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SUMMER TRAINING PROJECT REPORT ON FINANCIAL ANALYSIS OF HONDA (With special reference to working capital management) in
Submitted in the partial fulfillment of the requirements of MBA curriculum (Gautam Buddha Technical University)
Faculty Guide : Ms. Neha Shav Submitted to : Dr. Jatin Srivastava HOD Submitted by: Pradeep Kumar MBA - IIIrd Sem. Roll no: 1105470056 Specialization: Finance


The project title financial analysis on Honda with special reference to working capital management has been conducted by me from 15th June to 31th July 2012 at HONDA. I have completed this project, based on the primary research under the guidance of Mr. VIVEK SINGH (Finance) . I owe enormous intellectual debt towards my guides Mr. Jatin Srivastava (HOD), BBDNITM, Lucknow who have augmented my knowledge. They have helped me learn about the process and giving me valuable insight to understand how I can suggest new and innovative ways. They have provided me a true learning platform, and have been the perfect mentors, in giving me the necessary guidance regarding my project. I would like to thank all the respondents without whose cooperation my project would not have been complete. I feel indebted to all those persons and organizations that have provided help directly or indirectly in successful completion of this study. At the end, HONDA, was a great experience to work in, where I feel, the dedication of its employees is one of the vital factors of its success.


Acknowledgement Preface Executive Summary Introduction Company Profile Aims of Objective Objective of the Study Research Methodology financial Analysis Swot Analysis Suggestion Problems and Limitations Conclusion Bibliography


Finance is the life of any business. No business can run properly unless it maintains its cash. Blood is essential for human being alive. In case of business finance take the position of blood. Now the question arises what is finance. Simply finance is known as cash and monetary terms but finance means more of it. Finance means measure the financial requirement and allocate cash in different heads for proper working of each department. The word management refers to manage-men-t. It means manage the men tactfully. Here the word men mean all those person who are working in the organization. Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources

According to Howard & Upton Financial Management is the application of planning and controlling function to the finance function.

Thus financial management means manage the financial activity of the company. There are different approaches regarding financial management.

Traditional Approach Under this approach financial management refers to rising of funds through various sources according to current need of the company. This approach is mainly concentrate on rising of fund. Through different sector in this approach the main thing is raising of capital.

Transactional Approach Under this approach financial management refers to inflow and outflow of cash in operating activity. Operating activity means purchase and sale of material.

Modern Approach Modern approach is rising of funds through different sources and utilizes them effectively. Capital budgeting and cost of capital must be kept in mind while raising the funds. Capital budgeting means the investment in capital goods in such a way so that we can get back our invested money easily and quickly. Cost of capital means what is the cost of raising capital. The return demanded by preference

shareholders, the interest rates demanded by debenture holders, dividend requirement of equity capital holders is considered as cost of capital. Utilization of funds means effective utilization of funds in inflowoutflow; allocate the cash to different department in such a way so that business can run successfully. Thus financial management means rising of funds through different sources and utilizes them effectively.


1. Basis of Preparation of Financial Statements The Financial statements have been prepared under the historical cost convention, in accordance with applicable Accounting Standards and provisions of the companies Act, 1956 as adopted consistently by the Company.

2. Recognition of Income/Expenditure All incomes & expenditures having a material bearing on the financial statement are accounted for on an accrual basis and provision is made fore all known losses and liabilities.

3. Fixed Assets Fixed assets are stated at cost, net of Modvat/Cenvat/Vat, less accumulated depreciation. Cost of fixed assets comprises purchase price, duties, levies borrowing cost, net charges on forward exchange contracts and exchange rate variations and any directly attributable cost of bringing the assets to its working condition for the intended use. Machinery spares that can be used only in connection with an item of fixed asset and their use is expected to be irregular are capitalized. Replacement of such spares is charged to revenue. Intangible assets acquired on or after 1st April 2003 satisfying the qualifying conditions prescribed under Accounting Standard 26- Intangible assets, issued by Institute of Chartered Accountants of India are capitalized. 4. Capital Work in Progress Advance paid towards acquisition of fixed assets and the cost of assets not ready to put to use before the year end, are disclosed under capital work in progress.

5. Impairment of Assets

Carrying reviewed

amount for

of cash


units/assets if any,

is is



recognized where the carrying amount exceeds the recoverable amount being the higher of net realizable price and value in use.

6. Inventories Inventories are valued at lower of cost and net realizable value. The cost of raw material is determined by using First-In-First Out (FIFO) method. However, scrap is valued at Net realizable value. Cost of finished goods and work in progress includes cost of conversion and other cost incurred in brining the inventories to their present location and condition.

7. Sales Sales are recognized on dispatch of goods from the factory and are net of discounts but exclude sales tax.

8. Depreciation

Depreciation on fixed assets is provided on written down value basis at the rate and in the manner prescribed in schedule XIV to the Companies Act, 1956. Depreciation is charged on pro-rata basis for assets purchased/sold during the year. Individual assets costing Rs. 5000 or less is depreciated in full in the year of purchase. Depreciation on incremental cost arising on account of translation of foreign currency liabilities for acquisition of fixed assets is provided as aforesaid over the residual life of the respective assets. Costs of intangible assets are amortized over five years.

9. Foreign Exchange Transactions Transactions denominated in foreign currencies are

normally recorded at the exchange rate prevailing at the time of transaction. Monetary items denominated in foreign currencies outstanding at the year-end are translated at exchange rate applicable as on that date. Non-monetary items denominated in foreign currency are valued at the exchange rate prevailing on the date of transaction. Any income or expenses on account of exchange difference either on settlement r on translation


is recognized in the profit and loss account except in cases where these relate to the acquisition of fixed assets.

10. Borrowing Cost Borrowing Cost that is attributable to the acquisition or construction of qualifying Assets is capitalized as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready fore intended use. All other borrowing costs are charged to revenue.

11. Claims Claims receivable are accounted for on the certainty of receipt & claims payable are accounted at the time of acceptance.

12. Excise Duty Excise duty is accounted on the basis of both payments made in respect of goods cleared as also provision made for goods lying in bonded warehouse. Cenvat claimed on Capital goods is credited to capital Assets/capital work in process. Cenvat claimed on


purchase of raw and other materials are deducted from cost of such material 13. Retirements Benefits Contribution Provident to Provident fund are made to the Employees Provident fund schemes administered through fund Commissioner and companys contributions is charged to revenue. The Gratuity is funded through payment to Life Insurance Corporation of India. Companys contribution paid/payable to said fund is charged to Profit & Loss Account. Provision is made for the value of unutilized leave due to employees as at the year on the basis of actuarial valuation. 14. Miscellaneous Expenditure Preliminary Expenses are amortized over a period of ten years.

15. Dividend Provision is made in the financial statements of dividend proposed for approval at the subsequent Annual General meeting.


16. Income Tax Provision for current Income Tax is made after taking credit for allowances and exemptions. In case of matters under appeal, due to disallowance or otherwise, the same is considered for provision when company accepts the said liabilities. In accordance with Accounting Standard 22- Accounting for Taxes on Income, issued by the Institute of Chartered Accountants of India, the deferred tax for timing differences between the book and tax profits for the year is accounted for using the tax rates and the tax laws that have been enacted or subsequently enacted as of the date of balance sheet. Deferred tax assets arising from temporary timing

differences are recognized to the extent there is virtual certainty that the sufficient future taxable income will be available against which such deferred tax assets can be realized and are reviewed at each balance sheet date to reassure the realization.


WORKING CAPITAL MANAGEMENT Introduction Every business needs funds for two purposes for its establishment and to carry out day-to-day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land building, furniture etc. investment in these assets represent that part of firms capital, which is blocked on a permanent or fixed basis is called fixed capital. Funds are also needed for short-term purposes of raw materials, payment of wages and other day-to-day expenses etc. these funds are known as working capital.


Working capital refers to that part of firms capital, which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories.



In the words of Shubin, working capital is the amount of funds necessary to cover the cost of operating the enterprise. According to Genestenberg Circulating capital means current assets of a company that are changed in ordinary course of business from one form to another as for example, from cash to inventories, inventories to receivables, receivables into cash.

NATURE OF WORKING CAPITAL Working Capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The term current assets refer to these assets which in the ordinary course of business can be, or will be, Converted into cash within one year without undergoing the diminution in value and without disrupting the operating of the firm, whereas the current liabilities are those liabilities which are


intended, at there inception, to be paid in the ordinary course of business, within a year out of current assets or earning of the concern. Thus the goal of working capital management is to manage the firms assets and liabilities in such a way that a satisfactory level of working capital is maintained. The interaction between current assets and liabilities in such a way that optimum level of current assets, the trade off between profitability and risk which is associated with the level of current liabilities and assets, better financing mix strategies and other short term goals are attained. There are two concepts of working capital: Gross and Net 1. The term gross working capital, also referred to as working capital, means the total current assets. 2. The term net working can be defined in two ways. Difference between current assets and current liabilities. The task of the financial manager in managing working Capital efficiency is to ensure efficiency liquidity in the operations of the enterprise. The basic three measures of a firms overall liquidity are: Current ratios, Acid test ratio, Net Working










Therefore, NWC Can be said to measure the liquidity of the firm. In other words, the goal of working capital management is to manage the current assets and liabilities in such a way that an acceptable level of NWC is maintained.


Working Capital is very essential to maintained the smooth running of the business. It is lifeblood and nerve center of a business. No business can run successfully with out adequate amounts of working capital. 1. Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 2. It also enables a concern to avail each discount on the purchases and hence it reduces casts.


3. Sufficient working capital enables a business to make prompt payments and helps in creating and maintaining goodwill. 4. A concern having adequate working capital enables and high solvency can average loans from banks and others on easy and favorable terms. 5. Adequate working capital ensures regular supply of raw materials. 6. A concern can also pay quick and regular dividends to its investors, as there may not be much pressure to plough back profits because of adequacy of working capital. 7. Sufficiency morale and of working capital creates of an a environment of security, confidence, and high creates overall efficiency business.

Adequacy of working capital also enables a firm to make regular payments of salaries, wages and other day-to-day commitments, which raises the morale of its employees, increase their efficiency reduces wastages and costs and enhances production and profits.



CONTROLLING NERVE CENTRE OF A BUSINESS. No successfully adequate amount of working capital. To avoid the shortage of working capital at once, an estimate of working capital requirements is not an easy task and a large number of factors have to be considered before starting this exercise. The following factors have to be considered for this: -

1. The length of sales cycles during which inventory is to be kept waiting for sales. 2. The average period of credit allowed to customers. 3. The amount of cash required paying day-to-day expenses. 4. The average amount of cash required making advance payments, if any.


5. The average credit period expected to be allowed by suppliers. 6. Time lag in payment in wages and in other expenses.

From the total amount blocked in current assets estimated on the basis of first for items given above, the total current liabilities i.e. the last two items is deducted. In order to provide for contingencies, some extra amount calculated as a fixed percentage of WC may be added as safety margin.


The need for the working capital (gross) or current assets cannot be over emphasized. Given the objectives of financial decision making to maximize the shareholders wealth, it is necessary to generate sufficient profits. The extent to which profits can be earned will naturally depend, among other things. Open the magnitude of sales. A successful sales program is necessary for earning profits by any business enterprise. There is a need of working capital in firm of current assets to deal with the problem arising out of the

lack of immediate realization of cash against goods sold. Thus sufficient working capital is necessary to sustain sales activity. Technically, this is referred to as the operating or cash cycle.


CONCEPT OF WORKING CAPITAL There are two concepts of working capital: 1. Gross working capital: In the broad sense, the term

working capital refers to the gross working capital and represents the amount of funds invested in current assets. Thus, gross working capital is the capital invested in the total current assets of the enterprise. Current assets are those assets, which in the ordinary course of business can be converted in to cash with in a short period of normally one accounting year. Constitutes of current assets are: Current Assets


SR. No. Constitute of current Assets 1. 2. 3. 4. 5. 6. (a) (b) (c) (d) 7. Cash in hand Cash at bank Bills receivables Sundry Debtors (less pro. For bad debts) Short term loans and advances Inventories of stocks: Raw materials Work in process Stores and spares Finished goods Temporary investments of surplus funds 8. 9. Prepaid expenses Accrued incomes


2. Net working capital: In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities. So, Net working capital = current assets current

liabilities Net working capital may be positive or negative. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than current assets.


Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business with in a short period of normally one accounting year out of the current assets or the incomes of the business. Constitutes of current liabilities: Current Liabilities

SR. NO. 1. 2. 3. 4. 5. 6. 7.

Constitutes of current liabilities

Bills payable Sundry creditors or accounts payable Accrued or outstanding expenses Short term loans, advances and deposits Dividend payable Bank overdraft Provision for taxation













On the basis of concept: On the basis of concept working capital may be divided into two parts i.e. A) Gross working capital: Gross working capital is the capital invested in total current assets of the enterprise. B) Net working capital: Net working capital is the excess of current assets over current liabilities, so, Net working capital = current assets current liabilities

On the basis of time, it may be classified as: A) Permanent or fixed working capital: It is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets, which is continuously required by the enterprise to carry out its normal business operations. For Example: every firm has to maintain a minimum level of raw materials, work in process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of capital is permanently blocked in current assets. As a business grows, the requirements of permanent working capital also increase


due to the increase in current assets. It can be further divided into two parts: Regular working capital: It is that part of the working capital which is required to ensure the circulation of current assets from cash to inventories, from inventories to receivables and from receivables to cash and so on. Reserve working capital: It is the excess amount over the requirement for regular working capital, which may be provided for contingencies that may arise at unstated periods such as strikes, rise in prices, depression. B) Temporary or variable working capital: It is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further divided into two: Seasonal working capital: It is that part of the working capital, which is required to meet the seasonal needs of the enterprise. Special working capital: It is that part of the working capital which is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research Importance capital 1. Solvency of business or advantages of adequate working


2. Goodwill 3. Easy loans 4. Cash discounts 5. Regular supply of raw material 6. Regular payment of salaries, wages and other day-to-day commitments. 7. Exploitation of favorable market conditions 8. Ability to face crisis 9. Quick and regular return on investment 10. High morale. Sources of Working Capital

1) Long- term sources: a) Issue of shares b) Issue of debentures c) Long term loans d) Retained earning e) Sale of any old asset 2) Short Term Sources: a) Internal sources: i) Provision for tax ii) Depreciation funds


iii) Outstanding expanses b) External sources: i) Normal trade credit ii) Bills payable iii) Overdraft iv) Public deposit v) Advance from customers



Working capital of a concern is directly related to sales. Working capital turnover ratio indicates the velocity of the utilization of net working capital.
Cost of good sold Working Capital Turnover Ratio =


Working Capital

Working Capital Turnover Ratio YEARS 2010 2011 4394094 Cost of good sold Working Capital Ratio (In Times) 50 2993232 7 14.6 4306298 86 2234480 3 19.2



Graphical Representation
Working Capital Turnover Ratio 25 20 15 10 5 0 2005 Years 2006

Working Capital Turnover Ratio

INTERPRETATION This ratio measures efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. Working capital increase in 2011 as compare to last year. It shows the efficiency of the company to doing dayto-day activities.



As for as the requirement of working capital is concern we can say that this amount is completely depends upon the nature of business as well as the size of business. Here we discuss only about two types of firms: 1) Trading firms 2) Manufacturing firms










OPERATING CYCLE PERIOD : The operating cycle of any firm is consist of the time required for the completion of the phonological order of some or all of the following: 1) Procurement of raw material 2) Conversion of raw material into work in progress 3) Conversion of work in progress into finished goods 4) Sale of finished goods (cash / credit) 5) Conversion of receivable (credit into cash)

LENGTH: The length of any operating cycle depends on the duration of any firm to complete its processing as all appoints mentioned above. There are two operating cycles, which we have to calculate: 1) Total operating cycle period 2) Net operating cycle

INVENTORY CONVERSION PERIOD: It is the time which any firms takes to convert the raw material to sales of finished goods in manufacturing firms. The ICP is consist raw


material conversion period, work in progress conversion period and finished goods conversion period.

RECEIVABLE CONVERSION PERIOD: When any company sold the goods in market the sale can be made by cash or credit .In case of cash the company gets the return immediately on the other hand if it is an credit sale means the company has to recover the amount of cash after a time gap and how much time the firms takes to convert the credit or receivables into cash are known as receivable conversion period. The total of ICP& RCP is also known as total operating cycle period (TOCP). Finished goods but in case of trading unit the company needs the less amount of working capital only for purchasing the goods and to maintain the credit policy.




1) Size of business: This is very clear that if there is any big concern means it need maximum of working capital to run the business smoothly but the requirement of working capital will be reduced if we will reduced the size of business as we do not have the sufficient long operating cycle to invest the higher rate of working capital.

2) Nature of business: Here we will discuss on the major part of firms i) The manufacturing unit ii) The trading unit Means we can easily understand that in case of manufacturing unit the firm required maximum working capital to complete its operating cycle.

3) Seasonal operation: The seasonal operation also effect the requirement of working capital because the sale can be increased or decreased if they is any concern which is manufacturing the seasonal goods.


Example: If any manufacturing unit which is producing garments requires less amount of working capital during the summer season but on the other hand in the winters they require more working capital to produce the woolen clothes.

4) Credit policy: This policy normally takes an important place to impact on the requirement of working capital means any company having a good credit policy for a shorter period may required the less working capital on the other hand the lenient credit policy may generate the risk of doubtful debts. In this case the company requires more working capital during this period this takes place to convert the credit into cash.

5) Marketable competition: As per the present synerio of the market we can find the toughest competition between every two company which are dealing with the same time of product to reduce the competitiveness and to win the gain the company gives or provides the some special offers to the buyer and to the seller and these offers are not related with the operating cycle of the company so the company needs exist amount of working capital to manage the amount of these offers.


6) Growth and expansion: As for as the growth and expansion is concerned it is very clear it will increase the size of business we require some extra money for this purpose. In the same condition if any company going to launch a new product they again r4equired exist amount of working capital to complete the operating cycle of that particular product. The increment in the size is known as growth and the establishment in the new sector or segment is called expansion.

7) Shortage of raw material: The requirement of working capital is also depends on the aviability of the raw material in the market. At the time of shortage of raw material the price may also be high due to higher demand and less aviability in this case the firm has to purchase the raw material on higher price and required some extra amount for the increment of cost. It means the company has to invest more money for purchasing. 8) Dividend policy: This factor is important because it is directly impact on the financial position of the firm because the higher dividend rate makes the company enable to get a strong position in the market. So to fulfill the requirement of the dividend the company may use the retained earning or profit or they have to generate the funds for dividend from other sources. So this will impact on the operating cycle as well as this will degrees the cash balance of the company,



the company

is used to fulfill



temporary working capital.

9) Depreciation policy: Depreciation policy also is treated as a source of working capital because we can use the depreciation funds for the timing of fulfill the requirement of temporary working capital. If the company is not maintaining the depreciation policy in this case the company has to generate the funds from the long term sources or any other source which can be increase the liability of the firm. Financing of temporary, variable or short term

working capital 1. Indigenous: 2. Trade credit 3. Installment credit 4. Advances 5. Factoring or account receivables credit 6. Accrued expenses 7. Deferred incomes 8. Commercial paper 9. Working capital finance by commercial banks: a) Loans b) Cash credits c) Overdrafts


d) Purchasing and financing of bills.


Concept of Gross Working Capital Let us Analyze the gross working capital Current Assets The above figure indicates that the gross working capital Current Liabilities (Rs.) Sundry Debtor Stock 284737 229977 18 80 2011 2010

552017 429847 83 56

Liabilities 2011 2010 Cash & 158147 130894 Sundry Creditors bank bal. 2 Advances Working Borrowings Total Interest but not due 07 Other Liabilities 409052 3 Provisions 319840 2 Vehicle Loan 174428 390787 9 360099 8 419847 900000 530452 7 313452 14 74 115059 290995 Capital 226625 34 1 765063 56 4 702014 95109

accrued 1204 967629 34

Int. free sales tax 390833 loan Total 3

8708066 4791974 0 1



Net Working Capital Let us Analyze the net Working Capital (Rs) Year Current (A) Current Liabilities (B) Net 2011 2010

Assets 967629 702014 07 34

870806 479197 60 41 222816 93

Working 968224 7

Capital (A-B)

WORKING CAPITAL FINANCING The financing of working capital are done by from different sources of financial distribution here we will discuss about the short term sources of finance which are directly related to business or the finance policy of Indian commercial bank. Every financial managers has to analyses the situation and create the funds accordingly. Every firms the action which is easily available and normally do not increase the long term liabilities of the company from the above we can explain the financing for working capital into two parts: 1) Direct sources of financing working capital


2) Role of commercial bank in financing of working capital

1) Direct sources of financing working capital: here the direct source means any option for credit which is related to the business and do not impact on the liabilities of the business for long term thats why these are treated as trade liabilities and current liabilities. There are two direct sources in relation of any business: -

a) Trade credit: Trade credit means any credit, which is directly related to the goods or the services, which is use, by the firm. Example: a supplier of raw material can provide you the raw material today and you may request for the payment of these goods after sometime. The gap between the purchasing and the payment can be treated as trade credit. In trade credit normally there is no factor of interest and this is very easily available and helps the firm to maintain its operating cycle. There are two types of trade credit normally used in India, which are as follows:


i) Open account: in open account the credit facility provided by the seller on the basis of mutual understanding with the buyer. In this process there is not legal obligation to sign or to promise for the repayment of the credit amount. Thats why the credit limit in open account depends upon the goodwill and healthy relationship between the buyer and seller.

ii) Bills payable: bills payable normally related with the negotiable instrument as described in Negotiable Instrument Act .It is the kind of promissory note. In bills payable the buyer or the seller provides some terms and conditions from the payment. In this case the buyer has to sign on the bill and has to repay the amount to the seller on the date of maturity. b) Accrued expanses: In routine life of business we can find the different expanses of these types of expenses. Normally the accrued expenses are those expanses for which we have available the service or goods from the persons or supplier and has to pay the amount for the service after a fixed period. Example: The salaries of the employees.


In case of salaries the employees works for the firm for a fixed period say one month and after the completion of this period the firm will pay this amount to the employees. Other example: Post paid connection etc. 2) Role of commercial banks in working capital

financing: In India most of the commercial banks provide the credit facilities to the firm to meet the working capital requirement. The commercial banks are important source of short term financing. The commercial banks provides credit to the extend limit and is known as Credit Limits. The bank can finance the working capital by the following ways: i) Cash credit / Overdraft ii) Loans iii) Letter of credit iv) Purchasing and discounting of bills

CASH CREDIT / OVERDRAFT: This is basic facility of credit provided by the commercial banks of India. In overdraft facilities the current account holder can withdraw the moreover and axis of available balance in its current account. The bank will fix the limit for this credit one time at starting and the account holder can use the credit till its limit. The advantage of overdraft or cash credit is the firm


has to pay only the interest to the bank for the period for which we cash over drawn.

PURCHASING AND DISCOUNTING OF BILLS: Now days most of the firms wants to increase the sale so that they do a liner credit. In this process the buyer or the seller makes an advance bills and promise to pay the amount as mentioned in bill account to the maturity of the order. In this case the seller firm may required some amount to complete this order, so the contact to there bank and ask for the required money on the basis of the available bill which they have to handover to the bank as guarantee of security. If the bank provide the total amount after deducting the charges, commissions, fees etc. is known as purchasing of bills. In other hand if the bank provides some percentage (%) of the total amount of the bill then the banks has to wait till its maturity date to get the payment from the buyer and when the bank collects the payment from the buyer and deduct the amount which has been already paid to seller fir and deduct other expenses. Which has been born by the bank for collection of the payment and the remaining amount deposited in the sellers current account and this process is known as discounting of bills.


Honda is headquartered in Tokyo, Japan. American Honda Motor Co. is based in Torrance, California. Honda Canada Inc. is headquartered in the Scarborough district of Toronto, Ontario, and is building new corporate headquarters in Markham, Ontario, scheduled to relocate in 2011. Hero Honda, a joint venture

between India's Hero Group and Honda, is the largest manufacturer of two wheelers in the world. Honda of Canada Manufacturing is based in Alliston, Ontario. Honda has also created joint ventures around the world, such as Honda Siel Cars India Ltd, Hero Honda Motorcycles India Ltd, Guangzhou Honda and Dongfeng Honda Automobile Company in China and Honda Atlas Cars Pakistan


Honda is headquartered in Tokyo, Japan. Their shares trade on the Tokyo Stock Exchange and the New York Stock Exchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland.



Market cap Revenue Operating income Net income Total assets Total equity Employees Fiscal year ends

US$ 58.74 Billion (2011) US$ 119.801 Billion (2011) US$ 9.513 Billion (2011) US$ 5.989 Billion (2011) US$ 125.916 Billion (2011) US$ 45.356 Billion (2011) 167,231 (Sep 2011) March



Although a relatively small manufacturer compared to the other Japanese automakers, Honda is the largest engine maker in the world. Honda has a number of firsts in many categories, including the first engine to meet the 1970 US Clean Air Act (1975 CVCC), the first luxury Japanese car (1985 Legend)

and motorcycle (2006 Gold Wing bikes) equipped with an airbag, as well as the first mid-size pickup truck with independent rear suspension (2006 Ridgeline) Honda has also pioneered new technology in its HA-420 HondaJet that allows new levels of reduced drag, increased aerodynamics and fuel efficiency thus reducing operating costs. In Takanezawa, Japan, on June 16, 2011, Honda Motors produced the first assembly-line FCX Clarity. More efficient than a hybrid vehicle, the FCX Clarity combines hydrogen and oxygen from ordinary air to make electricity. The vehicle does not emit any pollutants and its only byproducts are heat and water. The FCX Clarity also has an advantage over


hybrids in that it does not require a rechargeable battery and the use of electricity.


ASIMO is the part of Honda's Research & Development robotics program. It is the eleventh in a line of successive builds starting in 1986 with Honda E0 moving through the ensuing Honda E series and the Honda P series. Weighing 54 kilograms and standing 130 centimeters tall, ASIMO resembles a small astronaut wearing a backpack, and can walk on two feet in a manner resembling human locomotion, at up to 6 km/h. It is the world's only humanoid robot able to ascend and descend stairs independently.


Honda Motor Co., Ltd. operates in the Motor vehicles and car bodies sector. This analysis compares Honda Motor Co., Ltd. with another company in this sector in Japan: Mitsubishi Motors Corporation (2011 sales of 2.68 trillion Japanese Yen [US$25.32 billion] of which 99% was Automobile).



3.5.1 An Overview:

The history of the Honda Motor Company began with the vision of one man - Soichiro Honda. His dream was personal mobility for everyone. Soichiro Honda founded the Honda Motor Company in 1948. In the same year, he designed and engineered the first product of this company - a 50 cc motorised bike on a bicycle frame - in his small shed at Hamamatsu. Soichiro's vision was international in character. His desire was to lead the world in technology, and make a significant contribution to the creation of a better society. As a result, most of the products that Honda developed started out by making a difference. Whether it was the CVCC engine in the sixties or the solar powered car of the nineties, they all sought to challenge and overcome conventional wisdom.

3.5.1(b) PRINCIPLES OF HONDA: Honda Motor Co., Ltd. operates under the basic principles of "Respect for the Individual" and "The Three Joys" commonly expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. "Respect for the Individual" reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation.

3.5.1(c) Honda in India: Honda Siel Cars India Ltd., (HSCI) was incorporated in December 1995 as a joint venture between Honda Motor Co. Ltd., Japan and Siel Limited, a Siddharth Shriram Group company, with a commitment to providing Hondas latest passenger car models and technologies, to the Indian customers. The Honda City, its first offering introduced in 1997, revolutionized the Indian passenger car market and has ever since been recognized as an engineering marvel in the Indian automobile industry. The success of City as well as all its other models has led HSCI to become the leading premium car manufacturer in India. The total investment made by the company in India till date is Rs. 1620 crores, further


investment of RS. 1000 crore is planned and being currently invested for the coming second plant in Rajasthan. The company has a capacity of manufacturing 100,000 cars. 7HSCIs state-of-the-art manufacturing unit was set up in 1997 at Greater Noida, U.P with an investment of Rs. 450 crore. The green-field project is spread across 150 acres of land (over 6,00,000 sq. m.). The initial installed capacity of the plant was 30,000 cars per annum, which was thereafter increased to 50,000 cars on a two-shift basis. The capacity has further been enhanced to 1,00,000 units annually in February 2011 . The capacity expansion was necessitated by the excellent performance of all the Honda models, particularly the growing demand for City in India. Several modifications were done by the company with the objective of offering higher quality products to its customers, faster and quicker. The expansion process also included expansion of the covered area in the plant, from 1,07,000 sq. m. to 1,31,794 sq. m.

HSCI currently produces the newly launched Honda Jazz, All New City, Civic and Accord models in India and the premium SUV, CR-V is sold as a fully imported unit from Japan. The company operates under the stringent standards of ISO 9001 for quality management and ISO 14001 for environment management.

3.6 About the Car:

3.6.1 The all new Honda City: The third generation of the concept design arrow-shot or arrows, make All New Honda City looks very different from the generation predecessor. Overall view All New Honda City more impressive. With exterior design changes so that the overall look sporty luxury at a time. All New Honda City is a perfect evolution of a mini-class sedan. The latest generation of Honda City will continue success in the automotive market. Honda City has this revolutionary view, and the more luxurious for a mini-class sedan.


Design front bumper and spoiler made refers to the cars racing to the level of Aerodynamics can be maximum. In addition, also made a whole big enough air on the spoiler to reduce barriers when its winds, also as Feed of fresh air to the engine room. The larger size of the headlight to make Honda call it The Eagle Eye. Behind, All New City is designed according to tail arrows. An effect of arrows is established by design decks high and the trunk cut off, which also contribute to the smooth flow of air to the rear body. In addition, the form of bumper diffuser also added to create the effect HANDICAP style press and the road surface in order to maintain stability when the car was on high speed. The shape of the rear lights also changed, now mica lamp made in two colors, red and white three-dimensional. Interior also participate improvement, Honda wants to apply the concept of cozy Lounge in the car cabin. This is possible with the dimensions of space that is longer and more widely each 5mm from the previous generation (4.395mm and 16.95mm) and less than 15mm (1.470mm). There are also features reclining seat, which allows rear seat passengers could be laid down sitting position to get more comfortable. This technology may be applied first in a sedan, usually because the rear seat passengers with what is required baggage.

3.6.2 Importance of the all new Honda City for the Company: According to the management of HSCI, Honda City has been the most important car in the Honda line up. HSCI claims to sell around 60,000 cars every year. Out of these 2/3rd of the cars sold are City i.e. Honda sells 40,000 City every year. The City has been the star performer for HSCI since the time it was launched. However now it is taking the position of a cash cow for the company. i.e. it is generating the maximum sales for the company despite its small & stagnant market share.




There were several methodologies of research that the researcher could have utilized to collect information regarding customer satisfaction. Some of the more commonly used strategies. However factors such as information need, resources, accessibility to customers, sample to be used, time etc. had to be considered prior to selection of a methodology.

4.1 Research Method:

For this particular study, the method of acquiring information from the customer needed to be both easy to use and understand. Therefore the researcher decided to use the FINANCIAL STATEMENT. Under this method, the information was collected from the customers using a research..

4.2 Data Source:

The research makes use of Secondary Data.

a. Secondary Data: use of secondary data was also made in the research. The purpose was to gather information as to who is a customer, what is customer satisfaction, information pertaining to four-wheelers market, company profile & research papers on customer satisfaction. This secondary data was collected from various websites, Magazines & broachers, management books and articles.


4.3 Target population & Sampling plan:

The target population consisted of all the working Capital Management of Honda City and the research area was Lucknow.

4.5 Data processing:

The data collected from the respondents, through the questionnaire, was recorded in an excel sheet which was then converted into SPSS database for analysis procedure. This data has been displayed in the report using graphical presentations (pie-charts, bar diagrams, histograms etc.) and tabulations.




SALES ANALYSIS Honda Motor Co., Ltd. reported sales of 12.00 trillion (US$113.31 billion) for the fiscal year ending March of 2011. This represents an increase of 8.3% versus 2007, when the company's sales were 11.09 trillion. Sales at Honda Motor Co., Ltd. have increased during each of the previous five years. Honda Motor Co., Ltd. also saw significant increases in sales in Motorcycle Business (up 13.7% to 1.56 trillion). Sales Comparisons (Fiscal Year ending 2011) Sale s Company s) Sales Sales/ th (US$) Largest Region North (50.8%) America (trln Grow Emp

Honda Motor Co., 12.00 Ltd. 3

8.3% 633,140

Recent Sales at Honda Motor Co., Ltd.


10 11 12

200 200 200 200 200 201 3 Japanese Yen) 4 5 6 7 1 (Figures in Trillions of

Just over half of the company's 2011 sales were in North America: in 2011, this region's sales were 6.09 trillion, which is equivalent to 50.8% of total sales. In 2011, sales in Rest of the World were up at a rate that was much higher than the company as a whole. Honda Motor Co., Ltd. also experienced significant increases in sales in Europe (up 22.3% to 1.50 trillion) and Asia (up 27.6% to 1.31 trillion).


During the 12 months ending 30/6/2011, Honda Motor Co., Ltd. paid dividends totaling 88.00 per share. Since the stock is currently trading at 3,340.00, this implies a dividend yield of 2.6%. Honda Motor Co., Ltd. has increased its dividend during each of the past 5 fiscal years, in 2003,

the dividends were 16.00 per share. During the same 12 month period ended 6/30/2011, the Company reported earnings of 338.02 per share. Thus, the company paid 26.0% of its profits as dividends.


On the 12.00 trillion in sales reported by the company in 2011, the cost of goods sold totaled 8.02 trillion, or 66.9% of sales i.e., the gross profit was 33.1% of sales which is better than in comparison as achieved in 2007, when cost of goods sold totaled 67.6% of sales. This profit margin is lower than the level the company achieved in 2007, when the profit margin was 5.3% of sales. The company's return on equity in 2011 was 13.4%. This was a decline in performance from the 14.4% return that the company achieved in 2007.

Profitability Comparison Company Yea Gross EBIT Earn r Profit DA in n s extr Marg Margi bef.


a Honda Motor Co., 201 Ltd. 1 33.1% 12.3% 5.0%

Honda Motor Co., 200 Ltd. 7

32.4% 11.0% 5.3%

Honda Motor Co., Ltd. reports profits by product line. During 2011, the itemized operating profits at all divisions were 953.11 billion, which is equal to 7.9% of total sales. Of all the product lines, Financial Services had the highest operating profits in 2011, with operating profits equal to 22.1% of sales. Power Products and Other Businesses had the lowest operating profit margin in 2011, with the operating profit equal to only 5.3% of sales. However, in 2007, Automobile Business had the lowest profit margin.

INVENTORY ANALYSIS As of March 2011, the value of the company's inventory totaled 1.20 trillion. Since the cost of goods sold was 8.02 trillion for the year, the company had 55 days of inventory on hand. In terms of inventory turnover, this is an improvement over March 2007, when the company's


inventory was 1.18 trillion, equivalent to 58 days in inventory.

FINANCIAL POSITION As of March 2011, the company's long term debt was 1.84 trillion and total liabilities (i.e., all money owed) were 7.75 trillion. The long term debt to equity ratio of the company is 0.39. As of March 2011, the accounts receivable for the company were 2.36 trillion, which is equivalent to 72 days of sales. This is an improvement over the end of 2007, when Honda Motor Co., Ltd. had 82 days of sales in accounts receivable.

Financial Positions Honda Motors Pvt., Ltd. R&D LT Company r Day Day / s Sale Yea Debt/ s

Equity AR Inv. s 0.39 72 55 4.9%

Honda Motor Co., 201 Ltd. 1


II B. RATIO ANALYSIS a. CURRENT RATIO: Current Ratio shows a firms ability to meet current liabilities with its current assets. Computation: Current Ratio = Current Assets/ Current Liabilities

2007 (for Honda) Mitsubishi) Current Ratio = 5192609/4287527 Ratio = 1059633/1110874 Current Ratio = 1.21 times. Ratio = 0.95 times 2011 (for Honda) Mitsubishi) Current Ratio = 5231568/4678550 Ratio = 964133/1030913 Current Ratio = 1.11 times. Ratio = 0.93 times

2007 (for



2011 (for




Curre Yea nt Company r Ratio 1.11

Honda Motor Co., 201 Ltd. 1 200 7 Mitsubishi Motor Co., Ltd. 201 1 200 7





The current ratio is lower in 2011 as compared to 2007.There is an increase in all the current assets except other receivables which decreased in 2011. The net current assets increased by 38959 million in 2011 and at the same time the net current liabilities increased by 391023 million in 2007.



Acid Test Ratio or Quick Ratio shows a firms ability to meet current liabilities with its most liquid assets. Computation: Quick ratio = (Current Assets-Inventory)/Current Liabilities. 2007 (for Honda) Mitsubishi) Quick ratio = (5192609-1183116)/4287527 Quick ratio = (1059633-351991)/1110874 Quick ratio = 0.93 times. 0.63 times 2011 (for Honda) Mitsubishi) Quick ratio = (5231568-1199260)/4678550 Quick ratio = (1059633-351991)/1030914 Quick ratio = 0.86 times 0.64 times Quick ratio = 2011 (for Quick ratio = 2007 (for

Yea Quick Company r Ratio

Honda Motor Co., 201 0.86



1 200 7 0.93

Mitsubishi Motor Co., Ltd.

201 1 200 7



Analysis: We have seen that the company had a lower current ratio in 2011 and was unable to meet its short term obligations as compared to 2007. Where as the quick ratio identifies the role played by the inventories in this context. Therefore the ratio shows that in year 2011 it has decreased as compared to 2007 due to the inventories is fact that the investment in and increased by 16144 million only

current liabilities have increased by 391023 million.

ASSET MANAGEMENT RATIOS. c. INVENTORY TURNOVER RATIO Computation: Inventory Turnover Ratio = Sales/Inventory


2007 (for Honda) Mitsubishi)

2007 (for

Inventory Turnover Ratio = 9819973/1183116 Inventory Turnover Ratio =2202869/351991 Inventory Turnover Ratio = 8.32 times Turnover Ratio = 6.25 times 2011 (for Honda) Mitsubishi) Inventory Turnover Ratio = 11304485/1199260 Inventory Turnover Ratio =2682103/299644 Inventory Turnover Ratio = 9.42 times Turnover Ratio = 8.95 times Inventory 2011 (for Inventory

Invento ry Yea Turnov Company r er Ratio 9.42

Honda Motor Co., 201 Ltd. 1 200 7 Mitsubishi Motor


201 8.95


Co., Ltd.

1 200 7 6.25



The inventory turnover ratio in the year 2007 was 8.32 which indicate that 8.32 times in a year the inventory of the firm is converted into receivables or

cash. However, in 2011, the inventory turnover ratio slightly increased to 9.42. This was due to the fact that the companys current assets have increased by 38959 million and a slight increase of 1.3% in inventories.

d. FIXED ASSETS TURNOVER RATIO This ratio measures the extent of turnover or volume of gross income generated by the fixed assets of a company or in other words the efficiency in their utilization. Computation: Fixed Assets Turnover Ratio = Sales/Fixed Assets 2007 (for Honda) Mitsubishi) Fixed assets Turnover Ratio = 9819973/2078728 assets Turnover Ratio = 2202869/555994 Fixed assets Turnover Ratio = 4.72 times assets Turnover Ratio = 1.23 times Fixed Fixed 2007 (for


2011 (for Honda) Mitsubishi)

2011 (for

Fixed assets Turnover Ratio = 11304485/2201299 Fixed assets Turnover Ratio = 2682103/485278 Fixed assets Turnover Ratio = 5.13 times assets Turnover Ratio = 4.40 times Fixed

Fixed Company Honda Ltd. Motor r Co., 201 1 200 7 Mitsubishi Motor Co., Ltd. 201 1 200 7 Ratio 5.13


Yea Turnover






According to the calculations above the productivity of fixed assets in year 2011 is better than it was in previous years. In 2007, it was 4.72 times and now it has been slightly increased to 5.13 times. This change was brought about by increase in total sales by 13.13%, where as the fixed assets increased only by 5.57%.

e. TOTAL ASSETS TURNOVER RATIO Computation: Total Assets Turnover Ratio = Sales/Total Assets 2007 (for Honda) Mitsubishi) Total Assets Turnover Ratio=9819973/120336500 Total Assets Turnover Ratio=2202869/1778693 Total Assets Turnover Ratio = 0.81 times Assets Turnover Ratio = 1.23 times 2011 (for Honda) Mitsubishi) Total Assets Turnover Ratio=11304485/12615543 Total Assets Turnover Ratio=2682103/609408 Total Assets Turnover Ratio = 0.89 times Assets Turnover Ratio = 4.40 times Total 2011 (for Total 2007 (for


Yea Total Assets Turnover Company r Ratio 0.89

Honda Motor Co., 201 Ltd. 1 200 7 Mitsubishi Motor Co., Ltd. 201 1 200 7




Analysis: According to the calculations above the productivity of assets in year 2011 is good as it was in previous years. In 2007, it was 0.81 times and now it has been increased to 0.89 times. This change was brought about by increase of only 4.59% in the total assets, where as the total sales increased by 13.13%.



Computation: Net Profit Turnover Ratio = Sales/Net Profit 2007 (for Honda) Mitsubishi) Net Profit Turnover Ratio = 9819973/592322 Net Profit Turnover Ratio = 2202869/8745 Net Profit Turnover Ratio = 16.57 times Turnover Ratio = 251.6 times 2011 (for Honda) Mitsubishi) Net Profit Turnover Ratio = 11304485/600039 Turnover Ratio = 2682103/34710 Net Profit Turnover Ratio = 18.83 times Turnover Ratio = 77.27 times Net Profit Net Profit 2011 (for Net Profit 2007 (for

Yea Net Profit Company Honda Ltd. Motor r Co., 201 1 Turnover Ratio 18.83

200 16.57


7 Mitsubishi Motor Co., Ltd. 201 1 200 7 77.27


Analysis: The net profit turnover ratio has increased by 2.26 times in 2011 as compared to the previous year. This change was brought about by the increase in the total sales in 2011 by 13.13% as compared to 2007. There has also been an increase in the net profit in 2011 by an amount of 7717 million.






Hondas consolidated net sales and other operating revenues for the fiscal year ended March 31, 2011 grew 915.6 billion, or 8.3%, compared with fiscal 2007, to 12,002.8 billion. Factors behind this increase were higher unit sales in the motorcycle business in Other Regions, higher unit sales in the automobile business in all overseas


regions, and higher unit sales of power products in Asia, as well as the positive impact of foreign exchange rate changes. Domestic net sales decreased by 95.4 billion, or 5.7%, to 1,585.7 billion, but overseas net sales were up 1,011.1 billion, or 10.7%, to 10,417.0 billion as compared to FY 2007. Net income rose 7.7 billion or 1.3% from the previous year, to 600.0 billion. Consolidated cash and cash equivalents for the year ended March 31, 2011 increased by 105.3 billion from March 31, 2007, to 1,050.9 billion. This can be primarily attributed to higher unit sales in motorcycle business.

The provision for credit losses increased by 19.3 billion, which was at 25.5 billion on 2007 and rose to 44.8 in 2011, primarily as a result of the weakening U.S. economy.




Following Limitations faced by me during the Study of the Project as: 1. Time Limitations 2. Unavailability Of Proper Material 3. Lack Of Guidance 4. Organizational Restrictions An Explanation of the Above: -

Time Limitation

The time was a limitation during completion of the report. The time was not enough to cover all the points about the topic. Also it was a tough job to understand all the recruitment and selection in this short period. It brings the eagerness in completion of the report. The time raise as a big difficulty in the preparation of the report. This time limitation enables to better understanding the policies of the company.


Unavailability Of Proper Material

The lack of proper material was also a limitation when developing the report. There was not adequate availability of material in developing the report. Some of the material available was not available. The material available was not sufficient.

Lack Of Guidance

There was lack of guidance at some of the stages. The supervisors sometimes were not able to give proper guidance because of his own job responsibilities and lack of time. So it was a little lack of guidance. Organizational Restrictions

There were restrictions on the supervisor and on the respondents to very much clear all the policy and process. No organization discloses all the recruitment and selection policy to the outsides. Nobody in the organization is authorized to disclose all the policies it is because of some


certain principles made by the top management of the organization.




After undergone training for a limited period in this organization, I found during my training some suggestions but these suggestions merely my own opinion. I hope these suggestions will help at least to some extent if implemented. Following are the suggestions that are based on my observations of the different departments of the company:

1. Company is having huge loans which results in the financial expenses, so proper strategies and techniques of budgeting should be used which results in the proper utilization of borrowed money. 2. Company should use Management Information System (MIS) as it provides very effective information, which ultimately helps in decision-making. This results in the proper future projections effectively. 3. Net Profits is going low. Effective efforts should be taken for this the company must reduce indirect expenses and to control unnecessary costs.


4. Company should install modernized equipments and machines in the production plants and new techniques should also be used to produce. 5. Improve co-operation and co-ordination among the departments. 6. Proper market survey should be conducted to know consumers/dealers buying behavior. 7. JBES is leading company in the Indian manufacturing industry. It has the maximum market share in domestic market. But as far as international market is concerned, it exports only 5% of the total production, which is needed to increase.

The company needs to improve a lot in advertisements. Advertisements are the best way to enhance the sales and ultimately the revenues. But the company is not able to advertise its products properly, due to which the customer is unaware of any brand that comes from JBES. It is a common saying that out of sight is out of mind. Therefore the company must make attempts to use proper advertising media so as to set their brands in the minds of the consumers. It should be more consumers oriented rather than being customer oriented.




Finance is the basic pillar on which the structure of industrial undertaking is based. This pillar should be properly placed. A good working environment and attractive incentives for the achievement of targets has obviously created ideal conditions in Jay Bharat Exhaust Systems Ltd. for the both management and workers. Not a single day of production has been lost this shows efficiency in management. Moreover, solvency position or long-term liquidity of the company was satisfactory.

To conclude, any reduction in operation cost as a result of effective and efficient management of finance would improve the profitability, liquidity and solvency of the organization.




I. M. Pandey 2003

Financial Management


Prassana chandra McGraw Hill 2011

Financial management


Philip Cotler 2003

Marketing Management PHI-

Annual reports Systems Ltd.




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