A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENT

IN

S.B.CARS PVT LIMITED (Authorised maruti dealer)

SUBMITTED BY: BRAJ RAJ SINGH ROLL NO: E066028 (MBA -07) ARMY INSTITUTE OF MANANGEMANT & TECHNOLOGY GREATER NOIDA

( GGSIP UNIVERSITY )

P REFACE
Practical training is an important part of the theoretical studies. It is of an immense importance in the field of management. It offers the student to explore the valuable treasure of experience and an exposure to real work culture followed by the industries and there by helping the students to bridge gap between the theories explained in the books and their practical implementations. Training plays an important role in future building of an individual so that he/she can better understand the real world in which he has to work in future. The theory greatly enhances our knowledge and provides opportunities to blend theoretical with the practical knowledge where trainees get familiar with certain aspects of industries. I feel proud to get myself trained at S.B.CARS PVT LTD that is one of the top most light commercial vehicle industries in India. I have taken up training in finance department and have studied and explained the need for working capital as well as its management and financing. I am sure I could encash this opportunity to the best of my encompetence, zeal , perfection and academic knowledge & I am keen to make it on going journey throughout my life as I strongly believe that learning is a journey not a destination.

ACKNOWLEDGEMENT
The project management of working capital contained the culmination of six weeks of my own search, study and practice in the office of S.B.CARS PVT.LTD . I present this project to all those who instructed me to write the project report during summer vacation training programmed at S.B.CARS PVT.LTD I am thankful to Mr. Awanish Khanna(chief manager-finance) who was not only my trainer but my mentor and my guide. He has given me chance to have training in this esteemed organization & for their full cooperation at every sphere to successfully accomplish my task. He not only imparted me summer training but he also cultivated seeds of discipline. He made me realized the importance of time. He not only tried in making me a good manager but also a good human being. I thank Mr. H.R.manager and his team who has given me this great opportunity to work in S.B.CARS pvt.LTD. I also thank Mr ricky and all the members of the finance department for cooperating with me in completion of this project. Last but not the least I am thankful to all my friends and family members, particularly Mr. Ananad ray, my ideal,who always guided me on the way

whenever I felt myself in trouble. This project made possible the effective presentation of ideas, and analysis which brought remarkable response from the company.

- AN INTRODUCTION
Maruti Udyog Limited (MUL) was established in February 1981, though the actual production commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei car which at the time was the only modern car available in India, its only competitors- the Hindustan Ambassador and Premier Padmini were both around 25 years out of date at that point. Through 2004, Maruti Suzuki has produced over 5 Million vehicles. Maruti Suzukis are sold in India and various several other countries, depending upon export orders. Models similar to Maruti Suzukis (but not manufactured by Maruti Udyog) are sold by Suzuki Motor Corporation and manufactured in Pakistan and other South Asian countries. The company annually exports more than 50,000 cars and has an extremely large domestic market in India selling over 730,000 cars annually. Maruti 800, till 2004, was the India's largest selling compact car ever since it was launched in 1983. More than a million units of this car have been sold worldwide so far. Currently, Maruti Suzuki Alto tops the sales charts and Maruti Suzuki Swift is the largest selling in A2 segment. Due to the large number of Maruti 800s sold in the Indian market, the term "Maruti" is commonly used to refer to this compact car model ("Maruti" is another name of the Hindu god, Hanuman).

Maruti Suzuki has been the leader of the Indian car market for over two decades. Its manufacturing facilities are located at two facilities Gurgaon and Manesar south of Delhi. Maruti Suzukis Gurgaon facility has an installed capacity of 350,000 units per annum. The Manesar facilities, launched in February 2007 comprise a vehicle assembly plant with a capacity of 100,000 units per year and a Diesel Engine plant with an annual capacity of 100,000 engines and transmissions. Manesar and Gurgaon facilities have a combined capability to produce over 700,000 units annually. More than half the cars sold in India are Maruti Suzuki cars. The company is a subsidiary of Suzuki Motor Corporation, Japan, which owns 54.2 per cent of Maruti Suzuki. The rest is owned by public and financial institutions. It is listed on the Bombay Stock Exchange and National Stock Exchange in India. During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported. In all, over six million Maruti Suzuki cars are on Indian roads since the first car was rolled out on 14 December 1983. Maruti Suzuki offers 14 models, Maruti 800, Alto, WagonR, Estilo, Astar, Ritz, Swift, Swift DZire,SX4, Omni, Eeco, Gypsy, Grand Vitara, Kizashi. Swift, Swift DZire, A-star and SX4 are manufactured in Manesar, Grand Vitara and Kizashi are imported from Japan as completely built units(CBU), remaining all models are manufactured in Maruti Suzuki's Gurgaon Plant. Suzuki Motor Corporation, the parent company, is a global leader in mini and compact cars for three decades. Suzukis technical superiority lies in its ability to pack power and performance into a compact, lightweight engine that is clean and fuel efficient.

Nearly 75,000 people are employed directly by Maruti Suzuki and its partners. It has been rated first in customer satisfaction among all car makers in India from 1999 to 2009 by J D Power Asia Pacific

Partner for the joint venture

Sanjay Gandhi owned the Maruti Technical Services Limited, which ran into trouble and was liquidated. After the death of Sanjay Gandhi, the Indira Gandhi government assigned a delegation of Indian technocrats to hunt for a collaborator for the project. Initial rounds of discussion were held with the giants of the automobile industry in Japan including Toyota, Nissan and Honda. Suzuki Motor Corporation was at that time a small player in the four wheeler automobile sector and had major share in the two wheeler segment. Suzuki's bid was considered negligible. While the major companies were personally represented in the initial rounds of discussion, Osamu Suzuki, Chairman and CEO of the company ensured that he was present in all the rounds of discussion. Osamu in an article writes that it subtly massaged their (Indian delegation's) egos and also convinced them about the sincerity of Suzuki's bid. Suzuki in return received a lot of help from the government in such matters as import clearances for manufacturing equipment (against the wishes of the Indian machine tool industry then and its own socialistic ideology), land purchase at government prices for setting up the factory Gurgaon and reduced or removal of excise tariffs. This ensured that Suzuki conscientiously nursed Maruti Suzuki through its infancy to become one of its flagship ventures

Sales and service network

As of 31 March 2011 Maruti Suzuki has 933 dealerships across 666 towns and cities in all statesand union territories of India. It has 2,946 service stations (inclusive of dealer workshops andMaruti Authorised Service Stations) in 1,395 towns and cities throughout India.[15] It has 30 Express Service Stations on 30 National Highways across 1,314 cities in India. Service is a major revenue generator of the company. Most of the service stations are managed on franchise basis, where Maruti Suzuki trains the local staff. Other automobile companies have not been able to match this benchmark set by Maruti Suzuki. The Express Service stations help many stranded vehicles on the highways by sending across their repair man to the vehicle

CORPORATE PROFILE
The best way to predict the future is to invest it. Alan Key

CORPORATE PROFILE
8

OBEROI GROUP CONSTITUENTS

COMPANY SUNTY BUNTY GLASS HOUSE HARI ENTERPRISES OBEROI GLASS HOUSE KANPUR MOVERS SHEETALAY COLD STORE GOPI TRANSPORT CORPORATION S.B.CARS PVT. LTD. ----------------FAZAL GANJ,KANPUR DIVISION ORAI DIVISION UNNAO DIVISION KALYANPUR KANPUR DIVISION

SUNTY BUNTY MOTORS PVT. LTD. SUNTY BUNTY AUTOMOBILE PVT LTD.

MILESTONES
2008 S.B.CARS PVT Ltd. incorporated . 2009 Open their branch in orai. 2010 open their 3rd branch in unnao 2011 2011 open their 4th branch in kalyanpur Aggregate vehicles sales reach 3,000 Vehicles (March)

In its journey of 4 years, Commercial Vehicle Industry has scaled new heights from a level of 1000 units in 2008-2009, industry volume have peaked to 3,000 in fiscal 2010-11. The last 4 years in particular have witnessed spectacular growth for the commercial vehicles industry as a whole volumes have more than tripled from 2008-09 level of 1000 to 3000 in 2010-11. Segment growth has, however, been uneven as will be evident from :

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2001-02 Up to 3.5 Ton 36300 GVW Up to 10 Ton 36800 GVW Plus 10 Ton GVW 85400 Total 158500

2006-07 175700 73000 269000 517700

Growth (+) 139400 (+) 36100 (+) 183600 (+) 358200

In the SML range the growth has been minimal.

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OBJECTIVES
The main objectives of my research on management of working capital of S.B.CARS PVT LTD are:To study & evaluate the working capital management system of S.B.CARS PVT LTD.

1)

2)

To determine the adequate or optimum quantum of investment in working capital of S.B.CARS PVT LTD.

3) To determine the composition or structure of current assets. 4) To maintain a proper balance between liquidity & profitability. 5) To maintain a proper the policy or means of finance for current assets.

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SYNOPSIS INTRODUCTION TO WORKING CAPITAL

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM).

WHAT IS WORKING CAPITAL?

Working capital refers to the cash a business requires for day-to-day operations, or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength.

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CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital gross and net.

GROSS WORKING CAPITAL: It refers to the firms Investment in current assets which can be converted into cash within an accounting year(or operating cycle) and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory) NET WORKING CAPITAL: It refers to the difference between Current Assets & Current Liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an Accounting year and include creditors (accounts payable) ,bills payable and outstanding expenses. Net working capital can be positive or negative. A positive net working capital will arise when Current Assets increase current liabilities. A negative net working capital will occur when Current Liabilities are in excess of Current Assets.

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NATURE OF WORKING CAPITAL EXCESSIVE AND INADEQUATE WORKING CAPITAL:

A business enterprise should maintain adequate working capital according to the needs of its business of its business operations. The amount of working capital should neither be excessive nor adequate. If the working capital is excess of its requirements it means idle funds adding to the cost of capital is short of its requirements, it will result in production interruptions and reduction of sales and, in turn, will affect the profitability of the business adversely.

DEFECIENCIES OF EXCESSIVE WORKING CAPITAL

EXCESSIVE INVENTORY: Excessive working capital results in unnecessary accumulation of large inventory. It increases the chances of misuse, waste, theft etc. EXCESSIVE DEBTORS: Excessive working capital will result in liberal credit policy which, in turn, will result in higher amount tied up in debtors and higher incidence of bad debts. ADVERSE EFFECT ON PROFITABILITY: Excessive working capital means idle funds in the business which adds to the cost of capital but earns no profits for the firm. Hence it has a bad effect on profitability of the firm. INEFFECIENCY OF MANAGEMENT: Management becomes careless due to excessive resources at their command. It results in laxity of control on epenses and cash resources.
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DEFECIENCIES OF INADEQUATE WORKING CAPITAL:

DIFFICULTY IN AVALIABILITY OF RAW-MATERIAL: Inadequacy of working capital results in non-payment of creditors on time. As a result the credit purchase of goods on favorable terms becomes increasingly difficult. Also, the firm cannot avail the cash. FULL UTILISATION OF FIXED ASSETS NOT POSSIBLE: Due to the frequent interruption in supply of raw materials and paucity of stock, the firm cant make full utilization of its machines etc. DIFFICULTY IN THE MAINTAINENCE OF MACHINERY: Due to the shortage of working capital, machines are not cared and maintained properly which results in the closure of production of on many occasions. DECRAESE IN CREDIT RATING: Because of inadequacy of working capital, firm is unable to pay its short term obligations on time. It decays the firms relation with its bankers and it becomes difficult for the firm to borrow in case of need.

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ADVANTAGES OF ADEQUATE WORKING CAPITAL:

AVAILIABILTY OF RAW MATERIAL REGULARLY: Adequacy of working capital makes it possible for a firm to pay the suppliers of raw material in time. As a result it will continue to receive regular supplies of raw materials and thus there will be no disruption in production process. FULL UTILISATION OF FIXED ASSETS: Adequacy of working capital makes it possible for a firm to utilize its fixed assets fully and continuously. For eg. , if there is inadequate stock of raw material, the machines will not be utilized in full and their productivity will be reduced. CASH DICOUNT: A firm having the adequate working capital can avail the cash discount by purchasing the goods for cash or by making the payment before the due date. MEETING UNSEEN CONTINGENCIES: Adequacy of working capital enables a company to meet the unseen contingencies successfully.

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NEED OF WORKING CAPITAL

Alongwith the fixed capital almost every business requires working capital though the extent of working capital requirements differ in different businesses. Working capital is needed for running the day-to-day business activities. When a business is started, working capital is needed for purchasing raw material. The raw material is then converted into finished goods by incurring some additional costs on it. Now goods sre sold. Sales do not convert into cash instantly because there is invariably some credit sales. Thus, there exists a time lag between sales of goods and receipt of cash. During this period, expenses are to be incurred for continuing the business operations. For this purpose working capital is needed. Therefore, sufficient working capital is needed which shall be involved from the purchase of raw material to the realization of cash. The time period which is required to convert raw material into finished goods and then into cash is known as operating cycle or cash cycle. The need for working capital can also be explained with the help of operating cycle. Operating cycle of a manufacturing concern involves five phases: Conversion of cash into raw material. Conversion of raw material into work-in-progress. (iii) Conversion of work-in-progress into finished goods. (iv) Conversion of finished goods into debtors by credit sales. (v) Conversion of debtors into cash by realizing cash from them. Thus,the operating cycle starts from cash and then again restarts from cash. Need for working capital depends upon period of operating cycle. Greater the
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(i) (ii)

period, more will be the need of working capital. Period of operating cycle in a manufacturing concern is greater than a period of operating cycle in a trading concern because in trading units cash is directly converted into finished goods.

CASH
DEBTORS & BILLS RECEIVABLES

RAW MATERIAL

FINISHED GOODS

WORK-INPROGRESS

operating cycle (nature of working capital)

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Because of the time involved in a operating cycle, there is a need of working capital in the form of current assets. Firms have to keep adequate stock of raw-material to avoid risk of non-avaliabilty of raw materials. Similarly, concerns must have adequate stock of finished goods to meet the demand in market on continuous basis and to avoid competition which necessitates the money tied up in debtors and bills receivables. In addition to al these, concerns have to necessarily keep cash to pay the manufacturing expenses etc. and to meet the contingencies.

PERMANENT AND TEMPORARY WORKING CAPITAL:

Working capital in a business is needed because of operating cycle. But the need for working capital does not come to an end after the cycle is completed. Since the operating cycle is continuous process, there remains a need for continuous supply of working capital. However, the amount of working capital required is not constant throughout the year, but keeps fluctuating. On the basis of this concept, working capital is classified into two types:
(a)

Permanent working capital: the need for

working capital or current assets fluctuates from time to time. However, to carry on day-to-day operations of the business without
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any obstacles, a certain minimum level of raw materials, work-inprogress, finished goods and cash must be maintained on a continuous basis. The amount needed to maintain current assets on this minimum level is called permanent working capital or regular working capital. The amount involved as permanent working capital has to be met from long term sources of finance, eg. Capital, debentures, long term loans etc.

(b)

Temporary working capital: any amount over

and above the permanent level of working capital is called is called temporary, fluctuating or variable working capital. Due to seasonal changes level of business activity is higher than normal during some months of the year and therefore, additional working capital will be required along with the permanent working capital it is so because during peak season demand rises and more stock is to be maintained to meet the demand. Similarly, the amount of debtors increases due to excessive sales. Additional working capital thus needed is known as temporary working capital because once the season is over; the additional demand will be no more. Need for temporary working capital should be met from short term of finance, e.g. Short term loans etc. so that it can be refunded when it is not required.

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FACTORS AFFECTING WORKING CAPITAL OR DETERMINANTS OF WORKING CAPITAL

A firm should have neither too much or too little working capital. The working capital requirements is determined by a large number of factors but, in general, the following factors influence the need of working capital needs of an enterprise:
1)

NATURE OF THE BUSINESS: working capital requirements of an enterprise are largely influenced by the nature of the business. For eg. Public utilities such as railways, transport ,water and electricity etc. have very limited need of working capital because they have to invest fairly large amount in fixed assets. Their working capital need is minimal because they get immediate payment for their services and do not have to maintain big inventories. On the other extreme are the trading and financial enterprises which have to invest less amount in fixed assets and a large amount in working capital. This is so because
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the nature of the business is such that they have to maintain a sufficient amount of cash, inventories and debtors. Working capital needs of most of the manufacturing enterprise fall between these two extremes, that is between public utilities and trading concerns.
2)

SIZE OF THE BUSINESS: larger the size of business enterprise, greater would be the need for working capital. The size of a business may be measured in terms of scale of its business operation.

3) GROWTH AND EXPANSION: as business enterprise grows, it is logical to expect that a larger amount of working capital will be required. Growing industries require more working capital than those that are static 4) PRODUCTION CYCLE: production cycle means the time span between the purchase of raw material and its conversion into finished goods. The longer the production cycle the larger will be the need of working capital because the funds will be tied up for longer period in work in progress. 5) BUSINESS FLUCTUATIONS: business fluctuations may be in the direction of boom and depression. During boom period the firm will have to operate at full capacity to meet the increased demand which in turn, leads to increase in level of inventories and book debts. Hence, the need for working capital in boom conditions is bound to increase. The depression phase of business fluctuations has exactly an opposite effect on the level of working capital requirement . 6) CREDIT POLICY RELATING TO SALES: if a firm adopts liberal credit policy in respect of sales, the amount tied up in debtors will also be higher. Obviously, higher book debts mean more working capital. On
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the other hand, if the firms follows tight credit policy, the magnitude of working capital will decrease.
7)

CREDIT POLICY RELATING TO PURCHASE: if a firm purchases more goods on credit, the requirement for working capital will be less. In other words, if liberal credit terms are available from the suppliers of goods, the requirement for working capital will be reduced and viceversa

. 8) AVAILABILITY OF RAW-MATERIAL: If the raw material required by the firm is available easily on a continuous basis, there will be no need to keep a large inventory of such materials and hence the requirement of working capital will be less. On the other hand, if the supply of raw material is irregular, the firm will be compelled to keep an excessive inventory of such material which will result in high level of working capital. 9) AVAILABILITY OF CREDIT FROM BANKS: if the firm can get bank credit facility in case of need, it will operate with less working capital. On the other hand, if such facility is not available, it will have to keep large amount of working capital.
10)

VOLUME OF PROFIT: The net profit is a source of working capital to the extent it has been earned in cash. Higher net profit would generate more internal funds thereby contributing the working capital pool. LEVEL OF TAXES: full amount of cash profit is not available for working capital purposes. Taxes have to be paid out of profits. Higher the amount of taxes less will be the profits available for working capital.

11)

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12)

DIVIDEND POLICY: dividend policy is a significant element in determining the level of working capital in an enterprise. The payment of dividend reduces the cash and thereby, affects the working capital to that extent. On the contrary, if the company does not pay dividend but retains the profit, more would be the contribution of profits towards the working capital pool.

13)DEPRICIATION POLICY: although depreciation does not result in outflow of cash, it affects the working capital indirectly. In the first place, since the depreciation is allowable expenditure in calculating net profits, it affects the tax-liability. In the second place, higher depreciation also means lower disposable profits and ,in turn, a lower dividend payment. Thus, outgo of cash is restricted to that extent.
14)

PRICE LEVEL CHANGES: A change in price level also affects the working capital requirements. If the price level is rising, more funds will be required to maintain the existing level of production EFFECIENCY OF MANAGEMENT: efficiency of management is also a significant factor to determine the level of working capital. Management can reduce the need for working capital by the efficient utilization of resources. It can accelerate the pace of cash cycle and thereby use the same amount working capital again and again very quickly

15)

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ANALYSIS OR COMPUTATION OF WORKING CAPITAL

A Number of methods are used to determine the working capital needs of a business. The important among them are: OPERATING CYCLE METHOD: operating cycle is the time span the firm requires in the purchase of raw material, conversion of raw material in work in progress and finished goods, conversion of finished goods into sales and in collecting cash from debtors. Larger the time span of operating cycle, larger the investment in current assets. Hence the time period for each stage of operating cycle is computed on the basis of cost of each item. Following factors should be considered while forecasting working capital requirement on the basis of operating cycle method: (i) cost of raw material, wages and overheads (ii) Period during which raw material remains in store before it is issued for production purpose. (iii) Period of operating cycle (iv) Period during which finished goods is stored before sale.
1)
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(v) Period of credit allowed to debtors and period of credit allowed by suppliers. (vi) Time lag in payment of wages and overheads. (vii) minimum cash balance required to be maintained.

A certain percentage of contingencies may also be added to the above estimates to determine the working capital requirements. On the basis of operating cycle, the working capital can be forecasted in the following way:

Statement Showing Working Capital Requirements Current assets: (i)stock of raw material: cost of yearly consumption average inventory period of raw material x (weeks/months) 52weeks/12 months (ii)work in process: Cost of yearly consumption average time span of W-I-P Of raw material x (weeks/months) 52 weeks/12 months + yearly wages x 50 x (weeks/months) 100 52 weeks/12 months
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+ yearly manufacturing and administrative overheads(ex. Dep) average time span of W-I-P x 50 x (weeks/months) 100 52 weeks/12 months

(iii)stock of finished goods: Cost of goods produced (i.e. tearly cost of raw materials + wages + manufacturing & administrative overheads excluding depreciation) average finished goods holding period X (weeks/months) 52 weeks/12 months (iv)debtors: Working capital tied up in debtors should be estimated on the basis of cost of sales(ex. Dep): Cost of goods produced (i.e. raw material + wages + manufacturing, admn. & selling overhead) (v)cash and bank balance:
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average debt collection period (weeks/months) X 52 weeks/12months

Apart from WC needs for financing inventories and debtors, firms also find it useful to have some minimum cash balances with them. It would be based on the motives for holding cash balances of the business firm, attitude of management towards risk, the access to the borrowing sources in times of need and past experience etc.

Less: current liabilities: (i)trade creditors: Cost of yearly consumption Of raw material Credit period allowed by creditors (weeks/months) x 52 weeks/12 months

(ii)wages: Average time lag in payment of wages Yearly wages x (weeks/months) 52 weeks/12months If wages are paid at the end of each month, the average time lag in the payment of wages will approximate to half a month. This is so because 1st days wages are paid on the 30th day of each month,
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extending credit for 29 days, the 2nd days wages are, again paid on the 30th, extending credit for 28 days, and so on. Thus, average time lag will approximate to half a month. (iii)overheads: Yearly overheads average time lag in payment of overheads (other than dep.) x (weeks/months) 52 weeks/12months

WORKING CAPITAL=CURRENT ASSETS-CURRENY LIABILITIES ADD: PROVISION FOR CONTINGENCIES ESTIMATED WORKING CAPITAL REQUIREMENTS

2)

FORECASTING OF CURRENT ASSETS AND CURRENT LIABILITIES METHOD: according to this method, an estimate is made of forthcoming periods current assets and current liabilities on the basis of factors like past experience, credit policy, and payment policy of the previous year. First of all, such estimate is made for each
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current assets on the basis of each month and then monthly requirements are converted into yearly requirements of current assets. The estimated amount of current liabilities is deducted from this amount in order to estimate the requirement of working capital. A certain percentage of contingencies may also be added to this amount.

3)

CASH FORECASTING METHOD: under this method estimate is made of cash receipts and payments for the next period. Estimated cash receipts are added to the amount of working capital which exists at the beginning of the year and estimated cash payments are deducted from this amount. The difference will be the amount of the working capital. PROJECTED BALANCE SHEET METHOD: under this method, an estimate is made of assets and liabilities for a future date and a projected balance sheet is prepared for that future date. The difference in CA and CL shown in projected balance sheet will be the amount of working capital.

4)

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MANAGEMENT OF WORKING CAPITAL

Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the inter relationships between them. Its operational goal is to manage the current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. The term working capital refers to the net working capital i.e. current assets minus current liabilities with reference to the management of working capital, net working capital represents that part of the current assets which are financed with the long term funds. The level of NWC has a bearing on the profitability as well as the risk in the sense of the inability of the firm to meet obligations as and when they become due. Therefore, the tradeoff between profitability and risk is an important element in the evaluation of the level of NWC of the firm. In general, the higher the NWC the lower the risk, as also the lower is the profitability and vice-versa. Thus, the NWC measures the degree of risk in the management of working capital.
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Apart from the profitability-risk trade-off, the determination of the finance mix is the second ingredient of the theory of working capital management. The financing mix refers to the proportion of current assets to be financed by current liabilities and long term sources. One approach to determine the financing mix is hedging approach, acc. to which long term funds should be used to finance the fixed portion of the current assets and the purely temporary requirements should be met out of short term funds. This approach is high profit, high risk financing mix. Acc. to the second approach, namely the conservative approach, the estimate requirements of the current assets should be financed from long term sources and the short term funds should be used only in emergency situation. The conservative approach is a low-profit, low risk combination. Neither of the two is suitable for efficient working capital management. A trade off between these two extremes provides a financing plan between these two approaches, and therefore, an acceptable financing strategy from the view point of the management of working capital.

CASH MANAGEMENT
Cash management is one of the key areas of working capital management. There are 4 motives of holding cash (i) transaction motive (ii) precautionary motive (iii) speculative motive (iv) compensating motive the transaction motive refers to the holding of cash to meet anticipated obligations whose time is not perfectly synchronized with cash receipts.

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The cash balances held in reserve for random & unforeseen fluctuations in cash flows are called as precautionary balances. The speculative motives indicates the desire of a firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business. The compensating motive means keeping the bank balance sufficient to earn a return equal to the cost of free service provided by the banks. The basic objectives of cash management are to reconcile two mutually contradictory and conflicting tasks: to meet the payment schedule & to minimize funds committed to cash balances.

Cash budget is probably the most important tol in cash management. It is a device to help a firm to plan & control the use of cash. The cash position of a firm as it moves from one period to another period is high lighted by cash budget. A cash budget has normally three parts, namely, cash collections, cash payments and cash balances. The major sources of cash receipts and payments are operating and financial. The operating sources are repetitive in nature while the financial sources are non-recurring.

MANAGEMENT OF RECEIVABLES
It deals with those transactions which deals with the billing of customers who owe money to a person, company or organization for goods & services that have been provided to the customers under receivables management, we consider the position of our debtor. Before extending the credit to him, personal interaction with him is done & information is is collected like the
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refrences, bank account information etc. & if it seems that person is reliable then he could be extended credit. Then some other factors are also considered like financial position of the debtor, reputation of the Debtors in the market, credit paying capacity of the person etc. there should be proper agreement between the debtor and the company for the repayment terms. But if the debtor fails to pay the money then the help of law or muscle power can also be used but the action should be taken within 3 years of extending credit.

The management of receivables involves crucial decision in three areas: (i) credit policy (ii) credit terms (iii) collection policies. The credit policies of the firm provides the framework to determine whether to or not to extend credit to a customers and how must credit to extend. The two broad dimensions of credit policy decision of a firm are credit standards and credit analysis, the term credit standards represent the basic criterion for the extension of credit to customers. The criterion, and therefore, standards can be tight /restrictive or liberal/non-restrictive. The credit analysis component of credit policies includes obtaining credit information from different sources and its analysis. The second decision area in receivables management is the credit terms, the credit terms specify the repayment terms, comprising credit period,cash discount, if any, and cash discount period. The third area involved in the management of receivables is collection policies. It refers to the procedure followed to collect accounts receivable when they become due. The two relevant aspects are the degree of efforts to collect the over dues and the type of collection effort.

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The framework of analysis of all the three decision areas in receivable management is to secure a trade-off between the costs & benefits of the measurable effects on the sales volume, capital cost due to change in accounts receivable, collection costs, and bad debts and so on. The alterantive will be selected when the benefits exceed the costs.

INVENTORY MANAGEMENT
The term inventory refers to assets which will be sold in future in the normal course of business operations. The assets which the firm stores as inventory in anticipation of need are raw materials, work-in-progress, semi-finished goods, and finished goods. The objective of inventory management consist of two counter balancing parts, namely, to minimize investments in inventory and to meet the demand for products by efficient production and sales operations. In operational terms, the goal of inventory management is to have a trade-off between costs and benefits at different levels of inventory. The costs of holding inventory are ordering cost and carrying costs. The major benefits of holding inventory are in the areas of purchasing, production and sales.

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The non-mathematical inventory management techniques illustrated here are (i) ABC system (ii) EOQ (iii) re-order point (iv) safety stock

ABC system (Always Better Control system)

The first step in inventory control process is classification of different types of inventories to determine the type and degree of control required for each. The ABC system is a widely used classification technique to identify various items of inventory for purposes of inventory control. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep a more rigorous control on items that are (i) more costly (ii) slowest turning while items that are less expensive should be given less control effort. On the basis of the cost involved, the various inventory items are, according to this system, categorized into three items (1) A (2) B (3) C. the items included in group A involved the largest investment. Therefore, inventory control should be most rigourous and intensive and the most sophisticated
37

inventory control techniques should be applied to these items. C group consists of items of inventory, which involve relatively small investments alyhough the number of items is fairly large. These items deserve minimum attention. B group stands mid way. It deserves less attention than A but more than C. employing less sophisticated techniques can control it. The task of inventory management is to properly classify all the inventory items into one of these three groups. The typical breakdown of inventory items is shown in following table:

Group (%) A B C 100

No. of Items 15 30 55 ----

Inventory Value 70 20 10 ----

Some points stand out from above table. While group A is the least important than in terms of the no. of items, it is by far the most important in terms of investments involved. With only 15% of the number, it accounts for as much as 70% of the total value of inventory. The firm should direct most of its
38

inventory control efforts to the items included in this group. The items comprising B group accounts for 20% of the investment in inventory. They deserve less attention than A, but, more than C, which involves only 10% of the total value although number wise its share is as high as 55%.

ECONOMIC ORDER QUANTITY

After various inventory items are classified on the basis of the ABC analysis, the management becomes aware of the type of control that would be appropriate for each of the three categories of the inventory items. The A group of items wants the maximum attention and the most rigorous control. A key inventory problem particularly in respect of the group A items relates to the determination of the size or quantity in which inventory will be acquired. In other words, while purchasing raw material or finished goods, the question to be answered are : how much inventory should be bought in one lot under one order on each replenishment? Should the quantity to be purchased be large or small? Or, should the requirement of materials during a given period of time (say, six months or one year) be acquired in a lot or should it be acquired in installments or in several small lots? Such inventory problems are called order quantity problems.

39

The determination of the appropriate quantity to be purchased in each lot to replenish stock as a solution to the order quantity problem necessitates resolution of conflicting goals. Buying in large quantities implies a higher inventory level which will assure (1) smooth production / sale operations (2) lower ordering or set up costs. But it involve higher carrying cost. On the other hand small orders will reduce the carrying cost of inventory by reducing the average inventory level but the ordering cost will improve as there is likelihood of interruption in the operations due to stock-outs. A firm should place neither too large nor too small orders. On the basis of trade-off between benefits derived from the avaliabilty of inventory and the cost of carrying that level of inventory, the appropriate or optimum level of the order to be placed should be determined. The optimum level ofinventory is popularly referred as economic order quantity(EOQ). It is also known as economic lot size. The EOQ may be defined as that level of inventory order that minimizes the total cost associated with inventory management.

RE-ORDER POINT
The EOQ technique determines the size of an order to acquire inventory so as to minimize the carrying as well as the ordering costs. In other words, the EOQ provides an answer to the question: how much inventory should be ordered in one lot? Another important question pertaunung to efficient inventory management is : when should the order to procure inventory be placed? This aspect of inventory management is covered under the order point problem. The reorder point is stated in terms of the level of inventory at which an order should be placed for replenishing the current stock of inventory. In other words, reorder point may be defined as that level of inventory when fresh order should be placed with the suppliers for procuring additional inventory equal to the economic order quantity. Although some sophisticated re-order point formulae are available, it is based on following assumptions: Constant daily usage of inventory & fixed lead time.
40

In other words, the formulae assume condition of certainty. The re-order point = lead time in days x average daily usage of inventory. The term lead-time refers to the time normally taken in receiving the delivery of inventory after placing orders with the suppliers. It covers the time span from the point when a decision to place an order for the procurement of inventory is made to the actual receipt of the inventory by the firm. Another way of saying it is that the lead time consists of the number of days required by the suppliers to receive and process the orders as well as the number of days during which the goods will be in transit from the supplier. The lead time may also be called as the procurement time of inventory. The average usage means the quantity of inventory-consumed daily. We can, therefore, define re-order point as that inventory level, which should be equal to the consumption during the lead-time.

OTHER INVENTORY CONTROL SYSTEMS:

There are also other inventory control systems, which are as follows: 1) just-in-time (JIT) 2) out sourcing 3) computerized inventory control systems

JUST IN TIME SYSTEM

JIT is an inventory strategy implemented to improve the return on investment of a business by reducing in process inventory & its associated costs. JIT can lead to dramatic improvements in a manufacturing organisations return on

41

investments quality & efficiency. New stock is ordered when stock drops to the reorder level. This saves warehouse space & cost. So it requires space management also. But if, the raw material is ordered so early, when it is not needed than the company has also to suffer space cost. JIT system is used by Japanese. It is not implemented in India. If JIT is not used, it can also lead to wastage bacuse raw material coukd also come befor or after it is needed, which could be of no use. Also, the inventions and innovations take place everytime. So it is better to use latest technology in the product. In short JIT system is all about having the right material at the right time at right place & in exact amount.

OUTSOURCING
A few years ago there was a tendency on the parts of many companies to manufacture all components in hours. Now more and more companies are adopting the practice of out-sourcing. Out-sourcing is a system of buying parts and components from outside rather than manufacturing them internally. Many companies have developed a single source of supply, and many others help developing small and middle sized suppliers of components that they require. Tata motors has, for example, developed a number of ancilliary units around its manufacturing sites that supplies parts and components to its manufacturing plant. With the help of tata motors, ancillaries are able to maintain the high quality of manufactured components. The car manufacturing company, maruti,, which is now controlled by Suzuki of japan, has the similar system of supply.
42

COMPUTERISED INVENTORY CONTROL SYSTEM:

More and more companies, small or large size, are adopting the computerized system of controlling inventories. A computerized inventory control system enables a company to easily track large items of inventories. It is an automatic system of counting inventories, recording withdrawals and revising the balance. There is an in built system of placing order as the computer notices the reorder point has been reached. The computerized inventory system is inevitable for large retail stores, which carry thousands of items. The computer information systems of the buyer and suppliers are linked to each other. As soon as the suppliers computer receives an order from the buyers system, the supply process is activated.

FINANCIAL PERFORMANCE OF S.B.CARS PVT. LIMITED

Last 3 yrs Vehicles Sales by S.B.CARS PVT.LTD

43

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02

4006 2931 2877 4010 5211 6360

3726 3303 2975 3983 5069 6222

2002-03 2003-04

8201 10225

8101 10279

years
2004-05 2005-06 2006-07

production
12385 11946 10915

sales
12353 11887 10841
44

LAST 2 YEARS SALES COMPARISON OF SWARAJ MAZDA VEHICLES

45

Vehicles
Truck Bus Spp. Appl. ABM TOTAL

2005-06
8401 3275 117 94 11887

2006-07
6702 3706 136 297 10841

46

47

MARKET SHARE (%AGE) OF DIFFERENT COMPANIES IN 20062007

COMPANIES TELCO EICHER SWARAJ MAHINDRA FORCE MOTOR A.LEYLAND

MARKET SHARE (%AGE) 40% 23% 15% 12% 6% 4%

48

49

Market Share (% age) of Different Companies in 2006-2007

TELCO EICHER SWARAJ MAHINDRA FORCE A.LEYLAND

The above Table and Graph shows the %age of market share of different companies in LCVs segment. All these companies are competitors in 5-10 Ton GVW in LCV sector. Telco is a market leader having 40% market share. Telco has local technology. Eicher stands at 2nd place with 23% market share. Swaraj Mazda is the 3rd player with 15% market share in LCV segment. Mahindra & Mahindra holds 12% market share it stands at 4th place. Force motors have 6% & Ashok Leyland has just 4% market share in LCV segment.

50

SHARE HOLDING PATTERN OF SWARAJ MAZDA LIMITED

Sumitomo corporation Punjab tractors limited(ptl) Mutual funds/nationalized banks FIIs Public

41.03% 14.04% 7.83% 9.31% 27.79%

51

EXPENDITURE OF SWARAJ MAZDA LIMITED FOR THE LAST 6 YEARS

YEARS 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

EXPENDITURE 52 66.6 73.5 71.4 64 65.6

52

53

YEARS 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

80 70 60 50 40 30 20 10 0

EPS 6.4 13.9 20 23 16 15.3

EXPENDITURE

20 20 20 20 20 20 01- 02- 03- 04- 05- 0602 03 04 05 06 07

54

EARNING PER SHARE OF SWARAJ MAZDA LIMITED FOR LAST 6 YEARS

25 20 15 10 5 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 EPS

55

DIVIDEND RATE OF SWARAJ MAZDA LIMITED FOR THE LAST 6 YEARS

YEARS 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

DIVIDEND(%) 25% 45% 70% 75% 55% 55%

56

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

DIVIDEND RATE

20 0102

20 0203

20 0304

20 0405

20 0506

20 0607

57

SWARAJ MAZDA LIMITED - FINANCIALS

LAST '6' YEARS
PARTICULARS 2001-02 2002-03 2003-04

(Rs. Crore)
2004-05 2005-06 2006-07

ACTUALS

Sales (Nos.)
Passengers Applications Goods Applications Total

2104 4118 6222 297.8 228.0

76.6%
(112183)

2512 5589 8101 372.3 278.0

74.7%
(116405)

3715 6564 10279 477.7 368.1

77.1%
(106625)

4516 7837 12353 589.9 474.2

80.4%
(93661)

5475 6412 11887 613.1 513.8

83.8%
(83537)

5714 5127 10841 605.5 504.5

83.3%
(93165)

Net Operating Revenue Material Cost %age

Contribution Per Vehicle Rs.

Expenditure Employees Cost 14.4 18.3 19.2 20.4 22.3 26.7

58

Per Vehicle Rs. %age

(23144)
4.8%

(22590)
4.9%

(18679)
4.0%

(16514)
3.5%

(18760)
3.6%

(24629)
4.4%

Manufacturing & Others

Per Vehicle Rs. %age

10.4
(16715)
3.5%

11.4
(14072)
3.1%

12.7
(12355)
2.7%

13.6
(11009)
2.3%

15.3
(12871)
2.5%

16.9
(15589)
2.8%

Selling & Distribution

Per Vehicle Rs. %age

24.9
(40019)
8.4%

33.7
(41600)
9.1%

37.2
(36190)
7.8%

34.6
(28009)
5.9%

26.4
(22209)
4.3%

22.0
(20293)
3.6%

Royalty Total Expenses

Per Vehicle Rs.

2.3 52.0
(83574)

3.2 66.6
(82212)

4.4 73.5
(71505)

2.8 71.4
(57800)

64.0
(53840)

65.6
(60511)

%age Operating Profit

Margin

17.5%

17.9%

15.4%

12.1%

10.4%

10.8%

17.8
6.0%

27.7
7.4%

36.1
7.6%

44.3
7.5%

35.3
5.8%

35.4
5.8%

Interest Cash Profit Depreciation Profit Before Tax

Margin

5.8 12.0 1.6 10.4

3.5%

3.1 24.6 2.1 22.5

6.0%

1.6 34.5 2.1 32.4

6.8%

4.0 40.3 2.5 37.8

6.4%

7.3 28.0 2.7 25.3

4.1%

9.3 26.1 2.9 23.2

3.8%

Corporate Tax Profit After Tax Paid-up Equity Capital EPS (Rs)

3.7 6.7 10.5 6.4

7.9 14.6 10.5 13.9

11.4 21.0 10.5 20.0

13.6 24.2 10.5 23.0

8.5 16.8 10.5 16.0

7.1 16.1 10.5 15.3

59

Book Value Dividend (%age)

17.9 25%

26.8 45%

38.9 70%

53.4 75%

63.2 55%

72.1 55%

FINANCIAL PARTICULARS OF SWARAJ MAZDA LIMITED FOR THE YEAR 2007-08

PARTICULARS

2007-08
PLAN Q1

Sales (Nos.)
Passengers Applications Goods Applications Total

7400 5800 13200 780.0 651.5

83.5%
(97348)

1429 1253 2682 153.0 124.7

81.5%
(105518 )

Net Operating Revenue Material Cost %age

Contribution Per Vehicle Rs.

Expenditure Employees Cost

Per Vehicle Rs.

32.0
(24242)

6.7
(24981)

60

%age

4.1%

4.4%

Manufacturing & Others

Per Vehicle Rs. %age

20.0
(15152)
2.6%

4.1
(15287)
2.7%

Selling & Distribution

Per Vehicle Rs. %age

28.0
(21212)
3.6%

4.9
(18270)
3.2%

Royalty Total Expenses

Per Vehicle Rs.

80.0
(60606)

15.7
(58538)

%age Operating Profit

Margin

10.3%

10.3%

48.5
6.2%

12.6
8.2%

Interest Cash Profit Depreciation Profit Before Tax

Margin

12.0 36.5 3.5 33.0

4.2%

3.0 9.6 0.8 8.8

5.8%

Corporate Tax Profit After Tax Paid-up Equity Capital EPS (Rs) Book Value

10.0 23.0 10.5 21.9 -

2.8 6.0 10.5 5.7 61

Dividend (%age)

SWARAJ MAZDA LIMITED

CKD STOCK

AS AT 31st MARCH
PARTICULARS OPENING STOCK FACTORY PORT SHIPMENT 647 1000 8700 10347 CONS-PRODUCTION CLOSING STOCK KITS STOCK LOCATION 8201 2146 1146 1000 10480 12626 10225 2401 1361 1040 19480 21881 12385 9496 3496 6000 12060 21556 11946 9610 7350 2260 7540 17150 10915 6235 2003 2004 2005 2006
2007

30th June
2007

4895 1340 1620 7855 2653 5202

62

FACTORY PORT KIT STOCK TOTAL

1146 1000 2146

1361 1040 2401

3496 6000 9496

7350 2260 9610

4895 1340 6235

4782 420 5202

SWARAJ MAZDA LIMITED

VEHICLE STOCK 30th June
2007 2007

AS AT 31st MARCH
PARTICULARS 2003 2004 2005 2006

OPENING STOCK PRODUCTION

506 8201 8707

605 10225 10830

548 12385 12933

578 11946 12524

636 10915 11551

708 2653 3361

SALES INCLUDES : GOODS APPLICATIONS 5589 6564 7837 6412 5127 1253

63

PASSANGER APPLICATIONS

2512 8101

3715 10279 3

4516 12353 2

5475 11887 1

5714 10841 2

1429 2682 2

INS. CLAIM RECD./CAPITAL. VEH. STOCK LOCATION -BONDED / SAC -BODY BUILDER -MKTG. -TOTAL AVERAGE PER MONTH : -PRODUCTION -SALE

77 105 423 605

52 107 389 548

118 89 371 578

30 57 549 636

88 30 590 708

123 113 441 677

683 675

852 857

1032 1029

996 991

910 903

884 894

64

CASH FLOW STATEMENT OF SWARAJ MAZDA LIMITED FOR THE LAST 5 YEARS

particulars
cash flow from operating activities (A) net cash from operating activities Cash flow from Investing activities

2001- 2002- 200302 03 04 857.96 3947.4 760 5

200405 523

200506 6599.0 6

327.91 314.05 195.42 342.69 587.76

Net cash from

65

investing activities
Cash flow from Financing Activities

519.18 4342.0 595.50 1077.1 7516.3 9 1 2

Net cash used in financing activities

KEY PERFORMANCE INDICATORS FOR THE LAST 11 YEARS

199596 Sales (Nos.) Net Revenue Operating Profit 4231 1654 97 199697 3726 1622 125 7.7% 65 60 3.7% 11 49 3.0% --199798 3303 1510 125 8.3% 45 80 5.3% 11 69 4.6% 6 8 199899 2975 1372 91 6.6% 47 44 3.2% 13 31 2.3% -5 199900 3983 1855 90 4.9% 39 51 2.7% 14 37 2.0% -9 200001 5069 2360 137 5.8% 57 80 3.4% 15 65 2.8% -25 200102 6222 2978 178 6.0% 58 120 4.0% 16 104 3.5% -36 200203 8101 3723 277 7.4% 31 246 6.6% 21 225 6.0% -79 200304 200405 200506 10279 12353 11887 4777 361 5.8% 16 280 4.6% 21 253 4.1% -114 5899 443 7.5% 40 403 6.8% 25 378 6.4% -136 6126 353 5.8% 73 280 4.6% 27 253 4.1% -85

Margin 5.9% Interest Cash Profit 40 57 Margin 3.4% Depreciation Profit Before Tax (PBT) 11 46

Margin 2.8% Extra Ordinary Item Income Tax 29 --

66

Profit After Tax (PAT) Dividend - Rate - Outflow - Payout Ratio Equity Share Capital Net Worth Earnings Per Share (Rs.) Book Value Per Share (Rs.) Return on Avg. Net Worth

75

49

67

26

28

40

68

146

168

242

168

---105 (5) 7.2 ---

---105 44 4.7 4.2 --

---105 111 6.4 10.6 --

---105 136 2.4 13.0

10% 13 46% 105 152 2.7 14.5

15% 17 43% 105 174 3.8 16.6

25% 26 38% 105 188 6.5 17.9

45% 53 36% 105 281 13.9 26.8

70% 83 40% 105 408 20.0 38.9

75% 90 37% 105 561 23.1 53.5

55% 66 39% 105 663 16.0 63.2

20.8% 19.8% 24.4% 37.3% 62.2% 60.9% 50.0% 27.5%

67

68

69

FEATURES:(a) Quality Control: There exits a detailed & elaborate system of Quality Assurance on every product, covering the manufacturing activity in plant & at the vendors end. The Quality Control development manned by highly qualified & trained manpower is fully involved in development of local components in addition to the routine activity of incoming material inspection, in house inspection & pre delivery inspection.

(b) Localisation:At the time of inception, production stated with 30% local content keeping in view the govt. of India guidelines, Swaraj has now achieved a local content 75% & such critical parts as starter motor, crankshafts, connecting rods, transmission gears are all in the local list now. .

( .

70

71