1

1. INDUSTRIAL PROFILE
1.1 INTRODUCTION
In the last fifty years tyre industry has been saddled with the unviable
reputation of manufacturing a commodity. Not only were the products black and
boring but the industry itself was also considered to be black and boring- with profits
to match this reputation. However, things are changing in the industry, and changing
rapidly. Tyre manufacturing might not be attracting much attention from Wall Street
but it is very different from the industry of a decade ago and in 10 years time it will
be different again. The new technology application has a disruptive effect on the
industry

1.3 FEATURES OF INDIAN TYRE INDUSTRY

It is capital intensive: A fully modern Greenfield radial plant matching

international standards with a production capacity of 0.25 million tyres per
annum which is the minimum economically viable size would require
investment of around Rs.3000 million.

It is raw material intensive: Around 70% of production cost and 50% of

turnover of the industry are accounted for by raw material cost.

Consumption ratio of natural rubber and synthetic rubber is 80:20 in India and
in world it is 40:60.

It is a delicensed industry.

New tyres and raw materials of tyres are under the open general license
(OGL)i.e. they can be imported and exported freely

Floor price mechanism to assess customs duty on used tyres import

Customs duty paid on true and raw material at 25%.

Excise duty on tyre ranges from 16% to 24% and for raw material (excluding
natural rubber) at 16%.

Domestic taxes on natural rubber 12.65% purchase tax and Rs.1.50 a Kg

rubber

The fortune of this industry depends on the agricultural and industrial

performance of the economy, the transportation needs and the production of
vehicles.

While the tyre industry is mainly dominated by the organized sector, the
unorganized sector holds way in bicycle tyres

Radialisation
The technological advancement has increased the usage of Radial Tyres. In
USA, 70% of tyres used are radials. In Europe, it is estimated at 97%. Even many
developing countries are shifting over to 75% of passenger car tyres as radials. The
level of radialisation in light commercial vehicles is 10% and in trucks and buses it is
an only 2%.
EFFECTS OF BUDGET ON INDUSTRY
Budget Impact
The reduction of customs duty surcharge by 10% will benefit those tyre
manufacturers who import rubber and carbon black feed stocks. However it will
negatively impact tyre companies who are facing stiff competition from cheaper
imports from China, as the removal of surcharge will encourage them more.
Industry Wish Lists

As imports of tyres are a threat to the growth of the industry, a hike in customs
duties form 38.5% currently would be a welcome measure. As Chinese tyre
manufacturers are flooding the market, this will be a welcome measure.

Elimination of Import duty on key Raw materials such as Polyester Tyre Cord
Fabric, Steel Tyre Cord Fabric and Butyl Rubberon the grounds that there is
no domestic production of these items.

Import of second hand tyres needs to be restricted by fiscal and physical

checks.

Tyres suffer from a high incidence of excise duty. Considering that various
committees appointed by the Government have recommended reduction, a
reduction in the rate of excise duty would by very welcome

KEY POSITIVES

Since the liberalization of the early 90s, the tyre industry has seen demand rise
as the automobile sector has grown tremendously in terms of market size and
production capacities.

As second hand car market has picked up, this will lead to higher demand
from tyre manufacturers as replacement demand rises.

Higher competition in the automobile segment will result in an increase in the

number of new models. This will increase demand for tyres in the OEM
market.

KEY NEGATIVES

The automobile sector has reported a sharp decline in volumes in FY01 due to
uniform sales tax rate, drought conditions and lower freight demand. This has
resulted in lower demand for tyres.

Tyres companies are saddled with pressure on operating margins as the prices
of rubber and carbon black; two important raw materials have been increasing.

Threat of cheaper imports from Chinese tyre companies is looming over the
industry.

Bargaing Power of Supplier

Bargaing power of supplier can be segregated in two parts according to the
demand of industry.
Rubber
There are two reasons behind this being low first one is most of the tyre firms
get 150 days credit for buying the rubber from international market which is not case
if they buy it from domestic rubber growers. And the second reason is, this credit is

being offered at LIBOR, which is the London Inter-bank Offered Rate. It is the rate of
interest at which banks borrow funds form other banks.

Other Petro Chemical Based Material (Carbon black, Nylon Tyre Cord etc.)
The power of suppliers is high in this category as India is limping back in case
of petro based raw materials like carbon black and chemicals which account low in
quantity terms but are high cost generators. Also the price of NTC fluctuates in line
with the prices of Caprolactam (a petroleum derivative) its main raw material. The
prices of these materials are beyond the control of tyre industry.
Bargaining Power of Buyers
This can be segregated into two parts as follows
OEMs
The OEMs are always in strong position when the bargaining power of
buyers is concerned. The reason behind this is most of them are having contact with
their relative tyre manufacturer under which the prices of tyre remains stable for this
OEM irrespective of market price. The benefits are given to them as they are buying
in bulk and the relation gives the tyre firms thing called brand association.
Replacement
The scene in replacement segment is quite reverse as the bargaining power for
the replacement segment is moderate due to the fact that the buyers are not that strong
as compared to OEMs. The demand in buses and truck segment is always high

because of Indian poor road conditions apart form this purchase is made in small
units.

1.8.3 Threats of Substitutes

It is moderate or as the industry is facing opposition form retreading sector all
over the globe. This cheaper option, around 20-25% of the original tyre cost, is
present in developed countries since some decade back. And this is heading towards
strong position here in India too.
1.8.4 Threat of New Entry
The threat of new entrant is moderate or can be described as low because the
industry is highly capital intensive and the level of technological expertise required is
also highly specific.
But if we see from domestic (Indian) industrys point of view, this better can
be defined as high. The reason being, global tyre industry is already seeing mergers
and acquisitions in order the restructure. And as of now India and China going to be
the hub of activities as far as tyre industry is concerned due to low production cost as
well as other relevant benefits. So for any of the global big shot Indian Company will
be a good option to go for.
1.8.5 Industry Rival
Industry Rival is High, because gradually the overseas players are expanding
their wings over Indian tyre industry and also a limited and every player is moving
towards automated technology.

Like ERP and SCM

Apart from the aforementioned reason, the industry is seeing high competitive
scenario at present because of various reasons like rising input costs, low realizations
from growing OEM segment where the vehicle manufacturers are not ready to share
the burden of tyre firms, the portion of replacement pie continuously taken away by
the retreading sector which is slowly but firmly rising its head and that to in high
realization segment of Bus-Truck tyres and last but not the least the unorganized
sector is always there to give head ache to these established players like CEAT, JK,
Apollo and MRF etc.
1.9 MAJOR PLAYERS IN THE INDIAN TYRE INDUSTRY
1.9.1 MRF
A leading company in the tyre industry, MRF Ltd. Boasts of an enviable track
record. The company has continued in the same vein and has been posting excellent
results, not withstanding the winds of recession blowing across the economy.
Performance of the company has been commendable in light of the fact that the user
industry is facing a slowdown. The company has benefited from better productivity
and operational efficiency. The company caters to a host of impressive clients. It has
signed on to be the sole supplier for auto giants like General Motors, Fiat and Ford in
India.

The company is also renowned for its exports, which have also been

witnessing positive response.

The performance of the company could further

improve with the revival of the auto industry. Thus, MRF Ltd. Can be expected to
retain its position in this segment. However, investors can move out of the scrip,
considering the outlook for the industry as a whole.

1.9.2 CEAT
Being the second largest selling brand in India with a market share of 14.6
percent, Ceat caters primarily to the replacement market. Due to the strong growth in
the OEM sector, the share of the replacement market in the total revenue of the
company has fallen. However, the production growth in the automobile sector over
the past few years should provide a boost to the replacement market in the coming
years and Ceat could be a major beneficiary thereof.

With the advent of

multinationals like Goodyear, Michelin, Bridgestone and Continental, a major

shakeout in the industry is imminent and the same could result in Ceat, which is
already operating on thin margins, being hived off as a joint venture with Goodyear,
in collaboration with which Ceat has already promoted South Asia Tyres for
manufacturing radial Tyres in India. With a modest track record on the financial
front, the forthcoming results may not be encouraging.
1.9.3 Apollo Tyres Ltd. (ATL)
A slow-down in the tyre market and rubber procurement at high prices has put
the brakes on Apollo Tyres limited (ATL). The company has traditionally been the
market leader in the truck and bus tyres segments. ATL caters to the replacement
segments of the domestic market. Following its take over of Premier Tyres, ATLs
market share has risen.

Besides the core truck and bus tyre business, fairly

considerable part of its turnover comes from automotive tubes and flaps, for which it
has commissioned a plant in Pune. Despite a reversal in the fortune of the automobile
industry, the chief user base of the companys products, the demand for truck tyres,
particularly in the replacement market, was not encouraging. Even as tyre producers
grapple with over-capacity and high levels of inventory, the government stirred a
hornets nest by proposing free imports of used and second-hand tyres. ATL has
conversion agreements for small tyres with TCIL, Stallino Tyres and Rado. Its

10

exports are routed through Apollo International to the US, Germany, Brazil, Sudan,
Egypt, etc.
1.9.4 J.K.Tyres
J.K. Organization founded over 100 years ago ranks within the elite private
groups in India in terms of assets and sales. The Group's operations can best be
characterized as multi-business, multi-product and multi-location with head office in
New Delhi, the Capital of India. The Group has a distinguished record of being
pioneers in introducing several new products and processes into India for the first
time. It comprises of a number of industrial and commercial companies, exceeding 70
in number, most of them public limited, in which J.K. Organization has controlling
interest ranging from 35 to 70%.. In the major public limited companies, there are a
large number of public shareholders aggregating over 8,00,000
J.K. Organization has very diversified manufacturing activities such as
Synthetic Fibres like: Nylon, Polyester, Acrylic; Paper & Boards; Cement;
Automobile Tyres & Tubes; Cotton, Woollen and Jute Textiles; Engineering; Plastic
Processing; Agrochemicals; Hybrid Seeds; Cosmetics; Audio & Video magnetic
tapes; Power transmission including V-Belts and Conveyor Beltings, Automotive
Belts, Oil Seals; System Engineering, Industrial, Electronics and Material handling
systems, etc
The Group is further diversifying in other fields like Petrochemicals, Steel,
Drugs & Pharmaceuticals, Food & Dairy Products, Electronics, Computer Software,
Power generation, Rubber hoses, etc.

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II. COMPANY PROFILE

2.1 HISTORY OF THE COMPANY
FALCON TYRES LIMITED was promoted by a group of professionals on 2911-1973 and started commercial production on 15-01-1974. The company since then
is engaged in the business of manufacturing automotive Tyres and Tubes for the two
and three wheeler segment of the Industry. Falcon Tyres limited is a public limited
company with an authorized capital of Rs.2350.00 lakhs and paid up capital of Rs.600
lakhs.
The manufacturing unit is located on KRS Road at about 6kms from Mysore
City. The Company's operations were profitable till 1982 and thereafter it started
incurring losses due to uneconomic production mix and technical deficiencies. The
company is declared as sick industrial unit after it is referred to the Board of
Industrial and Financial Reconstruction (BIFR) in 1988.
The Company was then taken over by Mr. M.R.Chhabria and it became a part
of Jumbo Group of Industries. The operations of the Company were synergized with
the Tyre major of the Group - Dunlop India Limited. With the technical and
marketing support extended to the Company by Dunlop, Falcon Tyres Limited started

12

recording profits in 1991-92 and. by 1994 the entire accumulated losses were wiped
off. The Company carried out one of the most remarkable turnaround in the Indian
corporate history and by 1995-96; it emerged as the highest profitable company in the
Indian Tyre Industry with a net profit ratio of over 7%.
With the continuing boom of the Automobile Industry, experiencing an
annualized growth of 15%, the company chalked out an ambitious expansion
programme in the year 1994-95. The first phase of expansion programme has already
been completed (i.e., expanding the capacity from 2.20 lakh tyres to 3.00 lakhs per
month) and in the second stage the capacity is stated to go upto 4.50 lakh tyres per
month. The turnover of the company for the financial year 2000-01 has crossed the
Rs.100crore mark and during 2001-02 it is Rs.145crore, making a tremendous
increase in the sales by 41%. The company has made a further growth of 25% during
the financial year 2002-2003 to make the sales reach Rs.182crore. The turnover for
the financial year 2003-04 is Rs.180crore and the company achieved a turnover of Rs
224crores for the year ended 31st march 2005.
During March 2003 company has been awarded with ISO 9001; 2000
certification from TUV SUDDEUTSCHLAND INDIA PVT. LTD.
Product-Line
FALCON TYRES LTD, manufacture two and three wheeler Tyres, it also
manufactures tuber for the above said product line. It also manufactures four-wheeler
Tyres that are only for Maruti.
Customers
F.T.L classified its market into three segments they are as follows
1. OEM- Original equipment market.

13

2. Replacement Market
3. Export Market
1.

OEM means F.T.L directly sell its product to manufacture to two and three
wheeler vehicles.

2.

Replacement market means it sells its product to the whole seller or distributor
through this channel it will reach to the consumer.
Present status of the company is shown in Table 2.1

14

Table 2.1: Present Status of the Company

Name of the company
Year of incorporation
Registered Office
Head Office
Factory
Nature of Organization
Line of activity
Number of departments
Total
number
of

Falcon Tyres Ltd.

1973
Golden towers, 50, residency road, bangalore-25.
Falcon Tyres LTD, KRS Road, Metagalli Mysore-16
Falcon Tyres LTD, KRS Road, Metagalli Mysore-16
Public Ltd company.
Manufacturing of tyres and tubes.
14.
1026.

employees
SYDICATE BANK,
Bankers

STATE BANK OF INDIA,

PUBJAB NATIONAL BANK,
Vidhya Manahor Chabbria(chairperson).
Deepak chaudhuri (Executive Director).

Board of Directors

Komal C. Wazir.
Mr. Mohan M.Thakur
Niranjan Thakur.
Prakash M. Nene.
Ravindra Pal Bhatia

Major Customer OF F.T.L

HERO HONDA.
ESCORTS LTD

15

BAJAJ AUTO LTD AND BAJAJ TEMPO LTD

KINETIC ENGINEERING AND MOTOR LTD
ROYAL ENFIELD MOTORS
LLM LTD
YAMAHA MOTORS INDIA (P) LTD
KERALA AGRO MACHINERY CORPORATION LTD
MONTO MOTORS LTD
VST TILLERS AND TRACTORS LTD
ASHA INDUSTRIES PRIVATE LTD
Employees in F.T.L
There are approximately 1,000 employees in the company. Comprising of
management personnel. Staff workers and trainees. Most of them come from Mysore
village.
Welfare Measures in F.T.L
Following are the welfare schemes, which are under taken by the company
according to various acts.
a. Canteen facility at subsidized rates and quality foods.
b. Occupation health care.
c. Medical assistance for those who have not been under ESI act.
d. Medi- claim policy to workmen and his family.

Salient Features OF F.T.L :

1. ECS Facility
ECS means electric clearing services. It is mode of payment of dividend to the

16

shareholders residing is some selected cities. Depending on the number of request

received from the shareholders in this respect. Shareholders are requested to provide
particulars of their bank account details of availing this facility in the form attached.
2. Dematerialized Shares
About 88% of the shareholding of the Company has been dematerialized as on
31st March 2005. Trading in Equity Shares of the Company is permitted only in
dematerialized form, as per the SEBI Circular dated 29/05/2000 with effect from
26/12/2000.
3. Retirement benefits to the employees
1. Provision for gratuity is made as determined actuarially under group
gratuity scheme of life insurance corporation of India (LIC).
2. Contribution to provident and superannuation fund is accounted for an
accrual basis.
Research and Development
1. Area in which activities carried out by the company

Development of new uni-directional pattern Tyres for scooter segment.

New Hi- tech testing instrument for incoming raw material.

Addition of new pattern and designs for varied customer needs.

Rationalization and introduction of cost effective imported raw materials.

Development and production of light commercial vehicle Tyres.

2. Benefits from the above R & D effort

Optimum utilization of the installed capacity and increased productivity.

Consistency in quality of finished goods.

17

Reduction in wastage and degraded material.

Additional ranges and patterns were available as a better choice for the
customer as the market place.

Functions of the Officers

Mr. Deepak Chaudhuri
He was appointed as Director in the casual vacancy arising out of
Mr.T.C.Goels resignation and is designated as Executive Director of the Company
with effect from 6th June 2005 and having an experience of 27 Years in various levels.
Mr. S. BADRlNARAYAN
He is asst vice president and he is also in charge of finance, accounts, system
and Company Secretary. He held his employment in TUTICORlN SPINNING
MILLS LTD. And have an experience of 23 years. He too is a very dynamic, has
taken care in all financial and secretarial aspects of the company, and he managed it
efficiently.
The major players in the tyre industry are Leading manufacturer of tyres is
1. Apollo tyres.

6. TVS Sri Chakra

2. J .K. industries ltd.

7. Falcon tyres.

3. CEAT ltd.

8. MRF

4. Modi rubber ltd.

9. Vikrant tyres ltd.

5. Dunlop India ltd.

Present Scenario of FTL
Production Capacity
The company is presently has installed capacity of 52,00,000 tyres and

18

25,80,000 tubes per annum, now the company is manufacturing an average of 13,115
tyres and 10,750 tubes per day. This includes both 2 and 3 wheelers.
The factory is on the threshold of massive expansion coupled with
modernization. This expansion covers the introduction of additional product range
like tyres and tubes for cars, light truck, tractor front, power tiller, etc.,
Total Quality
Falcon Tyres meets 150, 815, JI5, T & RA and ETRTO standards wherever
applicable. The quality accreditations are:

DOT Marketing for all 2 and 3 wheeler sizes for export to U.S.A.

ECE Marking for export to European Countries.

DG5 & D certification for all 2 & 3 wheeler sizes for supply to Government
Organizations.

Capital Structure at FTL

Falcon Tyres Ltd., was incorporated in 1975 with an authorized capital of Rs.
2350.00 lakhs of which Rs. 568.09 lakhs had been issued, subscribed and paid up.
Exports
FTL make exports of Tyres to South America & Bangladesh. It exports only
two and three wheeler Tyres. The export made as on 2004 is 294.54 lakhs.

SWOT Analysis of FTL

19

Strength

Brand Equity or DUNLOP

Well entrenched OE I REPLACEMENT segment

Necessary infrastructure 'created to take care of Replacement

Marketing requirement

Lowest conversion cost with higher productivity

Economies of size

Consistent quality and after sales service with full fledged

R & D backup.

Flexibility in Production

Weaknesses

Dependence on 'OE' Customers

Loss of flexibility in pricing of Products due to severe competition

Non-participation in OEM's like TVS, Honda Motors etc., the fast growing
Companies

Very less penetration to other tyre segment.

Less range of tyre in 4 wheelers. Less advertisement campaigns

Opportunities

Fast growing It Motor Cycle / LMC" segments

Entry of Honda, Japan, directly in Indian market and our long association with
their Indian counterparts

Expected growth in Four wheeler segments

Demand for other Tyre / Tube related products

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Threats

Tyre & Tube put under "OGL "

Penetration of Global players in our market segment

Un-healthy and cut-throat competition

Presence of unorganized Tyre/Tube companies/Duplicate Tubes

Government policies and tax structures (Export incentives reduced by 6%

W.E.F Feb 2004.

Decline in OEM growth, especially in Scooter & Moped segments

2.2. COMPANY PROFILE WITH REFERENCE TO SEVEN'S MODEL OF

MCKINSEY
McKinsey & Company, a leading international consultancy firm has
developed an approach to value based management, which has been very well
articulated by Tom Copeland, Tim Koller & Jack Murrin of McKinsey Company.
According to them - "Properly executed, value based management is an
approach to management where by the company's overall aspirations, analytical
techniques and management processes are all aligned to help the company to
maximize its value by focusing decision making key drivers on value."
The model as shown in Fig. 2.1 says that there are seven basic dimensions,
which represent the core of managerial activities. They are as follows:

Strategy

Staff

Structure

Skills

Systems

Shared Values

Style

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These seven dimensions are popularly known as Seven S's of McKinsey

Model. Many large and complex organizations apply 7s model to magnify its value.
This model is also implemented in Falcon Tyres Limited., Mysore.
2.2.1. Strategy
According to Mc Kinsey's 7 S Model, strategy can be defined as "A coherent
set of actions aimed at gaining a sustainable advantage over competition, improving
position vis--vis customers, and allocating resources."
In FTL, Corporate level strategy occupies the highest level of strategic
decision-making and covers the actions dealing with the objectives of the firm,
acquisitions, allocation of resources & coordination of strategies of various
departments to achieve optimal performance.
Vision: leadership status in 2& 3 wheeler tyre segment, the company belives in the
philosophy of continuous improvement in all the aspects of its operation.
Mission: to have a turnover of Rs. 500 crores in next three years
The strategies of FTL focus on:

Superior Quality - FTL is committed to deliver superior quality products to its

customers. Falcon has been conferred with prestigious ISO / TS 16949:2002
certification from TUV Suddeutschland in February 2004. The certification
which puts the company ahead of its competition was achieved in a record time
and entailed up gradation of processes and practices to enforce compliance to
international standards.

Wide Customer Reach - FTL is having well-structured marketing and

distribution network. This distribution strength will be a key differential in the
prevailing competitive scenario. In the current financial year, Falcon has
resorted to aggressive marketing drive for increasing width and depth of
distribution to increase its share in the value conscious replacement market.

Outstanding Customer Service - Greater emphasis is being laid to achieve

22

customer satisfaction.

Expansion - Expansion of manufacturing facilities leads to cost reduction in the

long term. It facilitates the company to product qualitative low cost [low weight]
tyres to win the intense competition within the industry.

Alternative Sources - The sustained rise in raw material prices is making the
cost of production more expensive and it will adversely impact on the
profitability of the company in this intense competitive scenario. In order to
overcome this competition, FTL has framed the strategy that it shall continue to
develop alternative sources of raw material suppliers.

Sales Promotion - Introduction of dealer award programs and sales incentive

schemes to boost sales and to acquire vital market share in replacement market.)

Future Plan

To develop wide range of tyres in two, three and four wheelers

segments for export market.

To develop tubeless tyres in 3 wheeler segments.

To introduce advanced technology tyres of directional pattern design

& conventional pattern in motorcycle segment.

To develop hitech low profile tyres in scooter segment.

Two significant developments made in this year are

Falcon tyres limited has been conferred with prestigious ISO/TS

16949:2002 certification.

A long term wage settlements with the work men will herald a new
era of efficiently high productivity & harmonious industrial
relation.

2.2.2. Structure
Structure refers to the organization structure, which provide information about
who reports to whom and how tasks are both divided and integrated.
FTL has a tall organization structure that is usually pyramid shaped , this

23

implies centralization of authority at the top departmentalization of jobs hierarchy of

commend, narrow span and intense division of labour ,this type of structure provides
a clear and well defined work setting to its employees.
In simple term, Structure is the pattern in which various parts or components
are integrated or interconnected. The design of the organization structure is a critical
task of the top management of an organization.
Thus, organization structure is the pattern of relationships among various
components or parts of the organization. This prescribes the relationships among
various activities, positions and people in the organization.
2.2.3. System
System refers to organization methods that are used for the flow of
information from one department to other. FTL has an adequate system of internal
control designed to provide reasonable assurance on the achievement of the
objectives relating to efficiency and effectiveness .of operations, reliability of
operations, reliability of financial reporting. There is a system compliance to follow
rules and regulations and for safeguarding of assets.
Some of the systems followed in FTL are briefed belowInformation System
The implementation of computers has made information flow fast and reliable.
The information is versatile. Since FTL has good backup system. The company has
adopted an ERP package known as SAP. Even though the implementation is not full,
FTL is using it for the extent possible for the flow of information. The software that
has been developed by FTL includes FOXPRO, FINANCIAL PACKAGE,
MATERIAL ACCOUTING PACKAGE, FINISHED GOODS PACKAGE, etc., which
arc used for the processing of the information. The users are well trained at their

24

appropriate levels to ease the W1derstanding of the information flow.

Budgeting System
"Budgeting is a process of doing the projection budgeting system braked up
into six phases as follows
Phase 1: Marketing system forecasts for sales
Phase 2: Production department takes the decision regarding the in-house production
and outsourcing.
Phase 3: Planning department plans for the resources like machinery, raw materials,
human resources required for the production.
Phase 4: Purchase department decides material sourcing, vendor selection and
development und the time of purchase.
Phase 5: The final step is done by the finance department that estimates the
expenditure for the budgeted sales.
Quality Control System
Quality of the product is proper mixture of ram material & accuracy in the
size. In FTL, the accuracy is concerned with the size of the tyre is to be maintained. it
conducts various tests that checks the quality of the product. 5 sigma standards have
been achieved and the measures are to be taken to achieve the 6-sigma standard.
Visual inspection is one of the methods that are used to check the quality.
In addition to ISO 9001:2000 certification, The Company has received a
Certificate for TS16949:2002 from M/s. TUV SUDDEUTSCHLAND AND INDIA
PVT. LTD. The company is aiming for ISO 14001:2004 and OHSAS 18001:1999.

25

Recruitment, Training and Development System

Recruitment process starts with the identification of the vacancies by the
department head of the respective department. A form requesting for the Human
Resource is sent from the department to HRD. This will be sent for the approval by
management. If approved, sources are searched. Some sources arc employment
exchange, educational institutions or ex-apprentices. Short-listing of the received
applications is done through interviews. The management does selection and fills the
vacancies.
Training Process
In FTL training is done on the job. The selected person will be trained by
immediate supervisor or if needed the appointed trainer. Training is provided at the
user levels. In FTL normal training period is 3 years for both employees and
management staff.
The employees are given opportunities for their development based on their
performance
Performance Valuation System
Performance appraisal is necessary for grading the employees. In FTL the
head of the concerned department normally does Performance appraisal. The
performance appraisal is made through Ranking Method by allotting out of 100
marks.
The evaluation criteria are as follows:
Upto 50
50-65

Marks average.
Good

65-75

Very good

75-85

Excellent

85 and above

Extraordinary

After these ranking system made by the department heads it will go to

26

incremental committee for the second review. The above said appraisal system is only
for management staffs and operational staff, but the executive director himself will do
the appraisal.
2.2.4. Style
In FTL the shareholders' grievances committee meets at frequent intervals to
consider shareholder / investors complaints. The committee deals with grievances
pertaining to transfer of shares, non-receipt of Balance Sheet, non-receipt of
dividends, dematerialization of shares, complaints letters received from stock
exchange etc. During the year, 3 complaints were received from shareholders. All
complaints have been resolved to the satisfaction of the complainers and no transfers
were pending.
The company has a practice of communicating with the stakeholders Quarterly
results of the company are normally published in The New Indian Express and
Prajavani and are displayed in the company's website, apart from providing to stock
exchanges and press.
The company has formed a remuneration committee. The committee decides
on the remuneration of the executive directors.
2.2.5. Staff
The company is accommodating various employees, they comprise of
personnel, staff, workers and trainees. Most of them are from the Mysore city. The
company continues to have cordial and harmonious relations with its employees. The
company has various training programs organized to be in line with changing
business environment. Several training programs structured to the needs of the
individual employees.
Regular audit on safety and environment are done by the competent professional

27

and the recommendations are followed to provide a safe and clear work environment.
Regular training programs on safety are conducted to increase awareness and
commitment for safety. The total number of employees on the roles of the company as
on 31 July is 1139 is distributed in different departments
The company has successfully formalized in long-term settlement that is valid
for 39 months from 1st April 2003. The long-term wage settlements include better
productivity optimization of output and continuing harmonious industrial relation.
The staff in the FTL will come under human resource department under the
senior general manager. The department is looking after three sub departments, they
are
Human resource department
Personnel and industrial relations department
Safety and security department
2.2.6. Skills
Skills are considered as One of the most crucial attributes or capabilities
possessed by the organization.

The term skills include those characteristics or

strengths which most of the people use to describe the company.

The capabilities or strengths possessed by FTL are; Human Resources,
Manufacturing Facilities, plant production, Research & Development, market size &
segments, Brand Equity. Committed team & Group Support & Distributors & Dealer
network etc. and also to meet the requirements of ISO 9001: 2000 and ISO/TS
16949:2002 quality related certifications were conducted during the year and got the
Certificate.

28

Human Resource:

FTL is possessing well-trained fully committed work force working

towards the fulfillment of objectives of the company. FTL conducts several
training programs for the purpose of upgrading the skills and knowledge of the
employees to meet the challenges of dynamic business environment.
2.2.7. Shared Values:
As per the model, shared Values implies The values of that go beyond, but
might well include, simple goal statements in determining corporate destiny. To fit
the concept, these values must be shared by most people in an organization.
Along with this, each department is having its won objectives to be achieved
such as marketing Department. Have its own benchmark sales, personnel department
to reduce the labour related problems etc.,
Quality Policy
Falcon tyre ltd. is committed to supply quality tyres tubes & flaps on time to
achieve fullest customer satisfaction. FTL achieve this by providing training to all
levels, continually improving the system & process.
EOHS-Policy
Are committed to develop environmental friendly healthy & safe working
systems we shall achieve this by
1) Use of proper & efficient methods in our operations with the aim o
conservation of natural resources, prevention of pollution & hazards.
2) Compliance with applicable legislations & regulations.
3) Training at levels & continually improving environmental occupational health
& safety performance

29

III PRODUCT PROFILE

FTL manufactures and markets a wide range of nylon bias ply tyres and butyl
tubes for two and three wheelers, passenger cars, jeep, light commercial vehicles and
farm vehicles. FTL markets its products under "DUNLOP" brand for the domestic
market and "FALCON" for overseas market.

Product Variety - 2, 3 and 4 Wheelers

Quality - Good

Design - Rip and Stid

The wide ranges of products of FTL with different kinds are presented in

Table 3.1 and Tyre building process is shown in Fig. 3.1

Features

It gives upto 20,000 kms

Good road grip

Leading in 2 and 3 wheeler tyres [It is 3rd place among others]

Brand name

DUNLOP [Domestic Market]

FALCON [Overseas Market]

30

Table 3.1 Different Ranges of Tyres

S. No.
1
2
3
4
5
1
2
3
1
2
3
4
5

Items
I. AGRICULTURAL TYRES
JAP 910 T.F
Power Tiller
JAP 930
JAP 940 Reaper
MAHAAN LR5
II SCOOTER TYRES
JAP 200
JAP 220
JAP 230
III MOTOR CYCLE TYRES
Geo-Crusher F50
Ezee Crusher XLF 318
JAP 350
JAP 370
JAP 410

31

Mixing & Milling:

Rubber, Carbon Black, Anti Oxidant, Ratarders are mixed as per standards
specification in Intermix and sheeted out. Curatives and accelerators are added to the
sheeted out compound in the final mixing.
Fabric Cutting and Slitting in Banner Cutter:
This is a process of cutting of calendared fabric by banner cutters according to
the required width suitable for beads and Tyre building according to the Type of Tyre.
Band Building:
Coated and calendared fabric will be supplied in joints with or without
squeegee and bands for different plies will be made.
Bead Winding:
Wires are coated with extruded rubber compounds and wound one over other
to make as circular bead.
Tyre Tread:
Mixed rubber compounds is extruded through dies for making treads and
cooled in water tanks and cut into required lengths.

32

Tyre Building:
The bands are assembled over tyre building drum, after fixing the side beads.
Breakers are placed with pressure. The tread is also applied over the bands to make a
Raw Tyre.
Air Bags / Bladders:
Air Bags / Bladders are made by moulding the extruded slugs in a particular
size mould and these are used as a shaping tool in the tyre moulding operation.
Air bag Bagging:
Bagging is the process of inserting the Air Bags in Raw Tyres before curing.
Tyre Curing:
The Raw Tyre is moulded in a specified heated mould and also shaped by
using an Air Bag or a Bladder through which steam is passed.
Finishing:
This is a process of inspection, trimming and buffing of tyres to ensure for
better performance.
Tube Making:
Mixed rubber compound is milled and sheeted out. This is loaded in an
Extruder to extrude tubes and passed through conveyor in chilled water and then cut
into the required lengths. After this valve is fixed and the tube ends are spliced.
These Raw Tubes are steam cured in a specified mould placed in the presses. They
are packed in bags and dispatched after inspection.

33

3.1. VALUE CHAIN ANALYSIS OF FTL

Michael Porter of Harverd proposed value chain as a tool for identifying ways
to create more customer value. Every organization performs activities like design,
production, market, delivery & supports its product. The value & cost in a specific
business. These nine value-creating activities consist of primary activities & four
support activities. Value chain analysis is shown in Fig. 3.2
3.1.1. Primary Activities

Inbound logistics.

Operations.

Outbound logistics.

Marketing & sales.

Service.

3.1.1.1. Inbound Logistics:

Inbound logistics includes activities associated with obtaining Raw materials,
parts, components and consumables items from Vendors, reviewing, storing and
inventory management.
In FTL there is a separate department called material department to deal with
purchase activities, this department is divided into stores and spare section, FTL
imports active materials such as rubber, carbon black, anti oxidant, ratarders from
domestic suppliers. FTL imports these raw materials on half yearly or yearly basis,
depends o n the requirement, transport service providers usually transport these goods
to the companys store department, Quality inspector inspects the quality of procured
items, store keeper checks the quality of purchased items and records of all these
item, items form stores are issued to production department on the basis of bill of
material, which is required for production.

34

3.1.1.2. Operations:
Operations with reference to value chain include the activities associated with
converting inputs into final products.
The Company recorded a turnover of Rs.224 crores and a net profit of Rs.0.92
crores during the financial year 2004-05, despite severe competition in the industry.
An all round increase in input costs and inability to pass on such increase to
the customers adversely impacted the performance of the company during the
financial year under review.
Production of Tyres & tubes during the year 2004-05 stood at 19381 M.T. as
against 15684 M.T. in 2003-04. Necessary infrastructure and additional capacities
were created during the year to cater to the marketing requirements. New patterns
and designs of tyres introduced during the year were well received by the customers.
The company has increased its presence in the tube market as well as in the exports.
Even though the tyre industry continued to be affected on account of sustained
increase in input costs the intense competition within the industry to protect the
market shares has prevented tyre companies in our segment of business from passing
on the effect of the increase to the customers. Recognizing the role that distribution
strength is likely to play in the success of companies in a highly competitive scenario,
the company has charted out ambitious plans to consolidate in this area.
3.1.1.3. Outbound Logistics:
Outbound logistics include activities dealing with physically distributing the
product to buyers, specially this deals with finished goods warehousing, order
processing, order packing, shipping & delivery vehicle operations.

35

In FTL all the tyres are kept in separate room in control department checked
and inspected separately, in that process all the parameters of manufactured tyres are
checked whether they are satisfying all the requirements of customers.
Consignments of tyres are dispatched to customers through road and rail
transport to customers.
The finished goods processed by FTL are wide range of nylon bias ply tyres &
butyl tubes for two & three wheelers, passenger cars, jeep, light commercial vehicles
& farm vehicles.
3.1.1.4. Marketing & Sales:
Marketing & sales in value chain is related to sale force efforts, advertising &
promotion, market research & planning & dealer / distribution support.
In FTL there is a separate department for performing the marketing activities.
Manager (marketing) heads this department who is under the direct control of general
manager.
The actual work of marketing department starts when they receive enquiries
from the customers .the marketing department sends the checklist of products to
customers produced in the company.
After receiving purchase order from the marketing department send customer
customer order to production control department based on this order production
control department first prepares the work order and the bill of material, the bill of
material sent the finance department to fix prices and payments terms, them the work
order is sent to the marketing department and production starts.

36

After the inspection the product is ready and dispatched to customer along
with the document containing delivery terms and payments conditions.
The prospects of tyre exports from India appear healthy, the efforts by Indian
companies to increasingly enter into outsourcing agreements with tyre producers in
South East Asia, Eastern Europe, Latin America is proved fruitful, overall tyre
producers in India are likely to top export market in future.
3.1.1.5. Service:
Falcon tyres limited maintains good relationship with customers, FTL is
providing the after sales service to the customers.
The company is also providing replacement facility and spare parts to the customers
when there is any damage. Falcon tyres limited has dedicated services staff to attend
customers complaint.
The products of FTL are marketed & sold through transport facilities &
warranty. The company provides service to its customers in the form of prompt
delivery of goods as per the schedule drawn.
3.1.2. Support Activities:
Firm infrastructure.

Human resource management.

Technology development.

Procurement.

3.1.2.1.

Firm Infrastructure:
Firm infrastructure includes all the activities & costs in general management,

accounting & financing, safety & security & the overhead functions.

37

FTL is a public limited company with an authorized capital of Rs. 2350.

Lakhs & paid up capital of Rs. 600 lakhs.
The manufacturing unit is located on K.R.S road at about 6kms from Mysore
city, The companys operations were profitable till 1982 & thereafter it started
incurring losses due to uneconomic production mix & technical deficiencies.
The company was then taken over by Mr. Chhabria & it became a part of
Jumbo Group of Industries, the operations of the company were synergized with the
tyre major of the group-Dunlop India limited.
The company achieved a major break through in 1995-96 by selling over a
million tyres to Bajaj Auto Limited, the Countrys premier manufacture of two &
three wheelers.
3.1.2.2.

Human Resource Management:

The Human Resource Development policy of FTL is to attract & retain

competent personnel by providing a productive work environment opportunity for

growth & compensation comparable to industry practice.
The personnel & administration department is associated with the activities of
recruitment, hiring, performance appraisal & career development, FTL has an
efficient & skilled human resource. The staff recruitment for management is done
from both internal & external sources; the recruitment of workers is done externally.
3.1.2.3. Technology Development
FTL objective is to produce tyres products of world-class quality at a
competitive cost by their continuous commitment to state-of-the-art technology,

38

environmental protection and safety of operations, social commitment and employee

relations.
FTL has been awarded international standard for quality systems ISO 9002. It
was certified as and ISO 9002 company in March 2003 from M/S TUV
SUDDEUTSCHL AND INDIA PVT. LTD. The quality control Department of FTL
makes use of the best technology in the world to ensure quality of tyres products at
every stage of production. The quality of water required for utility at the plant is also
tested.
3.1.2.4. Procurement
Procurement in value chain is associated with purchasing & providing raw
materials, supplies services & outsourcing necessary to support the firm & its
activities.
The company was acquired by Jumbo Group of Industries. The operations of
the company were synergized with the tyre major of the group Dunlop India
Limited with the technical & marketing support extended to the company by Dunlop.
The rubber is transferred to the FTL plant site with the help of transport facilities.
The company installed capacity of 52,00,000 tyres & 25,80,000 tubes per annum,
now the company is manufacturing an average of 13,115 tyres & 10,750 tubes per
day. This includes both 2 & 3 wheelers.
The factory is on the threshold of massive expansion coupled with
modernization. This expansion covers the introduction of additional product range
like tyres & tubes for cars, light trucks, tractor front, power tiller etc.

39

IV. ORGANIZATION STRUCTURE A REVIEW

Organization structure refers to the style in which the organization carries out
their business and accompanying baggage that shows whose tasks are divided and
integrated.
Pascal and Athos in their book The Art of Japanese Management say that
Organization structure emphasis that the quality of management depends on the
goodness of which amongst all those key managerial dimensions.
According to them structure in the 7S model which is one of the S which will
come as hard S, which means decisions made once on these aspects cannot be
changed very often,
In spite of the central importance that organizational structure has in shaping
corporate performance and individual satisfaction, it is still a subject, which is highly
misunderstood. To trace any scientific foundation for the definition of structure, one
would have to resort to the Anthropological approach.
According to Ed. Schein, the structure of a group is made visible in the
artifacts and creations, produced like language, technology, art, stratification and thus
system and rules regarding sex and family.
There is a high level of awareness or care taken on these issues. Organization
corresponding to things which are visible, which they are using or clearly perceivable
and trustable to the extent to which they are working in the both external as well as
internal.
The FTL is having totally 1139 employees as on July 2004, but out of them are
Apprentices. So actual FTL's manpower is 924. The organization structure is shown
in Fig. 4.1.

40

Finance department is headed by VP finance and company secretary, who is

incharge of whole finance department.
The department is sub divided into:
1. Commercial Accounts
2. Accounts & Finance
These are headed by DGM's of respective sub department.
In addition, Finance department consists of other executive like Deputy
Manager Costing, Assistant Manager, and Secretarial Manager - Systems and related
officers and Trainees. All are having reporting relationship to VP [Finance] or DGM
[Finance].
4.1 FUNCTIONS OF VARIOUS DEPARTMENTS IN FTL
4.1.1 Finance Department
Finance manager is the head of the department; the main functions of Finance
department are to maintain accounting records and to exercise Finance control. An
accounts officer and other staff members of the department assist the Finance
manager, budget preparation is another important duty of the department in which the
proper budget needed for the organization is prepared, and the sales budget is
prepared by taking into account.
Finance department has the control over 5 major areas they are
i.

Accounting and finance

ii.

Commercial accounting

iii.

Costing

iv.

Secretarial

v.

System

41

So it is having wide range of function. The major functional areas are:

1. The financial accounting and budgeting.
2. Price fixation (costing).
3. Internal Auditing.
4. Verification of C & F agent activities.
5. Control over the information function.
6. Fixation of discounts, commissions etc.
7. It acts as liaison for banks
4.1.2 Personnel Department
The personnel and administrative officer is the head of the department and
other staff members of the department assist him.
These are the major functions of personnel department:
1. Recruitment
2. Selection
3. Training and development
4. Induction
5. Manpower planning
6. Welfare measures (canteen, and fringe benefits, Ambulance)
7. Spoke person of the organization
4.1.3 Marketing
Marketing as a function makes contribution in the achievement of corporate
objectives, marketing comprises an integrated system of business activities in order to
plan, price, promote and distribute goods and services to meet customer needs
marketing department of FTL is headed by a marketing manager followed by two
marketing officers for promotion of the product and sales respectively.
The main functions and responsibility of the department are,
1) To sell the product to customers and gives them proper service.
2) Collect information regarding current market conditions.
3) Providing the customers with proper information

42

4.1.4 Technical Department

Tyre design and development.

Issuing of processes for manufacturing of compound, fabric, bead tyre tube

Testing of tyres to meet various mandatory requirements.

Raw material specification (rubber, Nylon, Carbon black, Bead wire etc)

Maintenance specification of manufacturing process at the shop floor.

Passing of compound of fabric for manufacturing process.

Directors Responsibilities Statement

Pursuant to the requirement under Sec. 217 (2AA) of the Companies Act,
1956, with respect to Directors Responsibility Statement, it is hereby confirmed:
(i)

That in the preparation of the accounts for the financial year ended
31st March, 2005 the applicable accounting standards have been followed
along with proper explanation relating to Material departures;

(ii)

That the Directors have selected such accounting policies and

applied them consistently and made judgments and estimates that were
reasonable and prudent so as to give a true and fair view of the state of
affairs of the Company at the end of the financial year and of the profit or
loss of the Company for the year under review;

(iii)

That the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;

(iv)

That the Directors have prepared the accounts for the financial year
ended 31st March 2005 on a going concern basis.

43

V. ACCOUNTING AND FINANCIAL PRACTICES

5.1 SIGNIFICANT ACCOUNTING PRACTICES
5.1.1 Basis of Accounts
The accounts have been prepared according to historical cost convention,
adjusted by revaluation of fixed assets. All expenses and incomes to the extent
considered payable and receivable, unless stated otherwise, have been accounted for
on accrual basis.
5.1.2 Use of Estimates
The preparation of financial statement require management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosures relating to contingent liabilities and assets as at the Balance Sheet date
and the reported amounts of income and expenses during the year.
Contingencies are recorded when it is probable that a liability will by incurred
and the amounts can reasonably be estimated. Differences between the actual results
and estimates are recognized in the year in which the results are known / materialized.
5.1.3 Sales
Sales are accounted for on passing of title to the customers. Returns and
rebates and discounts against goods sold are recognized as and when ascertained and
deducted from sales. Sales include Excise Duty.

44

5.1.4 Fixed Assets

Fixed assets are stated at cost of acquisition inclusive of duties (net of Modvat
and other Credits), incidental expenses, erection/ commissioning expenses and
interest etc., upto the date the asset is put to use. In case of revaluation of Fixed
Assets, the original Cost as written up by the valuer, is considered in accounts and the
differential amount is transferred to Revaluation Reserve.
5.1.5 Depreciation
a. The classification of plant & machinery into continuous and noncontinuous is carried as per technical certification and depreciation
thereon, is provided accordingly, on straight-line method at the rates
prescribed in schedule XIV of the Companies Act, 1956.
b. Depreciation on fixed asset added / disposed off during the year is
provided on pro-rata basis with reference to the month of addition /
disposal.
c. Additional depreciation attributable to the increase in the value of assets
on account of revaluation is transferred from Revaluation Reserve to the
profit and Loss Account.

5.1.6 Impairment
Fixed assets are reviewed at each balance sheet date for impairment. In case
events and circumstances indicate any impairment, recoverable amount of fixed
assets is determined.

And impairment loss is recognized, whenever the carrying

amount of assets either belonging to cash generating unit (CGU) or otherwise exceeds
recoverable amount. The recoverable amount is the greater of assets net selling price
or its value in use. In assessing value in us, the estimated future cash flow from the
use of the assets is discounted to there have been a change in the recoverable amount
and such loss either no longer exists or has decreased. Impairment loss / reversal
thereof, which in case of CGU, are allocated to its assts on a pro rata basis, is adjusted
to carrying value of its respective assets.

45

5.1.7 Investments
Long term investments are considered at cost excepts where there is a
permanent diminution in value thereof in which case, adequate provision is made
against such shortfall.
5.1.8 Inventory
Inventories are valued ate lower of cost or estimated net realizable value.
Cost in case of raw materials, stores and spares have been computed on weighted
average basis.

In case of work in progress and finished goods cost represents

materials, direct labour and appropriate portion of factory overheads. Adequate

provisions for defective slow / non-moving, obsolete stocks are made on the basis of
technical evaluation.
5.1.9 Transactions in Foreign Currency
Transaction in foreign Currency is accounted for at the exchange rate
prevailing on the date of the transaction. Foreign currency monetary assets and
liabilities at the year-end are translated using the closing exchange rates. The loss and
gain thereon and also on the exchange differences on settlement of the foreign
currency transactions during the year are recognized as income or expense and are
adjusted to the profit and loss account under respective heads of accounts except in
the cases where fixed assets have been acquired from a country outside India in which
case, these are adjusted to the cost of respective fixed assets.
5.1.10 Retirement benefits
a. Provision for gratuity is made as determined actuarially under group
gratuity scheme of Life Insurance Corporation of India (LIC).

46

b. Contribution to Provident and Super Annuation fund is accounted for on

accrual basis.
c. Provision for leave encashment liability to employees as at the year-end is
determined on the basis of actuarial valuation and provided for in the
accounts.
5.1.11 Research and Development Expenditure
Research and development expenditure of revenue nature are charged to the
profit and loss account, while capital expenditure are added to fixed assets in the year
in which they are incurred.
5.1.12 Contingencies
Liabilities which are material and whose future outcome cannot be ascertained
with reasonable certainty are treated as contingent and disclosed by way of Notes to
the accounts.
5.1.13 Borrowing Costs
Borrowing costs incurred in relation to the acquisition, construction of assets
are capitalized as part of the costs of such assets upto the date when such assets are
ready for intended use. Other borrowing costs are charged as an expense in the year
in which these are incurred.
5.1.14 Taxes on Income
Provision for Current income Tax is made on the taxable income using the
applicable tax rates and tax laws. Deferred tax arising on account of timing
differences and which are capable of reversal in one or more subsequent periods, is
recognized using the tax rates and tax laws that have been enacted or subsequently
enacted. Deferred tax assets are not recognized unless there is sufficient assurance

47

that future taxable income will be available against which such deferred tax asset can
be realized.
5.1.15 Dividend
On 31st march 2005 the company has paid the dividend of Re. 1.00 per equity
share of Rs. 10/- each. It is 10% on share value of the company.
5.1.16 Warranties
Warranty costs are accrued in the year of sale, based on past experience.
B.

Notes on Accounts

1.

Contingent liabilities not provided for

Bills discounted with the banks and others Rs. 41.91 lakhs (Nil)
a.

Disputed Excise Duty matters Rs. 55.72 lakhs (Rs.123.63 lakhs)

b.

Other claims not acknowledged as debts Rs. 198.00 lakhs (Rs.198.00

lakhs)

c.

Corporate Guarantee given for a third party relating to Sales Tax

Registration Rs. 2 lakhs (Rs.2.00 lakhs)

2.

Estimated amount of contracts remaining to be executed on Capital account

(net of advances) Rs.15.60 lakhs (Rs.23.73 lakhs).

3.

Sundry balances adjusted (net) include liabilities / provisions no longer

required written back amounting to Rs. 42.40 lakhs.

4.

Raw material consumption includes Rs. 161 lakhs (including R. 25.12 lakhs
towards interest) being Additional Excise Duty (AED) benefit availed in
earlier years, now becoming refundable as per the Finance Act, 2004.

48

5.2. SUMMARY OF PROFIT AND LOSS ACCOUNT AND BALANCE SHEET.

5.2.2. Balance Sheet Abstract Rs in Lakhs
The total liabilities of FTL are Rs 5,610.36 and the total current assets and
loans and advances Rs 5,610.36. The sources of funds include paid of capital of Rs
568.09, reserve and surplus Rs 2,304.47, secured loan Rs 2,271.35, unsecured loan Rs
130.00 and defferd taxation {net} 336.45.
The application of funds include net fixed assets Rs 2,727.89, net current
assets loans and advances Rs 6,358.12, current liabilities and provisions Rs 3,882.61,
table 5.1 shows the Balance sheet of the company for the year ended 31st march 2005
5.2.1. Profit and Loss Account
The turnover of FTL is Rs. 22395.84 and the total expenditure Rs. 19311.10,
the Profit before Tax is Rs.156.42 & Profit after Tax is Rs. 92.37, the earnings per
share of FTL is Rs.1.63, table 5.2 shows the profit and loss account of the company
for the year ended 31st march 2005
Ratio Analysis of the Company is shown in Table 5.3.

49

Table 5.1: Balance Sheet as on 31st March 2005

Particular

31st March
2005
(Rs.in lakhs)

31st March
2004
(Rs. In lakhs)

568.09
2304.47
2271.35
130.00
336.45

568.09
2286.22
945.30

5610.36

4153.44

5
6

2727.89
406.96

2762.17
406.96

7
8
9
10

2970.74
2468.37
443.60
475.41

2103.11
1884.41
671.43
392.93

6358.12

5051.88

3201.97
680.64

3324.14
743.43

3882.61
2475.51

984.31

5610.36

4153.44

Schedule

1. SOURCES OF FUNDS
Share Capital
Reserves & Surplus
Secured Loan
Unsecured Loan
Deferred Taxation (NET)

1
2
3
4

353.83

2. APPLICATION OF FUNDS
Fixed Assets
Investments
3.Current Assets, Loans &
Advances
a.
b.
c.
d.

Inventories
Sundry Debtors
Cash & Bank Balances
Loans & Advances

4.Current Liabilities &

Provisions
a. Liabilities
b. Provisions
NET CURRENT ASSETS
TOTAL

11
12

50

Table 5.2: Profit and Loss Account for the Year Ended 31st March 2004-05

Particular
INCOME
EXPENDITURE
Raw Materials Consumed
Purchases of Finished Goods
Increase / Decrease in Stock
Manufacturing, Administrative, Selling
&Distribution Expenses
Interest (Net)
Depreciation
PROFIT BEFORE TAXATION
PROFIT AFTER TAX
Profit brought forward from previous year
Profit available for appropriation
Appropriation :
Add : transfer from debenture redemption
reserve
Less: Transfer to General Reserve
Proposed Dividend
Corporate Dividend Tax
BALANCE CARRIED TO BALANCE
SHEET

Schedule
13
14
15
16
17

31st March
2005
(Rs.in lakhs)
19467.52

31st March
2004
(Rs. In lakhs)
15689.14

11885.37
442.74
-421.54

8776.06
240.69
-125.51

7020.84
139.29
244.40
19311.10
156.42
64.05
92.37
162.68
255.05

6183.59
124.83
231.08
15430.74
258.40
96.91
161.49
199.46
360.95

100.00
56.81
7.42
90.82

47.86
408.81
150.00
85.21
10.92
162.68

51

Table 5.3 Ratio Analysis of the Company

Ratios

Standard Ratio

Year 2004-

Year 2003-04

05
1. LIQUIDITY RATIO
Current Ratio

1.33:1

1.63

1.24

1:1

0.90

0.72

10-15%

11.42

15.87

--

0.91

0.35

Total debt ratio

--

0.88

Debt equity ratio

--

4.23

Coverage ratio

--

3.87

4.92

Debtors Turnover Ratio

--

10.29

10.92

Inventory Turnover Ratio

--

8.83

9.14

Working Capital Turnover Ratio

8 times

7.10

18.33

Fixed Asset Turnover Ratio

5 times

9.10

7.28

--

50.48

27.93

3 times

0.94

1.24

--

3.52

3.59

Net profit margin

--

0.004

0.01

Return on equity

--

0.032

0.06

Earnings per Share

--

Quick Ratio
Cash ratio
Net Working Capital Ratio
2. LEVERAGE RATIO

0.11
1.62

3.ACTIVITY RATIO

Cash turnover ratio

Inventory To Working Capital Ratio
Current Asset Turnover Ratio
4. PROFITABILITY RATIO

1.630

2.84

52

I. INTRODUCTION
Working capital may be regarded as the lifeblood of a business. Working
capital management is an important aspect in the study of financial management. Its
effective provision can do much to ensure the success of a business while its
inefficient management can lead not only to loss of profits but also to the ultimate
downfall.
The goal of working capital management is to maintain the firm current assets
and liabilities in such a way that a satisfactory level of wording capital is maintained.
This is so because if the firm cannot maintain a satisfactory level of working capital,
it is likely to become insolvent and may even be forced into bankruptcy. The
interaction between current assets and current liabilities is therefore, the main theme
of the theory of working capital management.
1.1 MANAGEMENT OF WORKING CAPITAL ENCOMPASSES THE
FOLLOWING PROBLEMS:

Problems of deciding the optimal level of investments in current assets.

Problems of deciding the optimal mix of shortterm funds in relation to longterm capital.

Location of sources of short term financing.

The study of working capital management is incomplete unless we have an

overlook on the management of current liabilities.

1.2 DEFINITION OF WORKING CAPITAL

The term working capital is defied various by different authors in financial
management. A few of these are stated below
According to Prof. HARRY G GUTHAMAN and HEBERT I DANGALL,

53

Working capital is the excess of current assets over current liabilities.

But J.E BEGAN states as the portion that circulates from one firm to another
firm in the ordinary conduct of business. He thinks in the working capital and current
assets are interchangeable terms.
1.3 NEED FOR WORKING CAPITAL
Working capital is generally required to meet -day -to -day requirement like
purchase of raw materials, payment of raw materials, and payment of raw material,
payment of wages and meeting other expenses. The need for working capital to run
the day - to -day business activities is a must. We will find hardly the business firms,
which do not require any amount of working capital. Therefore every firm requires a
certain amount of working capital to meet its obligations.
The basic objectives of financial management are to maximize shareholders
wealth. This is possible only when the company earns sufficient profit. The amount of
such profits largely depends upon the magnitude of sales. However sales do not
convert into cash instantaneously. 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 sale 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 material, pay wages and other expenses for manufacturing
the goods to be sold.
1.4 SCOPE OF WORKING CAPITAL MANAGEMENT
The scope of working capital management lies in testing of short run solvency
and on the effectiveness with which the business is conducted. Tests of receivable
and inventory should be regarded primarily as relating to solvency rather than to
efficiency. Standards of turnover always be held as tentative for the final test of
effectiveness of business management.

54

1.5 OBJECTIVES:
1. To know the role-played by the working capital management in the
smooth and fast working of FTL.
2. To know how efficiently working capital management is managed at FTL.
3. To study the overall financial position of the company over 5 years.
4. To have an idea of the practical appreciations of Working Capital
Management.

1.6 COMPONENTS OF WORKING CAPITAL MANAGEMENT

1. Management of Cash and Marketable Securities
Cash is the most important current assets for the operation of the business
cash is the basic input needed to deep the business running on a continuous basis. it is
also ultimate output expected to be realized by selling the service or product
manufactured by the firm. The management of cash raises similar issues to those
raised in relation to the management of stocks. There are costs involved in holding
too much cash (e.g. investment opportunities foregone, loss of purchasing power
during a period of rising prices etc) and also costs in holding too little cash (e.g.
interest costs, lost goodwill etc). Thus, there is a need for careful planning and
monitoring of cash flows over time.
2. Management of Receivable
The term receivables mean the amount due from the debtors. They also
include the bills receivables. As efficient management of these receivable is necessary
because it involves a large amount of investment it current assets. It is fund that 1/3 rd
of the current assets are nearly 11% to 15% of total assets are constituted by these
receivables. In order to keep current customers and attracts new ones. Most
manufacturing firms find it necessary to offer trade credit. Trade credit thus creates
receivables as book debts which the firm accepts to collects in near futures. A
lucrative credit period increases sales and also the debtors

55

3. Inventory Management
Inventories are the stocks of the products and the components of those
products that a company manufactures for sale. It is one of the major current asset, it
has been proved that an average about 60% of current assets are constrained of
inventories in most of the companies in India.

II REVIEW OF LITERATURE

56

2.1. WORKING CAPITAL

The term "working capital management" is the combination of the term, cash
management, inventory management and debtor's management. These sub terms
totally consists the main subject, are interdependent to each other and finally
management of working capital and the finance policy of the company. Working
capital is part of the Balance Sheet .Working capital is the money and assets
(excluding fixed assets i.e. buildings, machinery) that a business uses to finance the
day-to-day operations that produce the goods or services supplied to customers.
Working capital is also the difference between current liabilities and current assets
and is known as 'net working capital.
(Source: www.bizhelp 24.com.)
2.2 MEASUREMENT OF WORKING CAPITAL
Working capital balances are measured from the financial date of corporate
balances. Usually the working capital balance was positive value but often user of
working capital exceeds the sources of working capital in certain periods. In
efficiently managed companies such deficit one soon offset by gains following
periods. A study of the cause of changes that to be place in the balances from time is
necessary. This involves the basic approach to working capital over a given period.
(Source: www.ft.com)

57

2.3 ESTIMATING OF WORKING CAPITAL

A number of methods may be used to determine the working capital needs.
The three approaches should illustrate which have been successfully applied
in practice.
One common approach in projecting the working capital requirement is to use
ratios developed on the basis of previous year experiences that relates inventories and
receivables to sales. The second approach is to assume working capital to be related
to sales and calculate it as a percentage of sales. A third approach is based on the
notion that working capital is related to fixed capital investment therefore it is
projected as percentage of fixed capital investment.
(Source: www.abamro.com)
2.4 ADVANCES IN WORKING CAPITAL MANAGEMENT
Management and control of working capital.
i. Develop and present rigorous theories of working capital management that are
consistent with observed behavior;
ii. Make a substantial contribution to the analytical, planning and/or forecasting
approaches for working capital management
iii. Deal with the integration and application of the explosive new information
and computer technology with a view to conceptualizing the design and
development of a new generation of support systems intended to advance and
assist managerial decision making in working capital;
iv. Link the various aspects of working capital management with the firms'
financing decisions and fixed asset management

58

v. Present useful frameworks for injecting a strategic working capital

management
vi. Exposit successful implementations of models and support systems in
practice;
Yong H. Kim, University of Cincinnati, OH, USA
2.5. WORKING CAPITAL AND FINANCING PROBLEMS OF THE SMALL
BUSINESS
Small businesses are an essential element of a healthy and vibrant economy.
They is seen as vital to the promotion of an enterprise culture and to the creation of
jobs within the economy. However, the failure rate among small businesses is very
high compared to that of large businesses. Studies in the UK and the US have shown
that weak financial management - particularly poor working capital management and
inadequate long-term financing - is a primary cause of failure among small
businesses. In this article we will consider these financial management issues relating
to small businesses
(Source: www.ft.com)
2.6. CONCEPTS OF WORKING CAPITAL
According to IM Pandey (2004) gross concept simply called as working
capital, refers to the firm investment in current assets. Currents assets are the assets,
which can be converted into cash within an accounting year and includes cash, short term securities, debts, bills receivables and stock.
The net working capital refers to the difference between current assets and
current liabilities. Current liabilities are those claims of outsiders. Which are expected
to nature for payment within an accounting year, and include creditor, bills payable
and outstanding expenses.

59

2.7. PERMANENT AND VARIABLE WORKING CAPITAL

According to IM Pandey (2004) there is always a minimum level of current
assets, which is continuously required by the firm to carry on its business operations;
this minimum level of current assets is referred to as permanent or fixed working
capital. For all practical purposes this required will have to be met permanent or fixed
working capital.
Any amount over and above permanent level of working capital is temporary,
fluctuating or variable working capital or the extra working capital needed to support
the change in the production and the sales activates is called the variable working
capital.
2.8. THE MANAGEMENT OF WORKING CAPITAL
The management of working capital is important to the financial health of
businesses of all sizes. The amounts invested in working capital are often high in
proportion to the total assets employed and so it is vital that these amounts are used in
an efficient and effective way. However, there is evidence that small businesses are
not very good at managing their working capital. Given that many small businesses
suffer from undercapitalization, the importance of exerting tight control over working
capital investment is difficult to overstate.
(Source: Peter Atrill 27 Jul 2001)
2.9. PROBLEMS IN WORKING CAPITAL FINANCING
Although The Working Capital Problems Can Be experienced by business of
any size, it is usually small business faces problems, especially during their startup
phase. The ideal level of working capital will vary from one company to another and
difficult to calculate. Too little working capital is known as over trading and is
coming when a business is in starting period. In starting stage some situations like the

60

business may be profitable on paper but has insufficient funds available to pay debts
as they become due may arise.
(Source: www.beginnerinvestor.com)
2.10. FUND FLOW ANALYSIS OF WORKING CAPITAL
The working capital can be analyzed through ratios. Further, it can be analysis
through fund flow, Fund flows analysis is the study of the sources and application of
the funds in the business. By the use of this analysis, changes in the working capital
between two dates can be very easily analyzed by studying the changes in current
assets and current liabilities.
(Source: chudawat, 2003)
2.12. THE IMPACT OF INFLATION ON CAPITAL BUDGETING AND
WORKING CAPITAL
A major impact on both financial theory and the practice of financial decision
making has been the economic instability, especially in prices, evidenced in the U.S.
economy since the mid 1960s. Inflation in the past few years has not been a major
macro economic problem, but its specters, as demonstrated by the Feds recent
increases in interest rates, is never for the agendas of financial decision makers.
Macro economic instability has necessitated that expectations about the future rate of
inflation be taken into consideration in making decision(s) about which capital
projects will be undertaken by a firm. Nominal cash flows determine its degree of
profitability. However, in making the capital budgeting decision both real and
nominal concepts must be considered.
(Source: Geofrey T. Mills)

61

2.13. WAYS TO IMPROVE CASH FLOW

Cash is said to be effectively managed if we identify what is actual sources of
cash is. The treasury department of large organizations must have a handle on the
estimated cash inflows and outflows on a daily basis in order to make well informed
decisions and provide sensitive information to lenders and other constituencies.
Techniques to centralize and effectively manage the companys cash include.

Consolidation of bank accounts- this simplifies and provides stronger control

of cash.

Set up sweep accounts ability to earn interest on excess cash balance.

Preparation of cash budget.

Implement tighter controls on check on expenditure so that reduces

unnecessary expenses ultimately saving funds for costs that keep company
viable.
(Source: www.ft.com)

2.14. INVENTORY MANAGEMENT IN THE JIT AGE

A number of companies have already made a commitment to justintime
production. Many others are on the verge of doing so. It is generally recognized that
effective implementation of justintime will result in a significant reduction of
inventories.
Proper selection and implementation of these methods will yield substantial
benefits by improving customer service shortening delivery lead times and
significantly reducing inventory investment. It does not, however, eliminate the need
for sound inventory planning.
(Source: Henry.H.Jorden)

62

2.15. WORKING CAPITAL MANAGEMENT: AN URGENT NEED TO

REFOCUS
Maynard E. Rafuse proposes that improvement of working capital by
delaying payment to creditors is an inefficient and ultimately damaging practice is
counter- productive to individuals and to the economy as a whole. Claims that
altering debtor and creditor levels for individual tiers within a value system will
rarely produce and net benefit. Proposes that stock reduction generates system wide
financial improvements and other important benefits. Urges those organizations
seeking concentrated working capital reduction strategies to focus on stock
management strategies base on learn supply- chain techniques.
(Source: Maynard.E.Rafuse)
2.16.

ESTIMATION

OF

MINIMUM

WORKING

CAPITAL

FOR

CONSTRUCTION PROJECTS IN MALAYSIA

Forecasting cash requirements is essential for all contractors during the
tendering stage since cash flow at the beginning of the project is a major cause of
construction companies failure. Unfortunately, estimating minimum working capital
(MWC) is not the mainstream practice of the majority of contactors in Malaysia.
The estimation is based on percentages of variables of contract value based on
the historical data that influence MWC; the MWC obtained is then expressed in terms
of percentage of contract value.
(Source: Journal Of Construction Engineering And Management)

63

III. METHODOLOGY
Methodology consists of different techniques adopted in data collection.
Much needed information for the study was collected through various means.
3.1. LOCATION OF THE STUDY:
The study was conducted at Falcon Tyres Limited, Metagalli, K.R.S Road,
Mysore 570 016.the studies were done in the finance department of the FTL.
3.2 DURATION OF THE STUDY:
The duration of the study was six weeks.
3.3 DATA COLLECTION METHOD
In order to fulfill the objectives of the study, the data was collected from
primary and secondary sources.
3.3.1 Secondary Source

Annual report of 2004-05

Journals, magazines

Newspapers

Internet

3.3.2 Primary Source

Discussion with accounts manager and other departments executives.

Discussion with personal manager, H.R.Manager.

By personal observation of the activities of organization.

Interview with the accounts staff members.

64

3.4 ANALYSIS
The data collected for the study of working capital management is analyzed
through general analytical method. Ratio analysis is used for the purpose .the analysis
is depicted in tables and graphs.
3.5 TOOLS AND TECHNIQUES
There are several tools of analyzing working capital, they are
1. Statement of changes in working capital.
2. Working capital ratios.
3.6 LIMITATIONS OF THE STUDY

The study is purely of academic interest. The inexperience makes the analysis
less precious when compared to professional analysis. Hence conclusions
from analysis of statement are not sure indicators.

The study in this project does not solve into the problems of capital budgeting
fund flow analysis tax and finance planning foreign exchange, management
and treasury operations.

The study is limited as it being a study of static positional figures and is not a
study of patters of peaks and tough.

Though a complete attempt has been made to include all the factors affecting
the case study putting into writing, there is every possibility of some factors
being left out due to the shortage of time and some due to the policy of the
management to keep them confidential.

65

IV. RESULTS AND DISCUSSION

4.1. ANALYSIS OF WORKING CAPITAL
The financial management always tries to maintain an adequate working
capital at every time, so as to carry on day today operation of the firm successfully
and economically. These are dangers in having too little or too more working capital.
Therefore a through scouting into the current assets and current liabilities is to be
made to control the working capital. The working capital balance of a concern has a
positive value but often due to the intensive user of working capital, if it exceeds the
sources thus indicating a deficit. These deficits must be detected and set off
immediately. This process is known as analysis of working capital. It is a test of short
time solvency.
The analysis of working capital becomes necessary to know
1. If the management is using the working capital effectively.
2. If the amount of working capital is adequate.
3. If the current financial position is improving.
The needs for the analysis are
1. To maintain adequate working capital at every time.
2. To minimize the cost of short term financing.
3. To choose from the various sources of short term finance and employ them
in times of need.
4. To asses the effectiveness of the management of current assets.
5. To study the trends in working capital positions.
6. To maximize the earning per share of the equity share holders.

66

4.2. ANALYSIS OF WORKING CAPITAL AT FTL

An important function of the management and the prime duty of the finance
department is to maintain an optimum level of working capital has got such an
important position because of its nature of revealing the clear cut position of the
liquidity of the firm.
Though there are several tools of analyzing working capital, the below
mentioned are note worthy.
1. Statement of changes in working capital.
2. Working capital ratios.
1. Statement of Changes in Working Capital
Statement of changes in working capital shows the trend to the changes in
working capital. This statement is prepared with the help of current assets and current
liabilities of two periods. It is comparative statement that is used to calculate increase
or decrease in working capital. It also indicates the overall effects of the changes,
which shows the trend in changes of working capital and its components. Table 4.1,
4.2, 4.3, 4.4, shows the statement of changes in working capital.
Following are the features of statement of changes in working capital.
1) Increase in current assets increases working capital.
2) Decrease in current assets decreases working capital.
3) Increase in current liabilities decreases working capital.
4) Decrease in current liabilities increases working capital.

67

Under the net working capital concept. Table 4.7. Shows the Working capital of
FTL under Net concept.
i.

Net working capital includes other current assets and current liabilities.

ii.

Unlike gross working capita it indicates qualitative concept by showing the

excess of current assets over current liabilities.

iii.

It also indicates the liquidity position of the firm.

Under the gross working capital concept. Table 4.6. Shows the Working capital
of FTL under gross concept.
1. Gross concept takes into consideration only the current assets.
2. It indicates the gross working capital is a quantitative concept
3. Gross concept does not indicate the liquidity position of the firm.

68

Table 4.1: Statement of Changes in Working Capital for the Year 2000-01 When
Compared to 2001-02.
Particulars

2000-01

2001-02

Increase

Decrease

CURRENT ASSETS
Inventories

1297.67

1273.92

23.75

Sundry Debtors

1511.06

1305.74

205.32

Cash at Bank

512.94

572.59

59.65

Loans & Advances

386.94

474.76

88.76

3707.67

3627.01

2808.32

2499.55

NET WORKING CAPITAL (A-B)

899.35

1127.46

Increase in Net Working Capital

228.11

TOTAL CURRENT ASSETS (A)

CURRENT LIABILITIES (B)
Current liabilities

TOTAL

1127.46

368.87
228.11

1127.46

457.28

457.28

69

Table 4.2: Statement of Changes in Working Capital for the Year 2001-02 When
Compared to 2002-03
Particulars

2001-02

2002-2003

Increase

Decrease

CURRENT ASSETS
Inventories

1273.92

1844.16

570.24

Sundry Debtors

1305.74

1420.58

114.84

Cash at Bank

572.59

454.46

418.82

Loans & Advances

474.76

893.58

82.48

3627.01

4612.78

Current liabilities

2499.55

2913.98

NET WORKING CAPITAL (A-B)

1127.46

1698.80

TOTAL CURRENT ASSETS (A)

118.13

CURRENT LIABILITIES (B)

Increase in Net Working Capital

TOTAL

571.34
1698.80

1698.80

414.43

1130.9

571.34
1130.9

70

Table 4.3: Statement of Changes in Working Capital for the Year 2002-03 when
Compared to 2003-04
Particulars

2002-03

2003-04

Increase

Decrease

CURRENT ASSETS
Inventories

1844.16

2103.11

258.95

Sundry Debtors

1420.58

1884.41

463.83

Cash at Bank

454.46

645.80

191.34

Loans & Advances

893.58

392.93

4612.78

5026.25

3941.90

4067.57

NET WORKING CAPITAL (A-B)

670.88

958.68

Increase in Net Working Capital

287.80

TOTAL CURRENT ASSETS (A)

500.65

CURRENT LIABILITIES (B)

Current liabilities

TOTAL

958.68

125.67
287.80

958.68

914.12

914.12

71

Table 4.4: Statement of Changes in Working Capital for the Year 2003-04 when
Compared to 2004-05
Particulars

2003-04

2004-05

Increase

Decrease

CURRENT ASSETS
Inventories

2103.11

2970.74

867.63

--

Sundry Debtors

1884.41

2468.37

583.96

--

Cash at Bank

671.43

443.60

--

227.83

Loans & Advances

392.93

392.93

82.48

--

5051.88

6358.12

Current liabilities

3324.14

3201.97

NET WORKING CAPITAL (A-B)

1727.74

3156.15

Increase in Net Working Capital

1428.41

TOTAL CURRENT ASSETS (A)

CURRENT LIABILITIES (B)

TOTAL

3156.15

122.17
1428.41

3156.15

1656.24

1656.24

72

Products
Tyres
Quantity [In No]
Volume [Rs. In Lakhs]

Table 4.5. Analysis of Sales

2003-04

Tubes
Quantity [In No]
Volume [Rs. In Lakhs]

2004-05

4279124
14414.42

5057483
17244.58

4603296
3617.70

6399993
5128.35

Table 4.6. Working Capital at FTL under Gross Concept

Particulars
Current Assets
1. Inventories
2. Sundry Debtors
3. Cash
&
Bank
Balance
4. Loans & Advances

2003-04

2004-05

2103.11
1884.41

2970.74
2468.37

645.80
392.93

443.60
475.41

Gross Working Capital

5026.25

6358.12

Table 4.7 Working Capital of FTL under Net Concept

Particulars
A. Gross working capital
Current liabilities
1. Liabilities
2. Provision
B. Net working capital[A-B]

2. Working Capital Ratio

2003-2004
5026.25

2004-2005
6358.12

3324.14
743.43
4067.57
958.86

3201.97
680.64
3882.61
2475.51

73

A ratio is a statistical yardstick that measures the relationship between the two
concerned terms. The important of the ratio analysis lies in the fact that it presents
facts on a competitive basis and enables the drawing of influences regarding the
performance of the given terms.
4.3. WORKING CAPITAL ANALYSIS THROUGH RATIO OF FTL
The liquidity position of FTL can be determined by application of the
following ratios. The financial executive to check upon the efficiency with which
Working Capital is being used in the enterprise can use ratio analysis of working
capital following are the important working capital ratios.
4.3.1. Liquidity Ratio
Liquidity ratios are those ratios, which are intended to measures the liquidity
or short term solvency of an enterprise. They indicate whether it will be possible for
an enterprise. They indicate whether it will be possible for an enterprise to meet the
short-term obligation out of its short-term resources.
1. Current Ratio:
The current ratio is the ratio of total current assets and current liabilities, it is
calculated by dividing current assets by current liabilities.
The ideal current ratio is 2:1, but it differs from company to company. This
ideal ratio has set because the current liabilities are certain and on the other current
assets are uncertain. but in this company it is 1.63, though it is lower than standard
when it is compared with the previous year it is growing from 1.24 to 1.63.
The current Ratio are shown in Table no 4.8 and fig 4.1

74

3.

Quick Ratio:
It establishes a relationship between Quick or Liquid assets and current

liabilities.
Normally Quick Ratios standard is 1:1; it is more rigorous and penetrating
rest of liquidity position. The quick ratio of FTL in 2004-05 is 0.90 lower than the
standard. We can also observe that the organizations quick ratio is 0.72 of previous
year. So it is nearing to the standard. here low quick ratio represents that FTLS
liquidation position is good ,but a low quick ratio doesnt necessary mean a bad
liquidity position as inventories are not absolutely non liquid
The Quick Ratio are shown in Table no 4.9 and fig 4.2
3. Cash ratio:
Cash is the most liquid asset, a financial analyst may examine cash ratio and
its equivalent to current liabilities.
Generally, a cash percentage of 10% to 15% of current liability is preferred. The cash
position was bit a down in the years of 2000-01 to 2004-05 as the cash position is
above 158. It may be noted that more than 15% of the proposition of cash position is
good. comparing to last year cash position of the FTL is decreasing, which may effect
the FTL in the short run.
The Cash Ratio are shown in Table no 4.10 and fig 4.3

4. Net Working Capital Ratio:

75

The difference between current assets and current liabilities, excluding shortterm bank borrowing, Net working capital is sometimes used as a measure of a firms
liquidity.
This ratio indicates the ability of the organizations net working capital, which
can be financed by the net assets only. The FTL is having 0.91 this year as net
working capital ratio as against 0.35 previous year.the ratio has increased due to
increasing the current asset
The Net Working Capital Ratio are shown in Table no 4.11 and fig 4.4

76

Table 4.8. Current Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Current Assets
3707.67
3627.01
4612.78
5026.25
6358.12

Current Liability
3094.97
3151.78
3941.91
4067.57
3882.61

Ratio
1.201
1.151
1.71
1.24
1.63

Table: 4.9. Quick Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Quick Asset
2410.00
2353.05
2768.62
2923.14
2910.60

Current Liability
2808.32
2454.11
2913.98
4067.57
3201.97

Ratio
0.851
0.951
0.881
0.72
0.90

77

Table: 4.10.Cash Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Cash
512.94
572.59
454.46
645.80
443.60

Current liabilities
3094.97
3151.78
3941.91
4067.57
3882.61

Ratio
19.97
22.90
15.59
15.87
11.42

Table: 4.11. Net Working Capital Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Net Working Capital

899.35
1127.46
670.88
984.31
2475.51

4.3.2. Leverage Ratio:

Net Assets
2589.04
2816.41
2762.17
2762.17
2727.89

Ratio
0.42
0.49
0.65
0.35
0.91

78

Leverage ratios are calculated to judge the long term financial position of
the firm.
1.

Total Debt Ratio:

Debt ratios may be used to analyze the long term solvency of the firm, The

firm may be interested in knowing the proportion of the interest-bearing debt in the
capital structure.
This ratio indicates percentage of amount with the lender as invested in the
current assets; FTLs total debt ratio 0.88 in this year as against 0.11 previous year.
This says that the lenders invest only 0.88 of the net fixed assets.
The Total Debt Ratio are shown in Table no 4.12 and fig 4.5
2. Debt-Equity Ratio:
Debt Equity ratio is used to analyze the long-term solvency of the firm. DebtEquity ratio expresses the relationship between debt and equity.
The standard ratio for the debt equity mix is 2:1, compaired to that of the last
year, the debt equity ratio has increased, which implies that the financial structure of
the company is unsound. This ratio indicates the contribution in the business i.e. 4.23
is the creditors contribution in the Business of FTL.
The Debt-Equity Ratio are shown in Table no 4.13 and fig 4.6

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Table: 4.12 Total Debt Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Total Debt
518.18
638.32
826.42
919.67
2401.35

Net Assets
2589.04
2816.41
7910.46
8195.38
2727.89

Ratio
0.20
0.23
0.10
0.11
0.88

Table: 4.13 Debt Equity Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Total Debt
518.18
638.32
826.42
919.67
2401.35

Total equity
600.00
600.00
568.09
568.09
568.09

Ratio
0.86
1.06
1.45
1.62
4.23

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3. Coverage Ratio
It is used to firms debt-servicing capacity, It is computed by dividing earnings
before interest and taxes by interest charges.
This ratio indicates the coverage of interest payable from the total profit
earned by the company. This year FTL has got the profit 3.87 times with respect to
4.92 times of previous year. Which shows that the FTL returns comes down by 1.05,
with this decreases the FTLs find it difficult to pay the interest in time.
The Coverage Ratio are shown in Table no 4.14 and fig 4.7
4.3.3. Activity Ratio:
A turnover ratio is the ratio, which indicates the effective utilization of the
various assets by a concern. They help the management to judge how effectively the
facilities available at its command have been utilized.
1. Debtors Turnover Ratio:
This is the ratio, which indicates the relationship between average debtors and
sales. It shows, how many times the bills are collected in a year.
This ratio indicates the number of times the debtors are collected in a year. In
FTLs case it will collect 10.29 times or in 33 days with respect to 10.92 or 27 days of
previous year.this shows that the debtors are either granted more days or the capacity
of the debtors to pay the amount come down.
The Debtors Turnover Ratio are shown in Table no 4.15 and fig 4.8

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Table: 4.14 Coverage Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

EBIT
664.33
965.78
1429.30
614.31
540.11

Interest
284.20
567.31
1086.78
124.83
139.29

Ratio
2.33
1.70
1.31
4.92
3.87

Table: 4.15 Debtors Turnover Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

4.

Credit Sales
10328.46
14480.15
18246.99
18042.45
22395.84

Average Debtor
1291.43
1408.40
1363.16
1652.50
2176.39

Cash Turnover Ratio:

This indicates the relationship between sales and cash.

Ratio
8.00 Times
10.28 Times
13.39 Times
10.92 Times
10.29 Times

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This ratio indicates the extent to which cash resources are efficiently utilized
by the enterprise. The company as a cash turnover ratio of 504.20 for the year 2005,as
compaired to 2003-04 i.e,279.3, which indicates the cash in the firm is being used
efficiently.the increasing the cash ratio is due to increase in total sales.
The Cash Turnover Ratio are shown in Table no 4.16 and fig 4.9
3.

Inventory Turnover Ratio:

This ratio indicates the relationship between the sales and average inventory.
This ratio indicates the efficiency of the firm in selling its product, in FTLs

case it will convert the inventory into sales 8.83 times as against the 9.14 times in a
year. A high ratio is good from the viewpoint of liquidity and vice versa.
The Inventory Turnover Ratio are shown in Table no 4.17 and fig 4.10
4. Inventory to Working Capital Ratio:
This ratio indicates the relationship between inventory and working capital.
the standard ratio is 75%. The year 2003-04 is 124% compaired to the current year of
94% it shows the inventory and working capital is good, the firm is able to pay off its
current liabilities, the ratio will increases with the standard ratio.
The Inventory to Working Capital Ratio are shown in Table no 4.18 and
fig 4.11
5.

Assets Turnover Ratio:

83

This ratio shows the firms ability in generating sales from all financial
resources committed to total assets. Total assets include net fixed assets and current
assets.
The net asset turnover of FTL is 8.21 times as against 6.53 times of previous
year. It indicates that FTL is producing 8.21 of sales for a rupee of capital employed
in net assets.
The Assets Turnover Ratio are shown in Table no 4.19 and fig 4.12

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Table: 4.16 Cash Turnover Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Sales
10322.46
14480.15
18246.99
18042.45
22395.84

Cash
512.94
572.59
454.46
645.80
443.60

Ratio%
201.2
252.8
401.5
279.3
504.8

Table: 4.17 Inventory Turnover Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Sales
10520.89
14626.19
18350.12
18042.45
22395.84

Average Inventory
1466.87
1733.27
1934.63
1973.64
2536.93

Ratio
7.71
8.44
9.485
9.14
8.83

Table: 4.18 Inventory to Working Capital Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Inventory
1297.67
1273.92
1844.16
2103.11
2970.74

Working Capital
899.37
1127.46
1689.80
1702.11
3157.00

Table: 4.19. Assets Turnover Ratio

Sales
Net Assets
10520.89
2589.04
14626.19
2816.41
18350.12
519.72
18042.45
2762.17
22395.84
2727.89

Ratio (%)
1.44
1.12
1.09
1.24
0.94

Ratio
4.06
5.193
6.64
6.53
8.21

6. Working Capital Turnover Ratio:

This ratio relates to net current assets (or net working capital gap) to sales.

85

The standard norm is 8 times.This ratio indicates that for one rupee of sales
the amount the organization need for net current assets. This year FTL needs 7.10 of
net current assets as against 18.33 of previous year, which was heavier than this year,
this ratio decreased it indicates there is no proper utilization of working capital i.e.,
7.10.
The Working Capital Ratio are shown in Table no 4.20 and fig 4.13
7. Fixed Asset Turnover Ratio:
This ratio indicates the relationship between the sales and net fixed assets.
The standard norm is 5 times. In year 2000-01 it is less than 5 times. It
indicates under utilization of fixed asset and from the year 2002 to 2005 it is more
than 1.82 times effective utilization of fixed assets.
The Fixed assets Turnover Ratio are shown in Table no 4.21 and fig 4.14
8. Current Assets Turnover Ratio:
If the ratio is high then it indicates the firm is in good position. It shows the
over or under trading position is relation to the quantum of working capital.
The FTL Current Assets Turnover Ratio is 3.591 for the year 2003-04 as
compaired to 3.522 in 2004-05, This shows that the company is very quick in
converting the sales into liquid assets either as debtors or as cash. Hence the ratio is
quite high. The Current Assets Turnover Ratio has increased due to increased in credit
sales.
The Current Assets Turnover Ratio is shown in Table no 4.22 and fig 4.15

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Table: 4.20. Working Capital Turnover Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Sales
10322.46
14480.15
18246.99
18042.45
22395.84

Net Current Assets

612.70
475.23
670.88
984.31
2475.51

Ratio
16.85 Times
30.47 Times
27.20 Times
18.33 Times
7.10 Times

Table: 4.21. Fixed Asset Turnover Ratio

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Sales
10520.89
14626.19
18350.12
18211.06
22562.78

Net Fixed Assets

2157.70
2277.41
2620.84
2501.84
2477.47

Ratio
4.87 Times
6.42 Times
7.00Times
7.28 Times
9.10 Times

Table: 4.22. Current Assets Turnover Ratio

Year
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Sales revenue
10322.46
14480.15
18246.99
18042.45
22395.84

Current assets
3707.67
3788.70
4612.78
5026.25
6358.12

Ratio
2.781
3.821
3.951
3.591
3.522

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4.3.4. Profitability Ratio:

Profitability ratios are calculated to measure the operating efficiency of the
company.
1. Net Profit Margin:
Net profit ratio establishes a relationship between profit after tax and sales and
indicates managements efficiency in manufacturing, administering and selling the
products.
During the year 2004 the ratio was 0.01 it means FTL was under loss and in
the year 2005 the ratio is 0.004, it implies that FTL has incurred heavy loss in the
year 2005.
The Net Profit Margin Ratio are shown in Table no 4.23 and fig 4.16
2. Return on Equity:
This ratios reflects the efficiency with which a management produces each
unit of a product, this ratios shows that organizations ability or capacity in using the
resources utmost. During the year 2004 the ratio was 0.06and in the year 2005 the
ratio is 0.032,FTL as to increase return on equity ratio to satisfy the share holders.
The Return on Equity are shown in Table no 4.24 and fig 4.17
3. Earning Per Share Ratio
Earning per Share Ratio indicates whether or not the firms earnings power on
per share basis as changed over that period. Earning per share ratio in the year 2004
was 2.84 and it changed to 1.63 in 2005. because of more debts .

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Table: 4.23. Net Profit Margin

Years
2000-2001
2001-2002
2002-2003
2003-04
2004-05

Profit After Tax

167.78
352.06
519.72
161.49
92.378

Sales
10520.89
14626.19
18350.12
18042.45
22395.84

Ratio
0.015
0.02
0.03
0.01
0.004

Table: 4.24. Return on Equity

Years
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005

Profit after Tax

167.78
352.06
519.72
161.49
92.37

Net worth
2544.92
2475.54
2798.64
2854.31
2872.56

Ratio
0.066
0.142
0.186
0.06
0.032

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4.4 FINDINGS

Company is at present using three modules viz Finance, Accounting, material

management & production planning.

The company has better WCM; we have seen that the co. has capability to
raise outsiders funds easily.

The gross WC has increased over the years.

WC cycle shows the companys operating cycle is acceptable.

Even though the EPS is decreased compared to previous year, the co. is
earning sufficient net profit that is shared by shareholders, and at present EPS
is Rs. 1.63.

4.5 SUGGESTIONS
The Company is expanding day by day to meet the challenges of competitions
in the market. Thus, with a good infrastructure and efficient human forces the
company is moving towards the success rapidly.
A still better efficient planning of the working capital management can raise
more profits for the company taking it to the heights of prosperity, which make to
reduce the companies working capital.
1) The net working capital has been fluctuating, so this would be beneficial to
the firm to some extent.
2) The debtors turnover ratio has been increasing. So this will reduce the
working capital requirement to the company, if the trend is continued.
3) The inventory turnover ratio has been increasing. So this will reduce the
working capital requirement to the firm.
4) As to the company profiles, the company had a capacity to extend their
production activity and expansion.
5) The liquidity position with respect to current assets and current liability is not
satisfactory.
6) Current ratio and acid test ratio is not up to the standard.

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V. SUMMARY AND CONCLUSION

The primary goal of working capital management in a firm is to manage short
term funds required for day to day business activities of a firm. The company is
required effective working capital management policy for a smooth, uninterrupted
production and sales activities.
Summary

FTL has good working capital position. Company can meet its short-term
obligations.

The various ratios calculated shows that company has good financial position.
Liquidity and Profitability ratios are increasing.

Activity ratios show that company is not using its operational efficiency to the
fullest extent. But in the year 2004-2005 it is showing some signs of
improvement.

The leverage analysis of Falcon Tyres Ltd. gives an impression that it is not a
risky company.

Conclusion
The study of working capital management at F.T.L revealed that the
management of working capital has been greatly responsible for level of profits
earned by the firm along with tremendous expansion activities. The turnover of
current assets employed by F.T.L efficiently used its working capital funds, which

91

happens to be most important factor for the running of business enterprise with
normal profits.
The basic objective of working capital management is to have a balanced
liquidity position. The company has a positive net working capital during all the
years of its operation. This indicates the companys good liquidity position. This is
also made clear by the current assets ratio, which is greater than one all the years. It
means that the investment in current assets is more sufficient to meet its obligations.
The company is expanding its operations and need more working capital to
support the growing needs of the operation. At present the company has taken up
several expansion programs such as production of cycle and farm tyres to cater need
of our rural factors.

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VI. REFERENCES
Anon, (2003), Working Capital, www.bizhelp 24.com.
Anon, (2003) , Measurement of Working Capital, www.ft.com.
Anon, (2003),Working Capital and Financing Problems of the Small Business,
www.ft.com.
Anon, (2003), Ways to Improve of Working Cash Flows, www.ft.com.
Anon, (2003), Problems in Working Capital, www.biginnerinvestor.com
Anon, (2003), Estimating of Working Capital, www.abnamro.com.
ASCE/July/August 2003, Estimation of Minimum Working Capital for Construction
Projects in Malaysia, Journal of Construction Engineering And Management,
Vol. 5, pp 56-60.
Chudawat, (2000), Fund Flow Analysis, Financial Management ,Eight Edition,
Vikas Publication, pp 32-38.
Geofrey.T.Mills,(2002) The Impact of Inflation on Capital Budgeting and Working
Capital, www.ft.com.
Henry.H.Jorden, (1997), Inventory Management in the jit age, center for Inventory
Management, Vol. 12, pp 28-30.
I.M.Pandy, (2004), Concepts of Working Capital, Financial Management, Eight
Editions, Vikas publication, pp 37-40
I.M.Pandy, (2004) Permanent and Variable Working Capital,
Management Eight Editions, Vikas publication, pp 42-45.

Financial

Maynard. E. Refuse, (1996), Working Capital Management: An Urgent Need to

Refocus, MCB University Press [ISSN 0025-1747], Vol. 18, pp 59-63.
Peter A Trill, (2000), The Management of Working Capital, Vol. 13, pp 56-58
Yong H. Kim, (2003), Advances in working capital, University of Cincinnati, OH,
USA, Vol. 10, pp. 66-72.

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