1.63
1.50 1.32

1.00

0.50

0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis–Absolute liquid ratio establishes relationship between absolute liquid assets and
current liabilities. Absolute liquid asset consists of only cash &cash equivalents, short term
investments .A thumb rule of 0.5 is considered to be ideal satisfactory financial position
.METRO TYRES has always maintained the ratio way above 0.5 as clearly indicated in the
graph. The position of METRO TYRES in this aspect stands out in the industry.

Before the demonetization absolute liquid ratio is on a higher side as they have the enough
cash and bank balance but after the demonetization they absolute liquid ratio falls decline
to 1.32 ratio as there current liability increased and their cash balance also decreased
because they invested in buying new machinery.


54
 Net Working Capital Ratio ( 1 5 )
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
TOTAL CURRENT ASSETS(A) 5655.79 5655.79 5655.79 5655.79 5655.79
TOTAL CURRENT LIABILITY(B) 3211.93 3242.75 1967.04 2209.24 2651.93
TOTAL ASSETS( C) 16326.95 16548.51 16177.67 16518.99 14501.65
NET WORKING CAPITAL RATIO(A-B)/C 0.24 0.25 0.36 0.30 0.21

NET WORKING CAPITAL RATIO(A-B)/C


0.40
0.36
0.35
0.30
0.30
0.25
PERCENTAGE

0.25 0.24
0.21
0.20
0.15
0.10
0.05
0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

NetWorkingCapitalRatio=(TotalCurrentAsset-TotalCurrentLiability)/

(Total Assets)

Analysis-The difference between current assets and current is called net working capital or
net current assets .The company with larger net working capital has the greater ability to
meet its current obligations. Net working capital ,however ,measures the firm potential . It
can be related to net assets (or ,capital employed).Seeing the graph for last 5years ,it is
observed that METRO TYRES has always maintained the ratio more than 20% with highest

55
of 0.36% in 2014-15.A healthy net working capital ratio indicates sound solvency and
liquidity position of METRO TYRES.

Seeing the graph from 2012-2016 ,it is observed that before the demonetization net
working capital ratio is on higher side as they have the current asset more than the current
liabilities as the gap is large but after the demonetization the gap between the current asset
and current liability decreased due to increase in the current liabilities.

 InventoryTurnoverRatio
(16)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
COST OF Goods Sold(A) 6,522.49 6,371.38 6,090.45 6,303.26 7,453.42
Average Inventory(B) 1,288.22 1,277.15 1,169.61 1,146.27 1,141.45
INVENTORY TURNOVER RATIO(A/B) 5.06 4.99 5.21 5.50 6.53

INVENTORY TURNOVER RATIO(A/B)


7.00
6.53
6.00
5.50
5.00 5.06 4.99 5.21
PERCENTAGE

4.00
3.00
2.00
1.00

0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

56
Analysis – Inventory turnover ratio establishes their relationship between the cost of goods sold
during the year and average inventory held during the year. It measures the efficiency with
which a firm utilizes or manages its inventory. It is calculated as:

Inventory Turnover Ratio=Cost Of Goods Sold/Average Inventory*

*Average Inventory=Opening inventory + Closing inventory


2

This ratio indicates how fast inventory is used or sold. A high ration is good from the view
point of liquidity and vice versa. A low ratio would indicate that inventory is not
used/sold/lost and stays in shelf or in the warehouse for a long time. As in the graph, the ratio
is in a increasing trend with highest in 2016-17. This indicates METRO TYRES is able to
convert its inventory into sale frequently which is a very healthy sign for the company

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 DebtorTurnoverRatio (17)
PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17
Turnover / Sales(A) 6916.48 6780.85 7382.81 6816 8050.02
Average Debtor(B) 140.555 193.28 182.195 178.015 209.73
Debtor Turnover
Ratio(A/B) 49.21 35.08 40.52 38.29 38.38

Debtor Turnover Ratio(A/B)


60.00

50.00 49.21
PERCENTAGE

40.00 40.52
38.29 38.38
35.08
30.00

20.00

10.00

0.00
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Analysis - Debtors’ turnover ratio throw light on the collection and credit policies of the
firm. It measures the efficiency with which management is managing it trade receivables.
The speed with which the receivables are collected affects the liquidity position of the firm. It
is calculated as:

Debtors Turn over Ratio=Total Sales (Credit)/Average Debtors*

Average debtors=(Opening debtors + Closing debtors) / 2

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However as per METRO TYRES’s policy, the sale of goods (Alumina and Aluminum) is made
against either advance received from customer or letter of credit. The advance received from
customers adjusted on supply of material. There is no credit period allowed for such sales and
accordingly no interests charged. The average credit period for sale of wind power is 30 days
from the date of metering which is considered as collection period. So, the trade receivables
mostly constitutes wind power sale and income from other sources like rent.

59
FINDINGS

 Company is maintaining a healthy current ratio which is at par and in 2016-2017 it shows the
best working capital of an organisation.
 Metro tyres has maintained the 0.5 absolute liquidity ratio through out from the last 5 years.
 It has been observed from the data that the cash and bank balance of metro tyres had fall in
2016-2017.
 Net working capital has been measuring the firms potential reserves ,data states that ratio of
more than 20% with highest of 0.36%in 2014-15.
 As inventory turnover ratio of the organisation shows an increasing trend ,this indicates that
METRO TYRES is all ready to coverts its inventory into sale.

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SUGGESTIONS

1. The company must take necessary steps to step up the quick ratio to 1:1
which indicates highly solvent position.
2. The company should give more emphasis on the cash management as the
absolute liquidity ratios of almost all years are below standards. Cash budgets
are very useful for cash management.
3. Set the planning standards for stock days, debtor days and creditor days.
Having set planning standards, keep to them.
4. Impress on staff that these targets are just important operating budgets and
standards cost. Instil an understanding amongst the staff that working capital
management produces profits.
5. Keep stock levels as low as possible, consistent with not running out of stock
and not ordering stock in uneconomically small quantities.
6. “Just in Time” stock management is good, as long as it is “Just in Time” and
never fails to deliver on time. Consider keeping stock in supplier’s
warehouses drawing on its as needed and saving warehousing cost.
7. Assess all significant new customers for their ability to pay. Take references,
examine accounts.
8. Company should put more stress on Publicity either by Electronic way or other tradtonal ways.

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CONCLUSIONS

From the overall analysis, it can be seen that the company’s working capital
management OF company is highly efficient and has met the industrial average and the standard
ratios . The comparison with the industrial average helped in understanding the
efficiency of the working capital management. It also helped to know the
short comings of the company in some areas. The company should take necessary
actions to overcome these drawbacks and should further strengthen the working
capital management.

The cash position of METRO TYRES is at good levels and it can cater the current liabilities as
well as fund for the expansion projects in pipeline. Working capital of the company constitutes
around 20 % of the total assets and with the higher capacity utilization and expansion projects
.IT will definitely increase from now on .Day to day working capital requirement is funded by
Punjab national bank and cost of such funding is almost negligible thanks to strong credit rating
of METRO TYRES in the industry.

The company being debt free for so many years and with piling of cash & bank balances was
able to deliver high dividend payout. But ,keep in mind the expansions programs METRO
TYRES has ,it can take loan from the market to fund those projects .As a premium public sector
company with high credit rating as well as positive global scenario of rubber tyre industry
METRO TYRES will be able to raise fund data lower rate.

The only major concern found through the study was lowering return on capital employed. With
the plant being old and increasing cost of production, the production has been on lower side
.Company must take steps to maintain it at a reasonable level.

62
BIBLIOGRAPHY
Books

 A.Bernstein Leobold and J.wild John, Financial Statements, page no. 12, 42,43,44,88, first edition
2016, Tata Mcgraw hill, New Delhi.
 Beri G. C., Marketing Research, page no. 1-13, third edition Tata McGraw Hill, New Delhi
 Goel D.K. Management accounting and financial management, page no.4.1 to 4.83, third edition
2014, Avichal publishing company, New Delhi.
 Gupta R.L. & Gupta V.K., fundamentals of accounting, page no.119-136, first edition, tata
mcgraw hill New Delhi
 Gupta S.P., statistical methods, page no. 221-249,321-356, fifth edition, V.K. publishing
 Gupta Shashi K. & Sharma R.K., Financial Management, and page no. 88- 110, second edition
V.K publication Delhi.
 Jain T.R., Statistics for M.B.A., page no. 1-15, 281-284, 301-305(second part), second edition:
2006-2007, V.K. (India) enterprise.

Magazines

 Business India Nov 2017 pg no. 99-101.


 Charted Financial Analyst. May 2016.
 Chartered financial accountant Dec 2016.
 Competition Master, July 2016.pgno. 21-27.
 E.P.W September 2016 pg no. 63-69.

WEBSITES :-

 http://www.derivativesindia/scripts/glossary/indexobasic.asp
 http://www.metrotyres.com/about/finance.htm

63
ANNEXURE
working capital of metro tyres of last 5 years
(18)

(1)CURRENT Asset 2012-2013 2013-2014 2014-2015 2015-2o16 2016-2017


(a) inventories 1381 1174 1166 1127 1156
(b) Trade recievables 142.99 243.57 120.82 235.21 184.25
(c)Cash and bank 4048.29 4627.98 4627.53 4933.53 2287.23
balance
(d)Other current asset 193.78 235.3 240.28 233.64 579.94
(e)Loans and advances 525 481.38 607.54 586.67 193.19
TOTAL CURRENT ASSET 7075.81 7426.20 7712.18 7182.02 5655.79
(2)Current liability
(a)liabilites 3049.26 3095.5 1780.83 1931.83 2534.86
(b)total net provisons 162.67 147.25 186.21 277.41 117.07
(c)Total current 3211.93 3242.75 1967.04 2209.24 2651.93
liabilities
(1-2) working capital 3683.88 4183.45 5745.14 4927.78 300386.

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