PROJECT REPORT

(SUBMITTED FOR THE DEGREE OF B.COM. HONOURS IN ACCOUNTING & FINANCE (SEMESTER-VI) UNDER THE
UNIVERSITY OF CALCUTTA)

TITLE OF THE PROJECT

Working Capital Management: A Study on Ashok Leyland Ltd

SUBMITTED BY

NAME OF THE CANDIDATE: ANISH KUMAR SHAW

REGISTRATION NO. 126-1111-0727-20

CU ROLL NO. 201126-21-0615

NAME OF THE COLLEGE: UMESCHANDRA COLLEGE

COLLEGE ROLL NO.: 126

SUPERVISED BY

NAME OF THE SUPERVISOR: PROF. SANJOY GHOSH

NAME OF THE COLLEGE: UMESCHANDRA COLLEGE

MONTH & YEAR OF SUBMISSION

May, 2023
Annexure- IA
SUPERVISOR’S CERTIFICATE

This is to certify that ANISH KUMAR SHAW a student of B.com Honours in Accounting and Finance
UMESCHANDRA COLLEGE under the University of Calcutta has worked under my supervision and
guidance for her Project work and prepared a Project Report with the title ‘Working Capital Management: A
Study on Ashok Leyland Ltd’ The project report which she has submitted, is his genuine and original work
to the best of my knowledge.

Place: Kolkata

Date: Signature:

Name: SANJOY GHOSH

Designation: ASSOCIATE PROFESSOR

Name of the College: UMESCHANDRA COLLEGE

Annexure- IB
STUDENT’S DECLARATION

I hereby declare that the Project Work with the title ‘Working Capital Management: A Study on Ashok
Leyland Ltd’ submitted by me for the partial fulfillment of the degree of B.com Honours in Accounting and
Finance under the University of Calcutta is my original work and has not been submitted earlier to any other
University/ Institution for the fulfillment of the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been incorporated in this report from
any earlier work done by others or me. However, extracts of any literature which has been used for this report
has been duly acknowledgement providing details of such literature in the references.

Place:

Date: 11/09/2002 Signature:

Name: ANISH KUMAR SHAW

Address: 32, Parwati Ghosh Lane, Kolkata – 700 007

Registration No.: 126-1111-0727-20

Roll No. : 201126-21-0615

 ACKNOWLEDGEMENT

I am grateful to the Almighty, for the blessing that he showed on me in completing this project work.

I offer my heartfelt thanks to our respected Principal Dr. Tofazzal Haque for providing me an
opportunity to carry out this project.

I wish to convey my thanks to my project guide Mr. Sanjoy Ghosh, and all other faculty members
who helped me in various aspects to complete this project work.

It gives me immense pleasure to express my gratitude to our respected teachers for giving me valuable
suggestions in carrying out this project.

Finally, I would like to thank my friends and parents who motivated me to carry out the project in a successful
manner.
 TABLE OF CONTENTS

Title Page No.

Chapter
1 Introduction 6

2 Working Capital Management – A 7 - 17

theoretical discussion
3 Company Profile 18 -20
Data Analysis and Interpretation
 Ratio Analysis 21 - 27
 Working Capital Analysis 28

4 Summary and Conclusion 30

5 Bibliography 32
6 Profit And Loss Account 33
7 Balance Sheet 35
 Chapter 1

INTRODUCTION

Working capital management is a significant facet of financial management due to the fact that it plays a
pivotal role in keeping the wheels of a business enterprise running. The requirements of working capital for
day to day business activities cannot be overemphasized. It cannot be denied that a firm invests a part of its
permanent capital in fixed assets and keeps a part of it in working capital i.e. for meeting day to day
requirements. We will hardly find a firm which does not require any amount of working capital for its normal
operation. The requirement of working capital varies from firm to firm depending upon the nature of business,
production policy, market conditions, seasonality of operations, conditions of supply etc.

CONCEPT- Working capital is known to us that the aim of a business concern is to maximize the proprietor’s
wealth. To fulfill this objective the firm should earn sufficient and steady return from its operations. It depends
upon the successful sales activity. It will only be possible when a firm invests sufficient amount of fund in
current assets for the production as well as sales activity. Considering the importance of working capital in
any type of business an analysis of working capital of Ashok Leyland was made.

WORKING CAPITAL- A THEORITICAL DISCUSSION

Working capital, also known as net working capital (NWC), is the difference between a company’s current
assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and
finished goods, and its current liabilities, such as accounts payable. Net operating working capital is a
measure of a company's liquidity and refers to the difference between operating current assets and operating
current liabilities. In many cases these calculations are the same and are derived from company cash plus
accounts receivable plus inventories, less accounts payable and less accrued expenses.

1.1 Statement of problem

Working capital is required for every business and it helps in the management of the day to day activities. The
analysis of working capital should be done very carefully as it is the decisive factor to plan the day to day
activities. In order to plan the working capital for the future the requirement of future funds should be done
carefully. There are various tools of working capital that can be used for analyzing for the future.

Each firm must analyze the working capital for future operations in order to avoid the shortage of funds to
cater the future needs. The working capital of Ashok Leyland has been increasing during the period of study.
The company must take efforts to maintain this current trend of working capital in future also .

1.2 Need for the study

Working capital analysis is helpful to know the financial position of the company. Cheapest source of funds
can be identified and analyzed and prioritize the utilization of funds for the working capital requirement. The
credit period of the company can be easily known through this analysis to give suggestion to the company to
improve its financial position, if any.

1.3. Need for working capital:

The need for working capital cannot be over emphasized. Every business needs some amount of working
capital. The need arise due to the time gap between production and realization of cash from sales. There is an
operating cycle involved in the sales and realization of cash. There are time gaps between sales; and sales and
realization of cash. The working capital is needed for the following purposes.

 For the purchase of raw material, components and spares.

 To pay wages and salaries.

 To incur day to day expenses and overhead cost such as fuel, power and office expenses etc.

 To meet the selling costs as packing, advertising, etc.

 To provide credit facilities to customers.

 To maintain the raw material inventories, work-in-progress, stores and spares and finished stock.

1.4. Scope of the study

The scope of the study is confined to the detailed study about the organization and to identify the company’s
position in the market and to suggest the means of improvement in the existing system.

1.5 Review of Literature

Misra (1975)26 studied the problems of working capital with special reference to six selected public sector
undertakings in India over the period 1960-61 to 1967-68. Analysis of financial ratios and responses to a
questionnaire revealed somewhat the same results as those of NCAER study with respect to composition and
utilization of working capital. In all the selected enterprises, inventory constituted the more important
element of working capital. The study further revealed the overstocking of inventory in regard to its each
component, very low receivables turnover and more cash than warranted by operational requirements and
thus total mismanagement of working capital in public sector undertaking.

Agarwal (1983)2also studied working capital management on the basis of sample of 34 large manufacturing
and trading public limited companies in ten industries in private sector for the period 1966-67 to 1976-77.
Applying the same techniques of ratio analysis, responses to questionnaire and interview, the study concluded
the although the working capital per rupee of sales showed a declining trend over the years but still there
appeared a sufficient scope for reduction in investment in almost all the segments of working capital. An
upward trend in cash to current assets ratio and a downward trend in cash turnover showed the accumulation
of idle cash in these industries. Almost all the industries had overstocking of raw materials shown by increase
in the share of raw material to total inventory while share of semi-finished and finished goods came down. It
also revealed that long-term funds as a percentage of total working capital registered an upward trend, which
was mainly due to restricted flow of bank credit to the Industries.
Verma (1989)29 evaluated working capital management in iron and steel industry by taking a sample of
selected units in both private and public sectors over the period 1978-79 to 1985-86. Sample included Tata
Iron and Steel Company Ltd. (TISCO) in private sector and Steel Authority of India Ltd. (SAIL) and Indian
Iron and Steel Company, a wholly owned subsidiary of SAIL, in public sector. By using the techniques of
ratio analysis, growth rates and simple linear regression analysis, the study revealed that private sector had
certainly an edge over public sector in respect of working capital management. Simple regression results
revealed that working
64capital and sales were functionally related concepts. The study further showed that all the firms in the
industry had made excessive use of bank borrowings to meet their working capital requirement visa -vis the
norms suggested by Tandon Committee.

Vijay kumar and Venkatachalam (1995)30 studied the impact of working capital on profitability in sugar
industry in Tamil Nadu by selecting a sample of 13 companies; 6 companies in co-operative sector and 7
companies in private sector over the period 1982-83 to 1991-92. They applied simple correlation and multiple
regression analysis on working capital and profitability ratios. They concluded through correlation and
regression analysis that liquid ratio inventory turnover ratio, receivables turnover ratio and cash turnover ratio
influenced the profitability of sugar industry in Tamil Nadu. They also estimated the demand functions of
working capital components i.e. cash, receivables, inventory, gross working capital and net working capital,
by applying regression analysis. They showed the impact of sales and interest rate on working capital and its
components. When only sales was taken as independent variable, coefficient of sales was more than unity in
all the equations of working capital and its components showing more than unity sales elasticity and
diseconomies of scale. When sales and interest rate were taken as independent variable, sales elasticity was
again more than unity in demand functions of working capital and its components except cash. So far as capital
costs were concerned, these had negative signs in all the equations but significant only in inventory, gross
working capital and net working capital showing negative impact of interest rates on investment in working
capital and its components. Thus study showed that demand for working capital and its components was a
function of both sales and carrying costs.

1.6. Objective of the study

 To analyze the financial efficiency of the company through ratio analysis.

 To study various sources and application of working capital of the company.

 To suggest the management on effective working capital management

1.7. Research Methodology: The project work is based on secondary data.

 Analysis of different ratios.
 Working Capital analysis for the year 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19. We have
excluded the years 2019-20 or more current year as those years were abnormal in nature due to
outbreak of Covid-19 pandemic. Thus, stick to our analysis up to financial year – 2018-19.
 Profit and loss account.
 Balance sheet.

1.8. Limitation of study

Past details are not necessarily true indicators of the future.

 The study is based on the result of limited period i.e. 5 years.

 The analysis and interpretation are based on secondary data taken from financial reports.

 Ratio will not completely show the companies good or bad financial position.
 The figures from the financial statement for analysis were historical in nature and the time value of
money is not considered.

 All the data available are yearend figures. So, analysis of financial position holds good only for the
year end.

 The ideal ratios & recommendations are not industry specific.

 In academics certain assumptions are made to ease learning, whereas practical difficulties exist in the
real world.
 Chapter 2

Conceptual Framework

WORKING CAPITAL
ABOUT-Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization, or other entity, including governmental entities. Along with
fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross
working capital is equal to current assets. Working capital is calculated as current assets minus current
liabilities.[1] If current assets are less than current liabilities, an entity has a working capital deficiency, also
called a working capital deficit and Negative Working capital.

2.1. Concept of working capital:

There are two concept of working capital:
Gross working capital

Net working capital

In the board sense, the term working capital refers to the gross working capital and represents the
amount of funds invested in current assets. Thus, the gross working capital is the capital invested in the
ordinary course of business can be converted into cash within a short period, normally within one year. In the
narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of
current assets over current liabilities, or say:
Net working capital= current assets – current liabilities

2.2 Types of working capital: Working capital is the amount of funds necessary to cover the cost
of operating the enterprises. Although it can be classified into a number of types, on the basis of time we
classify working capital as follows:
 Working
Capital

Floating
Fixed Working
Working
Capital
Capital

Regular Reserve Seasonal Special

Fixed working capital: Permanent or fixed working capital represents that part of capital which is
locked up in the current assets to carry out the business smoothly throughout the year. It is the minimum level
of investment of working capital which is required permanently to operate at a minimum level of activity. It
increases with increase in size of the business. Fixed working capital can be classified into:
 Regular working Capital: It is the minimum amount of liquid capital required to keep up the
circulation of capital from ash to inventories, receivable and again to cash. A sufficient amount of bank
balance is a good source of regular working capital.
 Reserve Margin or Cushion Working Capital: It is the excess of capital over the needs of regular
working capital which should be kept to meet the contingencies that may arise any time. These
contingencies include rising prices, business depression, strikes, special operations such as experiment
with new products, etc.

Floating working capital: It represents that part of the total working capital which is required over
and above the permanent working capital. It is the additional assets required at different points of the time
during the year. This type of working capital is not needed by the firm always throughout the year. It is needed
to meet the seasonal fluctuations and for any other special purpose. There are two subdivisions of floating
working capital:
  Seasonal Variable Working Capital: It is that part of the working capital required to meet the
seasonal demands of the business is regarded as Seasonal Variable Working Capital. In peak seasons
more raw materials are required to be purchased, more expenses need to be incurred, etc. this short
term requirement of working capital would be financed from short term sources of capital.
 Special Variable Working Capital: It is that part of working capital which is required for
financing special operations such as, extensive marketing campaign, experiments with products or
methods of productions, carrying of special jobs, etc. this is also to be financed from short term debt
financing.

2.3 Factors determining working capital requirement:

While studying the need of working capital in a business, one has to study the business under varying
circumstances such as a new concern, as a growing concern and as one that has attaining maturity. A concern
requires a lot of liquid funds to meet initial expenses like promotion, formation, etc. these expenses are called
preliminary expenses and are capitalized. The amount needed as working capital in a new concern depends
primarily upon its size and ambitions of its promoters. Greater the size of the business until generally, larger
will be the requirements of working capital. The amount of working capital needed goes on increasing with
the growth and expansion of business till it attains maturity. At maturity the amount of working capital needed
is called normal working capital. There are many other factors which influence the need of working capital in
business. They are discussed here.
 Nature business of: The working capital requirements of a firm basically depend upon the nature
of its business. Public utility undertakings like electricity, water supply and railways require very
limited working capital because they only offer cash sales and as such no funds are tied up in
inventories and receivables. On the other hand, trading and financial firms require less investment in
fixed assets but have to invest large amount in the current assets like receivables and cash. Thus they
require more amount of working capital.

 Size of business: The working capital requirements of a concern are directly influenced by the
size of its business that may be measured in terms of scale of operations. Greater the size of business
unit, larger will be the requirements of working capital, however small organizations may also need
higher working capital due to large overhead charges, inefficient use of available resources and other
economic disadvantages of small size.
 Production policy: In certain industries the demand is subject to wide fluctuations due to
seasonal variations. The requirements of working capital in such cases depend upon the production
policy. The production could be kept either steady by accumulating inventory during slack period with
a view to meet high demand during the peak season or the production could be curtailed during the
slack season and increased during the peak season. If the policy is to keep the production steady by
accumulating inventories, it will require higher working capital.

 Length of production cycle: In manufacturing business, the working capital increase in direct
proportion to the length of manufacturing process. Longer the process period of manufacturing, higher
the working capital.

 Seasonal variation: In certain industries, raw material is not available throughout the year. Raw
materials have to be bought in bulk during the season to ensure uninterrupted flow and process them
during the entire year. A huge amount is thus blocked in the form of raw material during such season
which gives rise to more working capital requirements.

 Operating efficiency: The operating efficiency is also a vital factor for determining the level of
working capital. It means the optimum utilization of resources at minimum costs as a result of which
profitability increases. Thus, it helps in increasing generation of internal funds which reduces the
pressure on working capital.

 Credit policy: Credit policy refers to the terms and conditions on which goods are sold and
purchased. If long periods are allowed to customers, huge amounts of money would remain blocked
with customers. However if sales are made in cash it will have very little impact on working capital.
Again if the firm does not enjoy long credit facilities from its suppliers, a big amount of money will
be required for purchase of raw materials.

 Technological developments: Technological developments relating to the productions

process have a sharp effect on the need for working capital. A firm may be able to cut down its
production cycle by applying modern manufacturing process, as a result of which the need for
permanent working capital may come down.

 Extent of competition: to survive in today’s competitive market, a firm may have to liberalise
its credit policy for debtors and may have to store sufficient stock of finished goods to meet the demand
of the customers at the right time. Otherwise, the customers may go to some other competitor. This
 will result in higher investment in inventory and receivables which will ultimately increase the need
of working capital.

2.4. Working capital cycle:

In a manufacturing concern the working capital cycle starts with the purchase of raw material and ends
with the realization of cash from the sales of finished products. This cycle involves purchase of raw materials
and stores, its conversion into stock of finished goods through work in progress with progressive increment
of labor and service cost, conversion of finished stock into sales, debtors and receivable and ultimately
realization of cash and this cycle continues again from cash to purchase of raw materials and so on. The speed
with which the working capital completes the cycle determines the requirements of working capital-longer the
period of the cycle; larger is the requirement of working capital. A pictorial representation of concepts
involved in the working capital cycle is shown here.

Raw
Cash
Materials

Work in
Receivables
Progress

Finished
Goods

Figure: Working Capital Cycle.

2.5. Financing of working capital:
It is to be remembered that more business fail because of lack of cash than want of profit. Thus
maintaining cash is very crucial for the success or failure of a business. Working capital also comes under the
same frame. Although there are various sources, as discussed already, the working capital requirements of a
concern can be classified as:
 Fixed working capital

 Variable working capital

In any concern, some operations stay permanent such as investments fixed assets. This can be easily
maintained by fixed working capital, which is permanently blocked in current assets. Similarly, the amount of
capital required to meet seasonal demands or rise in prices, strikes, etc. highlight the need for variable working
capital, which cannot be permanently employed gainfully in the business.
The fixed portion of working capital should be generally financed from the fixed capital sources while the
variable working capital requirements of a concern may be met from the short-term sources of capital. While
these are the broad categories, they can be further broken down and discussed in detail as explained below.
The various sources of financing for working capital are as follows:

Financing of fixed working capital:

Ploughing back of profit/retention: Retention or ploughing back of profit is an important source for
financing permanent working capital Retention of earning or ploughing back of profit may be defined as the
reinvestment of surplus earnings by the business concern. It has no fixed financial burden.
Issue of debentures: Issue of debentures for raising permanent working capital is an important external source
of financing. Debenture is an instrument issued by the company acknowledging its debt to its holders. Secured
debenture holders enjoy a priority over the other creditors. Debentures are to be redeemed after a specific
period of time and a fixed rate of interest is to be paid which is a charge against profit.
Loan from financial institutions: This is also important source of external finance. Long term loans may be
taken for financing permanent working capital from different financial institutions, such as, Industrial Finance
Corporation of India (IFCI), State Industrial Finance Corporations (SIFCs), Industrial Development Bank of
India (IDBI), etc.
Financing of variable working capital:
Commercial banks: The major portion of working capital is provided by commercial banks through different
form such as:
 Loans: A short term loan for a maximum period of one year is obtained from the banks for meeting
working capital requirements. These are obtained lump sum for which interest is paid quarterly by the
company and the repayments at stipulated intervals.
 Cash credit: An arrangement with the bank whereby the bank allows the company to borrow money up
to a certain limits against tangible securities for which interest is paid on the daily balance. This is a usual
practice employed by the company for meeting working capital requirements.
 Overdraft: An agreement with the bank whereby, a current account holder is allowed to withdraw more
than the balance to their credit limit. While overdrafts are obtained for shorter periods provide temporary
accommodation, cash credits are obtained to suit requirements longer periods.
 Purchasing and discounting of bills: When the seller deposits genuine commercial bills and obtains
financial accommodations from a bank or financial institution, it is known as “bill discounting”. The option
of discounting will be advantageous because the seller is able to readily en cash which can be used for
meeting immediate business obligations. However, in the process, the seller may lose a little by way of
discount charged by the discounting banker. Purchasing of bills is the bank can collect the payment
immediately by presenting the bill to the buyer for payment. The charges are less while compared with bill
discounting.
 Trade credits: In present day world, the trade credit arrangements by a concern with its suppliers are
important to the company while purchasing. The main advantages of this source are: it is a very convenient
method of finance, it is flexible and it may be possible to obtain favorable terms.
 Advances: Most business get advances from their customers and agents against orders and this sources
is the short term finance for the company. It is a very cheap source of finance. In order to minimize
the working capital, some firms having long production cycle prefer to take advances from their
customers.
 Chapter 3

Presentation, Analysis of Data & Findings

COMPANY PROFILE

Soon after the independence, there was a need for self reliance. Pundit Jawaharlal Nehru persuaded
Mr. Raghunandan Saran, an industrialist to enter into the automobile industry. The company was established
in 1948 as Ashok Motors, with an aim to assemble Austin cars. Manufacturing of commercial vehicles was
started in 1955 with equity contribution from Leyland Motors. Today the Company is the flagship of the Hindu
Group, an England-based transnational conglomerate. In 1948, Ashok Motors was set up in what was then
Madras (now Chennai), for the assembly of Austin Cars. The Company's destiny and name changed soon with
equity participation by British Leyland and Ashok Leyland commenced manufacture of commercial vehicles
in 1955.

Early products included the Leyland Comet bus chassis, which sold in large numbers to many operators,
including Hyderabad Road Transport, Ahmedabad Municipality, Travancore State Transport, Bombay State
Transport and Delhi Road Transport Authority. By 1963 the Comet was operated by every State Transport
undertaking in India, and over 8,000 were in service. The Comet was soon joined in production by a version
of the Leyland Tiger.

For over six decades, Ashok Leyland Ltd. has been moving people and goods, touching millions across 50
countries worldwide. Today, they are the flagship of the Hindu Group, one of the largest commercial vehicle
manufacturers in India with a turnover of US $ 2.5 billion in 2011-12 having consistently delivered profits to
their stake-holders since inception.

In 1968 production of the Leyland Titan ceased in Britain, but was restarted by Ashok Leyland in India. The
Titan PD3 chassis was modified, and a five speed heavy duty constant-mesh gearbox utilized, together with
the Ashok Leyland version of the O.680 engine. The Ashok Leyland Titan was very successful, and continued
in production for many years.

In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it
became the first in India's automobile history to win the ISO 9002 certification. The more comprehensive ISO
9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing
units in 2002. In 2006 Ashok Leyland became the first auto company in India to receive the TS16949
Corporate Certification. In the populous Indian metros, four out of the five State Transport Undertaking (STU)
buses come from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models
from Ashok Leyland, tailor-made for high-density routes.

Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 500,000 vehicles being
put on the roads have considerably eased the additional pressure placed on road transportation in independent
India. The buses safely carry 70 million passengers to their destinations every day. Close to 700,000 of the
vehicles keep the wheels of economies turning and, as the largest supplier of logistics vehicles to the Indian
Army, Ashok Leyland Ltd. play a critical role in keeping our borders safe.

For the customers, they are committed to provide transport solutions that offer the best operating economics
while for users of their vehicles, comfort and safety. This has driven them to pioneer concepts that have
become industry norms fueled both by their robust inherent R&D capabilities and the strength of strategic
alliances forged with global technology leaders.

Headquartered in Chennai, India, Ashok Leyland Ltd. manufacturing footprint is pan-India with two facilities
in Prague (Czech Republic) and Ras Al Khaimah (UAE).

Eight out of ten metro state transport buses in India are from Ashok Leyland. At60 million passengers a day,
Ashok Leyland buses carry more people than the entire Indian rail network. Ashok Leyland has a near 98.5%
market share in the Marine Diesel Engines Markets in India. The company has six manufacturing locations in
India:

 Ennore, Chennai

 Hosur, Tamilnadu (3 plants)

 Alwar, Rajasthan

 Bhandara, Maharastra
To offer customers more from their stable of offerings, they have inked 50:50 Joint Ventures with Nissan
Motor Company (Japan) for Light Commercial Vehicles and John Deere (USA) for construction equipment.
Their joint venture with Continental AG (Germany) is for developing automotive Infotronics while the one
with the Al teams Group is for producing high press die casting extruded aluminum components for both the
automotive and telecommunication sectors.
 October 2011 saw the launch of new brand – LEYLAND DEERE – and unveil of the first product from the
Ashok Leyland – John Deere joint venture- the 435 backhoe loader. In 2012 World’s first single step entry,
front engine, fully flat floor bus was unveiled by Union Minister Shri Kamal Nath. The company also
introduced India’s first 37-tonne haulage truck with the highest payload of up to 27-tonnes.

DATA ANALYSIS AND INTERPRETATION

Ratio Analysis:
Current ratio:
Current asset
Current ratio = -------------------
Current liability (Rs. Crores)

March’15 March’16 March’17 March’18 March’19

Current Asset 2759.38 3195.69 4107.54 4360.81 4796.04
Current 2541.72 2475.37 3371.37 3995.59 5334.35
Liabilities
Current Ratio 1.08 1.29 1.22 1.09 0.88

Table no.1
 Current Ratio

1.3

1.25

1.2

1.15
Current Ratio
1.1

1.05

0.95
2015 2016 2017 2018 2019

Findings: The ideal ratio is 2:1. In the year 2015 it was found the current ratio was 1.0:1 which is below
the standard of 2:1. It is due to decrease in the total assets from the previous year to the current year. Similarly,
the current ratio for the year 2015,2016,2017 and 2018 was 1.29,1.22,1.09,and0.88 respectively. In each year
the ratios were below the standard 2:1 because of the decrease in current assets from the previous year and
increase in current liabilities in the current year. This is not a good indication as the firm will not be able to
meet its short term obligations.

Quick ratio:
Quick asset
Quick ratio = ---------------------
Current liability
(Rs. Crores)
March’15 March’16 March’17 March’18 March’19
Quick Asset 1535.47 1865.68 2469.30 2151.91 2565.43
Current 2541.72 2475.37 3371.37 3995.59 5334.35
Liability
Quick Ratio 0.60 0.72 0.72 0.53 0.48

Table no.2
 0.8

0.7

0.6

0.5

0.4 Series1

0.3

0.2

0.1

0
2015 2016 2017 2018 2019

Findings: The traditional rule of thumb of this ratio has been 1:1. The quick ratio gradually decreases from
0.60 in the year 2015 to 0.48 in the year 2019. The ideal ratio is not met during any of the years from 2015 to
2019. The ideal ratio is met once the inventories are sold and converted into debtors or cash.

Stock turnover ratio:

Cost of goods sold

Stock turnover ratio = --------------------------
Average stock
(Rs.Crores)

March’15 March’16 March’17 March’18 March’19

Cost of goods 9062.17 6844.51 7583.90 11272.12 14717.01
sold
Average stock 1147.11 1276.96 1484.13 1923.57 2219.76
Stock 7.90 5.36 5.11 5.86 6.63
turnover
ratio

Table no.3
 Stock Turnover Ratio

4 Stock Turnover Ratio

0
2015 2016 2017 2018 2019

Findings: This ratio indicates efficiency of the firm in selling its product. For Ashok Leyland company
the highest recorded was in the year 2015 as 7.90 and then it went on decreasing in the following
years. This shows that the company’s inventory management technique is less efficient as compare to last
year.

Debtor’s turnover ratio:

Net sales
Debtor’s turnover ratio = -----------------
Receivables

(Rs. Crores)
March’15 March’16 March’17 March’18 March’19

Net sales 7972.52 6168.99 7436.18 11407.15 13309.59

Receivables 449.41 666.92 990.17 1103.20 1207.77
Debtor’s 17.74 9.25 7.51 10.34 11.02
turnover ratio

Table no.4
 Debtor's turnover ratio
18
16
14
12
10
Debtor's turnover ratio
8
6
4
2
0
2015 2016 2017 2018 2019

Findings: The receivable turnover ratio (debtors turnover ratio, accounts receivable turnover ratio)
indicates the velocity of a company's debt collection, the number of times average receivables are turned
over during a year. The higher the values of debtors turnover, the more efficient is the management of
credit. But in the company the debtor turnover ratio is decreasing year to year from 17.74 in 2015 to 11.02 in
2019.This shows that company is not utilizing its debtors efficiently. Now their credit policy has become
liberal as compare to previous year

Working capital turnover ratio:

Net sales
Working capital ratio = --------------------------
Net working Capital
(Rs.Crores)
March’15 March’16 March’17 March’18 March’19
Net sales 7972.52 6168.99 7436.18 11407.15 13309.59
Net working 217.66 720.32 736.23 365.22 538.31
capital
Working 36.63 8.56 10.10 31.23 24.72
capital
turnover ratio
Table no.5

Working capital turnover ratio

40

35

30

25

20 Working capital turnover ratio

15

10

0
2015 2016 2017 2018 2019

Findings: The working capital turnover ratio is fluctuating year to year that was high in the year 2015,
36.63 times; there was a huge fall in the ratio in the year 2016, 8.56 times. Again it started increasing in the
year 2017 by 10.10 times, 2018 by31.23 times and 2019 by 24.72 times. This shows that the the company is
utilizing its working capital efficiently.
WORKING CAPITAL ANALYSIS

(Rs. Crores)

Particular 2015 2016 2017 2018 2019 Increase/Decrease in Working Capital

2015w.r.t. 2016w.r.t. 2017w.r.t. 2018w.r.t
2016 2017 2018 2019
Current
Asset(A)
Inventories 1223.91 1330.01 1638.24 2208.90 2230.63 106.10 308.23 570.66 21.73

Sundry 375.84 957.97 1022.06 1185.21 1230.37 582.13 64.09 163.15 45.16

Debtors
Cash and 44.55 86.93 188.92 179.53 32.56 42.38 101.99 (9.39) (146.97)

Bank
balance
Total A= 1644.30 2374.91 2849.22 3573.64 3493.56 730.61 474.31 724.42 (80.08)

Current
Liabilities
(B)
Liabilities 2196.49 2207.29 3002.68 3505.26 4837.41 10.8 795.39 502.58 1332.15

Total B= 2196.49 2207.29 3002.68 3505.26 4837.41 10.8 795.39 502.58 132.15

Net (552.19) 167.62 (153.46) 68.38 (1343.85) 719.81 (321.08) 221.84 (1412.23)

working
capital (A-
B)

Table No.6
FINDINGS:
 Inventories have gone up in each year from 2015 to 2019.This is due to the increase in activity levels,
robust demand in export market and launch of new products and also due to increase in consumption
of raw materials.

 Sundry debtors of every year has increased due to increase in credit sales level. But the increase in
debtors and inventory is less than proportionate to the activity increase.

 Cash & Bank balance has decreased by 146.97 crores in the year 2019 due to utilization of funds
inwarded last year and also due to increased investment in capacity expansion or upgradation. Whereas
in other years it has increased due to deposit of funds in banks.

 Current liabilities have increased due to higher bills payable.

 The has been an increase in net working capital during the year 2015 with respect to 2016 by 719.81
crores and in the year 2017 with respect to 2018 by 221.84 crores. This is due to the inwarding of funds
during the respective years and also for higher inventory levels. Again, there has been a decrease in
net working capital in the year 2016 with respect to 2017 by 321.08 crores and 1412.23 in the year
2018 with respect to 2019 which has occurred due to utilization of funds.
 Chapter 4
Suggestions & Conclusion

4.1 Suggestions

 The current ratio and quick ratio did not meet the standard requirement that is 2:1. The company has
to increase its current ratio to meet its standard requirement otherwise it will not be able to meet the short term
obligations. In the year 2019 the current ratio was 0.88 which indicates insolvency of the firm. For meeting
the current ratio standard requirement the company has to increase its current assets.

 A high stock turnover ratio stands foe even movement of stock. A low ratio hints at excessive stock
level. In the above analysis it is seen the movement is slow that invites higher storage cost, higher exposure
to risks of wastage, etc. The company should take steps like quality control to improve the movement.

 A high working capital turnover ratio indicates efficient utilization of working capital and a low ratio
indicates otherwise as in the year 2016 and 2017. But a very high working capital turnover ratio may also
mean lack of sufficient working capital which is not a good situation. In the year 2019 the working capital
turnover ratio was 24.72 which is quite satisfactory compared to other years.

4.2 Conclusion

Through the project study, practical exposure of the business was understood. The theory was so
simple and with lot of assumption in the book. But there are so many issues which are so practical and could
not be learnt theoretically and that was possible in the project study.

With the help of ratio analysis, a business understanding was possible and was able to reason out the movement
in the various elements. It also gave ideas for better analysis with the use of statistical tools like correlation
analysis. The company is able to demonstrate and exercise significant control & reduction in working capital
where in the sale revenue has doubled during the review period.
BIBLIOGRAPHY

References:
 Ram Kumar Misra,(1975) Problems of Working Capital (With Special Reference to Selected Public
Understandings in India), Somaiya Publications.
 N.K. Agrawal (1983) Management of Working Capital, Sterling Publication Pvt. Ltd.
 Harbans Lal Verma(1989) Management of Working Capital, Deep and Deep Publication.
 Vijaykumar and A. Venkatachalam, “Working Capital Capital and Profitability – An Empirical
Analysis”.
 Mazumdar Ali Nesha, “An Introduction to Working Capital Management”.
 Prof. Amitabha Basu, “ Financial Accounting III”.

Webliography:
 www.moneycontrol.com
 www.google.com
 www.wikipedia.com
RESERCH METHODOLOGY- The study is based on Secondary data from the Annual Report of Ashok
Leyland.

PROFIT AND LOSS ACCOUNT

(Rs. Crores)

Mar ' 15 Mar ' 16 Mar ' 17 Mar ' 18 Mar ' 19
Income
Operating income 13,309.59 11,407.15 7,436.18 6,168.99 7,972.52
Expenses
Material consumed 9,527.17 8,230.64 5,282.39 4,553.31 5,855.39
Manufacturing expenses 176.42 151.22 89.98 88.72 102.76
Personnel expenses 1,039.07 974.60 671.61 566.26 616.17
Selling expenses 872.64 761.38 571.69 430.77 194.63
Administrative expenses 463.02 95.81 74.36 65.04 399.76
Expenses capitalized -25.09 -24.06 -15.25 -8.20 -0.67
Cost of sales 12,053.23 10,189.60 6,674.79 5,695.90 7,168.04
Operating profit 1,256.36 1,217.56 761.40 473.08 804.48
Other recurring income 36.87 38.70 36.39 62.80 70.30
Adjusted PBDIT 1,293.23 1,256.25 797.79 535.88 874.78
Financial expenses 255.25 188.92 101.85 157.30 83.63
Depreciation 352.81 267.43 204.11 178.41 177.36
Other write offs - - - - 0.49
Adjusted PBT 685.16 799.90 491.83 200.17 613.30
Tax charges 124.00 170.50 121.10 18.45 168.84
Adjusted PAT 561.16 629.40 370.73 181.72 444.46
Nonrecurring items 4.81 1.90 52.95 8.27 24.85
Other non cash adjustments - - - 0.26 -
Reported net profit 565.98 631.30 423.67 190.25 469.31
Earnings before appropriation 1,317.16 1,208.75 905.98 692.53 831.00
Equity dividend 266.07 266.07 199.55 133.03 199.77
Preference dividend - - - - -
Dividend tax 43.16 43.16 33.14 22.61 33.95
Retained earnings 1,007.93 899.52 673.28 536.89 597.27
 BALANCE SHEET

(Rs. Crores)
Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16 Mar ' 15
Sources of funds
Owner's fund
Equity share capital 266.07 133.03 133.03 133.03 133.03
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 2,632.34 2,523.65 2,190.10 1,976.00 1,993.57
Loan funds
Secured loans 960.43 1,272.22 788.12 304.41 190.24
Unsecured loans 1,435.10 1,385.97 1,492.33 1,657.57 697.26
Total 5,293.94 5,314.88 4,603.57 4,071.02 3,014.11
Uses of funds
Fixed assets
Gross block 7,174.30 6,691.89 6,018.63 4,953.27 2,942.44
Less : revaluation reserve 1,313.36 1,306.28 1,333.17 1,364.86 22.38
Less : accumulated depreciation 2,147.77 2,058.10 1,769.07 1,554.16 1,416.89
Net block 3,713.17 3,327.52 2,916.39 2,034.25 1,503.17
Capital work-in-progress 577.31 387.82 619.71 1,043.19 661.08
Investments 1,534.48 1,230.00 326.15 263.56 609.90
Net current assets
Current assets, loans & advances 4,796.02 4,360.81 4,107.53 3,195.70 2,759.38
Less : current liabilities & provisions 5,334.35 3,995.59 3,371.37 2,475.37 2,541.72
Total net current assets -538.33 365.23 736.15 720.33 217.66
Miscellaneous expenses not written 7.31 4.31 5.17 9.69 22.29
Total 5,293.94 5,314.88 4,603.57 4,071.02 3,014.11
Notes:
Book value of unquoted investments 1,362.95 1,117.49 244.01 101.69 365.07
Market value of quoted investments 681.52 524.13 328.36 193.98 391.84
Contingent liabilities 985.92 881.77 445.03 754.37 1,783.97
Number of equity shares outstanding (Lakhs) 26606.77 13303.38 13303.38 13303.38 13303.38
FINDINGS
 The company’s current ratio is not met during any of the years from 2015 to 2019.
 Quick ratio is also not satisfied as it below the standard of 1:1 in every year. Lowest being recorded in
the year 2019 as 0.48.
 Stock turnover ratio was highly recorded in the year 2015 as 7.90 times and it went on decreasing in
the following years. Again there was a slight increase during the year 2019 as 6.63 times from 5.86
times in the year 2018.
 Due to the inefficiency in utilizing the debtors, the debtors turnover ratio has kept on decreasing from
2015 to 2017. It has slightly increased during the year 2018 and 2019. The current position is 11.02, a
slight increase than the previous year.
 Working capital turnover ratio is satisfactory in the current year by 24.72 times, though in the year
2015 in had reached its maximum by 36.63 times.
 Positive working capital during the year 2015-16 and 2017-18 indicates that company has the ability
of payments of short terms liabilities. In the year 2016-17 and 2018-19 working capital decreased
because increased of expenses as manufacturing expenses and increase the price of raw materials .