Name : Annissa Balqis Budhiani

Class : IPAcc
NIM : 20190420183
Group : 1
CASE STUDY OF AMAN JOT MAM BAJAJ AUTO LIMITED

BACKGROUND

Bajaj Auto Ltd is the flagship company of the Bajaj Group which first come up as M / s Bachraj
Trading Corporation Private Limited and is among the top 10 business houses in India. Bajaj
Auto was formed in the 1930s by Jamnalal Bajaj in Rajasthan, India. This company operates in
the Auto sector, starting with selling imported two- and three-wheeler vehicles to producing
these vehicles themselves. In 1986 along with the launch of motorbikes, Bajaj Auto as a two- and
three-wheelers manufacturer changed its image to a two-wheeler manufacturer.

Bajaj Auto Ltd., incorporated in the year 2007, is a Large Cap company. The company had a
market capitalization of INR 520 billion in 2013 which made it the 23 largest public company in
India by market value. Bajaj Auto has negative working capital throughout the period. However,
they can get their money back earlier than the debtors. In addition, Bajaj Auto has improved their
inventory management. With strong brand image and competent features, Bajaj Auto can
maintain its dominant position in India.

Q1

  2014  2013  2012  2011  2010 

Total CA, Loans &

Advances
4,047.87 3,950.16 4,501.40 5,358.19 3,111.75

Total CL & Provisions

5,081.84 4,505.40 5,100.42 6,550.07 4,466.78
Net Working capital
(1,033.97) (555.24) (599.02) (1,191.88) (1,355.03)

Net Working Capital

7,000.00

6,000.00

5,000.00

4,000.00

3,000.00

2,000.00

1,000.00

-
2014 2013 2012 2011 2010
(1,000.00)

(2,000.00)

Total CA, Loans & Advances Total CL & Provisions Net Working capital

Risk of liquidation

2014 2013 2012 2011 2010

The aggressive approach is a high risk strategy of working capital financing where in short term
finances are utilized not only to finance the temporary working capital but also a reasonable part
of the permanent working capital. It has advantages of low financing cost and high profitability,
lower carrying and handling cost, and highly efficient working capital management. But it will
raise insolvency, lost opportunities and unexpected shocks of the company.

In the case of Working Capital Management of Bajaj Auto Ltd, the company’s working capital
indicates that they are using aggressive approach. It is because their net working capital over
year are minus. The company’s current liabilities is more than their current assets so that the
company has low ability to meet their short term debt. This negative working capital of Bajaj
Ltd. arises because they generate cash very quickly to sell products to their customers before
they have to pay bills to their vendors for the original production costs. In this way, the Bajaj Ltd
is effectively using the vendor’s money to grow. Also, we can be able to know these from quick
test acid ratio, which their ratio over year still positive in a number of zero point and their high
ratio of turnover ratio also indicates they are sells their inventory quickly. In addition, their low
receivables days and high receivables turnover ratio shows they are able to collect their
receivables early.

Q2
Based on the evaluation :
1. They have fast turnover in receivable which is getting better over years even though they have
negative working capital.
2. They use their current assets quickly to enhance profit
3. They have improved their inventory management
4. They're able to get extended credit from their supplier
5. They have no liability towards interest payments
Based on this factors, Bajaj ltd is able to survive for at least one more year. As long as the
company's cash flow is adequate to meet its bills, it can continue operating indefinitely. Bajaj Ltd
has survived for 5 years with negative working capital and they still can survive for another years
as long as they continue to maintain and even improve existing performance especially in ROI.
Provisions are made for all known expenses and losses whether the amount is known for certain
or just an estimation. The provisions are made with a purpose to make a current year’s balance
more accurate, as there may be costs which could, to some extent, be accounted for in either the
current or previous financial year. These costs that distinctly belong to a specific year could be
misleading if accounted for in the future.

Debtors Turnover Ratios

60

50

40

30

20

10

0
2010 2011 2012 2013 2014

Debtors Turnover Ratios

Working Capital Ratio

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2010 2011 2012 2013 2014

Working Capital Ratio