SUMMER TRAINING REPORT

ON

CASH MANAGEMENT
IN

SUBMITTED TO
DEPT. OF BUSINESS ADMINISTRATION

SUBMITTED BY SHALU VERMA M.B.A 3RD Sem. ROLL NO. 46

CH. DEVI LAL UNIVERSITY,SIRSA AC NO!LEDGEMENT

At the outset I would like to thank the Management of ESCORTS AGRI MACHINERY GROUP for the wholehearted co-operation and guidance extended by them, which made my summer training project possible. I would like to thank M". B#$"$% M$&$' ( hief !inancial "fficer#, M". S. A(($")$* +$ead %mployees &elations,, and Mrs. -"$' C#./"$ + hief 'ecretary ( 'ystem Manager# for pro)iding me this opportunity to carry out the project. I am )ery grateful to my project guide M"./0*$1 2-'#$ (finance Manager* !inance +epartment# %scorts ,imited (AM- .,A/0-1# for his support and suggestions, which led to the completion of this project. I would also like to thank Mr. 2.2 khanna , Mr. M.M. $alder , Mr. /itin Aggarwal , Mr. 3ijay /ehra , Mr. &ajee) 4handelwal , Mr. 'unil 2hatia, Mr. &./ katyal, Mr.Ajay 5adhawan , Mrs 'aroj and Mr. &.4. 4ukreja and other staff members for their support and cooperation.

STUDENT DECLARATION
I, student of 7Masters in 2usiness Administration CH. DEVI LAL UNIVERSITY, SIRSA hereby declare that the dissertation8thesis entitle 9'tudy of ash Management: of the %scort Agri Machinery -roup (AM-# submitted in fulfillment of the training* is my original work and is not submitted for the award for any other degree, fellowship or similar title or pri;e.

SHALU VERMA

<

E3ECUTIVE SUMMARY

If the de)elopment capital is what establishes a business, cash flow is what keeps it going. "ne of the most common downfalls of business is unexpectedly high running cost. 5hat is important is not just the si;e of operating costs, but the cash flow-that is when money has to be paid out in relation to the stream of income arri)ing in. 0hus cash flow management is of prime importance. %scorts ,td. is the holding company of the %scorts -roup. .ost restructuring, agri - machinery or tractors ha)e become the focus area of operations. "ther business i.e. two- wheelers, I0, 0elecom, construction e=uipment, are controlled through subsidiaries and joint )enture. .ost hi)e off of its pistons business to a joint )enture with a foreign collaborator, %scorts is focusing on its 9core competence: of tractors. %scorts ha)e strong hands in house engineering skills, a wide distribution8ser)ice network and brand franchise. 0he project is small attempt to study the cash management in %scorts Agri - Machinery group. Added to this fact that mechani;ation le)el in India is currently )ery low as compared to the world standards. 0o analy;e the performance, published balance sheets of %scorts ,imited, A'$ !,"5 '0A0%M%/0' are been used. 0his project report is based on financial data up to 6>>?->@ only. 0he financial year for escorts is from >181>86>AA to <18>B86>AA. %scorts is maintaining the following records which is indicati)e of its professional approachC
D

 Maintaining proper set of accounting records. Maintaining an accurate cash book with bank statement +aily cash inflow ( cash outflow. Marking regular forecast of cash re=uirement based upon planed sales )olume. Ageing of debts8credits with comparisons to pre)ious month

TABLE OF CONTENTS

OB4ECTIVE OF THE TRAINING ABOUT TRACTOR INDUSTRY I/0&"+F 0I"/ !F0F&% "! 0&A 0"& I/+F'0&G MA&4%0 '$A&% "! 0$% 0&A 0"& I/+F'0&G 0&A 0"& I/+F'0&G .%&!"&MA/ %

COMPANY5S PROFILE %' "&0' 'GM2", MI''I"/ HFA,I0G .",I G 2A 4-&"F/+ "! 0$% 2F'I/%'' 2"A&+ "! +I&% 0"&' "F0,I/% "! %' "&0' 'F2'I+%&I%' 2A/4%&'

AGRI MACHINERY GROUP I/0&"+F 0I"/ I

A-&I MA $I/%&G -&"F. "/0&I2F0I"/ M"+%&/IJA0I"/ "! A-&I- MA $I/%&G -&"F. .&"+F 0' "M.A/G:' !F0F&%

CASH MANAGEMENT I/0&"+F 0I"/ A'$ !,"5 MA/A-%M%/0 A'$ MA/A-%M%/0 'G'0%M IM."&0A/ % "! A'$ MA/A-%M%/0 A'$ MA/A-%M%/0 '0&A0%-I%' A'$ "F0!,"5 A'$ I/!,"5

CASH FLO! STATEMENT IM."&0A/ % +AI,G A'$ !,"5 &%."&0 CASH BUDGET BAN RECONCILIATION

CASH RATIOS RECEIVABLES MANAGEMENT PAYABLE MANAGEMENT RECOMMENDATIONS ?

LIMITATIONS

BIBLIOGRAPHY ANNE3URES

OB4ECTIVES OF THE TRAINING

It is well known fact that we remember 6>K of what we hear, we remember D>K of what we see but we remember ?EK of what we do. Fndergoing M.2.A is the first step to prepare myself as a manager and )isuali;e the e)er-dynamic business world and my main objecti)e while taking up the training was to familiari;e myself with the working of the finance department of %scort Agri Machinery -roup (AM-# 0o present study in %scort Agri machinery group mainly focus on the following C &esources of cash inflow of the company. ash flow factors which ha)e effect of cash inflow. ash flow statement in the company. ash flow management in the company

ABOUT THE TRACTOR INDUSTRY

B

INTRODUCTION
India:s long-term economic prospects, e)en today, depend to a large extend on the agricultural sector, which contributes a =uarter to the gross domestic project and pro)ides li)elihood to 68< of the population. A gradual and perceptible shift from subsistence farming to enterprise farming is harbinger of moderni;ation of the agriculture economy and this will increase the contribution of the sector to the o)erall -+. in the time to come. 0he central go)ernment as well as se)eral state go)ernments is gi)ing due priority to agriculture and rural de)elopments. A tractor is a product, which has maximum utility in the agricultural sector. 0he tractor industry is segmented on the basis of the power of the tractor engine measured in terms of horsepower ($.#. 0he maximum consumption is for <>-D> $. tractors. 5ith the increase in the a)ailability of low cost finance for longer tenures, the sale of the tractors is expected to go up. 0he new trend obser)ed in this sector is the shift in consumption from majority in the northern states to other parts of the country, too. 0he soil in the northern states is allu)ial in nature and thus
1>

re=uires a low powered tractor for tilling it. $owe)er, states located in the western and southern parts of the country where the soil being laterite or black etc. is harder and needs high-powered tractors. 0ractor industry in India has passed through )arious ha;es before reaching where it is today. +uring 1BDE to 1BI> demand was met entirely through import. 0here were <?,>>> tractors by 1BI>. .roduction began in 1@I1 with fi)e manufactures producing a total of @@> units per year. 2y 1BIE it increased to o)er E,>>> units per year and by 1B?> annual production rose to more than 6>,>>> units. 'ix new manufacturing were established during 1B?1-1B@>. In 1B?1 %scorts also started local manufacturing of !ord 0ractors in collaboration with !ord, F4. +uring, 1BB> annual production rose to 1, D>,>>> units making India an exporter to countries, mainly to Africa. After +e-licensing of tractor industry, production exceeded 6, EE,>>> units in 1BB?. 0he growth of the industry o)er the last three decades resulted in the entry of se)eral new entrants including all the major multinational companies. 0he industry now consists of 1D manufactures with an aggregate installed capacity of approximately D.E> lack tractors. In the tractor industry, following are the key manufacturersC Mahindra( Mahindra ,imited (M(M#, -ujarat 0ractors ,imited, 0ractors and !arm %=uipment ,imited, $industan Machine 0ools ,imited, 2ajaj 0empo ,imited

11

In 1BBB-6>>>. 'ince then, howe)er the industry declined to a le)el of 1.?6 lack tractors in the year 6>>6-6>><, a decline of <<.<K o)er three years. +espite the step decline in the industry, %scorts consciously decided to aggressi)ely reduce channel in)entory further by approximately <,E>> units reduces in the pre)ious year. 0his has not only impacted their re)enue and profit ad)ersely but has also enabled the company to balance the cash flow of company effecti)ely. 0ractors form an integral part of farm mechani;ation and ha)e a crucial role to play in increasing agriculture producti)ity. In India, B>K of the tractors are financed by banks- credit at concessional rates. A)ailability of credit therefore is the most crucial factor, impacting tractor demand. Increased use of irrigation facilities, shift towards multicropping, consolidation of lands holdings, promotion of cooperati)es and higher in)estment in agriculture also contributes to higher tractor demand.

16

F0%0"e .6 T"$7%." -'&02%"8

0he tractor industry in India has been on a growth trajectory since the second half of 6>><->D, after going through a minimum )ariation for consecuti)e years. 0he key factors dri)ing this growth are increasing farm incomes, aggressi)e financing resulting in easy a)ailability of lowcost credit, sharp in)entory correction and strong export growth. 0he demand in tractor industry is expected to grow mainly due to the agricultural sector, with the expected increase in agricultural production. Also, the shift in trend for demand towards higher $. tractors is expected to continue. 0his will be further strengthened by the launch of se)eral new models. In the next 6-< year, demand for tractors is expected to increase significantly in the eastern states, where traditionally, tractor usage has been low. %xports are expected to increase significantly as se)eral Indian players are targeting the 7hobby farmingL segment in the F.', which is considerably large. Also, tractors of most Indian manufacturers comply with the emission standards accepted in the
1<

F.'. Most exports are likely to be through o)erseas partnerships or joint )entures. Mc4inley has also forecasted tractor population re=uirements of ?E lacs o)er the next 1@ years )s. current population of 6I lacs. 0he extension of the 1E> per cent deduction on &(+ expenditure up to march <1, 6>>B, in the 2udget 6>>@->B will also benefit the industry in terms of new product de)elopment besides increase in the area under irrigation under the 2ahrat /irman .roject and the micro irrigation scheme.

MAR ET SHARE OF TRACTOR INDUSTRY

F." %#e 8e$" 9::;<:=

1D

ESCORTS
7.26% 1.30% 6.63% 8.14% 1.37% 8.82% 1.36% 15.20% 8.00% 13.65%

MAHINDRA & MAHINDRA PTL TAFE HMT SONALIKA FML L&T

28.17%

TRACTOR INDUSTRY PERFORMANCE

COMPANY %' "&0 9::><:6 111<@ 6<6>>

FORD NEW 9::6<:; HOLLAND 9::;<:=

6>BE> OTHERS

!A&M0&A

1@6@?

<6@>>

EICHER 6IB>>
D?@E>
1E

0"0A,(%' "&0 M

6BD6E

EI>>>

!A&M0&A #

MA$I/+&A ( MA$I/+&A .0, 0A!% %I $%& $M0 '"/A,I4A 20,(!M,# ,(0 !"&+ /%5 $",,A/+

@E>6@ <1<BI

1>6E>> <>>1> E6D>> 6??>>

B@?>> 6@>D> E<D>> 6EDE> D??> <>B6> D@6> 6@E<> 6<6E> DE6>

?B>> <6>1? DDID 1BBE1 1<61D @DE>

IE>> <I6>> E>E> 1B?6> 1BD>> ?1BE

0"0A, I/+F'0&G

<>6D<E

<I6I?E

<E><>>

1I

COMPANYS PROFILE

ESCORTS SYMBOL
0he %scorts symbol means more than a seen by eye. It has been prepared with certain objecti)e in mind and is symbol in more than one way. 0he philosophy behind %scorts and the 9e5 in the %scorts is 7enterpriseL. 0he hexagon is a symbol of producti)ity. .recision when interposed as a nut. It symboli;es a craft man ship and mending producti)ity. 0he sprains
1?

super imposed on the hexagon represent the workers and the people of %scorts. 0his forms the letter 9%: the first of %scorts a company e)en of more changing un)eiling the future

MISSION
!or an %nterprise business mission embodies of its endea)or, which acts as a guiding light for continuous de)elopment ( growth. Mission of ESCORTS isC %ngineering hanges through core competency for greater synergy reinforcing bonds with customers ( establishing powerful symbiotic
1@

relationship with international allies, preparing global market. 0he company wants to make a lasting difference to its shareholders, its customers, its business associates, its employee and the country as a whole. 0he company also gi)es better =uality and better technology to customer and treats e)ery customer as 7specialL to build respect for, and loyalty to, %scorts.

?UALITY POLICY
5e shall stri)e to continuously impro)e to meet the e)er N rising expectation of our customers at the lower cost. %ach one of us must fulfill the need of our customer, both internal and external with the highest degree of commitment thereby creating a =uality organi;ation geared to
1B

ensure total customer satisfaction and the sustained health and prosperity of our business.

C02%.me" O"-e'%$%-.'@ 0o fulfill the re=uirement of our internal and external customer.

P".7e22 O"-e'%$%-.'@ 0o optimi;e and harmoni;e interrelated process rather than indi)idual function.

P"eAe'%-Ae Be#$A-."@ 0o pre)ent the mistake to happen.

BAC GROUND AND BUSINESS

0he %scorts -roup, with %scorts ,imited as its flagship company, is among India:s leading corporations operating in the di)erse field of agri machinery, construction ( material handling e=uipment, automoti)e ( railway ancillaries information technology and financial ser)ices. 0he
6>

group has 1E modern manufacturing facilities ( an extensi)e marketing network spread across the country. 0he genesis of %scorts goes back to 1BDD when two brothers, Mr. $... /anda and Mr. Gudi /anda, launched a small agency house, %scorts Agents ,td., in ,ahore. 0he company:s principal acti)ities were trading and representing leading o)erseas manufacturers for the sale of their products in India. "ne of its dealerships was for the 7Massey !ergusonL brand of tractors. In +ecember 1BEB, %scorts agents ltd. was con)erted into a public limited company and was renamed as %scorts ,imited (%,#. In Oanuary 1BI>, %, decided to set up manufacturing facilities for making tractors in India under the 7%scortsL brand name in the 6E-D> $orsepower categories. %, promoted %scorts 0ractors ,imited in 1BIB as joint )enture with !ord Motor ompany of F'A for the manufacturing of 9!ord: series of tractors. 0he tractors manufactured were in the DE-E> $. range and %0, became the market leader in this segment with a share of abo)e E>K. onse=uent to !M :s disposal of tractors operations to !ord /ew $olland, F'A, !ord new holland ac=uired the shares of !M in %0,. !ollowing an agreement in 1BBE to end the joint )enture association, %, ac=uired the entire stake of ford new holland in August 1BBE, making escorts tractors ltd. a subsidiary of %scorts ,td. ")er the years, %scorts has sured ahead and e)ol)ed into one of India:s largest conglomerates. 0ill 1BB<-BD, all these acti)ities were being carried out in )arious di)isions of %,. %, undertook a major restructuring exercise between BD-B@ spinning off the di)isions into separate companies. 0he restructuring exercise-comprised consolidation of the agrimachinery business by merger of %0, with %, and ha)ing off )arious
61

di)isions into separate companies. 2iwheeler di)ision was spun off to %scorts Gamaha Motors ,td., construction e=uipment di)ision to %scorts construction e=uipment ,td., telecommunication e=uipment di)ision to %scorts communication ,td., %, booked gains of &s. 6>B1 million o)er the four year period 1BBD-BE to 1BB?-B@ though the sale of these the sale of these di)isions. 0he main products of %scorts group currently comprise of agrimachinery, information technology, health care, financial ser)ices, railway components, auto components, construction and material handling e=uipment.

BOARD OF DIRECTORS
M$'$(-'( D-"e7%." BC#$-"m$' Mr. &ajan /anda

4.-'% M$'$(-'( D-"e7%."2

Mr. /ikhil /anda

66

D-"e7%."2

+r. M.-.4. Menon

+r. '.A. +a)e

+r. ..'. .ritam

Mr. '. . 2harga)a

S".V-7e P"e2-&e'%< L$) B C.m/$'8 Se7"e%$"8 Mr. -.2. Mathur

ECe7. V-7e P"e2-&e'% B G".0/ C#-e6 F-'$'7-$* O66-7e" Mr. &.4.2udhiraja

OUTLINE ORANISATION ESCORTS GROUP

Chairman & Managing Director Sh. Rajan Nan a
'ecretariat

!lagship

"perating +i)ision

6<

%scorts ,imited !aridabad

Agri Machinery

%ngineering

International 2usiness

orporate enter !aridabad

%scorts &esearch enter, !aridabad

Institute of !arm Mechani;ation, 2angalore

.ersonnel

!inance

.roject

%scorts $eart &esearch Institute, /ew +elhi

%scorts Medical enter, !aridabad

Administration and 'ecurity

,aw

%xport and ommunication

Associates ompanies %scorts %mployees 5elfare 0rust !aridabad

'ubsidiary ompanies

OUTLINE ORANISATION ESCORTS LIMITED

Chairman & Managing Director Sh. Rajan Nan a 'ecretriat

orporate "ffice orporate enter, !aridabad

&egistered "ffice /ew +elhi

6D

.ersonnel .roject Administration and 'ecurity

!inance ,aw %xport and ommunication

Agri Machinery Marketing +i)ision

Automoti)e Ancillaries and &ailway %=uipment +i)ision

!armtrac +i)ision

%scorts 0ractor +i)ision

orporate "ffice (,ine +uties#

!unctional Fnits (.roduction ( "peration#

orporate "ffice (,ine +uties#

!unctional Fnits .roduction ( "peration#

SUBSIDERIES

%scorts Asset Management ,td. %scorts Automoti)e ,td. %scorts lass ,td. %scorts onstruction %=uipment ,td.
6E

%scorts $eart Institute and &esearch entre ,td %scorts $ospital and &esearch entre ,td. %scorts 'ecurities ,td. %scorts 0elecommunication ,td. %sconet 'er)ices ltd. ellnext 'olutions .)t. ,td. I 'er) India 'olutions .)t. ,td. %scosoft 0echnologies ,td. %scosoft 0echnologies (F'A# ,td. %scosoft 0echnologies (F4# .)t. ,td. %scosoft 'ingapore .)t. ,td. %-'oft (Mauritius# $oldings ,td. %scotel Mobile ommunication ,td. %scotel 0elecommunication ,td. %scorts Agrimachiner

BAN ERS
I+2I 2A/4. A2/ AM&" 2A/4 /.3. 2A/4 "! 2A&"+A. I0I2A/4, /.A.
6I

+%F0' $% 2A/4 A-. $"/-4"/- ( '$A/-$AI 2A/4I/- "&."&A0I"/ ,IMI0%+. $+! 2A/4 ,IMI0%+. .F/OA2 /A0I"/A, 2A/4. '0A0% 2A/4 "! I/+IA. '0A0% 2A/4 "! 0&A3A/ "&%.

AGRI
6?

MACHINERY GROUP

INTRODUCTION
$a)ing pioneered farm mechani;ation in the country, %scorts has played a pi)otal role in the agricultural growth of India for o)er fi)e decades. "ne of the leading tractor manufacturers of the country, %scorts produces tractors in the 6?-?E $. range and has already sold o)er I lakh tractors. %scorts A-&I MA $I/%&G -&"F. (AM-# was set up in 1BI> and they rolled out their batch of tractors in 1BIE under the brand
6@

name of %scorts. 0oday its tractors are marketed under three brand names, )i;. %scort, .owertrac and !armtrac.

E27."%2 B"$'& of tractors is symbolic of reliability and enjoys the confidence of the farming community for the last D> years. P.)e"%"$7 B"$'& of tractors is the most fuel-efficient tractor in their respecti)e categories that offer excellent )alue for money and ha)e helped the farmer impro)e their =uality of life. F$"m%"$7 B"$'& is the most powerful premium range of tractors that gi)e maximum producti)ity to the farmers. 'panning these three brands, the company has a full range of tractors to cater to the domestic as well as o)erseas markets. 0he company is de)eloping state-of-the-art highly fuel efficient engines with the assistance of AVL .6 A02%"$*-$ and ha)e also entered into a Ooint )enture with CARRARO SPA .6 I%$*8 for the manufacturing of transmission and axles. 0o sustain the present momentum and to reali;e the future goals, %scorts has in)ested &s. I> crore towards strengthening new product. +e)elopment programs and enhancement of &(+ capabilities. Additionally, &s.D>> crore has been in)ested towards moderni;ation of its manufacturing facilities bringing them to international standards. 0he company has one of the most comprehensi)e distribution networks comprising of o)er E>> dealership 8 outlets and <> area offices spread across the country. It has a manufacturing capacity of ?E>>> tractors per annum. %scorts Agri Machinery -roup is looking at forward and backward integration through genetic engineering.
6B

In line to their )ision for becoming a major player in sub 1>> $. segment by 6>11 in the global markets, they ha)e increased their reach from a major regional player to major global markets, which stretch from /orth America to Australia co)ering all the continents. +espite the strict competition by other major tractor manufactures they ha)e been able to gain constant )olumes in the global market. 0heir target for this year is to export 6EK )olumes of their total production )olumes. 0o consolidate its presence in the o)erseas markets, the company has )entures in the F'A and %urope (.oland#. It has recently ac=uired a majority stake in ,ong Agribusiness ,, , a tractor distributing company in F'A and .oland %scort 'polka J."."., .oland. 2esides the F'A and .oland, %scorts has strong presence in 0urkey, Australia, 2angladesh, 'ri ,anka, /epal, 4enya, 0an;ania and 'outh Africa etc. though its dealers network in these countries. %scorts ha)e )ery ambitious plans to expand the network in other potential countries in the coming year. 2y the end of next year, the company hopes to be largest exporter of tractors in the Indian tractor industry.

AGRI MACHINERY GROUP CONTRIBUTION

<>

AM- contribution is Almost $alf of the 0otal &e)enues of %scort -roup.

AMG 23% Auto Ancilliary Parts Railway Equipments Construction

12% 9%

56%

MODERNIDATION OF AGRI MACHINERY GROUP

<1

%scorts Agri Machinery -roup (AM-# has in)ested o)er US E;.> million in state of the Art ( &esearch and +e)elopment enter. 3irtual prototypes of components and aggregate assemblies are made and assembled on computer workstations using <+ technology. 0heir performance is checked on computers using simulation techni=ues thus sa)ing a lot of time for the end-user as well as lowering de)elopment costs. 0he &(+ center uses ad)anced <+ modeling, analysis and simulation software for engines, transmission and )ehicles. .hysical prototypes are then extensi)ely tested for performance, durability and reliability. !acilities include a high Ntechnology engine laboratory featuring fully computeri;ed test-beds with on line control, data collection, and analysis.

PRODUCTS
<6

%scorts %-<6E Oosh %-<<E %-<<E. %-D<> %-D<>A, %-D<E %-DD>(IM6 ( @M6#.0 %-DD>(IM6 ( @M6#A, %-DE> %-DE>(@M6#.0 %-DE>(@M6#A,

!armtrac ! 0 N<> ! 0 N<E ! 0 NDE ! 0 NDE,i)e .0 ! 0 NE>+2 ! 0 NE> ! 0 NI> ! 0 NI>+2 ! 0 NI>+eluxe ! 0 NI>,i)e .0 ! 0 N?>

<<

COMPANY5S FUTURE

0he growing domestic demand for food gains and agri products promises a )ery good future for company:s business. 5ith exemption of excise duty on tractors and growing importance of agriculture sector in the growth of Indian economy India can become a major exporter of agri products and increased demand both domestic and export will call for increased yields. 0ractors population today is concentrated in 1>K of )illages and e)en today ?>K of the )illages do not ha)e tractor . risil infa has estimated an $''0$* &em$'& 3.: *$712 %. 3.9: *$1#2 .6 %"$7%."2 F8 9::;<:= A2. 9.4 *$1#2 -' 9::6<:;. All these show great potential for growth in the industry and thus in the company

<D

CASH MANAGEMENT

<E

INTRODUCTION
ash is the important current asset for the operation of the business. ash is a medium of exchange to purchase the goods and ser)ices and to discharge the liabilities. ash is the basic input needed to keep the business running on a continuous basis* it is also the ultimate output expected to be reali;ed by selling the ser)ice or product manufactured by the firm. 0he firm should keep sufficient cash, neither more nor less. ash shortage will disrupt the firm:s manufacturing operations while excessi)e cash will simply remain idle, without contributing anything towards the firm:s profitability. 0hus a major function of the financial manager is to maintain a sound cash position. ash is the money which a firm can disburse immediately without any restriction. 0he term cash includes coins, currency and che=ues held by the firm, and balances in its bank accounts. 'ometimes near cash terms, such as marketable securities or bank time deposits, are also included in cash. 0he basic characteristic of near cash asset is that they can readily be con)erted into cash. -enerally, when a firm has excess
<I

cash, it in)ests it in marketable securities. 0his kind of in)estment contributes some profit to the firm.

CASH FLO! MANAGEMENT

ash flow management is a process of monitoring, analy;ing, and adjusting one:s business cash flows. 0he most important aspect of cash flow management is a)oiding extended cash shortages, caused by ha)ing too great a gap between cash inflows and outflows. 0herefore, one needs to perform a cash flow analysis on a regular basis, and use cash flow forecasting so that one can take the steps necessary to head off cash flow problems. ash management in)ol)es the efficient collection, disbursement and temporary in)estment of cash. 0he treasurer department of a company is usually responsible for the firm:s cash management system. A cash budget, instrumental in the process, tell us how much cash we likely to ha)e it, and for how long. In cash flow management I studied many statements like as followsC

<?

ash flow 'tatement ash 2udget

CASH MANAGEMENT SYSTEM

5ith timely information reporting a firm can generate significant income by properly managing collections, disbursement cash balance and cash e=ui)alents in)estment,

Collection

Disbursement

Cas h

<@

Cash Equivalents

Control Through Information Report

IMPORTANCE OF CASH MANAGEMENT

ash management assumes more important than other current assets because cash is the most significant and the least producti)e asset that a firm holds. It is significant because it is used to pay the firms obligations. $owe)er cash is unproducti)e. Fnlike fixed assets or in)entories, it does not produce goods for sale. 0herefore, the aim of cash management is to maintain ade=uate control o)er cash position to keep the firm sufficiently li=uid and to excess cash in some profitable way. ash management is also important because it is difficult to predict cash flow accurately, particularly the inflows and there is no perfect coincidence between the inflows or outflows of cash. +uring some periods, cash outflows will exceed cash inflows, because payments for taxes, di)idends, or seasonal in)entory build up. At other times, cash inflows will be more than cash payments because there will be large cash sales and debtors may be reali;ed in large sums promptly.
<B

ash management is significant because cash constitutes the smallest portion of the total current assets, yet management:s considerable time is de)oted in managing it.

CASH MANAGEMENT STRATEGIES

0he firm should de)elop appropriate strategies for cash management. 0he firm should e)ol)e strategies regarding the following four facets of cash managementC

C$2# /*$''-'( cash inflow and outflow should be planned to project cash surplus or deficit for each period for each period of the planning period. ash budget should be prepared for this purpose.

M$'$(-'( %#e 7$2# 6*.)2 the flow of cash should be properly managed. 0he cash inflows should be accelerated while, as far as possible, the cash outflows should be decelerated.

O/%-m0m 7$2# *eAe*

the firms should decide about the appropriate

le)el of cash balances. 0he cost of excess cash and danger of cash
D>

deficiency should be matched to determine the optimum le)el of cash balances.

I'Ae2%-'( 20"/*02 7$2#

the surplus cash balances should be properly

in)ested to earn profits. 0he firm should decide about the di)ision of such cash balance between short-term in)estment opportunities such as bank deposits, marketable securities, or inter- corporate lending.

CASH OUTFLO!
!or cash management, the control of cash outflows, which is directly related to organi;ational arrangements for budget execution, can pose more difficulties than the control of cash inflows. $owe)er, issues related to cash management should not be confused with issues related to the distribution of responsibilities for accounting control and administration of the payment system. 0he major purpose of controlling cash outflows is to ensure that there will be enough cash until the date payments are due and to minimi;e the costs of transactions, while keeping cash outflows compatible with cash inflows and fiscal constraints. 0he first condition for ensuring that cash outflows fit fiscal constraints is good budget preparation and budget implementation co)ering both cash and obligations. $owe)er, during budget implementation, cash outflows must also be regulated through cash plans to smooth cash outflows.

D1

CASH INFLO!
It is necessary to minimi;e the inter)al between the time when cash is recei)ed and the time it is a)ailable for carrying out expenditure programs. ollected re)enues need to be processed promptly and made a)ailable for use. 5hen tax collection is done by the tax administration offices (or by 0reasury offices# the administrati)e organi;ation of these offices may ha)e to be re)iewed and their e=uipment moderni;ed. ommercial banks by )irtue of the banking sector infrastructure are often able to collect re)enues more efficiently than tax offices, which should therefore focus instead on tracking taxpayers. 5hen re)enues are collected by commercial banks, arrangements must be defined to foster competition and ensure prompt transfer of collected re)enues to go)ernment accounts. 'ystems of bank remuneration through float, which consists of authori;ing the banks to keep the re)enues collected for a few days, present incon)eniences. 'tringent rules to ensure prompt transfers must be established. Moreo)er, bank remuneration through fees
D6

is more transparent and promotes competiti)e bidding. An appropriate system of penalties for taxpayers is also an important element in a)oiding delays in re)enue collection.

CASH FLO! STATEMENT

Me$'-'(@ IT IS $ 20mm$"8 .6 6-"m52 7$2# "e7e-/%2 $'& 7$2# /$8me'%2 &0"-'( /e"-.& .6 %-me. 0he purpose of cash flow statement is to report a firm:s cash inflow and outflows, during a period of time, segregated in to three categoriesC ./e"$%-'(, -'Ae2%-'( $'& 6-'$'7-'( $7%-A-%-e2. 0he statement of cash flow explains changes in cash and cash e=ui)alent such as treasure bill and the acti)ities that increase and decrease cash. 0he cash flow statement may be presented using either a 7direct methodL (5hich is encouraged by financial accounting standards board# or an 7Indirect MethodL (which is likely to be the method followed by good majority of firms#. 0he only difference between the direct and indirect method of presentation concern the reporting of operating acti)ities* the in)esting and financing acti)ities section would
D<

be identical under either method. Fnder the direct method, operating cash flow reported directly by major classes of operating cash receipts (from customers# and payment (to suppliers and employees#. A separate indirect reconciliation of /et income to net cash flow from operating acti)ities must be pro)ided. 0he reconciliation starts with reported net income and adjusts this figure for non-cash income statement items and related changes in balance sheet items to determine cash pro)ides by operating acti)ities.

ash flow statement has three acti)ities like as followC

O/e"$%-'( A7%-A-%-e2C- 'hows impact of transactions not defined as in)estigation or financing acti)ities. 0hese cash flows are generally the cash effects or transaction that enter into the determination of net income. 0hus, we see items that not all statement users might think of as 9operating: flows-items such as di)idends and interest recei)ed, as well as interest paid.

I'Ae2%-'( A7%-A-%-e2C- 'hows impact of buying and selling fixed assets or e=uity securities of other entities.

F-'$'7-'( A7%-A-%-e2C- 'hows impact of all cash transactions with shareholders and the borrowing and repaying transactions with lenders.

DD

IMPORTANCE
0he effects of cash and non-cash in)esting and financing transaction. A manager can assess the reason for differences between net income and net cash flow from operating acti)ities. It is also helpful for a company to generate future net cash inflows from operations to pay debts, interest and di)idends. It gi)es indication to a company:s need for external financing. A cash flow statement is straightforward and easy to Fnderstand. It gi)es a strong indication of how )iable the company will be o)er time.

DE

 0he extent of success or failure of cash planning can be known by comparing the actual cash statement with the budgeted cash flow statement and remedial measures can be taken. It discloses the )olume and the speed at which cash flows in different segments of the business

DAILY CASH FLO! REPORT

0he +aily ash !low report is prepared with an objecti)e to keep incessant check on the cash flows of the firm, which includes both inflow and outflow cash. 0he cash flows are planned to project cash surplus or deficit for each period i.e daily, monthly, =uarterly, semi-annual ( annual basis. 0he framework of report highlights all the effects, which lead to cash surplus or deficit. It is a measure, which calculates the details of daily transaction in terms of sale and purchase, which further includes the means through which they take place. At %scorts-AM-, the daily cash flow report is designed in a format suiting their re=uirements .0he sales of tractors is their primary goal which includes exports as well. 0he bills are presented for desired collection from )arious channels i.e dealers, stockiest, distributors through which the tractors are supplied in the market. 2esides tractors
DI

they also deal in engines, backend, implements which are included in the category of other receipts. 0he receipts are other than collections as they aren:t generated through sales. /ext come the payments, which are made in discharge of financial obligation towards )arious suppliers, bank payments, excise duty, salary ( wages etc. 0hrough the )arious collections, receipts and payment, we are now in a position to deri)e the surplus or deficit which is the result of abo)e transactions. 0he surplus balance shows that the collections ( receipts are more than payments and )ice-a-)ersa in case of deficit. 0hough surplus is an indicator of sound financial position and deficits the other way round, but excess surplus is also not considered healthy which has reasons to it like in)entory pile up and so on. 0he last component of the cash flow report is the outstanding debtors, which is calculated by subtracting billing ( collection from opening o8s of debtors in domestic, export and other categories. 0his way the day to day cash transactions are maintained through the cash flow report which leads to proper functioning of an organi;ation:s resources both men ( material.

COMPONENTS
0he annual cash flow statement at %scort- AM- is prepared for the fiscal period commencing from >181>86>AA to <18>B86>AA. 0hey are also maintaining the daily cash flow report with a purpose of keeping constant
D?

check on the daily flow of cash i.e cash inflow and cash outflow, for different products categories, their parts and other miscellaneous.

0he main products at %' "&0' N AM- are 7 0&A 0"&' 7 which are a)ailable in three major categoriesC !armtrac .owertrac %scorts 0hese products are sold into the market through intermediaries like dealers, stockists and distributors , these parties charge a commission for the ser)ices pro)ided by them. Among these parties dealers are gi)en priority o)er the stockists ( distributors for the deli)ering the product to the end customer and the commission also )aries in the same manner.

0he following are the transactions that take place in the daily cash flow report under the following main headsC .articulars, Gear to date i.e the )ery first day of the financial year till the pre)iuos months end (in which the daily report is being made#, 0he pre)ious month, .lan for the ongoing month, 0he particular day for which the report is being made,
D@

 Month to date (from the beginning of the current month till the day for which report is being made#.

SALES 0his includes the number of tractors sold in the domestic boundaries as well as o)erseas.

BILLING It is the process of sending accounts to customers for goods or ser)ices. 0he document used is called an in)oice, the in)oice may be attached to the goods or forwarded separately. 0he a)erage sale )alue of each tractor is calculated as a follows @ T.%$* 2$*e2 .6 %"$7%."2 N0mFe" .6 %"$7%."2 2.*&

COLLECTION 0he collections is reco)ered from all those parties to whom the products is being sold. 0he parties in)ol)ed are @

T"$7%."2 + D-"e7% , 0his includes the sale made through dealers to the end customer, for which a predetermined amount is gi)en as commission to the opposite party. If the dealer fails to make the sale till the due date than he has to pay interest on it thereon.

T"$7%."2 + S%.71-2%2 , 0his includes the sale made through stockists, who doesn:t sell the product by themsel)es but sells them through dealers. 0he credit period allowed to stockists by the company is less in
DB

comparison than that of dealers, which yields to faster generation of income .

T"$7%."2 + C#$''e* 6-'$'7-'( , N 0his system is adopted to impro)e the working capital of the company by a)oiding in)entory pile up and earning speedy collections. !urthermore, hannel !inancing is an inno)ati)e option for extending working capital finance to dealers who ha)e business relationships with large companies. hannel !inancing is the mechanism through which a 2ank 8 !inancial Institution meets the )arious

hannel !inancing could co)er C D-27.0'%-'( .6 %"$&e F-**2 &"$)' F8 $ 7.m/$'8 B $77e/%e& F8 -%2 &e$*e"2G &-2%"-F0%."2G 7#$''e* /$"%'e"2.

P".A-&-'( .Ae"&"$6% 6$7-*-%8 %. %#e &e$*e"2G &-2%"-F0%."2 )#. #$Ae F02-'e22 &e$*-'(2 )-%# *$"(e 7."/."$%e.

OTHER RECEIPTS @ An acknowledgment (usually tangible# that payment has been made. 0he below mentioned are the transactions included in it @

B-** &-27.0'%-'( @ it is a major acti)ity with some of the smaller banks. Fnder this type of lending, bank takes the bill drawn by borrower or his (borrower:s# customer and pay him immediately deducting some amount
E>

as discount 8 commission. 0he bank then present the bill to the borrower:s customer on the due date of the bill and collect the total amount. If the bill is delayed, the borrower or his customer pays the bank a predetermined interest depending upon the terms of the transaction.

0he following entries could be passed in the co.:s booksC

S$*e2 F-** &-27.0'%-'( @ !ollowing entries are passed during the sales Made by the companyC .arty a8c 0o sales a8c dr. .......... ...........

(2eing sale made on credit#

2ank a8c 2ank charges a8c 0o party a8c

dr. dr.

.......... PP. PP..

( being payment reci)ed#

P0"7#$2e F-** &-27.0'%-'( @ !ollowing entries are passed in the books

E1

purchases made by the company @<

.urchase a8c 0o party a8c

dr.

PP

PP

( being purchases made#

.arty a8c

dr.

PP PP

0o bill discounting supplier a8c

( being paid to party through bank #

2ill discounting supplier a8c 0o bank a8c

dr. PP. PP

( being payment made to bank#

Le%%e" .6 7"e&-% @ 0he , can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. ,etters of credit are used primarily in international trade transactions of significant )alue, for deals between a supplier in one country and a customer in another. 0he parties to a letter of credit are usually a Fe'e6-7-$"8 who is to recei)e the money, the -220-'( F$'1 of whom the applicant is a client, and the $&A-2-'( F$'1 of whom the beneficiary is a client. Almost all letters of credit are irre)ocable, i.e.,
E6

cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank. In this 1>> K payment is not gi)en to the supplier by the bank due to loss in transition , rejection ( shortage . in if loss doesn:t occur than 1>> K is gi)en to the supplier on the due date.

P$71-'( 7"e&-% @ when we recei)e an export order from countries , than we can a)ail loan from bank at nominal interest as packing credit loan. It pro)ides the exporters with working capital between the time of the receipt of order and the time of shipment to arrange for production or procurement of goods. .re-shipment finance is of particular importance to small scale manufacturers and exporters who do not possess sufficient financial resources to meet the expenditure in)ol)ed in the production of goods for export. .re shipment finance is normally pro)ided by the commercial banks. As in the case of many other ad)ances the bank takes into consideration a number of factors before making the necessary other ad)ances to exporters )i;., (1# honesty, integrity and capital of the borrower, (6# exporter:s experience in the line, (<# security offered, (D# the margin of interest (E# the bank:s experience about the exporter to ensure that his name does not appear on the caution list of the &eser)e 2ank. .re- shipment @ when the company recei)es order .ost shipment @ when assignment is dispatched from the company.

E<

0he following entries to be passed in the books for packing credit loan @ .arty a8c dr. PP PP

0o export a8c

( being export order recei)ed# 2ank a8c dr. PP PP. PP

2ank charges a8c dr.

0o packing credit loan

( being loan granted by bank #

2ank a8c

dr. PP PP.

0o party a8c

( being payment made to bank#

.cl a8c

dr.

PP PP

0o bank a8c

( being payment of loan made to bank#

C"e&-% '.%e @ 0his note is presented to the other party for the payment to be made by the opposite party. 5hereas debit note is gi)en to the company by the other party in case of payment is to be made by the company.
ED

PAYMENTS @ It is the transfer of wealth from one party (such as a person or company# to another. A payment is usually made in exchange for the pro)ision of goods, ser)ices or both, or to fulfill a legal obligation. 0he payments at %scorts N AM- includes N +irect (hundis, , #, bank payment , excise duty which is lie)ed on the parts of the tractors, ladt ( local area de)elopment tax#, sales tax , salary and wages, )rs, spare parts, implements, electricity, o)erhead, finance charges, capex is the capital expenditure made to purchase the fixed assets or adding )alue to the existing fixed asset, credit note, corporate loan, loan rapyments, interest, wcdl payment, packing credit ( bill discounting.

OUTSTANDING @ "utstanding debtors are calculated by the following formula N

losing "8' H "pening "8' M 2illing - ollection In this, )alues are calculated for debtors outstanding in different point of time in domestic and o)erseas sales of tractors ( its part.

EE

CASH BUDGET
MEANING A forecast of estimated cash receipts and disbursements for a specified period of time. A cash budget is arri)ed at through a projection of future cash receipts and cash disbursements of the firm o)er inter)al of time, it re)eals the timing and amount of expected cash inflows and outflows o)er the period. 5ith this, the firm will be able to determine its future cash needs, and exercise control o)er the cash and li=uidity of the firm. 0hough the cash budget may be prepared almost any inter)al of time, its monthly projection are most common. In short, we can say that cash budget is a forecast of a firms future cash flows arising from collection and disbursement, usually on a monthly basis..

EI

0he key to the accuracy of most cash budgets is the sales forecast. 0his forecast can be either internal or external analysis, in internal approach, sales representati)es are asked to project sales for the forthcoming period, 5e can then consolidate these sales estimates for the product line. 0he estimates for the )arious product lines are then combined in to an o)erall sales estimate for the firm. 0he basic problem with an internal approach is that it can be too myopic, often significant trends in the economy and in the industry are o)erlooked. Many companies use an external analysis as well, in external approach economic analysts make forecast of the economy and of industry sales for se)eral years to come. 0hey may use regression analysis to estimate the association between industry sales and the economy in general. After these basic predictions of business conditions and the industry are made. 0he next step is to estimate the market share by indi)idual products, price that are likely to pre)ail and the expected reception of new product. 2y this way we can prepare an external forecast.

F." E66e7%-Ae C$2# B0&(e%

A firm may be able to delay its capital expenditure or its payment for purchase, .urpose of cash budget should be to determine the timing and magnitude of prospecting financing needs so that the most appropriate method of financing can be arranged,
E?

 A decision to obtain long term financing should be based on longrange funds re=uirement. "n the basis of cash budget the manager should be able to plan to in)est excess funds in cash e=ui)alents.

BAN

RECONCILIATION

2ank reconciliation in)ol)es comparing the company:s record of transactions and balances to the bank:s record of transactions and balances. 0he company should go through e)ery transaction in their account and make sure the company and the bank agree on the transaction. It:s important to go through the process of bank reconciliation. If the company doesn:t, than it is taking few risks. 5ithout bank reconciliation, the company may not ha)e a clear idea of how much cash is a)ailable in their accounts. 0hey might bounce he=ues and incur o)erdraft charges. 5ithout bank reconciliation, the company also expose yourself to risk. .eople may be stealing from the company:s account. If they ne)er look through each transaction, they:ll ne)er know about it. If they don:t notify the bank =uickly enough, they may be out of luck. 0he same goes
E@

for bank mistakes. 5ith regular bank reconciliation the company can find problems =uickly and make them go away. 2ank reconciliation can be done manually, in excel ( there:s electronic bank reconciliation as well. 0hough the manual way for handling company:s large bank accounts is not appropiate, it is helpful when there are less transactions. 2ut still it important for any manager to learn it as it is the basic form of doing it. !or reconciling the company:s record of transaction with the bank balances , there are three essential re=uirements @ 2ank book 2ank statement 2ank reconciliation statement of preceding month 0han the abo)e transactions needs to be tally ( unmatched ha)e to be reconciled accordingly. 2elow is an example of how is it done manually@<

EB

A!" REC#C$%$A&$#! '&A&EME!& A' #! 31()5()9 A*C !# )))3+1,)))))156 G% C#-E -E'CR$P&$#!

B ! " #$% & '( &))( AS ON 31.05.0* O#$'+', & ! LESS- MA.200* BALANCE ADD - A0)1'2 3%. B4 1" &12 ')2 5%. &4 & '( LESS - A0)1'2 5%. &4 1" &12 ')2 3%. &4 & '( ADD - A0)1'2 3%. B4 & '( &12 ')2 5%. &4 1" 83382.*1 DR. 2726*55 CR. 3634103 DR. 372254* CR. 2832114 DR. /2643572 CR. 3634103 372254* 2832114 41*8*.68 58106.87

LESS - A0)1'2 5%. &4 & '( &12 ')2 3%. B4 1" 41*8*.68 B ! '3$ " #$% & '( "2 2$0$'2

I>

-E&A$%' #. C/E01E $''1ES.NO 7770 7771 7774 7766 6CH. DT. 22858200* 22858200* 31858200* 12858200* 2848200*

1& !#& PRE'E!&E- .#R PA2ME!&

CH7.NO. #3! !) ' LI7. SA8SP834 B8C&INTT ON BANK CHAR9E BANK CHAR9E CH7.AMT. 35657*1.*8 *41 5*36*.*8 4000 4000 3634102.*6

6CH. NO. 86410 86400 86301 85683

-E&A$%' #. AM#1!& -EP#'$&ES.NO 7754 774* 7752 7755 7757 6CH. DT. 22858200* 1858200* 11858200* 22858200* 26858200* 6CH. NO. 155 371 372 156 157

1& !#& CRE-$&ECH7.NO. S 835 337*6:& '( 3;.< 33*13:& '( 3;.< " 8"#834 2 '=837

A!"
3704227.2 7667 5466 2*27.15 2261.15 3722548.5

CH7.AMT.

-E&A$%' #. AM&( CRE-$&ES.NO 6CH. DT. 1*858200*

A!"
CH7.AMT. 2832113.*4 2832113.*4

6CH. NO. CH7.NO. 13*0022

-E&A$%' #. AM#1!& -E $&ES.NO 6CH. DT. 1858200* 4858200* 4858200* 5858200* 5858200* 8858200* *858200* 11858200* 12858200* 14858200* 1*858200* 1*858200* 22858200* 26858200* 6CH. NO.

A!"
DESCRIPTION CH7.AMT. 1210003 1240001 1240011 1250005 1250001 128002* 12*0007 1180001 132000 1340024 1320001 13*0022 560001 1460014 2206 5515 607.15 2206 2758 607.15 2206 1103 1103 607.15 1103 607.15 20753.*3 607.15 41*8*.68

CASH RATIOS
I1

MEANING ash ratios are also important tool of cash control. T#e"e are )arious ratios which explain the efficiency of cash management or )ice)ersa. 0hey are the acids test ratio, cash ratio, recei)ables turno)er ratio, in)entory turno)er ratio, cash turno)er ratio etc. 0hese are calculated as N

LI?UIDITY RATIOS ,i=uidity ratio measures the ability of the firm to meet its current obligations. It is necessary to strike a proper balance between high li=uidity and lack of li=uidity. A high degree of li=uidity means that a firm:s fund will be unnecessarily tied up in current assets. 5hereas lack of li=uidity, implies failure of a company to meet its obligations due to lack of sufficient li=uidity. 0he ratios, which are used for the analysis of %scorts li=uidity position in this report, areC urrent &atio

Huick &atio

CURRENT RATIO

urrent ratio is calculated by di)iding current assets by current liabilitiesC

I6

urrent ratio Q urrent Assets urrent ,iabilities

6>>I->? urrent &atio 1.16

6>>?->@ 1.1I

!rom the abo)e table it can be interpreted that %scorts li=uidity position is not constant. As a con)entional rule a current ratio of 6C1 or more is considered satisfactory because in a worse situation, e)en if the )alue of current assets become half, the firm will be able to meet its obligations. urrent ratio refers to a margin of safety for creditors therefore higher the current ratio, the greater the margin of safety.

?UIC

RATIO

Huick ratio establishes a relationship between =uick or li=uid assets and current liabilities. An asset is li=uid if it can be con)erted into cash immediately or reasonably soon without a loss of )alue. In)entories are considered to be less li=uid therefore calculating =uick ratio they are deducted from current assets.

Huick &atio Q urrent Assets N in)entory

I<

urrent liabilities

6>>I->? Huick &atio >.B>

6>>?->@ >.BB

%scorts =uick ratio in the current year has decreased in comparison to pre)ious year, yet it can be considered to be satisfactory, as it is 1C1 times of current liabilities. Although =uick ratio is more penetrating test of li=uidity than current ratio. Get it should be used cautiously, as all debtors may not be li=uid and cash may be immediately needed to pay operating expenses.

0he )alue of =uick ratio is decreasing e)ery year. 0he satisfactory le)el of the =uick ratio is 1C1. 0his shows the worse situation of the company. 0he current liabilities are more than the =uick assets.

ACTIVITY RATIOS Acti)ity &atios are used to e)aluate the efficiency with which the firm manages and utili;es its assets. 0he ratios are called 0urno)er &atios as they indicate the speed with which the firm manages and utili;es its assets.

Acti)ity ratios, which are used to analy;e %scorts effecti)eness in Asset utili;ation, are
ID

 In)entory 0urno)er &atio !ixed Assets 0urno)er &atio 5orking apital 0urno)er &atio +ebtors 0urno)er &atio reditors 0urno)er &atio

INVENTORY TURNOVER RATIO

It indicates the efficiency of the firm in producing and selling its product. It is calculated by di)iding sales by a)g. in)entory. In a manufacturing company in)entory of finished goods is used to calculate in)entory turno)er.

In)entory 0urno)er Q

ost of goods sold A)g. In)entory

6>>I->? In)entory turno)er 1D.D6

6>>?->@ 1E.1>

If the company is comfortably meeting the customer needs with B.?< days in)entory of finished goods, all India basis. It is a good achie)ement for the %scorts ,imited.

IE

FI3ED ASSETS TURNOVER RATIO

A firm:s ability to produce a large )olume of sales for a gi)en amount of net assets is the most important aspect of its operating performance. Fnutili;ed or underutili;ed assets increase the firm:s need for costly financing as well as expenses for maintenance and upkeep. !ixed assets turno)er is calculated by di)iding net sale by net fixed assets.

!ixed Assets 0urno)er Q 'ales !ixed Assets

6>>I->? !.A.0 6.6B

6>>?->@ 6.<E

%scorts fixed asset turno)er ha)e increased in 6>><->D. 0he fixed asset turno)er of 6.?@ implies that it is producing &s.6.?@ of sales for one rupee of capital employed.

0he higher the ratio, more it is satisfactoryP It should be interpreted )ery cautiously because the denominator of the ratio includes fixed asset net of depreciation. 0hus old assets with lower book )alue may create a misleading impression of high turno)er without any impro)ement in sales
II

DEBTORS TURNOVER RATIO

+ebtor:s turno)er indicates the number of times debtors: turno)er each year. $igher the )alue of +ebtors turno)er, the more efficient is the management of credit. 0he li=uidity position of the firm depends on the =uality of the debtors to a great extent.

+ebtors 0urno)er Q redit 'ales A)g. +ebtors

6>>I->? +ebtors 0urno)er D.DD

6>>?->@ D.6B

%scorts debtors turno)er is =uite lower. 0he debtor:s turno)er ratio is high at 6>><->D . 0he ratio is decreasing. Also the debt collection period has its own importance. 0he debt collection period of %scorts was ?I days in 6>><->D but it has increased to BE days . 0his does not show the satisfactory le)el. 0he shorter the collection period, the better the =uality of debtors, since a short collection period implies prompt payment by debtors.

A too low collection period is also not necessarily fa)orable as it may indicate a )ery restricti)e collection and credit policy. 2ecause of the fear
I?

of bad debt loses the firm may be selling to those only whose financial conditions are sound and who are )ery prompt in making the payments.

CREDITOR TURNOVER RATIO

reditors 0urno)er Q 0otal .urchases reditors

6>>I->? reditors 0urno)er <.EE

6>>?->@ <.DE

0hough the days are )ery high and apparently appears to substitute right collection, this extended credit has its own drawback likeC

$igh interest inbuilt in cost system. 'ub-=uality creditors may be accepted. Huality of material may be accepted.

0he payment period of %scorts ,imited is B> days in 6>>?->@, which is more reasonable than pre)ious years. 0his helps to make good =uality product and also better relationship with suppliers.

I@

!OR ING CAPITAL TURNOVER RATIO

5orking capital turno)er ratio has its own significance in the business organi;ations. It shows the efficiency of the firm. $ow much sale that the company get with the utili;ation of the limited working capital.

5orking apital 0urno)er Q /et 'ales /et 5orking apital

6>>I->? 5orking. ap.0urn. 11<.DE

6>>?->@ 6@.<>

In the case of working capital turno)er ratio %scorts is significantly going )ery downward. 0his is a )ery dangerous point of the firm. 0he company should try to impro)e it earlier. It shows that the company re=uires more money to generate sales.

RECEIVABLE MANAGEMENT
IB

0he term recei)able is defined as 7debt owed to the firm by customers arising from sales of goods in the ordinary course of businessL. 0he sale of goods on credit is an essential part of modern day business. 0he credit sales are generally made on open account in the sense that there are no formal obligations through a financial instrument. $owe)er extension of credit in)ol)es risks and cost. Management should weigh the benefits as well as the cost to determine the goal of recei)able management. 0he benefits from recei)ables are the increased sales and profits anticipated because of more liberal policy. 5hen firm extend trade credit, i.e. in)est in recei)ables, they intend on increase the sales le)el. 0he moti)e of liberal credit policy can be either growth oriented or sales retention. 0he extension of credit has a major impact on sales, costs and profitability. "ther things being e=ual, a relati)ely liberal policy and therefore higher in)estments in recei)ables will produce larger sales. $owe)er the cost will be higher with liberal policies then with more stringent measures. 0herefore account recei)able management should aim at a trade- of between profit and risk. 0he costs associated with the extension of credit and account recei)ables are collection cost capital cost delin=uency cost default cost

DECISION AREAS
?>

CREDIT POLICIES 0he credit policy of a firm pro)ides the framework to determine whether or not to extend credit to a customer and also how much credit to extend. It has two broad dimensions, the first is credit standard and second is the credit analysis. redit standards represent the basic criteria for the extension of credit to customers. 0he trade- off with reference to credit standards co)ers collection costs, a)erage collection period, le)el of bad debts losses and le)el of sales. 5ith a relaxed credit standard the collection costs, bad debts expenses and sales goes up and in re)erse case )ice-)ersa happens. 0he second aspect of credit policy is credit analysis. It begins with obtaining credit information of the customers and ends up with the analysis of the obtained credit information. Information can be collected either internally or externally. Internal source of credit information is deri)ed from the records of the firm. 0he analysis of credit information should co)er both =ualitati)e as well as =uantitati)e aspects. 0he =uantitati)e aspect is based on the a)ailable financial statements whereas =ualitati)e aspects co)er the =uality of management.

CREDIT TERMS 0he second decision area in accounts recei)able management is the credit terms. After the credit standard ha)e been establish and the credit worthiness of the customers is assessed, the management of a firm must determine the terms and conditions on which trade credit will be made a)ailable. redit terms ha)e three components C credit period, cash discount and cash discount period. redit period is the duration of time
?1

for which trade credit is extended whereas cash discount is the amount by which the o)er the due amount will be reduced thus benefiting the customer. 0he credit terms like the credit standard affect the profitability as well as the cost of the firm therefore a firm should determine the credit terms on the basis of cost-benefit trade-off.

COLLECTION POLICIES 0he collection policies refer to the procedures followed to collect account recei)able when after expiry of the credit period they become due. 0his policy co)ers two aspects C first is the degree of effort to collect the o)er due and second is the type of collection efforts.

E27."% L-m-%e& has a ;ero debt credit policy. $owe)er it is gi)ing the following facilities to its dealers to promote the sales, as liberal credit policy has a direct impact on sales.

CHANNEL FINANCE FACILITIES 0he company arranges these facilities with )arious bankers for the company dealers to support their cash needs. 0he goods are sold on credit against hundis. $undis can be drawn for E> or ?E or B> days subject to =ualifying criteria of bank.

CREDIT FACILITIES
?6

%scort pro)ides thirty days interest free credit to the dealers. !or this in respect of all hundis the company bears <> days interest and the remaining cost of interest, delayed payment charges are borne by the dealers.

PENALTY ON BOUNCING OF HUNDIES G CHE?UES 2ouncing of hundis8 che=ues drawn in fa)or of the company is )iewed )ery strongly and usually following actions are taken. 0ractor supplies are suspended and restored only after all dues are cleared. All charges debited by the bank such as collection charges, penal interest are debited to the dealer. 0he bank extending channel financing policy ha)e clearly stated that if a dealer has two or more bouncing he will be black listed and his limit will be withdrawn with immediate effect. ompany also makes sales to such dealers only against letter of credit or demand draft.

CASH DISCOUNT ON EARLY PAYMENT ash discount of 1K is payable on tractors dispatched against funds a)ailable in the form of letter of credit or demand draft. Interest is charged8 paid at 16K per annum on outstanding8 credit balance early payment incenti)e.

PAYABLE MANAGEMENT
?<

reditors are a )ital part of effecti)e cash management and should be managed carefully to enhance the cash position. .urchasing initiates cash outflows and an o)er-;ealous purchasing function can create li=uidity problems. A better strategy is to shrink the )endor base radically, then use one:s clout to negotiable longer terms with the )endors. 3endor rationali;ation is a process that can pay off in a big way. Apart from the =uestion that who should authori;e purchasing in the company N should it be tightly managed or spea among a number of (junior# peopleR 0he following comes under good payable management. .urchase =uantities should be geared to demand forecasts. "rder =uantities should be used which takes account of stock holding and purchasing costs. 0he cost to the company of carrying stock should be clearly defined. A ompany should ha)e alternati)e sources of supply. It should get =uotes from Major suppliers and shop around for the best discounts, credit terms and reduce dependence on a single supplier.

?D

RECOMMENDATIONS

?E

LOANS AND ADVANCES 'pecial efforts should be made to analy;e loans ( ad)ances, which are between <EK to EIK of current assets. 0his can be classified between production 8 operation relation related and non-production 8 operation related. /o production related cases might be financed from other sources like debenture etc. and treated separately.

INVENTORY In)entory should be re)iewed constantly to identify show 8 dead 8 obsolete item and then disposed . "ptimum le)el should be re)ised periodically, keeping in )iew, distance of suppliers, production lead time of supplier, transport problem if any and reliability of suppliers. 0his will help to a)oid obsolesce and dead in)entory.

DEBTORS A study may be conducted if re=uired by experts to pinpoint reason behind %scorts high correction period of BE days in 6>>?->@ against E> days of Mahindra ( Mahindra. It is due to =uality of products, =uality of customer, the segment of customers marketing effort, distribution pattern or other reasons.

CREDITORS
?I

0hough high payout days may be appartenly beneficial for the company. It has it )ery hea)y long term cost like high interest cost, bad credit ratings and shyness of good =uality 8 standard suppliers.

RATIOS 0he company should try to impro)e its current situation. 0he ratios, which are taken in this research to e)aluate the company:s position, are urrent ratio, Huick ratio and Acti)ity ratio. 0hese ratios show the actual position of the company. 0he Huick ratio is declining since 6>>1->6 till now. 0here is a drastic declining in the working capital turno)er ratio. 0his ratio goes to N)e position in current year compared to pre)ious. 0he +ebts collection period is <EB days for %xporters. 0his shows the poor collection policy. 0he current ratio is 1.16 in 6>>I->?, which is not upto the ideal ratio. 0his shows that the current assets are e=ual to the current liabilities. /ot satisfactory.

OTHERS More attention must be gi)en to market forecasts can be made and the surplus of in)entory is reduced to minimum ompany should not follow the competitors only. /ew products should be produced for the farmers ha)ing low income and small holdings. .roper market sur)ey should be carried out. 0he company should explore the export market to study the present and prospecti)e demand.
??

 .roper in)entory plans should be made in order to reduce the carrying cost. /ew market strategies should be de)ised from time to time. 0his is because, e)en if the tractor is of good =uality, the competitors may produce the same product with additional features and at lower prices. Marketing network should be enhanced. ompany should also produce more tractors of higher $... 2ut new de)elopments should be made continuously in order to sur)i)e in this competiti)e world.

?@

LIMITATIONS

?B

Although e)ery effort has been in to collect the rele)ant information through the sources a)ailable, still some rele)ant information could not be gathered.

B028 S7#e&0*e .6 C.'7e"'e& ECe70%-Ae2@ 0he concerned executi)es were ha)ing )ery busy schedule because of which they were reluctant to gi)e appointment.

T-me@ 0he time duration could not pro)ide ample opportunity to study e)ery detail of working capital management of the company.

U'$)$"e'e22@ %xecuti)es were unaware of many terms related to working capital study while asking to them.

C.'6-&e'%-$* I'6."m$%-.'@ As the company on account of confidential report has not disclosed some figures. Moreo)er, in some cases separate accounts of di)ision are not separately maintained thereby, leading to restrictions in study.

@>

BIBLIOGRAPHY
BOO S

!inancial Management- '.4 -upta Management Accountancy-+ k -ole ost and Management Accountancy, './.Maheshwari !inancial Management And .olicy, Oames .3an $orne

!ORLD !IDE !EB

www.escortsagri.com www.economictimes.com www.planware.com www.icraindia.com

O%#e" %#$' !eF

M.I.' of the company Annual &eports

@1

ANNE3URES

@6

PROFIT AND LOSS ACCOUNT

O#$% 2+', +'3)0$ M 2$%+ ! 3)'"10$5 M '1? 321%+', $@#$'"$" P$%")''$! $@#$'"$" S$!!+', $@#$'"$" A50+'"2% 2+A$ $@#$'"$" E@#$'"$" 3 #+2 !+"$5 C)"2 )? " !$" O#$% 2+', #%)?+2 O2;$% %$31%%+', +'3)0$ A5=1"2$5 PBDIT F+' '3+ ! $@#$'"$" D$#%$3+ 2+)' O2;$% B%+2$ )??" A5=1"2$5 PBT T @ 3; %,$" A5=1"2$5 PAT N)' %$31%%+', +2$0" O2;$% ')' 3 "; 5=1"20$'2" R$#)%2$5 '$2 #%)?+2 E %'+," &$?)%$ ##%)#%+ 2+)' EC1+24 5+A+5$'5 P%$?$%$'3$ 5+A+5$'5 D+A+5$'5 2 @ R$2 +'$5 $ %'+'," 1'&oct 2))45 3)t6 'eptem7er 2))+ 1st oct 2))6 8 3)t6 sept 2))4 2>012.00 2>0*2.04 1>470.66 1>540.01 47.68 50.7* 202.63 204.02 114.57 118.63 6*.12 57.45 / / 1>*04.66 1>*70.*0 107.34 121.14 0.04 20.85 107.38 141.** 55.*3 8*.78 42.87 44.*7 / 3.32 8.58 3.*2 47.13 /10.8* /38.55 14.81 17.56 /21.25 32.86 / 11.87 /6.44 /133.5* /145.46 / / / / / / /133.5* /145.46

A%A!CE '/EE& A' #!3(( @<

1'& #C& 2))45 3)t6 'EP& 2))+ EC1+24 "; %$ 3 #+2 ! S; %$ ##!+3 2+)' 0)'$4 P%$?$%$'3$ "; %$ 3 #+2 ! R$"$%A$" & "1%#!1" S$31%$5 !) '" D'"$31%$5 !) '" &otal 9%)"" &!)3( L$"" - %$A !1 2+)' %$"$%A$ L$"" - 33101! 2$5 5$#%$3+ 2+)' N$2 &!)3( C #+2 ! B)%(/+'/#%),%$"" I'A$"20$'2" C1%%$'2 ""$2"> !) '" & 5A '3$" L$"" - 31%%$'2 !+ &+!+2+$" & #%)A+"+)'" T)2 ! '$2 31%%$'2 ""$2" M+"3$!! '$)1" $@#$'"$" ')2 B%+22$' &otal B))( A !1$ )? 1'C1)2$5 +'A$"20$'2" M %($2 A !1$ )? C1)2$5 +'A$"20$'2" C)'2+',$'2 !+ &+!+2+$" N10&$% )? $C1+24 "; %$")12"2 '5+', :L 3"< *0.71 / / 645.4* 422.63 14.44 19143(24 1>415.*3 466.46 5*3.41 356.06 14.43 425.7* 1>131.*8 776.14 355.84 11.00 19163(12 4*4.53 1.*8 168.40 *07.0*

1st #C& 2))6 8 3)&/ 'EP& 2))4 83.6* / / 563.38 414.04 31.10 19)92(21 1>436.*6 471.*0 583.24 381.82 13.40 425.13 1>325.61 1>06*.68 255.*3 15.*3 19)92(21 4*3.87 3.31 318.74 836.*4

CASH FLO! STATEMENT

@D

PARTICULAR CASH FLO! FROM OPERATING ACTIVITIES /.. 2%!"&% 0AA Adjustment forC pro)ision for doubtful debts , obsolescence in)entory ( ad)ances -ain on sale of long term in)estment -ain on sale of asset +epreciation Assets w8off Interest expense +i)idend income Interest income "perating profit before change in w.capital Adjustment forC 0rade ( recei)able Money in escrow account In)entory 0rade payable Misc.expenditure "p.profit after change in w.capital C$2# (e'e"$%e& 6".m ./e"$%-'( $7%-A-%-e2 Le22-+irect taxes8refunds NET CASH FLO! FROM OPERATING ACTIVITIES CASH FLO! FROM INVESTING ACTIVITIES .urchase of fixed assets .roceeds from sale of fixed. Assets ,oss on sale of in)estment Mo)ement in loan ( ad)ances 'ale of in)estment 'hort term deposits with schedule banks Interest recei)ed +i)idend recei)ed NET CASH FLO! FROM INVESTING ACTIVITIES CASH FLO! FROM FINANCING ACTIVITIES Proceeds from share capital ( securities premium .roceeds8repayment from long- term borrowings Le22Crepayment of long term borrowing .roceed8repayment from short-term borrowing Interest paid

MARCH +9::=, 6I.1D 1I.<I <4.= D6.@? 11.ID I6.6 >.>D 16.B< 1D1.E6 -IE.<I 6>.>B -D<.I@ E@.>6 -<.61 -<D.1D 1>?.<@ -I.6E I:I.I3 -?.E 1D.6I -<>.ID -<.B ->.II @.E@ <.61 ->.>D I6.6J D>.<6 6<D.>B -D1.I@ -DI.@< -II.6?

MARCH +9::;, -1?.<< 1.@B -1.66 <:.I3 DD..B? @.>@ ?6.66 ->.>6 -6>.@6 @?.ID -1I@.I1 1<.?B I?.>E -?.E -BE.6? -?.I< -1?.@E <9>.4= >.@I -<>.BE -1I.6? <6.<< -6.<1 6>.? >.>6 4.3= 11D.DD @>.I ->.ED -1DI.@6 -??.D @E

NET CASH USED IN FINANCING ACTIVITIES Ne% -'7"e$2e G &e7"e$2e -' 7$2# B 7$2# eK0-A$*e'%2 OPENING CASH BALANCE CLOSING CASH BALANCE

<II4.46 +3:.:3 6:.=3 3:.=

<93.;9 <44.=9 I:>.6> 6:.=3

@I