WORKING CAPITAL

MANAGEMENT
PRESENTATION REPORT

ANAS FAREED
1704101356
Q. Select a company of your choice and assess its working capital management efficiency using
financial ratios and working capital financing approach. Critically comment.

Introduction of the company:

Name- ASHOK LEYLAND

Ashok Leyland is an Indian automobile company headquartered in Chennai, India. It is owned by the
Hinduja Group. Founded in 1948, it is the second largest commercial vehicle manufacturer in India,
fourth largest manufacturer of buses in the world and 10th largest manufacturer of trucks globally.
Operating nine plants, Ashok Leyland also makes spare parts and engines for industrial and marine
applications. It sold approximately 140,000 vehicles (M&HCV + LCV) in FY 2016. It is the second
largest commercial vehicle company in India in the medium and heavy commercial vehicle (M&HCV)
segment, with a market share of 32.1% (FY 2016). With passenger transportation options ranging
from 10 seaters to 74 seaters (M&HCV = LCV), Ashok Leyland is a market leader in the bus segment.
In the trucks segment Ashok Leyland primarily concentrates on the 16 to 25-ton range. However,
Ashok Leyland has a presence in the entire truck range, from 7.5 to 49 tons.

[ Balance Sheet for the past five year is attached and we are comparing financial ratios for last two
years.]

FINANCIAL RATIOS
1. Working Capital Ratio = Current Assets /Current liabilities
For 2019 = 9315/ 9493= 0.98
For 2018 = 5759/ 9478= 0.60

This indicates that the company’s short-term obligations are Satisfactory and it will face
liquidity issues in future.

2. Quick Ratio = Current Assets – inventories / Current liabilities

For 2019 = 0.69
For 2018 = 0.42

This indicates that the company’s short-term obligations are favourable.

3. Cash Ratio = Cash equivalents/current liabilities

For 2019 = 1373/ 9493= 0.14
For 2018 = 1042/9478 = 0.11

This indicates that the company isn’t highly liquid and can’t easily fund its debt. Hence
unfavourable.

4. Debt-Ratio = Total Liabilities/Total Assets

For 2019 = 8730/ 8730= 1
For 2018 = 7858/ 7858= 1
 This indicates that in order to pay off its current debt, the company would have to use all of
its cash and equivalents. Hence it isn’t satisfactory for longer run.

5. Debt-equity Ratio = Total liabilities / Total equity

For 2019 = 8730/ 4365= 0.5
For 2018 = 7858/ 6286= 0.8

6. Assets turnover ratio = Net sales / Total assets

For 2019 = 28,614/8730= 3.2
For 2018 = 26,247/7858= 3.3

This indicates a good performance in this area for the company.

7. Inventory turnover Ratio = Cost of goods sold/ Average inventory

For 2019 = 29094/2684=10.84
For 2018 = 23803/1758=13.54

This indicates a relatively lower turnover as compared to previous year. Major issue must be
Recession. Hence its working capital efficiency is low/ unsatisfactory
 Working Capital financing Approaches: -

• ASHOK LEYLAND follows “AGGRESSIVE APPROACH”.

The aggressive approach suggests that the entire estimated requirements of currents
asset should be financed from short-term sources and even a part of fixed assets
investments be financed from short-term sources. This approach makes the finance-mix
riskier, less costly and more profitable.