WORKING CAPITAL

The term working capital refers to cash is the lifeline of a company. If this lifeline deteriorates,
the companys ability to fund operations, reinvest and meet capital requirements and payments
also deteriorate. Understanding a companys cash flow health is essential for making investment
decisions. A good way to judge a companys cash flow prospects is to look at its working capital
management (WCM).
Working capital of a company reveals more about the financial condition of a business than
almost any other calculation.it tells you what would be left if a company raised all of its short
term resources, and used them to pay off its short term liabilities. The more working capital, the
less financial strain a company experiences Working capital also gives investors an idea of a
companys underlying operational efficiency. So, if a company is not operating in the most
efficient manner it will show up in the

DEFINITION:
The definition of working capital is that it is the difference between an organizations current
asset and it is current liabilities. Of more importance is its function which is primarily to support
the day-to-day financial operations of an organization, including the purchase of stock, the
payment of salaries, wages and other business expenses.
The better a company manages its working capital, the less the company needs to borrow. Even
companies with cash surplus need to manage working capital to ensure that those surpluses are
invested its ways that will generate suitable returns for investors.
There are two concepts of working capital. They are
Gross working capital and
Net working capital.
The term gross working capital, also referred to as working capital means the total
current assets.
The term networking capital can be defined in two ways:
The most common definition of net working capital is the difference between the current
assets and the current liabilities.
The alternate definition of NWC is that portion of current assets which is financed with
long term funds. Since the current liabilities represent the sources of short term funds, as
long as current assets exceed current liabilities, the excess must be financed with long
term funds.
The net working capital, as a measure of liquidity is quite useful for internal control. The net
working capital helps in comparing the liquidity of the same firm over time.
Therefore:
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Current assets- current liabilities= working capital

A positive working capital means that the company is able to pay off its short- term liabilities. A
negative working capital means that a company currently is unable to meet its short-term
liabilities with its current assets (cash, accounts, and inventory).

NEEDS OF THE STUDY:

Working capital management is one of the key areas of financial decision- making. It is
significant because, the management must see that an excessive investment in current assets
should protect the company from the problems of stock-out .current assets will also determine
the liquidity position of the firm.
The goal of working capital management is to manage the firm current assets and current
liabilities in such a way that a satisfactory level of working capital is maintained. If the firm
cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may
be even forced into bank raptly

SCOPE OF THE STUDY:

A study of the working capital involves an examination of long term as well as short term
sources that a company taps in order to meet its requirements of finance. The scope of the study
is confined to the sources that HERO MOTOCROP LTD. (formerly Hero Honda Motors ltd.)
tapped over the years under study i.e. 2011-15.

OBJECTIVE OF THE STUDY:

To study the existing working capital management system of Hero Moto Corp Ltd.
(Formerly Hero Honda Motors Ltd.).
To find the liquidity position of the current assets and current liabilities of the company.
To examine feasibility of present system of managing working capital
To understand how the company finances its working capital.

DATA AND METHODOLOGY:

The study of working capital management is based on primary as well as secondary data. Data
relating to has been collected through secondary and primary sources.
SECONDARY SOURCES:

It is the data which is readily available. Secondary data is taken from the annual reports, financial
journals maintained by the companies and also from website and other publications issued by
hero Moto crop& projects.
The hero Moto crop & projects published annual reports of the company for the year 2011-15.
PRIMARY SOURCES:
It is the first hand information in which date is collected through the observation in the
organization and interviews with the officials. By asking some questions with the accounts
department personals and other persons of the finance department.
A part from these some information is gathered from H.R department personals who are working
for the organization since a very long time.

DATA ANALYSIS:
The collected data has been processed using the tools of

Ratio analysis
Graphical analysis
Year year analysis

These tools access in the interpretation and understanding of the existing scenario of the capital
structure.

The primary data was gathered through personal interaction with the director of the
company.
The secondary data was collected from companys annual reports from 2010-11 to 2014-15
various books and internet.

LIMITATIONS:

Due to the busy schedule of the executives in the company. All the required primary data
could not be collected, which might affect the results of the study.
Recommendations of the study are only personal opinions.

WORKING CAPITAL MANAGEMENT:

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Management of working capital plays a very important role in the financial management of a
company because maintaining a balance of income to debt can be difficult and owners must be
diligent to assure that it is kept. Sometimes it takes a little assistance to maintain levels of fluidity
or make major purchases.
If working capital dips too low, a business risks running out of cash. Even very profitable
businesses can run into trouble if they lose the ability to meet their short-term obligations.
Working capital financing can be used as a fast cash option to cushion the periods when the flow
is not ideal or readily available. Even when owners are meticulous in managing working capital,
finding the right levels to remain comfortable and competitive can be difficult.
The importance of good working capital management
Working capital constitutes part of the companys investment in a department. Associated with
this is an opportunity cost to the company. (Money invested in one area may cost opportunities
for investment in other areas.) If a department is operating with more working capital than is
necessary. This over- investment represents an unnecessary cost to the company
From a departments point of view, excess working capital means operating inefficiencies. In
addition, unnecessary working capital increases the amount of the capital charge are required to
meet

OBJECTIVES OF MANAGING WORKING CAPITAL:

Describe the risk-return trade-off involved in managing a firms working capital.

Explain the determinants of net working capital.
Calculate the effective costs of short-term credit.
List and describe the basic sources of short-term credit.
Describe the special problems encountered by multinational firms in managing working
capital.
Marketable securities, accounts receivable, inventory, prepaid expenses and short-term
investments.

DEBTORS
Debtors are people or other firms who owe money to the firm. This will usually happen
where the firm has sold goods with a period of credit. The firm sells the good or service
but allows the purchaser a period of credit to pay usually a month.During thismonth the
purchaser owes the firm the money and is therefore a debtor. If the firm has debts these
are considered an asset, because when the debtors pay the firm.

CASH
In a business the term cash may have a broader meaning. Cash is an asset to the business
and is usually considered to be one of the current assets. Under the heading cash on the
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balance sheet may be included a number of items of varying liquidity. A small amount
may actually be cash held in tills or as petty cash, but the majority is likely to be held in
various bank accounts. However, since money in current accounts rarely earns interest, if
a business has a surplus of cash it may invest it in various ways. Some will have to be in
very liquid accounts so than if necessary they can get at it very quickly, but some may be
tied up for longer periods of time.
INVENTORY
Inventory is also current assets which can be either raw materials, finished items
available for sale or goods in the process of being manufactured. Inventory is recorded
as an asset on a companys balance sheet.
RAW MATERIAL
An item used to produce something else is called a raw material. Some raw materials
are easy to spot. But many require detective work. Raw materials of a company may be
imported or indigenous. Raw material should be managed in such a way that flow of
production is not interrupted. Reordering quantity and time should be estimated in a
proper manner.

WORK IN PROCESS
An operation is composed of processes designed to add value by transforming inputs intouseful
outputs. Inputs may be materials, labor energy, and capital equipment. Outputs may be a physical
product or a service. Processes can have a significant impact on the performance of a business,
and process improvement can improve a firms competitiveness.

FINISHED GOODS
DEFINITION:
Commodities that will not undergo further processing and are ready for sale to the final
demand user, either an individual consumer or business firm. This includes unprocessed
foods such as Eggs and fresh vegetables, as well as processed foods such as bakery
products This also includes durable goods such as automobiles, households furnituresand
appliances and nondurable goods such as apparel and home heating oil.

PREPAID EXPENSES:
In the course of everyday operations, businesses will have to pay for goods or services before
they actually receive the product sometimes companies decide to prepay taxes, salaries, utility
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bills, rent or the interest on their debt. These would all be pooled together and put on the balance
sheet under the heading prepaid expenses. By their very nature, prepaid expenses are a small part
of the balance sheet.

CURRENT LIABILITIES
The term current liabilities are those liabilities which are intended at the time of their inception,
to be paid in the ordinary course of business. Within a year, out of the current assets or earnings
of the concern. The basic current liabilities are accounts payable, bills payable, bank overdraft
and outstanding expenses and other short term debts.

CREDITORS
Creditors are suppliers whose invoices for goods or services have been processed but who have
not yet been paid.
In other words, creditors are people to whom the company owes the money.
The term creditors is frequently used in the financial word, especially in references to short term
loans, long term bonds and mortgages.
The term creditors derive from the notion of credit. In modern credit refers to a rating which
indicates the ability of a borrower andlikelihood to pay back his or her loan. In earlier times,
credit also referred to reputation or trustworthiness.

Classification of current assets and current liabilities:

The current classification applies to those assets that will be realized in cash, sold, or consumed
with in one year and those liabilities that will be discharged by use of current assets or the
creation of additional current liabilities within one year. The current liability section of a balance
sheet is also intended to include obligations that are due on demand or will be due on demand
within one year from the balance sheet date, even though liquidation may not be expected within
the period. Short-term obligations shall be excluded from current liabilities only if the enterprise
intends to refinance the obligation on a long term basis and has the demonstrated ability to
consummate the financing.
The ordinary operations of a business involve a circulation of capital within the current asset
group. Cash is expended for materials, labor, operating expenses, and other services, and such
cash expenditures are included in the inventory value. Upon sale of the products or performance
of services, the accumulated expenditures are converted into receivables and ultimately into cash
again. The average period of intervening between the cash to-cash conversion is the operating
cycle of the business. When the business has no clear operating cycle, or when the operating
cycle is shorter than 12 months, a 12 month period should be used to segregate current assets.
For analytical purposes, specific recommendations of the FFSC are:
Principal debt due within 12 months, even on notes with monthly payments, should be included
as a current liability.
Capital leases should be accounted for on the balance sheet, with the current portion of the
principal due and the accrued interest.

WORKING CAPITAL MANAGEMENT:

INVENTORY MANAGEMENT:
Inventories are lists of stocks- raw materials, work in progress or finished goods-waiting to
be consumed in production or to be sold.
The total balance of inventory is the sum of the value of each individual stock line. Stocks
records are needed.

To provide an account of activity within each stock line;

As evidence to support the balances used in financial reports

A department also a needs a system of internal controls to efficiency manage stocks and to
ensure that stock records provide reliable information.
Experimental financial reports show only the total inventory balance. Analysts from the
outside the department can examine this balance by using ratio analysis or other techniques.
However, this gives only a limited assessment of inventory management and is not adequate
for internal management. Good financial management necessitates the careful analysis of
individual inventory lines.
Inventory management involves the control of assets being produced for the purposes of sale
in the normal course of the companys operations. The goal of effective inventory
management is to minimize the total costs- direct and indirect- that are associated with
holding inventories. However, the importance of inventory management to the company
depends upon the extent of investment in inventory.
Inventory management is an important aspect of working capital management because
inventories themselves do not earn any revenue. Holding either too little or too much
inventory incurs costs.
Costs of carrying too much inventory are:
Opportunity costs of foregone interest.
Warehousing costs.
Damage and pilferage.
Obsolescence.
Insurance.
Costs of carrying too little inventory are:

Stock out costs:

- lost sales.
-delayed services.

Ordering costs:
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- Freight.
- order administration.
- Loss of quantity discounts.
Making frequent small orders can minimize carrying costs but this increases ordering costs and
the risk of stock-outs. Risk of stock-outs can be reduced by carrying safety stocks (at a cost)
and re-ordering ahead of time.
The best ordering strategy requires balancing the various cost factors to ensure the department
incurs minimum inventory costs. The optimum inventory position is known as the economic
reorder quantity (ERQ). There are a number of mathematical models for calculating ERQ.
Analytical review of inventories can help to identify areas where inventory management can be
improved. Slow moving items, continual stock outs, obsolescence, stock reconciliation problems
and excess spoilage are signals that stock lines need closer analysis and control. However, it is
important to keep an overall perspective. It is not cost- effective to closely manage a large
number of low values do not inventory lines, nor is it necessary. A usual feature of inventories is
that a small number of high value lines account for a large proportion of inventory is represented
by only 20%rule (PARETO) predicts that 80% of the total value of inventory is represented by
only 20% of the number of inventory items. Those high value lines need reasonably close
management. The remaining 80% of inventory lines can be managed using broad- brush
strategies.
The overall management philosophy of an organization can affect the way in which inventory is
managed. For examples, just in time (JIT) thus, it inventory strategies reduce bottlenecks and
stock holding costs.
In summary:

There is a trade off to be made between carrying costs, ordering costs, and stock out
costs. This is represented in the Economic Reorder Quantity (ERQ) models.
Inventories should be managed on a line- by- line basis using 80/20 rule.
Analytical review can help to focus attention on critical areas.
Inventory management is part of the overall management strategy.

COST ASSOCIATED WITH INVENTORIES:

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The effective management of inventory involves a tradeoff between having too little and too
much inventory. In achieving this tradeoff, the finance manager should realize that costs may
closely relate. To examine inventory from the cost side, fivecategories of costs can be identified
of which three are direct costs that are immediately connected to buying and holding goods and
the last two are indirect costs which are losses of revenues that vary with differing inventory
management decisions.
The five costs of holding inventories are:

1. Material cost of inventory:

These are the costs of purchasing the goods including transportation and handling costs.

2. Ordering costs:
Any manufacturing organization has to purchase materials. In that event, the ordering costs refer
to the costs associated with the preparation of purchase requisition by the user department,
Preparation of purchase order and follow-up measures taken by the purchase department,
transportation of materials ordered for, inspection and handling at the warehouse for storing. At
times even demurrage charges for not lifting the goods in time are included as part of ordering
costs.

3. Carrying costs:
These are the expenses of storing goods. Once the goods have been accepted, they become part
of the firms inventories. These costs include insurance, rent/ depreciation of warehouse, salaries
of storekeeper, hisassistants and security personnel, financing cost of money locked-up in
inventories, obsolescence, spoilage and taxes.

4. Cost of funds tied up with inventory:

Whenever a firm commits its resources to inventory, it is using funds that otherwise might be
available for other purposes. The firm has lost the use of funds inventory has a cost in terms of
financial resources. Excess inventory represents an unnecessary cost.
A HEROHONDA lab does not follow any particular inventory management technique. It makes
use of the weighted average pricing technique to calculate the price of theinventory.

CASH MANAGEMENT
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Cash management can have a major impact on overall working capital management.
The key elements of cash management are:

Cash forecasting
Balance management
Administration
Internal control

Cash forecasting:
Good cash management requires regular forecasts. In order for these to be materially accurate,
they must be based on information provided by those managers responsible for the amounts and
timing of expenditure. Capital expenditure and operating expenditure must be taken into account.
It is also necessary to collect information about impending cash transactions from other financial
systems, such as creditors and payroll.
Balance management:
Those responsible for balance management must make decisions about how much cash should at
any time be on call in the Department Bank Account and how much should be on term deposit at
the various terms available. There are various types of mathematical model that can be used. One
type is analogous to the ERQ inventory model. Linear programming models have been
developed for cash management, subject to certain constraints. There are also more sophisticated
techniques.

Administration:
Cash receipts should be processed and banked as quickly as possible because:

They cannot earn interest or reduce overdraft until they are banked.
Information about the existence and amounts of cash receipts is usually not available
until they are processed.
Where possible, cash floats should be avoided. If, on review, the only reason that can be
put forward for their existence is that weve always had them, they should be
discontinued. There may be situations where they areuseful, however. For examples, it
may be desirable for peripheral parts of departments to meet urgent local needs from cash
floats rather than local bank accounts.

Internal control:
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Cash management is overall internal control system. The main internal cash control is invariably
the bank reconciliation. This provides assurances that the cash balances recorded in the
accounting systems are consistent with the actual bank balances. It requires regular clearing of
reconciling items.
The key to successful cash management is milestones:

Capital is provided to execute a business plan

Cash use must track growth in enterprise value
Enterprise value is measured by milestones, not the fiscal calendar
Cash management is not cost control
Cost control is a reactive measure using crude tools

CREDITORS MANAGEMENT:
Creditors are the businesses or people who provide goods and services in credit terms. That is,
they allow us time to pay rather than paying in cash.
There are good reasons why we allow people to pay on credit even though literally it doesnt
make sense! If we allow people time to pay their bills, they are more likely to buy from your
business than from another business that doesnt give credit. The length of credit period allowed
is also a factor that can help a potential customer deciding whether to buy from a company or not
the longer the better.
Creditors will need to optimize their credit control policies in exactly the same way as the
debtors turnover ratio

CREDITORS TURNOVER RATIO:

Creditor turnover=Average creditors
(cost of
sales/365)
As with the stock turnover ratio, creditor values relate to the costs of raw materials, good and
services.

DEBTORS MANAGEMENT:
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The objective of debtor management is to minimize the time-lapse between completion of sales
and receipt of payment. The costs of having debtors are:

Opportunity costs ( cash is not available for other purposes );

Bad debts

Debtor management includes both pre-sale and debt collection strategies.

Pre-sale strategies include:

Offering cash discounts for early payment and/or imposing penalties for late payment;
Agreeing payment terms in advance;
Requiring cash before delivery;
Setting credit limits;
Setting criteria for obtaining credit;
Billing as early as possible;
Requiring deposits and/or progress payments.

Post-sale strategies include:

Placing the responsibility for collecting the debt upon the center that made the sale;
Identifying long overdue balances and doubtful debts by regular analytical reviews;
Having an established procedure for late collections, such as
- A reminder
- A letter
- Cancellation of further credit
- Telephone calls
- Use of a collection agency
- Legal action.

Objective of receivables management:

To maintain an optimum level of investment in receivables

To maintain optimum volume of sales
To control the cost of credit allowed & to keep it at the minimum possible level
To keep down the average collection period
To obtain benefit from the investment in debtors at optimum level.

Debt control and debt collection period:

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Debt control is an important part of business activity because although a debt is an asset, it is not
as liquid an asset as cash in the bank. Firms have to ensure they collect their debts as efficiently
as possible with in the terms they have set for the debt.
The only way we can consider how efficient the firms debt control has been is to use a ratio.
This ratio is known as the debt collection period.

DEBT COLLECTION PERIOD = 365

__
Debt turnover ratio

The figure measures how long on average it has taken the firm to collect its debts. The higher the
figure the longer it has taken. However, the normal period for collecting debts will differ
between industries. For examples, a figure of 10 days may sound very impressive, but if this was
the figure for a chain of supermarkets it would be high. Therefore no debt is incurred and retail
firms will tend to have very few debtors and a low debt collection period. Firms who do a lot of
business on credit through will have much higher debt collection periods.

Debtors turnover:
Debtors control is a vital aspect of working capital management. Many businesses need to sell
their goods on credit, otherwise they might find it difficult to survive if their competitors provide
such credit facilities; this could mean losing customers to the opposition
The formula for debtors turnover is:
Debtors turnover = Net credit sales
Average debtors

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Working capital cycle:

The way working capital moves around the business is modeled by the working capital cycle.
This shows the cash coming into the business, what happens to it while the business has it and
then where it goes.
The working capital cycle shows the movement of cash into and out of the business. The
components of working capital cycle are the debtors, creditors, raw materials and cash.
The cycle starts with buying of raw
materials on credit from the
suppliers. These suppliers become payment
the creditors of the company. The
raw material undergoes through
different value addition stages and
isconverted into finished goods. The finished goods aresold to the customers on credit who
become the debtors of the company. At the end of the credit period the company gets the cash
from the debtors whom they pay to the creditors and the cycle goes on.
It is must for any company to have an ideal working capital cycle. It should neither be too long
nor too short.

CASH
CREDITORS
Collection
Supply
DEBTORS

RAW MATERIALS

WORKING CAPITAL FINANCING:

Banks are the Value added conversion
main institutional
sources
of
working
capital
finance in India. After trade credit bank credit is the most important source of working capital
requirement of firms in India. A bank considers a firmsW.I.P
sale and production plans and the
desirable levels of current assets in determining its working capital requirements.
Sales
production
FORMS OF BANK FINANCE
FINISHED GOODS

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A firm can draw funds from its banks within the maximum credit limit sanctioned. It cans draw
funds in the following forms.

Overdrafts
Cash credit
Bills purchasing or discounting
Working capital loan
Letter of credit

TANDON COMMITTEE
Like many other activities of the banks, method and quantum of short-term finance that can be
granted to a corporate was mandated by the reserve bank of India till 1994.this control was
exercised on the lines suggested by the recommendation of a study group headed by Sri Parkas
thandon.
The study group headed by sir parkas thandon, then the chairman of Punjab national bank, was
constituted by the RBI in July 1974 with eminent personalities drawn from leading banks,
financial institutions and a wide cross- section of the industry with a view to study the entire
gamut of banks finance for working capital and suggest way for optimum utilization of bank
credit. This was the first elaborate attempt by the central bank to organize the bank credit. The
report of this group is widely known as thandon committee report. Most banks in India even
today continue to look at the needs of the corporates in the light of methodology recommended
by the group.
As per the recommendations of thandon committee the corporates should be discouraged from
accumulating too much of stocks of currentassets and should move towards very lean inventories
and receivable levels. The committee even suggested the maximum levels of raw materials, stock
in process and finished goods which a corporate operating in an industry should be allowed
toaccumulate these levels were termed as inventory and receivable norms. Depending on the size
of credit required, the funding of these current assets of the corporate could be met by one of the
following methods:

First method of lending:

Banks can work out the working capital gap, i.e. total current assets less current liabilities other
than bank borrowings and finance a maximum of 75 percent of the gap; the balance to come out
of long term funds i.e. owned funds and term borrowings. This approach was considered
suitable only for very small borrowers i.e. where the requirements of credit were less than RS. 10
lacs. This method will give a minimum current ratio of1:1.

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Second method of lending:

Under this method, it was thought that the borrower should provide for a minimum of 25% of
total current assets out of long term funds i.e. owned funds plus term borrowings. A certain level
of credit for purchases and other current liabilities will be available to fund the buildup of current
assets and the bank will provide the balance (MPBF). Consequently, total current liabilities
inclusive of bank borrowings could not exceed75% of current assets. RBI stipulated that the
working capital needs of all borrowers enjoying fund based credit facilities of more than RS. 10
lacs should be appraised
Working capital assessment on the formula prescribed by the tendon committee.
Working capital Requirement (WCR) = [current assets i.e.CA (as per industry norms) _current
liabilities i.e. CL]
Permissible bank financing [PBF] =WCR-promoters margin money i.e. PMM (to be brought in
by the promoter)
As per formula 1: PMM= 25% OF [CA-CL] and thereby PBF=75% of [CA-CL]
As per formula 2: PMM=25% of CA and thereby PBF=75% [CA]-CL
As is apparent formula2 requires a higher level of PMM as compared to formula1, formula2 is
generally adopted in case of bank financing. In case of sick units where the promoter is unable to
bring in PMM to the extent required under formula 2, the difference in PMM between formula 1
and 2 may be provided as a working capital term loan repayable in installments over a period of
time.

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METHODS FOR DETREMINING PERMISSIBLE BANK BORROWINGS:

1st method

2nd method

(a)

Current assets (CA)

100

100

(b)

Current liabilities (CL)

20

20

(c)

Working capital gap(CA- 80

CL)(a-b)

80

(d)

Borrowers contribution

25(25% of a)

(e)

Permissible bank finance, 60

(c-d)

20(25% of c)

55

The main factors used in the estimation of working capital requirement:

The nature of business and sector-wise norms

Factors such as seasonality of raw materials or of demand may require a high level of
inventory being maintained by the company. Similarly, industry norms of credit allowed to
buyers determine the level of debtors of the company in the normal course of business.
The level of activity of the business
Inventories and receivables are normally expressed as a multiple of a days production or
sale. Hence, higher the level of activity, higher the quantum of inventory, receivables and
thereby working capital requirements of the business. So in order to arrive at the working
capital requirement of the business for the year, it is essential to determine the level of
production that the business would achieve. In case of well- established businesses, the
previous years actual and the management projections for the year provide good
indicators. The problems are mainly in the case of determining the limit for the first time
or in the initial few years.

Steps involved in arriving at the level of working capital requirement:

Based on the level of activity decided and the unit cost and sale price projections the
banks calculate at the annual sales and cost of production.
The quantum of current assets (CA) in the form of raw materials, work-in progress,
finished goods and receivables is estimated as a multiple of the average daily turnover,
The multiple for each of the current assets is determined generally based on the industry
norms.
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The current liabilities (CL) in the form of credit availed by the business from its creditors
or on its manufacturing expenses are deducted from the current assets (CA) to arrive at
the working capital requirement (WCR).
The issue of computation of working capital requirement has aroused considerable debate
and attention in this country over the past few decades. A directed credit approach was
adopted by the reserve bank of ensuring the flow of credit to the priority sectors for
fulfillment of the growth objectives laid down by the planners. Consequently, the
quantum of bank credit required for achieving the requisite growth in industry was to be
assessed. Various committees such as the Tandon committee and the chore committee
were constituted and studied the problem at length.
Norms were fixed regarding the quantum of various current assets for different industries
(as multiples of the average daily output) and the maximum permissible bank financing
(MPBF) was capped at a certain percentage of the working capital requirement thus
arrived at.

Negative working capital

Some companies can generate cash so quickly they actually have a negative working capital.
This is generally true of companies in the restaurant business (M.C. Donalds had a negative
working capital of $698.5 million between 1999 and 2000). Amazon .com is another example.
This happens because customers pay upfront and so rapidly, the business has no problems raising
cash. In these companies, products are delivered and sold to the customer before the company
ever pays for them. A negative working capital is a sign of managerial efficiency in a business
with low inventory and accounts receivable (which means they operate on a almost strictly cash
basis). In any other situations, it is a sign a company may be facing bankruptcy or serious
financial trouble.

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Ratio analysis:
The ratio analysis is one of the most powerful tools of financial analysis. It is the process of
establishing and interpreting various ratios (quantities relationship between figures and groups of
figures.) It is with the help of ratios that the financial statements can be analysis more clearly
and decisions are made from such analysis.
A ratio is simple arithmetic expression of the relationship of one to another. According to
accountants handbooks by lien and Bedford aratio is an expression of the quantities relationship
between two numbers.
Types of ratios:

liquidity ratios
leverage ratios
profitability ratios
activity ratios

1. Liquidity ratio:
Measures firms ability to meet its obligation; leverage ratios show the proportions of the debt
equity in financing the firms assets; activity ratios reflect the firm efficiency in utilizing its
assets, and profitability ratios measure overall performance and effectiveness of the firm.

2. Leverage ratio:
The short-term creditors, like bankers and suppliers of raw materials, are more concerned with
the forms current debt paying ability. On the other hand, long term creditors like debenture
holders financial institutions etc. are more concerned with the firms long term financial
strength. A firm should have strong short as well as long-term financial position.

3. Profitability ratio:
Profitability refers to net result of business operation two types of ratios are used to measure
profitability. These are profit margin ratios rate of return ratio. While profit margin ratios shows
the relationship between profit and investment.
Gross profit ratio
Operating profit ratio

20

4. Activity ratios:
These ratios are also referred to activity ratios asset management ratio. They measure how
efficiency a firm employs the assets. They are based on the relationship between level of activity
and levels of various assets. The important turnover ratios are inventory turnover ratio, debtors
turnover ratio, creditors turnover ratio, fixed turnover ratio, total assets turnover ratio.

Comparative balance sheet:

The comparative balance sheet analysis is the study of the trend of the same items, group of
items and computed items in two or more balance sheets of the same enterprise on different
dates. The changes in periodic observed by comparison of the balance sheet at the end of a
period and these changes can help in informing an opinion about the progress of and enterprise.
While interpreting comparative balance sheet the interpreter is expected to study the following
aspects;1. current interpreting comparative and liquidity position
2. long term financial position
3. Profitability of the concern.

21

INDUSTRY PROFILE:
The Indian auto industry is one of the largest in the world with an annual production of 23.37
million vehicles in FY 2014-15, following a growth of 8.68 percent over the last year.
The automobile industry accounts for 7.1 percent of the countrys gross domestic product (GDP).
The two wheelers segment with 81 percent market share is the leader of the Indian automobile
market owing to a growing middle class and a young population. Moreover, the growing interest
of the companies in exploring the rural markets further aided the growth of the sector. The
overall passenger vehicle (PV) segment has 13 percent market share.
India is also a prominent auto exporter and has strong export growth expectations for the near
future in FY 2014-15; automobile exports grew by 15 percent over the last year. In addition,
several initiatives by the government of India and the major automobile players in the Indian
market are expected to make India a leader in the two wheeler (2W) and four wheeler (4W)
market in the world by 2020.

Market size:
The industry produced a total 14.25 million vehicles including PVs, commercial vehicles(CVs),
three wheelers (3W) and 2Win April- October 2015 as against 13.83 in April-October 2014,
registering a marginal growth of 3.07 percent year-on-year.
The sales of PVs grew by 8.51 percent in April-October 2015 over the same period last year.

Investments:
In order to keep up with the growing demand, several auto makers have started investing heavily
in various segments of the industry during the last few months. The industry has attracted foreign
direct investment (FDI) worth US$ 13.48 billion during the period April 2000 to June 2015,
according to data released by Department of industrial policy and promotion (DIPP).
Some of the major investments and developments in the automobile sector in India are as
follows:

Global auto major ford plans to manufacture in India two families of engines by 2017, a 2.2
liter diesel engine codenamed panther, and a 1.2 liter petrol engine codenamed dragon, which
are expected to power 270,000 ford vehicles globalist.

22

The worlds largest air bag suppliers Auto live Inc.Takata crop, TRW Automotive Inc. and
toyed goosey co are setting up plants and increasing capacity in India.
General motors plans to invest US$ 1 billion in India by 2020, mainly to increase the
capacity at the religion plant in Maharashtra from 130,000 units a year to 220,000 by 2025,
US-based car maker Chrysler has planned to invest PRs 3,500 core (US$ 525 million) in
Maharashtra, to manufacture jeep Grand Cherokee model.
Mercedes Benz has decided to manufacture the GLA entry SUV in India. The company has
doubled its India assembly capacity to 20,000 units per annum.
Mahindra two Wheelers Limited (MTWL) acquired 51 percent shares in France- based
Peugeot Motorcycles (PMTC).

Government initiatives:
The government of India encourages foreign investment in the automobile sector and allows 100
percent FDI under the automatic route.

Some of the major initiatives taken by the government of India are:

Government of India aims to make automobiles manufacturing the main driver of make
in India initiative, as it expects passengers vehicles market to triple to 9.4 million units
by 2026, as highlighted in the auto mission plan (AMP) 2016-26.
In the union budget of 2015-16, the government has announced to provide credit of Rs
850,000 core (US$127.5 million)to farmers, which is expected to boost the tractors
segment sales.
The government plans to promote eco-friendly cars in the country i.e. CNG based
vehicle, hybrid vehicle, and electric vehicle and also made mandatory of 5 percent
ethanol blending in petrol.
The government has formulated a scheme for faster adoption and manufacturing of
electric and hybrid vehicles in India, under the national electric mobility mission 2020 to
encourage the progressive induction of reliable, affordable and efficient electric and
hybrid vehicle in the country.
The automobile mission plan (AMP) for the period 2006-2016, designed by the
government is aimed at accelerating and sustaining growth in the sector. Also, the wellestablished regulatory framework under the ministry of shipping, road transport and
highways, plays a part in providing a boost to this sector.

23

Road ahead:
Indias automotive industry is one of the most competitive in the world. It does not cover 100
percent of technology or components required to make a car but it is giving a good 97 percent, as
highlighted by Mr.vicent cube, corporate vice-president, Nissan motors Datsun.
Leading auto maker maruthi Suzuki expects Indian passengers car market to reach four million
units by 2020, up from 1.97 million units in 2014-15.
The Indian automotive sector has the potential to generate up to US$ 300 billion in annual
revenue by 2026, create 65 million additional jobs and contribute over 12 percent to Indias gross
domestic product, as per the automotive mission plan 2016-26 prepared jointly by the society of
Indian automobile manufacturers (SIAM) and government.

MAJOR AUTOMOTIVE COMPANIES IN INDIA:

NORTH HEROHONDA
YAMAHA
GM WEST

SOUTH

The growth story for the Indian automobile industry in 2014 rode on the two wheelers segment
and not on passenger cars or commercial vehicles, as high interest rates and a stuttering
manufacturing industry kept a check on demand.
The year also saw competition commission of India (CCI) levying a penalty of Rs 2.544.65 core
($415) on 14 car makers for their restrictive trade practices by preventing independent repairers
coming into the market. Some of the leading car makers also had to recall some models over
defective components.

24

When other segments like passengers cars and commercial vehicles negative growth, the twowheeler makers registered around 13 percent growth between January and October. Riding on
the two-wheeler sectors growth, the automotive industry grew 9.8 percent by volume year-onyear (YOY) between January and October.
The two-wheeler segment is the only one that has clocked positive growth at 12.9 percent YOY
(year-on-year) to reach sales of nearly 13.5 million units by October. This can be attributed to the
low cost of two wheelers.
In India, Vijay karate, vice president for automotive and transportation practice at frost &
Sullivan, told IANS.
He said the light commercial vehicle (LCV) segment has been the worst hit, with sales reducing
to approximately 330,000 units- an 18.9 percent YOY fall over 2013.
The passengers car, medium and heavy commercial vehicle segments contracted by 0.8 and 6.5
percent respectively during the period, compared to 2013. The reduction in sales can be
attributed to the slowdown and high interest rates set by the RBI (reserve bank of India)
reducing the availability of finance options to the public , kakade added.
These segments have shown positive signs over the past few months, which is expected to lead
to growth in the next year.
The year 2014 has been a year of stagnation, which is a positive sign as the decline has stopped.
The industry has shown signs of growth, albeit slower than expected, over the past few months,
Kakade remarked.
p. bale darn, vice president, general motors India, had similar views to share with IANS: of
late, we have seen some movements in new entries driven by novelty factors and some select
manufactures have been getting the benefit too.
He said the market has not shown any movement forward, despite the excise duty reduction,
while the customer sentiment has not picked up due to sticky interest rates, which remain at high
level.
Although fuel prices have started coming down significantly, the enquiry levels at showrooms
have come down and conversions are not talking places at all. The sale of diesel vehicles are also
tapering off because of the narrowing price gap vis--vis petrol, balendran added.
Expecting the government to continue with a lower excise duty regime for small/ mid-sized/big
cars and sports utility vehicles (SUV) till March 2015, balendran said the rates should be
continued till the goods and services tax (GST).

25

MAKE IN INDIA:
The industry is looking forward to the budget for pro- business policies to reignite the
automobile industry in India.
1.
2.
3.
4.

Passenger vehicle 13%

Commercial vehicle 3%
Three-wheelers 3%
Two-wheelers 81%
The automotive industry accounts for 45% of the countrys manufacturing gross domestic
product (GDP), 7.1% of the countrys GDP and employs about 19 million people both
directly and indirectly.
India is currently the seventh largest produce in the world with an average annual
production of 23.36 million vehicles, of which 3.57 million are exported.
The Indian automobile market is estimated to become the third largest in the world by
2016 and will account for more than 5% of global vehicle sales.
India is the second largest two-wheelers manufacturer, the largest motorcycle
manufacturer and fifth largest commercial vehicle manufacturer in the world.
By 2016, Indias is expected to be the third largest automotive market by volume in the
world.
Tractor sales in the country are expected to grow at CAGR of 8-9% in the next five years,
upping Indias market potential for international brands. Two-wheelers production has
grown from 8.5 million units annually to 15.9 million units is the last seven years.
Significant opportunities exist in rural markets.
Indias car market has the potential to grow to mix million-plus units annually by 2020.
The emergence of large automotive clusters in the country. Delhi-Gurgaon-Faridabad in
the north, Mumbai-pune-nashik-aurangabad in the west, Chennai- Bengaluru- house in
the south and Jamshedpur-Kolkata in the east.
Global car major have been ramping up investments in India to cater to growing domestic
demand. These manufacturers plan to leverage Indias competitive advantage to set up
export oriented production hubs.
An R&D hub: Strong supports from the government in the setting up of Nat rip centers.
Private players such as Hyundai, Suzuki, and GM are keen to set up an R&D base in
India.

Auto manufacturers have been trying to cope with economical rough patch in last two years.
Trying to boost sales and implementing cost effective schemes just wasnt enough. They also had
to cut many of their employees loose to stay somewhat balanced, in some cases. On a
26

fashionable note, senior employees were asked to take voluntary retirement (not sure what
voluntary is doing in that sentence.
Tata motors apart from giving customers attractive offers, gave 600 of their employees early
retirement offers, last month. Ashok Leyland too offered 500 of their employees with irresistible
retirement schemes, last year.
Sales of cars, SUVs, vans, pickup, and entire commercial vehicle segment went south, with
passengers vehicle market encountering first decline in the decade. But what saved the overall
scenario were the two-wheelers markets. It took 7.31% hike with motorcycle sales going 3.91%
up and scooter sales riding 23% north. Export sales figures also contributed to somewhat saving
the year with rise of 7.21%.
The down trend left auto manufacturers with piled up inventory and stagnation. The interim
budget announced in February, gave a minor boost as all vehicles prices were reduced
marginally, but it hasnt exactly helped boost sales yet. Automakers are expecting aid from the
governments new budget by way of further tax cuts.
Sales figures of March 2015 shows 14.25% overall growth also by means of increased twowheelers sales. Commercial vehicles have further dipped compared to March 2013 and
passengers cars stagnating below the graph. However, overall production has increased by 9.95%
comparing March figures of both years, suggesting auto makers confidence in ongoing fiscal to
make better.

27

COMPANY PROFILE
CORPORATE PROFILE
Hero Moto crop ltd. (formerly hero Honda motors ltd). Is the worlds largest manufacturer of
two-wheelers, based in India?
In 2001, the company achieved the converted position of being the largest two-wheelers
manufacturing company in India and also, the world no .1 two wheelers company in terms of
unit volume sales in a calendar year. Hero Moto crop ltd. Continues to maintain this position till
date.
Vision:
The story of hero Honda began with a simple vision the vision of a mobile and an empowered
India, powered by its two wheelers. Hero Moto crop ltd. Companys new identity reflects its
commitment towards providing world class mobility solutions with renewed focus on expanding
companys footprint in the global arena.
Mission:
Hero Moto crops mission is to become a global enterprise fulfilling its customers needs and
aspiration for mobility, setting benchmarks in technology, styling and quality so that it converts
its customers into its brand advocates. The company will provide an engaging environment for
its people to perform to their true potential. It will continue its focus on value creation and
enduring relationships with its partners.
Strategy:
Hero Moto crops key strategies are to build a robust product portfolio across categories, explore
growth opportunities globally, continuously improve its operational efficiency, aggressively
expand its reach to customers continue to invest in brand building activities and ensure customer
and shareholder delight.
Manufacturing:
Hero Moto crop two wheelers are manufactured across 3 globally benchmarked manufacturing
facilities. Two of these are based at Gurgaon and dharuhera which are located in the state of
Haryana in northern India. The third and the latest manufacturing plant are based at Haridwar, in
the hill state of uttarkand.

28

Technology:
In the 1980s hero Honda pioneered the introduction of fuel- efficient, environment friendly fourstroke motorcycles in the country. Today hero Honda continues to be technology pioneer. It
became the first company to launch the fuel injection (F1) technology in Indian motorcycles,
with the launch of the glamour F1 in June 2006.

Distribution:
The companys growth in the two wheeler market in India is the result of an intrinsic ability to
increase reach in new geographies and growth markets. Hero Moto crops extensive sales and
service network now spans over to 6000 customer touch points. These comprise a mix of
authorized dealerships, service & spare parts outlets and dealer-appointed outlets across the
country.

Brand:
The new hero is rising and is poised to shine on the global arena. Companys new identity hero
Moto crop ltd.Is truly reflective of its vision to strengthen focus on mobility and technology and
creating global footprint. Building and promoting new brand identity will be central to all its
initiatives, utilizing every opportunity and leveraging its strong presence across sports,
entertainment and ground-level activation.

Heros mandate:
Hero is a world leader because of its excellent manpower, proven management, extensive dealer
network, efficient supply chain and world-class products with cutting edge technology from
company, japan. The teamwork and commitment are manifested in the highest level of
customers satisfaction, and this goes a long way towards reinforcing its leadership status.

29

BOARD OF DIRECTORS:

No.

Name of the directors

Designation

Mr. pavanmunjal

Chairman

Mr. pavanmunjal

Managing director & C.E.O

Mr. toshiakinakagawa

Joint managing director

Mr. sumihisafukuda

Technical director

Mr. Sunil Kant munjal

Non- executive director

Mr. suman Kant munjal

Non-executive director

Mr. Akashi magi

Non- executive director

Mr. pradeepdinodia

Non- executive director

Mr. analjit Singh

10

Dr. pritam Singh

12

Ms. Siobhan Bhatia

13

Mr. Ravi nath

14

Mr. m. dhamodaran

Non-executive
&
director
Non-executive
&
director
Non- executive &
director
Non- executive &
director
Non- executive &
director

30

independent
independent
independent
independent
independent

BRIEF PROFILE OF DIRECTORS:

Late dr. brijmohanlallmunjal (1st July 1923 to 1st November 2015)
Mr. brijmohanlallmunjal is the founder director and chairman of the company and the $ 3.2
billion hero group. He is the past president of confederation of Indian industry (CII), society of
Indian automobile manufacturers (SIAM) and was a member of the board of the countrys central
bank (reserve bankof India). In recognition of his contribution toindustry, Mr.munjal was
conferred the Padma bhushan award by the union government.
Mr. munjal is the chairman, managing director &CEO of the company. He is the responsible for
growth and strategic planning for the entire group. A graduate in mechanical engineering. Mr.
Munjal has been instrumental in bringing about technological and managerial excellence in the
companys operations. He has been the chairman of several committees of CII.
He is also on the board of Indian institute of management, luck now and Indian school of
business. An avid golfer, mr.munjal is past chairman of the Asian PGA tour board of directors
and past president of professional golfers association of India (PGAI). Under his guidance, hero
Moto crop launched the hero Indian sports academy (HISA) in collaboration with laureus
foundation to provide equal opportunities in sports to various communities and to reward talent
in the country.

Mr. Pavanmunjal is currently on the board of the following companies:

No.

Name of company

Nature of office

Hero Honda motors limited

Chairman & MD

Hero Honda finlease limited

Director

Munjal shows limited

Chairman & director

Rock man industries limited

Director

Hero invest crop limited

Director
31

KEY MILESTONES OF HERO HONDA:

Year

Event

1983

Joint collaboration agreement with Honda motors co. ltd. Japan signed
shareholders agreement signed

1984

Hero Honda motors ltd, incorporated.

1985

First motorcycle CD 100 rolled out

1987

100,000th motorcycle produced

1989

New motorcycle model sleek introduced

1991

New motorcycle model CD 100 SS introduced 500,000 th motorcycle

produced.

1992

Raman munjalvidhyamandir inaugurated A school in the memory of founder

managing director Mr. Raman Kant munjal

1994

New motorcycle model-spender introduced. 1,000,000th motorcycle produced.

1997

New motorcycle model-street introduced. Hero Hondas 2 nd manufacturing

plant at Gurgaon inaugurated.

1998

2,000,000th motorcycle produced.

32

1999

New motorcycle model-CBZ introduced. Environment management system of

dharuhera plant certified with ISO-14001 by DNV Holland

2000

4,000,000th motorcycle produced environment management system of Gurgaon

plant certified ISO-14001by DNV Holland.

2001

2002

New motorcycle model-passion introduced. One million productions in

one single year.5, 000,000th motorcycle produced.
New motorcycle model-dawn introduced.
New motorcycle model-ambition introduced.

2003

Becomes the first Indian company to cross the cumulative 7 million sales mark.
New motorcycle model-CDdawan introduced.

2004

New motorcycle model-ambition 135 introduced. Hero Honda became the

world no-1 company for the third consecutive year.

2005

Hero Honda is the world no. 1 for the 4 th year in a row. New motorcycle
model-super spender introduced.

2006

Hero Honda is the world no.1 for the 5th year in a row.
15 million production mile stone

2007

Hero Honda is the world no. 1 for the 6 th year in a row. New spender NXG
launched. New CD Deluxe launched. New passion plus launched

2008

Hero Honda haridwar plant inauguration.

New pleasure launched
Spender NXG launched with power start feature

2009

Hunk (limited edition) launched

Spender completed 11 million production landmark
New motorcycle model karizma-ZMRlaunched.

2010

Silver jubilee celebrations

33

2011

New model spender pro launched.

Launched of new super spender and new hunk.

2012

Migration of all products to brand hero.

Launch of impulse, maestro and igniter.

PROMINENT AWARDS TO THE COMPANY:

Year

2015

Awards& recognitions

-CNBC Ahwaz- storyboard special commendation for effective rebranding of

a new corporate entity by CNBC Ahwaz consumer awards.
One of the 3 Indians companies to enter the Forbes to top 100 lists of worlds
most reputed companies.

2014

Green pioneer leader in india-2014.

Green supply chain management program-2014.

2013

Green pioneer award-2013.

Business leader of the year award in the auto category by deputy chairman of
the planning commission Mr. Monte Singh ahluwalia, at the NDTV business
leadership awards 2013.

2012

CFO of the year Award (conferred on Mr. Ravi suds).

Digital advertiser of the year at the Indian digital media awards (IDMA) 2012.

2011

-CNBC Ahwaz- storyboard special commendation for effective rebranding of a new

34

corporate entity by CNBC Ahwaz consumer awards.

- most recommended two-wheeler brand of the year award by CNBC Ahwaz
consumer awards.

2010

Company of the year awarded by economic times awards for corporate excellence
2008-09
Two wheeler manufacturer of the year.

2009

two-wheeler manufacturer of the year by NDTV profit car &bike awards 2009 and
passion pro adjudged as CNB viewers choice two-wheelers.

A company that believes in maintaining ecological standards along with business standards.
We must do something for the community from whose land we generate our wealth.
-Chairman late Dr. brijmohan lullmunjal.
At hero motto crop, our goal isnt limited to business but encompasses the boarder spectrum of
serving humanity through social initiatives. Hero Moto crop takes a stand as a socially
responsible enterprise respectful of its environment.
Hero Moto crop has been strongly devoted not only to environmental conservation programs but
also expenses the increasingly inseparable balance between economic concerns environmental
and social issues faced by business. A business must not grow at the expense of mankind but
must serve humankind at large.

Environment policy:
We at hero Moto crop have been committed to determine excellence in our environmental
performance on a continuous basis, as an intrinsic element of our corporate philosophy.

To achieve this we commit ourselves to:

Integrate environmental attributes and cleaner production in all our business processes
and practices with specific consideration to substitution of hazardous chemicals and
strengthening the greening of supply chain.
35

Continue product innovations to improve environmental compatibility.

Quality policy:
Excellence in quality is the core value of hero moto crop philosophy.
We are committed at all levels to achieve high quality in whatever we do, particularly in our
products and services which will meet and exceed customers growing aspirations through:

Innovation in products processes and services.

Continuous improvement in our total quality management systems.
Teamwork and responsibility.

Safety policy:
We believe that safe work practices lead to better business performance, motivated workforce
and higher productivity.
We shall create a safety culture in the organization by:

Integrating safety and health matters in all our activities.

Promoting safety and health awareness amongst employees, suppliers and contractors.
Continuous improvements in safety performance through precautions are sides
participation and training of employees.
Ensuring compliance with all applicable legislative requirements.
Empowering employees to ensure safety in their respective workplaces.

Vigil mechanism/whistle blower policy:

Hero Moto crop limited believes in promoting a fair, transparent, ethical and professional work
environment. While the HMCL code of conduct defines the expectations from employees in
terms of their integrity and professional conduct, the vigil mechanism defines the mechanism for
reporting deviations from the standards defined in the code.

Remuneration policy:
The remuneration policy of the directors has been designed to keep pace with the business
environmental and market liked positioning. The remuneration& nomination committee
determines and recommends to the board the compensation payable to directors. Remuneration
for the executive directors consists of a fixed component and a variable component linked to the
long term vision, medium term goals and annual business plans.

36

Related party transactions policy:

Hero Moto crop ltd. recognizes that related party transactions can present potential or actual
conflicts of interest and may raisequestions about whether such transactions are consistent with
the company and its shareholders busy interest and in compliance to the provisions of the
companies act, 2013 and clause 49 of the listing agreement.

Corporate social responsibility policy:

The board of directors of hero Moto crop limited has adopted the following policy and
procedures with regard to corporate social responsibility. The board may review and amend this
policy from time to time subject to the recommendations of corporate social responsibility
committee.

Code of practices and procedures of fair disclosure of unpublished price

sensitive information:
Code of price and procedures of fair disclosure of unpublished price sensitive information
[pursuant to regulation8 (1) of SEBI regulations 2015] as approved by the board of directors of
the company as its meeting held on May 7, 2015 and applicable from May 15, 2015].

Policy on material subsidiaries:

The board of directors limited has adopted the following policy and procedures with regard to
determination of material subsidiaries. The board may review and amend this policy fro time to
time.

Policy for preservation of documents & archival:

This policy aims to preserve documents/ records maintained by the company either in physical
mode or electronic mode. This policy has been formulated in accordance with the regulations 9
of the securities and exchange board of India regulations, 2015. The policy shall come into effect
from December 1, 2015.

Policy on disclosure of material events by the listed entity:

The policy aims for disclosure of important and material events of the company to the stock
exchanges, where the equity shares of the company are listed. To stakeholders in compliance
with the provisions of regulation 30 of the SEBI regulation 2015.And SEBI circular no.
CIR/CFD/CMD/4/2015 dated september9, 2015. The policy shall come into effect from
december1, 2015.

CORPORATE SOCIAL RESPONSIBILITY (CSR):

37

The board of directors of hero Moto crop limited has adopted the following policy and
procedures with regard to corporate social responsibility. The board may review and amend this
policy from time to time subject to the recommendations of corporate social responsibility
committee.
It is pertinent that business enterprises are economic organs of society and drawn on societal
resources; we at the company believe that a companys performance must be measured by its
triple bottom line contribution to building economic, social and environmental capital towards
enhancing societal sustainability. HMCL believes that in the strategic context of business,
enterprises possess, beyond mere financial resources, the transformational capacity to create
game- changing development models by unleashing their power of entrepreneurial vitality,
innovation and creativity. In line with this belief, the company will continue crafting unique
models to generate livelihoods and create a better society. Such corporate social responsibility
(CSR) projects are far more replicable, scalable and sustainable, with a significant multiplier
impact on sustainable livelihood creation a working for a cause of humanity

INTRODUCTION ABOUT PHOENIX DEALER PROFILE (PHOENIX

MOTORS):
PHOENIX MOTORS PVT LTD is dealership type of business. Phoenix motors pvt ltd is
established on 21st march 2003. The business is running by only one man. The owner name is
Ch. Madhumathi the firm is located at habsiguda in Hyderabad.
Generally the sale will be either on cash basis or on institutional basis. Bank like ICICI, HDFC
and CENTURION are providing loans to customers.

Advertising strategy of phoenix motors:

They are giving the ads through newspapers, wall paintings, hoardings and field staff. They are
upgrading sales by introducing the schemes, group bookings, institutional sales and customers
door-to-door activities.

KEY TEAM MEMBERS:

At phoenix hero, we draw on each others capabilities and experiences, to inspire and motivate
one another. We are a tight knit family of professionals with the expertise to help us meet and
surpass the expectations of our customers. Key functional heads are ably supported by a team of
more than 160 people in the areas of sales, servicing, spare parts and administrations.

38

General Manager :( D. Indranathreddy)

Categorization of staff members:
Staff members are categorized for technicians, 25 members are allotted for field staff 5 members
is recruited for sales for persons, 5 persons are placed for evaluating for spare parts, 5 members
are allotted for managerial accounts and another 3 persons for cash transaction and other
members are allotted for remaining work.

Customer relationship:
They entertain the showroom providing a customers huge having pool game, internet facility
and television with home there system. They provide bike maintenance programs on every week.
According to other dealer phoenix motors in first in sales and best in service. They treat
customers is the very important persons at phoenix motors customer satisfaction is their Moto,
why because they will satisfied customer is the best advertisement. They provide better value for
the customers and as well as also. At phoenix motors the customer is the boss.

SALES STRATEGY OF PHOENIX MOTORS:

Average they are selling 28 vehicles per day. Phoenix motors PVT ltd is the A.Ps no.1 dealership
in sales and other activities? It is a QLAD (qualified leader through quality dealer). At phoenix
motor they gave the quality service to the customers why because the cost is long forgotten but
the quality is remembered for ever. They treat quality has a

39

WARRANTY ON PROPRIETARY ITEMS:

Warranty on proprietary items like tyros, tubes and battery etc. will be directly handled by the
respective original manufactures (OEMS) except AMCO for batteries and Dunlop and falcon
tires and tubes. In case of any defect in proprietary items, other than the above two mentioned
OEMS the dealer must approach the branch office dealer of the respective manufacture. For
AMCO batteries and Dunlop and falcon tires, tubes claims will be accepted at our authorized
dealerships per the mutually agreed terms and conditions between HERO and of these two
OEMS in case the claim is not accepted for invalid reasons. Thenthe claim along with the
refusal note from the OEM can be sent to the warranty section at Gurgaon plan after due to
recommendation of the area service engineer. If any other six services or subsequent paid
services is notavailed as per the recommended schedule given in the owners manual. If hero
recommended engine oil is not used. To manual wear & tear components like, bulbs
electricwiring , filters spark plug, clutch plates, branded shoes, fasteners, shim washers, oil seals,
gaskets, rubber parts plastic components, chains sprockets and in case of wheel rim
misalignment or bend.
If there is any damage due to modification or fittings of accessories other than ones
recommended by hero? if the motors has been used in any competitive events like tracking races
or rallies. If there is any damage to the painted surface due to industrial pollution or other

40

extraneous factors. For clams made for any consequential damage due to any previous
malfunction. For normal phenomenon like noise, vibration, oil seepage etc.

41

Size and growth of current assets and liabilities and net working capital of
hero Moto crop ltd during the period 2010-11 to 2014-15.
year

Current assets

Growth rate (%)

Current liabilities

Growth rate (%)

Net w.c

2010-11

1504-57

100

6144.75

100

-4640.2

2011-12

1951.69

129.717461

4610.73

75.035274

-2659

2012-13

2884.75

147.807797

4333.25

93.981864

-1448.5

2013-14

2911.17

100.915851

4497.43

103.788842

-1586.3

2014-15

3742.35

128.551407

3980.37

88.5032118

-238.02

8000
6000
year

4000

2010-11
2011-12

2000

2012-13
0
1

2013-14

2014-15

-2000
-4000
-6000

42

Interpretation:
The current assets and the current liabilities of hero Moto crop are in the increasing stage but at
the financial year 2014-15 it is in the decreasing stage because of decreasing in the current
liabilities and the growth rate is 121.55 the net working capital is also in the decreasing stage
because of the fixed assets.

WORKING CAPITAL TURNOVER RATIO:

Year

sales

Networking capital

ratio

2010-11

19245.03

4640.2

4.14

2011-12

23586.80

2650.00

8.90

2012-13

23768.11

1448.50

16.40

2013-14

25275.47

1586.26

15.93

2014-15

27585.30

238.02

11.58

43

Year

Net credit sales

Average debt

Ratio

19245.03

130.59

91.25

23586.80

272.31

86.61

23768.11

636.76

37.32

25275.47

920.58

27.45

2012-13

27585.30

1389.59

19.85

2014-15

30000

2010-11
25000

2011-12
20000

2012-13
15000

2013-14

10000

2014-15

5000
0
sales

networking capital

ratio

Turnover ratio:
Debtors turnover ratio expresses the relationship between debtors
and sales.A high debtors turnover or low debt collection period is
indicative of sound credit management policy.

Table shows debtors turnover ratio of hero Moto crop

ltd. During 2010-11 to2015
Interpretatio
n:

44

2010-11
2011-12
2013-14

7000
6000
5000
4000
3000
2000
1000
0

current assets

2010-11

2011-12

current liabilities
2012-13

2013-14

ratio
2014-15

Interpretation
:
From the above table , it is observed that the hero Moto crop ltd.
Debtors turnover
Ratio shows a good sign. The company noted a maximum ratio of
91.25 in the year
2010-11 and the minimum ratio in the year of 2014-15 is 19.85.
If we observed the above table the ratio is increasing the year 201011 to 2014-15
In the year but it is decreased

45

Current ratio:
It is the ratio of the current assets current liabilities this ratio is used
to know the
Companys ability to meet its current obligations. The standard norm
for the Current ratio is 2:1
Current ratio= current assets/current liabilities.

Table showing current ratio of hero Moto crop ltd

during the period 2010-11to 2014-15.

Year

Current assets

Current liabilities

2010-11

1504.57

6144.75

2011-12

1951.69

4610.73

2884.75

4333.25

2013-14

2911.17

4497.43

2 014-15

3742.35

3980.37

2012-13

7000
6000
5000
4000
3000
2000
1000
0

2010-11
2011-12
2012-13
2013-14
2014-15

46

Interpretatio
n:
It is observed that the hero Moto crop ltd current rationing a
decreasing trend; the companys liquidity
Position is satisfactory the current ratio increased slightly up to201011. But in 2011-12 it declined
because of increase in current liabilities, and then started to decrease
further in 2014-15 as 0.94

Quick ratio:
Quick ratio is relation between quick assets and current liabilities.
The term
Quick assets Which can be converted into cash with a
short notice. This category also
Includes cash bank balances short- term investments and
receivables.
Quick ratio=quick assets=current liabilities.

Table showing quick ratio of hero Moto crop ltd during

the period 2010-11 to 2014-15

47

Year

Quick assets

Current liabilities

ratio

2010-11

1379.93

6144.75

0.22

2011-12

1276.12

4610.73

0.27

2012-13

2247.99

4333.25

0.51

2013-14

2241.62

4497.43

0.49

2014-15

2926.86

3980.37

0.73

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2014-15
2013-14
2012-13
2011-12
2010-11

48

49

The income statement is also called as income

statement, it is considered to be themost useful of all
financial statements. It is prepared by a business
concern in order to know the profit earned and loss
sustained during a specific period. It explains what has
happened to a business as a result of operations between
two balance sheet dates. For this purpose it matches
the revenues and cost incurred in the process of earning
revenues and shows the net profit earned or loss
suffered during a particular period.
The nature of income which is a focus of the income statement can be
well understood if business is taken as an organization
that uses input to produce output. The output of
the goods and services that the business provides to its
customers. The value of these outputs is the goods and
services that the business provides to its customers.
The value of these output are the amount paid by the
customers for them. These amounts are called
revenues in the accounting. The inputs are the
economic resources used by the business in providing
these goods and services. These are termed expenses
in accounting.
The comparative balance sheet analysis is the study of the same
items, group of items and computed items in two or
more balance sheets of the same enterprise on different
dates. The changes in periodic balance sheet items
reflect the conduct of a business. The changes can be
50

observed by comparison of the balance sheet at the

beginning and at the end of a period and these changes
can help in informing an opinion about the progress of
and enterprise.

51

STATEMENT OF CHANGES IN WORKING CAPITAL:

Working capital turnover ratio 2015
2014

2015

669.55

815.49

920.58

1389.59

117.50

159.25

0.00

0.00

2911.17

3742.35

2903.12

3180.69

1594.31

799.68

4497.43

3,980.37

-1586.26

-238.02

Working capital turnover ratio

Total current assets

inventories
Sundry debtors
Cash and bank balance
Other current assets
Loans and advances

total
Total current liabilities

Current liabilities
provisions

Total

Net working capital

-1348.24
Increase/decrease in net working capital

52

8000
6000
4000
2000
0
-2000
-4000
-6000

Interpretation:
The net working capital of hero Moto crop ltd has been decreased to 238.02 cr the financial
position i.e. the performance of hero Moto crop ltd has decreased and the current assets defects
its current liability

Note: financial position may depend on long term liabilities and also fixes assets.

53

54

STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2013-14:

Working capital turnover ratio 2013
Working capital turnover ratio
Total current assets
Inventories
Sundry debtors
Cash and bank balances
Other current assets
Loans and advances

2013

2014

636.76
665.00
181.04
0.00
1401.95

669.55
920.58
117.50
0.00
1203.54

Total
Total current liabilities

2884.75

2911.17

Current liabilities
provisions

2893.39
1439.86

2903.12
1594.31

total

4333.25

4497.43

Net working capital

Increase /decrease in net working capital

-1448.50

-1586.26

-137.76

Interpretation:
The net working capital of hero Moto crop ltd has been decreased to 2911.17 Cr the financial
position i.e. the performance of hero Moto crop ltd has increased and the current assets defects
its current liability.

55

STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2012-2013:

Working capital turnover ratio 2013
Working capital turnover ratio

2012

2013

Inventories

675.57

636.76

Sundry debtors

272.31

665.00

Cash and bank balances

56.10

181.04

Other current assets

20.72

0.00

Loans and advances

926.99

1401.95

Total

1951.69

2884.75

Current liabilities

3520.66

2893.39

provisions

1090.07

1439.86

total

4610.73

4333.25

Net working capital

-2659.04

-1448.50

Increase/decrease in net working capital

-1210.54

Total current assets

Totalcurrent

Liabilities

56

8000
6000
4000
2000
0
-2000
-4000
-6000

Interpretation:
The net working capital of hero Moto crop ltd has been decreased to 1210.54 Cr the financial
position i.e. the performance of hero Moto crop ltd has increased and the current assets defects
its current liability.

57

58

Statement showing the changes in working capital for 2011-2012:

Working capital turnover ratio 2012
Working capital turnover ratio
2011
Totalcurrent
asset
inventor
524.93
ies
Sundry debtors
130.59
Cash and bank balances
71.52
Other current assets
23.77
Loans and advances
783.48
Total
Total current liabilities
Current
liability
provisions

1510.52

2012

675.57
272.31
56.10
20.72
926.99
1951.69

5063.68

3520.66

1081.07

1090.07

Total

6144.75

4610.73

Networking
capital
Increase/de
crease
innetworkin
g capital

-4640.21

-2659.04

-1981.17

59

8000
6000
4000
2000
0
-2000
-4000
-6000

Interpretation:
The net working capital of hero Moto crop ltd has been decreased to 2659.04 Cr the financial
position i.e. the performance of hero Moto crop ltd has increased and the current assets defects
its current liability.

60

Statement showing the changes in working capital for 2010-2011:

Working capital turnover ratio 2011
Working capital turnover ratio

2010

2011

inventories

436.4

524.93

Sundry debtors

108.39

130.59

Cash and bank balances

1907.21

71.52

Other current assets

405.76

728.66

Loans and advances

24.82

48.84

Total

2882.58

1504.54

Current liabilities

3805.06

5063.68

provisions

1026.35

1081.07

total

4831.41

6144.75

Net working capital

-1948.83

-4640.21

Total current assets

Total current liabilities

Increase /decrease in net working capital

-2691.38

61

8000
6000
4000
2000
0
-2000
-4000
-6000

Interpretations:
The net working capital of hero Moto crop ltd has been decreased to 2691 Cr the financial
position i.e. the performance of hero Moto crop ltd has increased and the current assets defect
itscurrentliability.

62

FINDINGS:
1. The hero Moto crop ltd net working capital is not satisfactory between the years 2011-15.
Since it shows decreasing trend; but after that it are in declining position.
2. The current ratio of hero Moto crop ltd is satisfactory during the period of study 2010-11
to 2014-15. It is increased but after that it is declining.
3. The average quick ratio of hero Moto crop ltd is not good though the quick ratio is
showing maximum value of 0.73 in the year 2014-15 and then it is declining to be deal.
4. Fixed assets turnover ratio of hero Moto crop ltd increased. The company has to maintain
this.
5. Inventory turnover ratio of hero Moto crop ltd is also increased gradually. Without any fit
falls up to 2010-11. But in the year 2011-12 it is declined, and again it has decreased in
the year 2014-15. Good inventory management is good sign for efficient management.
6. Return on investment is not satisfactory. This indicates that the companys funds are not
being utilized in a better way.

CONCLUSIONS:
1. The hero Moto crop ltd net profit ratio is showing negative profit in the year 2014-15.
This event is an expected one because since from the previous two years it is showing
the decline stage in net profit ratio.
2. The hero Moto crop ltd gross profit margin of hero Moto crop ltd increase in
decreases due to the increase in sales.
3. Profit margin of hero Moto crop ltd is decreasing and showing negative profit because
there is increase in the price of cropper.
4. The hero Moto crop ltd net working capital ratio is satisfactory.
5. The hero Moto crop ltd return on total assets ratio shows a negative sign in the year
2014-15.
6. The operating ratio of hero Moto crop ltd increase in the year 2010-11, in the year
2011-12 and reached in the year2014-15 so the company has to reduce its operating
costs.
7. The operating ratio of hero Moto crop ltd isnt satisfactory. Due to increase in costs of
production, this ratio is decreasing. So the has to reduce its office administration
expenses.

SUGGESTIONS:
1. Improve position funds should be utilized properly.
2. Better awareness to increase the sales is suggested.

63

3. Cost cut down mechanics can be employed.

4. Better production technique can be employed.

64

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