Professional Documents
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Working Capital Management of JK Tyres
Working Capital Management of JK Tyres
On
Requirement of the
Degree
Master of Business Administration
(Finance)
(2008-2010)
Submitted by:
Submitted to:
Neetu Bhadoria
DECLARATION
I do hereby declare that the Project entitled Working Capital Management is an authentic
work developed by me at JK Tyre and Industries Ltd. under the guidance of Mr. PRAVEEN GUPTA
submitted in partial fulfillment of the requirements for the award of the degree of Master of Business
Administration by the Punjab Technical University, Jalandhar (Punjab), from the Local Centre The
City College, Gwalior
I also declare that, any or all contents incorporated in this Project have not been submitted in any
form for the award of any degree or diploma of any other institution or university.
Dated:
Place: Gwalior
(Neetu Bhadoria)
ACKNOWLEDGEMENT
It is a great sense of satisfaction and a matter of privilege to me to work at JK TYRE AND
INDUSTRIES LTD. BANMORE TYRE PLANT.
(HRD), J.K. Tyres Banmore for providing me the opportunity to undergo training in the
esteemed organization. Under such a nice environment, systematic work approach and target oriented
task management of this division provided me with much desired training experience needed for future.
My special thanks to
Mr. Praveen
Gupta
Banmore who accepted me as a trainee in his group and helping in the projects with words of
encouragement and has shown full confidence in my abilities.
I will be failing in my obligation if to not thanks my family for their support and
encouragement.
(Neetu Bhadoria)
PREFACE
As an integral of the course curriculum, all MBA students are required to undergo summer
training in an industry or organization. The main objectives are to supplement Students theoretical
knowledge with an exposure to the working environment of an organization.
I have chosen to work with JK TYRE AND INDUSTRIES LTD., Banmore (Dist. Morena, MP)
on the project Working Capital Management which provided me with an insight of welfare
activities of the company.
It has been my best effort to present this report in the systematic manner to make dry material
come alive.
NEETU BHADORIA
Contents
Company Profile
JK Tyre
Ever since its inception it has been JK Tyre's belief in
the value of technological superiority that has made it grow by
leaps and bounds. This division produces and sells tyres and
tubes under the brand name "JK Tyre" for Truck, Buses,
Passenger Cars, Jeeps, Light Commercial Vehicles, Multi
Utility Vehicles and Tractors.
Industries acquired Vikrant Tyres Limited, Mysore in 1997. J.K. Industries and Vikrant Tyres
Limited are the only tyre companies in India to have received all three ISO 9001, QS 9000 and
ISO 14001 certificates. This indeed is a true reflection of our commitment to system oriented
approach. The company has a technical collaboration with M/s Continental AG, Germany,
which is among the top five tyre manufacturers in the world to keep pace with latest
technological developments. To stay at the forefront of technological advancements a state of art
Research & Development Centre, HASETRI, was set up, which remains the nerve centre for
providing cutting edge technology. In a short span of time it has emerged as the 17th largest tyre
manufacturer in the world an achievement in itself.
With three plants located in Rajasthan, Madhya Pradesh and Karnataka, JK Tyre is the
largest manufacturer of truck and bus tyres in India. The truck and bus tyres produced account
for nearly 74% of the total tyre business in India, thus giving JK Tyre an undisputed position.
Additionally, JK Tyre is the only manufacturer of truck/ bus steel radial tyres, and the second
largest manufacturer of 4-wheeler tyres in the country.
Also, JK Tyre is the largest exported tyre brand from India. It was awarded the
CAPEXIL's Highest Export Award for 1997-97 by FIEO. It enjoys preferred premium brand
status in Truck Bias market in USA and across many markets in Africa, Middle East and South
East Asia.
History of JK Tyres
CORE VALUES:
JK Organization has been a forerunner in the economic and social advancement of India. It always aimed at
creating job opportunities for a multitude of countrymen and to provide high quality products. It has striven to
make India self reliant by pioneering the production of a number of industrial and consumer products, by
adopting the latest technology as well as developing its own know-how. It has also undertaken industrial
ventures in several other countries.
JK Organization is an association of industrial and commercial companies and charitable trusts. Its member
companies, employing nearly 50,000 persons are engaged in the manufacture of a variety of products and in
diverse fields of commerce.
Trusts are devoted to promoting industrial, technical and medical research, education, religious values and
providing better living and recreational facilities. With the spirit of social consciousness uppermost in mind,
J.K. Organization is committed to the cause of human advancement.
1933
First in India to manufacture Calico Prints- Juggilal Kamlapat Cotton Spinning and Weaving Mills
Co. Ltd., Kanpur.
1940
First in India to manufacture steel Bailing Hoops for jute and cotton and to make the country self
sufficient by meeting the entire demand-J.K. Iron & Steel Co. Ltd., Kanpur.
1944
First in India to produce Aluminium virgin Metal from Indian Bauxite-Aluminium Corporation of
India Ltd., Jaykaynagar.
1949
1959
1960
First to manufacture a Hydraulically Operated Cane Crushing Mill for Khandsari Sugar Plant and
completed 100 ton plant-J.K. Iron & Steel Co. Ltd., Kanpur.
1961
First in world to set up a plant for production of Hydrosulphite of soda by Sodium Amalgam
Process- J.K. Chemicals Ltd., Bombay.
1965
1968
First to manufacture TV Sets in India- J.K. Electronics, Kanpur. First to manufacture Metallic Cops
for Synthetic Filament yarn industries in India- Syntex tube works, Kanpur.
1969
1973
First in India to license Synthetic Fibre Technology to third party as well as the first to manufacture
Synthetic Fibre Machinery Fibretech Engineers & Manufacturers, Dadri.
1976
First in India to produce steel belted Radial Tyres for passenger cars, trucks and buses- J.K. Tyre
Plant, Kankroli.
1980
First in world to make Steel Belted Radial Tyres for three wheelers- J.K. Tyre Plant, Kankroli.
1984
First in India to produce white cement through dry process- J.K. White cement. Gotan.
1985
First in India to produce Cathonic Dyeable Polyester Fibre- J.K. Synthetics Ltd., Kota.
First in India to produce Nylon Tyre Cord based on Spin Draw Technology- J.K. Synthetics Ltd.,
Kota.
1989
First in India to produce magnetic tapes with cobalt technology J.K. magnetics, Surajpur.
1991
Banmore Tyre Plant (BTP) set-up with a capacity of 5.7 lacs tyres p.a.
1992
1994
1995
1996
India's first dual contact high traction steel radial- aquasonic launched.
Introduced steel wheels.
1997
1998
1999
2000
2001
c.
d.
e.
f.
c. Marketing Strategy
Strategic thinking is key to the evolution of successful marketing strategies of JK tyre. This involves the
following analyses:
i.
ii.
Finding market niches: Price, service, convenience and technology are some of the
niches in Indian market.
iii.
Product and service planning: Analysis of the customers promotion of the brand, both
of the firm and competitors, besides an analysis of the situation in which the customer uses the product.
iv.
v.
Managing for result: With pressure on costs, prices, and margins, marketers will have to
make effective utilization of every rupee spent in marketing.
Marketing strategies and the extent and quality of services rendered by other firm in the industry.
Identification of key success factors in an industry and linking them to a firms strengths and weakness
Market opportunity
a. Size of the market
b. How well the market is served
c. Prospective inches
d. Marketing mix required to succeed
e. Core competencies required
Market
segment
analysis
Industry
analysis
Demand
Condition
s
Competition
analysis
Trade
analysis
Market opportunity
Size of the market
How well the market is served
Prospective inches
Marketing mix required to succeed
Core competencies required
Segmentation analysis: is the process of dividing the market into homogeneous sub units.
Industry analysis:
Entry Barriers: High
The entry barriers are high for the tyre
industry. It is a highly capital intensive
industry. A plant with an annual capacity
of 1.5 million cross-ply tyres costs
between Rs. 4,000 and Rs. 5,000 million.
A similiar plant producing radial tyres
costs Rs. 8,000 million.
It shows the position of the firm at a certain point of time. It is calculated on the basis of balance sheet prepared
at a specific date. In this method there are two types of working capital.
Gross working capital
Net working capital
Generally the importance of variable working capital is more acute in business concern having seasonal market
demands. Variable or temporary working capital may be further sub- divided into (a) seasonal working capital
and (b) special working capital.
The additional working capital required by a concern to carry out its operating activities in busy seasons of high
market demands is known as seasonal working capital. Businesses which mostly have seasonal demands of their
products like ice- cream, cold drinks, wool and likely products manufacturing concern may need huge amount
of seasonal working capital. In other business concerns too the market may rise to the peak in some particular
time period. So in all types of business a portion of working capital may be preserved for meeting seasonal
needs. On the other hand, the portion of working capital that is needed by a concern to meet the extraordinary
requirements of special situations is known as special working capital. This is called special working capital
because it is needed in special situations and not in normal circumstances.
The adequate reserve of working capital ensures a steady flow of raw materials to the production
process.
The adequate reserve of working capital indicates the good solvency position of the concern and helps it
to get loan from the market at favorable terms.
The adequate stock of working capital makes it possible for a concern to purchase the trading goods in
cash and cash purchase always carries the benefit of getting cash discount.
A strong working capital base is probably the only remedy to overcome the odd situations like dull
market conditions, scarcity of raw materials and other components in case of any emergency, sudden
market fluctuations, etc.
A business concern can exploit the market opportunities with the help of adequate working capital.
The regular flow of adequate working capital makes possible efficient use of fixed assets, reduces
wastage, ensures quick replying of current assets, and establish a well- tuned working environment.
A quick rotation of working capital cycle and an efficient management of working capital reduce cost
and increases production and sales. The combined effect of all these favorably add to the profitability of
the concern.
The adequate amount of working capital and its quick rotation increases profit. The rate of dividend of
the shareholders also increases as a result of such increase in profit.
Sufficient working capital helps in research and development to face the present era of cut throat
competition and quick technological advancement.
The total working capital requirement is determined by a wide variety of factors. It should be, however, noted
that these factors affect different enterprises differently. They also vary from time to time. In general, the
following factors are involved in a proper assessment of the quantum of working capital required:-
PRODUCTION CYCLE:
Another factor which has a bearing on the quantum of working capital is the production cycle. The term
production or manufacturing cycle refers to the time involved in the manufacture of goods. It covers the timespan between the procurement of raw materials and the completion of the manufacturing process leading to the
production of finished goods. To sustain such activities the need of working capital is obvious.
BUSINESS CYCLE:
The working capital requirements are also determined by the nature of the business cycle. The variations in
business conditions may be in two directions:
(i)
(ii)
downward phase when economic activity is marked by a decline. During the upswing of the business
activity the need of working capital is more as opposed to the downward phase of the business.
PRODUCTION POLICY:
The requirement of working capital also depends on the production policy of the firm. In manufacturing
concerns having mostly seasonal demand for the product the production policy is a significant determinant of
working capital.
DIVIDEND POLICY:
The payment of dividend consumes cash resources and, thereby, affects working capital to that extent.
Conversely, if the firm does not pay dividend but retains the profits, working capital will increase.
DEPRECIATION POLICY:
Depreciation policy also exerts an influence on the quantum of working capital. Depreciation charges do not
involve any cash outflow. The effect of depreciation policy on working capital is, therefore indirect.
At DSP depreciation is provided on straight line method at the rates specified in schedule- XIV to the
companies act, 1956. However where the historical cost of the depreciable asset undergoes a change, the
depreciation on the revised amortized depreciable amount is provided prospectively over the residual useful life
of the asset based on the rates specified in schedule- XIV to the companies act, 1956. Depreciation on assets
installed/ disposed off during the year is provided with respect to the month of addition/ disposal thereof.
CURRENT ASSETS:
The list of current assets comprises inventories (including raw materials, work-in-progress and finished goods
and spares), sundry debtors including receivables, readily realizable securities and tax reserve certificates, shortterm investments, accrued incomes, prepaid expenses (not in the nature of deferred charge), cash at bank, and
cash in hand.
In Durgapur Steel Plant current assets are:
Inventories (stores & spares, raw materials, semi-finished products)
Sundry debtors
Cash & bank balances
Interest receivable/accrued
Loans & advances etc.
CURRENT LIABILITIES:
The list of liabilities includes trade creditors, accounts payable, outstanding or accrued expenses, bank
overdraft, outstanding liabilities, short-term loans and borrowings and certain obligations including different
provisions, i.e., provision for taxation, proposed dividend etc.
In Durgapur Steel Plant current liabilities are:
Sundry creditors
Advances from customers
Security deposit
Other liabilities etc.
The length of time for which raw materials remain in stores before they are issued to production.
The length of the production cycle or work-in-progress, i.e., the time taken for conversion of raw materials
Formulae
Result
Interpretation
Current Ratio
Total Current
=X
Assets/Total
times
Current Liabilities
Acid-Test Ratio
Total Current
=X
Assets-
times
Inventories/
Total Current
Working Capital
Liabilities
Sales/Working
=X
Turnover Ratio
Capital
times
Stock Turnover
Sales/Inventory
=X days
Ratio(in days)
Current Assets
Sales/Current
=X
Turnover Ratio
Assets
times
2. It is an indication of defective credit policy and slack collection period. Consequently higher
incidence of bad debts results, which adversely effect degenerated into management co
placement, which degenerated into managerial inefficient.
3. Excessive working capital makes management complacent, which degenerates into managerial
efficiency.
4. Tendencies of accumulating inventories to make speculation profits grow this may tend to make
dividend policy liberal and difficult to cope with in future when the firm is unable to make
speculative profits.
INADEQUATE WORKING CAPTIAL
1. It stages growth and become difficult for the firm to undertaken profitable projects for nonavailability of working capital funds.
2. It becomes difficult to implement operating plans and achieve the firms profit target.
3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments.
4. Fixed assets are not efficiently utilized for the lack of working capital funds thus the firms
profitability would deteriorate.
5. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities
etc.
6. The firm losses its reputation when it is not in position to honor its short term obligation as
result the firm faces tight credit terms.
Thus, enlightened management should therefore maintains a right
amount of working capital on a continuous basis which helps to develop the organization effectively
and efficiently.
4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL MANAGEMENT:
1. Working capital management requires must of the finance manger time as it represent a large
position of investment is assets.
2. Working capital management requires much of the finance management time as it represent
larger position of investment in assets.
3. Action should be taken to curtail unnecessary investment in current assets.
4. All precautions should be taken for the effective and efficient management of working capital.
5. Larger firms have to manage their current assets and current liabilities very carefully and should
see that the work should be done properly in order to achieve predetermined organization goals.
6. The financial manger should pay special attention to the managements of current assets on
continuing basis.
CHAPTER V
DATA ANALYSIS & INTERPRETATION
CALCULATION
Current ratio= Current Assets / Current Liabilities
DESCRIPTION
2008
Current Assets
5865
Current Liabilities 3107
Current Ratio
1.89
2009
6133
2388
2.56
FINDINGS
1. Current Ratio increasing in the year 2005 06 with respect to 2006-07
2. Quick Ratio is showing increasing trends in the year 2005-06 with respect to year 2006-07
3. As Current Ratio quick Ratio and cash ratio is also increasing in the year 2005-06 with respect to
year 2006-07