Cash Management in Amg Escorts LTD

A PROJECT REPORT ON
CASH MANAGEMENT IN AMG ESCORTS LTD

Submitted to UP Technical University, Lucknow In the partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION

Session 2008-2010
Project Report On Cash Management In AMG Escorts Ltd
PREFACE
Indias long-term economic prospects, even today, depend to a large extend on the agricultural sector, which contributes a quarter to the gross domestic project and provides livelihood to 2/3 of the population. A gradual and perceptible shift from subsistence farming to enterprise farming is harbinger of modernization of the agriculture economy and this will increase the contribution of the sector to the overall GDP in the time to come. The central government as well as several state governments is giving due priority to agriculture and rural developments. A tractor is a product, which has maximum utility in the agricultural sector. The tractor industry is segmented on the basis of the power of the tractor engine measured in terms of horsepower (HP). The maximum consumption is for 30-40 HP tractors. With the increase in the availability of low cost finance for longer tenures, the sale of the tractors is expected to go up. The new trend observed in this sector is the shift in consumption from majority in the northern states to other parts of the country, too. The soil in the northern states is alluvial in nature and thus requires a low powered tractor for tilling it. However, states located in the western and southern parts of the country where the soil being laterite or black etc. is harder and needs high-powered tractors.
ACKNOWLEDGEMENT
It is my privilege to acknowledge profound gratitude & indebtedness towards my respected & learned teachers for their inspiration, constructive criticism & valuable suggestions. Their precious guidance & unrelenting support kept me on track through my training.
This project report prepared by me is a result of several helping hands of the Marketing Department of Escorts Ltd. The knowledge of our management studies is absolutely incomplete without its proper implementation and application in diversified corporate world of today.
I am highly obliged to Mr.AVINASH GANGWAR (Area Manager) as their knowledge and experience has been a guiding light during my project. I offer a sincere thanks to Dr SANDEEP KUMAR GARG (Project Guide) for their full-fledged cooperation, care and immense amount of help without which it would have been really difficulty to complete this project.
STUDENT DECLARATION
I, student of Masters in Business Administration SUNDER DEEP COLLEGE OF MANAGEMENT & TECHNOLOGY GHAZIABAD, hereby declare that the
dissertation/thesis entitle Study of Cash Management of the Escort Agri Machinery Group (AMG) submitted in fulfillment of the training; is my original work and is not submitted for the award for any other degree, fellowship or similar title or prize.
EXECUTIVE SUMMARY
If the development capital is what establishes a business, cash flow is what keeps it going. One of the most common downfalls of business is unexpectedly high running cost. What is important is not just the size of operating costs, but the cash flow-that is when money has to be paid out in relation to the stream of income arriving in. Thus cash flow management is of prime importance. Escorts Ltd. is the holding company of the Escorts Group. Post restructuring, agrimachinery or tractors have become the focus area of operations. Other businesses i.e. two- wheelers, IT, Telecom, construction equipment, are controlled through subsidiaries and joint venture. Post hive off of its pistons business to a joint venture with a foreign collaborator, Escorts is focusing on its core competence of tractors. Escorts have strong hands in house engineering skills, a wide distribution/service network and brand franchise. The project is small attempt to study the cash management in Escorts Agri-Machinery group. Added to this fact, that mechanization level in India is currently very low as compared to the world standards. To analyze the performance, published balance sheets of Escorts Limited, CASH FLOW STATEMENTS are been used. This project report is based on financial data up to 200708 only. The financial year for escorts is from 01/10/20XX to 31/09/20XX. Escorts is maintaining the following records which is indicative of its professional approach: Maintaining proper set of accounting records.
Project Report On Cash Management In AMG Escorts Ltd Maintaining an accurate cash book with bank statement Daily cash inflow & cash outflow. Marking regular forecast of cash requirement based upon planed sales volume. Ageing of debts/credits with comparisons to previous month
TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................5 OBJECTIVES OF THE TRAINING...............................................................................................9 ABOUT THE TRACTOR INDUSTRY........................................................................................10 INTRODUCTION.....................................................................................................................11 FUTURE OF TRACTOR INDUSTRY ....................................................................................14 MARKET SHARE OF TRACTOR INDUSTRY.....................................................................15 TRACTOR INDUSTRY PERFORMANCE.............................................................................16 COMPANYS PROFILE .............................................................17 ESCORTS SYMBOL................................................................................................................18 VISION......................................................................................................................................19 MISSION...................................................................................................................................20 QUALITY POLICY..................................................................................................................21 BACKGROUND AND BUSINESS..........................................................................................22 BOARD OF DIRECTORS........................................................................................................24 OUTLINE ORANISATION ESCORTS GROUP.................................................................25 SUBSIDERIES..........................................................................................................................27 BANKERS.................................................................................................................................28 AGRI MACHINERY GROUP......................................................................................................29 INTRODUCTION.....................................................................................................................30 AGRI MACHINERY GROUP CONTRIBUTION...................................................................32 MODERNIZATION OF AGRI MACHINERY GROUP.........................................................33 PRODUCTS...............................................................................................................................34 COMPANYS FUTURE...........................................................................................................35 CASH MANAGEMENT...............................................................................................................36 INTRODUCTION.....................................................................................................................37 CASH FLOW MANAGEMENT...............................................................................................38 CASH MANAGEMENT SYSTEM..........................................................................................39 IMPORTANCE OF CASH MANAGEMENT..........................................................................40 CASH MANAGEMENT STRATEGIES..................................................................................41 CASH OUTFLOW....................................................................................................................42 CASH INFLOW........................................................................................................................43 CASH FLOW STATEMENT........................................................................................................44 IMPORTANCE..........................................................................................................................47 DAILY CASH FLOW REPORT...............................................................................................48 CASH BUDGET............................................................................................................................58 BANK RECONCILIATION.........................................................................................................61 CASH RATIOS.............................................................................................................................65 RECEIVABLE MANAGEMENT.................................................................................................74 PAYABLE MANAGEMENT.......................................................................................................79 RESEARCH METHODOLOGY...................................................................................................81
Project Report On Cash Management In AMG Escorts Ltd SWOT ANALYSIS.......................................................................................................................83 STRENGTH...............................................................................................................................84 WEAKNESSES ........................................................................................................................84 THREATS..................................................................................................................................84 PRODUCT.............................................................................................................................84 PRICING................................................................................................................................86 COSTING..............................................................................................................................86 OPPORTUNITY........................................................................................................................87 FINDINGS.....................................................................................................................................88 CONCLUSION..............................................................................................................................90 RECOMMENDATIONS...............................................................................................................92 LIMITATIONS..............................................................................................................................96 BIBLIOGRAPHY..........................................................................................................................98 ANNEXURES...............................................................................................................................99
OBJECTIVES OF THE TRAINING

It is well known fact that we remember 20% of what we hear, we remember 40% of what we see but we remember 75% of what we do. Undergoing M.B.A is the first step to prepare myself as a manager and visualize the ever-dynamic business world and my main objective while taking up the training was to familiarize myself with the working of the finance department of Escort Agri Machinery Group (AMG) To present study in Escort Agri machinery group mainly focus on the following: Resources of cash inflow of the company. Cash flow factors which have effect of cash inflow. Cash flow statement in the company. Cash flow management in the company
ABOUT THE TRACTOR INDUSTRY
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INTRODUCTION
Indias long-term economic prospects, even today, depend to a large extend on the agricultural sector, which contributes a quarter to the gross domestic project and provides livelihood to 2/3 of the population. A gradual and perceptible shift from subsistence farming to enterprise farming is harbinger of modernization of the agriculture economy and this will increase the contribution of the sector to the overall GDP in the time to come. The central government as well as several state governments is giving due priority to agriculture and rural developments. A tractor is a product, which has maximum utility in the agricultural sector. The tractor industry is segmented on the basis of the power of the tractor engine measured in terms of horsepower (HP). The maximum consumption is for 30-40 HP tractors. With the increase in the availability of low cost finance for longer tenures, the sale of the tractors is expected to go up. The new trend observed in this sector is the shift in consumption from majority in the northern states to other parts of the country, too. The soil in the northern states is alluvial in nature and thus requires a low powered tractor for tilling it. However, states located in the western and southern parts of the country where the soil being laterite or black etc. is harder and needs high-powered tractors. Tractor industry in India has passed through various hazes before reaching where it is today. During 1945 to 1960 demand was met entirely through import. There were 37,000 tractors by 1960. Production began in 1861 with five manufactures
Project Report On Cash Management In AMG Escorts Ltd producing a total of 880 units per year. By 1965 it increased to over 5,000 units per year and by 1970 annual production rose to more than 20,000 units. Six new manufacturing were established during 1971-1980. In 1971 Escorts also started local manufacturing of Ford Tractors in collaboration with Ford, UK. During 1990, annual production rose to 1, 40,000 units making India an exporter to countries, mainly to Africa. After De-licensing of tractor industry, production exceeded 2, 55,000 units in 1997. The growth of the industry over the last three decades resulted in the entry of several new entrants including all the major multinational companies. The industry now consists of 14 manufactures with an aggregate installed capacity of approximately 4.50 lack tractors. In the tractor industry, following are the key manufacturers: Mahindra& Mahindra Limited (M&M), Gujarat Tractors Limited, Tractors and Farm Equipment Limited, Hindustan Machine Tools Limited, Bajaj Tempo Limited Since 2000, however the industry declined to a level of 1.72 lack tractors in the year 2002-2003, a decline of 33.3% over three years. Despite the steep decline in the industry, Escorts consciously decided to aggressively reduce channel inventory further by approximately 3,500 units
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Project Report On Cash Management In AMG Escorts Ltd reduces in the previous year. This has not only impacted their revenue and profit adversely but has also enabled the company to balance the cash flow of company effectively. Tractors form an integral part of farm mechanization and have a crucial role to play in increasing agriculture productivity. In India, 90% of the tractors are financed by banks- credit at concessional rates. Availability of credit therefore is the most crucial factor, impacting tractor demand. Increased use of irrigation facilities, shift towards multi-cropping, consolidation of lands holdings, promotion of cooperatives and higher investment in agriculture also contributes to higher tractor demand.
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FUTURE OF TRACTOR INDUSTRY

The tractor industry in India has been on a growth trajectory since the second half of 2003-04, after going through a minimum variation for consecutive years. The key factors driving this growth are increasing farm incomes, aggressive financing resulting in easy availability of low-cost credit, sharp inventory correction and strong export growth. The demand in tractor industry is expected to grow mainly due to the agricultural sector, with the expected increase in agricultural production. Also, the shift in trend for demand towards higher HP tractors is expected to continue. This will be further strengthened by the launch of several new models. In the next 2-3 year, demand for tractors is expected to increase significantly in the eastern states, where traditionally, tractor usage has been low. Exports are expected to increase significantly as several Indian players are targeting the hobby farming segment in the U.S, which is considerably large. Also, tractors of most Indian manufacturers comply with the emission standards accepted in the U.S. Most exports are likely to be through overseas partnerships or joint ventures. McKinley has also forecasted tractor population requirements of 75 lacs over the next 18 years vs. current population of 26 lacs. The extension of the 150 per cent deduction on R&D expenditure up to March 31, 2009, in the Budget 2008-09 will also benefit the industry in terms of new product development besides increase in the area under irrigation under the Bahrat Nirman Project and the micro irrigation scheme.
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MARKET SHARE OF TRACTOR INDUSTRY

FOR THE YEAR 2007-08:
1.30% 6.63% 7.26% 13.65%
ESCORTS MAHINDRA & MAHINDRA PTL TAFE HMT

28.17%
8.14% 1.37% 8.82%
SONALIKA FML L&T FORD NEW HOLLAND
1.36%
15.20%
8.00%
OTHERS EICHER
TRACTOR INDUSTRY PERFORMANCE

COMPANY ESCORT FARMTRAC TOTAL (ESCORT + FARMTRAC) MAHINDRA & MAHINDRA PTL TAFE EICHER HMT SONALIKA BTL(FML) L&T FORD NEW HOLLAND 7900 32017 4464 19951 13214 8450 302435 2005-06 11138 18287 29425 85028 31396 2006-07 23200 32800 56000 102500 30010 52400 27700 6500 36200 5050 19720 19400 7195 362675 2007-08 20950 26900 47850 98700 28040 53400 25450 4770 30920 4820 28530 23250 4520 350300
TOTAL INDUSTRY
COMPANYS PROFILE
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ESCORTS SYMBOL
The Escorts symbol means more than a seen by eye. It has been prepared with certain objective in mind and is symbol in more than one way. The philosophy behind Escorts and the e in the Escorts is enterprise. The hexagon is a symbol of productivity. Precision when interposed as a nut. It symbolizes a craft man ship and mending productivity. The sprains super imposed on the hexagon represent the workers and the people of Escorts. This forms the letter E the first of Escorts a company even of more changing unveiling the future
VISION
With a vision of becoming a truly global player, Escorts has invested Rs. 60 Crores towards strengthening new product development programs and enhancement of R&D capabilities. Additionally, Rs4bn have been invested in modernization of Escorts manufacturing facilities so as to bring at par with international standards.
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MISSION
For an Enterprise business mission embodies of its endeavor, which acts as a guiding light for continuous development & growth. Mission of ESCORTS is: Engineering Changes through core competency for greater synergy reinforcing bonds with customers & establishing powerful symbiotic relationship with international allies, preparing global market. The company wants to make a lasting difference to its shareholders, its customers, its business associates, its employee and the country as a whole. The company also gives better quality and better technology to customer and treats every customer as special to build respect for, and loyalty to, Escorts.
QUALITY POLICY
We shall strive to continuously improve to meet the ever rising expectation of our customers at the lower cost. Each one of us must fulfill the need of our customer, both internal and external with the highest degree of commitment thereby creating a quality organization geared to ensure total customer satisfaction and the sustained health and prosperity of our business. Customer Orientation: To fulfill the requirement of our internal and external customer. Process Orientation: To optimize and harmonize interrelated process rather than individual function. Preventive Behavior: To prevent the mistake to happen.
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BACKGROUND AND BUSINESS

The Escorts Group, with Escorts Limited as its flagship company, is among Indias leading corporations operating in the diverse field of agri machinery, construction & material handling equipment, automotive & railway ancillaries information technology and financial services. The group has 15 modern manufacturing facilities & an extensive marketing network spread across the country. The genesis of Escorts goes back to 1944 when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launched a small agency house, Escorts Agents Ltd., in Lahore. The companys principal activities were trading and representing leading overseas manufacturers for the sale of their products in India. One of its dealerships was for the Massey Ferguson brand of tractors. In December 1959, Escorts agents ltd. was converted into a public limited company and was renamed as Escorts Limited (EL). In January 1960, EL decided to set up manufacturing facilities for making tractors in India under the Escorts brand name in the 25-40 Horsepower categories. EL promoted Escorts Tractors Limited in 1969 as joint venture with Ford Motor Company of USA for the manufacturing of Ford series of tractors. The tractors manufactured were in the 45-50 HP range and ETL became the market leader in this segment with a share of above 50%. Consequent to FMCs disposal of tractors operations to Ford New Holland, USA, Ford new holland acquired the shares of FMC in ETL. Following an agreement in 1995 to end the joint venture association, EL acquired the entire
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Project Report On Cash Management In AMG Escorts Ltd stake of ford new holland in August 1995, making Escorts tractors ltd. a subsidiary of Escorts Ltd. Over the years, Escorts has ensured ahead and evolved into one of Indias largest conglomerates. Till 1993-94, all these activities were being carried out in various divisions of EL. EL undertook a major restructuring exercise between 94-98 spinning off the divisions into separate companies. The restructuring exercise comprised consolidation of the agri-machinery business by merger of ETL with EL and having off various divisions into separate companies. Biwheeler division was spun off to Escorts Yamaha Motors Ltd., construction equipment division to Escorts construction equipment Ltd., telecommunication equipment division to Escorts communication Ltd., EL booked gains of Rs. 2091 million over the four year period 1994-95 to 1997-98 though the sale of these the sale of these divisions. The main products of Escorts group currently comprise of agri-machinery, information technology, health care, financial services, railway components, auto components, construction and material handling equipment.
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BOARD OF DIRECTORS
Managing Director &Chairman Joint Managing Directors Directors Mr. Rajan Nanda Mr. Nikhil Nanda Dr. M.G.K. Menon Dr. S.A. Dave Dr. P.S. Pritam Mr. S.C. Bhargava Sr.Vice PresidentLaw & Company Secretary Exec. Vice President & Group Chief Financial Officer Mr. R.K.Budhiraja Mr. G.B. Mathur
OUTLINE ORANISATION ESCORTS GROUP

Chairman & Managing Director Sh. Rajan Nanda
Secretariat
Flagship
Operating Division
Escorts Limited Faridabad
Agri Machinery
Engineering
International Business
Corporate Center Faridabad
Escorts Research Center, Faridabad
Institute of Farm Mechanization, Bangalore
Personnel Medical
Finance
Project
Escorts Heart Research Institute, New Delhi
Escorts Center, Faridabad
Administration and Security
Law
Export and Communication
Associates Companies Escorts Employees Welfare Trust Faridabad
Subsidiary Companies
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OUTLINE ORANISATION ESCORTS LIMITED (Cont)

Chairman & Managing Director Sh. Rajan Nanda Secretriat
Corporate Office Corporate Center, Faridabad
Registered Office New Delhi
Personnel Project Administration and Security
Finance Law Export and Communication
Agri Machinery Marketing Division
Automotive Ancillaries and Railway Equipment Division
Farmtrac Division
Escorts Tractor Division
Corporate Office Functional Units (Line Duties)
Functional Units (Production & Operation)
Corporate Office (Line Duties) Production & Operation)
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SUBSIDERIES
Escorts Asset Management Ltd. Escorts Automotive Ltd. Escorts Class Ltd. Escorts Construction Equipment Ltd. Escorts Heart Institute and Research Centre Ltd Escorts Hospital and Research Centre Ltd. Escorts Securities Ltd. Escorts Telecommunication Ltd. Esconet Services ltd. Cellnext Solutions Pvt. Ltd. I Serv India Solutions Pvt. Ltd. Escosoft Technologies Ltd. Escosoft Technologies (USA) Ltd. Escosoft Technologies (UK) Pvt. Ltd. Escosoft Singapore Pvt. Ltd. E-Soft (Mauritius) Holdings Ltd. Escotel Mobile Communication Ltd. Escotel Telecommunication Ltd. Escorts Agrimachiner
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BANKERS
IDBI BANK. ABN AMRO BANK N.V. BANK OF BARODA. CITIBANK, N.A. DEUTSCHE BANK AG. HONGKONG & SHANGHAI BANKING CORPORATION LIMITED. HDFC BANK LIMITED. PUNJAB NATIONAL BANK. STATE BANK OF INDIA. STATE BANK OF TRAVANCORE.
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AGRI MACHINERY GROUP
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INTRODUCTION
Having pioneered farm mechanization in the country, Escorts has played a pivotal role in the agricultural growth of India for over five decades. One of the leading tractor manufacturers of the country, Escorts produces tractors in the 27-75 HP range and has already sold over 6 lakh tractors. Escorts AGRI MACHINERY GROUP (AMG) was set up in 1960 and they rolled out their batch of tractors in 1965 under the brand name of Escorts. Today its tractors are marketed under three brand names, viz. Escort, Powertrac and Farmtrac. Escorts Brand of tractors is symbolic of reliability and enjoys the confidence of the farming community for the last 40 years. Powertrac Brand of tractors is the most fuel-efficient tractor in their respective categories that offer excellent value for money and have helped the farmer improve their quality of life. Farmtrac Brand is the most powerful premium range of tractors that give maximum productivity to the farmers. Spanning these three brands, the company has a full range of tractors to cater to the domestic as well as overseas markets. The company is developing state-of-theart highly fuel efficient engines with the assistance of AVL of Australia and have also entered into a Joint venture with CARRARO SPA of Italy for the manufacturing of transmission and axles.
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Project Report On Cash Management In AMG Escorts Ltd To sustain the present momentum and to realize the future goals, Escorts has invested Rs. 60 crore towards strengthening new product development programs and enhancement of R&D capabilities. Additionally, Rs.400 crore has been invested towards modernization of its manufacturing facilities bringing them to
international standards. The company has one of the most comprehensive distribution networks comprising of over 500 dealership / outlets and 30 area offices spread across the country. It has a manufacturing capacity of 75000 tractors per annum. Escorts Agri Machinery Group is looking at forward and backward integration through genetic engineering. In line to their vision for becoming a major player in sub 100 HP segment by 2011 in the global markets, they have increased their reach from a major regional player to major global markets, which stretch from North America to Australia covering all the continents. Despite the strict competition by other major tractor manufactures they have been able to gain constant volumes in the global market. Their target for this year is to export 25% volumes of their total production volumes. To consolidate its presence in the overseas markets, the company has ventures in the USA and Europe (Poland). It has recently acquired a majority stake in Long Agribusiness LLC, a tractor distributing company in USA and Poland Escort Spolka Z.O.O., Poland. Besides the USA and Poland, Escorts has strong presence in Turkey, Australia, Bangladesh, Sri Lanka, Nepal, Kenya, Tanzania and South Africa etc. though its dealers network in these countries. Escorts have very ambitious plans to expand the network in other potential countries in the coming year. By 31
Project Report On Cash Management In AMG Escorts Ltd the end of next year, the company hopes to be largest exporter of tractors in the Indian tractor industry.
AGRI MACHINERY GROUP CONTRIBUTION

AMG contribution is Almost Half of the Total Revenues of Escort Group.
23% AMG Auto Ancilliary Parts 12% 9% 56% Railway Equipments Construction
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MODERNIZATION OF AGRI MACHINERY GROUP

Escorts Agri Machinery Group (AMG) has invested over US $7.5 million in state of the Art & Research and Development Center. Virtual prototypes of components and aggregate assemblies are made and assembled on computer workstations using 3D technology. Their performance is checked on computers using simulation techniques thus saving a lot of time for the end-user as well as lowering development costs. The R&D center uses advanced 3D modeling, analysis and simulation software for engines, transmission and vehicles. Physical prototypes are then extensively tested for performance, durability and reliability. Facilities include a high technology engine laboratory featuring fully computerized testbeds with on line control, data collection, and analysis.
PRODUCTS
Escorts E-325 Josh E-335 E-335P E-430 E-430XL E-435 E-440(6+2 & 8+2)PT E-440(6+2 & 8+2)XL E-450 E-450(8+2)PT E-450(8+2)XL Farmtrac F T 30 F T 35 F T 45 F T 45Live PT F T 50DB F T 50 F T 60 F T 60DB F T 60Deluxe F T 60Live PT F T 70
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COMPANYS FUTURE
The growing domestic demand for food gains and agri products promises a very good future for companys business. With exemption of excise duty on tractors and growing importance of agriculture sector in the growth of Indian economy India can become a major exporter of agri products and increased demand both domestic and export will call for increased yields. Tractors population today is concentrated in 10% of villages and even today 70% of the villages do not have tractor .Crisil infa has estimated an annual demand 3.0 lacks to 3.20 lakhs of tractors by 2007-08 vs. 2.4 lakhs in 2006-07. All these show great potential for growth in the industry and thus in the company
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CASH MANAGEMENT
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INTRODUCTION
Cash is the important current asset for the operation of the business. Cash is a medium of exchange to purchase the goods and services and to discharge the liabilities. Cash is the basic input needed to keep the business running on a continuous basis; it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firms profitability. Thus a major function of the financial manager is to maintain a sound cash position. Cash is the money which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheques held by the firm, and balances in its bank accounts. Sometimes near cash terms, such as marketable securities or bank time deposits, are also included in cash. The basic characteristic of near cash asset is that they can readily be converted into cash. Generally, when a firm has excess cash, it invests it in marketable securities. This kind of investment contributes some profit to the firm.
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CASH FLOW MANAGEMENT

Cash flow management is a process of monitoring, analyzing, and adjusting ones business cash flows. The most important aspect of cash flow management is
avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows. Therefore, one needs to perform a cash flow analysis on a
regular basis, and use cash flow forecasting so that one can take the steps necessary to head off cash flow problems. Cash management involves the efficient collection, disbursement and temporary investment of cash. The treasurer department of a company is usually responsible for the firms cash management system. A cash budget, instrumental in the process, tell us how much cash we likely to have it, and for how long. In cash flow management I studied many statements like as follows: Cash flow Statement Cash Budget
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CASH MANAGEMENT SYSTEM

With timely information reporting a firm can generate significant income by properly managing collections, disbursement cash balance and cash equivalents investment, Collection Disbursement
Cash
Cash Equivalents
Control through Information Report
IMPORTANCE OF CASH MANAGEMENT

Cash management assumes more important than other current assets because cash is the most significant and the least productive asset that a firm holds. It is significant because it is used to pay the firms obligations. However cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for sale. Therefore, the aim of cash management is to maintain adequate control over cash position to keep the firm sufficiently liquid and to excess cash in some profitable way. Cash management is also important because it is difficult to predict cash flow accurately, particularly the inflows and there is no perfect coincidence between the inflows or outflows of cash. During some periods, cash outflows will exceed cash inflows, because payments for taxes, dividends, or seasonal inventory build up. At other times, cash inflows will be more than cash payments because there will be large cash sales and debtors may be realized in large sums promptly. Cash management is significant because cash constitutes the smallest portion of the total current assets, yet managements considerable time is devoted in managing it.
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CASH MANAGEMENT STRATEGIES

The firm should develop appropriate strategies for cash management. The firm should evolve strategies regarding the following four facets of cash management: Cash planning Cash inflow and outflow should be planned to project cash surplus or deficit for each period for each period of the planning period. Cash budget should be prepared for this purpose. Managing the cash flows The flow of cash should be properly managed. The cash inflows should be accelerated while, as far as possible, the cash outflows should be decelerated. Optimum cash level The firms should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances. Investing surplus cash The surplus cash balances should be properly invested to earn profits. The firm should decide about the division of such cash balance between short-term investment opportunities such as bank deposits, marketable securities, or inter- corporate lending.
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CASH OUTFLOW
For cash management, the control of cash outflows, which is directly related to organizational arrangements for budget execution, can pose more difficulties than the control of cash inflows. However, issues related to cash management should not be confused with issues related to the distribution of responsibilities for accounting control and administration of the payment system. The major purpose of controlling cash outflows is to ensure that there will be enough cash until the date payments are due and to minimize the costs of transactions, while keeping cash outflows compatible with cash inflows and fiscal constraints. The first condition for ensuring that cash outflows fit fiscal constraints is good budget preparation and budget implementation covering both cash and obligations. However, during budget implementation, cash outflows must also be regulated through cash plans to smooth cash outflows.
CASH INFLOW
It is necessary to minimize the interval between the time when cash is received and the time it is available for carrying out expenditure programs. Collected revenues need to be processed promptly and made available for use. When tax collection is done by the tax administration offices (or by Treasury offices) the administrative organization of these offices may have to be reviewed and their equipment modernized. Commercial banks by virtue of the banking sector infrastructure are often able to collect revenues more efficiently than tax offices, which should therefore focus instead on tracking taxpayers. When revenues are collected by commercial banks, arrangements must be defined to foster competition and ensure prompt transfer of collected revenues to government accounts. Systems of bank remuneration through float, which consists of authorizing the banks to keep the revenues collected for a few days, present inconveniences. Stringent rules to ensure prompt transfers must be established. Moreover, bank remuneration through fees is more transparent and promotes competitive bidding. An appropriate system of penalties for taxpayers is also an important element in avoiding delays in revenue collection.
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CASH FLOW STATEMENT
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MEANING: IT IS a summary of firms cash receipts and cash payments during period of time. The purpose of cash flow statement is to report a firms cash inflow and outflows, during a period of time, segregated in to three categories: operating, investing and financing activities. The statement of cash flow explains changes in cash and cash equivalent such as treasure bill and the activities that increase and decrease cash. The cash flow statement may be presented using either a direct method (Which is encouraged by financial accounting standards board) or an Indirect Method (which is likely to be the method followed by good majority of firms). The only difference between the direct and indirect method of presentation concern the reporting of operating activities; the investing and financing activities section would be identical under either method. Under the direct method, operating cash flow reported directly by major classes of operating cash receipts (from customers) and payment (to suppliers and employees). A separate indirect reconciliation of Net income to net cash flow from operating activities must be provided. The reconciliation starts with reported net income and adjusts this figure for non-cash income statement items and related changes in balance sheet items to determine cash provides by operating activities.
Project Report On Cash Management In AMG Escorts Ltd Cash flow statement has three activities like as follow: Operating Activities:- Shows impact of transactions not defined as investigation or financing activities. These cash flows are generally the cash effects or transaction that enters into the determination of net income. Thus, we see items that not all statement users might think of as operating flows-items such as dividends and interest received, as well as interest paid. Investing Activities:- Shows impact of buying and selling fixed assets or equity securities of other entities. Financing Activities:- Shows impact of all cash transactions with and the borrowing and repaying transactions with lenders. shareholders
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IMPORTANCE
The effects of cash and non-cash investing and financing transaction. A manager can assess the reason for differences between net income and net cash flow from operating activities. It is also helpful for a company to generate future net cash inflows from operations to pay debts, interest and dividends. It gives indication to a companys need for external financing. A cash flow statement is straightforward and easy to understand. It gives a strong indication of how viable the company will be over time. The extent of success or failure of cash planning can be known by comparing the actual cash statement with the budgeted cash flow statement and remedial measures can be taken. It discloses the volume and the speed at which cash flows in different segments of the business
DAILY CASH FLOW REPORT

The Daily Cash Flow report is prepared with an objective to keep incessant check on the cash flows of the firm, which includes both inflow and outflow cash. The cash flows are planned to project cash surplus or deficit for each period i.e daily, monthly, quarterly, semi-annual & annual basis. The framework of report highlights all the effects, which lead to cash surplus or deficit. It is a measure, which calculates the details of daily transaction in terms of sale and purchase, which further includes the means through which they take place. At Escorts-AMG, the daily cash flow report is designed in a format suiting their requirements .The sales of tractors is their primary goal which includes exports as well. The bills are presented for desired collection from various channels i.e dealers, stockiest, distributors through which the tractors are supplied in the market. Besides tractors they also deal in engines, backend, implements which are included in the category of other receipts. The receipts are other than collections as they arent generated through sales. Next come the payments, which are made in discharge of financial obligation towards various suppliers, bank payments, excise duty, salary & wages etc. Through the various collections, receipts and payment, we are now in a position to derive the surplus or deficit which is the result of above transactions. The surplus balance shows that the collections & receipts are more than payments and vice-aversa in case of deficit. Though surplus is an indicator of sound financial position 48
Project Report On Cash Management In AMG Escorts Ltd and deficits the other way round, but excess surplus is also not considered healthy which has reasons to it like inventory pile up and so on. The last component of the cash flow report is the outstanding debtors, which is calculated by subtracting billing & collection from opening o/s of debtors in domestic, export and other categories. This way the day to day cash transactions are maintained through the cash flow report which leads to proper functioning of an organizations resources both men & material.
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COMPONENTS:
The annual cash flow statement at Escort- AMG is prepared for the fiscal period commencing from 01/10/20XX to 31/09/20XX. They are also maintaining the daily cash flow report with a purpose of keeping constant check on the daily flow of cash i.e. cash inflow and cash outflow, for different products categories, their parts and other miscellaneous. The main products at ESCORTS AMG are TRACTORS, which are available in three major categories: Farmtrac Powertrac Escorts These products are sold into the market through intermediaries like dealers, stockists and distributors, these parties charge a commission for the services provided by them. Among these parties dealers are given priority over the stockists & distributors for the delivering the product to the end customer and the commission also varies in the same manner. The following are the transactions that take place in the daily cash flow report under the following main heads: Particulars,
Project Report On Cash Management In AMG Escorts Ltd Year to date i.e. the very first day of the financial year till the previous months end (in which the daily report is being made), The previous month, Plan for the ongoing month, The particular day for which the report is being made, Month to date (from the beginning of the current month till the day for which report is being made).
SALES This includes the number of tractors sold in the domestic boundaries as well as overseas. BILLING It is the process of sending accounts to customers for goods or services. The document used is called an invoice; the invoice may be attached to the goods or forwarded separately. The average sale value of each tractor is calculated as a follows: Total sales of tractors Number of tractors sold
COLLECTION The collections is recovered from all those parties to whom the products are being sold. The parties involved are: Tractors ( Direct ) This includes the sale made through dealers to the end customer, for which a predetermined amount is given as commission to the
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Project Report On Cash Management In AMG Escorts Ltd opposite party. If the dealer fails to make the sale till the due date, than he has to pay interest on it thereon. Tractors ( Stockists ) This includes the sale made through stockists, who doesnt sell the product by themselves but sells them through dealers. The credit period allowed to stockists by the company is less in comparison than that of dealers, which yields to faster generation of income. Tractors ( Channel financing ) This system is adopted to improve the working capital of the company by avoiding inventory pile up and earning speedy collections. Furthermore, Channel Financing is an innovative option for extending working capital finance to dealers who have business relationships with large companies. Channel Financing is the mechanism through which a Bank / Financial Institution meets the various financial needs of the company. Channel Financing could cover: Discounting of trade bills drawn by a company & accepted by its dealers/ distributors/ channel partners. Providing overdraft facility to the dealers/ distributors who have business dealings with large corporate. OTHER RECEIPTS : An acknowledgment (usually tangible) that payment has been made. The below mentioned are the transactions included in it: Bill discounting: it is a major activity with some of the smaller banks. Under this type of lending, banks takes the bill drawn by borrower or his (borrowers) customer and pay him immediately deducting some amount as discount / 52
Project Report On Cash Management In AMG Escorts Ltd commission. The bank then presents the bill to the borrowers customer on the due date of the bill and collects the total amount. If the bill is delayed, the borrower or his customer pays the bank a predetermined interest depending upon the terms of the transaction. The following entries could be passed in the co.s books: Sales bill discounting: Following entries are passed during the sales made by the company: Party a/c To sales a/c dr. .......... ...........
(Being sale made on credit)
Bank a/c Bank charges a/c To party a/c
dr. dr.
.......... .
..
(Being payment received) Purchase bill discounting : Following entries are passed in the books purchases made by the company :Purchase a/c To party a/c dr.
( being purchases made)
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Party a/c
dr.
To bill discounting supplier a/c
( being paid to party through bank )
Bill discounting supplier a/c To bank a/c
dr. .
( being payment made to bank)
Letter of credit : The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank. In this 100 % payment is not given to the supplier by the bank due to loss in transition, rejection & shortage. If loss doesnt occur than 100 % is given to the supplier on the due date.
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Project Report On Cash Management In AMG Escorts Ltd Packing credit: when we receive an export order from countries, than we can avail
loan from bank at nominal interest as packing credit loan. It provides the exporters with working capital between the time of the receipt of order and the time of shipment to arrange for production or procurement of goods. Pre-shipment finance is of particular importance to small scale manufacturers and exporters who do not possess sufficient financial resources to meet the expenditure involved in the production of goods for export. Pre shipment finance is normally provided by the commercial banks. As in the case of many other advances the bank takes into consideration a number of factors before making the necessary other advances to exporters viz., (1) honesty, integrity and capital of the borrower, (2) exporters experience in the line, (3) security offered, (4) the margin of interest (5) the banks experience about the exporter to ensure that his name does not appear on the caution list of the Reserve Bank. Pre- shipment: when the company receives order Post shipment: when assignment is dispatched from the company. The following entries to be passed in the books for packing credit loan: Party a/c To export a/c dr.
( being export order received)
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Project Report On Cash Management In AMG Escorts Ltd Bank a/c dr. .
Bank charges a/c dr. To packing credit loan
( being loan granted by bank )
Bank a/c To party a/c
dr. .
( being payment made to bank)
Pcl a/c To bank a/c
dr.
( being payment of loan made to bank) Credit note: This note is presented to the other party for the payment to be made by the opposite party. Whereas debit note is given to the company by the other party in case of payment is to be made by the company. PAYMENTS: It is the transfer of wealth from one party (such as a person or company) to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation. The payments at Escorts AMG includes Direct (hundis, LC ), bank payment , excise duty which is levied on the parts of the tractors, LADT ( local area development tax),
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Project Report On Cash Management In AMG Escorts Ltd sales tax , salary and wages, vrs, spare parts, implements, electricity, overhead, finance charges, capex is the capital expenditure made to purchase the fixed assets or adding value to the existing fixed asset, credit note, corporate loan, loan repayments, interest, wcdl payment, packing credit & bill discounting. OUTSTANDING : Outstanding debtors are calculated by the following formula Closing O/S = Opening O/S + Billing - Collection In this, values are calculated for debtors outstanding in different point of time in domestic and overseas sales of tractors & its part.
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CASH BUDGET
MEANING: A forecast of estimated cash receipts and disbursements for a specified period of time. A cash budget is arrived at through a projection of future cash receipts and cash disbursements of the firm over interval of time, it reveals the timing and amount of expected cash inflows and outflows over the period. With this, the firm will be able to determine its future cash needs, and exercise control over the cash and liquidity of the firm. Though the cash budget may be prepared almost any interval of time, its monthly projection is most common. In short, we can say that cash budget is a forecast of a firms future cash flows arising from collection and disbursement, usually on a monthly basis. The key to the accuracy of most cash budgets is the sales forecast. This forecast can be either internal or external analysis, in internal approach; sales representatives are asked to project sales for the forthcoming period, we can then consolidate these sales estimates for the product line. The estimates for the various product lines are then combined in to an overall sales estimate for the firm. The basic problem with an internal approach is that it can be too myopic, often significant trends in the economy and in the industry are overlooked. Many companies use an external analysis as well, in external approach economic analysts make forecast of the economy and of industry sales for several years to come. They may use regression analysis to estimate the association between
Project Report On Cash Management In AMG Escorts Ltd industry sales and the economy in general. After these basic predictions of
business conditions and the industry are made. The next step is to estimate the market share by individual products, price that are likely to prevail and the expected reception of new product. By this way we can prepare an external forecast.
For Effective Cash Budget:

A firm may be able to delay its capital expenditure or its payment for purchase, Purpose of cash budget should be to determine the timing and magnitude of prospecting financing needs so that the most appropriate method of financing can be arranged, A decision to obtain long term financing should be based on long-range funds requirement. On the basis of cash budget the manager should be able to plan to invest excess funds in cash equivalents.
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BANK RECONCILIATION
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Bank reconciliation involves comparing the companys record of transactions and balances to the banks record of transactions and balances. The company should go through every transaction in their account and make sure the company and the bank agree on the transaction. Its important to go through the process of bank reconciliation. If the company doesnt, than it is taking few risks. Without bank reconciliation, the company may not have a clear idea of how much cash is available in their accounts. They might bounce Cheques and incur overdraft charges. Without bank reconciliation, the company also exposes you to risk. People may be stealing from the companys account. If they never look through each transaction, theyll never know about it. If they dont notify the bank quickly enough, they may be out of luck. The same goes for bank mistakes. With regular bank reconciliation the company can find problems quickly and make them go away. Bank reconciliation can be done manually, in excel & theres electronic bank reconciliation as well. Though the manual way for handling companys large bank accounts is not appropriate, it is helpful when there are fewer transactions. But still it important for any manager to learn it as it is the basic form of doing it. For reconciling the companys record of transaction with the bank balances, there are three essential requirements: Bank book
Project Report On Cash Management In AMG Escorts Ltd Bank statement Bank reconciliation statement of preceding month Than the above transactions need to be tally & unmatched have to be reconciled accordingly. Below is an example of how is it done manually:-
B A N K R E C O C IL IA T IO N S T A T E M E N T A S O N 3 1 .0 5 .0 9 A /C N O 0 0 0 3 8 1 4 0 0 0 0 0 1 5 6 GL CODE D E S C R IP T IO N
B a l a s p e r b a n k b o o k A S O N 3 1 .0 5 .0 9 O p e n in g b a l 8 3 3 8 2 . 9 1R . D LE S S : M A Y 2009 B A LA NCE 2 7 2 6 9 5 5R . C A D D : A m o u n t c r. B y u s b u t n o t d r. 3b4y1 0 3Rn.k 36 ba D L E S S : A m o u n t d r. b y u s b u t n o t 3c7r. 2 5 4 bR .n k 2 b y C9 a A D D : A m o u n t c r. B y b a n k b u t n o t8 d r. 1b1y4Ru.s 2 32 D L E S S : A m o u n t d r. b y b a n k b u t n o t9 c r. . 6 8y u s 41 89 B B a la n c e a s p e r b a n k s t a t e m e n t -2 6 4 3 5 7 2R . C 3634103 3722549 2832114 419 89.68 581 06.87
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DETAILS OF CHEQUE ISSUED BUT NOT PRESENTED FOR PAYMENT

S.NO 7770 7771 7774 7766 VCH. DT. 22/5/2009 22/5/2009 31/5/2009 12/5/2009 2/4/2009 VCH. NO. 86410 86400 86301 85683 CHQ.NO. pcl loan LIQ. SA/SP/34 B/C&INTT ON BANK CHARGE BANK CHARGE CHQ.AMT. 3565791.98 941 59369.98 4000 4000 3634102.96
DETAILS OF AMOUNT DEPOSITED BUT NOT CREDITED BY BANK

S.NO 7754 7749 7752 7755 7757 VCH. DT. 22/5/2009 1/5/2009 11/5/2009 22/5/2009 26/5/2009 VCH. NO. 155 371 372 156 157 CHQ.NO. Sa/35 33796(bank ch.) 33913(bank ch.) sa/sp/34 tanj/37 CHQ.AMT. 3704227.2 7667 5466 2927.15 2261.15 3722548.5
DETAILS OF AMT. CREDITED BY BANK

S.NO VCH. DT. 19/5/2009 VCH. NO. CHQ.NO. 1390022 CHQ.AMT. 2832113.94 2832113.94
DETAILS OF AMOUNT DEBITED BY BANK

S.NO VCH. DT. 1/5/2009 4/5/2009 4/5/2009 5/5/2009 5/5/2009 8/5/2009 9/5/2009 11/5/2009 12/5/2009 14/5/2009 19/5/2009 19/5/2009 22/5/2009 26/5/2009 VCH. NO. DESCRIPTION CHQ.AMT. 1210003 1240001 1240011 1250005 1250001 1280029 1290007 1180001 132000 1340024 1320001 1390022 560001 1460014 2206 5515 607.15 2206 2758 607.15 2206 1103 1103 607.15 1103 607.15 20753.93 607.15 41989.68
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CASH RATIOS
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MEANING: Cash ratios are also important tool of cash control. There are various ratios which explain the efficiency of cash management or vice-versa. They are the acids test ratio, cash ratio, receivables turnover ratio, inventory turnover ratio, cash turnover ratio etc. These are calculated as LIQUIDITY RATIOS Liquidity ratio measures the ability of the firm to meet its current obligations. It is necessary to strike a proper balance between high liquidity and lack of liquidity. A high degree of liquidity means that a firms fund will be unnecessarily tied up in current assets. Whereas lack of liquidity, implies failure of a company to meet its obligations due to lack of sufficient liquidity. The ratios, which are used for the analysis of Escorts liquidity position in this report, are: Current Ratio Quick Ratio
CURRENT RATIO Current ratio is calculated by dividing current assets by current liabilities: Current ratio = Current Assets
Project Report On Cash Management In AMG Escorts Ltd Current Liabilities 2006-07 Current Ratio 1.12 2007-08 1.16
From the above table it can be interpreted that Escorts liquidity position is not constant. As a conventional rule a current ratio of 2:1 or more is considered satisfactory because in a worse situation, even if the value of current assets becomes half, the firm will be able to meet its obligations. Current ratio refers to a margin of safety for creditors therefore higher the current ratio, the greater the margin of safety.
QUICK RATIO Quick ratio establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Inventories are considered to be less liquid therefore calculating quick ratio they are deducted from current assets. Quick Ratio = Current Assets inventory Current liabilities
2006-07 Quick Ratio 0.90
2007-08 0.99
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Project Report On Cash Management In AMG Escorts Ltd Escorts quick ratio in the current year has decreased in comparison to previous year, yet it can be considered to be satisfactory, as it is 1:1 times of current liabilities. Although quick ratio is more penetrating test of liquidity than current ratio, yet it should be used cautiously, as all debtors may not be liquid and cash may be immediately needed to pay operating expenses. The value of quick ratio is decreasing every year. The satisfactory level of the quick ratio is 1:1. This shows the worse situation of the company. The current liabilities are more than the quick assets.
ACTIVITY RATIOS Activity Ratios are used to evaluate the efficiency with which the firm manages and utilizes its assets. The ratios are called Turnover Ratios as they indicate the speed with which the firm manages and utilizes its assets. Activity ratios, which are used to analyze Escorts effectiveness in Asset utilization, are Inventory Turnover Ratio Fixed Assets Turnover Ratio Working Capital Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio
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INVENTORY TURNOVER RATIO It indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing sales by avg. inventory. In a manufacturing company inventory of finished goods is used to calculate inventory turnover. Inventory Turnover = Cost of goods sold Avg. Inventory
2006-07 Inventory Turnover 14.42
2007-08 15.10
If the company is comfortably meeting the customer needs with 9.73 days inventory of finished goods, all India basis. It is a good achievement for the Escorts Limited.
FIXED ASSETS TURNOVER RATIO A firms ability to produce a large volume of sales for a given amount of net assets is the most important aspect of its operating performance. Unutilized or underutilized assets increase the firms need for costly financing as well as expenses for maintenance and upkeep. Fixed assets turnover is calculated by dividing net sale by net fixed assets.
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Project Report On Cash Management In AMG Escorts Ltd Fixed Assets Turnover = Sales Fixed Assets 2006-07 F.A.T 2.29 2007-08 2.35
Escorts fixed asset turnover have increased in 2003-04. The fixed asset turnover of 2.78 implies that it is producing Rs.2.78 of sales for one rupee of capital employed. The higher the ratio, more it is satisfactory It should be interpreted very cautiously because the denominator of the ratio includes fixed asset net of depreciation. Thus old assets with lower book value may create a misleading impression of high turnover without any improvement in sales
DEBTORS TURNOVER RATIO Debtors turnover indicates the number of times debtors turnover each year. Higher the value of Debtors turnover, the more efficient is the management of credit. The liquidity position of the firm depends on the quality of the debtors to a great extent. Debtors Turnover = Credit Sales Avg. Debtors
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2006-07 Debtors Turnover 4.44
2007-08 4.29
Escorts debtors turnover is quite lower. The debtors turnover ratio is high at 2003-04. The ratio is decreasing. Also the debt collection period has its own importance. The debt collection period of Escorts was 76 days in 2003-04 but it has increased to 95 days. This does not show the satisfactory level. The shorter the collection period, the better the quality of debtors, since a short collection period implies prompt payment by debtors. A too low collection period is also not necessarily favorable as it may indicate a very restrictive collection and credit policy. Because of the fear of bad debt loses the firm may be selling to those only whose financial conditions are sound and who are very prompt in making the payments.
CREDITOR TURNOVER RATIO Creditors Turnover = Total Purchases Creditors
2006-07 Creditors Turnover 3.55
2007-08 3.45
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Though the days are very high and apparently appears to substitute right collection, this extended credit has its own drawback like: High interest inbuilt in cost system. Sub-quality creditors may be accepted. Quality of material may be accepted. The payment period of Escorts Limited is 90 days in 2007-08, which is more reasonable than previous years. This helps to make good quality product and also better relationship with suppliers.
WORKING CAPITAL TURNOVER RATIO Working capital turnover ratio has its own significance in the business organizations. It shows the efficiency of the firm i.e. how much sale that the company gets with the utilization of the limited working capital.
Working Capital Turnover = Net Sales Net Working Capital
2006-07 Working.Cap.Turn. 113.45
2007-08 28.30
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Project Report On Cash Management In AMG Escorts Ltd In the case of working capital turnover ratio Escorts is significantly going very downward. This is a very dangerous point of the firm. The company should try to improve it earlier. It shows that the company requires more money to generate sales.
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RECEIVABLE MANAGEMENT
The term receivable is defined as debt owed to the firm by customers arising from sales of goods in the ordinary course of business. The sale of goods on credit is an essential part of modern day business. The credit sales are generally made on open account in the sense that there are no formal obligations through a financial instrument. However extension of credit involves risks and cost. Management should weigh the benefits as well as the cost to determine the goal of receivable management. The benefits from receivables are the increased sales and profits anticipated because of more liberal policy. When firm extend trade credit, i.e. invest in receivables, they intend on increase the sales level. The motive of liberal credit policy can be either growth oriented or sales retention. The extension of credit has a major impact on sales, costs and profitability. Other things being equal, a relatively liberal policy and therefore higher investments in receivables will produce larger sales. However the cost will be higher with liberal policies then with more stringent measures. Therefore account receivable management should aim at a trade- of between profit and risk. The costs associated with the extension of credit and account receivables are collection cost capital cost delinquency cost default cost
DECISION AREAS
CREDIT POLICIES: The credit policy of a firm provides the framework to determine whether or not to extend credit to a customer and also how much credit to extend. It has two broad dimensions; the first is credit standard and second is the credit analysis. Credit standards represent the basic criteria for the extension of credit to customers. The trade- off with reference to credit standards covers collection costs, average collection period, level of bad debts losses and level of sales. With a relaxed credit standard the collection costs, bad debts expenses and sales goes up and in reverse case vice-versa happens. The second aspect of credit policy is credit analysis. It begins with obtaining credit information of the customers and ends up with the analysis of the obtained credit information. Information can be collected either internally or externally. Internal source of credit information is derived from the records of the firm. The analysis of credit information should cover both qualitative as well as quantitative aspects. The quantitative aspect is based on the available financial statements whereas qualitative aspects cover the quality of management.
CREDIT TERMS: The second decision area in accounts receivable management is the credit terms. After the credit standard have been establish and the credit worthiness of the
Project Report On Cash Management In AMG Escorts Ltd customers is assessed, the management of a firm must determine the terms and conditions on which trade credit will be made available. Credit terms have three components: credit period, cash discount and cash discount period. Credit period is the duration of time for which trade credit is extended whereas cash discount is the amount by which the over the due amount will be reduced thus benefiting the customer. The credit terms like the credit standard affect the profitability as well as the cost of the firm therefore a firm should determine the credit terms on the basis of cost-benefit trade-off.
COLLECTION POLICIES: The collection policies refer to the procedures followed to collect account receivable when after expiry of the credit period they become due. This policy covers two aspects: first is the degree of effort to collect the over due and second is the type of collection efforts. Escort Limited has a zero debt credit policy. However it is giving the following facilities to its dealers to promote the sales, as liberal credit policy has a direct impact on sales.
CHANNEL FINANCE FACILITIES: The company arranges these facilities with various bankers for the company dealers to support their cash needs. The goods are sold on credit against hundis. Hundis can be drawn for 50 or 75 or 90 days subject to qualifying criteria of bank. 77
CREDIT FACILITIES: Escort provides thirty days interest free credit to the dealers. For this in respect of all hundis the company bears 30 days interest and the remaining cost of interest, delayed payment charges are borne by the dealers.
PENALTY ON BOUNCING OF HUNDIES / CHEQUES: Bouncing of hundis/ cheques drawn in favor of the company is viewed very strongly and usually following actions are taken. Tractor supplies are suspended and restored only after all dues are cleared. All charges debited by the bank such as collection charges, penal interest are debited to the dealer. The bank extending channel financing policy have clearly stated that if a dealer has two or more bouncing he will be black listed and his limit will be withdrawn with immediate effect. Company also makes sales to such dealers only against letter of credit or demand draft.
CASH DISCOUNT ON EARLY PAYMENT: Cash discount of 1% is payable on tractors dispatched against funds available in the form of letter of credit or demand draft. Interest is charged/ paid at 12% per annum on outstanding/ credit balance early payment incentive. 78
PAYABLE MANAGEMENT
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Project Report On Cash Management In AMG Escorts Ltd Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. A better strategy is to shrink the vendor base radically, then use ones clout to negotiable longer terms with the vendors. Vendor rationalization is a process that can pay off in a big way. Apart from the question that who should authorize purchasing in the company should it be tightly managed or speak among a number of (junior) people? The following comes under good payable management. Purchase quantities should be geared to demand forecasts. Order quantities should be used which takes account of stock holding and purchasing costs. The cost to the company of carrying stock should be clearly defined. A Company should have alternative sources of supply. It should get quotes from Major suppliers and shop around for the best discounts, credit terms and reduce dependence on a single supplier.
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RESEARCH METHODOLOGY
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Project Report On Cash Management In AMG Escorts Ltd After recession with my locality member.I can choose the project of cash management.I discuss the project with my instructor Mr. Avinash Gangwar Escort ltd.
He approved the project after that a simple course of action has been followed for working on this project.Entire information and data were gathered from the respective Annual Report of Escort ltd.all the figures are taken from their balance sheet and profit and loss account of the respective year and other internal documents which are personally shown by the member of the company in our interest.
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SWOT ANALYSIS
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STRENGTH
Better attraction and pulverization Fuel efficient Better performance on field Low speed helps better use of implements Effective on different soil conditions
WEAKNESSES
Higher overhauling cost Lesser credit period No warrantee on spare parts Ineffective to pull trailers Unavailability of spare parts Oil pump damage Long term finance not available Poor after sales service
THREATS
PRODUCT The various disadvantages that Escorts faces in comparison to its nearest competitors M&M/PTL are:
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Project Report On Cash Management In AMG Escorts Ltd Unavailability of spare parts Color of the tractor getting faded Uncomfortable steering because of its height more than the drivers seat in few models Less power to pull trolleys are compared to SWARAJ Hydraulic getting jammed causing service costs. The above problems in the project are a major irritant to the farmers; the farmers have to visit several times to get the work done from dealer. The different models cause a concern to the farmer to select, as he gets confused with the large number of models in the market that is not easy to differentiate. Different areas prefer different models even if the cost is same. There is a high demand for second hand and old tractors that increases servicing and on the other hand reduces sales.
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PRICING Non uniformity pricing: The price varies from dealer to dealer. In different districts UP the dealers have different prices for same models, as they are to blame the fiasco, as they do not stick to the company guidelines. The companys failure probably is that they are unable to enforce their guidelines on the dealers. COSTING ABC costing should be followed as flat overheads are charged on all the models. These results in a well performing models getting less advantage to the other non performing ones on which there are higher margins which puts it at a disadvantage position compared to its competitors.
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OPPORTUNITY
Availability of spare parts Better servicing Good resale value Interest rates on loans to be lowered Effective pulling and ploughing capabilities Warranty on spare parts Low maintenance cost More colorful and attractive models are required
FINDINGS
After analyzing the Cash Report and the data furnished by the company that being collection centre and other things.As a result there is a float cost(mailing, administrative and collection ).there is a possibility their cash management much more efficiently.
As company has got a follow cash planning procedure that is preparation of cash of cash budget which seems to be quite satisfactory as far as cash management is concerned.
So we can say the liquidity of a firm is quite satisfactory.
CONCLUSION
As my Project report does not provide ample opportunity to make a in depth study of a given project but what soever the information so collected can be summarized as escort tractor ltd. Is a efficiently managed company.
Its product are widely accepted not only in India but outside India also.It is a cash rich company having no liquidity problem in near future and having efficient cash management system.
RECOMMENDATIONS
LOANS AND ADVANCES: Special efforts should be made to analyze loans & advances, which are between 35% to 56% of current assets. This can be classified between production / operation relation related and non-production / operation related. No production related cases might be financed from other sources like debenture etc. and treated separately. INVENTORY: Inventory should be reviewed constantly to identify show / dead / obsolete item and then disposed. Optimum level should be revised periodically, keeping in view, distance of suppliers, production lead time of supplier, transport problem if any and reliability of suppliers. This will help to avoid obsolesce and dead inventory. DEBTORS: A study may be conducted if required by experts to pinpoint reason behind Escorts high correction period of 95 days in 2007-08 against 50 days of Mahindra & Mahindra. It is due to quality of products, quality of customer, the segment of customers marketing effort, distribution pattern or other reasons. CREDITORS: Though high payout days may be apparently beneficial for the company, it has very heavy long term cost like high interest cost, bad credit ratings and shyness of good quality / standard suppliers.
RATIOS: The company should try to improve its current situation. The ratios, which are taken in this research to evaluate the companys position, are Current ratio, Quick ratio and Activity ratio. These ratios show the actual position of the company. The Quick ratio is declining since 2001-02 till now. There is a drastic declining in the working capital turnover ratio. This ratio goes to ve position in current year compared to previous. The Debts collection period is 359 days for Exporters. This shows the poor collection policy. The current ratio is 1.12 in 2006-07, which is not up to the ideal ratio. This shows that the current assets are equal to the current liabilities. Not satisfactory. OTHERS: More attention must be given to market forecasts can be made and the surplus of inventory is reduced to minimum Company should not follow the competitors only. New products should be produced for the farmers having low income and small holdings. Proper market survey should be carried out. The company should explore the export market to study the present and prospective demand. Proper inventory plans should be made in order to reduce the carrying cost. New market strategies should be devised from time to time. This is because, even if the tractor is of good quality, the competitors may produce the same product with additional features and at lower prices.
Marketing network should be enhanced. Company should also produce more tractors of higher H.P. But new developments should be made continuously in order to survive in this competitive world.
LIMITATIONS
Although every effort has been in to collect the relevant information through the sources available, still some relevant information could not be gathered.
Busy Schedule of Concerned Executives: The concerned executives were having very busy schedule because of which they were reluctant to give appointment.
Time: The time duration could not provide ample opportunity to study every detail of working capital management of the company.
Unawareness: Executives were unaware of many terms related to working capital study while asking to them.
Confidential Information: As the company on account of confidential report has not disclosed some figures. Moreover, in some cases separate accounts of division are not separately maintained thereby, leading to restrictions in study.
BIBLIOGRAPHY
BOOKS Financial Management- S.K Gupta Management Accountancy-D k Gole Cost and Management Accountancy, S.N.Maheshwari Financial Management And Policy, James C.Van Horne WORLD WIDE WEB www.escortsagri.com www.economictimes.com www.planware.com www.icraindia.com Other than Web M.I.S of the company Annual Reports
ANNEXURES
PROFIT AND LOSS ACCOUNT 1SToct 2007- 30th September 1st oct 2006 30th sept 2008 2007 2,012.00 2,092.04 1,470.66 1,540.01 47.68 50.79 202.63 204.02 114.57 118.63 69.12 57.45 1,904.66 1,970.90 107.34 121.14 0.04 20.85 107.38 141.99 55.93 89.78 42.87 44.97 3.32 8.58 3.92 47.13 -10.89 -38.55 14.81 17.56 -21.25 32.86 11.87 -6.44 -133.59 -145.46 -133.59 -145.46
Operating income Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Preference dividend Dividend tax Retained earnings
BALANCE SHEET AS ON.. 1ST OCT 2007- 30th SEPT 2008 Equity share capital 90.71 Share application money Preference share capital Reserves & surplus 645.49 Secured loans 422.63 Unsecured loans 14.44 Total 1,173.27 Gross block 1,415.93 Less : revaluation 466.46 reserve Less : accumulated 593.41 depreciation Net block 356.06 Capital work-in14.43 progress Investments 425.79 Current assets, loans 1,131.98 & advances Less : current 776.14 liabilities & provisions Total net current 355.84 assets Miscellaneous 11.00 expenses not written Total 1,163.12 Book value of 494.53 unquoted investments Market value of 1.98 quoted investments Contingent liabilities 168.40 Number of equity shares outstanding 907.09 (Lacs)
(R 1st OCT 2006 30TH SEPT 2007 83.69 563.38 414.04 31.10 1,092.21 1,436.96 471.90 583.24 381.82 13.40 425.13 1,325.61 1,069.68 255.93 15.93 1,092.21 493.87 3.31 318.74 836.94
CASH FLOW STATEMENT
PARTICULAR CASH FLOW FROM OPERATING ACTIVITIES N.P BEFORE TAX Adjustment for: provision for doubtful debts , obsolescence inventory & advances Gain on sale of long term investment Gain on sale of asset Depreciation Assets w/off Interest expense Dividend income Interest income Operating profit before change in w.capital Adjustment for: Trade & receivable Money in escrow account Inventory Trade payable Misc.expenditure Op.profit after change in w.capital Cash generated from operating activities Less-Direct taxes/refunds NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets Proceeds from sale of fixed. Assets Loss on sale of investment Movement in loan & advances Sale of investment Short term deposits with schedule banks Interest received Dividend received NET CASH FLOW FROM INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES
MARCH (2008) 26.14 16.36 -4.8 42.87 11.64 62.2 0.04 12.93 141.52 -65.36 20.09 -43.68 58.02 -3.21 -34.14 107.38 -6.25 101.13 -7.5 14.26 -30.64 -3.9 -0.66 8.58 3.21 -0.04 16.69
MARCH (2007) -17.33 1.89 -1.22 -0.13 44..97 8.08 72.22 -0.02 -20.82 87.64 -168.61 13.79 67.05 -7.5 -95.27 -7.63 -17.85 -25.48 0.86 -30.95 -16.27 32.33 -2.31 20.7 0.02 4.38
Proceeds from share capital & securities premium Proceeds/repayment from long- term borrowings Less:repayment of long term borrowing Proceed/repayment from short-term borrowing Interest paid NET CASH USED IN FINANCING ACTIVITIES Net increase / decrease in cash & cash equivalents OPENING CASH BALANCE CLOSING CASH BALANCE
40.32 234.09 -41.68 -46.83 -66.27 -114.46 (30.03 60.83 30.8
114.44 80.6 -0.54 -146.82 -77.4 -23.72 -44.82 105.65 60.83

Cash Management in Amg Escorts LTD - 2011

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A PROJECT REPORT ON

MASTER OF BUSINESS ADMINISTRATION

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

OBJECTIVES OF THE TRAINING

Project Report On Cash Management In AMG Escorts Ltd

ABOUT THE TRACTOR INDUSTRY

Project Report On Cash Management In AMG Escorts Ltd

FUTURE OF TRACTOR INDUSTRY

MARKET SHARE OF TRACTOR INDUSTRY

1.30% 6.63% 7.26% 13.65%

ESCORTS MAHINDRA & MAHINDRA PTL TAFE HMT

8.14% 1.37% 8.82%

SONALIKA FML L&T FORD NEW HOLLAND

TRACTOR INDUSTRY PERFORMANCE

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

BACKGROUND AND BUSINESS

Project Report On Cash Management In AMG Escorts Ltd

OUTLINE ORANISATION ESCORTS GROUP

Escorts Limited Faridabad

Corporate Center Faridabad

Escorts Research Center, Faridabad

Institute of Farm Mechanization, Bangalore

Escorts Heart Research Institute, New Delhi

Escorts Center, Faridabad

Administration and Security

Export and Communication

Associates Companies Escorts Employees Welfare Trust Faridabad

Project Report On Cash Management In AMG Escorts Ltd

OUTLINE ORANISATION ESCORTS LIMITED (Cont)

Corporate Office Corporate Center, Faridabad

Registered Office New Delhi

Personnel Project Administration and Security

Finance Law Export and Communication

Agri Machinery Marketing Division

Automotive Ancillaries and Railway Equipment Division

Escorts Tractor Division

Corporate Office Functional Units (Line Duties)

Functional Units (Production & Operation)

Corporate Office (Line Duties) Production & Operation)

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

AGRI MACHINERY GROUP

Project Report On Cash Management In AMG Escorts Ltd

AGRI MACHINERY GROUP CONTRIBUTION

MODERNIZATION OF AGRI MACHINERY GROUP

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

Project Report On Cash Management In AMG Escorts Ltd

CASH FLOW MANAGEMENT

CASH MANAGEMENT SYSTEM

Control through Information Report

Project Report On Cash Management In AMG Escorts Ltd