WORKING CAPITAL MANAGEMENT REPORT

WORKING CAPITAL MANAGEMENT

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A REPORT

ON



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CSREM Paralakhemundi Connecting Through knowledge

A A A A REPORT ONREPORT ONREPORT ONREPORT ON

WORKING CAPITAL MANAGEMENTWORKING CAPITAL MANAGEMENTWORKING CAPITAL MANAGEMENTWORKING CAPITAL MANAGEMENT

TWO WHEELER AUTOMOBILE INDUSTRIESTWO WHEELER AUTOMOBILE INDUSTRIESTWO WHEELER AUTOMOBILE INDUSTRIESTWO WHEELER AUTOMOBILE INDUSTRIES

Submitted to:

Prof. Dr.Anita PaProf. Dr.Anita PaProf. Dr.Anita PaProf. Dr.Anita Patratratratra

January 5, 2010

Group Members:

Ansuman Behera (s0804)

Manoj Kumar Das (s0835)

Sulagna Mohanty (s0866)


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CONTENTS

PAGE

NO.

CHAPTER 1: INTRODUCTION

1.1 Introduction 1 1.2 Industry Analysis 1 1.3 Current Scenario 2 1.4 Firm Analysis 4 1.5 Objective of the study 6 1.6 Study Design and Methodology 7 CHAPTER 2: COMPARATIVE BALANCESHEETANALYSIS 2.1 Comparative Balance Sheet of Hero Honda Motors Ltd. 7 2.2 Comparative Balance Sheet of Bajaj Auto Ltd. 9 2.3 Comparative Balance Sheet of TVS Motors Company 11 2.4 Comparative Balance Sheet of LML. Ltd. 13 2.5 Comparative Balance Sheet of Suzuki Motors Ltd. 15 CHAPTER 3: RATIO ANALYSIS 3.1 Ratio Analysis of Hero Honda Motors Ltd. 17 3.2 Ratio Analysis of Bajaj Auto Ltd. 19 3.3 Ratio Analysis of TVS Motors Company Ltd. 22 3.4 Ratio Analysis of LML Ltd. 24 3.5 Ratio Analysis of Suzuki Motors Ltd. 26 CHAPTER 4: INTRA-FIRM ANALYSIS

Hero Honda Motors Ltd 29 CONCLUSION 35 REFERENCE 36 ANNEXTURE 37


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DECLARATION

We hereby declare that the project report entitled “WORKING CAPITAL MANAGEMENT”

is our sincere effort. This Report is being submitted by us, at CSREM, Paralakhemundi, for

the partial fulfillment of the course, Working Capital Management, and the report has not

been submitted to any other educational institutions for any other purpose.

Signature

• Ansuman Behera

• Manoj Kumar Das

• Sulagna Mohanty


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ACKNOWLEDGEMENT

In preparing this report a considerable amount of thinking and informational inputs from

various sources were involved. We express our sincere gratitude to everyone who contributed

towards making this Project report possible.

Our sincere gratitude goes to our faculty guide Prof.Dr.Anita Patra for her inspiration, co-

operation to complete the project report. Under her brilliant untiring guidance we are able to

complete the project successfully in time. In spite of having a very busy schedule, she made

sure in every way that we acquire the best possible exposure and knowledge during our

project.

We are greatly thankful and obliged to all our faculties of Centurion School of Rural

Enterprise Management (CSREM) for guiding us throughout the project.

We also thankful to our friends, many others who have helped us a lot, without their

encouragement and cooperation we would never have been completed our project.


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CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1

1.1 INTRODUCTION

Every business needs funds for two purposes for its establishment and to carry out its day- to-

day operations. Long terms funds are required to create production facilities through purchase

of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets

represent that part of firm’s capital which is blocked on permanent or fixed basis and is called

fixed capital. Funds are also needed for short-term purposes for the purchase of raw material,

payment of wages and other day – today expenses etc.

These funds are known as working capital. In simple words, working capital refers to that

part of the firm’s capital which is required for financing short- term or current assets such as

cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep

revolving fast and are being constantly converted in to cash and this cash flows out again in

exchange for other current assets. Hence, it is also known as revolving or circulating capital

or short term capital.

1.2 INDUSTRY ANALYSIS

Two Wheeler Market in India:

India became the second largest two wheeler manufacturer in the world starting in the 1950s

with the Automobile Products of India (API) that manufactured the Lambrettas and Bajaj

Auto Ltd.The Indian two wheeler market has a size of over Rs 100,000 million. The Indian

two wheeler segment contributes the largest volumes amongst all the segments in automobile

industry. Though the segment can be broadly categorized into 3 sub-segments viz; scooters,

motorcycles and mopeds; some categories introduced in the market are a combination of two

or more segments e.g. scooterettes and step thru’s. The market primarily comprises five

players in the two wheeler segment with most of the companies having foreign collaborations

with well-known Japanese firms earlier. But most of the companies are now planning 100%

subsidiaries in India.

In the last four to five years, the two-wheeler market has witnessed a marked shift towards

motorcycles at the expense of scooters. In the rural areas, consumers have come to prefer

sturdier bikes to withstand the bad road conditions. In the process the share of motorcycle


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segment has grown from 48% to 58%, the share of scooters declined drastically from 33% to

25%, while that of mopeds declined by 2% from 19% to 17% during the year 2000-01. The

Euro emission norms led the existing players in the two stroke segment to install catalytic

converters. All the new models are now being replaced by 4-stroke motorcycles. Excise duty

on motorcycles has been reduced resulting in price reduction, which has aided in propelling

the demand for motorcycles. Fierce competition has also forced players to cut prices in

certain models

1.3 CURRENT SCENARIO

Motorcycle sales grew by an annual average of 27% over from 1995-2002, and constituted

nearly 66% of total two wheeler sales in F2002, up from just 24% in F1995. Average

monthly motorcycle sales have increased five-fold since F1995 to almost 250,000 units in

F2002. Now Hero Honda is the current market leader with a 49% market share. Hero Honda

has been an early entrant in the 4 stroke segment of the two wheeler industry. With a right

mix of product styling and pricing the company helped garner a larger market chunk of the 4-

stroke market as compared to Bajaj Auto. A shifting consumer preference towards

motorcycles also enabled the fast growth of the company in the last few years. Hero Honda

motorcycle sales jumped 40.6% in April at 135,961 units from 96,672 units it sold in the

corresponding month last year. The change in product mix in favor of higher value products

has resulted in improved realization for the company the growing popularity of the passion

model appears to be the key factor behind improvement in unit realization. Taking into

account the recent trend in performance, the company appears well positioned to retain its top

position in the motorcycle market and also sustain the recent rate of growth. Bajaj auto ltd is

the second biggest manufacturer of motorcycles. The company’s recent indigenous launch in

4-stroke segment viz; the 150 / 180 cc pulsar which has practically snatched the market share

of the bikes like Hero Honda CBZ, Suzuki Fiero, Lml adreno etc, and it appears that pulsar

would rule this segment till the time there are some new launches in this segment by other

manufacturers, for bajaj pulsar has been the major contributor for the rise in its motorcycle

sales along with its other popular models such as boxer, caliber croma etc. well coming to the

third largest share holder in the motorcycle segment which is the tvs motors, which has

emerged as a ‘victor’ after the Suzuki break up, riding high on the success, of it’s motorbike

by the same name. Tvs victor is the first indigenously produced motorcycle from tvs motors.

Infact with a six week waiting period, even six months after its launch, tvs motors plans to

double its production capacity.


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The motorcycle market can be further segmented on the basis of the price tags which are the

economy, executive and the premium segments. Basically all the three leading companies

have a presence in all of these sectors. Clearly, the race to the number one spot in the

motorcycle segment has been a one sided one. But times are changing, Given the fact that

bajaj is positioning itself at all feature and price points, it does have every model to satisfy the

needs of a prospective motorcycle buyer, and also has the privilege of being the only one in

the cruiser segment but except for the two bikes i.e boxer ct and pulsar no other Bajaj models

seem to be on the line of prosperity and the recently launched dawn by Hero Honda is a direct

threat to the market of boxer ct price competitively at rs 37,000/- which is just Rs 2,000/-

more than the boxer ct but then again boxer ct already enjoys a vast market share and is very

popular especially in the rural areas it will be a tough job for dawn to displace this bike from

its current position a lot remains to be seen by the feedback that it receives from riders. The

pulsar has taken the market by storm in the premium segment it has clearly displaced the

CBZ and the other models of this segment and looks like the things will remain this way for

some time but there are tough times ahead since Hero Honda plans to launch a new bike in

this segment by the end of this year which means that there is a lot to look ahead from a

consumers point of view.

Bajaj Auto which was negotiating with top European motorcycle brand Triumph for an

alliance/acquisition has now decided to put those plans on the backburner and instead focus

its attention on its KTM brand. It has raised its stake in Austrian based KTM sport motor

cycle upto 25.86%.

Hero Honda, Bajaj and TVS Motors have cut prices of their vehicles by upto Rs 2000, 2100

and Rs 2000 respectively on account of Cenvant cut as part of the fiscal package benefit.

TVS Motors has launched Apache RTR 160RD which now comes with a factory fitted

200mm Rear Petal Disc Brake.


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1.4 FIRM ANALYSIS

Hero Honda Motors:

“Hero” is the brand name used by the Munjal brothers for their flagship company Hero

Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was

established in 1984 as the Hero Honda company,India.This company was referred to Ashdeep

singh(Badal) from CIIS college.

During the 1980s, the company introduced motorcycles that were popular in India for their

fuel economy and low cost. A popular advertising campaign based on the slogan 'Fill it - Shut

it - Forget it' that emphasised the motorcycle's fuel efficiency helped the company grow at a

double-digit pace since inception.

Hero Honda has three manufacturing facilities based at Dharuhera and Gurgaon in Haryana

and at Haridwar in Uttarkhand. These plants together are capable of churning out 3.9 million

bikes per year. Hero Honda’s has a large sales and service network with over 3,000

dealerships and service points across India. Hero Honda’s customer loyalty program, the

Hero Honda Passport Program, claim to be one of the largest programs of its kind in the

world with over 3 million members. The 2006 Forbes 200 Most Respected companies list has

Hero Honda Motors ranked at 108.

Bajaj Auto:

The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a

wide range of industries, spanning automobiles (two-wheelers and three-wheelers), home

appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship

company, Bajaj Auto, is ranked as the world's fourth largest two- and three- wheeler

manufacturer and the Bajaj brand is well-known across several countries in Latin America,

Africa, Middle East, South and South East Asia. Founded in 1926, at the height of India's

movement for independence from the British, the group has an illustrious history. The

integrity, dedication, resourcefulness and determination to succeed which are characteristic of

the group today, are often traced back to its birth during those days of relentless devotion to a

common cause. Jamnalal Bajaj, founder of the group, was a close confidant and disciple of

Mahatma Gandhi. In fact, Gandhiji had adopted him as his son. This close relationship and

his deep involvement in the independence movement did not leave Jamnalal Bajaj with much

time to spend on his newly launched business venture.

His son, Kamalnayan Bajaj, then 27, took over the reigns of business in 1942. He too was

close to Gandhiji and it was only after Independence in 1947, that he was able to give his full

attention to the business. Kamalnayan Bajaj not only consolidated the group, but also


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diversified into various manufacturing activities. The present Chairman of the group, Rahul

Bajaj, took charge of the business in 1965. Under his leadership, the turnover of the Bajaj

Auto the flagship company has gone up from Rs.72 million to Rs.46.16 billion (USD 936

million), its product portfolio has expanded and the brand has found a global market. He is

India's one of the most distinguished business leaders and internationally respected for his

business acumen and entrepreneurial spirit.

TVS Motors Company Ltd:

TVS Motor Company is the third largest two-wheeler manufacturer in India and one among

the top ten in the world, with annual turnover of more than USD 1 billion in 2008-2009, and

is the flagship company of the USD 4 billion TVS Group.

TVS Motor currently manufactures a wide range of two-wheelers from mopeds to racing

inspired motorcycles.

TVS has always stood for innovative, easy to handle, environment friendly products, backed

by reliable customer service. No wonder, then, that our 15 million customers on the road have

a reason to smile.

Suzuki Motors Ltd.:

SUZUKI MOTORCYCLE INDIA PRIVATE LIMITED is a subsidiary of Suzuki Motor

Corporation, Japan where in we are having the same manufacturing philosophy of VALUE

PACKED PRODUCTS right from the inception. SMIPL will be manufacturing two wheelers

best suited for the valuable Indian customers covering all segments.

Suzuki have installed there manufacturing plant in Gurgaon (Haryana) having the annual

capacity of 1, 75,000 units. Total land area of the facility at Gurgaon is 37 acres out of which

the present plant is constructed in an area of 6.5 acres of land. The remaining area of 30.5

acres is left for land development and future expansion. They are having total number of

employees 490.

Mission: The core philosophy of SUZUKI is to provide “VALUE-PACKED PRODUCTS”.

Since the founding of SUZUKI Motor Corporation, the Organization’s endeavour has always

been to provide “VALUE-PACKED PRODUCTS” as one of the manufacturing philosophies

SUZUKI believes that “VALUE-PACKED PRODUCTS” come from the effort to carry out

Product development from customer’s point of view. This policy has been in effect since

Company’s inception and has helped the Organization to meet customer’s needs. As a result,


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SUZUKI’s Products have become well received throughout the World. SUZUKI is fully

committed to create Products that meet customer’s demand by utilizing its dynamic, long-

nurtured technological advantage coupled with its fresh and active human resources.

• Develop products of superior value by focusing on the customers

• Establish a refreshing and innovative company through teamwork

• Strive for individual excellence through continuous improvement

LML India:

LML, formerly known as Lohia Machines Private Limited, is India's leading manufacturers

and has 30% of the market share. The company first started its technical collaboration with

ARCT, France and got involved in synthetic Yarn Manufacturing Machines. LML became a

public limited company in 1978. In 1984 LML started its scooter project after signing

technical agreement with Piaggio of Italy. LML's joint venture with Piaggio ended in 1999.

Soon after, an agreement was signed with Daelim Motor Company of South Korea to

manufacture 4-stroke motorcycles. Indian Ministry of Science and Technology, recognized

the company in 2000 for its remarkable success, in introducing new models of scooters in the

market with more fuel-efficient engines, new electrical systems, latest emission norms,

upgraded technology and better styling

1.5 OBJECTIVE OF THE STUDY

The following are the main objective which has been undertaken in the present study:

1. To analyze each firm’s working capital and to calculate various ratios relating to

working capital.

2. To analyze one intra-firm’s working capital by taking three years balance sheet and

profit and loss account.

1.6 STUDY DESIGN AND METHODOLOGY

Our report based on secondary data were collected from the annual report of Hero Honda

Motors, Bajaj Auto Ltd, TVS Company Ltd, LML Ltd and Suzuki Ltd company website and

Economics Time websites,etc


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ANALYSIS OF COMPARATIVE BALANCE SHEET

2.1 Comparative Balance Sheet of Hero Honda Motors Ltd

for the year ending December 31,2008 and 2009

Year ending 31 December (In Million Rupees)

2009 2008 Increase/Decrease Percentages

Liabilities

Share Capital 399.40 399.40 0.00 0.00

Reserves & Surplus 37608.10 29463.00 8145.10 27.65

Net Worth(1) 38007.50 29862.40 8145.10 27.28

Secured Loans(2) 0.00 0.00 0.00

Unsecured Loans(3) 784.90 1320.00 -535.10 -40.54

Total Liabilities(1+2+3) 38792.40 31182.40 7610.00 24.40

Assets

Fixed Assets

Gross Block 25162.70 19387.80 5774.90 29.79

(-) Acc. Depreciation 9425.60 7825.20 1600.40 20.45

Net Block(A) 15737.10 11562.60 4174.50 36.10

Capital Work in Prg.(B) 1205.40 4084.90 -2879.50 -70.49

Investments ( C) 33687.50 25668.20 8019.30 31.24

Current Assets, Loans & Advs.

Inventories 3268.30 3171.00 97.30 3.07

Sundry Debtors 1499.40 2974.40 -1475.00 -49.59

cash and Bank 2195.70 1310.90 884.80 67.50

Loans and Advances 3258.00 1963.70 1294.30 65.91

(I) 10221.40 9420.00 801.40 8.51

Current Liabilities & Provisions

Current Liabilities 16789.30 14555.70 2233.60 15.35

Provisions 5269.70 4997.60 272.10 5.44

(II) 22059.00 19553.30 2505.70 12.81

Net Current Assets(I-II) (D)

-

11837.60

-

10133.30 -1704.30 16.82

Misc.Expenses(E) 0.00 0.00 0.00

Total Assets(A+B+C+D+E) 38792.40 31182.40 7610.00 24.40

Analysis of Comparative Balance Sheet of Hero Honda Motors

1. The net current assets or working capital in the year 2008 and 2009 is negative. That

is -11837.60 and -10133.30 million rupees. It shows that current asset is less than the

current liabilities by this amount. In other words a part of fund from short term has been used

in fixed assets after investing full amount of short term funds on it. It reveals that the working

capital financing policy is aggressive.


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2. Current assets are called as operating assets because these assets are coming due to

the operating activities. Similarly the current liabilities are called as the operating

liabilities. Among all the operating assets, cash has been increased by maximum

amount. That is 884.80 million rupees which is 67.50% more than previous year.

3. But the amount of loan and advances has been increased from 1963.70 million rupees to

the 3258.00 million rupees which is 65.91% high. It shows the more amounts of cash has

been kept in hand instead of investing in short term securities. That cash may be ideal.

4. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills

payables. This has been increased by 2233.60 million rupees which is 15.35% percent over

last year.

5. The provisions shown here may be provision for bad debt, discount on debtor and Taxation

purpose. This amount has been increased by 272.10 million rupees which is 5.44%.

6. The inventory level has been increased by 97.30 million rupees which is 3.07 percent and

sundry debtor has been decreased by 1475.00 million rupees which is 49.59 percent than

previous year


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2.2 Comparative Balance Sheet of Bajaj Auto Ltd




Liabilities

Share Capital 1446.80 1446.80 0.00 0.00


Net Worth(1) 18696.90 15875.90 2821.00 17.77

Secured Loans(2) 0.00 69.50 -69.50 -100.00

Unsecured Loans(3) 15700.00 13273.90 2426.10 18.28


0.00

Assets 0.00

Fixed Assets 0.00

Gross Block 33502.00 29946.80 3555.20 11.87


Net Block(A) 15422.90 12686.10 2736.80 21.57

Capital Work in Prg.(B) 1064.80 347.40 717.40 206.51

Investments ( C) 18085.20 18571.40 -486.20 -2.62

Current Assets, Loans & Advs. 0.00

Inventories 3388.40 3496.10 -107.70 -3.08

Sundry Debtors 3586.50 2753.10 833.40 30.27

cash and Bank 1368.70 560.70 808.00 144.11


(I) 24014.50 17806.70 6207.80 34.86

Current Liabilities & Provisions 0.00


Provisions 12241.50 8340.40 3901.10 46.77

(II) 26023.50 20192.30 5831.20 28.88

Net Current Assets(I-II) (D) -2009.00 -2385.60 376.60 -15.79

Misc.Expenses(E) 1833.00 0.00 1833.00



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Analysis of Comparative Balance Sheet of Bajaj Auto Ltd

1. The net current assets or working capital in the year 2008 and 2009 is negative. That

is -2009.00 and -2385.60 million rupees. It shows that current asset is less than the current

liabilities by this amount. In other words a part of fund from short term has been used in fixed

assets after investing full amount of short term funds on it. It reveals that the working capital

financing policy is aggressive.





3. But the amount of loan and advances has been increased from 10996.80 million rupees

to the 15670.90 million rupees which is 42.50% high. It shows the more amounts of cash has

been kept in hand instead of investing in short term securities. That cash may be ideal.


payables. This has been increased by 1930.10 million rupees which is 16.29% percent over

last year.



6. The inventory level has been decreased by 107.70 million rupees which is 3.08 percent

and sundry debtor has been increased by 833.40 million rupees which is 30.27 percent than

previous year


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2.3 Comparative Balance Sheet of TVS Motors Company Ltd




Liabilities

Share Capital 237.50 237.50 0.00 0.00

Reserves & Surplus 7893.80 7978.30 -84.50 -1.06

Net Worth(1) 8131.30 8215.80 -84.50 -1.03

Secured Loans(2) 6224.20 4526.80 1697.40 37.50

Unsecured Loans(3) 2835.60 2136.60 699.00 32.72


0.00

Assets 0.00

Fixed Assets 0.00

Gross Block 18653.60 17909.70 743.90 4.15


Net Block(A) 9959.40 10164.80 -205.40 -2.02


Investments ( C) 4777.10 3389.60 1387.50 40.93


Inventories 3205.50 4053.80 -848.30 -20.93

Sundry Debtors 1815.60 878.60 937.00 106.65

cash and Bank 420.50 37.30 383.20 1027.35


(I) 9712.70 8398.40 1314.30 15.65



Provisions 654.90 609.90 45.00 7.38

(II) 8415.70 7867.00 548.70 6.97

Net Current Assets(I-II) (D) 1297.00 531.40 765.60 144.07

Misc.Expenses(E) 753.30 527.70 225.60 42.75



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Analysis of Comparative Balance Sheet of TVS Motor Company Ltd

1. The net current assets or working capital in the year 2008 and 2009 is positive. That is

1297.00 and 531.40 million rupees. It shows that current asset is more than the current

liabilities by this amount. In other words a part of fund from long term sources has been used

in current asset after investing full amount of short term funds on it. It reveals that the

working capital financing policy is conservative.





3. The inventory level has been decreased by 848.30 million rupees which is 20.93 percent

and sundry debtor has been increased by 937.00 million rupees which is 106.65 percent than

previous year.


the 4271.10 million rupees which is 24.57% more. It shows the more amounts of cash has

been invested in short term securities.


payables. This has been increased by 503.70 million rupees which is 6.94 percent over last

year.




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2.4 Comparative Balance Sheet of LML Ltd




Liabilities

Share Capital 1987.78 1987.78 0.00 0.00

Reserves & Surplus -3672.54 -3099.99 -572.55 18.47

Net Worth(1) -1684.76 -1112.22 -572.54 51.48

Secured Loans(2) 1241.44 1130.26 111.18 9.84

Unsecured Loans(3) 178.52 169.57 8.95 5.28

Total Liabilities(1+2+3) -264.80 187.62 -452.42 -241.14

0.00

Assets 0.00

Fixed Assets 0.00

Gross Block 5134.04 5134.38 -0.34 -0.01


Net Block(A) 1465.33 1668.19 -202.86 -12.16

Capital Work in Prg.(B) 183.92 184.80 -0.88 -0.48

Investments ( C) 0.09 0.09 0.00 0.00


Inventories 980.86 1024.77 -43.91 -4.28

Sundry Debtors 63.53 69.82 -6.29 -9.01

cash and Bank 115.15 77.88 37.27 47.86

Loans and Advances 405.61 426.44 -20.83 -4.88

(I) 1565.15 1598.91 -33.76 -2.11



Provisions 89.33 121.74 -32.41 -26.62

(II) 3479.30 3264.37 214.93 6.58

Net Current Assets(I-II) (D) -1914.15 -1665.46 -248.69 14.93


Total Assets(A+B+C+D+E) -264.80 187.62 -452.42 -241.14


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Analysis of Comparative Balance Sheet of LML Ltd

1. The net current assets or working capital of 2008 and 2009 is negative figure. That is

1914.15 and 1665.46 million rupees. It shows that current liability is more than the

current assets of the company by this amount. It means a part of current liabilities is

taken for investment on fixed assets. That can be called as aggressive mode of

working capital of financing.



liabilities. Among all the operating assets, cash has been increased by 37.27 million

rupees which is 47.86% more than previous year.

3. The inventory level has been decreased by 43.91 million rupees which is 4.28% less than

the previous year percentages and sundry debtor has been decreased by 6.29 million rupees

which is 9.01 percent than previous year.

4. But the amount of loan and advances has been decreased from 426.44 million rupees to

the 405.61 million rupees which is 4.88% less. It shows the more amounts of cash has been

kept in hand instead of investing in short term securities. That cash may be ideal.



year.


purpose. This amount has been decreased by 32.41 million rupees which is 26.62%.


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2.5 Comparative Balance Sheet of Suzuki Motors Ltd




Liabilities

Share Capital 119.98 119.98 0.00 0.00


Net Worth(1) 1839.50 1740.47 99.03 5.69

Secured Loans(2) 1049.62 809.96 239.66 29.59

Unsecured Loans(3) 300.00 300.00 0.00 0.00


0.00

Assets 0.00

Fixed Assets 0.00

Gross Block 4296.65 3631.00 665.65 18.33


Net Block(A) 2121.09 1689.79 431.30 25.52


Investments ( C) 4.04 0.00 4.04


Inventories 854.86 924.97 -70.11 -7.58

Sundry Debtors 557.08 253.61 303.47 119.66

cash and Bank 112.62 74.95 37.67 50.26


(I) 1827.91 1516.97 310.94 20.50



Provisions 58.97 92.49 -33.52 -36.24

(II) 1212.19 753.23 458.96 60.93

Net Current Assets(I-II) (D) 615.72 763.75 -148.03 -19.38




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Analysis of Comparative Balance Sheet of Suzuki Motor Company Ltd

1. The net current assets or working capital in the year 2008 and 2009 is positive. That is

763.75 and 615.72 million rupees. It shows that current asset is more than the current

liabilities by this amount. In other words a part of fund from long term sources has been used

in current asset after investing full amount of short term funds on it. It reveals that the

working capital financing policy is conservative.



liabilities. Among all the operating assets, cash has been increased by 37.67 million

rupees which is 50.26% more than previous year.

3. The inventory level has been decreased by 70.11 million rupees which is 7.58 percent and

sundry debtor has been increased by 303.47 million rupees which is 119.66 percent than

previous year.


the 303.35 million rupees which is 15.15% more. It shows the more amounts of cash has

been invested in short term securities. That cash may be properly utilized.



year.


purpose. This amount has been decreased by 33.52 million rupees which is 36.24%.

The above analysis shows that the Hero Honda company’s growth rate is high but the

liquidity position is not so good and the company follows the aggressive policy. Their current

liability is more than the current assets. In 2009 the company earns 11681.80 million rupees

of profit and LML Company gets loss in last two years. Bajaj and TVS and Suzuki Company

are earning good profit also and maintain the liquidity of the firm. Many firms working

capital is negative.


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RATIO ANALYSIS

3.1 Hero Honda Motors Ltd

1. A relative high current ratio is an indication that the firm is liquid and has the ability

to pay its current obligations in time as and when they become due. Other hand this

firm have the below the as a normal ratio like 2:1. It means low current ratio may be

due to the following reasons:

2. There may not be sufficient fund to pay off liabilities. The business may be trading

beyond its capacity. The resources may not warrant the activities. The Hero Honda

Company follows the aggressive strategy. This company has fewer current assets over

the current liabilities.

3. The liquid ratio is very useful in measuring the liquidity position of a firm. It

measures the firm’s capacity to pay off current obligations immediately and is a more

rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the

company has less than 1 so this company has not sound liquidity position to meet the

immediate obligations. The firm mainly emphasizes on purchasing fixed assets.

4. Absolute Ratio’s acceptable norm for this ratio is 50% or .05:1 or 1:2. Re 1 worth

absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but

the firm has not up to the standard to meet the liquidity of the firm. In 2008 is 0.17

and 2009 is 0.25 which is slightly increase but not maintaining the liquidity position.

2008 2009

Liquidity Ratio

Current Ratio 0.48 0.46

Liquid Ratio 0.32 0.32

Absolute Liquid Ratio 0.17 0.25

Solvency Ratio

Debt Equity Ratio 0.04 0.02

Activity Ratio

Inventory Turnover Ratio 9 times 10 times

Debtor Turnover Ratio 33 times 55 times

Working Capital Turnover Ratio -12 times -11 times

Profitability Ratio

Gross Profit Ratio 0.13 0.14

Net Profit Ratio 0.08 0.09


23

5. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory and 0.04

and 0.02 ratio is considered to be satisfactory for the shareholders because it indicates

that the firm has not been able to use low-cost outsider’s fund to magnify their

earning. This ratio shows the solvency position is very good.

6. Inventory turnover ratio shows that the firm has to maintain a certain level of

inventory of finished goods so as to be able to meet the requirement of the business.

But the level of inventory should neither be too high nor too low. It is harmful to hold

more inventory for the following reason: In 2008 and 2009 has 9 and 10 times

respectively used and replaced. It shows increases in inventory turnover ratio, it

means good sign for the firm. Increase in turnover indicates the efficient management

of inventory because more frequent the stock are sold, the lesser amount o money is

required to finance the inventory. Increase (9 to10 times) in turnover implies that less

investment in inventories, good quality of product, efficient business, stock

accumulation and high profit as compared to total investments This type of turnover

may be the result of very low level of inventory which results in shortage of goods in

relation to demand and position of stock-out or the turnover may be high due to a

conservative method of valuation inventories at lower values or the policy of the firm

being to buy frequently in small lots. This type of turnover of inventory does not

necessary imply higher profits. The profit may be decrease due to excessive cost

incurred in replacing stock in small lots, stock-out situations, selling inventories at

low prices.

7. Debtor turnover ratio velocity indicates the number of times the debtors are turned

over during a year. The debtor turnover ratio increase from 33 times to 55 times

which shows high turnover for the firm. The higher the value of debtor’s turnover the

more efficient is the management of debtors/sales or more liquid are the debtors. It

may imply the firm’s inability due to lack of resources to sell on credit thereby, losing

sales and profit. This firm has less credit sales. It also depends upon the liquidity

position of this concern to pay its short-term obligation in time. The high inventory

turnover shows the company has good brand name and the customers are loyal.

8. Working Capital Turnover Ratio indicates the velocity of the utilization of net

working capital. It indicates the number of times the working capital is turnover in the

course of a year.The negative working capital indicates that the firm has fewer current

assets over current liabilities over the period of time. It indicates the in efficient

utilization of working capital and management.


24

9. Gross profit ratio measures the relationship of gross profit to net sales. One

percentage increase in gross profit ratio from previous year. It reflects efficiency with

which a firm produces its products. Higher the ratio its better result but in this firm the

ratio is 0.13 and 0.14 in 2008 and 2009 respectively, which shows there is no high

profit, it means average profit. Gross profit ratio is low; it may be the overvaluation

closing stock and undervaluation of opening stock. It may be high expenses.

10. Net Operating Ratio establishes a relationship of various expenses to net sales. It

indicates the efficiency of the management in manufacturing, selling, administrative

and other activities of the firm. This firm has .08 and .09 ratio in the year 2008 and

2009 respectively; it indicates the 0.1 increase in net profit ratio. This ratio also

indicates the firm’s capacity to face adverse economic conditions such as price

competition, it should kept in mind that the performance of profits must also be seen

in relation to investment or capital of the firm and not only in relation to sales. This

ratio is low, it may be recession effect.

3.2 Bajaj Auto Ltd

2008 2009

Liquidity Ratio




Solvency Ratio


Activity Ratio



Working Capital Turnover Ratio -19.45 -39.59

Profitability Ratio



1. Liquidity Ratio refers to the ability of a concern to meet its current obligation as and

when these become due. The current ratio increases from 0.88 to 0. 92 in 2008 to

2009 respectively. A relative high current ratio is an indication that the firm is liquid

and has the ability to pay its current obligations in time as and when they become due.

Other hand this firm have the below the as a normal ratio like 2:1 but in this firm the

current assets is lesser than the current liability. It means low current ratio may be due

to the following reasons: There may not be sufficient fund to pay off liabilities. It may


25

be short term loans are not sufficient to meet the current obligations. The business

may be trading beyond its capacity. The resources may not warrant the activities. The

Bajaj Auto Ltd follows the aggressive strategy. This company has fewer current assets

over the current liabilities.





immediate obligations. This firm’s liquid ratio is increases from 0.71 to 0.79 in 2008

to 2009 respectively. It shows that the firm immediate obligation is good. The firm

mainly emphasizes on purchasing fixed assets.

3. Absolute Ratio’s acceptable norm for this ratio is 50% or 1:2. Re 1 worth absolute

liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm

meet the liquidity of the firm. In 2008 is 0.57 and 2009 is 0.65 which is slightly

increase. The 0.57 and 0.65 is quite satisfactory because it is higher than the rule of

thumb.

4. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory. In this

firm 0.84 and 0.82 ratio is considered to be satisfactory for the shareholders because it

indicates that the firm has not been able to use low-cost outsider’s fund to magnify

their earning. This ratio shows the solvency position is very good. It is harmful to

hold more inventory for the following reason: In 2008 and 2009 has 27 and 25 times

respectively used and replaced. It shows increases in inventory turnover ratio, it

means good sign for the firm but too much high turnover of inventory may not be

necessarily always imply a favourable situation.

5. The high inventory turnover may be result of a very low level of inventory which

results in shortage of goods in relation to demand and position of stock-out or the

turnover may be high due to a conservative method of valuing inventories. Indicates

the efficient management of inventory because more frequent the stock are sold, the

lesser amount o money is required to finance the inventory. Increase (27 to 25 times)

in turnover implies that less investment in inventories, good quality of product,

efficient business, stock accumulation and high profit as compared to total

investments This type of turnover of inventory does not necessary imply higher

profits. The profit may be decrease due to excessive cost incurred in replacing stock

in small lots, stock-out situations, selling inventories at low prices.


26







position of this concern to pay its short-term obligation in time. The high debtor




course of a year. The negative working capital indicates that the firm has fewer

current assets over current liabilities over the period of time. It indicates the in

efficient utilization of working capital and management.




ratio is 0.12 and 0.12 in 2008 and 2009 respectively, which shows there is 12 percent

gross profit on sales, it means good profit in competitive pricing. Gross profit ratio is

low; it may be the overvaluation closing stock and undervaluation of opening stock. It

may be high expenses but maintaining the consistency profit.



and other activities of the firm. This firm has .09 and .09 ratio in the year 2008 and

2009 respectively; it indicates that no increase in net profit ratio. This ratio also



in relation to investment or capital of the firm and not only in relation to sales but in

the period of recession they maintaining the profit. This ratio is low, it may be

recession effect.


27

3.3 TVS Motors Company Ltd

2008 2009

Liquidity Ratio




Solvency Ratio


Activity Ratio



Working Capital Turnover Ratio 71.72 40.15

Profitability Ratio



1. The Current Ratio increases from 1.07 to 1.15 in 2008 to 2009 respectively. A

relative high current ratio is an indication that the firm is liquid and has the ability to

pay its current obligations in time as and when they become due. Other hand this firm

have the below the as a normal ratio like 2:1. The current ratio of 1.07 and 1.15

means that current assets are 1.07 and 1.15 times of current liabilities. The TVS

Motors Company Ltd follows the conservative method. This company has more

current assets over the current liabilities.

2. The Liquid Ratio is very useful in measuring the liquidity position of a firm. It





to 2009 respectively. It shows that the firm immediate obligation is not good. The

firm mainly emphasizes on purchasing fixed assets.




increase. The 0.44 is not satisfactory but in 2009 is 0.57 is quite satisfactory because it

is higher than the rule of thumb.


firm 0.81 in 2008 is quite satisfactory but in 2009 is 1.11 ratios is considered to be not


28

satisfactory for the shareholders because it indicates that the firm has not been able to

use low-cost outsider’s fund to magnify their earning. This ratio shows the solvency

position is very good.

5. The Inventory Turnover Ratio in 2008 and 2009 has 32 and 27 times respectively

used and replaced. It shows increases in inventory turnover ratio, it means good sign

for the firm but too much high turnover of inventory may not be necessarily always

imply a favourable situation. The high inventory turnover may be result of a very low

level of inventory which results in shortage of goods in relation to demand and

position of stock-out or the turnover may be high due to a conservative method of

valuing inventories. Indicates the efficient management of inventory because more

frequent the stock are sold, the lesser amount o money is required to finance the

inventory. Decrease (32 to 27 times) in turnover implies that less investment in

inventories, good quality of product, efficient business, stock accumulation and high

profit as compared to total investments This type of turnover of inventory does not

necessary imply higher profits. The profit may be decrease due to excessive cost

incurred in replacing stock in small lots, stock-out situations, selling inventories at

low prices.


over during a year. The debtor turnover ratio increase from 8 times to 10 times which

shows high turnover for the firm. The higher the value of debtor’s turnover the more

efficient is the management of debtors/sales or more liquid are the debtors. It may

imply the firm’s inability due to lack of resources to sell on credit thereby, losing






course of a year. The working capital indicates that the firm has more current assets

over current liabilities over the period of time. It indicates the efficient utilization of

working capital and management.




ratio is 0.1 and 0.2 in 2008 and 2009 respectively, which shows there is less gross


29

profit in comparison to other firm on sales, it means good profit in competitive

pricing. Gross profit ratio is low; it may be the overvaluation closing stock and

undervaluation of opening stock. It may be high expenses but maintaining the

consistency profit.



and other activities of the firm. This firm has 0 and .01 ratio in the year 2008 and

2009 respectively; it indicates that one percentage increase in net profit ratio. In 2008

the gross profit ratio is zero; it may be the recession or low sales. This ratio also



in relation to investment or capital of the firm and not only in relation to sales but in

the period of recession they maintaining the profit. This ratio is low, it may be

recession effect.

3.4 LML Ltd.

2008 2009

Liquidity Ratio




Solvency Ratio

Debt Equity Ratio -1.17 -0.84

Activity Ratio



Working Capital Turnover Ratio -0.40 -0.62

Profitability Ratio

Gross Profit Ratio -0.61 -0.34

Net Profit Ratio -0.90 -0.52

1. The current ratio decreases from 0.49 to 0.45 in 2008 to 2009 respectively. A relative

high current ratio is an indication that the firm is liquid and has the ability to pay its

current obligations in time as and when they become due. Other hand this firm have

the below the as a normal ratio like 2:1 but in this firm the current assets is lesser than

the current liability. It means low current ratio may be due to the following reasons:

There may not be sufficient fund to pay off liabilities. It may be short term loans are


30

not sufficient to meet the current obligations. The business may be trading beyond its

capacity. The resources may not warrant the activities. The LML Ltd follows the

aggressive strategy. This company has fewer current assets over the current liabilities.





immediate obligations. This firm’s liquid ratio 0.18 to 0.17 in 2008 to 2009

respectively. It shows that the firm immediate obligation is poor.



meet the liquidity of the firm. In 2008 and 2009 the ratio is constant in 0.15. The 0.15

is not satisfactory because it is lower than the rule of thumb.

4. The Debt Equity Ratio is negative which shows that the company running in loss.

5. In this firm has one time inventory turnover ratio which is shows the inefficient of

working capital and management. The company has less production and the product

of the company is not running in the market.






sales and profit. This firm has less credit sales, it recover the money which is invest

before. It also depends upon the liquidity position of this concern to pay its short-term

obligation in time.



course of a year. The negative working capital indicates that the firm has fewer

current assets over current liabilities over the period of time. It indicates the in

efficient utilization of working capital and management and their product demand is

very low.

8. Gross profit ratio measures the relationship of gross profit to net sales. The company

facing loss and repaying outsiders’ liabilities. It may be their product is not up to the


31

mark or not compete with other brand or their product has high price in comparison to

other firms

9. Net Operating Ratio establishes a relationship of various expenses to net sales.

It indicates the efficiency of the management in manufacturing, selling, administrative

and other activities of the firm. The firm has incurring expenses loss but still running

because if they are stop the production, they may be face the fixed cost

3.5 Suzuki Motors Ltd.

2008 2009

Liquidity Ratio




Solvency Ratio


Activity Ratio



Working Capital Turnover Ratio 7.99 10.07

Profitability Ratio



1. The current ratio increases from 2.01 to 1.51 in 2008 to 2009 respectively. A relative

high current ratio is an indication that the firm is liquid and has the ability to pay its

current obligations in time as and when they become due. Other hand this firm have

the below the as a normal ratio like 2:1. The current ratio of 2.01 and 1.51 means that

current assets are 2.01 and 1.51 times more than the current liabilities. The Suzuki

Motors Company Ltd follows the conservative method. This company has more

current assets over the current liabilities.

2. The Liquid Ratio is very useful in measuring the liquidity position of a firm. It





to 2009 respectively. It shows that the firm immediate obligation is not good. The

firm mainly emphasizes on purchasing fixed assets.


32




decrease. Two years absolute ratio is not satisfactory


firm 0.64 and 0.73 is quite satisfactory but this ratios is considered to be satisfactory

for the shareholders because it indicates that the firm has not been able to use low-

cost outsider’s fund to magnify their earning. This ratio shows the solvency position is

very good.

5. The Inventory Turnover Ratio in 2008 and 2009 has 7 and 9 times respectively used

and replaced. It shows increases in inventory turnover ratio, it means good sign for the

firm but too much high turnover of inventory may not be necessarily always imply a

favorable situation. The high inventory turnover may be result of a very low level of

inventory which results in shortage of goods in relation to demand and position of

stock-out or the turnover may be high due to a conservative method of valuing

inventories. Indicates the efficient management of inventory because more frequent

the stock are sold, the lesser amount o money is required to finance the inventory.

Increase (7 to 9 times) in turnover implies that more investment in inventories, good

quality of product, efficient business, stock accumulation and high profit as compared

to total investments This type of turnover of inventory does not necessary imply

higher profits. The profit may be increase for less cost incurred in replacing stock in

small lots, stock-out situations, selling inventories at low prices.











course of a year. The working capital indicates that the firm has more current assets


33

over current liabilities over the period of time. It indicates the efficient utilization of

working capital and management.




ratio is 0.11 and 0.7 in 2008 and 2009 respectively, which shows there is less gross

profit in comparison to other firm on sales and in 2009 less profit in comparison to

2008, it means good profit in competitive pricing. Gross profit ratio is low; it may be

the overvaluation closing stock and undervaluation of opening stock. It may be high

expenses but maintaining the consistency profit.



and other activities of the firm. This firm has 0.4 and .02 ratio in the year 2008 and

2009 respectively; it indicates that two percentage increase in net profit ratio. In 2008

the gross profit ratio is 0.4; it may be the sales and in 2009 may be inventory cost is

high for that net profit will less. This ratio also indicates the firm’s capacity to face

adverse economic conditions such as price competition, it should kept in mind that the

performance of profits must also be seen in relation to investment or capital of the

firm and not only in relation to sales but in the period of recession they maintaining

the profit.

From the above analysis of different ratio of different companies, we have got Hero Honda

and Bajaj has follows aggressive policy and TVS and Suzuki follows conservative policy but

LML running with loss.

The good liquidity position is maintaining by Suzuki and TVS among the five firms. The

entire firm’s have maintaining good solvency ratio except LML Ltd.

All the four firms are maintaining good inventory and debtor turnover ratio except LML Ltd

and two firms are maintaining good working capital ratio like Suzuki and TVS Motors.

Four firms are maintaining good profitability ratio except LML Ltd. Hero Honda and Bajaj

maintaining good profit in the recession period also.


34


INTRA-FIRM ANALYSIS OF HERO HONDA MOTORS

Balance Sheet of Hero Honda Motors Ltd For the year ending December 31, 2008, 2007 and 2009


2007 2008 2009

Liabilities

Share Capital 399.40 399.40 399.40

Reserves & Surplus 24301.20 29463.00 37608.10

Net Worth(1) 24700.60 29862.40 38007.50

Secured Loans(2) 0.00 0.00 0.00

Unsecured Loans(3) 1651.70 1320.00 784.90

Total Liabilities(1+2+3) 26352.30 31182.40 38792.40

Assets

Fixed Assets

Gross Block 18006.3 19387.80 25162.70

(-) Acc. Depreciation 6351 7825.20 9425.60

Net Block(A) 11655.3 11562.60 15737.10

Capital Work in Prg.(B) 1899.2 4084.90 1205.40

Investments ( C) 19738.7 25668.20 33687.50


Inventories 2755.80 3171.00 3268.30

Sundry Debtors 3352.50 2974.40 1499.40

cash and Bank 357.80 1310.90 2195.70

Loans and Advances 2680.40 1963.70 3258.00

(I) 9146.50 9420.00 10221.40


Current Liabilities 11715.00 14555.70 16789.30

Provisions 4372.40 4997.60 5269.70

(II) 16087.40 19553.30 22059.00

Net Current Assets(I-II) (D) -6940.90 -10133.30 -11837.60


Total Assets(A+B+C+D+E) 26352.30 31182.40 38792.40

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these

become due. The short-term obligations are met by realizing amounts from current, floating

or circulating assts. The current assets should either be liquid or near about liquidity. These


35

should be convertible in cash for paying obligations of short-term nature. The sufficiency or

insufficiency of current assets should be assessed by comparing them with short-term

liabilities. If current assets can pay off the current liabilities then the liquidity position is

satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets

then the liquidity position is bad.

1) Current Ratio

Year 2007 2008 2009

Current Assets 9146.50 9420.00 10221.40


Current Ratio 0.57 0.48 0.46

Interpretation: - As we know that ideal current ratio for any firm is 2:1. If we see the current

ratio of the company for last three years it has decreased from 2007 to 2009. The current ratio

of company is less than the ideal ratio. This depicts that company’s liquidity position is not

sound. Its current assets are less than its current liabilities.

2) Quick Ratio

Year 2007 2008 2009

Quick Assets 6390.70 6249.00 6953.10


Quick Ratio 0.40 0.32 0.32

Interpretation: - A quick ratio is an indication that the firm is liquid and has the less

confidence to meet its current liabilities in time. The ideal quick ratio is 1:1. Company’s

quick ratio is less than ideal ratio. This shows company has liquidity problem.

3) Absolute Liquid Ratio

Year 2007 2008 2009

Absolute Liquid Assets 357.80 1310.90 2195.70


Absolute Liquid Ratio 0.02 0.07 0.10


36

Interpretation: - These ratio shows that company carries a small amount of cash. But there is

nothing to be worried about the lack of cash because company has reserve, borrowing power

& long term investment. In India, firms have credit limits sanctioned from banks and can

easily draw cash.

(B) CURRENT ASSETS MOVEMENT RATIO

Funds are invested in various assets in business to make sales and earn profits. The efficiency

with which assets are managed directly affects the volume of sales. The better the

management of assets, large is the amount of sales and profits. Current assets movement

ratios measure the efficiency with which a firm manages its resources. These ratios are called

turnover ratios because they indicate the speed with which assets are converted or turned over

into sales. Depending upon the purpose, a number of turnover ratios can be calculated.

1) Inventory Turnover Ratio

Year 2007 2008 2009

Cost of goods sold/Sales 123253.80 103450.10 99059.50

Average Stock 4032.20 4548.90 4805.15

Inventory Turnover Ratio 30.57times 22.74times 20.62times

Interpretation: - This ratio shows how rapidly the inventory is turning into receivable through

sales. In 2007 the company has high inventory turnover ratio but in 2009 it has reduced to

20.62 times. This shows that the company’s inventory management technique is less efficient

as compare to last two years.

2) Inventory Conversion Period

Year 2007 2008 2009

Days 365.00 365.00 365.00

Inventory Turnover Ratio 30.57 22.74 20.62

Inventory Conversion Period 11.94days 16.05days 17.71days

Interpretation: - Inventory conversion period shows that how many days’ inventories takes to

convert from raw material to finished goods. In the company inventory conversion period is

increasing. This shows the inefficiency of management to convert the inventory into cash.


37

3) Debtor Turnover Ratio

Year 2007 2008 2009

Sales 123253.80 103450.10 99059.50

Average Debtors 4790.80 4650.65 2986.60

Debtor Turnover Ratio 25.73times 22.24times 33.17times

Interpretation: - This ratio indicates the speed with which debtors are being converted or

turnover into sales. The higher the values or turnover into sales. The higher the values of

debtors turnover, the more efficient is the management of credit. But in the company the

debtor turnover ratio is increasing year to year. This shows that company is utilizing its

debtor’s efficiency. Now their credit policy becomes efficient as compare to previous year.

4) Average Collection period

Year 2007 2008 2009

Days 365.00 365.00 365.00

Debtor Turnover Ratios 25.73 22.24 33.17

Average Collection Period 14days 16days 11days

Interpretation: - The average collection period measures the quality of debtors and it helps in

analyzing the efficiency of collection efforts. It also helps to analysis the credit policy

adopted by company. In the firm average collection period increasing year to year but in 2009

it came down. It shows that the firm has previously Liberal Credit policy but now it recovery.

These changes in policy are due to competitor’s credit policy.

5) Working Capital Turnover Ratio

Year 2007 2008 2009

Sales 123253.80 103450.10 99059.50

Net Working Capital -6940.90 -10133.30 -11837.60

Working Capital Turnover Ratio -17.76 -10.21 -8.37

Interpretation: - This ratio indicates high net working capital requires for sales. This company

having negative working capital because, they have more current liabilities over current

assets. It shows that the short term loans are not sufficient and more money are invested in


38

the purchase of fixed assets. Thus this ratio is helpful to forecast the working capital

requirement on the basis of sale.

Inventory

Year 2006-2007 2007-2008 2008-2009

Inventories 2755.80 3171.00 3268.30

Inventories are a major part of current assets. If any company wants to manage its working

capital efficiency, it has to manage its inventories efficiently. The graph shows that inventory

in 2006-2007 is 30%, in 2007-2008 is 33% and in 2008-2009 is 31% of their current assets.

The company should try to reduce the inventory upto 10% or 20% of current assets.

Cash & Bank Balance

Year 2006-2007 2007-2008 2008-2009

Cash & Bank Balance 357.80 1310.90 2195.70

Cash is basic input or component of working capital. Cash is needed to keep the business

running on a continuous basis. So the organization should have sufficient cash to meet

various requirements. The above graph is indicate that in 2007 the cash is 357.80 million but

in 2008 it has increase to 1310.90. The result of that it easy for the firms manufacturing

operations. In 2009, it is increased upto 2195.70 million cash balance. So in 2009, the

company has no problem for meeting its requirement as compare to 2008.

Debtors

Year 2006-2007 2007-2008 2008-2009

Debtors 3352.50 2974.40 1499.40

Debtors constitute a substantial portion of total current assets. In India it constitute one third

of current assets. The above graph is depicting that there is increase in debtors. It represents

an extension of credit to customers. The reason for increasing credit is competition and

company liberal credit policy.


39

Current Assets

Year 2006-2007 2007-2008 2008-2009

Current Assets 9146.50 9420.00 10221.40

This graph shows that there is 92% increase in current assets in 2009. This increase is arising

because there is approx. 50% increase in inventories. Increase in current assets shows the

liquidity soundness of company.

Current Liabilities

Year 2006-2007 2007-2008 2008-2009


Current liabilities shows company short term debts pay to outsiders. In 2009 the current

liabilities of the company increased. It is not good sign for the company.

Net Working Capital

Year 2006-2007 2007-2008 2008-2009

Net Working Capital -6940.90 -10133.30 -11837.60

Working capital is required to finance day to day operations of a firm. There should be an

optimum level of working capital. It should not be too less or not too excess. In the company

there is negative in working capital. The negative in working capital arises because the

company has purchase many fixed assets and the short debt is not sufficient to meet the

current liabilities.

From the above discussion we get, in 2009 the Hero Honda gets more profit and increase its

business but the liquidity position is better in comparison to previous two years.


40

CONCLUSION

After studying the components of working capital management system of Hero Honda

Motors, Bajaj Auto Ltd, TVS Company Ltd, LML Ltd and Suzuki Ltd. It is found that the

TVS and Suzuki have good liquidity position but profit is low and other Hero Honda and

Bajaj having liquidity position is poor but LML is running with loss. Out of five companies

four of companies are following aggressive policy. Hero Honda and Bajaj are competing well

at the domestic as well as the international level and it is among the low cost producer’s two

wheelers. Two wheeler markets is a saturated market in India and cut-throat completion

among the firms. Among the five companies Hero Honda made more profit in 2009 is

11681.80 million rupees than other companies and LML is suffering is loss due to the

demand of his product and inefficient management. The company is a matured one and it has

contributed well in the countries growth and development and will also continue to perform

and contribute to the whole nation. The Profit is less due to recession, miss management of

fund, not proper Management of working capital.

After the in intra-firm analysis of Hero Honda we found that in 2009 the firm earns 11681.80

million rupees which is high profit in comparison to last two years but the liquidity position is

not good. Mainly short term borrowing is not sufficient to meet the immediate obligations

and the use more fund in the fixed assets. We found that the working capital is negative

which shows the current assets less than the current liabilities. The Hero Honda gets

maximum market share in the two wheelers market. Overall the financial position of Hero

Honda is good.


41

REFERENCE

• http://www.suzukimotorcycle.co.in/suzuki_india.asp

• http://www.suzukimotorcycle.co.in/mission_statement.asp

• http://www.herohonda.com/

• http://www.automobileindia.com/two-wheelers/lml-india/

• http://www.bajajauto.com/

• http://www.tvsmotor.in/

• http://en.wikipedia.org/wiki/Working_capital

• Gupta,Shashi. K & Sharma,R.K. 2003, Management Accounting, Kalyani Publishers,

Delhi.

• Gupta, Shashi, K & Mehra, Arun. 2004, Financial Analysis and reporting, Kalyani

Publisher, Delhi


42

ANNEXURE-1

Profit and Loss Account of Hero Honda Motors

for the year ending December 31,2007,2008 and 2009


2007 2008 2009

Sales 99059.50 103450.10 123253.80

Other Income 837.30 888.50 1085.60

Total Income 99896.80 104338.60 124339.40

Raw Material Cost 72524.60 74795.00 88200.50

Excise 16475.20 17032.90 12278.50

Other Expenses -1959.90 -2055.50 5244.60

Operating Profit 12019.60 13677.70 17530.20

Interest Name 137.60 134.70 130.40

Gross Profit 11882.00 13543.00 17399.80

Depreciation 1397.80 1603.20 1806.60

Profit Bef.Tax 11321.50 12828.30 16678.80

Tax 3882.10 4424.00 4997.00

Net Profit 7439.40 8404.30 11681.80

Other Non-Recurring Income 1139.50 1274.50 1135.80

Reported Profit 8578.90 9678.80 12817.60

Equity Dividend 3394.70 3794.10 3993.80


43

Balance Sheet of Hero Honda Motors Ltd



2007 2008 2009

Liabilities

Share Capital 399.40 399.40 399.40


Net Worth(1) 24700.60 29862.40 38007.50

Secured Loans(2) 0.00 0.00 0.00

Unsecured Loans(3) 1651.70 1320.00 784.90


Assets

Fixed Assets

Gross Block 18006.30 19387.80 25162.70

(-) Acc. Depreciation 6351.00 7825.20 9425.60

Net Block(A) 11655.30 11562.60 15737.10


Investments ( C) 19738.70 25668.20 33687.50


Inventories 2755.80 3171.00 3268.30

Sundry Debtors 3352.50 2974.40 1499.40

cash and Bank 357.80 1310.90 2195.70


(I) 9146.50 9420.00 10221.40



Provisions 4372.40 4997.60 5269.70

(II) 16087.40 19553.30 22059.00





44

ANNEXURE-2

Profit and Loss Account of Bajaj Auto Ltd



2007 2008 2009

Sales 94202.40 88271.50 87001.70

Other Income 3579.30 2504.00 1639.00

Total Income 97781.70 90775.50 88640.70


Excise 13216.70 10295.10 6100.70

Other Expenses -2012.50 202.40 4708.00


Interest Name 53.40 51.60 210.10

Gross Profit 13240.80 10800.50 10717.00

Depreciation 1902.60 1739.60 1297.90

Profit Bef.Tax 14913.60 11553.70 11058.10

Tax 4900.90 3787.80 3016.10

Net Profit 10012.70 7765.90 8042.00

Other Non-Recurring Income 2358.30 -208.10 -1497.00

Reported Profit 12371.00 7557.80 6545.00

Equity Dividend 4047.30 2893.70 3183.00


45

Balance Sheet of Bajaj Auto Ltd


Balance Sheet of Bajaj Auto Ltd

2007 2008 2009

Liabilities

Share Capital 1011.80 1446.80 1446.80


Net Worth(1) 55343.20 15875.90 18696.90

Secured Loans(2) 224.60 69.50 0.00

Unsecured Loans(3) 16029.70 13273.90 15700.00


Assets

Fixed Assets

Gross Block 31785.40 29946.80 33502.00


Net Block(A) 12736.00 12686.10 15422.90


Investments ( C) 64475.30 18571.40 18085.20


Inventories 3097.00 3496.10 3388.40

Sundry Debtors 5298.30 2753.10 3586.50

cash and Bank 834.80 560.70 1368.70


(I) 38482.50 17806.70 24014.50



Provisions 28337.90 8340.40 12241.50

(II) 45172.50 20192.30 26023.50


Misc.Expenses(E) 0.00 0.00 1833.00



46

ANNEXURE-3

Profit and Loss Account of TVS Motors Company Ltd



2007 2008 2009

Sales 38549.60 32195.00 36709.20

Other Income 745.30 673.00 761.60

Total Income 39249.90 32868.00 37470.80


Excise 6184.80 4640.30 3379.90

Other Expenses 1506.30 2337.80 3977.60


Interest Name 423.50 114.70 646.10

Gross Profit 976.00 338.40 564.70

Depreciation 876.00 945.90 1028.90

Profit Bef.Tax 826.50 46.00 277.90

Tax 242.50 36.00 0.20

Net Profit 584.00 10.00 277.70


Reported Profit 662.80 317.70 310.80

Equity Dividend 201.90 166.30 166.30


47

Balance Sheet of TVS Motors Company Ltd

for the year ending December 31, 2007,2008 and 2009


2007 2008 2009

Liabilities

Share Capital 237.50 237.50 237.50


Net Worth(1) 8092.70 8215.80 8131.30

Secured Loans(2) 4461.60 4526.80 6224.20

Unsecured Loans(3) 1874.00 2136.60 2835.60


Assets

Fixed Assets

Gross Block 14830.10 17909.70 18653.60


Net Block(A) 7970.80 10164.80 9959.40


Investments ( C) 3447.40 3389.60 4777.10


Inventories 3965.60 4053.80 3205.50

Sundry Debtors 1114.00 878.60 1815.60

cash and Bank 865.60 37.30 420.50


(I) 8605.90 8398.40 9712.70



Provisions 497.30 609.90 654.90

(II) 8239.50 7867.00 8415.70

Net Current Assets(I-II) (D) 366.40 531.40 1297.00

Misc.Expenses(E) 585.40 527.70 753.30



48

ANNEXURE-4

Profit and Loss Account of LML Ltd



2007 2008 2009

Sales 3261.60 628.47 1116.46

Other Income 23.75 45.38 14.11

Total Income 3285.34 673.84 1130.56


Excise 391.61 23.18 59.66

Other Expenses 1400.40 328.50 384.89

Operating Profit -1104.75 -193.74 -127.48

Interest Name 291.27 189.25 255.10

Gross Profit -1396.02 -382.99 -382.57

Depreciation 390.57 228.58 204.02

Profit Bef.Tax -1762.84 -566.20 -572.49

Tax 794.93 0.00 3.54

Net Profit -2557.77 -566.20 -576.02


Reported Profit -2483.84 -566.07 -572.55

Equity Dividend 0.00 0.00 0.00


49

Balance Sheet of LML Ltd

for the year ending December 31, 2007,2008 and 2009


2007 2008 2009

Liabilities

Share Capital 1987.78 1987.78 1987.78

Reserves & Surplus -2533.92 -3099.99 -3672.54

Net Worth(1) -546.14 -1112.22 -1684.76

Secured Loans(2) 1057.52 1130.26 1241.44

Unsecured Loans(3) 66.31 169.57 178.52

Total Liabilities(1+2+3) 577.68 187.62 -264.80

Assets

Fixed Assets

Gross Block 5135.25 5134.38 5134.04


Net Block(A) 1894.81 1668.19 1465.33


Investments ( C) 0.18 0.09 0.09


Inventories 1025.69 1024.77 980.86

Sundry Debtors 47.76 69.82 63.53

cash and Bank 109.01 77.88 115.15


(I) 1644.35 1598.91 1565.15



Provisions 111.67 121.74 89.33

(II) 3151.87 3264.37 3479.30



Total Assets(A+B+C+D+E) 577.68 187.62 -264.80


50

ANNEXURE-5

Profit and Loss Account of Suzuki Motors Ltd



2007 2008 2009

Sales 6469.24 6627.07 6944.73

Other Income 13.26 11.11 10.72

Total Income 6482.49 6638.18 6955.45


Excise 1080.01 1113.79 921.14

Other Expenses -64.92 2.45 92.98


Interest Name 79.83 108.72 145.91

Gross Profit 677.34 725.04 485.93

Depreciation 275.21 325.14 315.65

Profit Bef.Tax 400.07 411.00 181.00

Tax 115.82 125.30 49.59

Net Profit 284.25 285.70 131.41

Other Non-Recurring Income -6.21 56.00 2.71

Reported Profit 278.04 286.26 134.12

Equity Dividend 47.99 47.99 29.99


51

Balance Sheet of Suzuki Motors Ltd

for the year ending December 31,2007, 2008 and 2009


2007 2008 2009

Liabilities

Share Capital 119.98 119.98 119.98


Net Worth(1) 1510.35 1740.47 1839.50

Secured Loans(2) 961.25 809.96 1049.62

Unsecured Loans(3) 300.00 300.00 300.00


Assets

Fixed Assets

Gross Block 3314.22 3631.00 4296.65


Net Block(A) 1649.39 1689.79 2121.09


Investments ( C) 0.00 0.00 4.04


Inventories 990.92 924.97 854.86

Sundry Debtors 280.97 253.61 557.08

cash and Bank 76.59 74.95 112.62


(I) 1625.04 1516.97 1827.91



Provisions 70.52 92.49 58.97

(II) 728.99 753.23 1212.19

Net Current Assets(I-II) (D) 896.06 763.75 615.72



Documents

WORKING CAPITAL MANAGEMENT REPORT