1

Submitted To: Submitted By:

Prof. R. Srinivasan Gulshan Sharma
FPG1113/021



IM PACT OF W ORKING CAPITAL ON THE PROFITABILITY
OF THE FIRM

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Table of Content

Topic.............................................................................................................................Page No.

Acknowledgement........................................................................................................ 3

Executive Summary...................................................................................................... 4

Company Profile........................................................................................................... 5

Introduction.................................................................................................................. 10

Objective...................................................................................................................... 19

Research Methodology................................................................................................ 19

Limitation..................................................................................................................... 19

Data Analysis............................................................................................................... 20

Findings....................................................................................................................... 30

Recommendations....................................................................................................... 31

References................................................................................................................... 32

Annexure......................................................................................................................33






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Acknowledgement

It is a matter of great satisfaction and pleasure to present this report on Impact of
Working Capital on the Profitability of firm: Maruti Suzuki India Limited.. I take this
opportunity to owe my thanks to all those involved in my training.

This project report could not have been completed without the guidance of our
director, Dr. D. Das & project guide Prof. S. Srinivasan. Their timely help & encouragement
helped me to complete this project successfully.

I thank Maruti Suzuki India Limited for providing me data to study.




















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Executive Summary

Maruti Suzuki India Limited is top car manufacturing company of India started its
business in the year 1909 as Suzuki Loom Works and then was incorporated as Suzuki Motor
Corporation in the year 1920.
Suzuki today offers its customers a wide range of motorcycles, automobiles, outboard motors
and related products such as generators and motorized wheelchairs.
Suzuki's trademark is recognized throughout the world as a brand that offers high quality,
reliable and genuine products. Suzuki stands behind this global symbol with a determination
to maintain this confidence in the future as well, never stopping in creating such advanced
'value-packed' products.

My Project is the study of the impact of working capital on the profitability of the
firm.
Objective of my study is to find out:
The relationship between profitability and working capital.
Trend of working capital

During the project I collected the data from their website, www.moneycontrol.com, &
also made use of company annual reports. The data collected were then compiled, tabulated
and analyzed.

By studying about the company s different areas I came to know certain things like:
Inventory turnover ratio and Debtors turnover ratio is continuously increasing that
shows the increasing efficiency and better recovery.
Current liabilities of company are increasing very rapidly, so company has to focus on
this area.
Profit margin is going down as compared to earlier years.





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Company Profile:
Vision : The Leader in the Indian Automobile Industry, Creating Customer Delight
and Shareholders Wealth; A pride of India.
Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a
subsidiary of Suzuki Motor Corporation, Japan. MSIL has been the leader of the Indian car
market for over two and a half decades. The company has two manufacturing facilities
located at Gurgaon (going to be shifted to Gujrat very soon) and Manesar, south of New
Delhi, India. Both the facilities have a combined capability to produce over a 1.2 million
(1,200,000) vehicles annually.
The company plans to expand its manufacturing capacity to 1.75 million by 2013.
The company offers a wide range of cars across different segments. It offers 15
brands and over 150 variants - Maruti 800, people movers, Omni and Eeco, international
brands Alto, Alto-K10, A-star, WagonR, Swift, Ritz and Estilo, off-roader Gypsy, SUV
Grand Vitara, sedans SX4, Swift DZire and Kizashi. In an environment friendly initiative, in
August 2010 Maruti Suzuki introduced factory fitted CNG option on 5 models across vehicle
segments. These include Eeco, Alto, Estilo, Wagon R and Sx4.
In fiscal 2009-10 Maruti Suzuki became the only Indian company to manufacture and
sell One Million cars in a year.
Maruti Suzuki has employee strength over 8,500 (as at end March 2011)
In 2010-11, the company sold over 1.27 Mnvehicles including 1,38,266units of
exports. With this, at the end of March 2011, Maruti Suzuki had a market share of 44.9 per
cent of the Indian passenger car market.

Maruti Suzuki's revenue has grown consistently over the years.

(Rs. in Million)
Year Net Sales Year Net Sales
2005-06
2007-08
2009-10
1,20,034
1,78,603
3,01,198
2006-07
2008-09
2010-11
1,45,922
2,03,583
3,61,282


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Production Management System (PMS) is the next step towards moving ahead to
sustain the momentum. It is a strategy to achieve Manufacturing Excellence evolved through
participative approach. The system is people driven and ensures involvement of all levels
(Managers, Executives, and Supervisors).

The concept ensures participation and error free communication. The result is clarity
of content, better understanding and openness towards feedback. These values make PMS a
sustainable system. Having achieved the target of selling a million cars in the financial year
2009 - 2010, PMS has lead the production team towards greater enhanced productivity with
perfection.
PMS is derived from the basic Japanese principles of 5S, 3G and 3K

In order to bring an improvement in overall processes and systems in Production Division
through involvement of all levels, PMS was launched in Maruti Suzuki. Through various
phases of PMS the company embarked on its journey of bring in a) Clarity of Role, Non-
duplication of work, Ownership, Commitment and Standardization in all our process and
systems across the production division.


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Gurgaon Facility

Maruti Suzuki has two state-of-the-art manufacturing facilities
in India. The first facility is at Gurgaon spread over 300 acres
and the other facility is at Manesar, spread over 600 acres in
North India.

Maruti Suzuki's facility in Gurgaon houses three fully integrated
plants. Together the three plant have an installed capacity of
around 700,000 units.


K- series Plant

The Gurgaon facilities also houses the 'K' Engine Plant.
Commissioned in 2008, the K-series engine plant has an
installed capacity of 500,000 units.

K-series engines are available in 1 litre and 1.2 litre capacities.
The highly fuel efficient, technologically advanced K series
engines have been very well appreciated by our customers for
their performance.

Several Maruti Suzuki cars such as the A-star, Estilo, Swift,
Swift Dzire, Ritz and WagonR sport the K-series engines.


Company has announced an investment of around Rs. 1250 crores to expand engine capacity
by 250,000 units by 2010.

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Manesar Facility

The state of the art Manesar facility was inaugurated in February
2007.

At present the Manesar plant rolls out World Strategic Models
Swift, A-star, SX4 and swift DZire.

There is a high degree of automation and robotic control in the
press shop, weld shop and paint shop to help manufacture with
acute precision, high quality and speed.

The Manesar plant is designed to be flexible: diverse car models
can be made here conveniently

owing to automatic tool changers, centralized weld control system and numerical control
machines that ensure high Quality.

The plant at Manesar is the company's fourth car assembly plant and has a capacity of
300,000 cars per year.

Company has announced an investment of Rs.1700 crores to expand its capacity by 250,000
units. The new facility is expected to be ready by 2011-12.

Suzuki Powertrain

Suzuki Powertrain India Limited is a joint
venture of Maruti Suzuki with Suzuki
Motor Corporation, Japan.at Manesar. It
manufactures world class diesel engines
and transmissions for cars.

SMC holds 70 per cent equity in SPIL the


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rest is held by Maruti Suzuki.

This diesel engine plant has a capacity to manufacture 300,000 diesel engines a year.


The company follows a partnership approach with its various stakeholders, and believes that
the prosperity and wellbeing of the stakeholders will fuel the growth of the company in the
future.









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Introduction:
Capital required for a business can be classified under two main categories via,
1) Fixed Capital
2) Working Capital
Every business needs funds for two purposes for its establishment and to carry out its
day- to-day operations. Long terms funds are required to create production facilities through
purchase of fixed assets such as plant and machinery, land, building, furniture, etc.
Investments in these assets represent that part of firms capital which is blocked on
permanent or fixed basis and is called fixed capital. Funds are also needed for short-term
purposes for the purchase of raw material, payment of wages and other day to- day
expenses etc.
Every running business needs working capital. Even a business which is fully
equipped with all types of fixed assets required is bound to collapse without
(i) adequate supply of raw materials for processing;
(ii) cash to pay for wages, power and other costs;
(iii) creating a stock of finished goods to feed the market demand regularly;
(iv) the ability to grant credit to its customers.
All these require working capital. Working capital is thus like the lifeblood of a business. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital.
Working Capital is a measure of a company's short term liquidity or its ability to
cover short term liabilities. Working capital is defined as the difference between a
company's current assets and current liabilities. That is,
Working Capital = Current Assets - Current Liabilities

Currents assets are the assets which can be converted into cash within an accounting
year and include cash (in hand and at bank), short-term securities, debtors (accounts
receivables or book debts), bills receivable, and stocks (inventory).

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Current liabilities are those claims of outsiders which are expected to mature for
payment within an accounting year and include creditors (accounts payable), bills payable
and outstanding expenses.
Working Capital can broadly divided into two parts on the basis of following:
On the basis of concept
On the basis of periodicity

On the basis of concept working capital can further be divided into two categories:
Gross Working Capital
Net Working Capital
Gross Working Capital refers to the firms investment in current assets.
The concept of Gross Working Capital focuses attention on two aspects of Current
Assets' management. They are:
Way of optimizing investment in Current Assets.
Way of financing current assets.
Optimizing investment in Current Assets: Investment in Current Assets should be
just adequate i.e., neither in excess nor deficit because excess investment increases liquidity
but reduces profitability as idle investment earns nothing and inadequate amount of working
capital can threaten the solvency of the firm because of its inability to meet its obligation. It is

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taken into consideration that the Working Capital needs of the firm may be fluctuating with
changing business activities which may cause excess or shortage of Working Capital
frequently and prompt management can control the imbalances.
Way of financing Current Assets: This aspect points to the need of arranging funds
to finance Country Assets. It says whenever a need for working Capital arises; financing
arrangement should be made quickly. The financial manager should have the knowledge of
sources of the working Capital funds as wheel as investment avenues where idle funds can be
temporarily invested.

Net Working Capital refers to the difference between current assets and current
liabilities.
Concept of Net Working Capital is a qualitative concept. It indicates the liquidity
position of and suggests the extent to which working Capital needs may be financed by
permanent sources of funds. Current Assets should be optimally more than Courtney
Liabilities. It also covers the point of right combination of long term and short-term funds for
financing court Assents. For every firm a particular amount of net Working Capital in
permanent. Therefore it can be financed with long-term funds.
Thus both concepts, Gross and Net Working Capital, are equally important for the
efficient management of Working Capital. There are no specific rules to determine a firm's
Gross and Net Working Capital but it depends on the business activity of the firm.
On the basis of periodicity working capital can be classified into two parts:
Permanent Working Capital
Variable Working Capital

PERMANENT OR FIXED WORKING CAPITAL
Permanent or fixed working capital is minimum amount which is required to ensure
effective utilization of fixed facilities and for maintaining the circulation of current assets.

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Every firm has to maintain a minimum level of raw material, work- in-process, finished
goods and cash balance. This minimum level of current assets is called permanent or fixed
working capital as this part of working is permanently blocked in current assets. As the
business grow the requirements of working capital also increases due to increase in current
assets.
TEMPORARY OR VARIABLE WORKING CAPITAL
Temporary or variable working capital is the amount of working capital which is
required to meet the seasonal demands and some special exigencies. Variable working capital
can further be classified as seasonal working capital and special working capital. The capital
required to meet the seasonal need of the enterprise is called seasonal working capital.
Special working capital is that part of working capital which is required to meet special
exigencies such as launching of extensive marketing for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the business.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL
SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining
the solvency of the business by providing uninterrupted of production.
Goodwill: Sufficient amount of working capital enables a firm to make prompt
payments and makes and maintain the goodwill.
Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favourable terms.
Cash Discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence reduces cost.
Regular Supply of Raw Material: Sufficient working capital ensures regular supply of
raw material and continuous production.
Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads
to the satisfaction of the employees and raises the morale of its employees, increases
their efficiency, reduces wastage and costs and enhances production and profits.

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Exploitation Of Favourable Market Conditions: If a firm is having adequate working
capital then it can exploit the favourable market conditions such as purchasing its
requirements in bulk when the prices are lower and holdings its inventories for higher
prices.
Ability To Face Crises: A concern can face the situation during the depression.
Quick And Regular Return On Investments: Sufficient working capital enables a
concern to pay quick and regular of dividends to its investors and gains confidence of
the investors and can raise more funds in future.
High Morale: Adequate working capital brings an environment of securities,
confidence, high morale which results in overall efficiency in a business.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate amount of working capital to run its
business operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working capital
positions are bad for any business. However, it is the inadequate working capital which is
more dangerous from the point of view of the firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL
Excessive working capital means ideal funds which earn no profit for the firm and
business cannot earn the required rate of return on its investments.
Redundant working capital leads to unnecessary purchasing and accumulation of
inventories.
Excessive working capital implies excessive debtors and defective credit policy which
causes higher incidence of bad debts.
It may reduce the overall efficiency of the business.
If a firm is having excessive working capital then the relations with banks and other
financial institution may not be maintained.
Due to lower rate of return n investments, the values of shares may also fall.
The redundant working capital gives rise to speculative transactions


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Operating Cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash. Investment in current assets such as inventories and
debtors is realized during the firm's operating cycle, which is usually less than a year. The
operating cycle of a manufacturing company involves three phases: -
Acquisition of resources such as raw material, labour, power and fuel etc.
Manufacture of the product which includes conversion into work-in-progress into
finished goods.
Sale of the product either for cash or on credit.
These phases affect cash flows because sometimes sale is done on credit and it takes
sometimes to realize.
Length or Duration of the Operating Cycle of a manufacturing firm in the sum of
the following:
Inventory Conversion period (ICP)
Debtors (Receivable) Conversion periods (DCP)
The total of Debtors Conversion Period and Inventory Conversion Period is referred to as
Gross Operating Cycle (GOC).
GOC = ICP + DCP
Inventory Conversions Period: The Inventory Conversion Period is the total time
needed for Producing and selling the product. It includes:
Raw Material Conversion Period (RMCP)
Work-in-progress Conversion Period (WIPCP)
Finished Goods Conversion Period (FGCP)
ICP= RMCP + WIPCP + FGCP
Debtors Conversion Period: It is the time required to collect the outstanding amount
from the customers.

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Net Operating Cycle: Generally, a firm may acquire resources (raw materials) on
credit and temporarily postpones payment of certain expenses. Payables, which the firm can
defer, are spontaneous sources of capital to finance investment in Courtney Assets. The
length of the time in which the firm is able to defer payments on various resource purchases
is Creditors (Payables) Deferral period (CDP). The deference between Gross Operating
Cycle and payables Deferral Period is called Net Operating Cycle. If depreciation is excluded
from Net Operating Cycle, the computation repercussion represents Cash Conversion Cycle.
It is net time interval between cash outflow.
NOC = GOC - CDP
Operating Cycle also represent the time interval over which additional funds, called
Working Capital, should be obtained in order to carry out the firm's operations. The firm has
to negotiate Working Capital from sources such as banks. The negotiated sources of Working
Capital financing are called non-spontaneous sources. If net Operating Cycle of a firm
increases it means further need for negotiated Working Capital.

Estimating Working Capital Needs: Working Capital needs can be estimated by
three different methods, which have been successfully applied in practice. They are follows:
Current Assets Holding Period: To estimate Working Capital requirements on the
basis of average holding period of Current Assets and relating them to costs based on
the company's experience in the previous years. This method is based on the operating
cycle concept.
Ratio of Sales: To estimate Working Capital requirements as a ratio of sales on
assumption that Current Assets change with sales.
Ratio of fixed Investment: To estimate Working Capital requirements as a
percentage of fixed investment.
The most appropriate method of calculating the Working Capital needs of firm is the
concept of operating cycle. There are some limitations with all the three approaches therefore
some factors govern the choice of method of Working Capital.

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Factors considered are seasonal variations in operations, accuracy sales forecasts,
investment cost and variability in sales price would generally be considered. The production
cycle and credit and collection policy of the firm would have an impact on Working Capital
requirements.
Current Assets (Gross Working Capital) Financing
A firm can adopt different financing policies for Current Assets Three types of
financing used can be:
Long-term financing such as shares, debentures etc.
Short-term financing such as public deposits, commercial papers etc.
Spontaneous financing refers to the automatic sources of short-term funds arising in
the normal course of a business such as trade credit (suppliers) and outstanding
expenses etc.
The real choice of financing Current Assets is between the long term and short-term
sources of finances. The three approaches based on the mix of long and short-term mix are:
Matching Approach: When the firm follows matching approach (also known as
hedging approach), long term financing will be used to finance Fixed Assets and
permanent Current Assets and short-term financing to finance temporary or variable
Current Assets. The justification for the exact matching is that, since the purpose of
financing is to pay for assets, the source of financing and the assets should be
relinquished simultaneously so that financing becomes less expensive and
inconvenient. However, exact matching is not possible because of the uncertainty
about the expected lives of assets.
Conservative Approach: The financing policy of the firm is said to be a conservative
when it depends more on long-term funds for financing needs. Under a conservative
plan, the firm finances its permanent assets and also a part of temporary Current
Assets with long term financing. In the periods when the firm has no need for
temporary Current Assets, the idle long-term funds can be invested in the tradable
securities to conserve liquidity. Thus, the firm has less risk of shortage of funds.
Aggressive Approach: An aggressive approach is said to be followed by the firm
when it uses more short term financing than warranted by the matching approach.

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Under an aggressive approach, the firm finances a part of its permanent current assets
with short term financing. Some firms even finance a part of their fixed assets with
short term financing which makes the firm more risky.


























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Objective

The study covers mainly the following aspects of working capital analysis
(i) Introduction of Working Capital,
(ii) Financing of Working Capital,
(iii) Trends of Working Capital and
(iv) Working Capital Impact on Profitability.


Research methodology
This research is conducted on secondary data. All the information is collected from
the website of Maruti Suzuki India Limited and balance sheets. Statistical techniques namely
coefficient of correlation and financial ratios are used for analyzing the data.
MS-Excel is used for all the calculations.


Limitation

Some of the data is not available because of confidentiality.
There may be some limitation to this study because this study is based on publicly
available data and duration is very short. So it is not possible to observe every aspect.
Additionally, I wanted to calculate gross operating cycle and net operating cycle but
due to non-availability of data couldnt calculate.







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Data Analysis
I have included following analysis tools in this section:
Ratio Analysis
Current Ratio
Quick Ratio/ Liquidity Ratio
Inventory Turnover Ratio
Debtors Turnover Ratio
Gross Profit Margin
Net Profit Margin
Calculation of Gross Working Capital and Net Working Capital
Relationship among Gross Working Capital, Net working capital and Gross Profit
through Correlation Analysis.

Ratio Analysis:
1. Current Ratio
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as "working capital ratio". It is a measure of general
liquidity and is most widely used to make the analysis for short term financial position or
liquidity of a firm. It is calculated as follow:
Current Ratio =
Cucnt Asscsts
Cucnt LubItcs

The current ratio is thus a measure of the firms short term solvency. It indicates the
availability of the current assets in rupees for every one rupees of current liability. A ratio of
greater than one means that the firm has more current assets than current claims against it.
Ideal current ratio is 2:1 under normal conditions.
Current ratio of the company in year from March 2002 to March 20011 is as follow:

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This ratio is a general and quick measure of liquidity of a firm. It represents the
margin of safety or cushion available to the creditors. It is an index of the firms financial
stability. It is also an index of technical solvency and an index of the strength of working
capital.
An decrease in the current ratio from March 2002 to March 2011 represents decrease
in the liquidity position of the firm.





Ye ar 20 02 20 0 3 2 00 4 2 00 5 2 0 06 20 07 20 0 8 2 00 9 2 01 0 2 0 11 Aver age
Cur r ent Asset s (in
Rs. Cr. )
2100.6 2064.5 1944.4 2147.4 2520.7 2648 3190.5 3870 3856 4030.1 2837.22
Curr ent
Liabilit ie s(I n Rs.
Cr . )
1455.8 1917.4 1840.6 1843.4 2184.8 2779.1 3088.4 3631.6 3788.4 4331 2686.05
Curr ent Rat io 1.44 1.08 1.06 1.16 1.15 0.95 1.03 1.07 1.02 0.93 1.09
Curr ent Rat io
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Current Rat io
Cur r ent Rat i o

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2. Quick Ratio/Liquidity Ratio
Liquid ratio is also termed as Liquidity Ratio / Acid Test Ratio / Quick Ratio. It is
the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm
to pay its short term obligations as and when they become due. It is calculated as follow:
Quick Ratio =
( Currcnt Asscts Invcntory)
Currcnt LIabIIItIcs



The quick ratio of the firm for the study period ranges in between .098:1 to 0.60:1.
Normally 1:1 is considered to be the standard Quick Ratio. Quick assets are current assets
minus inventory. It is very important to analyze the composition of quick assets. The quick
ratio has been decreased due to the increase in amount of current liability and inventory
levels.

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average
Current Asset s (in
Rs. Cr. )
2100.6 2064.5 1944.4 2147.4 2520.7 2648 3190.5 3870 3856 4030.1
2837.22
Current
Liabilit ies(I n Rs.
Cr.)
1455.8 1917.4 1840.6 1843.4 2184.8 2779.1 3088.4 3631.6 3788.4 4331
2686.05
I nvet ory (I n Rs.
Cr.) 681.1 487 439.8 666.6 881.2 713.2 1,038.00 902.3 1,208.80 1,415.00 843.3
Quick Rat io 0.98 0.82 0.82 0.80 0.75 0.70 0.70 0.82 0.70 0.60 0.77
Quick Rat io/ Liquidit y Rat io/ Acid Test Rat io
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Quick Rat io
Qui ck Rat i o

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3. Inventory Turnover Ratio
Stock turnover ratio and inventory turnover ratio are the same. It can be interpreted as
measuring the speed with which the firm turns the inventory into sales. This ratio is expressed
in terms of the number of days outstanding. This ratio is relationship between the cost of
goods sold during a particular period of time and the cost of average inventory during a
particular period and calculated as follow:

Inventory Turnover Ratio =
Cost o] goods soId
Acugc Incnto




It is continuously increasing. A high inventory turnover/stock velocity indicates
efficient management of inventory because more frequently the stocks are sold; the lesser
amount of money is required to finance the inventory.

Year 2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1 Aver age
I nvent ory
Tur nover Rat io 10.8 15.52 21.94 16. 9 14.15 21.27 22.93 30.46 30.47 33.33 21.777
I nvent or y Tur nover Rat io(I TR)
Dat a not avail avable
0
5
10
15
20
25
30
35
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
A
x
i
s

T
i
t
l
e
I nvent ory Turnover Rat io
Invent or y Tur nover Rat i o

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4. Debtors (Accounts receivable) Turnover Ratio
Debtors Turnover ratio or Accounts Receivable Turnover Ratio indicates the velocity
of debt collection of a firm. It indicates the number of times average debtors (receivable) are
turned over during a year. Debtors/account receivable turnover ratio indicates number of
times the accounts receivable amount is collected throughout the year or number of times the
debtors are converted into cash. It is calculates as follow:
Debtors Turnover Ratio =
CrcdIt SaIcs
Avcragc Dcbtors

To an outsider it is difficult to access this data, so it can be calculated as follow:
Debtors Turnover Ratio =
SuIcs
cbtos



High debtors turnover ratio indicates a tight credit policy and an efficient collection system
which getting better year by year for Maruti Suzuki India Limited.

Year 2 0 02 2 00 3 20 0 4 2 0 05 2 00 6 2 0 07 2 00 8 20 0 9 2 0 10 2 01 1 Aver age
Sales 7,067.70 7,140.14 9, 345.58 10,962.41 12,052.24 14, 653. 89 17,860.28 20,852.52 29,623.01 36,299.74
Debt or s 839.3 671.1 689.4 599.5 654.8 747.4 655.5 918.9 809.9 893.3
De bt ors Turnover
Rat i o
8 . 42 1 0 . 64 1 3. 5 6 18 . 29 1 8. 4 1 19 . 6 1 2 7 . 25 2 2. 6 9 36 . 58 4 0. 6 4 2 1. 6 1
De bt ors Turnover Rat io
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Debt ors Turnover Rat io
Debt or s Tur nover Rat i o

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5. Gross Profit Margin
Gross profit margin is calculated by dividing the gross profit by sales:
0ross Proit Horgin =
0ross Proit
Solcs

For Maruti Suzuki India Limited, it is as follow:


This ratio reflects the efficiency with which management produces each unit of
product. This ratio shows profits relative to sales after the deduction of production costs, and
indicates the relation between production costs and selling price. A high Gross Profit Margin
implies that the firm is able to produce at relatively lower cost.
Here Maruti Suzuki India Limited achieved greater efficiency in 2007 and 2008 but
could not maintain for later years.

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average
Gross Profit 537.60 656.02 1308.18 1797.73 2055.80 2588.82 3130.84 2433.40 4451.05 4684.46
Sales 7067.70 7140.14 9345.58 10962.41 12052.24 14653.89 17860.28 20852.52 29623.01 36299.74
Gross Prof it
M argin Rat io
0.08 0.09 0.14 0.16 0.17 0.18 0.18 0.12 0.15 0.13 0.14
Gross Prof it M argin Rat io
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gross Prof it M argin Rat io
Gr oss Pr of i t M ar gi n Rat i o

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6. Net Profit Margin
Net profit margin is obtained when operating expenses, interest and taxes are
subtracted from the gross profit. The net profit margin ratio is measured by dividing
profit after tax by sales:
Nct Proit Horgin =
Proit Atcr Iox
Solcs




Net Profit Margin ratio establishes a relationship between net profit and sales and
indicated a managements efficiency in manufacturing, administering and selling the products.
This ratio is overall measure of the firms ability to turn each rupee sales into net profit.
Here Maruti Suzuki India Limited achieved greater efficiency in manufacturing,
administering and selling the products in 2007 but could not maintain it for later years.



Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average
PAT 104.5 159.04 542.18 858.4 1,189.05 1,561.98 1,739.73 1,218.74 2,497.62 2,288.64
Sales 7067.70 7140.14 9345.58 10962.41 12052.24 14653.89 17860.28 20852.52 29623.01 36299.74
Net Prof it M argin
Rat io
0.01 0.02 0.06 0.08 0.10 0.11 0.10 0.06 0.08 0.06 0.07
Net Prof it M argin Rat io
0.00
0.02
0.04
0.06
0.08
0.10
0.12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Net Prof it M argin Rat io
Net Pr of i t M ar gi n Rat i o

27

Gross Woking Capital and Net Working Capital:
From the balance sheets of Maruti Suzuki India Limited Gross Working Capital and
Net Working Capital have been calculated as follow:
Currcnt Asscsts = In:cntory + cbtors + Bonk Boloncc & Cos + Ioon & AJ:onccs
Gross Working Capital = Current Assets
Currcnrt Iiobilitics = Pro:isions + Currcnt Iioblilty
Nct woking Copitol = Currcnt Asscts Currcnt Iiobilitics

From the above table we can see the trend of working capital for Maruti Suzuki India
Limited which is shown in the following graph:
Part iculars 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Current Asset s
Invent or y 681.1 487 439.8 666.6 881.2 713.2 1,038.00 902.3 1,208.80 1,415.00
Debt or s 839.3 671.1 689.4 599.5 654.8 747.4 655.5 918.9 809.9 893.3
Bank Bal ance & Cash 71.9 39.4 40.2 79.4 51.6 114.8 324 239 98.2 95.5
Loan & Advances 508.3 867 775 801.9 933.1 1,072.60 1,173.00 1,809.80 1,739.10 1,626.30
Gross W orking Capit al 2,100.60 2,064. 50 1,944. 40 2,147.40 2,520. 70 2,648. 00 3,190.50 3,870.00 3,856. 00 4,030. 10
Current Liabilit ies
Pr ovi si ons 298.3 342.7 317.4 389.2 480 490.5 369.5 380.7 628.4 525.8
Cur r ent Li abi li t y 1,157.50 1,574.70 1,523.20 1,454.20 1,704.80 2,288.60 2,718.90 3,250.90 3,160.00 3,805.20
Tot al 1,455.80 1,917. 40 1,840. 60 1,843.40 2,184. 80 2,779. 10 3,088.40 3,631.60 3,788. 40 4,331. 00
Net W orking Capit al 644.80 147. 10 103. 80 304.00 335. 90 -131. 10 102.10 238.40 67. 60 -300. 90
I n Cr. Rs.

28


Here we can see that Gross working capital is increasing regularly, but Net Working
Capital is going up and down. This shows that the company has increased its current assets
but current liabilities increased more rapidly than current assets. Here company should focus
on decreasing their liabilities and if it not possible then they should increase their current
assets.

Profits:




-1,000.00
-500.00
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Net Wor ki ng Capi t al
Gr oss Wor ki ng Capi t al
Prof it 2,00 2 2,0 03 2, 004 2 ,005 2,0 06 2,0 07 2, 008 2 ,00 9 2,0 10 2, 011
Gross Prof it 537.6 656.02 1,308.18 1,797.73 2,055.80 2,588.82 3,130.84 2,433.40 4,451.05 4,684.46
Net Prof it 104.5 159.04 542.18 858.4 1,189.05 1,561.98 1,739.73 1,218.74 2,497.62 2,288.64
I n Cr. Rs.

29

Relationship between Working Capital and Profit:
To show the relationship among Gross Working Capital, Net Working Capital and
Gross profit statistical tool correlation is used. I selected these three components because
Gross Working Capital and Net Working Capital are not fluctuating in similar fashion and
reason for selecting gross profit is that gross profit and net profit increase/decrease in similar
way.
Correlation Analysis

Here we can see that relationship between gross working capital & net working
capital and net working capital & gross profit is negative. While relationship between gross
working capital and gross profit is positive.











Gross W orking Ca pit al Net W orking Ca pit al Gross Prof it
Gross W orking Capit al 1.00
Net W or king Capit al -0.51 1.00
Gross Prof it 0.88 -0.70 1. 00

30

Findings
From the study I came to know the followings:
Companys investment in current assets is continuously increasing, but current
liabilities are increasing more rapidly than then current assets.
Inventory is increasing even after practicing Just-In-Time (JIT). Reason behind this
increase may be related to strike by the trade unions at Manesar.
Company is rotating its inventory more efficiently. They have increased inventory
turnover by more than 300 % during last decade.
Companys performance is getting better every year in converting their debtors into
cash quickly. They have increased debtor turnover by 450 % (approximately) in last
10 years. Their current debtor turnover ratio is more than double of average.
Gross profit margin decreased due to higher cost of production. Reason behind this
may be inefficient utilization of plant and machinery or over-investment in plant and
machinery.
Gross working capital has positive relationship with gross profit.
Net working capital has negative relationship with gross profit. Main reason behind
this is sharp increase in current liabilities.











31

Recommendations
Suggestions for Maruti Suzuki India Limited are as follow:
Company has too many current liabilities are compared to current assets. So it should
be reduced or current assets should increase for better results.
Efficient management of working capital is not related to finance only but includes
production as well.
Company should check its investment in plant and machinery for better profit margin
because inadequate or excess both investment affect the profitability negatively.

















32

Reference
Marc Deloofs research on Does Working Capital Management Affect Profitability
of Belgian Firms?
Financial Management Eighth edition by Prasanna Chandra
Financial Management Tenth edition by I. M. Pandey.
Annual reports of Maruti Suzuki India Limited.
www.moneycontrol.com



















33

Annexure 1: Balance Sheet

Balance Sheet
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
12 mt hs 12 m t hs 12 m t hs 12 m t hs 12 m t hs 12 m t hs 12 m t hs 12 m t hs 12 m t hs 12 m t hs
Sources Of Funds
Tot al Share Capit al 132.3 144.5 144.5 144.5 144.5 144.5 144.5 144.5 144.5 144.5
Equit y Share Capit al 132.3 144.5 144.5 144.5 144.5 144.5 144.5 144.5 144.5 144.5
Share Applicat ion M oney 0 0 0 0 0 0 0 0 0 0
Pref erence Share Capit al 0 0 0 0 0 0 0 0 0 0
Reserves 2,575.00 2,953.50 3,446.70 4,234.30 5,308.10 6,709.40 8,270.90 9,200.40 11,690.60 13,723.00
Revaluat ion Reserves 0 0 0 0 0 0 0 0 0 0
Net w ort h 2, 707.30 3, 098. 00 3, 591.20 4, 378. 80 5, 452.60 6, 853. 90 8,415.40 9, 344. 90 11, 835. 10 13, 867.50
Secured Loans 395.1 300 311.9 307.6 71.7 63.5 0.1 0.1 26.5 31.2
Unsecured Loans 260.9 156 0 0 0 567.3 900.1 698.8 794.9 278.1
Tot al Debt 656 456 311. 9 307.6 71. 7 630.8 900. 2 698.9 821. 4 309.3
Tot al Liabilit ies 3, 363.30 3, 554. 00 3, 903.10 4, 686. 40 5, 524.30 7, 484. 70 9,315.60 10, 043.80 12, 656. 50 14, 176.80
Applicat ion Of Funds
Gross Block 4,384.70 4,513.80 4,566.70 5,053.10 4,954.60 6,146.80 7,285.30 8,720.60 10,406.70 11,737.70
Less: Accum . Depreciat ion 1,954.60 2,258.10 2,735.90 3,179.40 3,259.40 3,487.10 3,988.80 4,649.80 5,382.00 6,208.30
Net Block 2, 430.10 2, 255. 70 1, 830.80 1, 873. 70 1, 695.20 2, 659. 70 3,296.50 4, 070. 80 5,024.70 5, 529. 40
Capit al W ork in Progress 72.4 9.3 74.9 42.1 92 238.9 736.3 861.3 387.6 1,428.60
I nvest ment s 96. 8 103. 2 1, 677.30 1, 516. 60 2, 051.20 3, 409. 20 5,180.70 3, 173. 30 7,176.60 5, 106. 70
I nvent ories 681.1 487 439.8 666.6 881.2 713.2 1,038.00 902.3 1,208.80 1,415.00
Sundry Debt ors 839.3 671.1 689.4 599.5 654.8 747.4 655.5 918.9 809.9 893.3
Cash and Bank Balance 71.9 39.4 40.2 79.4 51.6 114.8 324 239 98.2 95.5
Tot al Current Asset s 1,592.30 1,197.50 1,169.40 1,345.50 1,587.60 1,575.40 2,017.50 2,060.20 2,116.90 2,403.80
Loans and Advances 508.3 867 775 801.9 933.1 1,072.60 1,173.00 1,809.80 1,739.10 1,626.30
Fixed Deposit s 0 950 200 950 1,350.00 1,308.00 0 1,700.00 0 2,413.00
Tot al CA, Loans & Advances 2,100.60 3,014.50 2,144.40 3,097.40 3,870.70 3,956.00 3,190.50 5,570.00 3,856.00 6,443.10
Def f ered Credit 0 0 0 0 0 0 0 0 0 0
Current Liabilit ies 1,157.50 1,574.70 1,523.20 1,454.20 1,704.80 2,288.60 2,718.90 3,250.90 3,160.00 3,805.20
Provisions 298.3 342.7 317.4 389.2 480 490.5 369.5 380.7 628.4 525.8
Tot al CL & Provisions 1,455.80 1,917.40 1,840.60 1,843.40 2,184.80 2,779.10 3,088.40 3,631.60 3,788.40 4,331.00
Net Current Asset s 644. 8 1, 097. 10 303. 8 1, 254. 00 1, 685.90 1, 176. 90 102. 1 1, 938. 40 67. 6 2, 112. 10
M iscellaneous Expenses 119.2 88.7 16.3 0 0 0 0 0 0 0
Tot al Asset s 3, 363.30 3, 554. 00 3, 903.10 4, 686. 40 5, 524.30 7, 484. 70 9,315.60 10, 043.80 12, 656. 50 14, 176.80
Cont ingent Liabilit ies 1,801.40 1,276.40 1,119.80 893.6 1,289.70 2,094.60 2,734.20 1,901.70 3,657.20 5,450.60
Book Value (Rs) 2,046.46 107.23 124.3 151.56 188.73 237.23 291.28 323.45 409.65 479.99
-- ------ ------ ----- in Rs. Cr. ---- ------ ------ ---

34

Annexure 2: Profit & Loss Account


Yearly Result s
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sales Turnover 7,067.70 7, 140. 14 9, 345. 58 10, 962. 41 12, 052. 24 14, 653. 89 17, 860. 28 20, 852. 52 29, 623. 01 36, 299.74
Ot her Incom e 318 276.41 405.44 391.46 429.19 598.41 963.47 601.34 496.76 482.31
Tot al I ncom e 7,385.70 7, 416. 55 9, 751. 02 11, 353. 87 12, 481. 43 15, 252. 30 18, 823. 75 21, 453. 86 30, 119. 77 36, 782.05
Tot al Expenses 6,848.10 6, 760. 53 8, 442. 84 9, 556. 14 10, 425. 63 12, 663. 48 15, 692. 91 19, 020. 46 25, 668. 72 32, 097.59
Operat ing Prof it 219. 6 379. 61 902.74 1, 406. 27 1, 626. 61 1, 990. 41 2, 167. 37 1, 832.06 3,954.29 4,202.15
Pr of i t On Sal e Of Asset s -- -- -- -- -- -- -- -- -- --
Pr of i t On Sal e Of Invest m ent s -- -- -- -- -- -- -- -- -- --
Gai n/ Loss On Forei gn Exchange -- -- -- -- -- -- -- -- -- --
VRS Adj ust m ent -- -- -- -- -- -- -- -- -- --
Ot her Ext r aor di nar y Incom e/ Expenses -- -- -- -- -- -- -- -- -- --
Tot al Ext raor di nary Incom e/ Expenses -- -- -- -- -- -- -- -- -- --
Tax On Ext raordi nar y It em s -- -- -- -- -- -- -- -- -- --
Net Ext ra Ordi nar y Incom e/ Expenses -- -- -- -- -- -- -- -- -- --
Gross Prof it 537. 6 656. 02 1, 308. 18 1, 797. 73 2, 055. 80 2, 588. 82 3, 130. 84 2, 433.40 4,451.05 4,684.46
Int er est 76.4 51.82 43.39 36.01 20.39 37.63 59.62 50.98 33.5 24.41
PBDT 461.2 604.2 1,264.79 1,761.72 2,035.41 2,551.19 3,071.22 2,382.42 4,417.55 4,122.25
Depr eci at i on 342.9 322.08 494.92 456.83 285.42 271.36 568.17 706.54 825.02 1,013.50
Depr eci at i on On Reval uat i on Of Asset s -- -- -- -- -- -- -- -- -- --
PBT 118.3 282.12 769.87 1,304.89 1,749.99 2,279.83 2,503.05 1,675.88 3,592.53 3,108.75
Tax 13.8 123.08 227.69 446.49 560.94 717.85 763.32 457.14 1,094.91 820.11
Net Prof it 104. 5 159. 04 542.18 858.4 1, 189. 05 1, 561. 98 1, 739. 73 1, 218.74 2,497.62 2,288.64
Pr i or Years Income/ Expenses -- -12.6 -- -4.77 -- -- -8.91 -- -- --
Depr eci at i on f or Previ ous Years W ri t t en
Back/ Provi ded -- -- -- -- -- -- -- -- -- --
Di vi dend -- -- -- -- -- -- -- -- -- --
Di vi dend Tax -- -- -- -- -- -- -- -- -- --
Di vi dend (%) -- -- -- -- -- -- -- -- -- --
Earnings Per Share 72.33 5.5 18. 77 29. 71 41. 15 54. 06 60. 21 42. 18 86.45 79.21
Book Val ue -- -- -- -- -- -- -- -- -- --
Equi t y 144.46 144.46 144.46 144.46 144.46 144.46 144.46 144.46 144.46 144.46
Reser ves -- 2,953.64 3,446.73 4,234.34 5,308.11 6,709.39 8,270.94 9,200.37 11,690.60 13,723.02
Face Val ue 100 5 5 5 5 5 5 5 5 5
--- ----- ----- ----- - in Rs. Cr. --- ---- ----- ----- --