A STUDY ON

WORKING CAPITAL MANAGEMENT

With reference to PANCHASHEEL ENTERPRISES (AILNENI) PVT. LTD. (MAHINDRA TRACTORS)
submitted to JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY In partial fulfillment of requirement for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

RAJENDER MODUMPALLY H.T.NO. 10VB1E0071

Under the guidance of

Mrs. S. SWAROOPA

Affiliated to JNTUH

SRM POST GRADUATE COLLEGE

Chinthakunta, Karimnagar
(2010-2012)
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DECLARATION
I hereby declare that this project work entitled WORKING CAPITAL MANAGEMENT with reference to PANCHASHEEL ENTERPRISES

(AILNENI) PVT. LTD. (MAHINDRA TRACTORS)have completed successfully towards the partial fulfillment for the award of the degree of Master of Business Administration with specialization in Finance from SRM P.G. COLLEGE, Karimnagar. This is the bonafied work undertaken by me which is not submitted to any other university or institution for the award of any degree/diploma.

Place: Date:

(RAJENDER MODUMPALLY) H.T.NO. 10VB1E0071

ACKNOWLEDGEMENT
I take immense pleasure in thanking Mr. M. THIRUPATHI REDDY Garu, Chairman of SRM PG College, Karimnagar for his kind support shown towards the completion of the project. I also express my heartful thanks to Mr. C. VENKATESHWAR RAO Garu, Director, MBA program for his encouragement throughout my project work. I am especially thankful to Mr. M. SHANKAR for his kindly co-operation and valuable guidance in accomplishing the study and also the staff of PANCHASHEEL ENTERPRISES Karimnagar. My sincere thanks to our beloved guide Mrs. S. SWAROOPA, faculty member of SRM P.G. COLLEGE, Karimnagar for giving his valuable guidance throughout my MBA program, particularly in my successful completion of this project. (AILNENI) PVT. LTD. (MAHINDRA TRACTORS),

(RAJENDER MODUMPALLY) H.T.NO. 10VB1E0071

INTRODUCTION
Management is an art of anticipating and preparing for risks, uncertainties and overcoming obstacles. An essential precondition for sound and consistent assets management is establishing the sound and consistent assets management policies covering fixed as well as current assets. In modern financial management, efficient allocation of funds has a great scope, in finance and profit planning, for the most effective utilization of enterprise resources, the fixed and current assets have to be combined in optimum proportions. Working capital in simple terms means the amount of funds that a company requires for financing its day-to-day operations. Finance manager should develop sound techniques of managing current assets.

WORKING CAPITAL
Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means, Net Current Assets = Current Assets Current Liabilities.

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital: 1) Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow. 2) Working capital represents the total of all current assets. In other words it is the Gross working capital, it is also known as Circulating capital or Current capital for current assets are rotating in their nature. 3) Working capital is defined as the excess of current assets over current liabilities and provisions. In other words it is the Net Current Assets or Net Working Capital.
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IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures. To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business. In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.

NEED OF THE STUDY

Working capital can be used for the purpose of meeting the day to day financial requirements and providing the credit facilities to the customers in the organization. Managing the working capital in an efficient way is not an easy task. There is a need to study how the Panchasheel enterprises (Ailneni) Pvt. Ltd., focus on managing the working capital and how it uses the capital in an efficient way.

OBJECTIVES OF THE STUDY:

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1) To know the concepts of working capital management. 2) To evaluate company s performance relating to financial statement analysis. 3) To know the liquidity position of the company with the help of current ratio. 4) To find out the working capital strength of the company 5) To suggest the steps to be taken to increase the efficiency in management of working capital.

SCOPE OF THE STUDY

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 The study is limited to Panchasheel enterprises (Ailneni) Pvt. Ltd., The study is based on availability of information relating to Panchasheel enterprises (Ailneni) Pvt. Ltd., past 5 years data.

The study focuses on analyzing the working capital management.

To understand the financial position of Panchasheel enterprises (Ailneni) Pvt. Ltd., for the current year.

RESEARCH METHODOLOGY
Research is an academic activity and as such the term should be used in a technical sense. D. Slesinger and M. Stephenson in the Encyclopedia of Social Sciences define research as the manipulation of things, concepts or symbols for the purpose of generalizing to extend, correct or verify knowledge, whether that knowledge aids in construction of theory or in the practice of an art. Primary Data: Primary source include the respondents from whom the required information was collected directly and their personal Response was regarded. The information can collected through the primary sources like: Talking with the employees of the department. Discussion with the head of the department. Taking personal views from the employees or customers.

Secondary Data: Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, organizational records and data collected through qualitative methodologies or qualitative research. The data is collected through the secondary sources like: Annual Reports of the company. Office manuals of the department. Magazines, Reports in the company.

LIMITATIONS OF THE STUDY

The study is limited only for a period of 5 years i.e. 2008-2012 The study having limited scope of gathering sufficient financial information as it is confidential. The study is limited up to the data and information provided by Panchasheel enterprises (Ailneni) Pvt. Ltd., and its annual reports. This study is confined to the Panchasheel enterprises (Ailneni) Pvt. Ltd., Karimnagar only. The current study based on only the secondary data. As the some secrecy is maintained by the industry at the time of disclosing the data, complete information has not secured.

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INDUSTRY PROFILE
As commercialization of agriculture grew in intensity in the mid to late 1800s, the British Raj, the local legislatures and provinces began investing in agricultural development through support and establishment agricultural research farms and colleges and large scale irrigation schemes yet the level of mechanization was low at the time of independence in 1947. The socialist oriented five year plans of the 1950s and 60s aggressively promoted rural mechanization via joint ventures and tie-ups between local industrialists and international tractor manufacturers. Despite this aggressiveness the first three decades after independence, local production of 4-wheel tractors grew slowly. Yet, by the late 1980s tractor production was nearly 140,000 units per year and by the late 1990s with production approaching 270,000 per year, India over-took the United States as the world's largest producer of four-wheel tractors with over 16 national and 4 multi-national corporations producing tractors today. Despite these impressive numbers FAO statistics estimate that of total agricultural area in India, less than 50% is under mechanized land preparation, indicating large opportunities still exist for agricultural mechanization.

1945 to 1960
War surplus tractors and bulldozers were imported for land reclamation and cultivation in 1940's. In 1947, central and state tractor organizations were set up to develop and promote the supply and use of tractors in agriculture and up to 1960, the demand was met entirely through imports. There were 8,500 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960.

1961 to 1970
Local production began in 1961 with five manufacturers producing a total of 880 units per year. By 1965, this had increased to over 5000 units per year and the total in use had risen to over 52,000. By 1970, annual production had exceeded 20,000 units with over 146,000 units working in the country.

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1971 to 1980
Six new manufacturers were established during this period although three companies (Kirloskar Tractors, Harsha Tractors and Pattie Tractors) did not survive. Escorts Ltd. began local manufacture of Ford tractors in 1971 in collaboration with Ford, UK and total production climbed steadily to 33,000 in 1975 reaching 71,000 by 1980. Credit facilities for farmers continued to improve and the tractor market expanded rapidly with the total in use passing the half million mark by 1980.

1981 to 1990
A further five manufacturers began production during this period but only one of these survived in the increasingly competitive market place. Annual production exceeded 75,000 units by 1985 and reached 140,000 in 1990 when the total in use was about 1.2 million. Then India - a net importer up to the mid-seventies - became an exporter in the 1980s mainly to countries in Africa.

1991 to 1997
Since 1992, it has not been necessary to obtain an industrial license for tractor manufacture in India. By 1997, annual production exceeded 255,000 units and the national tractor population had passed the two million mark. India now emerged as one of the world leaders in wheeled tractor production.

1997 to 1999
Five new manufacturers have started production since 1997. In 1998 Bajaj Tempo, already well established in the motor industry, began tractor production in Pune. In April of the same year, New Holland Tractor (India) Ltd. launched production of 70 hp tractors with matching equipment. The company is making a $US 75 million initial investment in a state of the art plant at Greater Noida in Uttar Pradesh state with an initial capacity of 35000 units per year. Larsen and Toubro have established a joint venture with John Deere, USA for the manufacture of 35-65 hp tractors at a plant in Pune, Maharashtra and Grieves Ltd. will produce tractors under similar arrangements with Same Deutz-Fahr of Italy.
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Looking to South American export markets, Mahindra and Mahindra is also developing a joint venture with Case for tractors in the 60-200 hp range. Total annual production was forecast to reach 300,000 during the following year.

1999 to Present
Facing market saturation in the traditional markets of the North West (Punjab, Haryana, and eastern Uttar Pradesh) tractors sales began a slow and slight decline. By 2002, sales went below 200,000. Manufacturers scrambled to push into eastern and southern India markets in an attempt to reverse the decline, and began exploring the potential for overseas markets. Sales remained in a slump, and added to the market saturation problems also came increased problems of "prestige" loan defaults, where farmers who were not financially able took tractors in moves to increase their families prestige. Government and private banks have both tightened their lending for this sector adding to the industry and farmers woes. By 2004, a slight up tick in sales once again due to stronger and national and to some extent international markets. But by 2006 sales once again were down to 216,000 and now in 2007-08 have slid further to just over 200,000.

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MAHINDRA STORY
In 1962, M&M formed a joint venture with International Harvester to make tractors carrying the name Mahindra name-plate for the Indian market. Armed with engineering, tooling and manufacturing know-how gained from this relationship, M&M-a major auto maker- developed its first tractor, the B-275. This successor to International Harvester's incredibly popular B-414 is still the basis for some current Mahindra models. Today, Mahindra is the third largest tractor manufacturer in the world with sales of nearly 85,000 units annually in 10 countries. This places them ahead of John Deere & Kubota. In India, Mahindra has been the number one selling brand since 1983.

Mahindra & Mahindra Ltd. (M&M)

Mahindra & Mahindra is the most respected company in India. For its SUV model 'Scorpio,' the company won the National Award for outstanding in-house research and development. Bolero, Commander, Voyager is the popular brands of the company in automotive segment. Quick Facts

Founder

The two brothers, J.C. Mahindra and K.C. Mahindra and Ghulam Mohammed

Country Year of Establishment Listings & its codes Plants

India October 2, 1945 NSE: M&M; BSE: 500520 Mumbai

Akruli Road, Kandivli (East) Mumbai 400 101 Tel.: +(91)-(22)-28874601

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Company Flashback:
Mahindra & Mahindra Limited (M&M), the flagship company of US $ 2.59 billion Mahindra Group, has a significant presence in key sectors of the Indian economy. M&M is one of the most respected companies in India. The Company over the years has transformed itself into a Group that caters to the Indian as well as foreign markets with a presence in vehicles, farm equipment, information technology, trade and finance related services, and infrastructure development. Now, they have started with a separate Sector, Mahindra Systems and Automotive Technologies (MSAT) in order to focus on developing components as well as offering engineering services. Mahindra & Mahindra currently employs around 11,600 people and has eight manufacturing facilities spread over 500,000 square meters. The company has 49 sales offices that are supported by a network of over 780 dealers across the country. The company's outstanding manufacturing and engineering skills allow it to innovate and launch new products constantly for the Indian market. The "Scorpio", a SUV developed by the company from the ground up, resulted in the Company winning the National Award for outstanding in-house research and development from the Department of Science and Industry of the Government in the year 2003. In the community development sphere, M&M has implemented several programs that have benefited the people and institutions in its areas of operations. On the auspicious occasion of its 60th anniversary, the Company announced a range of CSR activities supported by a commitment of 1% of Profit after Tax for its CSR initiatives. Mahindra & Mahindra Ltd. Mahindra & Mahindra Limited (M&M) is the flagship company of US $ 2.59 billion Mahindra Group (F04 - US$ 1.96 billion, which has a significant presence in key sectors of the Indian economy. A consistently high performer, M&M is one of the most respected companies in the country.

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Set up in 1945 to make general-purpose utility vehicles for the Indian market, M&M soon branched out into manufacturing agricultural tractors and light commercial vehicles (LCVs). The company later expanded its operations from automobiles and tractors to secure a significant presence in many more important sectors. M&M has two main operating divisions - Automotive Division manufactures utility vehicles, light commercial vehicles and three wheelers. Tractor (Farm Equipment) Division makes agricultural tractors and implements that are used in conjunction with tractors, and has also ventured into manufacturing of industrial engines. Tractor Division has won the coveted Deming Application Prize 2003, making it the only tractor manufacturing company in the world to secure this prize. The Company has recently entered into a JV with Renault of France for the manufacture of a mid-sized sedan, the Logan, and with International Truck & Engine Corporation, USA, for manufacture of trucks and buses in India. Project Sankraman - SAP R/3 Enterprise (4.7) Implementation on Centralized Architecture M&M entered into a new phase in technology initiatives from April 2005 by virtue of two important events:

Implementation of SAP R/3 Enterprise 4.7 on single instance and centralized architecture

Centralization of all servers located across various units to a single server at secure data centre located at Kandivli

Although the implementation work of the project was completed in F05, the post-launch and benefit realization were major activities in F06. This signified M&M moving closer towards being a real-time organization. It provided access to new functionalities directly catering to the Indian taxation and auto industry requirements. It also facilitated standardization of business processes, harmonized master data and better system compliance. Single sign-on and role-based authorization features provided enhanced user experience. Organization-wide information now being
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available on single server resulted in on-line availability of consolidated information with drill-down up to transaction level. Implementation of SAP APO (Advance Planner and Optimizer) for Automotive Sector Implemented SAP APO at Farm Equipment Sector in F04, and rolled-out at Automotive Sector in F06. SCM processes are streamlined using SAP APO. Forecasting, planning, and decision support has been facilitated through on PPDS (Production Planning Demand Scheduling) & SNP (Supply Network Planning) modules. APO-DP (Demand Planning) facilitated collaborative planning between dealers and sales offices. Roll - out of SAP SRM (Supplier Relationship Management) The objective of this project was to extend visibility of supply end of the value chain. The supplier portal - www.mahindrasrm.com - enables suppliers to do transactions and also track material supplied to M&M from the stages of receiving, bill passing & payment. M&M buyers get online information about e-invoice created by suppliers. Suppliers are also able to view analysis related to their supplies. As a result of the roll-out, all major suppliers are now accessing SRM portal. Implementation of Strategic Sourcing supporting sourcing module is now under process. Implementation of SAP DMS-CRM (Dealer Management System - Customer Relationship Management) It is essential for Auto OEMs to keep in close contact with the end consumers, build brand loyalty and provide total customer experience. Implementation of centrally hosted Mahindra Dealer Management System (DMS) covers - Marketing, Pre-sales, Sales, Services, Spares, Warranty, Dealer Financials, Analytics, CRM and Business Intelligence. The pilot involving 50+ dealer locations initiated last year is in the final phase of implementation, to be followed by roll-out across Mahindra Dealer Community. Appropriate infrastructure including dealer connectivity is being established.
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Implementation of SAP DMS-CRM has provided an additional opportunity to ensure process standardization and compliance across all dealers of M&M. Enhanced the ability to integrate a change more easily across the entire dealer chain. Facilitated better customer information management, end-customer database, along with seamless integration with back-end SAP systems. Bar-coding Enabled Warehouse Management System at Spares Business Unit The Spares Business Unit (SBU) has a Warehouse at Wagholi. The spare parts required for Automotive & Farm Equipment Sector dealers are managed through this warehouse. Wireless hand-held terminals are used to scan the bar-codes on the component packs. The same is integrated with SAP R/3 System and being used to track the material during Pre-packing, Binning, Picking & Packing and error-free warehouse processes. This has facilitated substantial improvement in productivity and efficiency of warehouse staff to support high volume needs of the business. Implementation of SAP CFM (Corporate Finance Management) Loans, Investment SAP CFM were implemented in F05 for Corporate Finance function. This year focused on Forex module and Market risk analyzer. This has facilitated online monitoring of financial measures such as Forex exposures, Investment portfolios, Yield to Holding etc. Project Suraksha Considering the criticality of Information Security in current business environment an organization wide security project has been initiated leading to BS7799 Certification. The scope covers all Information assets in Paper or Digital format across all the locations of M&M and underlying IT Infrastructure. Organization wide information security policies and all the relevant systems & processes have been documented and published on company intranet. All business heads/ department heads are directly responsible for ensuring policy compliance. All the information and IT assets across locations have been identified, risk analysis carried out, risk mitigation plan defined by the users and concerned
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departmental heads supported by Information Security team. A well defined Information Security organization structure consisting of Apex council, Information Security Councils at each location and departmental representatives is in place. Information Security Cell within Corporate IT coordinates all activities related to this initiative. M&M has deployed a world class Security Infrastructure, designed to both protect and enable business, thus ensuring Confidentiality, Integrity and Availability of the information systems at all times. Among the Security Infrastructure components are - Firewalls & Intrusion Detection System, Antivirus Architecture, Virtual Private Network and Web Access, Strong Authentication, Anti-spam & Content Filtering. M&M has always been in the forefront of Information Technology adoption for business benefits. Today, Information Technology touches every corner of the business and enhances capabilities of every process taking M&M towards its IT vision of being the "Best IT Enabled Real-time Enterprise". M&M was one of the First organizations to implement SAP R/3 way back in 1998. It was the largest site in the world on Windows NT platform at that time. Today SAP R/3 Enterprise (version 4.7) integrates all the organizational processes across all the locations. Built on this platform, Information Technology has been extended to integrate with business partner processes through New Dimension solutions such as:

Supplier Relationship Management (SAP-SRM) - First to implement in Asia-Pacific region

Advance Planner & Optimizer (SAP-APO) - First to implement APO in India.

Dealer Management System - Customer Relationship Management (SAP DMS-CRM) All these are driven with the objective of providing the best products and

services to the customer at optimal cost and simultaneously ensuring the value to M&M's business partners. Other decision support and productivity improvement modules include:

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Strategic Enterprise Management (SAP SEM - BCS) Business Information Warehouse (SAP BIW) Employee Self Service (ESS) through Enterprise Portal Entire design process and product data management is through Team Center

Enterprise from UGS All the above business solutions are effectively delivered through state-of-art Mahindra IT Infrastructure (MahindraNet) connecting all manufacturing plants, Corporate Office, regional offices, sales offices and Data Centers with the best in class security architecture, Network Operations Center to monitor and manage this network. Redundancy for power, network, bandwidth, hardware, Data Center and DRS set-up ensure almost 100% availability of applications to users. The whole organisation is geared towards complying with the BS 7799 information security standard, which adds to the confidence of M&M customers and partner organisations. M&M will be the first BS: 7799 certified organization in India, in the manufacturing sector, with such comprehensive scope. M&M users are using various value-added IT Services such as VPN, Desktop Web Conferencing - Video & Audio interaction from desktop, Video Conferencing Video & Audio interaction and conferencing between multiple locations, Live Chats and FTP. Live Interactive chats have been a successful platform for M&M employees to communicate with Mahindra Senior Management. Senior executives share their vision, thoughts and also answer to queries from employees. This technology is used successfully for interaction between senior executives and subject experts during Finance Minister's Union Budget speech. The adoption of Information Technology has moved up the value chain, from cost savings to business enablement. The business benefits of various business solutions implemented have resulted in standardization, synergistic operations, inventory reduction, easier consolidation, and cycle time reduction and optimized business processes leading to faster operations and informed decision-making.
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However more importantly, IT has impacted all the business functions and processes in the organization, the value of which can be seen more in creation strategic capabilities - such as anytime, anywhere availability of secured information, facilitating collaboration and improved communication within and outside the organization, effective leveraging knowledge within the organization for business benefits, enabling organization to be more customer centric and agile.

VISION
To Be an Engineering Company of International Repute, Providing Best of Products & Services With Contemporary Technologies To suit Customer needs.

MISSION
To focus on our customers' market challenges and needs by providing excellent products in order to consistently create maximum value for our customers

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BOARD OF DIRECTORS
Anand Mahindra Bharat Doshi Hemant Luthra Anoop Mathur Pawan Goenka Rajeev Dubey S.P. Shukla Ulhas Yargop Anita Arjundas Zhooben Bhiwandiwala S Durgashankar C.P. Gurnani Ramesh Iyer Ruzbeh Irani Harsh Kumar Bishwambhar Mishra Rajiv Sawhney V.S. Parthasarathy Romesh Kaul Pravin Shah Ashok Sharma Rajan Wadhera Chairman & Managing Director Mahindra & Mahindra Executive Director & Group CFO President Systech Sector President Two Wheeler Sector President Automotive & Farm Equipment Sectors President Group HR & Aftermarket Sector, Mahindra & Mahindra President Group Strategy and Chief Brand Officer President Information Technology Sector & CTO, Mahindra Group CEO Real Estate Sector and Managing Director, Mahindra Lifespace Executive Developers Vice President & Managing Partner Mahindra Partners Division Executive Vice President - Mergers & Acquisitions Chief Executive Officer Mahindra Satyam Managing Director Mahindra & Mahindra Financial Services and CEO Financial Services Chief Executive Sector International Operations, Automotive & Farm Equipment Divisions Managing Director Mahindra Intertrade & Mahindra Steel Service CentreExecutive - Tractor & Farm Chief Mechanization, Farm Equipment Sector CEO, Mahindra Holidays & Resorts India Ltd. Group CIO, EVP Group M&A, Finance and Accounts, Member of the GroupBusiness, Executive Board Global CEO Gears Systech Sector Chief Executive Automotive Division Chief Executive - Auto & Farm Strategy, Agri and Allied Business Chief Executive Technology, Product Development and Sourcing, Automotive & Farm Equipment Sectors
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Profile of mahindra showroom, karimnagar

(M/s. Panchasheel Enterprises (Ailneni) Pvt. Ltd.) M/s. Panchasheel Enterprises (Ailneni) Pvt. Ltd., Karimnagar was established on 1 s1 April. 1987. By nature, it is a sole proprietorship. Proprietor of the showroom is Mr. A. J. Anatha Rao. It is a not manufacturing unit and on the other hand it is a showroom for the products of MAHINDRA & MAHINDRA limited. This showroom is located at Karimnagar.

Objectives of the Organization

To sell the Mahindra & Mahindra products. To provide services to the ultimate consumers of the vehicle. To provide efficient & effective services to its consumers in time. To facilitate financial assistance to the consumers.

BRIEF HISTORY OF MAHINDRA TRACTORS

1945: On October 2, Mahindra & Mohammed formed 1945: The Company was renamed Mahindra & Mahindra Limited (M & M) Steel Trading business was started in association with suppliers in UK 1945: Business connections in USA through Mahindra Wallace 1950: The first business with Mitsubishi Corporation (for 5000 Tons) for building plates for supply from Yawata Iron & Steel 1953: Otis Elevator Co. (India) established 1956: Shares listed on the Bombay Stock Exchange Dr. 'Beck & Co. formed - a JV with Dr. Beck & Co. Germany 1957: Mahindra Owen formed - a JV with Ruble' Owen & Co. Ltd., UK 1958: Machine Tools Division started
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1963: International Tractor Co. of India (ITCI) formed - a JV with International. Harvester Co., USA

1970: Mahindra Engineering & Chemical Products Ltd.(MECP) Commenced operations

1971: International Harvester collaboration ended 1979: License from Automobiles Peugeot, France for manufacture of XDP 4.90 Diesel Engines

1982: License from KIA for manufacture of 4 Speed Transmissions Mahindra brand of tractors born Siro Plast formed

1983: M&M becomes market leader in Indian Tractor Market (Position retained ever since)

1984: Mahindra Hellenic Auto Industries S.A. formed - a JV in Greece to assemble and market utility vehicles in Europe

Mahindra British Telecom (MBT) formed - a JV with British Tele communications plc (BT), UK acquired International instruments Ltd.

1989: Automotive Pressing Unit (now MUSCO Stampings) acquired from GKW

Introduction of Commander series Triton Over water Transport Agency Ltd., formed implementation of the Service Center project at Kahn Merged diverse activities of Steel, Machine Tools, Graphics into Inter trade Division

1994: Mahindra Realty & Infrastructure Developers Ltd. (MRIDL) formed Mahindra USA Inc., formed for distribution of Tractors in the USA EAC Graphics (India) Ltd., formed in collaboration with The East Asiatic Company Ltd. A/S, Denmark Reorganization of the Group creating six Strategic Business Units MSL Division (Auto Components) hived off to form Mahindra Sona ltd. Mahindra Nissan Aileen Limited merged with tile Company
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1996:Mahindra Ford India Ltd. (MFIL) - a JV with Ford, Motor Co. USA to manufacture passenger cars. The Company made a Foreign Currency Convertible Bond (FCCB) issue of US$ 115 million

1997: A new die shop was inaugurated at Nasik Inauguration of the Mahindra United World College of India

1999: Launch of 'Bijlee' a battery operated, 3-wheeler environmental-friendly vehicle. The largest online used vehicle website in India launched by Mahindra Network Services. The business of Inter trade Division and Mahindra Exports Ltd. combined and renamed Mahindra Inter trade ltd.. The Company acquired major stake in Gujarat Tractors. Mahindra & Mahindra Financial Services Limited becomes a subsidiary of M&M

2001: A 3-wheeler diesel vehicle "Champion" is launched. The Company launches Mahindra MaXX a MUV positioned with the caption Maximum Space, Maximum Comfort. M&M ties up with Renault for petrol engines. M&M established a separate division to provide Defense Solutions

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AWARDS
2012:

Mahindra receives the Gold award for 'Brand Communicator of the Year' at the 9th Asia Pacific PR Awa

Mahindra's Auto&Two wheeler sectors receive top awards from automotive media

Mahindra announces Mahindra Samriddhi India Agri Awards 2012 Mahindra Navistar Recognizes the Heroes of the Indian Transport Industry Mahindra and Mahindra honours Indian farmers at the Mahindra Samriddhi India Agri Awards 2012 Mahindra XUV500 to open All India bookings from 8th June 2012 Mahindra Finance receives the Information Week Edge awards Mahindra was honoured with the 6th Social and Corporate Governance Awards 2010 by Bombay Stock Exchange Limited in the category of BEST CORPORATE SOCIAL RESPONSIBILITY PRACTICE for its Esops Initiative.

Nashik Plant was awarded the prestigious JSW TOI Earth Care Award 2010 for Excellence in Climate Change Mitigation & Adaptation

MHRIL's Club Mahindra Tusker Trail (CMTT), Thekkady received the coveted Rotary-Binani Zinc CSR Award in association with NIPM Kerala Chapter.

Mahindra & Mahindra was the proud recipient of the India Shining Star CSR Award for the exceptional work it has done in the Automobile Sector.

Mahindra Finance won the award for "Best in Corporate Social Responsibility Practice

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Mahindra and Mahindra received prestigious Annual PRCI (Public Relations Council of India) Awards under 3 categories: Corporate Brochure - Lifeline Express - Silver Award Newsletter (Tabloid) - Esops Digest - Bronze Award Corporate Film - Documentary film on Bihar Flood Rehabilitation at Pattori - Bronze Award

2011: Anand Mahindra receives Business Leader of the Year Award at Asian Awards 2011 held in London 2010: Mahindra Excellence in Theatre Awards Celebrates its 5th Anniversary Mahindra Excellenc in Theatre Awards kicks off in the city Mahindra partners Zee News for India Agri Awards 2011 Mahindra honours Indian farmers at the first Mahindra Samriddhi India Agri Awards 2011 Mahindra Group wins a record 9 awards at the annual ABCI awards nite

About Farm Equipment Manufacturers leaders in India. Poised to take on the world. For over two decades, Mahindra Tractors is the undisputed leader of the Indian tractor market, which is the largest tractor market in the world. A division of over US$ 6 billion conglomerate, Mahindra & Mahindra, we began as a joint venture with International Harvester. And with that began a new era in power, control and reliability in farm equipment manufacturing. Today, with the largest manufacturing set up in India, Mahindra Tractors is among the top three players in the global market. And as we step into the 27th year of excellence, we continue on our journey of cultivating golden harvests across the globe. Mahindra Tractors conferred with the global honour.

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In the year 2003, Mahindra Tractors bagged the Deming Prize, a global honour for quality practices. Three years later, the company was eligible to qualify for the Japan Quality Medal, the highest honour for excellence in Total Quality Management practices. In 2007, Mahindra Tractors became one of the 20 companies worldwide to receive this rare honour. Till date, we are the only tractor company in the world to bag this prestigious award.

Mahindra Tractors goes global.

Mahindra Tractors have reached all four corners of the world. And wherever we went, weve proved ourselves nothing less than the best. That explains the great demand for Mahindra tractors across the United States, Australia, Brazil, Turkey, South Africa & Syria etc among many more. In the US market, Mahindra USA, a subsidiary company of Mahindra tractors, sells more than 10,000 tractors annually. A nationwide network of over 300 dealers, total product support and prompt after sales service ensure that every tractor functions for years without any hassles. Another big leap took us past the Great Wall of China. We acquired Jiangling Motor Co., to form Mahindra China Tractor Company Ltd. (MCTCL). Started operation with Jiangsu Yueda Yancheng Tractor Manufacturing Co. in the year 2008 & formed MYYTCL.The 18-35 HP tractors manufactured here cater to domestic as well as overseas markets. From China, we crossed the Pacific Ocean and entered the Australian farms. Assembled at Mahindra Australia, these tractors are sold all over the Australian continent. The variety includes a range of 2WD and 4WD compact tractors (20-30 HP range) and utility tractor models (45-85 HP range) along with attachments like loaders and mowers. These attachments can also be put to multiple uses with utmost reliability and ease. Heading eastwards from Australia, we entered the European continent and launched Mahindra Tractors at the Novi Sad fair in May 2005. Today, we have a significant presence in Turkey, Macedonia and Serbia.

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In the massive African continent, we have already spread across 20 countries that include Angola, Tchad, Democratic Republic of Congo, Mali, Morocco, Nigeria, Sudan, The Gambia, Zambia, Egypt, Algeria, Ghana, Niger, Uganda, Tanzania, Mallawi, Mozambique, Zimbabwe, Botswana & South Africa. Besides that we have set up assembly plants in Ghana, The Gambia, Nigeria Mali & Tchad, which were technically guided and commissioned along with our channel partners in these countries. And it wont be too long before our brand of red tractors are found across the rest of the African continent. But the journey doesnt end here. We look forward to tapping the remotest farms of the globe and continue to cultivate countless smiles. Various products of Mahindra & Mahindra available in this showroom are: Tractors, Autos, and other Agricultural implements.

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Models in Tractors
MAHINDRA 275 DI

BHOOMIPUTRA -

265 Dl

BHOOMIPUTRA -

275 DI

BHOOMIPUTRA -

475 DI

BHOOMIPUTRA -

575 DI

SARPANCH -

265 DI

SARPANCH -

275 DI

SARPANCH -

475 DI

SARPANCH -

575DI

ARJUN -

605 DI

ARJUN -

ULTRA

ARJUN -

CRPTO

Others agricultural implements available in Panchasheel Enterprises are: Disk plough, Cultivators, Harvesters, Spring cultivators etc.

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MAHINDRA TRACTORS - MODELS

NBP SERIES MODEL : 235 DI ENGINE HP: 24 HP This single cylinder air cooled tractor is tough, economical and reliable. With 8 forwards speeds and maximum road speed of 30 Km per hour, these tractors are especially suitable for road operations as well. MODEL : 245 DI ENGINE HP: 27 HP This particular line of tractors is tough, economical and reliable. With 8 forwards speeds and maximum road speed of 30 Km per hour, these tractors are especially suitable for road operations as well. MODEL : 275 DI ENGINE HP: 39 HP This particular line of tractors is tough, economical and reliable. With 8 forwards speeds and maximum road speed of 30 Km per hour, these tractors are especially suitable for road operations as well. MODEL : 475 DI ENGINE HP: 42 HP This particular line of tractors is tough, economical and reliable. With 8 forwards speeds and maximum road speed of 30 Km per hour, these tractors are especially suitable for road operations as well. MODEL : 575 DI ENGINE HP: 45 HP This particular line of tractors is tough, economical and reliable. With 8 forwards speeds and maximum road speed of 30 Km per hour, these tractors are especially suitable for road operations as well.

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MODEL : 585 DI ENGINE HP: 50 HP This particular line of tractors is tough, economical and reliable. With 8 forwards speeds and maximum road speed of 30 Km per hour, these tractors are especially suitable for road operations as well. NST SERIES MODEL : 265 DI ENGINE HP: 32 HP A complete package of a large capacity engine, heavy-duty transmission, high lift capacity hydraulics and a very robust cast iron chassis. These machines perfectly suit almost all kinds of farming operations ranging from basic chores to commercial landscaping. MODEL : 275 DI ENGINE HP: 39 HP A complete package of a large capacity engine, heavy-duty transmission, high lift capacity hydraulics and a very robust cast iron chassis. These machines perfectly suit almost all kinds of farming operations ranging from basic chores to commercial landscaping. MODEL : 475 DI ENGINE HP: 42 HP A complete package of a large capacity engine, heavy-duty transmission, high lift capacity hydraulics and a very robust cast iron chassis. These machines perfectly suit almost all kinds of farming operations ranging from basic chores to commercial landscaping. MODEL : 575 DI ENGINE HP: 45 HP A complete package of a large capacity engine, heavy-duty transmission, high lift capacity hydraulics and a very robust cast iron chassis. These machines perfectly suit almost all kinds of farming operations ranging from basic chores to commercial landscaping.

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MODEL : 595 DI ENGINE HP: 52 HP A complete package of a large capacity engine, heavy-duty transmission, high lift capacity hydraulics and a very robust cast iron chassis. These machines perfectly suit almost all kinds of farming operations ranging from basic chores to commercial landscaping.

MODEL : 585 DI ENGINE HP: 50 HP

A complete package of a large capacity engine, heavy-duty transmission, high lift capacity hydraulics and a very robust cast iron chassis. These machines perfectly suit almost all kinds of farming operations ranging from basic chores to commercial landscaping. Ultra SERIES MODEL : 445 DI ENGINE HP: 42 HP These tough and reliable tractors are designed to perform multiple tasks and take on the rigors of work with ease. They specialise in all kinds of farming operations, ranging from secondary tillage to crop protection and mowing. MODEL : 555 DI ENGINE HP: 52 HP These tough and reliable tractors are designed to perform multiple tasks and take on the rigors of work with ease. They specialise in all kinds of farming operations, ranging from secondary tillage to crop protection and mowing. MODEL : 605 DI ENGINE HP: 59 HP These tough and reliable tractors are designed to perform multiple tasks and take on the rigors of work with ease. They specialise in all kinds of farming operations, ranging from secondary tillage to crop protection and mowing.

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WORKING CAPITAL MANAGEMENT

Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm.

Composition of working capital Major Current Assets

Cash

In English vernacular cash refers to money in the physical form of currency, such asbanknotes and coins. In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately (as in the case of money market accounts). Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash flow or as a way to avoid a downturn on financial markets. Accounts Receivables Accounts receivable also known as Debtors, is money owed to a business by its clients (customers) and shown on its balance sheet as an asset. It is one of a series of accounting transactions dealing with the billing ofcustomer for goods and services that the customer has ordered.

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Inventory In a business accounting context, the word inventory is commonly used in American English to describe the goods and materials that a business holds for the ultimate purpose of resale. In the rest of the English speaking world stock is more commonly used, although the word inventory is recognised as a synonym. In British English, the word inventory is more commonly thought of as a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished.[1] In American English, the word stock is commonly used to describe the capital invested in a business, while in British English, the word share is more widely used in the same context. In both British and American English, stock is the collective noun for one hundred shares as shares were usually traded in stocks on Stock Exchanges. For this reason the word stock is used by both American and British English in the term Stock Exchange. Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Marketable securities are very liquid as they tend to have maturities of less than one year. Furthermore, the rate at which these securities can be bought or sold has little effect on their prices.

Major Current Liabilities

Bank Overdraft A bank overdraft is when someone is able to spend more than what is actually in their bank account. Obviously the money doesn't belong to them but belongs to the bank so this money will need to be paid back; normally automatically done when money goes into the persons account. The overdraft will be limited. A bank overdraft is also a type of loan as the money is technically borrowed.

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Outstanding Expenses Making liability provision for the expenses relating to current year but actual

payment to be incurred in the next financial year is outstanding expenses. Example of this case may be salary arrears. Accounts Payable Accounts payable is money owed by a business to its suppliers and shown on its Balance Sheet as a liability. An accounts payable is recorded in the Account Payable sub-ledger at the time an invoice is vouchered for payment. Vouchered, or vouched, means that an invoice is approved for payment and has been recorded in the General Ledger or AP subledger as an outstanding,or open, liability because it has not been paid. Payables are often categorized as Trade Payables, payables for the purchase of physical goods that are recorded in Inventory, and Expense Payables, payables for the purchase of goods or services that are expensed. Bills Payable Similar to accounts payable, this term is used to describe a bank's indebtedness to other banks, principally a Federal Reserve Bank, that is backed by collateral consisting of the bank's promissory note and a pledge of government securities. In other words, bills payable is the money a bank borrows, mainly on a short-term basis, and owes to other banks. The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities.

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CONCEPTS OF WORKING CAPITAL:

There are 2 concepts: Gross Working Capital Net Working Capital

Gross working capital: It is referred as total current assets. Focuses on, Optimum investment in current assets: Excessive investments impair firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets. Financing of current assets: Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities. Net working capital (NWC) defined by 2 ways Difference between current assets and current liabilities Net working capital is that portion of current assets which is financed with long term funds.

NET WORKING CAPITAL = CURRENT ASSETS CURRENT

LIABILITIES If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk.

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Implications of Net Working Capital:

Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC. For evaluating NWC position, an important consideration is tradeoff between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease.

PLANNING OF WORKING CAPITAL:

Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn sufficient return from its operations. WCM is a significant facet of financial management. Its importance stems from two reasons: Investment in current asset represents a substantial portion of total investment. Investment in current assets and level of current liability has to be geared quickly to change in sales. Business undertaking required funds for two purposes: To create productive capacity through purchase of fixed assets. To finance current assets required for running of the business. The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities.

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The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are necessary for earning profits. However, sales do not convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two. To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle.

WORKING CAPITAL CYCLE:

A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business

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Operating cycle:
The working capital cycle refers to the length of time between the firms paying the cash for materials, etc., entering into production process/stock & the inflow of cash from debtors (sales), suppose a company has certain amount of cash it will need raw materials. Some raw materials will be available on credit but, cash will be paid out for the other part immediately. Then it has to pay labour costs & incurs factory overheads. These three combined together will constitute work in progress. After the production cycle is complete, work in progress will get converted into sundry debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be again used for financing raw material, work in progress etc. thus there is complete cycle from cash to cash wherein cash gets converted into raw material, work in progress, finished goods and finally into cash again. Short term funds are required to meet the requirements of funds during this time period. This time period is dependent upon the length of time within which the original cash gets converted into cash again. The cycle is also known as operating cycle or cash cycle. Working capital cycle can be determined by adding the number of days required for each stage in the cycle. For example, company holds raw material on average for 60 days, it gets credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of working capital. Thus the working capital cycle helps in the forecast, control & management of working capital. It indicates the total time lag & the relative signific ance of its constituent parts. The duration may vary depending upon the business policies. In light of the facts discusses above we can broadly classify the operating cycle of a firm into three phases viz. 1. Acquisition of resources. 2. Manufacture of the product and 3. Sales of the product (cash / credit).

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First and second phase of the operating cycle result in cash outflows, and be predicted with reliability once the production targets and cost of inputs are known. However, the third phase results in cash inflows which are not certain because sales and collection which giv e rise to cash inflows are difficult to forecast accurately. Operating cycle consists of the following: Conversion of cash into raw-materials; Conversion of raw-material into work-in-progress; Conversion of work-in-progress into finished stock; Conversion of finished stock into accounts receivable through sales; And Conversion of accounts receivable into cash.

In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D C R = Raw material storage period W = Work in progress holding period F = Finished goods storage period D = Debtors collection period C = Credit period availed

Operating cycle for manufacturing firm:

The firm is therefore, required to invest in current assets for smooth and uninterrupted functioning. RMCP - Raw Material Conversion Period WIPCP - Work in Progress Conversion Period
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FGCP - Finished Goods Conversion Period ICP - Inventory Conversion Period RCP - Receivables Conversion Period Payables (PDP) - Payables Deferral Period NOC - Net Operating Cycle GOC - Gross Operating Cycle Here, the length of GOC is the sum of ICP and RCP. ICP is the total time needed for producing and selling the products. Hence it is the sum total of RMCP, WIPCP and FGCP. On the other hand, RCP is the total time required to collect the outstanding amount from customers. Usually, firm acquires resources on cr edit basis. PDP is the result of such an incidence and it represent the length of time the firm is able to defer payments on various resources purchased. The difference between GOC and PDP is know as Net Operating Cycle and if Depreciation is excluded from the expenses in computation of operating cycle, the NOC also repr esents the cash collection from sale and cash payments for resources acquired by the firm and during such time interval between cash collection from sale and cash payments for resources acquired by the firm and during such time interval over which additional funds called working capital should be obtained in order to carry out the firms operations. In short, the working capital position is directly proportional to the Net Operating Cycle.

Calculations:
On the basis of financial statement of an organization we can calculate the inventory conversion period. Debtors / receivables conversion period and the creditors conversion period and based on such calculations we can find out the length of the operating cycle (in days) both gross as well as net operating cycle.

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As mentioned above, on the basis of information presented in the Balance sheet and CMA statement of Kirloskar Pneumatics Company Limited, the length of gross as well as net operating cycle is calculated as follows: The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and, therefore, the need for current assets is felt constantly. But the magnitude of current assets needed is not always a minimum level of current assets which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent, or fixed, working capital. It is permanent in the same way as the firms fixed assets are. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital, will fluctuate. For example, extra inventory of finished goods will have to be maintained to support the peak periods of sales, and investment in receivable may also increase during such periods. On the other hand, investment in raw material, work-in-process and finished goods will fall if the market is slack. The extra working capital, needed to support the changing production and sales activities is called FLUCTUATING, or VARIABLE, or TEMPORARY working capital. Both kinds of working capital PERMANENT and TEMPORARY - are necessary to facilitate production and sale through the operating cycle, but temporary-working capital is created by the firm to meet liquidity requirements that will last only temporary working capital. It is shown that permanent working capital is stable over time. While temporary working capital is fluctuating- sometimes increasing and sometimes decreasing. However, the permanent capital is difference between permanent and temporary working capital can be depicted through figure.

BALANCED WORKING CAPITAL POSITION

The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firm s point of view. Excessive working capital not only impairs the firm s profitability but also result in

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production interruptions and inefficiencies. The dangers of excessive working capital are as follows: It results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase. It is an indication of defective credit policy slack collections period. Consequently, higher incidence of bad debts results, which adversely affects profits. Excessive working capital makes management complacent which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits. Inadequate working capital is also bad and has the following dangers: It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non- availability of working capital funds. It becomes difficult to implement operating plans and achieve the firm s profit target. Operating inefficiencies creep in when it becomes difficult even to meet day commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firm s profitability would deteriorate. Paucity of working capital funds render the firm unable to avail attractive credit opportunities etc. The firm loses its reputation when it is not in a position to honour its short-term obligations. As a result, the firm faces tight credit terms. An enlightened management should, therefore, maintain the right amount of working capital on a continuous basis. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by judgment, should be used to pr edict the quantum of working capital needed at different time periods. A firm s net working capital position is not only important as an index of liquidity but it is also used as a measure of the firm s risk. Risk in this regard means
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chances of the firm being unable to meet its obligations on due date. The lender considers a positive net working as a measure of safety. All other things being equal, the more the net workingcapital a firm has, the less likely that it will default in meeting its current financial obligations. Lenders suc h as commercial banks insist that the firm should maintain a minimum net working capital position.

DETERMINANTS OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirements of firms. A large number of factors, each hav ing a different im portance, influence working capital needs of firms. Also, the importance of factors changes for a firm over tim e. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors which generally influence the working capital requirements of firms. Nature of Business Sales and Demand Conditions Technology and Manufacturing Policy Credit Policy Availability of Credit Operating Efficiency Price Level Changes

Nature of Business: Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy varied and continuous demand of their customers. Some manufacturing business, such as tobacco manufacturers and construction firm, also have to invest substantially in working capital and a nominal amount in fixed assets. In contrast, public utilities have a very limited need for working capital and have to invest abundantly in fixed assets. Their working capital requirements are nominal because they may have only cash and supply
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services, not products. Thus, no funds will be tied up in debtors and stock (inventor ies). Working capital requires most of the manufacturing concerns to fall between the two extreme requirements of trading firms and public utilities. Such concerns have to make adequate investment in current assets depending upon the total assets structure and other variables. Sales and Demand Conditions: The working capital needs of a firm are related to its sales. It is difficult to precisely determine the relationship between volume of sales and working capital needs. In practice, current assets will have to be employed before growth takes place. It is , therefore, necessary to make advance planning of working capital for a growing firm on a continuous basis. A growing firm may need to invest funds in fixed assets in order to sustain its growing production and sales. This will, in turn, increase investment in current assets to support enlarged scale of operations. It should be realized that a growing firm needs funds continuously. It uses external sources as well as internal sources to meet increasing needs of funds. Such a firm faces fur ther financial problems when it retains substantial portion of its profits. It would not be able to pay dividends to shareholders. It is, therefore, Imperative that proper planning be done by such companies to finance their increasing needs for working capital. Sales depend on demand conditions. Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. These business variations affect the working capital requirements, specially the temporary working capital requirement of the firm. When there is an upward swing in the economy, sales will increase; correspondingly, the firm s investment in inventories and debtors will also increase. Under boom, additional investment in fixed assets may be made by some firms to increase their productive capacity. This act of firm wills requires further additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom further additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom period, fir ms generally resort to substantial borrowing. On the other hand, when there is a decline in the economy, sales will fall and consequently, levels of inventories and debtors will also fall. Under recessionary conditions, firms try
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to reduce their short term borrowings. Seasonal fluctuations not only affect working capital requirements but also create production problems for the firm. During periods of peak demand, increasing production may be expensive for the firm. Similarly, it will be more expensive during slack periods when the firm has to sustain its working force and physical facilities without adequate production and sales. A firm may, thus, follow a policy of steady production, irrespective of seasonal changes in order to utilize its resources to the fullest extent. Such a policy will mean accumulation of inventories during off season and their quick disposal during the peak season. The increasing level of inventories during the slack season will require increasing funds to be tied up in the working capital for some months. Unlike cyclical fluctuations, seasonal fluctuations generally conform to a steady pattern. Therefore, financial arrangements for seasonal working capital requirements can be made in advance. However, the financial plan or arrangement should be flexible enough to take care of some abrupt seasonal fluctuations. Technology and Manufacturing Policy The manufacturing cycle (or the inventory conversion cycle) comprises of the purchase and use of raw material the production of finished goods. Longer the manufacturing cycle, larger will be the firm working capital requir ements. For example, the manufacturing cycle in the case of a boiler, depending on its size, may range between six to twenty- four months. On the other hand, the manufacturing cycle of products such as detergent powder, soaps, chocolate etc. may be a few hours. An extended manufacturing time span means a larger tie- up of funds in inventories. Thus, if there are alternative technologies of manufacturing a product, the technological process with the shortest manufacturing cycle may be chosen. Once a manufacturing technology has been selected, it should be ensured that manufacturing cycle is completed within the specified period. This needs proper planning and coordination at all levels of activity. Any delay in manufacturing process will results in accumulation of work- in- process and waste of time. In order to minimize their investment in working capital, some firms, especially firm Manufacturing industrial products have a policy of asking for advance payment from their customers. Non-manufacturing firms, service and financial enterprises do not have a manufacturing cycle. A strategy of
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constant production may be maintained in order to resolve the working capital problems arising due to seasonal changes in the demand for the firm product. A steady production policy will cause inventor ies to accumulate during the off- r eason periods and the firm will be exposed to greater inventory costs and risks. Thus, if costs and risks of maintaining a constant production policy, varying its production utilized for manufacturing varied products, can have the advantage of diversified Activities and solve their working capital problems. They will manufacture the original product line during its increasing demand and when it has an off- season, other products may be manufactured to utilize physical resources and working force. Thus, production policies will differ from firm to firm, depending on the circumstances of individual firm. Credit Policy The credit policy of the firm affects the working capital by influencing the level of debtors. The credit terms to be granted to customers may depend upon the norms of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of industry norms and practices. The firm should be discretion in granting credit terms to its customers. Depending upon the individual case, different terms may be given to different customers. A liberal credit policy, without rating the credit-worthiness of customers, will be detrimental to the firm and will create a problem of collections. A high collection period will mean tie- up of large funds in book debts. Slack collection procedures can increase the chance of bad debts. In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a rationalized credit policy based on the credit standing of customers and periodically review the creditworthiness of the exiting customers. The case of delayed payments should be thoroughly investigated. Availability of Credit The working capital requirements of a firm are also affected by credit terms granted by its creditors. A firm will need less working capital if liberal credit terms are available to it. Similarly, the availability of credit from banks also influences the
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working capital needs of the firm. A firm which can get bank credit easily on favorable condition will operate with less working capital than a firm without such a facility. Operating Efficiency The operating efficiency of the firm relates to the optim um utilization of resources at minimum costs. The firm will be effectively contributing in keeping the working capital investment at a lower level if it is efficient in controlling operating costs and utilizing current assets. The use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency. Better utilization of resources improves profitability and, thus, helps in releasing the pressure on working capital. Although it may not be possible for a firm to control prices of materials or wages of labour, it can certainly ensure efficiency and effective use of its materials, labour and other resources. Price Level Changes The increasing shifts in price level make functions of financial manager difficult. He should anticipate the effect of price level changes on working capital requir ement of the firm. Generally, rising price levels will require a firm to maintain higher amount of working capital. Same levels of current assets will need increased investment when price are increasing. However, companies which can immediately revise their product price levels will not face a server working capital problem. Further, effects of increasing general price level will be felt differently by firm as individual price may move differently. It is possible that some companies may not be affected by rising price will be different for companies. Some will face no working capital problem, while working capital problems of other may be aggravated.

REQUIREMENTS OF FUNDS
Funds Requirements of company Fixed Capital Working Capital
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Preliminary Expenses Raw Material Purchase of Fixed Assets Inventories Establishment work exp. Goods in Process Fixed working capital Others Every company requires funds for investing in two types of capital i.e. fixed

capital, which requires long-term funds, and working capital, which requires short-term funds.

SOURCES OF WORKING CAPITAL

Long- term source (Fixed working capital) a) Loan from financial institution b) Floating of Debentures c) Accepting public deposits d) Issue of shares e) Cash credit f) Commercial paper Sources of additional working capital include the following: Existing cash reserves Profits (when you secure it as cash!)
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Short-term source (Temporary working capital) a) Factoring b) Bill discounting c) Bank overdraft d) Trade credit

Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Term loans If you have insufficient working capital and try to increase sales, you can easily

over-stretch the financial resources of the business. This is called overtrading. Early warning signs include: Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early cash payment Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a cheque).

LONG TERM SOURCES

ISSUE OF SHARES Ordinary shares are also known as equity shares and they are the most common form of share in the UK. An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company. Since the profits of companies can vary wildly from year to year, so can the dividends paid to ordinary shareholders. In bad years, dividends may be nothing whereas in good years they may be substantial. The nominal value of a share is the issue value of the share - it is the value written on the share certificate that all shareholders will be given by the company in which they own shares. The market value of a share is the amount at which a share is being sold on the stock exchange and may be radically different from the nominal value.
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When they are issued, shares are usually sold for cash, at par and/or at a premium. Shares sold at par are sold for their nominal value only - so if Rs.10 share is sold at par, the company selling the share will receive Rs. 10 for every share it issues. If a share is sold at a premium, as many shares are these days, then the issue price will be the par value plus an additional premium. DEBENTURES Debentures are loans that are usually secured and are said to have either fixed or floating charges with them. A secured debenture is one that is specifically tied to the financing of a particular asset such as a building or a machine. Then, just like a mortgage for a private house, the debenture holder has a legal interest in that asset and the company cannot dispose of it unless the debenture holder agrees. If the debenture is for land and/or buildings it can be called a mortgage debenture. Debenture holders have the right to receive their interest payments before any dividend is payable to shareholders and, most importantly, even if a company makes a loss, it still has to pay its interest charges. If the business fails, the debenture holders will be preferential creditors and will be entitled to the repayment of some or all of their money before the shareholders receives anything. LOANS FROM OTHER FINANCIAL INSTITUTIONS The term debenture is a strictly legal term but there are other forms of loan or loan stock. A loan is for a fixed amount with a fixed repayment schedule and may appear on a balance sheet with a specific name telling the reader exactly what the loan is and its main details.

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SHORT TERM SOURCES

FACTORING Factoring allows you to raise finance based on the value of your outstanding invoices. Factoring also gives you the opportunity to outsource your sales ledger operations and to use more sophisticated credit rating systems. Once you have set up a factoring arrangement with a Factor, it works this way: Once you make a sale, you invoice your customer and send a copy of the invoice to the factor and most factoring arrangements require you to factor all your sales. The factor pays you a set proportion of the invoice value within a pre-arranged time - typically, most factors offer you 80-85% of an invoice's value within 24 hours. The major advantage of factoring is that you receive the majority of the cash from debtors within 24 hours rather than a week, three weeks or even longer. INVOICE DISCOUNTING Invoice discounting enables you to retain the control and confidentiality of your own sales ledger operations. The client company collects its own debts. 'Confidential invoice discounting' ensures that customers do not know you are using invoice discounting as the client company sends out invoices and statements as usual. The invoice discounter makes a proportion of the invoice available to you once it receives a copy of an invoice sent. Once the client receives payment, it must deposit the funds in a bank account controlled by the invoice discounter. The invoice discounter will then pay the remainder of the invoice, less any charges. The requirements are more stringent than for factoring. Different invoice discounters will impose different requirements. OVERDRAFT FACILITIES Many companies have the need for external finance but not necessarily on a long- term basis. A company might have small cash flow problems from time to time but such problems don't call for the need for a formal long-term loan. Under these circumstances, a company will often go to its bank and arrange an overdraft.
53

Bank overdrafts are given on current accounts and the good point is that the interest payable on them is calculated on a daily basis. So if the company borrows only a small amount, it only pays a little bit of interest. Contrast the effects of an overdraft with the effects of a loan. TRADE CREDIT This source of finance really belongs under the heading of working capital management since it refers to short-term credit. By a 'line of credit' they mean that a creditor, such as a supplier of raw materials, will allow us to buy goods now and pay for them later. Why do they include lines of credit as a source of finance? They ll, if they manage their creditors carefully they can use the line of credit they provide for us to finance other parts of their business. Take a look at any company's balance sheet and see how much they have under the heading of Creditors falling due within one year' let's imagine it is Rs. 25,000 for a company. If that company is allowed an average of 30 days to pay its creditors then they can see that effectively it has a short term loan of Rs. 25,000 for 30 days and it can do whatever it likes with that money as long as it pays the creditor on time.

CASH MANAGEMENT:
Cash management is one of the key areas of WCM. Apart from the fact that it is the most liquid asset, cash is the common denominator to which all current assets, that is, receivables & inventory get eventually converted into cash. Cash is oil of lubricate the ever-turning wheels of business: without it the process grinds to a shop. Motives for holding cash Cash with reference to cash management is used in two senses: It is used broadly to cover currency and generally accepted equivalents of cash, such as cheques, drafts and demand deposits in banks. It includes near-cash assets, such as marketable securities & time deposits in banks.

54

The main characteristic of these is that they can be readily sold & converted into cash. They serve as a reserve pool of liquidity that provides cash quickly when needed. They provide short term investment outlet to excess cash and are also useful for meeting planned outflow of funds.

CASH IS MAINTAINED FOR FOUR MOTIVES:

A. Transaction motive: Transaction motive refer to the holding of cash to meet routine cash requirements to finance the transactions which a firm carries on in a variety of transactions to accomplish its objectives which have to be paid for in the form of cash. E.g. payment for purchases, wages, operating expenses, financial charges like interest, taxes, dividends etc. Thus requirement of cash balances to meet routine need is known as the transaction motive and such motive refers to the holding of cash to meet anticipated obligations whose timing is not perfectly synchronized with cash receipts. B. Precautionary motive: A firm has to pay cash for the purposes which cannot be predicted or anticipated. The unexpected cash needs at the short notice may be due to: Floods, strikes & failure of customer Slow down in collection of current receivables Increase in cost of raw material Collection of some order of goods as customer is not satisfied The cash balance held in reserves for such random and unforeseen fluctuations in cash flows are called as precautionary balance. Thus, precautionary cash provides a cushion to meet unexpected contingencies. The more unpredictable are the cash flows, the larger is the need for such balance.

55

C. Speculative motive: It refers to the desire of the firm to take advantage of opportunities which present themselves at unexpected moment & which are typically outside the normal course of business. If the precautionary motive is defensive in nature, in that firms must make provisions to tide over unexpected contingencies, the speculative motive represents a positive and aggressive approach. The speculative motive helps to take advantages of: An opportunity to purchase raw material at reduced price on payment of immediate cash. A chance to speculate on interest rate movements by buying securities when interest rates are expected to decline. Make purchases at favorable price. Delay purchase of raw material on the anticipation of decline in prices.

OBJECTIVES OF CASH MANAGEMENT:

To meet the cash disbursement needs In the normal course of business firms have to make payment of cash on a continuous and regular basis to the supplier of goods, employees and so son. Basic objective is to meet payment schedule that is to have sufficient cash to meet the cash disbursement needs of the firm. To minimize the funds committed to cash balances First of all if we keep high cash balance, it will ensure prompt payment together with all the advantages. But it also implied that the large funds will remain idle, as cash is the non-earning asset and firm will have to forego profits. On the other hand, low cash balance mean failure to meet payment schedule. Therefore we should have optimum level of cash balance.

FACTORS DETERMINING CASH NEEDS:

Synchronization of cash - need for the cash balances arises from the non-synchronization of the inflows & outflows of cash. First need in determining cash needs is, the extent of non- synchronization of cash receipts & disbursements. For this purpose cash budget is to be prepared. Cash budget point out when the firm will have excess or shortage of cash.

Short cash Cash period reveals the period of cash shortages. Every shortage of cash whether expected or unexpected involves a cost depending upon the
56

security, duration & frequency of shortfall & how the shortage is covered. Expenses incurred as a shortfall are called short costs. There are following costs included in the short cash Transaction cost: this is usually the brokerage incurred in relation to the some short-term near-cash assets like marketable securities. Borrowing costs: these include interest on loan, commitment charges & other expenses relating to loan. Loss of cash discount: that s a loss because of temporary shortage of cash. Cost associated with deterioration of credit rating. Penalty rates: By a bank to meet a shortfall in compensating balances.

Excess cash balance - cost associated with excessively large cash balances is known as excess cash balance cost. If large funds are idle the implication is that the firm has missed the opportunity to invest those funds and has thereby lost interest. This loss of interest is primarily the excess cost.

Procurement & Management cost associated with establishing and operating cash management staff and activities. They are generally fixed and accounted for by salary, handling of securities etc.

Uncertainty the first requirement in cash management is Precautionary cushion to cope with irregularities in cash flows, unexpected delays in collection &disbursements, defaults and unexpected cash needs.

Impact can be reduced through: Improved forecasting of tax payments, capital expenditure, dividends etc. Increased ability to borrow through overdraft facility.

57

DETERMINING THE CASH NEEDS:

Cash needs can be determined though preparing cash budget, for year, month, week etc. Cash reports, providing a comparison of actual development with forecast figures, are helpful in controlling and revising cash forecasts on a continual basis The important cash reports are The daily cash reports Daily treasury reports The monthly cash report Monitoring collection and receivables: The Finance Manager must control the levels of cash balance at various points in the organization. This task assumes special importance on account of the fact that there is generally tendency amongst divisional manager to keep cash balance in excess of their needs. Hence a finance manager must devise a system whereby each division of organization retains enough cash to meet its day-to-day requirements without having surplus balance on hand. For this methods have to be employed to: Speed up the mailing time of payment from customers Reduce the time during which payments received by the firm remain uncollected and speed up the movement funds to disbursement banks. For this purpose following can be helpful: 1 Prompt billing often there is time lag between the dispatch of goods or provision of service and the sending of bills. By preparing and sending the bills promptly, a firm cans esure earlier remittance. It should be realized that it is in the area of billing that the company control is high and there is a sizeable opportunity to free up cash. OPTIMAL CASH BALANCE It a firm maintains a small cash balance, it has to sell its marketable securities more frequently than if it holds a large cash balance. Hence trading or transaction costs will tend to diminish if cash balance becomes larger. However, the opportunity costs of maintaining cash rise as the cash balance increases.
58

From the figure, the total costs of holding cash are at a minimum when the size of the cash balance is C . This represents optimal cash balance. Deployment of surplus funds: Company s often have surplus funds for short period of time before they are required for capital expenditure, loan repayment or some other purposes. At the one end they are invested in term deposit in bank and on other end are invested in equity shares. They can be invested in several options like Units of the unit 1964 scheme: This is the most important mutual fund scheme in India. It has the following features-

DEBTORS MANAGEMENT
Assessing the credit worthiness of customers Before extending credit to a customer, a supplier should analyze the five Cs of credit worthiness, which will provoke a series of questions. These are: Capacity: will the customer be able to pay the amount agreed within the allowable credit period? What is their past payment record? How large is the customer's business capital. what is the financial health of the customer? Is it a liquid and profitable concern, able to make payments on time? Character: do the customers management appear to be committed to prompt payment? Are they of high integrity? What are their personalities like? Collateral: what is the scope for including appropriate security in return for extending credit to the customer? Conditions: what are the prevailing economic conditions? How are these likely to impact on the customers ability to pay promptly? Whilst the materiality of the amount will dictate the degree of analysis involved, the major sources of information available to companies in assessing customers credit worthiness are: Bank references: These may be provided by the customers bank to indicate their financial standing. However, the law and practice of banking secrecy determines the
59

way in which banks respond to credit enquiries, which can render such references uninformative, particularly when the customer is encountering financial difficulties. Trade references: Companies already trading with the customer may be willing to provide a reference for the customer. This can be extremely useful, providing that the companies approached are a representative sample of all the clients suppliers. Such references can be misleading, as they are usually based on direct credit experience and contain no knowledge of the underlying financial strength of the customer. Financial accounts: The most recent accounts of the customer can be obtained either direct from the business, or for limited companies, from Companies House. While subject to certain limitations past accounts can be useful in vetting customers. Where the credit risk appears high or where substantial levels of credit are required, the supplier may ask to see evidence of the ability to pay on time. This demands access to internal future budget data. Personal contact: Through visiting the premises and interviewing senior management, staff should gain an impression of the efficiency and financial resources of customers and the integrity of its management. Credit agencies: Obtaining information from a range of sources such as financial accounts, bank and newspaper reports, court judgments, payment records with other suppliers, in return for a fee, credit agencies can prove a mine of information. They will provide a credit rating for different companies. The use of such agencies has grown dramatically in recent years. Past experience: For existing customers, the supplier will have access to their past payment record. However, credit managers should be aware that many failing companies preserve solid payment records with key suppliers in order to maintain supplies, but they only do so at the expense of other creditors. Indeed, many companies go into liquidation with flawless payment records with key suppliers. General sources of information: Credit managers should scout trade journals, business magazines and the columns of the business press to keep abreast of the key
60

factors influencing customers' businesses and their sector generally. Sales staffs who have their ears to the ground can also prove an invaluable source of information. Credit terms granted to customers: Although sales representatives work under the premise that all sales are good (particularly, one may add, where commission is involved!), the credit manager must take a more dispassionate view. They must balance the sales representative's desire to extend generous credit terms, please customers and boost sales, with a cost/benefit analysis of the impact of such sales, incorporating the likelihood of payment on time and the possibility of bad debts. Where a customer does survive the credit checking process, the specific credit terms offered to them will depend upon a range of factors. These include: Order size and frequency: companies placing large and/or frequent orders will be in a better position to negotiate terms than firms ordering on a one-off basis. Market position: the relative market strengths of the customer and supplier can be influential. For example, a supplier with a strong market share may be able to impose strict credit terms on a weak, fragmented customer base. Profitability: The size of the profit margin on the goods sold will influence the generosity of credit facilities offered by the supplier. If margins are tight, credit advanced will be on a much stricter basis than where margins are wider.

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RATIO ANALYSIS

1. LIQUIDITY RATIOS: It is the ability of a firm to satisfy' its short term obligations as they become due. But Liquidity implies from the view point of utilization of the funds of the firm that funds are idle or they earn very little. And it reflects the short term financial strength / solvency of a firm. A firm should not suffer lack of liquidity and also that it does not have excess liquidity. Low liquidity implies the firm's inability to meet its obligations and high liquidity is also bad; idle masses earn nothing. Therefore it is necessary to strike a proper; balance between high and lack of liquidity,

CURRENT RATIO: This ratio establishes the relationship between Current Assets and Current Liabilities. Components: Meaning: 1 Current Assets: This means the assets which are held for their conversion into cash within a year. 2 Current liabilities: This means liabilities which are expected to be matured with a year. Computation: This ratio is computed by dividing the current assets by current liability. Generally 2 : 1 is considered ideal for a concern.

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Formula: Current Assets Current ratio = --------------------------Current liabilities

ABSOLUTE LIQUID RATIO: Meaning: This ratio establishes the relationship between absolute liquid assets and current liabilities. Components; 1. Absolute quick assets (cash in hand, cash at bank short term or temporary investment) 2. Current Liabilities Computations This ratio is computed by dividing the absolute quick assets by the current liabilities. Formula: Absolute Liquid Assets Absolute Liquid Ratio = ----------------------------Current Liabilities

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QUICK RATIO: Meaning: This ratio establishes the relationship between quick assets and current liabilities. Components: 1 Quick Assets: This means those current assets, which can be converted Into cash immediately or at a short notice without a loss of value. 2 Current Liabilities. Computation: This ratio is computed by dividing the quick assets by current liabilities. Generally 1: 1 is considered ideal for a concern. Formula: Quick Assets Current Ratio = ----------------------Current Liabilities INVENTORY TURNOVER RATIO: Meaning: This Ratio establishes a relationship between Cost of goods sold or sales and average inventory. Components: 1. Sales or Cost of Goods Sold. 2. Average Inventory (average of opening closing balance of inventory). Computation: This ratio is computed by dividing the sales or COGS by average inventory.

64

Formula: Cost of goods sold Inventory turnover Ratio = -------------------------Average inventory OR Sales Inventory turnover ratio = ----------------------Inventory WORKING CAPITAL TURNOVER RATIO: Meaning: This ratio establishes a relationship between net sales and working capital. Components: 1. Net sales (Gross sales - sales returns) 2. Working capital (CA - CL) Computation: This ratio is computed by dividing the net sales by the net working capital Formula: Net sales Working capital Turnover Ratio = -----------------------Working capital CURRENT ASSETS TURNOVER RATIO: Meaning: This ratio establishes a relationship between net sales and current assets. Components: 1. Net sales (Gross sales - sales returns) 2. Current assets. Formula: Net sales ------------------------Current assets
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current assets Turnover Ratio =

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEARS 2007-08 (IN 000) INCREASE IN WORKING CAPITAL DECREASE IN WORKING CAPITAL

PARTICULARS

2007

2008

A) Current Assets Inventories 3668.14 4012.47 344.33

Sundry debtors

9044.86

9280.53

235.67

Cash and Bank Loans & Advances Total Current Assets B) Current Liabilities Sundry Creditor

745.04

108.06

637.02

1206.58

1238.00

31.42

14664.64

14639.01

9180.23

7254.00

1926.23

Provisions Total Current Liabilities Net working capital

156.20

167.00

10.80

9336.43

7421.00

5328.21

7218.01

2537.65

647.82

Increase in working capital

1889.81

1889.81

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INTERPRETATION: From the above table, it is clear that Current assets decreased from 14664.64 in the year 2007 to 14639.01 in the year 2008. Current liabilities decreased from 9336.43 in the year 2007 to 7421.00 in the year 2008. Net Working capital increased from 5328.21 in the year 2007 to 7218.01 in the year 2008. The overall increase in net working capital is 1889.81.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEARS 2008-09 (IN 000) INCREASE IN WORKING CAPITAL DECREASE IN WORKING CAPITAL

PARTICULARS

2008

2009

A) Current Assets Inventories Sundry debtor Cash and Bank Loans & Advances Total Current Assets B) Current Liabilities Sundry Creditor Provisions Total Current Liabilities Net working capital Decreasing in working capital 7254.00 167.00 7421.00 7218.01 8602.37 3.03 8605.4 6007.32 1184.4 1210.69 4012.47 9280.53 108.06 1238.00 14639.01 4189.63 8977.12 55.9 1390.07 14612.72 0 1348.37 163.97 152.07 26.29 177.16 303.41 52.16

1210.69

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INTERPRETATION: From the above table, it is clear that Current assets decreased from 14639.01 in the year 2008 to 14612.72 in the year 2009. Current liabilities increased from 7421 in the year 2008 to 8605.4 in the year 2009. Net Working capital decreased from 7218.01in the year 2008 to 6007.32 in the year 2009. The overall decrease in net working capital is 1210.69.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEARS 2009-10 INCREASE IN WORKING CAPITAL DECREASE IN WORKING CAPITAL

PARTICULARS

2009

2010

A) Current Assets Inventories 4189.63 4297.24 107.61

Sundry debtor

8977.12

8841

136.12

Cash and Bank Loans & Advances Total Current Assets B) Current Liabilities Sundry Creditor

55.9

81.59

25.69

1390.07

1958.17

568.1

14612.72

15178.00

565.28

8602.37

8429.44

172.93

Provisions Total Current Liabilities Net working capital

3.03

1.75

1.28

8605.4

8431.19

174.21

6007.32

6746.81

739.49

Increasing in working capital

739.49

739.49

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INTERPRETATION: From the above table, it is clear that Current assets increased from 14612.72 in the year 2009 to 15178.00 in the year 2010. Current liabilities decreased from 8605.4 in the year 2009 to 8431.19 in the year 2010. Net Working capital increased from 6007.32 in the year 2008 to 6746.81 in the year 2009. The overall decrease in net working capital is 739.49.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEARS 2010-11 INCREASE IN WORKING CAPITAL DECREASE IN WORKING CAPITAL

PARTICULARS

2010

2011

A) Current Assets Inventories Sundry debtor Cash and Bank Loans & Advances Total Current Assets B) Current Liabilities Sundry Creditor Provisions Total Current Liabilities Net working capital Decreasing in working capital 8429.44 1.75 8431.19 6746.81 7741.32 176.00 7917.32 6560.94 174.25 513.87 4297.24 8841 81.59 1958.17 15178.00 2940.45 8757.51 261.43 3032.64 14992.03 0 688.12 179.84 1074.5 185.97 1356.79 83.49

185.87

185.87

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INTERPRETATION: From the above table, it is clear that Current assets decreased from 15178 in the year 2010 to 14992.03 in the year 2011. Current liabilities decreased from 8431.19 in the year 2010 to 7917.32 in the year 2011. Net Working capital decreased from 6746.81 in the year 2010 to 6560.94 in the year 2011. The overall decrease in net working capital is 185.87.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEARS 2011-12 INCREASE IN WORKING CAPITAL DECREASE IN WORKING CAPITAL

PARTICULARS

2011

2012

A)Current Assets a)Inventories 2940.45 3094.70 154.25

b)Sundry debtor c)Cash and Bank d)Loans & Advances Total Current Assets B)Current Liabilities a)Sundry Creditor

8757.51 261.43 3032.64

8494.77 220.43 3421.61 388.97

262.74 41

14992.03

15231.50

239.47 0

7741.32

8207.33

466.01

b)Provisions Total Current Liabilities Net working capital

176.00

178.12

2.12

7917.32 6560.94

8385.46 6846.04

468.14 285.1

Increasing in working capital

285.1

285.1

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INTERPRETATION: From the above table, it is clear that Current assets increased from 14992.03 in the year 2011 to 15231.50 in the year 2012. Current liabilities increased from 7917.32 in the year 2011 to 8385.46 in the year 2012. Net Working capital increased from 6560.94 in the year 2011 to 6546.04 in the year 2012. The overall decrease in net working capital is 285.1.

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1. CURRENT ASSETS YEAR 2006-07 2007-08 2008-09 2009-10 2010-2011 2011-12 CURRENT ASSETS 14664.64 14639.01 14612.72 15178 14992.03 15231.50

CURRENT ASSETS
15300 15200 Percentage of respondents 15100 15000 14900 14800 14700 14600 14500 14400 14300 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Years 14664.64 14639.01 14612.72 15178 14992.03 15231.5

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INTERPRETATION: In the year 2006-07 the current assets are 14664.64 In the year 2007-08 the current assets are 14639.01 i.e., decreased when compared to previous year In the year 2008-09 the current assets are 14612.72 and again decreased when compared to last year In the year 2009-10 the current assets are 15178 when compare to previous year it is increased. In the year 2010-11 the current assets are 14992.03 and In the year 2011-12 the current assets are increased to 15231.5 by comparing to last year.

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2. CURRENT LIABILITIES CURRENT LIABILITIES 9336.43

YEAR

2006-07

2007-08

7421

2008-09

8605.4

2009-10

8431.19

2010-2011

7917.32

2011-12

8385.46

CURRENT LIABILITIES
10000 9000 8000 Percentage of respondents 7000 6000 5000 4000 3000 2000 1000 0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Years 7421 9336.43 8605.4 8431.19 7917.32 8385.46

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INTERPRETATION: In the year 2006-07 the current liabilities are 9336.43 In the year 2007-08 the current liabilities are 7421 i.e., decreased when compared to previous year In the year 2008-09 the current liabilities are 8605.4 and increased when compared to last year In the year 2009-10 the current liabilities are 8431.19 when compare to previous year it is decreased. In the year 2010-11 the current liabilities are 7917.32 and In the year 2011-12 the current liabilities are increased to 8385.46 by comparing to last year.

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3. NET WORKING CAPITAL YEAR 2006-07 2007-08 2008-09 2009-10 2010-2011 2011-12 NET WORKING CAPITAL 5328.21 7218.01 6007.32 6746.81 6560.94 6846.04

NET WORKING CAPITAL

8000 7218.01 7000 6007.32 Percentage of respondents 6000 5000 4000 3000 2000 1000 0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Years 5328.21 6746.81 6560.94 6846.04

80

INTERPRETATION: In the year 2006-07 the net working capital is 5328.21 In the year 2007-08 the net working capital are 7218.01 i.e., increased when compared to previous year In the year 2008-09 the net working capital are 6007.32 and again decreased when compared to last year In the year 2009-10 the net working capital are 6746.81 when compare to previous year it is increased. In the year 2010-11 the net working capital are 6560.94 and In the year 2011-12 the net working capital are increased to 6846.04 by comparing to last year.

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4. CURRENT RATIO:

YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 AVERAGE

CURRENT ASSETS 26,93,357 26,97,037 40,34,714 1,19,13,614 27,53,915 48,18,527

CURRENT LIABILITIES 10,61,337 10,54,825 18,13,623 85,18,028 13,34,458 27,56,454

CURRENT RATIO 2.53 2.55 2.22 1.39 2.06 2.15

CURRENT RATIO
3 2.53 2.5 Current ratio 2 1.5 1 0.5 0 2007-08 2008-09 2009-10 2010-11 2011-12 AVERAGE Years 1.39 2.55 2.22 2.06 2.15

INTERPRETATION From the above graph, it is clear that the current ratio is fluctuating year by year. The current ratio in 2007-08 is 2.53. It increased to 2.55 in the year 2008-09. It decreased to 1.39 in the year 2010-11. The ratio in the last year is 2.06. average current ratio of the company is 2.15.

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5. QUICK RATIO YEAR 2007-08 2008-09 2009-10 2010-11 2011-12 Average QUICK ASSETS 12,47,157 13,20,077 8,20,409 37,96,816 15,38,580 17,44,607 CURRENT LIABILITIES 10,61,337 10,54,825 18,13,623 85,18,028 13,34,458 27,56,454 QUICK RATIO 1.17 1.25 0.45 0.44 1.15 0.89

QUICK RATIO
1.4 1.2 1 Quick Ratio 0.8 0.6 0.4 0.2 0 2007-08 2008-09 2009-10 2010-11 2011-12 Average Years 0.45 0.44 1.17 1.25 1.15 0.89

INTERPRETATION From the above analysis, we can know that the quick ratio is fluctuating over the years from 2007-08 to 2011-12. The ratio in 2007-08 is 1.17. It increased to 1.25 in the year 2008-09. At the last year i.e., 2011-12, the quick ratio is 1.15. The average quick ratio of the company is 0.89.

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6. SUPER QUICK RATIO YEAR 2007-08 2008-09 2009-10 2010-11 2011-12 Average QUICK ASSETS 79,307 73,430 2,89,366 23,45,678 2,84,013 6,14,358 QUICK LIABILITIES 10,61,337 10,54,825 18,13,623 85,18,028 13,34,458 27,56,454 SUPER QUICK RATIO 0.07 0.07 0.16 0.28 0.21 0.15

SUPER QUICK RATIO

0.3 0.25 0.21 Super Quick ratio 0.2 0.16 0.15 0.1 0.05 0 2007-08 2008-09 2009-10 2010-11 2011-12 Average Years 0.07 0.07 0.15 0.28

INTERPRETATION From the above analysis, we can know that the super quick ratio is fluctuating over the years from 2007-08 to 2011-12. The ratio in 2007-08 is 0.07. It increased to 0.27 in the year 2010-2011. At the last year i.e., 2011-12, the super quick ratio is 0.21. The average super quick ratio of the company is 0.15.

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7. WORKING CAPITAL TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO 7.64 7.69 8.73 7.96 20.01 10.4

YEAR

SALES

WORKING CAPITAL 16,32,020 16,42,212 22,21,091 33,95,580 14,19,457 20,62,072

2007-08 2008-09 2009-10 2010-11 2011-12 AVERAGE

1,24,68,934 1,26,36,967 1,93,98,955 2,70,30,590 2,84,08,532 1,99,88,795

WORKING CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO 25 20.01 20 15 10 5 0 2007-08 2008-09 2009-10 2010-11 2011-12 AVERAGE YEARS 7.64 7.69 8.73 10.4 7.96

INTERPRETATION From the above analysis we can know that the working capital ratio is fluctuating over the years from 2007-08 to 2011-12. In the year 2007-08 the ratio is 7.64 and it increased to 7.96 at the year 2010-11. And at the last year i.e., 2011-12, the ratio is 20.01. The average working capital turnover ratio of the company is 10.4.

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8. CURRENT ASSETS TURNOVER RATIO: Net sales ------------------------Current assets Year 2007-08 2008-09 2009-10 2010-11 2011-12 AVERAGE Net sales 1,24,68,934 1,26,36,967 1,93,98,955 2,70,30,590 2,84,08,532 1,99,88,795 Current assets 26,93,357 26,97,037 40,34,714 1,19,13,614 27,53,915 48,18,527 Current assets turnover ratio 4.6 4.6 4.8 2.2 10.3 4.1

current assets Turnover Ratio =

Current assets turnover ratio

12 10.3 10 8 6 4 2.2 2 0 2007-08 2008-09 2009-10 2010-11 2011-12 AVERAGE 4.6 4.6 4.8

4.1

INTERPRETATION From the above analysis we can know that the current assets turnover ratio is fluctuating over the years from 2007-08 to 2011-12. In the year 2007-08 the ratio is 4.6 and it increased to 4.8 at the year 2009-10. And at the last year i.e., 2011-12, the ratio is 10.3. The average current assets turnover ratio of the company is 4.1.
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FINDINGS

Inventories for the year 2008-12 are 3668.14, 4012.47, 4189.63, 4297.24, 2940.45 and 3094.70 respectively. Sundry debtors for the year 2008-12 are 9044.86, 9280.53, 8977.12, 8841, 8757.51 and 8494.77 respectively. Cash and bank balances for the year 2008-12 are 745.04, 108.06, 55.9, 81.59, 261.43 and 220.43 respectively. Loans and advances for the year 2008-12 are 1206.58, 1238.00, 1390.07, 1958.17, 3032.64 and 3421.61 respectively. Sundry creditors for the year 2008-12 are 9180.23, 7254.00, 8602.37, 8429.44, 7741.32 and 8207.33 respectively. Provisions for the year 2008-12 are 156.20, 167.00, 3.03, 1.75, 176.00 and 178.12 respectively.

The average working capital turnover ratio of the company is 10.4. The average current assets turnover ratio of the company is 4.1. The average super quick ratio of the company is 0.15. Average quick ratio of the company is 0.89. Average current ratio of the company is 2.15.

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SUGGESTIONS
1) Company should not rely on Long-term debts. 2) It can be said that overall financial position of the company is normal but it is required to be improved from the point of view of liquidity. 3) Company should try to increase Volume based sales so as to stand in the competition. 4) Company should stretch the credit period given by the suppliers. 5) The company should maintain an optimum level of cash in the business in order to maintain a proper liquidity in the business.

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CONCLUSIONS
Company is making too much investments in inventory which adversely effecting the both liquidity and profitability performance of the organization. Cash and bank balances are increasing showing an upward trend of liquidity position of the firm. The company should administrate their credit on the basis of certain well recognized and established principle of credit administration. The management has to decrease the loans taken by outsiders as it demands more interest. Total assets of the firm must be properly maintained because the value of total assets was decreased. From the above study, current liabilities are increasing. So the company has to pay the loans and bills to reduce the liabilities and interest burden.

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BIBLIOGRAPHY
BOOK TITLE Financial management Financial management Cost and management accounting WEBSITES www.mahindra.com/ www.mahindratractorworld.com/ en.wikipedia.org/wiki/Working_capital AUTHOR NAME IM Pandey Prasanna Chandra R.P. Trivedi & Manoj Trivedi

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