Declaration

I Dhanashree Arun Nawarkar, a student of MBA (2006-2008) studying at _ _ _ _ _ _ , solemnly declare that the project work title as Working Capital Management was carried out by me in the partial fulfillment of the MBA programme under University of Pune is genuine work of mine. It has not been either fully or partly related to any other institute prior in any other connection. This project was undertaken as part of the academic curriculum according to the University rules and norms and by no commercial interest and motives.

(Dhanashree A. Nawarkar)

Acknowledgement

Gratitude is the hardest emotion to express and often one does not find adequate words to convey ones entire feelings. I owe my gratitude to The Mahindra & Mahindra Limited, Nasik for providing me the opportunity to undergo 2 months summer training, especially Mr. Shriniwas Mantri ,Deputy General Manager Accounts for allowing me to work on the project titled Working Capital Management. It is my foremost duty to express my deep sense of gratitude and respect to Deputy Manager Mr. Ameya Chitale for his valuable guidance as well as uplifting tendency and inspiring me for taking up this project work and complete it successfully. I would like to give sincere thanks to everyone in Mahindra & Mahindra for their extreme help, self guidance, cooperation and friendliness; they did it in one way or other for successful completion of the project. My deep gratitude to Mrs. -----------------, the Sr. Director of-----------------, who always been playing a great role in all round development of student. Finally, I would like to put on record my thanks to my Faculty Project Guide Mr. ----- Sir and all teaching and non teaching staff as well as friends for their kind support, help and assistance, which they extended as and when required.

(Dhanashree A. Nawarkar)

INDEX
Sr. No. 1. Title Introduction
1.1 Objective of the Project. 1.2 Selection of the Topic. 1.3 Objectives of the Study. 1.4 Methodology of the Study. 1.5 .Limitations of the Study.

Page No.

2.

Profile of The Mahindra & Mahindra Ltd.

2.1 About The Mahindra Group. 2.2 Business of the Mahindra Group. 2.3 Social Initiatives of the Organization. 2.4 Organizational Chart. 2.5 Values and Policies. 2.6 Milestones.

3.

Conceptual View of Working Capital Management

3.1 Introduction of Working Capital. 3.2 Importance. 3.3 Working Capital Cycle. 3.4 Management of Working Capital. 3.4.1 3.4.2 3.4.3 3.4.4 Cash Management. Inventory Management. Receivable Management. Payable Management.

3.5 Sources of Working Capital Finance.

4.

Overview of Working Capital Mgmt. at M&M Ltd.

4.1 Working Capital Cycle. 4.2 Working Capital Management. 4.2.1 Cash Management. 4.2.2 4.2.3 4.2.4 Inventory Management. Receivable Management. Payable Management.

4.3 Purchasing Function. 4.4 Customer Order Fulfillment Chart.

5.

Data Analysis and Interpretation.

5.1 Estimation of Working Capital. 5.2 Ratio Analysis. 5.3 Graphical Presentation.

6.
7.

Recommendations and Conclusion. Glossary and Bibliography.

1
Introduction
1.1 Object of the Project. 1.2 Selection of the Topic. 1.3 Objective of the Study. 1.4 Research Methodology. 1.5 Limitations of the Project.

Introduction

1.1 Objective of the Project

All the student of MBA has to go for the summer training after been in completion of first year. Training is the most important part of learning in any technical and professional education. Exposing the young prospective executive to the actual business world not only broadens their horizons but also helps them to effectively grasp the various angle of business. So that it is the stand for them in good self employed professional when they actually come to occupy the executive position. It aims at practical training obviously of small duration, is valuable and indispensable part of the MBA degree. This project is a great experience in terms of the opportunity it has been offered for learning. It is a perfect simulation of the real life situation that would have to face some days ahead during the professional career. It provides ample opportunities for the application of various management concepts which were learnt simultaneously aiding the realisation of plausibility of each. The objectives of Summer Training are: To acquaint with real organizational problems and challenges. To develop communication skill. To develop analytical ability. To develop decision making ability and skills.

1.2 Selection of Topic

The topic selected for the project work is the study of Working Capital Management As Working Capital is the fundamental need of any organisations. The term is commonly used for the capital required for day-to-day working. A business cannot invest whole of its capital in long term assets. The ratio of Fixed Capital and Working Capital may differ due to nature and volume of business but it is quite impossible to have no working capital. Therefore, investment in fixed assets only is not sufficient to run the business. Working capital or investment in current assets is must for running the day to day business activities. The fate of large scale investment in fixed capital is often determined by a relatively small amount of current assets. Working Capital is just like a heart of industry, if it is weak, the business cannot prosper and survive although there is the large body of fixed assets. Moreover, adequacy of working capital is the live blood and controlling nerve centre of a business. It is said Inadequate working capital is disastrous, where as redundant working capital is a criminal waste. Both situations are not warranted in a sound organisaton. The problems involved in managing the working capital are quite different from those in managing fixed capital. In working capital management time factor is not crucial as a decision variable. Therefore the deep study of Working Capital Management is essential to get familiar with the practical aspects of business challenges and management.

1.3 Objectives of the Study

The prime objective of Study of Working Capital Management at Mahindra and Mahindra Ltd., Nasik is to get familiar with the organisation environment and working of an organisation.

1. To understand the working capital structure of Mahindra and Mahindra Ltd. 2. To understand the Inventory system. 3. To analyse the Cash management. 4. To understand the aspects of Receivable management. 5. To study the management of payables. 6. To study the ratio analysis related to working capital so as to know the financial standing of the company. 7. To study the effectiveness and drawbacks of Working Capital

Management, if any to suggest changes.

1.4 Research Methodology of the Study

Approach to Research: Research is considered to be the more formal, systematic and intensive process of carrying on a scientific method of analysis. Research methodology is a way to systematically solve the research problem. It is important for research to know not only the research method but also the methodology. The procedures by which researchers go through their work of describing, explaining and predicting phenomenon are called methodology. Data Collection is an important step in methodology of any project and success of any project will be largely depend upon how much accurate you will be able to collect and how much time, money and efforts will be required to collect the necessary data. There are two types of data: Primary Data: The Primary Data is a fresh and first hand data which is collected for the first time and happen to be original in character. We have collected the information and data through formal and informal discussions with our professional guide in the organisation, and through personal interviews, questionnaire, observation etc. which are methods available for primary data collection. Secondary Data: The secondary data is the data which have already collected and stored. We can easily get secondary data from records, journals, annual reports, newsletters and books. It will save the time, money and efforts in collecting the data. We also have collected the data related to working capital management from annual reports, website of M&M, newsletters etc.

1.5 Limitations of Study

1. All the financial statements are generally prepared for the entire Mahindra group as a whole and it was a tedious job to study the working capital management of a big organisation in a project period of two months. This is the top most limitation of the study. 2. Data of current year, ending on 31st March 2007 was not available, so the report was bound to be completed by the last years figures ending on 31 st March 2006. 3. The Mahindra & Mahindra Ltd. has been divided into five segments and each segment also has sub divisions, but due to restricted inf. policies segment wise accounts cant be disclosed. So intra segment comparison was not possible. 4. Company has some financial information secrecy regarding its policies, which was not disclosed at the time of the project. 5. The study of this project is restricted to the geographical area of Nasik and surroundings. 6. The duration of the project was short to collect all the information required.

2
Company Profile
2.1 About the Mahindra Group. 2.2 Values and Policies. 2.3 Business of Mahindra Group. 2.4 Organisational Chart. 2.5 Milestones.

2.1 About The Mahindra Group

The Mahindra& Mahindra Ltd. is a flagship company of the Mahindra Group. The Mahindra Group is among top 10 industrial houses in India. Over the period, it has grown to become a business group with a turnover of over US $ 3.8 billion. It is only Indian company among top 5 tractor manufacturing in world and market leader in multi-utility vehicle in India. Group has a leading presence in key sector of Indian economy, including trade and financing services (Mahindra Intertrade Ltd. And Mahindra financial services ltd), automotive company &infrastructure development (Mahindra GESCO, Mahindra holiday and resort India Ltd., Mahindra World City.) The Mahindra Group has 60 years of manufacturing experience and has built a strong base in technology, engineering marketing and distribution. It employs over 30,000 people and has several state-of-the-art facilities in India and overseas. The Group has ambitious global aspirations and has a presence in five continents. Mahindra products are today available in every continent except Antarctica. The Mahindra Group has one tractor manufacturing plant in China and three assembly plants in United States. It has made strategic acquisitions across the globe including stokes group (UK) and Jeco holding AG (Germany). Its global subsidiaries include Mahindra Europe Srl. Based in Italy, Mahindra USA Inc. and Mahindra South Africa. The Mahindra Group entered into partnerships with international companies like Renault SA, France, and International Truck and Engine Corporation USA Forbes has ranked the Mahindra group in its top 200 list of the worlds most reputable companies and in the top 10 list of most reputable Indian companies.

2.2 Values and Principles

OUR PROMISE :-

We shall ingeniously surpass our customers Latent desires by unleashing the passion of our people. We shall continue to strive for superior performance. OUR CORE VALUES :Our core values are influenced by our past tempered by our present and are designed to shape our future. They are an amalgam of what we have been, what we are and what we want to be. These values are: Good corporate citizenship: As in the past, we will continue to seek long term success that is in alignment with our countrys needs. we will do this without compromising on ethical business standards. Professionalism We have always sought the best people and given them the freedom and the opportunity to grow. We will continue to do so. We will support innovation and well-reasoned risk taking, but will demand performance. Customer first We exist and prosper only because of our customers. We will respond to their changing needs and expectations speedily and courteously Quality focus Quality is the key to delivering value for money to our customers. We will make quality a driving value in our work, in our products and in our interaction with others. We will do it first time right. OUR CORE PURPOSE :Indians are second to none in the world. The founder of our nation and our company passionately believe this .we will prove them right by believing in ourselves and by making The Mahindra Group known world wide for the quality, durability and reliability of its products and services.

mahindra
Business is not everything to them
For The Mahindra Group, Corporate Social Responsibility (CSR) means making socially responsible products, engaging in socially responsible employee relations and making commitment to the community around it. For the Group, CSR is not just a duty; it is a way of life. Celebrating its 60th anniversary by renewing its commitment to CSR. Pledge to dedicate 1% of its profit (after tax), on a continuous basis towards CSR. Launched a unique kind of ESOPs Employees Social Options to involve its ployees. In social responsible activities. Pledged to provide free Cochlear implants to 60 profoundly hearing impaired under privilege children over a 3-year period. Plans to set up two Mahindra Pride Schools to offer a variety of courses to students from socially weaker sections of society, with an emphasis on employability. Support the educations of 6000 Nanhi Kalis. Enhance learning levels in 6 Government schools. Double the Mahindra All India Talents Scholarships given to the students of economically disadvantage families from 300 to 600 per annum.

2.3 Business of Mahindra Group

The whole business of Mahindra Group is divided among independent business sectors. It is presented with the help of following diagram:

Automotive Sector Specialty Business Sector Farm Equipment Sector

Infrastructure Development Sector

The Mahindra Group

Information Technology Sector

Systech Sector

Trade and Financial Service Sector

Even after being under one flagship of The Mahindra Group, each sector has its own identity and works independently. Lets have an overview of each sector.

Farm Equipment Sector

The Mahindra Group Farm Equipment Sector has a significant presence across six continents. It is among the top five tractor brands in world, with its own stateof-the art plants in India , USA, China and Australia , and a capacity to produce 1,50,000 tractors a year. The Group has a network of 800 dealers world-wide. In the domestic business, the Farm Equipment Sector has had an unparalleled market leadership for last 24 years. It is the largest producer in India. Domestic operation: Mahindra has enjoyed an unparalleled market leadership in domestic market for the last 23 years. With a 30 % market share, the Bhoomiputra, Sarpanch and Arjun brands of tractors. In 2004, Mahindra achieved another landmark- it sold its one millionth tractor. Overseas operation: In over million fields, Mahindra tractor has made a mark all across the globe. In the US, the company is actually at no.4 position in the 0-70 hp segment and assembles tractors at three plants located in Texas, Georgia and California. A joint venture with Jiangling Motor Co. in China, Mahindra is producing tractor under the name of Mahindra China Ltd., which has began exports to many countries. Now it has an assembly plant in Australia and has started building a dealer network across the country. Mahindra tractors are in great demand by farmers in the United States, SAARC countries like Sri Lanka, Nepal and Bangladesh, Middle-East and African countries Mahindra Gujarat Tractor Ltd. [MGTL]: Established way back in 1954 as Hindustan Tractors. In 1978, it was nationalized and was subsequently renamed as Gujarat Tractor Corporation Ltd. with the Government of

Gujarat assuming 100% ownership. Then in the year 1999, Mahindra & Mahindra acquired a majority stake and changed the companys name Mahindra Gujarat Tractor Ltd. Mahindra Agribusiness: It helps farmers by providing: Agri-inputs Farm solutions Farm Finance Assistance in commodity sales Dissemination of information Its main objective was to provide products and services to meet the requirements of farmers under one roof

Information Technology Sector

The Groups foray into Information technology dates back to 1986 when the flagship company of the sector, Mahindra-British Telecom, came into being. Recently the company changed its name to Tech-Mahindra. Today, the Group caters to the entire IT services universe from software engineering to product based solutions. There are various units of IT sector such as: Tech-Mahindra Bristlecone Mahindra Logisoft Business Solutions Ltd Mahindra Special Service Group

Trade & Financial Service Sector

For over a decade Mahindra Finance has not just disbursed loans but has touched the lives of Indians helping them to fulfill their dreams. The company constantly comes up with innovations that help to put a large section of people on road to prosperity and reaches out to more and more people. There are various units of Trade & Financial Service sector such as: Mahindra Intertrade Limited- Mahindra Intertrade promotes and develops a variety of business interests. Today it plays the role of brand custodian for brand of Walt, Disney and shares a unique relationship with the Japanese Steel Mills and NSC. Mahindra & Mahindra Financial Services The Company has entered into tractor financing as well as non Mahindra car financing and planning for housing finance and personal finance. Mahindra Steel Service Centre- MSSC is the first organized steel service centre in India. It seeks to provide high quality raw material and JIT deliveries to the automotive sector and value added products. Mahindra Middle-East Electrical Steel Service Centre This is the first steel service centre in middle-east, in organized sector, to process both Cold Rolled Grain Oriented and Cold Rolled Non-Grain Oriented steels used in the manufacture of transformers and compressors in the highgrowth GCC market. Mahindra Insurance Brokers It covers everything right from childrens plans and endowment to Retirement Plans and whole-life.

Systech Sector
Systech is the auto ancillary division of Mahindra& Mahindra Ltd. this sector has business of forgings, castings, gears and composites. While catering to the groups flagship company, it even supplies material to major OEMs such as Telco, Ashok Leyland, Maruti Udyog and Bajaj Auto. There are various units of Systech sector such as: Mahindra Engineering Mahindra Engineering provides design services to companies world-wide. With Plexion Technologies now being a part of ME, the company is able to offer enhanced CAE services catering to two more business verticals Aerospace and General Engineering. Mahindra Forging- This is the third largest manufacturer of closed die forgings in India, manufacturing crank-shafts, connecting rods and stub axle forgings. Mahindra Stokes- This is the UK based largest automotive forging, grown to become a first tier supplier of power train, chassis and other key components to non automotive customer. Mahindra Gears It is leading manufacture of gears and other transmission components in India. It has received ISO/TS 16949:2002 certification from TUV Suddeutschland. Mahindra Steel Product: Stamping Division- It is the leading manufacture of critical stamping parts required for automotive, auto component, defense, railways consumer durable industry and general engineering applications. Steel Division: Well-known manufacturer of alloy steel in the country with capacity of producing 1, 10,000 tonnes per annum.

Infrastructure Development Sector

Mahindra today even drives nations infrastructure development. Mahindra has a solid presence in anything to do with infrastructure. There are various units of Trade & Financial Service sector such as: Mahindra Gesco Developers MGD plays a crucial role in driving the nations infrastructure and real estate development Mahindra Holiday and Resorts - It has 4000 resorts across 90 countries world-wide. Several resorts under the Club Mahindra Network are accredited with globally established standards in hospitality. Mahindra Infrastructures Developers LimitedMIDL is involved in the utility Operations & Management. in the following segments Urban & Industrial Water. Urban Waste Water Municipal Solid Waste. Mahindra Acres Consulting Engineers Limited MACEL is the countrys leading consulting firm with expertise in Planning, Engineering and Project Management. The sector includes. Industrial Parks and SEZs Infrastructure Water Supply and Sewerage Environment Tourism Agro and Food Power Sector.

Mahindra World City- Mahindras SEZ in Chennai is Indias first integrated business city and corporate Indias first SEZ in a public-private partnership with anchor clients like Infosys and international clients such as BMW.

Specialty Businesses Sector

In the span of 60 years, Mahindra hasnt just excelled in its chosen businesses. It has helped many other businesses of repute. Mahindra Defense System- it is the largest private sector company for supplying world class armoring solution for light combat vehicle, MUVs and SUVs. Mahindra Logistics This Transport Solution Group looks after M&Ms complex transportation needs. Its main divisions are Supply Chain Management (SCM) and Corporate People Movement (CPM).

Mahindra Ashtech- It excels in turnkey contract execution for Ash Slurry System and Traveling Water Screens. It has well equipped manufacturing facilities having strict quality control to meet the requirement of Quality Assurance Plan approved by leading consulting companies like State Electricity Boards, BHEL etc.

Spares Business Unit - It focuses on providing superior service at the dealership, building and developing a robust BAZZAR CHANNEL.

Automotive Sector
Automotive sector, the Pioneer sector of The Mahindra Group, which is in the business of manufacturing and marketing, utility vehicles and light commercial vehicles including 3-wheelers. The Groups global strategy to focus on mix of mergers, acquisitions and joint ventures has strengthened its core product areas and helped it enter new niche markets, both domestic and international. The iconic jeep that led American GIs to victory in World War II is the very same vehicle that drove The Mahindra Group to success in the Automotive Sector. Over the years, the Group has developed a large product portfolio catering to a diverse customer base spanning rural and semi-urban customers, defence requirements and luxurious urban utility vehicle Scorpio, which bridges the gap between style and adventure, luxury and ruggedness, and performance and economy. Domestic Operations: The Automotive Sector is the market leader in utility vehicles in India since inception and currently accounts for about half of Indias market for Multi, Special and Light Commercial Utility Vehicles, with a product portfolio that ranges from rugged, mass-transport utility vehicles to personal segment sports utility vehicles like the Scorpio. Mahindra& Mahindra Ltd. is the largest manufacturer of MUVs, offering a range of over 20 models. Now, with its joint ventures, it has a presence in the passenger cars and the medium and heavy commercial vehicle segments too. Overseas Operations: The Mahindra Group has a very strong international presence. It entered the world market in 1969, with the export of 1200 utility vehicles together with spare parts to Yugoslavia, Ceylon, Singapore, Philippines and Indonesia. With every major product

development and every new model, exports picked up in Africa, Asia, Europe and Latin America. The growing demand and the need for local presence to better address the markets led to the establishment of The Mahindra South Africa Mahindra Renault Private Limited: Mahindra Renault is a 51:49joint venture of two auto giants, M&M and Renault, which has started producing and marketing Logan in India. An investment of about 100 million euros was made to setup production capacity of 50,000 cars per year. In Nov.2006, Mahindra& Mahindra Ltd. and Renault decided to extend their strategic alliance and signed another memorandum of understanding to setup a Greenfield facility with a capacity of 500,000 units per within 5 years. This alliance is a 50:50 joint venture of Mahindra& Mahindra Ltd. and Renault-Nissan. Mahindra International limited: Mahindra& Mahindra Ltd. and

International Truck and Engine Corporation entered into a 51:49 JV in2005 to create Mahindra International Limited. It has three businesses: To manufacture trucks and buses in India for sale in India and export markets To provide engineering services for the design and development of truck and bus products for International Truck and Engine Corporation. To enable International Truck and Engine Corporation to use India as a significant supply base for sourcing components and materials. Automartindia: Automartindia is Indias largest multi-brand used Car Company, thats admired for its skills in retail operations. The companys mission is to create Indias largest automobile and automobile related products distribution network by providing dealers and customers with the largest choice of unique world-class products and services.

The automotive sector, bifurcate into various operations, has set up its plants at various locations throughout the country,

Automotive Sector
Plant Location

KANDIVALI TRANSMISSION AND AXLE PRODUCTION NASHIK PLANT 1:SCORPIO BOLERO LOGAN PRODUCTION PLANT 2:DIESHOP IGATPURI

M&M AUTOMOTIVE SECTOR

ENGINES IN-HOUSE AND OUTSOURCING

ZAHEERABAD HARIDWAR

CHAMPION ALFA THREE WHEELERS PRODUCTION

LIGHT COMMERCIAL VEHICLES, TRUCKS, BUSES

MAHINDRA & MAHINDRA LTD

BOARD OF DIRECTORS

GROUP MANAGEMENT BOARD

Telecom & Software Division Systech Division

Farm Equipment Division Infrastructure Development Division

Automotive Division

Trade & Financial Services Mahindra Intertrade Division

HR & Corporate Services

Finance & Legal Affaires

Business Planning, Finance & I.T. Order Management. Strategic Sourcing Business Unit. Sales & Marketing. Product Development and R&D. Human Resource. Overseas Operations. Special Projects.

REPORTING PATTERN

Vice President (Business Planning, Finance & IT)

General Manager (Finance & account)

Deputy General Manager (HOD Accounts)

Senior Manager

Manager

Deputy Manager

Assistant Manager

Accounts Executive

The above reporting pattern may have some additions or deletion of the posts.

2.5 Milestones of Mahindra& Mahindra Ltd

 2003: Scorpiorecipient of prestigious Awards Car of the year award from Business Standard Motoring. Best SUV of the Year and Best Car of the Year awards from BBC on Wheels. Car of the Year award from CNBC Auto Car. A Second tractor assembly plant setup in USA. M&M Tractors awarded by the prestigious Deming Prize for excellence in quality. 2004: Indias first Turbo Tractor launched Mahindras Sarpanch 595 DI Super Turbo. Scorpio received National Award for R & D. M & M became the first Indian co. to achieve sales of One Million Tractors. 2005: Mahindra Renault Ltd. established a JV with Renault to manufacture and market Logan. Mahindra International Ltd. established -a JV with International Truck and Engine Corporation to manufacture Trucks and Buses in India. 2006: The Mahindra Group has ranked in Top 200 list of The Worlds Most Reputable Companies and Top 10 of India by Forbes. M&M wins Overdrive Car Maker of the Year Award. 2007: IMRB International ranks Scorpio as an Olympic Brand. M&M was ranked second in the Prestigious Most Trusted Car Company in India. Mahindra was ranked 31st in Business Todays annual survey of Indias Most Valuable Companies.

3
Conceptual View of Working Capital
3.1 Introduction. 3.2 Importance. 3.3 Working Capital Cycle. 3.4 Management of Working Capital and Components. 3.5 Sources of Working Capital Finance.

Conceptual View of Working Capital Management

3.1 Introduction of Working Capital

Working Capital is one of the most fundamental measures of companys financial strength. Working Capital provides insight on how efficiently a companys management is able to oversee the companys operation. If a company possesses a significant value of liquid assets, it can easily fund its day to day business obligations. The speed at which the company is able to manage its short term assets and short term liabilities is also crucial to its business success.

Concept of Working Capital:

Working Capital refers to the cash a company requires in order to finance its day to day business operations or it is the amount of capital which is readily available to an organization. The term Working Capital is more an accounting term than a management concept. There are two concepts of working capital for the purpose of definitionGross Concept and Net Concept. Gross Concept: It refers to the firms current assets. The firms total current assets are termed as Gross Working Capital. Net Concept: Net Working Capital is defined as the difference between the current assets and the current liabilities. Working Capital = Current Assets Current Liabilities The term current assets refer to those assets held by the business which can be converted into cash within a short period of time of i.e. one year, without reduction in value. The term current liabilities refer to those liabilities which are to be paid off during the course of business within a short period of time i.e. one year.

3.2 Importance of Working Capital

Management of working capital is an essential task of the finance manager. He has to ensure that the amount of working capital available with his concern is neither too large nor too small for its requirement. A large amount of working capital would mean that the company has an idle fund. Since funds have a cost, the company has to pay huge amount of interest on such funds. This results in over capitalization. If the firm has inadequate working capital it is said to be under capitalized, such a firm runs the risk of insolvency. This is because; paucity of working capital may lead to situation where the firm may not be able to meet its liabilities. It is the job of financial manager to estimate the requirement of working capital carefully and to determine the optimum level of investment in working capital. Working Capital Management is concerned with: 1. Arranging short term sources of Finance. 2. Deciding favorable credit terms and policies. 3. Managing cash inflows and cash outflows. 4. Controlling accounts receivables and their collections. 5. Administrating the investment in various types of investments.

Types of Working Capital:

Working Capital can be divided into two categories on the basis of time: 1. Permanent Working Capital: This refers to that minimum amount of investment in all current assets which is required at all times to minimum level of business activities. It represents the current assets required on a continuing basis over the entire year. 2. Temporary Working Capital: The amount of such working capital keeps on fluctuating from time to time on the basis of business activities. In other words, it represents additional current assets required at different times during the operating year. The diagrams given below illustrate the difference between Permanent and Temporary Working Capital.

Amt .of W.C.

Temporary

Amt. of W.C.

Temporary

Permanent

Permanent

Time Fig.:1

Time Fig.:2

In Fig.:1 permanent working capital is fixed over a period of time, while temporary working capital is fluctuating. In Fig.:2 the permanent working capital is fixed over a period of time with increase in the level of business activity. This happens in case of a growing company. Hence, the permanent working capital line is not horizontal with the base line as in Fig.:1.

3.3 Working Capital cycle

There is always a time gap between the sales of goods and receipts of cash. Working capital is required for this period in order to sustain the sales activity. In

case adequate working capital is not available for this period, the company will not be in a position to sustain the sales since it may not be in a position to purchase raw materials, pay wages and other expenses required for manufacturing the goods to be sold. Working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically termed as Operating cycle of the business. In case of manufacturing company, operating cycle is the length of time necessary to complete the following cycle of events: 1. Conversion of cash into raw materials. 2. Conversion of raw material into work-in-process. 3. Conversion of work-in-process into finished goods. 4. Conversion of finished goods into sales. This cycle will be repeated again and again. Cash flow in cycle into, around and out of a business. Every managers primary task is to keep the cash flowing and to use the cash flow to generate profit. If a business is operating profitability, then it should, in theory, generate cash surplus. If it doesnt generate surplus, the business eventually run out of cash and expire. When it comes to manage working capital TIME IS MONEY. If you can get money to move faster around the cycle or reduce the amount of money tied up, the business will generate more cash or it will need to borrow less money to fund working capital. A useful tool of managing working capital is the operating cycle. Operating cycle is the average time between purchasing a acquiring inventory and receiving cash proceeds from the sale of finished products. The operating cycle analyses the accounts receivable, inventory and accounts payable cycles in terms of number of days. Most of businesses cannot finance the operating cycle with accounts payable financing alone. Consequently, working capital financing is needed. 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 to improve profits and reduce risks. Bear in that the cost of providing credit to customer and holding stocks can represent a substantial proportion of a firms total profits. There are two elements in the business cycle that absorb cash Inventory (stocks and work-in-progress) and Receivables (debtors owing your money). The main sources of cash are Payables (your creditors) and Equity and Loans.

Cash

Debtors

Raw Material & Labour Cost

Finished Stock

Work-InProgress

Working Capital Cycle

3.4 Management of Working Capital

For studying the Working Capital Management, it is of paramount importance to have clear and accurate reports on the components of working capital and an

awareness of the potential impact of external influences. Therefore, managing working capital is a matter of balance. The skills for Working Capital Management are somewhat unique; though the goals are the same as in managing current assets individually, like to make an efficient use of funds for minimizing the risk of loss to attain profit objectives. Working Capital Management takes place on two levels: The individual components of working capital can be effectively done by using various techniques and strategies. Financial tools like Ratio Analysis can be used to monitor overall trends in working capital and to identify areas requiring closer management. There are four main components of Working Capital Management, which are explained below:

3.4.1 Cash Management

Cash is the most liquid form of current assets. After this, in order of, liquidity come cash equivalent i.e. marketable securities or short term investments. Every

finance manager has primary task to keep it flowing and to use the cash flow to generate profits. He has also to ensure that no funds are blocked in idle cash since this will involve costs in terms of interest to the business. A sound cash management scheme, therefore, maintains the balance between the twin objective of liquidity and costs. The basic promise of sound cash management is to ensure that cash inflows (sources of funds) and outflows (uses of funds) are effectively controlled and utilized. Good cash management refers to the practices and techniques design to accelerate and control collections, ensure prompt deposit of receipts, improve control over disbursement methods, and eliminate idle cash balances. The cash management function involves the effective and efficient use of cash to maximize cash flow at minimum cost. Reasons for holding cash: The three reasons are for the purpose of making transactions, for the purpose of precaution and for the purpose of speculation. All three of reasons stem from the need of firms to possess liquidity. Thus, motives for holding liquid assets are: 1. Transaction motive- to make routine payments. 2. Precautionary motive- to protect the firm against being unable to satisfy unexpected demands for cash. 3. Speculative motive-to take advantage of favorable market conditions. Zero Balance Account: Under this system of cash disbursement, a firm does not keep any cash balance in the bank account. Cash is transferred only when the cheque is presented for the payment to the bank. So a Zero Balance Account is a disbursement account

on which cheques are written even through the balance in the account is zero. Therefore, a ZBA is a bank account with a zero balance in which only an amount sufficient to cover a days cheque is deposited. Idle cash balances are thus minimized. Float: Float is the difference between the bank balance and the book balance of the cash. This float can be positive or negative. If the bank balance is > book balance it implies positive (disbursement) float and if the bank balance is < book balance i.e. negative (collection) float. Net float = Disbursement float + Collection float. Float management seeks to speed up the collection and slow down the disbursement of the cash. Efficient cash management generates positive net float.

3.4.2 Inventory Management

Inventory comprises of stocks of inventory, components, WIP & finished products, stores and spares. Generally 60-70% of working capital of manufacturing firm constitute of inventory. Good Inventory Management is Good Financial Management. There are three types of inventories these are raw material, work in process, & finished goods. Now we will see the three types of inventory one by one; Raw Material: Definition: Raw materials are materials & components that are inputs in making the final product. For every industry the raw material can be different. It means every product require different kind of raw material. W-I-P (Work-In-Progress): Definition: Work in progress is also called as stock in progress which refers to goods in the intermediate stages of production. W-I-P is tied up stock and needs to be kept at minimum. Finished Goods: Definition: Finished goods consist of the final products that are ready for sale. When raw material is gone through the process of production then final product will be getting. It also buffers manufacturing from unpredictable market demand. Inventory Management is an important aspect of working capital management because inventories themselves do not earn any revenue. Holding either too detail or too much inventory incurs costs. There is a trade-off to be made between carrying costs, ordering costs, and stock out costs. Costs of carrying too much inventory are: Opportunity cost of capital, storage cost, theft, damage and pilferage costs, obsolescence risk, insurance costs.

Costs of carrying too little inventory are stock out costs: Lost sales due to non availability of material, delayed delivery to customers, loss of goodwill. Ordering costs are: Freight and wages, order documentation and administration cost, loss of dispatch. Carrying cost can be minimized by making frequent small orders but this increase ordering costs and the risk of stock outs. To maintained optimum inventory position Economic Order Quantity method is used. Inventory Management is part of overall management strategy. The overall management philosophy of an organisation can affect the way in which inventory is managed. For e.g. Just-In-Time system organizes production so that finished goods are not produced until the customer needs them (minimizing finished goods carrying costs) and raw materials are not accepted from suppliers until they are needed. Thus, JIT inventory system reduces bottlenecks and stock holding costs. Objectives of Inventory Management: To determine and maintain the optimum level of investment in inventories which help in achieving the following objectives: 1. Ensuring the continuous supply of materials to production department facilitating uninterrupted production. 2. Maintaining sufficient stock of raw materials in periods of short supply; 3. Maintaining sufficient stock of finished goods for smooth sales operation; 4. Minimizing the carrying cost; 5. Keeping investment in inventories at the optimum level.

3.4.3 Receivables management

Account Receivable constitutes a significant portion of the total current assets of the business next after inventories. They are a direct consequence of trade credit which has become an essential marketing tool in modern business. Account receivables are the debtors or customers who have not yet made payment for the goods or services which the firm has provided. Almost all businesses are required to extend credit to their customers. The credit policies for the customers offer an opportunity to manage the investment in working capital. The objective receivable management is to minimize the time-gap between completion of sales and receipts of payments. The management of account receivable can be broken down into: 1. Credit policies and terms of sale: The term credit policies or standards represent the basic criteria for extension of credit to customers. The credit terms refers to the terms under which a firm sells goods on credit to its customers. The two components of credit terms are credit period and cash discount. 2. Credit analysis: The companys intension is to increase the profits by increasing their sales. For this purpose the company has to decide the customers to whom it should sale its products on credit. The credit should be extended only to those customers whose creditworthiness is established. The creditworthiness of the customer will be decided on the various factors such as analysis of the financial status, reputation of the customer, records of previous deal with the company, quality and the character of the management, running the business of the customer, etc.

3. Collection policy procedure:

A stringent collection procedure is expensive for the firm because of high out-of- pocket costs and loss of goodwill of the firm among its customers. However it minimizes the loss on accounts of bad debts as well ass increases saving in terms of lower capital costs on account of reduction in the size of receivables. The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit (i.e. cost of capital). Purpose of Receivables: The purpose of receivables is directly connected with the objectives of making credit sales. The objectives of credit sales are as follows: 1. Achieving growth in sales. 2. Increasing the profits. 3. Meeting competition.

3.4.4 Payable Management

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. The credit period extended by business firm usually ranges from 15 days to 60 days. When goods are purchased on credit, finished goods get converted into Accounts Payable in the books of buyer. Trade creditors provide the company with an additional source of short term finance. Accounts Payable are the suppliers of goods or services whose invoices have not yet been paid. Accounts or bills payable to creditors or banks are a second measure source of financing for the business. The important questions in this class include: What is the amount of bank borrowing employed? Is this debt amount reasonable in relation to the equity financing of the firm? When will principal and interest payment for due? Will funds be available to meet these payments on time?

Organisation often regards the amount owing to creditors as a free source of credit. However, creditor administration systems are expensive and time consuming to run. The key concern in this area should be to minimize cost with simple procedures. While it is not advisable to pay accounts before they fall due, it is also not worthwhile to delay payments and forego discounts. Effective management and control of creditors requires the establishment of appropriate policies covering the choice of suppliers, the way in which purchase are made, trading terms, the purchase invoicing system, and the means of settlement. The finance manager must maintain the level of payables and cash outflows in line with company policy, and at the same time ensuring no interruption to any manufacturing processes or the operations of the business. The manager must have accurate accounts payable information that is up-to-date in terms of all invoices received, invoices awaited and payments made.

3.5 Sources of Working Capital Finance

After determining the level of working capital on the basis of various determinants, the next step is to consider how it will be financed. A large scale manufacturing concern may procure funds from various sources to meet its working capital requirement from time to time. The sources of working capital may be classified under the two heads: Sources of long term or regular working capital: It include the initial working capital and regular working capital which are of permanent nature and require long term funds. Sources of short term or seasonal working capital: It involves financing of day to day business operations. The sources of short term capital may be classified into; a) Internal Sources and b) External Sources.

Sources of Working Capital

Long Term Sources Internal 1. Issue of Shares. 2. Issue of Debentures. 3. Retained Profits. 4. Sale of Fixed Assets. 5. Term Loans. 6. Security from Employees And Customers. 1. Depreciation Funds.

Short Term Sources External 1. Trade Credit. 2. Credit Papers. 3. Bank Credit. 4. Customers Credit 5. Public Deposits. 6. Loans from Directors 7. Govt. Assistance.

2. Provision for Taxation. 3. Accrued Expenses.

4
Working Capital Management at M&M Ltd.
4.1 4.2 4.3
4.4

Working Capital Cycle. Management of Working Capital. Purchasing Function. Customer Order Fulfillment Chart

Overview of Working Capital Mgmt. at M&M Ltd

4.1 Working Capital Cycle at MAHINDRA & MAHINDRA:

The working capital cycle for M & M begins with the purchase of raw material but the payment of vendors is done on credit basis. This leads to creation of Accounts Payables. The raw material is then converted by the production process into finished goods and then sold. The sales are done on cash basis. The time between the purchase of raw material and the sale of finished goods is known as Inventory period.

Cash

Cash Sales

Raw Material & Labour Cost

Finished Stock

Work-InProgress

Working Capital Cycle at MAHINDRA & MAHINDRA: For studying and analyzing the structure of working capital management of Mahindra & Mahindra Ltd. The whole topic is divided under four heads: 1. Cash Management 2. Payable Management 3. Inventory Management 4. Receivable Management

4.2 Management of Working Capital

4.2.1 Cash Management:

In general at Mahindra & Mahindra the entire sectors cash management function is centralized at Corporate Finance level. At unit level there is no control on it. All needs and requirement of cash at unit level are completed by Corporate Finance Department. In Mahindra & Mahindra the Cash management is done as follows: 1. The whole cash which is incurred by the sale of goods is directly transferred to Corporate Finance Department. 2. The Corporate Finance Department fulfills the needs and requirement of cash to unit level department whenever they inform. 3. All the capital expenditures of unit level dept. is made by unit itself and after informing these expenditures the corporate finance dept. reimburses that much amount to the respective unit. 4. There is a Zero Balance Account system exists in M&M. 5. Every unit level account department has to submit their projected and monthly cash flows to their respective head office. They prepare Roll over cash flow plan and daily cash management. Roll over Cash flows: Roll over cash flows are basically prepared with relations to the Actual outflow and the commitment known for three months. This is prepared by 4th day of every month. In addition week-wise projections are also prepared for the current month. It helps to know the flow of collection and the expenses related to the month. Data collection: For the preparation of the above, a standard format has been designed which is circulated to individual units. Individual units have to send the data in the required format. Consolidation of Data: After the receipt of the data as per the format it is being consolidated. It is analysed in detail with the expenses in relation to the production and the dispatches .The production and dispatches volume are considered as per the volumes given by PPC. Day to Day Cash Management:

Day to Day cash Management is the Daily Cash and Bank Movements, Transfer of funds to the respective Banks, Investment with the finance & allocation of funds to the units for vendors and other payments. Daily Bank Balances in the cash credit and Collection Accounts are monitored with reference to the limits and the available float. The Bank provides collection details to the Marketing. Process: Expected Collection for the day is received from the Bank to Marketing, which is passed on to consolidation for the disbursement and Investment of the Funds. Linkage with the Standard chartered Bank at their website is established to know the Actual collection of the Previous Day and the Vendor payments hit in the Bank. A unit wise payment hit at the Bank is posted in file named Bank float file. Previous Day collection is updated in the Cash Management sheet. After this, based on the requirements received from the units for operating payments, Head Office provides the required amount in the respective Banks of the Units. This includes payments for Excise, Salary and other payments. Further as per the requirements of the Material Control Department (MCD) vendor payments are made to the respective units. The vendor day wise control is monitored by MCD. The allocation is effected as per the availability of funds. After allocating the funds to the vendors (unit wise) it is posted in the Bank Float file for the disbursement effected. So the Bank float file will have the payments effected to the units and the Vendor payments hit in the Bank. The balance will be the float. Taking into consideration of the payments effected certain amount is funded in the Bank for the payments. To ensure accurate funding an

attempt has been made to keep contacts with Major Vendors (like MICO, Lokesh & group companies like Mahindra Intertrade etc.) on regular basis to keep tap on when cheques are likely to hit account so that reasonably accurate funding is done. This will defer from the float available since presentation of the cheques takes minimum 4 days approx. It may vary with the Vendors since certain vendors like MICO may present the cheque in 2 days. So accordingly the funding has to be done at the Bank. An approximate Closing Balance at the Bank is arrived taking into consideration of the payments to be hit in the Bank for the Day. Opening Balance Add: Transfers in Less: Payment to be hit. Any excess payments are being parked with the H.O. They in turn will invest in the Market or as appropriate. If the investment is quite high then we have to give the deparking plan to the corporate. This would enable the corporate to invest the funds in an appropriate ways i.e., long tern or short term. The de-parking plan has to be given as per the expected collection to be received and the payments hitting in the Bank. If the collections are less and if disbursements are higher on a particular day, de-parking is to be done. In addition to this the daily production and dispatch information are collected from Central PPC.

4.2.2 Inventory Management:

The company has well defined system of monitoring inventory. Inventory is monitored under the following five major heads in the company: 1. Bought-out Inventory: It consists of all bought-out parts like tyre & tube, frame, seats, steel sheets etc. which are lying in stores and also with various vendors for processing. 2. Manufactured Inventory: Inventory under this head consists of all parts manufactured within the plant like, Bodies. Further, this also consists of manufactured parts like engines, transmission assembly etc. purchased from M & M units like Kandivali Plant and Igatpuri Plant. 3. 4. Work-In-Progress Inventory: In this the inventory which is in the process of manufacture and lying at various shops. Finished Goods Stock: This includes all types of finished vehicles manufactured and lying in stock for dispatch to various stockyards or dealers. 5. Indirect Materials: It consists of materials like hand glows, machinery spares, tools etc.

Monitoring of Inventory:

In Mahindra & Mahindra Inventory targets are worked out for each Production Units under the above heads of inventory. These targets are calculated with reference to inventory norms given by the management and also taking into consideration the production plans. These targets are revised depending on the changes in the production plans. The Production Units (PUs) have in turn calculated targets for each component. The PUs are not allowed to keep the stocks in excess as per the above targets so set. In case of emergency, prior sanction is required to keep stock in excess. Daily PU wise actual inventory report is generated from SAP and this inventory is compared with targeted inventory. This helps in management in identifying the areas, which are going out of control, and immediate corrective action is taken.

Apart from the daily inventory reports, month end inventory reports are also generated. Month end actual inventories are converted into number of days. Following two bases are being used for converting actual inventory into number of days: Based on the actual material consumption for the reporting period. Based on production plan for the succeeding month. This is based on the assumption that current inventory is required or used for production planned for the succeeding month. Apart from the above, the company has taken number of initiatives to optimize the inventory levels. Many of the costly parts are procured Just In Time (JIT) basis and for such JIT parts. The company does not keep any inventory for these types of parts. This has helped in long way in reducing the inventory of bought-out parts. Further the company has adopted another initiative wherein the companys transporter arranges to collect from various vendors based on the production plans for the succeeding day. In addition to reducing inventory, this also helps in optimizing the transportation cost.

Inventory Flow of Mahindra & Mahindra:

1. First of all, order is placed with Vendor as per requirement. 2. As per purchase order Vendor dispatches the material and prepares the Advance Sales Note (ASN). 3. Through Supply Relationship Management (SRM) website the Vendor fulfills the requirements of company. SRM website is the mediator between the company and the vendor. 4. After delivering of material from vendor, material arrives at the gate. This function is known as door delivery. At that time Physical Count Note (PCN) is prepared with reference to Advance Sales Note (ASN).

5. Then material move towards to the stores department. The store department prepares the Goods Receipt Note (GRN) with reference to ASN and PCN. The GRN includes purchase order no., part no., and quantity of raw material. The rates are automatically picked up through SAP system. 6. Lastly, auto generation accounting entries take place without manual work. 7. The journal entries can be explained with the following example: Let us consider the Cost Structure:

Particular Material Cost ADD: Excise Duty (16.48%) ADD: VAT 12.5% 3.0% Invoice Value Landed Cost

For Maharastra State 100.00 16.48 116.48 14.56

Outside Maharastra State 100.00 16.48 116.48

3.49 131.04 114.56 119.97 103.49

From the above table we can say that the credit is given to the Excise Duty and whereas there is no credit on VAT. Therefore VAT amount is treated as expenditure of the company, which is added in the cost of the Raw Material. For the Maharastra State 12.5% VAT is charged and for Outside Maharastra 3% VAT is charged. The journal entries are shown as below: For Maharastra State SrNo. 1. Inventory A/C To GR/IR A/C Particulars Dr. Dr. Amt 114.56 Cr. Amt 114.56

2. 3. 4.

Purchase A/C To Purchase Offset A/c. Cenvat Receivable A/C To Excise Clearing A/C GR/IR A/C Excise A/C To Vendors A/C Vendors A/c To Bank A/c. Cost of Goods Sold A/C To Inventory A/C

Dr. Dr. Dr. Dr. Dr. Dr.

100.00 100.00 16.48 16.48 114.56 16.48 131.04 131.04 131.04 114.56 114.56

5. 6.

For Outside Maharastra SrNo. 1. Inventory A/C 2. 3. 4. To GR/IR A/C Purchase A/C To Purchase Offset A/c. CenVAT Receivable A/C To Excise Clearing A/C GR/IR A/C Excise A/C 5. 6. To Vendors A/C Vendors A/c To Bank A/c. Cost of Goods Sold A/C To Inventory A/C Particulars Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Amt 103.49 100.00 100.00 16.48 16.48 103.49 16.48 119.97 119.97 119.97 103.49 103.49 Cr. Amt 103.49

4.2.4 Payable Management:

In Mahindra & Mahindra payable management system is very important part which is followed by the creditors. Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. The credit period extended by business firm usually ranges from 15 days to 60 days. The company ensures that the creditors are paid within the credit period. This will help the company to built-up a good reputation among its suppliers.

In Mahindra & Mahindra the credit period for Vendors are generally 64 days, in that 60 days are for credit period and 4 days are for administrative purpose. The credit period is decided on some credit policy, which classifies the Vendors credit days based on; 1. Priority 19 days credit. 2. General 64 days/30 days/45 days. 3. Immediate No credit. The credit policy decides the credit period. The policy says that when the credit period is high, the prices are also high and vise-versa. Most importantly these prices are formed by Moving average price method. The Moving Average Price may change due to: 1. Price change:- In this case the whole price changes. 2. Price change with retrospective effect:- In this case prices increases or decreases with an retrospective effects. When price increases there are certain journal entries which are automatically passed in the system of Mahindra & Mahindra. These entries can be explained with the following example.

Example: In the company the present value or price of Raw Material is Rs. 10, the vendor requests to the company to increase the prices of raw material by Rs. 2. This proposal was given in the month of May 2006 by the Vendor. The Management takes decision on it, after considering the companys profit or loss. Afterward in the month of July 2006, Price Settlement Takes place with retrospective amendments. Then the Amended Price of Raw Material is Rs. 12 with increase of

Rs. 2. The amendment price is applicable from the date when the financial year starts i.e. from 1st April 2006. SrNo. Particulars 1. Retrospective Price Amendment Variance 2. 3. Dr. Amt 2 2 2 Dr. 2 2 Cr. Amt 2

Dr.

To Retrospective Rate Amendment Payable Retrospective Rate Amendment Payable Dr. To Vendors A/c. Vendors A/c To Bank A/c.

On the other hand the company decides to decrease the price of Raw Material by Rs. 2. The present price is Rs.10 and the amended price is Rs.8. This amendment price creates journal entry which is automatically passed in the system. The journal entry is: 1. Vendor A/c Dr 2 2

To Retrospective Price Amendment Variance

The above example explains that how the change in prices affects the credit policy of the company. It also clarifies that how the amendment price influence the management and the vendors.

4.3 Purchasing Function:

Purchasing Function is core function of every Manufacturing firm. Purchasing is not merely buying raw material for production cycle. Purchasing Function is defined as the procurement of raw material of right quality, in right quantity, from right sources, at right prices, and in right time. It involves all the vital decision and their implementation regarding raw material.

The cost of raw material directly affects to the cost of final products and automatically to the profitability of firm. Therefore, for proper management of production cycle, purchasing function is too significant. In Mahindra & Mahindra, the purchasing function is performed by four Departments: Research and Development Department: In the Research and Development department, Idea Development is the main function. The idea is developed regarding what the product should be and what are its features. Part Development and Control Part Development department works towards the idea generated by R&D department. It develops the product or part with the available resources. Strategic Sourcing Business Unit: The whole and main functioning of Strategic Sourcing Business Unit (S.S.B.U) Department is divided in two main tasks] a) Sourcing: The sourcing refers to, from whom the part or raw material should be purchased? The S.S.B.U also tries to develop the sources. b) Pricing. Another task of S.S.B.U. is pricing, which is also very crucial decision. It requires lots of analysis and technical base to find out at what price the material or part should be purchased. Supply Chain Management: The two main function of this department are: c) Procurement of material. It involves all the activities related to ordering and procurement of material. It looks to the overall function from ordering to procurement. d) Logistic arrangement.

Under this function the main stress is from warehousing to issuing of material to the department. It includes all the functions of material from the gate of plant to its issuance of the production department.

Purchasing Function

Research & Development

Part Development

Strategic Sourcing Business Unit

Supply Chain Management

Sourcing

Procurement

Pricing

Logistics

4.4 Customer Order Fulfillment Chart

Customer

Dealer

Area Officer

Plant

Production Planning

Procurement Planning of Raw Material

Sundry Creditors

Inventory

Payment Outflow

Consumption

W-I-P

Finished Goods

The process begins with the marketing functions of getting orders from the customers. The customer places order to area office of the company through dealers. The orders from the area office are proceeds to Production Planning and Control (PPC) Department.

The PPC Department analyses the order and prepares the requirement schedule. The requirement of Labour, Raw-Materials etc. is reported to respective departments. The PPC after analyzing the order, available capacity and sources; it provides instructions and specifications to the production plant. The plant has its own Production Planning Department. This department prepares the schedule to run the production cycle. It includes the requirement of line of productions, manpower requirement and the very first and main requirement of any manufacturing firm is raw material which constitutes near about 60% of its working capital. Once the procurement of raw material is done through specific chain of purchasing function, it creates two aspects, Sundry Creditors Inventory.

Sundry Creditors are subject to the payments; this function is carried out by the accounts section called Payable Management. Inventory management is a very important aspect of Working Capital. It includes raw material consumption, work in process, and finished products. Finished goods are needed in order to sell to the customers by fulfilling his orders in time. Therefore, for proper management of working capital, the above two aspects should be smoothly managed.

5
Data Analysis and Interpretation
5.1 5.2 5.3
5.4

Estimation of Working Capital. Ratio Analysis. Graphical Presentations. Working Capital Leverage.

Statement of Working Capital

(Rs. In Lakhs)

Particulars
A]Current Assets a)Stock in Trade and W-I-P 1.Finished Products Produced & Purchased for Sale 2.Contracts and W-I-P 3.Manufactured Components 4.Raw Materials and Bought-out components 5.Property Development Activity b)Sundry Debtors 1.Debt outstanding for a period exceeding 6 months Considered Good Considered Doubtful Total 2.Other Debts Considered Good Considered Doubtful Total Less: Provision for Doubtful Debts c)Cash and Bank balances 1.Cash, Cheques and Stamps on hand 2.Cash balances with Scheduled Banks 3.Cash balances with Non-Scheduled Banks d)Other Current Assets 1.Plant & Machinery and other Assets held for sale 2.Stores and Spares 3.Tools e) Interest Accrued on Investments Total of Current Assets 57658.44 595.73 58254.17 67959.78 4162.89

2005-06

2004-05

2003-04

2002-03

42795.22 4731.69 4989.18 30827.38 842.85

83343.47

33346.82 4729.92 4119.17 29537.39 1208.77

72942.07

18578.64 3332.88 2878.96 20131.42 2410.39

47332.29

17658.49 2353.87 2507.18 16703.9 3653.22

42876.66

6138.45 3567.16 9705.61

5852.82 3621.66 9474.48 45275.31 225.84 45501.15 54975.63 3822.8

8131.35 2068.2 10199.55 31808.18 205.09 32013.27 42212.82 2165.29

6995.29 2630.65 9625.94 44604.61 289.25 44893.86 54519.8 2811.9

63796.89 18259.56 54376.76 394.28

51152.83 16234.17 45678.64 485.04

40047.53 14233.55 8977.61 119.72

51707.9 12692.81 11321 73.26

14.1 1878.79 1809.26 300.02 140829.66

14.1 1508.79 1532.1 220.01 189767.75

43.85 1195.17 1442.7 377.07 113769.5

29.98 1279.16 1518.85 285.97 121785.6

Particulars
B] Loans & Advances 1. Advances & Loans to subsidiaries Considered Good Considered Doubtful Total Less: Provision per doubtful advances & loans 2.Advances receivable 3.Payments towards Income Tax & Surtax 4.Balances-Customes, Port, Trust, Excise etc. Total C] Current Liabilities 1.Sundry Creditors O/S Dues to Small Scale Industries O/S Dues to other than Small Scale Industries O/S Dues to Subsidiaries 2.Dividend Payable 3.Balances on Director's current accounts 4.Interest Accrued but not due on loans 5.Acceptances Total D] Provisions 1.Proposed Dividends 2.Provision for Tax on Proposed Dividends 3.For diminution in value of Long-term Invst. 4.For Prem. Payable on Redem.on Conv. Bonds 5.Provision for Contingencies 6.For diminution in value o Invst.& other Assets 7.For leave encashable of Retirement/Cessation 8.Provision for Taxation 9.Other Provisions Total E] Total of Current assets, Loans & Advances F] Total of Current liabilities & Provisions Net Working Capital (E-F) 12414.75 727.01 13141.76 161.66

2005-06
6192.88 1095.23 7288.11 161.66

2004-05
2294.08 1954.56 4248.64 162.25

2003-04
5584.65 2634.33 8218.98 1038.33

2002-03

12980.1 28070.9 10010.15 62.75 51123.9

7126.45 22377.52 10653.11 31.47 40188.55

4086.39 24763.2 7590.56 47.15 36487.3

7180.65 25594.11 6735.55 52.12 39562.43

5781.15 128888.24 2398.58 137067.97 275.99 215.86 1267.23 13257 152084.05 24397.41 3421.74 573.43 1007.52 78.45 7752.7 5672.44 3108.17 8302.49 54314.35 276139.88 206398.4 69741.48

6524.84 102998.61 752.17 110275.62 229.04 241.3 1288.43 13965.88 126000.27 15081.5 2115.18 573.43 7654.5 33.99 9085.49 4886.63 3731.84 6808.07 49970.63 229956.3 175970.9 53985.4

6754.37 79454.5 278.31 86487.18 208.34 171.67 1589.46 12530.39 100987.04 10441.27 1337.79 583.89 342 8231.85 4073.64 4689.82 29700.26 150256.79 130687.3 19569.49

6509.13 67433.19 163.83 74106.15 194.23 104.27 3682.33 11061.71 89148.69 6380.64 817.52 578.81 13 716.1 5475 3514.95 2833.54 20329.56 161348.02 109478.25 51869.77

Financial Position At a Glance Of Mahindra& Mahindra.

(Rs. in Lakhs) Particulars. Gross Fixed Assets. Net Fixed Assets.Investments. Inventories. Debtors. Other Current Assets. Misc. Expenditure Not Written-off Borrowings: Long Term Short Term Current Liabilities and Provisions Deferred Tax Liability (Net) Equity Capital Reserves Net Worth Book Value Per Share (Rs.) 83717 4621 206398 14675 23340 267547 290887 123.29 94140 11122 175971 18975 11165 187488 198653 174.46 65203 7778 132924 20325 11601 165902 177503 150.89 107190 6794 109478 17710 11601 145382 156983 130.56 2005-06 306471 155445 166909 87874 63797 124469 1805 2004-05 281044 147488 118979 75983 51153 102820 2438 2003-04 255927 139160 111115 49970 40048 62476 964 2002-03 248913 146609 86227 45675 51708 63964 3972

Trend of Working Capital

51869.77 2002-03 19569.49 2003-04 109478.25 161348.02 130687.3 150256.79 53985.4 2004-05 69741.48 2005-06 276139.88
F] Total of Current Liabilities & Provisions Net Working Capital (E-F)

Year

175970.9 229956.3 206398.4

E] Total of Current Assets Loans & Advances

50000

100000

150000

200000

250000

300000

Amount (in Lacs)

5.2 Ratio Analysis

To know the financial position of the company and to find out how the company is performing, different ratios have to be taken into consideration. Ratio Analysis is the widely used tool of financial analysis. A ratio gives the mathematical relation between one variable and other. Though the computation of a ratio involves only a simple arithmetic operation, its interpretation is a difficult exercise. It is defined as a systematic use of ratios to interpret the financial statements; the strength and weakness of the firm as well as its historical performance and current financial conditions can be determined. A Ratio explains relationship between two entities. Working Capital Ratios: Working Capital Ratios indicate the ability of business concern in meeting its current obligations as well as its efficiency in managing the current assets for generation of sales. These ratios are applied to evaluate the efficiency with which the firm manages and utilizes its current assets. The following three categories of ratios are used for efficient management of working capital: Working Capital Ratios

Efficiency Ratios 1. Working capital to Sales Ratio. 2. Inventory Turnover Ratio. 3. Current Assets Turnover Ratio.

Liquidity Ratios 1. Current Ratio. 2. Quick Ratio. 3. Absolute Liquid Ratio.

Structural Health Ratios 1. Current Assets to Total Assets Ratio. 2. Debtors Turnover Ratio. 3. Debtors Collection Period. 4. Creditors Payment Period.

Working Capital to Sales

30 25 20 Ratio 15 10 24.96

Efficiency Ratio:
Sales

Working 1. Working Capital to Sales: This ratio helps to measure the efficiency of the Capital to

12.10 utilization of net working capital. This ratio helps management to maintain

5 0

adequate level of working capital. It signifies that for an amount of sales, a relative amount of working capital is needed. A high ratio indicates efficient 2003 2004 2005 2006 utilization of working capital. But a very high ratio is not a good indication of any firm, which may be due to over trading. Sales Working Capital to Sales = Working Capital (Rs. in Lakhs) 2004- 05 2005- 06 653074 798876.8 53985.4 69741.48 12.1 11.45
Year

7.07

11.45

Year Sales Working Capital Working Capital to Sales

2002- 03 366715.91 51869.77 7.06

2003- 04 488546.48 19569.49 24.96

Analysis: The sales values have continuously increased every year. This also consequently decreased the current assets, along with lessened the working capital. So the working capital turnover ratio rose till 2003-04. The minimum

difference between current assets and current liabilities in this year gave the highest value of working capital turnover ratio. Higher ratios for last three years imply the efficient working capital management. Calculation of working capital to sales ratio of last four years generally show the fluctuation between 7 to 12, which can be considered as an ideal management of working capital. 2. Inventory Turnover Ratio: The ratio establishes relationship between the sales with average stock. This ratio indicates the effectiveness and efficiency of the inventory management. The ratio shows how speedily the inventory is turned into accounts receivable to sales. The higher the ratio, the more efficiently the inventory is said to be managed and vice versa. Sales Inventory Turnover Ratio = Inventory Year Sales Inventory Inventory Turnover Ratio 2002- 03 366715.91 45675 8.02 2003- 04 488546.48 49970 9.77 (Rs. in Lakhs) 2004-05 2005- 06 653074 75983 8.59 798876.8 87874 9.09

Inventory Turnover Ratio 12 10 Ratio 8 6 4 2 0 2003 2004 Year 2005 2006

8.02 9.77 8.59 9.09
Inventory Turnover Ratio

Current Assets Turnover Ratio

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Analysis: In manufacturing concern like Mahindra & Mahindra Ltd. where the 4.29
3.55 work-in-process period is lengthy, the inventories have reduced initially, resulting 3.44 3.01

Ratio

into rising inventory turnover ratio.Turnover

Ratio

Current Assets

The inventory turnover ratio of 7 to 12 times is considered as an ideal ratio. Calculation of last four years inventory turnover ratio of M & M Ltd. shows
2003 2004 2005 fluctuation between2006 to 10 times. Therefore, it shows efficient inventory 8 Year

management. 3. Current Assets Turnover Ratio: This ratio indicates efficiency with which current assets turn into sales. A higher ratio implies by and large a more efficient use of funds. Thus, a high turnover rate indicates reduced lockup of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm. Sales Current Assets Turnover Ratio = Current Assets Year Sales Current Assets Current Assets T/O Ratio 2002- 03 366715.91 121785.59 3.01 2003- 04 488546.48 113769.48 4.29 (Rs. in Lakhs) 2004- 05 2005- 06 653074.1 798876.79 189767.8 225015.98 3.44 3.55

Analysis: As there is no ideal standard for analysis of current assets turnover ratio. This ratio just shows the efficiency of management of funds. The above graph shows that the sales are increasing constantly whereas the current assets had showed a slight decrease in the year 2003-04, which reflects the high Current Assets Turnover Ratio in the same year. By taking into consideration the nature of business of Mahindra & Mahindra, we can say that it shows efficient management of current assets on the basis of last four years calculations.

Liquidity Ratio:
1. Current Ratio: The current ratio is a measure of firms short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. This ratio indicates the extent of the soundness of the current financial position of an undertaking and the degree of safety provided to the creditors. Current Assets, Loans & Advances Current Ratio = Current Liabilities & Provisions Year Current Assets, Loans & Advances Current Liabilities & Provisions Current Ratio
Current Ratio
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
1.47 1.14 1.33 1.3

(Rs. in Lakhs) 2002- 03 2003- 04 2004- 05 2005- 06 161348.02 150256.79 229956.3 276139.88 109478.25 1.47 130687.3 1.14 175971 1.30 206398.4 1.33

Ratio

Current Ratio

2003

2004

Year

2005

2006

Analysis: A current ratio of 2:1 indicates a highly solvent position. A current ratio of 1.33:1 is considered by banks as minimum acceptable level for providing working capital finance. Current Ratio of last four years of M & M Ltd. is fluctuating between the optimum limit, which shows a sound working capital management.

2. Quick Ratio: This ratio is also known as Liquid Ratio or Acid Test Ratio. It expresses the relationship between quick current assets and current liabilities. While calculation of quick ratio, inventories or excluded from current assets, since inventories converted into cash in short time without loss of values. It is a refined tool to measure the liquidity of an organisation. Current assets, Loans & Advances Inventories Quick Ratio = Current Liabilities & Provisions Bank Overdraft Year Current Assets, Loans & Advances Inventories Current Liabilities & Provisions Bank Overdraft Quick Ratio
Quick Ratio 1.2 1 0.8 Ratio 0.6 0.4 0.2 0 2003 2004 Year 2005 2006 1.05 0.76 0.87 0.91
Quick Ratio

(Rs. in Lakhs) 2002- 03 2003- 04 2003- 05 2005- 06 161348.02 150256.79 229956.3 276139.88 45675 109478.25
-

49970 130687.3
-

75983 175971
-

87874 206398.4
-

1.05

0.76

0.87

0.91

Analysis: It is observed that the assets of the company have decreased from 2002-03 to 2003-04, at the same time the liabilities have increased, reducing the liquidity of the company. Quick ratio of 1:1 is usually considered satisfactory and indicates solvent financial position. Calculation of last four years, the quick ratio of M & M Ltd shows the satisfactory extent of cushion of protection provided with quick assets to the current creditors.

3. Absolute Liquid Ratio: Even though debtors and bills receivable are considered as more liquid than inventories, it cannot be converted into cash immediately or in time. Therefore, while calculation of absolute liquid ratio, only the absolute liquid assets like cash in hand, cash at bank, short-term securities are taken into consideration to measure the ability of company in meeting shortterm obligations. Absolute Liquid Assets Absolute Liquid Ratio = Current Liabilities (Rs. in Lakhs) 2004- 05 2005- 06 73030.6 152084.1 0.48

Year Absolute Liquid Assets Current Liabilities Absolute Liquid Ratio

2002- 03

2003- 04

24087.07 23330.88 62397.85 89148.69 100987.04 126000 0.27 0.23 0.49

Absolute Liquid Ratio

0.6 0.5 0.4
0.49 0.48 0.27 0.23

Ratio

0.3 0.2 0.1 0

Absolute Liquid Ratio

2003

2004

2005

2006

Year

Analysis: An absolute liquid ratio of 0.5:1 is considered as ideal ratio. Though, in case of Mahindra & Mahindra Ltd. it is quite less than ideal level, it doesnt show

unfavourable liquidity position. But there is a chance of improvement. If the marketable securities are included in the liquidity ratios then the ratios go beyond the standards. Thus the interest figures become negative which results into earning to the company. This indicates that the company is cash rich company. Instead of blocking the liquidity, the company earns income by investing from short term securities into the long term securities.

Structural Health Ratio:

1. Current Assets to Total Net Assets: This ratio explains the relationship between the current assets and total investment in assets. A business enterprise should use its current assets effectively because it is out of the management of these assets that profits accrue. A business will end-up in losses if there is any lacuna in managing the assets to the advantage of business. Total Net Assets Current Assets to Total Net Assets = Current Assets Year Total Net Assets Current Assets Current Assets to Total Net Assets
Current Assets to Total Net Assets
2.5 2 2.34 1.69 2.37 1.74 Current Assets to Total Net Assets

2002- 03

2003- 04

(Rs. in Lakhs) 2004- 05 2005- 06

284705.77 269844.49 320452 392095.5 121785.59 113769.48 189767.8 225015.98 2.34 2.37 1.69 1.74

Ratio

1.5 1 0.5 0 2003 2004

2005

2006

Year

Analysis: The calculations of last four years current assets to total net assets ratio of Mahindra & Mahindra shows the relationship between total net assets and current assets. This ratio shows the sound position of current assets as compared to total investments in assets & doesnt show any lacuna in management of current assets. 2. Debtors Turnover Ratio: This Ratio shows the extent of trade credit granted and the efficiency in the collection of debts. The lower the debtors to sales ratio,

the better the trade credit management and better the quality (liquidity) of debtors. The lower debtors mean prompt payment by customers. An excessively long collection period, on the other hand, indicates a very liberal, ineffective and inefficient credit and collection policy. Credit Sales Debtors Turnover Ratio = Debtors Year Credit Sales Debtors Debtors Turnover Ratio (Rs. in Lakhs) 2002- 03 2003- 04 2004- 05 2005- 06 366715.91 488546.48 653074.1 798876.79 51707.9 40047.53 51152.83 63796.89 7.09 12.20 12.77 12.52

Debtors Turnover Ratio

14 12 10 12.2 12.77 7.09 12.52 Debtors Turnover Ratio

Ratio

8 6 4 2 0 2003 2004 2005 2006

Year

Analysis: The calculation of the debtors turnover ratio of last four years shows the satisfactory position of debtors turnover respective year. Except in the year 2003, the debtors turnover ratio is low, which is due to the changes in credit policy. The better evaluation of debtors t/o can be made with average collection payment period. 3. Debtors Collection Period (In days): This ratio measures how long it takes to collect amounts from debtors. It measures quality of debtors. A higher collection period implies inefficiency in collection of debtors, which in turn adversely affects

the liquidity or short term paying capacity of the firm. The actual collection period can be compared with the stated credit terms of the company. Debtors Debtors Collection Period = Credit Sales Year Debtors Credit Sales Debtors Collection (In days) 2002- 03 51707.9 366715.91 Period 51.46 29.92 28.59 29.19 2003- 04 40047.53 488546.48 (Rs. in Lakhs) 2004- 05 2005- 06 51152.83 63796.89 653074.1 798876.79 X 365 days

Debtors Collection Period

60 50 51.46 Debtors Collection Period (In days)

Days

40 30 20 10 0 2003 2004 2005 2006 28.59 29.92 29.19

Year

Analysis: Actually, there is no standard yardstick for Debtors Collection Period Ratio. The average collection period are evaluated in terms of the credit policy of the firm, if it is within the credit policy limit of the firm, then it is acceptable. Here the last four years calculations show the satisfactory average collection period except 2003, which is due to change in credit policy of the firm for that particular year. 4. Creditors Payment Period (in days): The measurement of creditors payment period shows the average time taken to pay for goods and services purchased by the company. In general, the longer the credit period achieved, the better,

because delay in payment mean that the operation of the company are being financed interest free by suppliers funds. If too long a period is taken to pay creditors, the credit rating of the company may suffer, thereby making it more difficult to obtain suppliers credit in the future. Creditors Creditors Payment Period = Credit Purchases (Rs. In Lakhs) Year 2002-03 2003-04 2004-05 2005-06 Creditors 74106.15 86487.18 110275.62 137067.97 Credit Purchases. 250055.82 340621.97 486348.5 798876.79 Creditors Payment Period (In days) 108.17 92.68 82.77 62.63
Creditors Payment Period
120 100 108.17 92.68 82.77 62.63 Creditors Payment Period (In days)

X 365 days

Days

80 60 40 20 0 2003

2004

2005

2006

Year

Analysis: As creditors are the vital part of the working capital management, they act as interest free source of finance for working capital. Therefore, longer the average credit period is beneficial for the firm but too much long period may also harm to the goodwill of the firm. In case of M&M the average payment period, neither too much long nor too short.

5.4 Working Capital Leverage

One of the important objective of working capital management is by maintaining the optimum levels of investment in current assets and by reducing levels of current liabilities, the company can minimize the investments in working capital thereby improvement in return on capital employed is achieved. The term working capital leverage refers to the impact of level of working capital on companys profitability. The working capital management should improve the productivity of investments in current assets and ultimately it will increase the return on capital employed. Higher levels of investment in current assets than actually required mean increase in the cost of interest charges on the short term loans and working capital finance raised from banks etc. and will result in lower Return On Capital Employed (ROCE) and vice versa. Working capital leverage measures the responsiveness of ROCE or changes in current assets. % Change in ROCE Working Capital Leverage = % Change in Current Assets

Earning Before Interest and Tax Return On Capital Employed = Total Assets The Working Capital Leverage reflects the sensitivity of Return on Capital Employed to the changes in level current assets. Working Capital Leverage would be less in the case of capital intensive units, even though total capital employed is same. Working Capital Leverage expresses the relation of efficiency of working capital management with the profitability of the company. Current Assets Working Capital Leverage = Total Assets Change in Current assets The Working Capital Leverage of The Mahindra Group is calculated on the basis of current assets and total assets.

Current Assets Total Assets Change in Current assets

2003-04 150256.79 269844.49 (12891.23)

2004-05 229958.3 320452 79701.51

2005-06 276139.88 392095.5 46181.58

Current Assets Working Capital Leverage = Total Assets Change in Current assets For 2003-04, 150256.79 Working Capital Leverage = 269844.49 (12891.23) For 2004-05, 229958.3 Working Capital Leverage = 320452 79701.51 For 2005-06, 276139.88 Working Capital Leverage = 392035.5 46181.58 = 0.798 = 0.955 = 0.531

Working Capital Leverage

2005-06 0.798

2004-05 Year

0.955

2003-04

0.531

0.2

0.4

0.6

0.8

Working Capital Leverage

1.2 Working Capital Leverage

Analysis: The Mahindra Group has maintained their optimum level of investment in current assets and by reducing the level of current liabilities. So we can see in the above calculation, in the year 2003-04 the working capital leverage was 0.531 and though the leverage for 2004-05 shows gradual increase up to 0.955 o due to only temporary changes for short period in current assets the leverage for the year 2005-06 was 0.798 which shows the efficient working capital management with the profitability of the company.

6
Recommendation & Conclusions
Recommendation

Conclusion

Working Capital s calculated as current assets minus current liabilities. It is the amount of capital which is readily available to an organization. Working Capital Management decides the amount and composition of current assets and how to finance these assets. These decisions involve trade-offs between the risk and the profitability. The Working Capital can be controlled by properly managing the following terms:

Management of cash. Management of Inventory. Receivables Management. Payable management.

In Mahindra & Mahindra, there had been gradual increasing trend of Working Capital except in the year 2003-04, because of decrease in current assets and increase in the current liabilities as compared to previous year 2002-03, which directly affects the working capital of the company. Mahindra & Mahindra the entire sectors cash management function is centralized at Corporate Finance level. The company has well defined system of monitoring the inventory. The company has efficient flow of inventory. Debtors are not considered at Nashik Plant, but proper collection norms are followed at Kandivali head office. Creditors also paid after their credit period, which is predetermined. The Efficiency Ratio shows the companys efficient running of the company. Calculation of working capital to sales ratio of last four years generally show the fluctuation between 7 to 12, which can be considered as an ideal management of working capital. The inventory turnover ratio of M & M Ltd. shows fluctuation between 8 to 10 times. The Current Assets turnover ratio shows the efficiency of management of funds. In the year 2003-04, reflects the high Current Assets Turnover Ratio of the company.

The Liquidity Ratio of the company indicates that the financial position of the company is satisfactory. The current ratio fluctuates in between the 1.14 to 1.42. Quick ratio of 1:1 is usually considered satisfactory and indicates solvent financial position. The Structural Health Ratio of the company such as: Current Assets to Total Net Assets ratio is in between 1.50 to 2.34, which shows the sound of the current assets as compared to total Investment in Assets. The Debtors Turnover Ratio is lies in between 7.09 to 12.77, which reflects the satisfactory position because at the same time the Debtors Collection Period is decreased from51 days to 29 days during last four years. The Creditors Payment Period indicates that Mahindra & Mahindras credit period is decreasing trend, still it is at ideal position. It shows that The Mahindra Group has good relation with the Vendors and with creditors. In nutshell, considering the liquidity and turnover ratios, the liquidity position of the company is good. At the same time, it is proved that the company can do the business in a minimum Working Capital too.

7
Glossary & Bibliography
Glossary

Accounts Payable Accounts Receivable Accrued Interest

: Money owed to creditors or suppliers. : Money owed by debtors or customers. : The amount of interest owing but not paid. making a sale before receiving cash.

Average Collection Period : The average length of time a firm must wait after Capital Asset : A long-term asset, such as land or building, acquired for carrying on the business of company with life exceeding one year. Cash Management : Concerned with holding sufficient cash to meet demand and investing cash balance to maximize return. Collection Policy : Collection Policy describes the procedures a firm follows in attempting to collect its accounts receivable. Collection policy has to do with only overdue accounts Credit Analysis :Estimating what terms. Credit Period Credit Standards Credit Terms : Amount of time allowed for payment. : Credit Standards are used to determine whether the credit application and the amount of will be accepted. : Credit Terms composed of the size of the cash discount, the amount of cash discount, the credit period and the maturity date. Current Assets : Assets are expected to be turn into cash within one years time. These include cash, accounts receivable, inventory and marketable securities. Current Liabilities : Financial obligations that will have to be paid within one year. These include accounts payable, bank loan and short term loans. probability of default for individual customers to determine who receives credit and at

Financial position

: The financial status of a firms or an individuals assets and liability as reflected by its financial statement.

Float : Float refers to funds that have been dispatched by a payer but are not in a form that can be spent by the payee. The three components are mail float, processing float and clearing float. Interest Leverage : A charge for the use of money supplied by a lender. : Leverage is the use of fixed cost assets of funds to magnify the returns of owners. Leverage is closely related to the risk of being unable to meet operating and financial obligations when due. Liability Liquid asset : Any obligation for payment or to render a service. : Any asset that can be quickly converted to cash without substantial loss in the value of asset. MCD : Material Control Department. Ratio Analysis : Method of expressing relationships between a firms accounting numbers and their trends over time that analysts use to make evolutions. Raw Material Return On Capital Employed (ROCE) : Indicates the profitability of the firms capital investments. It is determined by dividing Earnings Before Interests and Taxes by Capital Employed including short term loans. : Material that is converted into finished product for the purpose of sale.

C o

Bibliography
Working Capital Management Dhiraj Sharma Financial Management (5th Edition) Prasanna Chandra Part VII Working Capital Management (page. no. 591-657) Cost Accounting And Financial Management PCC Study Module Chapter No. 7 Management of Working Capital (Page no. 7.1-7.5) Financial Management (9th Edition) I. M. Pandey Financial Management (Taxmans) Dr. RaviKishor Financial Management Dr. S. N. Maheshwari. Annual Reports of The Mahindra Group.(Last 4 years) Web Sites www.mahindra.com www.google.co.in