Working Capital Management 2003 Word File - Swapnil

WORKING CAPITAL MANAGEMENT
A REPORT
O
N

A REPORT ON
TWO WHEELER AUTOMOBILE INDUSTRIES

CONTENTS
PAGE
NO.
CHAPTER 1: INTRODUCTION
1. Executive Summary 1
1.2 Industry Analysis 1
1.3 Current Scenario 2
1.4 Firm Analysis 4
1.5 Objective of the study 6
1.6 Study Design and Methodology 6
CHAPTER 2: COMPARATIVE BALANCESHEETANALYSIS
2.1 Comparative Balance Sheet of Hero Honda Motors Ltd. 7
2.2 Comparative Balance Sheet of Bajaj Auto Ltd. 9
2.3 Comparative Balance Sheet of TVS Motors Company 2.4 11
Comparative Balance Sheet of LML. Ltd. 13
2.5 Comparative Balance Sheet of Suzuki Motors Ltd. 15
CHAPTER 3: RATIO ANALYSIS
3.1 Ratio Analysis of Hero Honda Motors Ltd. 3.2 17
Ratio Analysis of Bajaj Auto Ltd. 19
3.3 Ratio Analysis of TVS Motors Company Ltd. 3.4 22
Ratio Analysis of LML Ltd. 24
3.5 Ratio Analysis of Suzuki Motors Ltd. 26
CHAPTER 4: INTRA-FIRM ANALYSIS
Hero Honda Motors Ltd 29
CONCLUSION 35
Bibliography 36
ANNEXTURE 37
CHAPTER 1
1.1 EXECUTIVE SUMMARY
Every business needs funds for two purposes for its establishment and to carry out its day- to-
day operations. Long terms funds are required to create production facilities through purchase of
fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent
that part of firm's capital which is blocked on permanent or fixed basis and is called fixed capital.
Funds are also needed for short-term purposes for the purchase of raw material,
payment of wages and other day - today expenses etc.
These funds are known as working capital. In simple words, working capital refers to that
part of the firm's capital which is required for financing short- term or current assets such as
cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep
revolving fast and are being constantly converted in to cash and this cash flows out again in
exchange for other current assets. Hence, it is also known as revolving or circulating capital or
short term capital.
1.2 INDUSTRY ANALYSIS
Two Wheeler Market in India:

India became the second largest two wheeler manufacturer in the world starting in the 1950s
with the Automobile Products of India (API) that manufactured the Lambrettas and Bajaj Auto
Ltd.The Indian two wheeler market has a size of over Rs 100,000 million. The Indian two
wheeler segment contributes the largest volumes amongst all the segments in automobile
industry. Though the segment can be broadly categorized into 3 sub-segments viz; scooters,
motorcycles and mopeds; some categories introduced in the market are a combination of two
or more segments e.g. scooterettes and step thru's. The market primarily comprises five players
in the two wheeler segment with most of the companies having foreign collaborations with well-
known Japanese firms earlier. But most of the companies are now planning 100% subsidiaries in
India.
In the last four to five years, the two-wheeler market has witnessed a marked shift towards
motorcycles at the expense of scooters. In the rural areas, consumers have come to prefer
sturdier bikes to withstand the bad road conditions. In the process the share of motorcycle
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segment has grown from 48% to 58%, the share of scooters declined drastically from 33% to
25%, while that of mopeds declined by 2% from 19% to 17% during the year 2000-01. The
Euro emission norms led the existing players in the two stroke segment to install catalytic
converters. All the new models are now being replaced by 4-stroke motorcycles. Excise duty on
motorcycles has been reduced resulting in price reduction, which has aided in propelling the
demand for motorcycles. Fierce competition has also forced players to cut prices in
certain models
1.3 CURRENT SCENARIO
Motorcycle sales grew by an annual average of 27% over from 1995-2002, and constituted
nearly 66% of total two wheeler sales in F2002, up from just 24% in F1995. Average
monthly motorcycle sales have increased five-fold since F1995 to almost 250,000 units in
F2002. Now Hero Honda is the current market leader with a 49% market share. Hero Honda has
been an early entrant in the 4 stroke segment of the two wheeler industry. With a right
mix of product styling and pricing the company helped garner a larger market chunk of the 4-
stroke market as compared to Bajaj Auto. A shifting consumer preference towards
motorcycles also enabled the fast growth of the company in the last few years. Hero Honda
motorcycle sales jumped 40.6% in April at 135,961 units from 96,672 units it sold in the
corresponding month last year. The change in product mix in favor of higher value products
has resulted in improved realization for the company the growing popularity of the passion
model appears to be the key factor behind improvement in unit realization. Taking into account
the recent trend in performance, the company appears well positioned to retain its top position in
the motorcycle market and also sustain the recent rate of growth. Bajaj auto ltd is the second
biggest manufacturer of motorcycles. The company's recent indigenous launch in 4-stroke
segment viz; the 150 / 180 cc pulsar which has practically snatched the market share
of the bikes like Hero Honda CBZ, Suzuki Fiero, Lml adreno etc, and it appears that pulsar
would rule this segment till the time there are some new launches in this segment by other
manufacturers, for bajaj pulsar has been the major contributor for the rise in its motorcycle sales
along with its other popular models such as boxer, caliber croma etc. well coming to the third
largest share holder in the motorcycle segment which is the tvs motors, which has emerged as a
'victor' after the Suzuki break up, riding high on the success, of it's motorbike by the same name.
Tvs victor is the first indigenously produced motorcycle from tvs motors. Infact with a six week
waiting period, even six months after its launch, tvs motors plans to
double its production capacity.
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The motorcycle market can be further segmented on the basis of the price tags which are the
economy, executive and the premium segments. Basically all the three leading companies
have a presence in all of these sectors. Clearly, the race to the number one spot in the
motorcycle segment has been a one sided one. But times are changing, Given the fact that bajaj
is positioning itself at all feature and price points, it does have every model to satisfy the needs of
a prospective motorcycle buyer, and also has the privilege of being the only one in the cruiser
segment but except for the two bikes i.e boxer ct and pulsar no other Bajaj models
seem to be on the line of prosperity and the recently launched dawn by Hero Honda is a direct
threat to the market of boxer ct price competitively at rs 37,000/- which is just Rs 2,000/- more
than the boxer ct but then again boxer ct already enjoys a vast market share and is very popular
especially in the rural areas it will be a tough job for dawn to displace this bike from its current
position a lot remains to be seen by the feedback that it receives from riders. The pulsar has
taken the market by storm in the premium segment it has clearly displaced the CBZ and the
other models of this segment and looks like the things will remain this way for some time but
there are tough times ahead since Hero Honda plans to launch a new bike in
this segment by the end of this year which means that there is a lot to look ahead from a
consumers point of view.
Bajaj Auto which was negotiating with top European motorcycle brand Triumph for an
alliance/acquisition has now decided to put those plans on the backburner and instead focus
its attention on its KTM brand. It has raised its stake in Austrian based KTM sport motor cycle
upto 25.86%.
Hero Honda, Bajaj and TVS Motors have cut prices of their vehicles by upto Rs 2000, 2100
and Rs 2000 respectively on account of Cenvant cut as part of the fiscal package benefit.
TVS Motors has launched Apache RTR 180RD which now comes with a factory fitted
200mm Rear Petal Disc Brake.
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1.4 COMPANY ANALYSIS

Hero Honda Motors:
"Hero" is the brand name used by the Munjal brothers for their flagship company Hero
Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was
established in 1984 as the Hero Honda company,India.This company was referred to Ashdeep
singh(Badal) from CIIS college.
During the 1980s, the company introduced motorcycles that were popular in India for their
fuel economy and low cost. A popular advertising campaign based on the slogan 'Fill it - Shut
it - Forget it' that emphasised the motorcycle's fuel efficiency helped the company grow at a
double-digit pace since inception.
Hero Honda has three manufacturing facilities based at Dharuhera and Gurgaon in Haryana and
at Haridwar in Uttarkhand. These plants together are capable of churning out 3.9 million bikes
per year. Hero Honda's has a large sales and service network with over 3,000 dealerships and
service points across India. Hero Honda's customer loyalty program, the Hero Honda Passport
Program, claim to be one of the largest programs of its kind in the
world with over 3 million members. The 2006 Forbes 200 Most Respected companies list has
Hero Honda Motors ranked at 108.
Bajaj Auto:
The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a
wide range of industries, spanning automobiles (two-wheelers and three-wheelers), home
appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship
company, Bajaj Auto, is ranked as the world's fourth largest two- and three- wheeler
manufacturer and the Bajaj brand is well-known across several countries in Latin America,
Africa, Middle East, South and South East Asia. Founded in 1926, at the height of India's
movement for independence from the British, the group has an illustrious history. The
integrity, dedication, resourcefulness and determination to succeed which are characteristic of the
group today, are often traced back to its birth during those days of relentless devotion to a
common cause. Jamnalal Bajaj, founder of the group, was a close confidant and disciple of
Mahatma Gandhi. In fact, Gandhiji had adopted him as his son. This close relationship and his
deep involvement in the independence movement did not leave Jamnalal Bajaj with much time to
spend on his newly launched business venture.
His son, Kamalnayan Bajaj, then 27, took over the reigns of business in 1942. He too was
close to Gandhiji and it was only after Independence in 1947, that he was able to give his full
attention to the business. Kamalnayan Bajaj not only consolidated the group, but also
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diversified into various manufacturing activities. The present Chairman of the group, Rahul
Bajaj, took charge of the business in 1965. Under his leadership, the turnover of the Bajaj
Auto the flagship company has gone up from Rs.72 million to Rs.46.16 billion (USD 936
million), its product portfolio has expanded and the brand has found a global market. He is
India's one of the most distinguished business leaders and internationally respected for his
business acumen and entrepreneurial spirit.
TVS Motors Company Ltd:

TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the
top ten in the world, with annual turnover of more than USD 1 billion in 2008-2009, and is the
flagship company of the USD 4 billion TVS Group.
TVS Motor currently manufactures a wide range of two-wheelers from mopeds to racing
inspired motorcycles.
TVS has always stood for innovative, easy to handle, environment friendly products, backed by
reliable customer service. No wonder, then, that our 15 million customers on the road have
a reason to smile.
Suzuki Motors Ltd.:

SUZUKI MOTORCYCLE INDIA PRIVATE LIMITED is a subsidiary of Suzuki Motor
Corporation, Japan where in we are having the same manufacturing philosophy of VALUE
PACKED PRODUCTS right from the inception. SMIPL will be manufacturing two wheelers
best suited for the valuable Indian customers covering all segments.
Suzuki have installed there manufacturing plant in Gurgaon (Haryana) having the annual
capacity of 1, 75,000 units. Total land area of the facility at Gurgaon is 37 acres out of which the
present plant is constructed in an area of 6.5 acres of land. The remaining area of 30.5 acres is
left for land development and future expansion. They are having total number of
employees 490.
Mission: The core philosophy of SUZUKI is to provide "VALUE-PACKED PRODUCTS". Since
the founding of SUZUKI Motor Corporation, the Organization's endeavour has always
been to provide "VALUE-PACKED PRODUCTS" as one of the manufacturing philosophies
SUZUKI believes that "VALUE-PACKED PRODUCTS" come from the effort to carry out
Product development from customer's point of view. This policy has been in effect since
Company's inception and has helped the Organization to meet customer's needs. As a result,
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SUZUKI's Products have become well received throughout the World. SUZUKI is fully
committed to create Products that meet customer's demand by utilizing its dynamic, long-
nurtured technological advantage coupled with its fresh and active human resources.
• Develop products of superior value by focusing on the customers

• Establish a refreshing and innovative company through teamwork
• Strive for individual excellence through continuous improvement
LML India:
LML, formerly known as Lohia Machines Private Limited, is India's leading manufacturers
and has 30% of the market share. The company first started its technical collaboration with
ARCT, France and got involved in synthetic Yarn Manufacturing Machines. LML became a
public limited company in 1978. In 1984 LML started its scooter project after signing technical
agreement with Piaggio of Italy. LML's joint venture with Piaggio ended in 1999. Soon after, an
agreement was signed with Daelim Motor Company of South Korea to manufacture 4-stroke
motorcycles. Indian Ministry of Science and Technology, recognized the company in 2000 for
its remarkable success, in introducing new models of scooters in the
market with more fuel-efficient engines, new electrical systems, latest emission norms,
upgraded technology and better styling
1.5 OBJECTIVE OF THE STUDY
The following are the main objective which has been undertaken in the present study:
1. To understand the Working capital Management policies of various companies so

that it would enable me to make an ideal Working Capital of a company in the
near future.
2. To analyze each firm's working capital and to calculate various ratios relating to
working capital.
3. To analyze one intra-firm's working capital by taking three years balance sheet and
profit and loss account.
1.6 STUDY DESIGN AND METHODOLOGY
My report is based on secondary data which was collected from the annual report of Hero
Honda Motors, Bajaj Auto Ltd, TVS Company Ltd, LML Ltd and Suzuki Ltd company
website and Economics Time websites,etc.
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CHAPTER 2
ANALYSIS OF COMPARATIVE BALANCE SHEET
2.1 Comparative Balance Sheet of Hero Honda Motors Ltd

for the year ending December 31,2008 and 2009
Year ending 31 December (In Million Rupees)
2009 2008 Increase/Decrease Percentages
Liabilities
Share Capital 399.40 399.40 0.00 0.00
Reserves & Surplus 37608.10 29463.00 8145.10 27.65
Net Worth(1) 38007.50 29862.40 8145.10 27.28
Secured Loans(2) 0.00 0.00 0.00
Unsecured Loans(3) 784.90 1320.00 -535.10 -40.54
Total Liabilities(1+2+3) 38792.40 31182.40 7610.00 24.40
Assets
Fixed Assets
Gross Block 25162.70 19387.80 5774.90 29.79
(-) Acc. Depreciation 9425.60 7825.20 1600.40 20.45
Net Block(A) 15737.10 11562.60 4174.50 36.10
Capital Work in Prg.(B) 1205.40 4084.90 -2879.50 -70.49
Investments ( C) 33687.50 25668.20 8019.30 31.24
Current Assets, Loans & Advs.
Inventories 3268.30 3171.00 97.30 3.07
Sundry Debtors 1499.40 2974.40 -1475.00 -49.59
cash and Bank 2195.70 1310.90 884.80 67.50
Loans and Advances 3258.00 1963.70 1294.30 65.91
(I) 10221.40 9420.00 801.40 8.51
Current Liabilities & Provisions
Current Liabilities 16789.30 14555.70 2233.60 15.35
Provisions 5269.70 4997.60 272.10 5.44
(II) 22059.00 19553.30 2505.70 12.81
- -
Net Current Assets(I-II) (D) 11837.60 10133.30 -1704.30 16.82
Misc.Expenses(E) 0.00 0.00 0.00
Total Assets(A+B+C+D+E) 38792.40 31182.40 7610.00 24.40
Analysis of Comparative Balance Sheet of Hero Honda Motors
1. The net current assets or working capital in the year 2008 and 2009 is negative. That
is -11837.60 and -10133.30 million rupees. It shows that current asset is less than the
current liabilities by this amount. In other words a part of fund from short term has been used
in fixed assets after investing full amount of short term funds on it. It reveals that the working
capital financing policy is aggressive.
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2. Current assets are called as operating assets because these assets are coming due to
the operating activities. Similarly the current liabilities are called as the operating
liabilities. Among all the operating assets, cash has been increased by maximum
amount. That is 884.80 million rupees which is 67.50% more than previous year.
3. But the amount of loan and advances has been increased from 1963.70 million rupees to
the 3258.00 million rupees which is 65.91% high. It shows the more amounts of cash has
been kept in hand instead of investing in short term securities. That cash may be ideal.
4. The current liabilities shown here may be sundry creditors, outstanding expenditures and bills
payables. This has been increased by 2233.60 million rupees which is 15.35% percent over
last year.
5. The provisions shown here may be provision for bad debt, discount on debtor and Taxation
purpose. This amount has been increased by 272.10 million rupees which is 5.44%.
6. The inventory level has been increased by 97.30 million rupees which is 3.07 percent and
sundry debtor has been decreased by 1475.00 million rupees which is 49.59 percent than
previous year
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2.2 Comparative Balance Sheet of Bajaj Auto Ltd


Liabilities
Share Capital 1446.80 1446.80 0.00 0.00
Net Worth(1) 18696.90 15875.90 2821.00 17.77
Secured Loans(2) 0.00 69.50 -69.50 -100.00
Unsecured Loans(3) 15700.00 13273.90 2426.10 18.28
0.00
Assets 0.00
Fixed Assets 0.00
Gross Block 33502.00 29946.80 3555.20 11.87
Net Block(A) 15422.90 12686.10 2736.80 21.57
Capital Work in Prg.(B) 1064.80 347.40 717.40 206.51
Investments ( C) 18085.20 18571.40 -486.20 -2.62
Current Assets, Loans & Advs. 0.00
Inventories 3388.40 3496.10 -107.70 -3.08
Sundry Debtors 3586.50 2753.10 833.40 30.27
cash and Bank 1368.70 560.70 808.00 144.11
(I) 24014.50 17806.70 6207.80 34.86
Current Liabilities & Provisions 0.00
Provisions 12241.50 8340.40 3901.10 46.77
(II) 26023.50 20192.30 5831.20 28.88
Net Current Assets(I-II) (D) -2009.00 -2385.60 376.60 -15.79
Misc.Expenses(E) 1833.00 0.00 1833.00
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Analysis of Comparative Balance Sheet of Bajaj Auto Ltd
1. The net current assets or working capital in the year 2008 and 2009 is negative. That
is -2009.00 and -2385.60 million rupees. It shows that current asset is less than the current
liabilities by this amount. In other words a part of fund from short term has been used in fixed
assets after investing full amount of short term funds on it. It reveals that the working capital
financing policy is aggressive.
3. But the amount of loan and advances has been increased from 10996.80 million rupees
to the 15670.90 million rupees which is 42.50% high. It shows the more amounts of cash has
been kept in hand instead of investing in short term securities. That cash may be ideal.
payables. This has been increased by 1930.10 million rupees which is 16.29% percent over
last year.
6. The inventory level has been decreased by 107.70 million rupees which is 3.08 percent
and sundry debtor has been increased by 833.40 million rupees which is 30.27 percent than
previous year
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2.3 Comparative Balance Sheet of TVS Motors Company Ltd


Liabilities
Share Capital 237.50 237.50 0.00 0.00
Reserves & Surplus 7893.80 7978.30 -84.50 -1.06
Net Worth(1) 8131.30 8215.80 -84.50 -1.03
Secured Loans(2) 6224.20 4526.80 1697.40 37.50
Unsecured Loans(3) 2835.60 2136.60 699.00 32.72
0.00
Assets 0.00
Fixed Assets 0.00
Gross Block 18653.60 17909.70 743.90 4.15
Net Block(A) 9959.40 10164.80 -205.40 -2.02
Investments ( C) 4777.10 3389.60 1387.50 40.93
Inventories 3205.50 4053.80 -848.30 -20.93
Sundry Debtors 1815.60 878.60 937.00 106.65
cash and Bank 420.50 37.30 383.20 1027.35
(I) 9712.70 8398.40 1314.30 15.65
Provisions 654.90 609.90 45.00 7.38
(II) 8415.70 7867.00 548.70 6.97
Net Current Assets(I-II) (D) 1297.00 531.40 765.60 144.07
Misc.Expenses(E) 753.30 527.70 225.60 42.75
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Analysis of Comparative Balance Sheet of TVS Motor Company Ltd
1. The net current assets or working capital in the year 2008 and 2009 is positive. That is
1297.00 and 531.40 million rupees. It shows that current asset is more than the current
liabilities by this amount. In other words a part of fund from long term sources has been used in
current asset after investing full amount of short term funds on it. It reveals that the working
capital financing policy is conservative.
3. The inventory level has been decreased by 848.30 million rupees which is 20.93 percent
and sundry debtor has been increased by 937.00 million rupees which is 106.65 percent than
previous year.
the 4271.10 million rupees which is 24.57% more. It shows the more amounts of cash has
been invested in short term securities.
payables. This has been increased by 503.70 million rupees which is 6.94 percent over last year.
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2.4 Comparative Balance Sheet of LML Ltd


Liabilities
Share Capital 1987.78 1987.78 0.00 0.00
Reserves & Surplus -3672.54 -3099.99 -572.55 18.47
Net Worth(1) -1684.76 -1112.22 -572.54 51.48
Secured Loans(2) 1241.44 1130.26 111.18 9.84
Unsecured Loans(3) 178.52 169.57 8.95 5.28
Total Liabilities(1+2+3) -264.80 187.62 -452.42 -241.14
0.00
Assets 0.00
Fixed Assets 0.00
Gross Block 5134.04 5134.38 -0.34 -0.01
Net Block(A) 1465.33 1668.19 -202.86 -12.16
Capital Work in Prg.(B) 183.92 184.80 -0.88 -0.48
Investments ( C) 0.09 0.09 0.00 0.00
Inventories 980.86 1024.77 -43.91 -4.28
Sundry Debtors 63.53 69.82 -6.29 -9.01
cash and Bank 115.15 77.88 37.27 47.86
Loans and Advances 405.61 426.44 -20.83 -4.88
(I) 1565.15 1598.91 -33.76 -2.11
Provisions 89.33 121.74 -32.41 -26.62
(II) 3479.30 3264.37 214.93 6.58
Net Current Assets(I-II) (D) -1914.15 -1665.46 -248.69 14.93
Total Assets(A+B+C+D+E) -264.80 187.62 -452.42 -241.14
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Analysis of Comparative Balance Sheet of LML Ltd
1. The net current assets or working capital of 2008 and 2009 is negative figure. That is
1914.15 and 1665.46 million rupees. It shows that current liability is more than the
current assets of the company by this amount. It means a part of current liabilities is
taken for investment on fixed assets. That can be called as aggressive mode of working
capital of financing.
liabilities. Among all the operating assets, cash has been increased by 37.27 million
rupees which is 47.86% more than previous year.
3. The inventory level has been decreased by 43.91 million rupees which is 4.28% less than
the previous year percentages and sundry debtor has been decreased by 6.29 million rupees
which is 9.01 percent than previous year.
4. But the amount of loan and advances has been decreased from 426.44 million rupees to
the 405.61 million rupees which is 4.88% less. It shows the more amounts of cash has been
kept in hand instead of investing in short term securities. That cash may be ideal.
payables. This has been increased by 247.33 million rupees which is 7.87 percent over last
year.
purpose. This amount has been decreased by 32.41 million rupees which is 26.62%.
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2.5 Comparative Balance Sheet of Suzuki Motors Ltd


Liabilities
Share Capital 119.98 119.98 0.00 0.00
Net Worth(1) 1839.50 1740.47 99.03 5.69
Secured Loans(2) 1049.62 809.96 239.66 29.59
Unsecured Loans(3) 300.00 300.00 0.00 0.00
0.00
Assets 0.00
Fixed Assets 0.00
Gross Block 4296.65 3631.00 665.65 18.33
Net Block(A) 2121.09 1689.79 431.30 25.52
Investments ( C) 4.04 0.00 4.04
Inventories 854.86 924.97 -70.11 -7.58
Sundry Debtors 557.08 253.61 303.47 119.66
cash and Bank 112.62 74.95 37.67 50.26
(I) 1827.91 1516.97 310.94 20.50
Provisions 58.97 92.49 -33.52 -36.24
(II) 1212.19 753.23 458.96 60.93
Net Current Assets(I-II) (D) 615.72 763.75 -148.03 -19.38
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Analysis of Comparative Balance Sheet of Suzuki Motor Company Ltd
1. The net current assets or working capital in the year 2008 and 2009 is positive. That is
763.75 and 615.72 million rupees. It shows that current asset is more than the current
liabilities by this amount. In other words a part of fund from long term sources has been used in
current asset after investing full amount of short term funds on it. It reveals that the working
capital financing policy is conservative.
liabilities. Among all the operating assets, cash has been increased by 37.67 million
rupees which is 50.26% more than previous year.
3. The inventory level has been decreased by 70.11 million rupees which is 7.58 percent and
sundry debtor has been increased by 303.47 million rupees which is 119.66 percent than
previous year.
the 303.35 million rupees which is 15.15% more. It shows the more amounts of cash has
been invested in short term securities. That cash may be properly utilized.
payables. This has been increased by 492.47 million rupees which is 74.53 percent over last
year.
purpose. This amount has been decreased by 33.52 million rupees which is 36.24%.
The above analysis shows that the Hero Honda company's growth rate is high but the
liquidity position is not so good and the company follows the aggressive policy. Their current
liability is more than the current assets. In 2009 the company earns 11681.80 million rupees of
profit and LML Company gets loss in last two years. Bajaj and TVS and Suzuki Company are
earning good profit also and maintain the liquidity of the firm. Many firms working capital is
negative.
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CHAPTER 3
RATIO ANALYSIS
3.1 Hero Honda Motors Ltd
2008 2009
Liquidity Ratio
Current Ratio 0.48 0.46
Liquid Ratio 0.32 0.32
Absolute Liquid Ratio 0.17 0.25
Solvency Ratio
Debt Equity Ratio 0.04 0.02
Activity Ratio
Inventory Turnover Ratio 9 times 10 times
Debtor Turnover Ratio 33 times 55 times -
Working Capital Turnover Ratio -12 times 11 times
Profitability Ratio
Gross Profit Ratio 0.13 0.14
Net Profit Ratio 0.08 0.09
1. A relative high current ratio is an indication that the firm is liquid and has the ability
to pay its current obligations in time as and when they become due. Other hand this firm
have ratio below the normal ratio i.e 2:1. It means low current ratio. In India the
Tandon Committee Report says that the ideal Current Ratio should be 1.33:1 .
The low CR Ratio can be due to:-
2. There may not be sufficient fund to pay off liabilities. The business may be trading
beyond its capacity. The resources may not warrant the activities. The Hero Honda
Company follows the aggressive strategy. This company has fewer current assets over the
current liabilities.
3. The liquid ratio is very useful in measuring the liquidity position of a firm. It
measures the firm's capacity to pay off current obligations immediately and is a more
rigorous test of liquidity than the current ratio. The ideal quick ratio is 1:1 but the
company has less than 1 so this company has not sound liquidity position to meet the
immediate obligations. The firm mainly emphasizes on purchasing fixed assets.
4. Absolute Ratio's acceptable norm for this ratio is 50% or .05:1 or 1:2. Re 1 worth
absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities but
the firm has not up to the standard to meet the liquidity of the firm. In 2008 is 0.17
and 2009 is 0.25 which is slightly increase but not maintaining the liquidity position.
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5. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory and 0.04
and 0.02 ratio is considered to be satisfactory for the shareholders because it indicates
that the firm has not been able to use low-cost outsider's fund to magnify their earning.
This ratio shows the solvency position is very good.
6. Inventory turnover ratio shows that the firm has to maintain a certain level of
inventory of finished goods so as to be able to meet the requirement of the business. But
the level of inventory should neither be too high nor too low. It is harmful to hold
more inventory for the following reason: In 2008 and 2009 has 9 and 10 times
respectively used and replaced. It shows increases in inventory turnover ratio, it means
good sign for the firm. Increase in turnover indicates the efficient management of
inventory because more frequent the stock are sold, the lesser amount o money is
required to finance the inventory. Increase (9 to10 times) in turnover implies that less
investment in inventories, good quality of product, efficient business, stock
accumulation and high profit as compared to total investments This type of turnover
may be the result of very low level of inventory which results in shortage of goods in
relation to demand and position of stock-out or the turnover may be high due to a
conservative method of valuation inventories at lower values or the policy of the firm
being to buy frequently in small lots. This type of turnover of inventory does not
necessary imply higher profits. The profit may be decrease due to excessive cost
incurred in replacing stock in small lots, stock-out situations, selling inventories at low
prices.
7 Debtor turnover ratio velocity indicates the number of times the debtors are turned
. over during a year. The debtor turnover ratio increase from 33 times to 55 times which
shows high turnover for the firm. The higher the value of debtor's turnover the more
efficient is the management of debtors/sales or more liquid are the debtors. It may imply
the firm's inability due to lack of resources to sell on credit thereby, losing sales and profit.
This firm has less credit sales. It also depends upon the liquidity
position of this concern to pay its short-term obligation in time. The high inventory
turnover shows the company has good brand name and the customers are loyal.
8. Working Capital Turnover Ratio indicates the velocity of the utilization of net
working capital. It indicates the number of times the working capital is turnover in the
course of a year.The negative working capital indicates that the firm has fewer current
assets over current liabilities over the period of time. It indicates the in efficient
utilization of working capital and management.
18
9. Gross profit ratio measures the relationship of gross profit to net sales. One
percentage increase in gross profit ratio from previous year. It reflects efficiency with
which a firm produces its products. Higher the ratio its better result but in this firm the
ratio is 0.13 and 0.14 in 2008 and 2009 respectively, which shows there is no high
profit, it means average profit. Gross profit ratio is low; it may be the overvaluation
closing stock and undervaluation of opening stock. It may be high expenses.
10. Net Operating Ratio establishes a relationship of various expenses to net sales. It
indicates the efficiency of the management in manufacturing, selling, administrative
and other activities of the firm. This firm has .08 and .09 ratio in the year 2008 and 2009
respectively; it indicates the 0.1 increase in net profit ratio. This ratio also indicates the
firm's capacity to face adverse economic conditions such as price competition, it should
kept in mind that the performance of profits must also be seen in relation to investment
or capital of the firm and not only in relation to sales. This ratio is low, it may be
recession effect.
3.2 Bajaj Auto Ltd
2008 2009
Liquidity Ratio
Solvency Ratio
Activity Ratio
Debtor Turnover Ratio 22 times 27 times
Working Capital Turnover Ratio -19.45 -39.59
Profitability Ratio
1. Liquidity Ratio refers to the ability of a concern to meet its current obligation as and
when these become due. The current ratio increases from 0.88 to 0. 92 in 2008 to 2009
respectively. A relative high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time as and when they become due. Other hand
this firm have the below the as a normal ratio like 2:1 but in this firm the current assets
is lesser than the current liability. It means low current ratio may be due to the following
reasons: There may not be sufficient fund to pay off liabilities. It may
19
be short term loans are not sufficient to meet the current obligations. The business may
be trading beyond its capacity. The resources may not warrant the activities. The Bajaj
Auto Ltd follows the aggressive strategy. This company has fewer current assets over the
current liabilities.
immediate obligations. This firm's liquid ratio is increases from 0.71 to 0.79 in 2008 to
2009 respectively. It shows that the firm immediate obligation is good. The firm mainly
emphasizes on purchasing fixed assets.
3. Absolute Ratio's acceptable norm for this ratio is 50% or 1:2. Re 1 worth absolute
liquid assets are considered adequate to pay Rs 2 worth current liabilities but the firm
meet the liquidity of the firm. In 2008 is 0.57 and 2009 is 0.65 which is slightly
increase. The 0.57 and 0.65 is quite satisfactory because it is higher than the rule of
thumb.
4. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory. In this
firm 0.84 and 0.82 ratio is considered to be satisfactory for the shareholders because it
indicates that the firm has not been able to use low-cost outsider's fund to magnify their
earning. This ratio shows the solvency position is very good. It is harmful to hold more
inventory for the following reason: In 2008 and 2009 has 27 and 25 times respectively
used and replaced. It shows increases in inventory turnover ratio, it means good sign
for the firm but too much high turnover of inventory may not be
necessarily always imply a favourable situation.
5. The high inventory turnover may be result of a very low level of inventory which
results in shortage of goods in relation to demand and position of stock-out or the
turnover may be high due to a conservative method of valuing inventories. Indicates the
efficient management of inventory because more frequent the stock are sold, the lesser
amount o money is required to finance the inventory. Increase (27 to 25 times) in
turnover implies that less investment in inventories, good quality of product, efficient
business, stock accumulation and high profit as compared to total
investments This type of turnover of inventory does not necessary imply higher
profits. The profit may be decrease due to excessive cost incurred in replacing stock in
small lots, stock-out situations, selling inventories at low prices.
20
6. Debtor turnover ratio velocity indicates the number of times the debtors are turned
over during a year. The debtor turnover ratio increase from 22 times to 27 times
which shows high turnover for the firm. The higher the value of debtor's turnover the
more efficient is the management of debtors/sales or more liquid are the debtors. It may
imply the firm's inability due to lack of resources to sell on credit thereby, losing sales and
profit. This firm has less credit sales. It also depends upon the liquidity position of this
concern to pay its short-term obligation in time. The high debtor
course of a year. The negative working capital indicates that the firm has fewer current
assets over current liabilities over the period of time. It indicates the in efficient
utilization of working capital and management.
ratio is 0.12 and 0.12 in 2008 and 2009 respectively, which shows there is 12 percent
gross profit on sales, it means good profit in competitive pricing. Gross profit ratio is
low; it may be the overvaluation closing stock and undervaluation of opening stock. It
may be high expenses but maintaining the consistency profit.
9 Net Operating Ratio establishes a relationship of various expenses to net sales. It
. indicates the efficiency of the management in manufacturing, selling, administrative
and other activities of the firm. This firm has .09 and .09 ratio in the year 2008 and 2009
respectively; it indicates that no increase in net profit ratio. This ratio also indicates the
firm's capacity to face adverse economic conditions such as price competition, it should
kept in mind that the performance of profits must also be seen in relation to investment
or capital of the firm and not only in relation to sales but in
the period of recession they maintaining the profit. This ratio is low, it may be
recession effect.
21
3.3 TVS Motors Company Ltd
2008 2009
Liquidity Ratio
Solvency Ratio
Activity Ratio
Working Capital Turnover Ratio 71.72 40.15
Profitability Ratio
1. The Current Ratio increases from 1.07 to 1.15 in 2008 to 2009 respectively. A
relative high current ratio is an indication that the firm is liquid and has the ability to
pay its current obligations in time as and when they become due. Other hand this firm
have the below the as a normal ratio like 2:1. The current ratio of 1.07 and 1.15 means
that current assets are 1.07 and 1.15 times of current liabilities. The TVS
Motors Company Ltd follows the conservative method. This company has more
current assets over the current liabilities.
2. The Liquid Ratio is very useful in measuring the liquidity position of a firm. It
immediate obligations. This firm's liquid ratio is increases from 0.55 to 0.77 in 2008
to 2009 respectively. It shows that the firm immediate obligation is not good. The firm
mainly emphasizes on purchasing fixed assets.
increase. The 0.44 is not satisfactory but in 2009 is 0.57 is quite satisfactory because it
is higher than the rule of thumb.
firm 0.81 in 2008 is quite satisfactory but in 2009 is 1.11 ratios is considered to be not
22
satisfactory for the shareholders because it indicates that the firm has not been able to
use low-cost outsider's fund to magnify their earning. This ratio shows the solvency
position is very good.
5. The Inventory Turnover Ratio in 2008 and 2009 has 32 and 27 times respectively
used and replaced. It shows increases in inventory turnover ratio, it means good sign for
the firm but too much high turnover of inventory may not be necessarily always imply a
favourable situation. The high inventory turnover may be result of a very low
level of inventory which results in shortage of goods in relation to demand and
position of stock-out or the turnover may be high due to a conservative method of
valuing inventories. Indicates the efficient management of inventory because more
frequent the stock are sold, the lesser amount o money is required to finance the
inventory. Decrease (32 to 27 times) in turnover implies that less investment in
inventories, good quality of product, efficient business, stock accumulation and high
profit as compared to total investments This type of turnover of inventory does not
necessary imply higher profits. The profit may be decrease due to excessive cost
incurred in replacing stock in small lots, stock-out situations, selling inventories at
low prices.
over during a year. The debtor turnover ratio increase from 8 times to 10 times which
efficient is the management of debtors/sales or more liquid are the debtors. It may
imply the firm's inability due to lack of resources to sell on credit thereby, losing
sales and profit. This firm has less credit sales. It also depends upon the liquidity
course of a year. The working capital indicates that the firm has more current assets
over current liabilities over the period of time. It indicates the efficient utilization of
working capital and management.
ratio is 0.1 and 0.2 in 2008 and 2009 respectively, which shows there is less gross
23
profit in comparison to other firm on sales, it means good profit in competitive

pricing. Gross profit ratio is low; it may be the overvaluation closing stock and
undervaluation of opening stock. It may be high expenses but maintaining the
consistency profit.
9. Net Operating Ratio establishes a relationship of various expenses to net sales. It
indicates the efficiency of the management in manufacturing, selling, administrative and
other activities of the firm. This firm has 0 and .01 ratio in the year 2008 and
2009 respectively; it indicates that one percentage increase in net profit ratio. In 2008
the gross profit ratio is zero; it may be the recession or low sales. This ratio also
indicates the firm's capacity to face adverse economic conditions such as price
competition, it should kept in mind that the performance of profits must also be seen in
relation to investment or capital of the firm and not only in relation to sales but in the
period of recession they maintaining the profit. This ratio is low, it may be recession
effect.
3.4 LML Ltd.
2008 2009
Liquidity Ratio
Solvency Ratio
Debt Equity Ratio -1.17 -0.84
Activity Ratio
Working Capital Turnover Ratio -0.40 -0.62
Profitability Ratio
Gross Profit Ratio -0.61 -0.34 -
Net Profit Ratio -0.90 0.52
1. The current ratio decreases from 0.49 to 0.45 in 2008 to 2009 respectively. A relative
high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time as and when they become due. Other hand this firm have the
below the as a normal ratio like 2:1 but in this firm the current assets is lesser than the
current liability. It means low current ratio may be due to the following reasons: There
may not be sufficient fund to pay off liabilities. It may be short term loans are
24
not sufficient to meet the current obligations. The business may be trading beyond its
capacity. The resources may not warrant the activities. The LML Ltd follows the
aggressive strategy. This company has fewer current assets over the current liabilities.
immediate obligations. This firm's liquid ratio 0.18 to 0.17 in 2008 to 2009
respectively. It shows that the firm immediate obligation is poor.
meet the liquidity of the firm. In 2008 and 2009 the ratio is constant in 0.15. The 0.15 is
not satisfactory because it is lower than the rule of thumb.
4. The Debt Equity Ratio is negative which shows that the company running in loss.
5. In this firm has one time inventory turnover ratio which is shows the inefficient of
working capital and management. The company has less production and the product
of the company is not running in the market.
6 Debtor turnover ratio velocity indicates the number of times the debtors are turned
. over during a year. The debtor turnover ratio increase from 11 times to 17 times which
efficient is the management of debtors/sales or more liquid are the debtors. It
may imply the firm's inability due to lack of resources to sell on credit thereby, losing
sales and profit. This firm has less credit sales, it recover the money which is invest
before. It also depends upon the liquidity position of this concern to pay its short-term
obligation in time.
course of a year. The negative working capital indicates that the firm has fewer
current assets over current liabilities over the period of time. It indicates the in efficient
utilization of working capital and management and their product demand is very low.
8. Gross profit ratio measures the relationship of gross profit to net sales. The company
facing loss and repaying outsiders' liabilities. It may be their product is not up to the
25
mark or not compete with other brand or their product has high price in comparison to
other firms
9. Net Operating Ratio establishes a relationship of various expenses to net sales.
It indicates the efficiency of the management in manufacturing, selling, administrative and
other activities of the firm. The firm has incurring expenses loss but still running
because if they are stop the production, they may be face the fixed cost
3.5 Suzuki Motors Ltd.
2008 2009
Liquidity Ratio
Solvency Ratio
Activity Ratio
Working Capital Turnover Ratio 7.99 10.07
Profitability Ratio
1. The current ratio increases from 2.01 to 1.51 in 2008 to 2009 respectively. A relative
high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time as and when they become due. Other hand this firm have the
below the as a normal ratio like 2:1. The current ratio of 2.01 and 1.51 means that
current assets are 2.01 and 1.51 times more than the current liabilities. The Suzuki
Motors Company Ltd follows the conservative method. This company has more current
assets over the current liabilities.
2. The Liquid Ratio is very useful in measuring the liquidity position of a firm. It
immediate obligations. This firm's liquid ratio is increases from 0.79 to 0.80 in 2008 to
2009 respectively. It shows that the firm immediate obligation is not good. The firm
mainly emphasizes on purchasing fixed assets.
26
decrease. Two years absolute ratio is not satisfactory
firm 0.64 and 0.73 is quite satisfactory but this ratios is considered to be satisfactory for
the shareholders because it indicates that the firm has not been able to use low-
cost outsider's fund to magnify their earning. This ratio shows the solvency position is
very good.
5 The Inventory Turnover Ratio in 2008 and 2009 has 7 and 9 times respectively used
. and replaced. It shows increases in inventory turnover ratio, it means good sign for the
firm but too much high turnover of inventory may not be necessarily always imply a
favorable situation. The high inventory turnover may be result of a very low level of
inventory which results in shortage of goods in relation to demand and position of
stock-out or the turnover may be high due to a conservative method of valuing
inventories. Indicates the efficient management of inventory because more frequent
the stock are sold, the lesser amount o money is required to finance the inventory.
Increase (7 to 9 times) in turnover implies that more investment in inventories, good
quality of product, efficient business, stock accumulation and high profit as compared to
total investments This type of turnover of inventory does not necessary imply higher
profits. The profit may be increase for less cost incurred in replacing stock in
small lots, stock-out situations, selling inventories at low prices.
over during a year. The debtor turnover ratio increase from 25 times to 17 times which
efficient is the management of debtors/sales or more liquid are the debtors. It may imply
the firm's inability due to lack of resources to sell on credit thereby, losing
sales and profit. This firm has less credit sales. It also depends upon the liquidity
course of a year. The working capital indicates that the firm has more current assets
27
over current liabilities over the period of time. It indicates the efficient utilization of
working capital and management.
ratio is 0.11 and 0.7 in 2008 and 2009 respectively, which shows there is less gross
profit in comparison to other firm on sales and in 2009 less profit in comparison to
2008, it means good profit in competitive pricing. Gross profit ratio is low; it may be
the overvaluation closing stock and undervaluation of opening stock. It may be high
expenses but maintaining the consistency profit.
9 Net Operating Ratio establishes a relationship of various expenses to net sales. It
. indicates the efficiency of the management in manufacturing, selling, administrative and
other activities of the firm. This firm has 0.4 and .02 ratio in the year 2008 and 2009
respectively; it indicates that two percentage increase in net profit ratio. In 2008 the gross
profit ratio is 0.4; it may be the sales and in 2009 may be inventory cost is
high for that net profit will less. This ratio also indicates the firm's capacity to face
adverse economic conditions such as price competition, it should kept in mind that the
performance of profits must also be seen in relation to investment or capital of the firm
and not only in relation to sales but in the period of recession they maintaining the profit.
From the above analysis of different ratio of different companies, we have got Hero Honda
and Bajaj has follows aggressive policy and TVS and Suzuki follows conservative policy but
LML running with loss.
The good liquidity position is maintaining by Suzuki and TVS among the five firms. The
entire firm's have maintaining good solvency ratio except LML Ltd.
All the four firms are maintaining good inventory and debtor turnover ratio except LML Ltd
and two firms are maintaining good working capital ratio like Suzuki and TVS Motors.
Four firms are maintaining good profitability ratio except LML Ltd. Hero Honda and Bajaj
maintaining good profit in the recession period also.
28
CHAPTER 4
INTRA-FIRM ANALYSIS OF HERO HONDA MOTORS
Balance Sheet of Hero Honda Motors Ltd

For the year ending December 31, 2008, 2007 and 2009
2007 2008 2009
Liabilities
Share Capital 399.40 399.40 399.40
Reserves & Surplus 24301.20 29463.00 37608.10
Net Worth(1) 24700.60 29862.40 38007.50
Secured Loans(2) 0.00 0.00 0.00
Unsecured Loans(3) 1651.70 1320.00 784.90
Total Liabilities(1+2+3) 26352.30 31182.40 38792.40
Assets
Fixed Assets
Gross Block 18006.3 19387.80 25162.70
(-) Acc. Depreciation 6351 7825.20 9425.60
Net Block(A) 11655.3 11562.60 15737.10
Capital Work in Prg.(B) 1899.2 4084.90 1205.40
Investments ( C) 19738.7 25668.20 33687.50
Inventories 2755.80 3171.00 3268.30
Sundry Debtors 3352.50 2974.40 1499.40
cash and Bank 357.80 1310.90 2195.70
Loans and Advances 2680.40 1963.70 3258.00
(I) 9146.50 9420.00 10221.40
Current Liabilities 11715.00 14555.70 16789.30
Provisions 4372.40 4997.60 5269.70
(II) 16087.40 19553.30 22059.00
Net Current Assets(I-II) (D) -6940.90 -10133.30 -11837.60
Total Assets(A+B+C+D+E) 26352.30 31182.40 38792.40
A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current, floating or
circulating assts. The current assets should either be liquid or near about liquidity. These
29
should be convertible in cash for paying obligations of short-term nature. The sufficiency or
insufficiency of current assets should be assessed by comparing them with short-term
liabilities. If current assets can pay off the current liabilities then the liquidity position is
satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then
the liquidity position is bad.
1) Current Ratio
Year 2007 2008 2009

Current Assets 9146.50 9420.00 10221.40
Current Ratio 0.57 0.48 0.46
Interpretation: - As we know that ideal current ratio for any firm is 2:1. But as per the Tandon
Committee Report the ideal Current Ratio is 1.33:1. If we see the current ratio of the company
for last three years it has decreased from 2007 to 2009. The current ratio of company is less than
the ideal ratio. This depicts that company's liquidity position is not sound. Its current assets are
less than its current liabilities.
2) Quick Ratio
Year 2007 2008 2009

Quick Assets 6390.70 6249.00 6953.10
Quick Ratio 0.40 0.32 0.32
Interpretation: - A quick ratio is an indication that the firm is liquid and has the less
confidence to meet its current liabilities in time. The ideal quick ratio is 1:1. Company's
quick ratio is less than ideal ratio. This shows company has liquidity problem.
3) Absolute Liquid Ratio
Year 2007 2008 2009

Absolute Liquid Assets 357.80 1310.90 2195.70
Absolute Liquid Ratio 0.02 0.07 0.10
30
Interpretation: - These ratio shows that company carries a small amount of cash. But there is
nothing to be worried about the lack of cash because company has reserve, borrowing power
& long term investment. In India, firms have credit limits sanctioned from banks and can easily
draw cash.
(B) CURRENT ASSETS MOVEMENT RATIO
Funds are invested in various assets in business to make sales and earn profits. The efficiency
with which assets are managed directly affects the volume of sales. The better the
management of assets, large is the amount of sales and profits. Current assets movement ratios
measure the efficiency with which a firm manages its resources. These ratios are called turnover
ratios because they indicate the speed with which assets are converted or turned over into sales.
Depending upon the purpose, a number of turnover ratios can be calculated.
1) Inventory Turnover Ratio
Year 2007 2008 2009

Cost of goods sold/Sales 123253.80 103450.10 99059.50
Average Stock 4032.20 4548.90 4805.15
Inventory Turnover Ratio 30.57times 22.74times 20.62times
Interpretation: - This ratio shows how rapidly the inventory is turning into receivable through
sales. In 2007 the company has high inventory turnover ratio but in 2009 it has reduced to 20.62
times. This shows that the company's inventory management technique is less efficient as compare
to last two years.
2) Inventory Conversion Period
Year 2007 2008 2009

Days 365.00 365.00 365.00
Inventory Turnover Ratio 30.57 22.74 20.62
Inventory Conversion Period 11.94days 16.05days 17.71days
Interpretation: - Inventory conversion period shows that how many days' inventories takes to
convert from raw material to finished goods. In the company inventory conversion period is
increasing. This shows the inefficiency of management to convert the inventory into cash.
31
W
ORKING CAPITAL MANAGEMENT
3) Debtor Turnover Ratio
Year 2007 2008 2009

Sales 123253.80 103450.10 99059.50
Average Debtors 4790.80 4650.65 2986.60
Debtor Turnover Ratio 25.73times 22.24times 33.17times
Interpretation: - This ratio indicates the speed with which debtors are being converted or
turnover into sales. The higher the values or turnover into sales. The higher the values of
debtors turnover, the more efficient is the management of credit. But in the company the debtor
turnover ratio is increasing year to year. This shows that company is utilizing its
debtor's efficiency. Now their credit policy becomes efficient as compare to previous year.
4) Average Collection period
Year 2007 2008 2009

Days 365.00 365.00 365.00
Debtor Turnover Ratios 25.73 22.24 33.17
Average Collection Period 14days 16days 11days
Interpretation: - The average collection period measures the quality of debtors and it helps in
analyzing the efficiency of collection efforts. It also helps to analysis the credit policy adopted
by company. In the firm average collection period increasing year to year but in 2009 it came
down. It shows that the firm has previously Liberal Credit policy but now it recovery.
These changes in policy are due to competitor's credit policy.
5) Working Capital Turnover Ratio
Year 2007 2008 2009 Sales 123253.80

103450.10 99059.50 Net Working
Capital -6940.90 -10133.30 -11837.60
Working Capital Turnover Ratio -17.76 -10.21 -8.37
Interpretation: - This ratio indicates high net working capital requires for sales. This company
having negative working capital because, they have more current liabilities over current assets.
It shows that the short term loans are not sufficient and more money are invested in
32
the purchase of fixed assets. Thus this ratio is helpful to forecast the working capital
requirement on the basis of sale.
Inventory
Year 2006-2007 2007-2008 2008-2009

Inventories 2755.80 3171.00 3268.30
Inventories are a major part of current assets. If any company wants to manage its working
capital efficiency, it has to manage its inventories efficiently. The graph shows that inventory
in 2006-2007 is 30%, in 2007-2008 is 33% and in 2008-2009 is 31% of their current assets. The
company should try to reduce the inventory upto 10% or 20% of current assets.
Cash & Bank Balance
Year 2006-2007 2007-2008 2008-2009

Cash & Bank Balance 357.80 1310.90 2195.70
Cash is basic input or component of working capital. Cash is needed to keep the business
running on a continuous basis. So the organization should have sufficient cash to meet various
requirements. The above graph is indicate that in 2007 the cash is 357.80 million but in 2008 it
has increase to 1310.90. The result of that it easy for the firms manufacturing operations. In
2009, it is increased upto 2195.70 million cash balance. So in 2009, the
company has no problem for meeting its requirement as compare to 2008.
Debtors
Year 2006-2007 2007-2008 2008-2009

Debtors 3352.50 2974.40 1499.40
Debtors constitute a substantial portion of total current assets. In India it constitute one third
of current assets. The above graph is depicting that there is increase in debtors. It represents an
extension of credit to customers. The reason for increasing credit is competition and company
liberal credit policy.
33
Current Assets
Year 2006-2007 2007-2008 2008-2009

Current Assets 9146.50 9420.00 10221.40
This graph shows that there is 92% increase in current assets in 2009. This increase is arising
because there is approx. 50% increase in inventories. Increase in current assets shows the
liquidity soundness of company.
Current Liabilities
Year 2006-2007 2007-2008 2008-2009

Current liabilities shows company short term debts pay to outsiders. In 2009 the current
liabilities of the company increased. It is not good sign for the company.
Net Working Capital
Year 2006-2007 2007-2008 2008-2009

Net Working Capital -6940.90 -10133.30 -11837.60
Working capital is required to finance day to day operations of a firm. There should be an
optimum level of working capital. It should not be too less or not too excess. In the company
there is negative in working capital. The negative in working capital arises because the
company has purchase many fixed assets and the short debt is not sufficient to meet the current
liabilities.
From the above discussion we get, in 2009 the Hero Honda gets more profit and increase its
business but the liquidity position is better in comparison to previous two years.
34
CONCLUSION
After studying the components of working capital management system of Hero Honda
Motors, Bajaj Auto Ltd, TVS Company Ltd, LML Ltd and Suzuki Ltd. It is found that the
TVS and Suzuki have good liquidity position but profit is low and on the other hand Hero
Honda and Bajaj having liquidity position but LML is poor as it is running with a loss. Out of
five companies four of companies are following aggressive policy. Hero Honda and Bajaj are
competing well at the domestic as well as the international level and it is among the low cost
producer's two wheelers. Two wheeler markets is a saturated market in India and cut-throat
completion among the firms. Among the five companies Hero Honda made more profit in 2009
is 11681.80 million rupees than other companies and LML is suffering a loss due to the low
demand of its product and inefficient management. The company is a matured one and it has
contributed well in the countries growth and development and hope it will continue to perform
and contribute to the whole nation. The Profit is less due to recession, miss management of
fund, not proper Management of working capital.
After the in intra-firm analysis of Hero Honda it was found that in 2009 the firm earns 11681.80
million rupees which is high profit in comparison to last two years but the liquidity position is
not good. Mainly short term borrowing is not sufficient to meet the immediate obligations
and the use more fund in the fixed assets. It was found that the working capital is negative
which shows the current assets less than the current liabilities. The Hero Honda gets maximum
market share in the two wheelers market. Overall the financial position of Hero Honda is good.
35
BIBLIOGRAPHY
• http://www.suzukimotorcycle.co.in/suzuki_india.asp
• http://www.suzukimotorcycle.co.in/mission_statement.asp
• http://www.herohonda.com/
• http://www.automobileindia.com/two-wheelers/lml-india/
• http://www.bajajauto.com/
• http://www.tvsmotor.in/
• http://en.wikipedia.org/wiki/Working_capital
36
ANNEXURE-1
Profit and Loss Account of Hero Honda Motors

for the year ending December 31,2007,2008 and 2009
2007 2008 2009
Sales 99059.50 103450.10 123253.80
Other Income 837.30 888.50 1085.60
Total Income 99896.80 104338.60 124339.40
Raw Material Cost 72524.60 74795.00 88200.50
Excise 16475.20 17032.90 12278.50
Other Expenses -1959.90 -2055.50 5244.60
Operating Profit 12019.60 13677.70 17530.20
Interest Name 137.60 134.70 130.40
Gross Profit 11882.00 13543.00 17399.80
Depreciation 1397.80 1603.20 1806.60
Profit Bef.Tax 11321.50 12828.30 16678.80
Tax 3882.10 4424.00 4997.00
Net Profit 7439.40 8404.30 11681.80
Other Non-Recurring Income 1139.50 1274.50 1135.80
Reported Profit 8578.90 9678.80 12817.60
Equity Dividend 3394.70 3794.10 3993.80
37
Balance Sheet of Hero Honda Motors Ltd

2007 2008 2009
Liabilities
Share Capital 399.40 399.40 399.40
Net Worth(1) 24700.60 29862.40 38007.50
Secured Loans(2) 0.00 0.00 0.00
Unsecured Loans(3) 1651.70 1320.00 784.90
Assets
Fixed Assets
Gross Block 18006.30 19387.80 25162.70
(-) Acc. Depreciation 6351.00 7825.20 9425.60
Net Block(A) 11655.30 11562.60 15737.10
Investments ( C) 19738.70 25668.20 33687.50
Inventories 2755.80 3171.00 3268.30
Sundry Debtors 3352.50 2974.40 1499.40
cash and Bank 357.80 1310.90 2195.70
(I) 9146.50 9420.00 10221.40
Provisions 4372.40 4997.60 5269.70
(II) 16087.40 19553.30 22059.00
38
ANNEXURE-2
Profit and Loss Account of Bajaj Auto Ltd

2007 2008 2009
Sales 94202.40 88271.50 87001.70
Other Income 3579.30 2504.00 1639.00
Total Income 97781.70 90775.50 88640.70
Excise 13216.70 10295.10 6100.70
Other Expenses -2012.50 202.40 4708.00
Interest Name 53.40 51.60 210.10
Gross Profit 13240.80 10800.50 10717.00
Depreciation 1902.60 1739.60 1297.90
Profit Bef.Tax 14913.60 11553.70 11058.10
Tax 4900.90 3787.80 3016.10
Net Profit 10012.70 7765.90 8042.00
Other Non-Recurring Income 2358.30 -208.10 -1497.00
Reported Profit 12371.00 7557.80 6545.00
Equity Dividend 4047.30 2893.70 3183.00
39
Balance Sheet of Bajaj Auto Ltd

Balance Sheet of Bajaj Auto Ltd
2007 2008 2009

Liabilities
Share Capital 1011.80 1446.80 1446.80
Net Worth(1) 55343.20 15875.90 18696.90
Secured Loans(2) 224.60 69.50 0.00
Unsecured Loans(3) 16029.70 13273.90 15700.00
Assets
Fixed Assets
Gross Block 31785.40 29946.80 33502.00
Net Block(A) 12736.00 12686.10 15422.90
Investments ( C) 64475.30 18571.40 18085.20
Inventories 3097.00 3496.10 3388.40

Sundry Debtors 5298.30 2753.10 3586.50
cash and Bank 834.80 560.70 1368.70
(I) 38482.50 17806.70 24014.50

Provisions 28337.90 8340.40 12241.50
(II) 45172.50 20192.30 26023.50
Misc.Expenses(E) 0.00 0.00 1833.00
40
ANNEXURE-3
Profit and Loss Account of TVS Motors Company Ltd

2007 2008 2009
Sales 38549.60 32195.00 36709.20
Other Income 745.30 673.00 761.60
Total Income 39249.90 32868.00 37470.80
Excise 6184.80 4640.30 3379.90
Other Expenses 1506.30 2337.80 3977.60
Interest Name 423.50 114.70 646.10
Gross Profit 976.00 338.40 564.70
Depreciation 876.00 945.90 1028.90
Profit Bef.Tax 826.50 46.00 277.90
Tax 242.50 36.00 0.20
Net Profit 584.00 10.00 277.70
Reported Profit 662.80 317.70 310.80
Equity Dividend 201.90 166.30 166.30
41
Balance Sheet of TVS Motors Company Ltd
for the year ending December 31, 2007,2008 and 2009

2007 2008 2009
Liabilities
Share Capital 237.50 237.50 237.50
Net Worth(1) 8092.70 8215.80 8131.30
Secured Loans(2) 4461.60 4526.80 6224.20
Unsecured Loans(3) 1874.00 2136.60 2835.60
Assets
Fixed Assets
Gross Block 14830.10 17909.70 18653.60
Net Block(A) 7970.80 10164.80 9959.40
Investments ( C) 3447.40 3389.60 4777.10
Inventories 3965.60 4053.80 3205.50
Sundry Debtors 1114.00 878.60 1815.60
cash and Bank 865.60 37.30 420.50
(I) 8605.90 8398.40 9712.70

Provisions 497.30 609.90 654.90
(II) 8239.50 7867.00 8415.70
Net Current Assets(I-II) (D) 366.40 531.40 1297.00
Misc.Expenses(E) 585.40 527.70 753.30
42
ANNEXURE-4
Profit and Loss Account of LML Ltd


2007 2008 2009
Sales 3261.60 628.47 1116.46
Other Income 23.75 45.38 14.11
Total Income 3285.34 673.84 1130.56
Excise 391.61 23.18 59.66
Other Expenses 1400.40 328.50 384.89
Operating Profit -1104.75 -193.74 -127.48
Interest Name 291.27 189.25 255.10
Gross Profit -1396.02 -382.99 -382.57
Depreciation 390.57 228.58 204.02
Profit Bef.Tax -1762.84 -566.20 -572.49
Tax 794.93 0.00 3.54
Net Profit -2557.77 -566.20 -576.02

Reported Profit -2483.84 -566.07 -572.55
Equity Dividend 0.00 0.00 0.00
43
Balance Sheet of LML Ltd

for the year ending December 31, 2007,2008 and 2009
2007 2008 2009

Liabilities
Share Capital 1987.78 1987.78 1987.78
Reserves & Surplus -2533.92 -3099.99 -3672.54 -
Net Worth(1) -546.14 -1112.22 1684.76
Secured Loans(2) 1057.52 1130.26 1241.44
Unsecured Loans(3) 66.31 169.57 178.52
Total Liabilities(1+2+3) 577.68 187.62 -264.80
Assets
Fixed Assets
Gross Block 5135.25 5134.38 5134.04
Net Block(A) 1894.81 1668.19 1465.33
Investments ( C) 0.18 0.09 0.09
Inventories 1025.69 1024.77 980.86
Sundry Debtors 47.76 69.82 63.53
cash and Bank 109.01 77.88 115.15
(I) 1644.35 1598.91 1565.15

Provisions 111.67 121.74 89.33
(II) 3151.87 3264.37 3479.30
Total Assets(A+B+C+D+E) 577.68 187.62 -264.80
44
ANNEXURE-5
Profit and Loss Account of Suzuki Motors Ltd

2007 2008 2009
Sales 6469.24 6627.07 6944.73
Other Income 13.26 11.11 10.72
Total Income 6482.49 6638.18 6955.45
Excise 1080.01 1113.79 921.14
Other Expenses -64.92 2.45 92.98
Interest Name 79.83 108.72 145.91
Gross Profit 677.34 725.04 485.93
Depreciation 275.21 325.14 315.65
Profit Bef.Tax 400.07 411.00 181.00
Tax 115.82 125.30 49.59
Net Profit 284.25 285.70 131.41
Other Non-Recurring Income - 6.21 56.00 2.71
Reported Profit 278.04 286.26 134.12
Equity Dividend 47.99 47.99 29.99
45
Balance Sheet of Suzuki Motors Ltd

for the year ending December 31,2007, 2008 and 2009
2007 2008 2009

Liabilities
Share Capital 119.98 119.98 119.98
Net Worth(1) 1510.35 1740.47 1839.50
Secured Loans(2) 961.25 809.96 1049.62
Unsecured Loans(3) 300.00 300.00 300.00
Assets
Fixed Assets
Gross Block 3314.22 3631.00 4296.65
Net Block(A) 1649.39 1689.79 2121.09
Investments ( C) 0.00 0.00 4.04
Inventories 990.92 924.97 854.86
Sundry Debtors 280.97 253.61 557.08
cash and Bank 76.59 74.95 112.62
(I) 1625.04 1516.97 1827.91

Provisions 70.52 92.49 58.97
(II) 728.99 753.23 1212.19
Net Current Assets(I-II) (D) 896.06 763.75 615.72
46

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WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

TWO WHEELER AUTOMOBILE INDUSTRIES

1.1 EXECUTIVE SUMMARY

1.2 INDUSTRY ANALYSIS

Two Wheeler Market in India:

1.3 CURRENT SCENARIO

1.4 COMPANY ANALYSIS

TVS Motors Company Ltd:

Suzuki Motors Ltd.:

• Develop products of superior value by focusing on the customers

1.5 OBJECTIVE OF THE STUDY

1. To understand the Working capital Management policies of various companies so

1.6 STUDY DESIGN AND METHODOLOGY

ANALYSIS OF COMPARATIVE BALANCE SHEET

2.1 Comparative Balance Sheet of Hero Honda Motors Ltd

Analysis of Comparative Balance Sheet of Hero Honda Motors

2.2 Comparative Balance Sheet of Bajaj Auto Ltd

2009 2008 Increase/Decrease Percentages

Analysis of Comparative Balance Sheet of Bajaj Auto Ltd

2.3 Comparative Balance Sheet of TVS Motors Company Ltd

2009 2008 Increase/Decrease Percentages

Analysis of Comparative Balance Sheet of TVS Motor Company Ltd

2.4 Comparative Balance Sheet of LML Ltd

2009 2008 Increase/Decrease Percentages

Analysis of Comparative Balance Sheet of LML Ltd

2.5 Comparative Balance Sheet of Suzuki Motors Ltd

2009 2008 Increase/Decrease Percentages

Analysis of Comparative Balance Sheet of Suzuki Motor Company Ltd

3.1 Hero Honda Motors Ltd

3.2 Bajaj Auto Ltd

3.3 TVS Motors Company Ltd

profit in comparison to other firm on sales, it means good profit in competitive

3.4 LML Ltd.

3.5 Suzuki Motors Ltd.

INTRA-FIRM ANALYSIS OF HERO HONDA MOTORS

Balance Sheet of Hero Honda Motors Ltd

Year 2007 2008 2009

Year 2007 2008 2009

3) Absolute Liquid Ratio

Year 2007 2008 2009

(B) CURRENT ASSETS MOVEMENT RATIO

1) Inventory Turnover Ratio

Year 2007 2008 2009

2) Inventory Conversion Period

Year 2007 2008 2009

3) Debtor Turnover Ratio

Year 2007 2008 2009

4) Average Collection period

Year 2007 2008 2009

5) Working Capital Turnover Ratio

Year 2007 2008 2009 Sales 123253.80

Year 2006-2007 2007-2008 2008-2009

Cash & Bank Balance

Year 2006-2007 2007-2008 2008-2009

Year 2006-2007 2007-2008 2008-2009

Year 2006-2007 2007-2008 2008-2009

Year 2006-2007 2007-2008 2008-2009

Net Working Capital

Year 2006-2007 2007-2008 2008-2009

Profit and Loss Account of Hero Honda Motors

Balance Sheet of Hero Honda Motors Ltd

2007 2008 2009

Profit and Loss Account of Bajaj Auto Ltd