ASHWANI WCM

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A

SUMMER TRAINING PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT IN

ESCORTS LTD

Submitted in partial fulfillment of the requirementFor the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

2010-2012

SUBMITTED BY: UNDER THE GUIDENCE OF:

ASHWANI SINGH MRS. JYOTSNA G.B.

Assist. Prof.MBA 2ND YEAR (Internal Guide-QGC)

2010-2012

22Km milestoneNH 72 ( Roorkee- Dehradun Highway)

RoorkeePh: 936865565


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DECLARATION

I hereby declare that this project report entitled WORKING CAPITAL

MANAGEMENT IN ESCORTS LTDhas been prepared by me under the guidance of

Mr. Anil Kapoor in partial fulfillment of the requirement of the M.B.A programme 2010-

2012 of U.K TECHNICAL UNIVERSITY, DEHRADUN

I also declare that this report has not been submitted by me fully or partially for the award

of any degree, diploma, title or recognition before.

Ashwani SinghM.B.A IInd year

Quantum Global Campus


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ACKNOWLEDGEMENT

This project report is an acknowledgement of the intensive drive, innovation, ideas and

immense support of the many individuals who have contributed to the completion of this

project successfully.

Completing a report provides self-confidence and a lot of happiness to a report developer.

However, no reason can be possible without an encouragement, advice, and inspiration

received from various people during report making.

I gratefully acknowledge my deep sense of gratitude to Mr. Anil Kapoor (Assistant-

Finance Dept Head, Escorts), Mr. Saurabh Kapoor (HR Manager, Escorts), my Internal

Guide, Mrs. Jyotsna G.B. Assist Prof. -M.B.A Dept) and Mr. Arun Kant Penoli (HOD-

Quantum Global Campus), for providing me an opportunity to develop my skills under

their intelligent guidance. I am also very thankful for the inspiration, keen interest and

positive guidance given by the whole staff of Finance Dept section of Escorts who rushed

their service for me.

ASHWANI SINGH

M.B.A 2ND year


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EXECUTIVE SUMMARY

Aswe scale the chronological ladder of time, we find a number of industries that haveassumed significance in Indian economy. With the rapid globalization, this growth is

likely to accelerate in future.

The purpose of the project was to study the working capital management followed this

path with focused strategies for improving corporate liquidity, investment optimization,

and the flow of financial information across the value chain. The project involved

discussing the drivers of superior working capital performance because it is a barometer

for the underlying business behavior. The objective was to study the true potential of the

company and its ability to achieve sustainable results from this potential.

It is all done by the calculation and analysis of ratios of three years which leads to analysis

of working capital position of the company. It is found that the liquidity position of the

company is not satisfactory as the current ratio of the company is below the standard ratio

which is 2:1.

It is also found that the main component of companys working capital is cash-in-hand

and cash-at-bank. The company does not maintain much inventory of the purpose of

production because production is done on the basis of orders accepted by the firm.

.


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LIST OF CONTENTS

S.No. CHAPTER

NO.

TOPICS PAGE NO.

1

1.0

Objectives 8

2

2.0

Company Profile 10

3

3.0Working Capital- An Introduction 35

4

4.0

Methodology 46

5

5.0

Analysis 50

6

6.0

Findings 64

7

7.0

Conclusion and Recommendations 67

8

8.0

Limitations 70

9

9.0

Bibliography 72

LIST OF TABLES

LIST OF CHARTS

S.R NO. NAME OF THE TABLE TABLE

NO.

PAGE

NO.1 Current Assets and Current Liabilities 3.1 37


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S. R NO. NAME OF THE CHART CHART

NO.

PAGE

NO.

1. Organization Chart 1.1 19

2. Classification of Working Capital 3.1 37

3. Working Capital Cycle 3.2 41

4. Sources of Working Capital 3.3 42

5. Current Ratio 5.1 51

6. Quick Ratio 5.2 52

7. Working Capital Turnover Ratio 5.3 53

8. Stock Turnover Ratio 5.4 54

9. Inventory Conversion Period 5.5 55

10. Debtors Turnover Ratio 5.6 56

11. Average Collection Period 5.7 57

12. Level of Inventory 5.8 58

13. Level of Cash 5.9 59

14. Level of Debtors 5.10 60

15. Level of Current Assets 5.11 61

16. Level of Current Liabilities 5.12 62

17. Net Working Capital 5.13 63


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CHAPTER 1

OBJECTIVES OF THE STUDY


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OBJECTIVES OF THE STUDY

Summer training in Escorts helped me to achieve the following objectives:

To study the working capital position of the company with the help of ratios.

To compare the working capital of three consecutive years of the company.

To carry out applied and basic research in all areas of building science to solve problems

confronting the country in:

Shelter planning, Building materials, Structures and Foundations, Disaster

mitigation including Fire Engineering.

To study new technologies for the promotion of building materials and systems.

To disseminate the results of research far and wide for the good of community.

To transfer the developed technologies to the industry for further

commercialization.


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CHAPTER 2

COMPANY PROFILE


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ESCORTS LTD- THE PROFILE

A. ABOUT THE COMPANYThe Escorts Group is among India's leading engineering conglomerates operating

in the high growth sectors of agri-machinery, construction & material handling equipment,railway equipment and auto components.

Having pioneered farm mechanization in the country, Escorts has played a pivotal role in

the agricultural growth of India for over five decades. One of the leading tractormanufacturers of the country, Escorts offers a comprehensive range of tractors, more

than 45 variants starting from 25 to 80 HP. Escort, Farmtrac and Powertrac are the

widely accepted and preferred brands of tractors from the house of Escorts.

A leading material handling and construction equipment manufacturer, we manufacture

and market a diverse range of equipment like cranes, loaders, vibratory rollers and forklifts.Escorts today are the world's largest Pick 'n' Carry Hydraulic Mobile Crane

manufacturer.

Escorts have been a major player in the railway equipment business in India for nearly five

decades. Our product offering includes brakes, couplers, shock absorbers, rail fastening

systems, composite brake blocks and vulcanized rubber parts.

In the auto components segment, Escorts is a leading manufacturer of auto suspension

products including shock absorbers and telescopic front forks. Over the years, with

continuous development and improvement in manufacturing technology and design,new reliable products have been introduced.

Throughout the evolution of Escorts, technology has always been its greatest ally forgrowth. In the over six decades of our inception, Escorts has been much more than just

being one of India's largest engineering companies. It has been a harbinger of new

technology, a prime mover on the industrial front, at every stage introducing products and

technologies that helped take the country forward in key growth areas. Over a milliontractors and over 16,000 construction and material handling equipment that have rolled out

from the facilities of Escorts, complemented by a highly satisfied customer base, are

testimony to the manufacturing excellence of Escorts. Following the globally accepted bestmanufacturing practices with relentless focus on research and development, Escorts is

today in the league of premier corporate entities in India.

Technological and business collaboration with world leaders over the years, globally

competitive indigenous engineering capabilities, over 1600 sales and service outlets and

footprints in over 40 countries have been instrumental in making Escorts the Indian

multinational. At a time when the world is looking at India as an outsourcing destination,Escorts is rightly placed to be the dependable outsourcing partner of world's

leading engineering corporations looking at outsourcing manufacture of engines,

transmissions, gears, hydraulics, implements and attachments to tractors, and shock


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absorbers for heavy trailers.

In today's Global Market Place, Escorts is fast on the path of an internal transformation,

which will help it to be a key driver of manufacturing excellence in the global arena. Forthis we are going beyond just adhering to prevailing norms, we are setting our own

standards and relentlessly pursuing them to achieve our desired benchmarks of excellence.

THE FOUNDING PHILOSOPHY

Over six decades back two young men set out on a journey together armed with little

beyond intelligence, business acumen and determination and dreams aplenty. They

believed that India could only achieve total freedom with a breakthrough in the field ofagriculture and mechanization would have to rule the fields. Their youthful enthusiasm had

kindled the hope that one day they would make a mark of their own. They were in fact

writing the first chapter of what has come to be widely recognized as one of the greatestsuccess stories in Indian industry.

Escorts came into being with a vision. A vision that eschewed easy paths to profitability,

and sought instead for ways to make a contribution. A vision that led two young brothers,Yudi and Hari Nanda, to branch out of their family's prospering transport business and

institute ventures that were to become the foundations of Escorts Limited. On 17th

October 1944, Escorts Agents Limited was born at Lahore (now in Pakistan) with Mr. YudiNanda as Managing Director and Mr. Hari Nanda as Chairman. It was a trend- setting

marketing house driven by the same business philosophy, which had given their family

enterprise an unrivalled reputation: customer concern. Not long afterwards, this drivingambition to go beyond the expected led Hari Nanda to the first of his many successful

business insights - the discovery of the great business potential that lay in India's villages.

This led to the launch, in 1948, of Escorts (Agriculture and Machines) Ltd., with YudiNanda as Director. Though separate business entities then, both companies had two greatstrengths in common: the dynamic Nanda brothers and the unifying force of the name they

gave their companies; Escorts, literally 'escorting' their products and services to the

customer while most other businessmen were just selling.

Tragically, Mr. Yudi Nanda died in an accident in 1952 - but his spirit remained embedded

in the foundations of the company. Mr. H P Nanda then took on the mantle to realize thedreams which he had always seen with his brother.

Escorts (Agents) Ltd. and Escorts (Agriculture and Machines) Ltd. Merged in 1953 to

create a single entity -Escorts Agents Pvt Ltd. Having initially started with a franchise forWestinghouse domestic appliances, by this time the Company had already expanded its

marketing and service operations, representing internationally known German and

American organizations such as MAN, AEG, Haniel & Leug, Knorr Bremse, MIAG andBMA for sophisticated electrical and mechanical engineering equipment and

Minneapolis Moline and Wisconsin for agricultural tractors, implements and engines.

Escorts made a major thrust into the agricultural arena by taking on the marketing andservice franchise for Massey Ferguson tractors in Northern India, which soon

comprised 75% of MF's all-India sales - a signal tribute to Escorts' inherent strengths. Its

first industrial venture came up in 1954, in partnership with Goetzewerke of Germany forthe manufacture of piston rings and cylinder liners - followed by production of pistons


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in collaboration with MAHLE, also of Germany, in 1960. The companys incorporation

in its present name, Escorts Limited, was effected on 18 th January, 1960. Escorts' next

major industrial activity was the assembly of tractors in 1961 in technicalcooperation with URSUS of Poland. Subsequently this led to the manufacture of the

country's first indigenous tractors under Escorts' own brand name, which were to play a

pivotal role in the Green Revolution. This went on to lay the foundations that even todayare the Company's core strengths -relevant, world-standard technology through

strategic international alliances; a broad based marketing and service network yet

unrivalled; powerful symbiotic relationships with suppliers and dealers; and above all,the crusade to make a difference.

Beyond the growth of the organization, these principles have ensured that Mr. H. P.

Nanda's contribution to the cause of industry and the consumer will endure. He pioneeredthe revolutionary concept of 'interdependence' between ancillary and large industries,

institutionalizing vendor development and in the process building Faridabad and the entire

belt of townships in the region. He introduced the discipline of service going before

marketing, reassuring the customer that Escorts would stay with them that they were herefor the long run. He built lasting alliances with an array of the world's most respected

names in tractors, industrial equipment, two- wheelers, construction equipment andtelecommunications. Going further, he created institutions devoted to value engineering

and training, not only as investments in the company's future but also as catalysts

for the enhancement of Indian industry as a whole the Escorts R&D Centre and the uniqueEscorts Institute of Farm Mechanization. His concern extended to the society in which he

worked, and he manifested it by establishing the Escorts Medical Centre at Faridabad,

Escorts Heart Institute and Research Centre at New Delhi, as well as numerous village

development programmers. And above all, he imbued the corporation with hisown pioneering, entrepreneurial spirit, instilling both a conscience and a vision of

leadership.

Escorts are testimony to the valor, vision and values of its Founder Mr. H P Nanda. He

remains the inspiration for our courage, spirit of adventure and ability to Think Big.

These qualities are his enduring legacy and have inspired and encouraged us down thedecades and will continue doing so in all our endeavors.


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CORPORATE SOCIAL RESPONSIBILITY CHARTER

At Escorts Limited, we are committed to making a positive difference in the socio

economic fabric of the rural communes where we operate in. Being in a position of

advantage, we recognize our responsibility in fostering sustainable development inthe rural communities. We strive to earn the respect and trust of our stakeholders, be it the

employees who work for us, the customers who buy our products or the environment that

we work in. In the last two decades, Escorts has made a concerted effort in making thebenefit of progress reach the backward section of the community.

Employees

Escorts Limited is committed to providing a safe, secure, fair and stimulating

work environment to its employees that empowers them to not only make a meaningful

contribution to the organizations performance but also helps in personal and professionalgrowth of the employee.

The company has implemented systems that promote safety at workplace and have

contributed to reductions in lost time injury rates. Educative seminars are conducted on aregular basis for workers where they are exposed to various training and skill development


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programmers including Fire Fighting demonstration & training, safety seminars

etc. To euip employees to work safely. We also provide effective rehabilitation programs

for our employees. At Escorts, health awareness drives are a regularoccurrence where workers are given counseling on personal hygiene, polio awareness, eye

care and general health. We also organize health check up camps for our employees and

their families. For children of our employees, we regularly organize career counselingsessions to help build their future.

Community

As a good corporate citizen, Escorts engages in activities that contribute to the society. The

company has conducted numerous awareness generations campaigns in the rural areason effective agriculture and horticulture practices. The company has given assistance

to farmers by making available certified seeds, fertilizers and pesticides for improvedagricultural output, lassoing with banks and district agencies for the generation of bank

loans and government subsidies, or educating the farmers on preservation of food grains.

Besides this, Escorts has been promoting the Social Forestry Programmed in order to

improve the environment in and around the villages of rural Haryana, where its factories

are based. Under this programmed 8690 fruit trees and saplings have been planted over aland area of 25 acres and 19200 fruit plants have been distributed to farmers for growing

orchards till date Escorts has been taking active part in the Green Haryana Campaign and

thousands of trees have been planted on the National Highway to combat the menace of airpollution.

Escorts have also joined hands with a number of external agencies and NGOs working in

the field of community development. A complete programmed on quality reproductivehealth care services, covering 25 villages in the Faridabad District is being run with the

able support and help of The Population Foundation of India. Escorts also works in

collaboration with the National Association for the Blind in the field of prevention ofblindness. This programmed includes activities i.e. Administering vitamin A, free

screening of the school going children, distribution of glasses and the like besides this,


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Escorts also allocates funds for other agencies, working in the field of improving rural

environment, to run income generation programmed, and upliftment of the rural poor.

B. BUSINESSES

Escorts has three types of businesses

1 Agri Machinery2 Engineering Divisions

3 Construction Equipment

1. Agri Machinery

Background

In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into

tractors.

In 1965, we rolled out our first batch of tractors under the brand name of Escort.

In 1969 a separate company, Escorts Tractors Ltd., was established with equity

participation of Ford Motor Co., Basildon, UK for the manufacture of Fordagricultural tractors in India.

In the year 1996 Escorts Tractors Ltd. formally merged with the parent company,

Escorts Ltd.

Since inception, we have manufactured over 1 million tractors.

Technologies


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Escorts AMG has three recognized and well-accepted tractor brands, which are ondistinct and separate technology platforms.

Farmtrac: World Class Premium tractors, with single reduction and epicyclical

reduction transmissions from 34 to 75 HP.

Powertrac: Utility and Value-for-money tractors, offering straight-axle and hub-

reduction tractors from 34 to 55 HP. Indias No.1 economy range engineered togive spectacular diesel economy.

Escort: Economy tractors having hub-reduction transmission and twin- cylinderengines from 27 to 35 HP. Pioneering brands of tractors introduced by Escorts with

unbeatable advantages.

International Subsidiaries

Escorts AMG have one international subsidiary.

Farmtrac Tractors Europe.

They now cater to 41 countries.

Functional Excellence

Manufacturing

Quality Assurance

Materials Management

Sales & Marketing

Knowledge Management

Finance

Human Resources

Information Technology

Beyond manufacture, Escorts has made substantial investments towards the modernization

of farm technology. The Escorts Institute of Farm Mechanization (EIFM) at

Bangalore is a unique center where training is imparted in operation, maintenance andrepair of farm machinery. It is among the few institutions of its kind in the world. Its

programs are aimed at encouraging customers, dealers, engineers, mechanics as well as the

field staff of Escorts, towards meeting its objective of enhancing agricultural productivityand improving quality of life in rural India.

2. Engineering Divisions


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A. Railway Equipment

Escorts are a leading manufacturer of critical railway components since the last 40 years. It

is one of the oldest and most trusted partners of Indian Railways, the largest rail network inthe world. Having played a significant role in the growth and modernization of Indian

Railways, today it is a multi-product, multi-technology business at Escorts.

Broad Product Portfolio

Shock Absorbers

Couplers

Brake Systems

Brake Blocks

An ISO: 9001-20000 certified company, Escorts manufactures products as per

international standards specified by UIC, AAR and Indian Railways. The products are

exported to over 15 countries worldwide.

A state of the art manufacturing facility located at Faridabad, near New Delhi has facilities

for advanced product development, design, testing and validation. The in-house Research

& Development has played a critical role in bringing about a high level of customersatisfaction, reliability and safety - the key drivers of business.

Escorts engineering experts have trained over 8000 railway personnel of various countries.As Asias largest manufacturer of air brake systems, the conversion of vacuum brake

stocks to air brakes and installation and commissioning of complete brake systems on new

builds are also undertaken by Escorts.

B. Auto Components

The Engineering Division of Escorts Ltd. is the leading manufacturer of auto suspension

products including shock absorbers, struts and telescopic front forks. Escorts were the

pioneer in Automotive Shock Absorber manufacturing in India in 1966 in TechnicalCollaboration with Fichtel & Sachs, Germany. Over the years the technology

obtained from Fichtel & Sachs of Germany has been continuously upgraded and new

reliable products have been introduced. Another step forward in this direction is acomprehensive technical collaboration with world leaders Kayaba of Japan. A strong in-

house design and development infrastructure of the Division enables introduction

of new applications as per specifications of customers.

Broad Product Portfolio


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Shock Absorbers

Front Forks

McPherson Struts

Technical Collaboration

Fichtel & Sachs, Germany (1966 - 75)

Kayaba, Japan (for Motorcycle Front Forks & Shock Absorbers) since 1998

Quality Systems

Obtained TS: 16949 in 2004 (Earlier ISO-9001)

Adopted KAYABA Quality Systems as a subset of TS: 16949

Business Philosophy

Customer Satisfaction - QCD

Continuous Benchmarking with KAYABA, Japan

KAIZEN - For Quality & Productivity

Production Capacity Per Annum: 5 million (Shock Absorbers, Front Forks, McPherson

Struts)

Markets

2 Wheelers & 3 Wheelers - OEMs and After Market

MUV / LCV / HCV - OEMs and After Market

Passenger Cars - After Market

3. Construction Equipment

Escorts manufacturers and markets a diverse range of construction and material handling

equipment like cranes, loaders, vibratory rollers and forklifts. The company was a pioneerin introducing the concept of Pick 'n' Carry hydraulic mobile cranes in the 70s in India and

continues to be the worlds largest manufacturer of these cranes.

A nationwide network of 16 Sales Offices, 50 dealership locations, over 300 company

trained dealers service engineers, gives it the best market reach in India for the Sales &

Service of material handling and construction equipment.


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With over 30 years experience in Construction Equipment Industry, Escorts has a proven

track record in:

Hydraulic Mobile Cranes

Loaders

ForkliftsVibratory Compactors

Today, it not only continues to be the largest mobile crane manufacturer in

the country, but also the largest Pick n Carry Hydraulic Mobile Crane

manufacturer in the world.

While recording a rapid growth in Crane Industry weve also been able to steadily increase

our presence in the field of Vibratory, Soil & Tandem Compactors. Escorts was the first to

bring the concept of Vibratory Compactors in India in a big way, back in 80s

Subsequently more models in Tandem Vibratory Compactors and heavy duty SoilCompactor range were added in technical collaboration with HAMM Germany.

Recently, weve further strengthened the range with a 3T Shoulder Compactor. Todayour range of compaction equipments is one of the most preferred in the market, and is

being viewed as the most efficient and effective compaction solutions available in

the country.

Along with Cranes and Compactors, we also manufacture Frontend loaders with payload

capacity of 700kgs. Suitable for narrow lanes and confined spaces, these loaders are

compact in design and are ideal for garbage handling, handing of chemicals, sands, smallchips, etc.

Escorts also offers other material handing solutions like Forklifts from Daewoo DoosanInfracore Ltd., Korea and Articulated boom cranes from Fassi, Italy. In LPG Forklift

category, the company enjoys a market share in excess of 85%.

This single-minded pursuit of precision and customer satisfaction has made us the 3rd

largest in terms of Construction Equipment Sales unit per annum.


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EXISTING ORGANISATION STRUCTURE OF ESCORTS LTD

Figure: 1.1 Organization Chart


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C. THE HISTORY OF ESCORTS

The genesis of Escorts goes back to 1944 when two brothers, Mr. H. P. Nanda and Mr.

Yudi Nanda, launched a small agency house, Escorts Agents Ltd. in Lahore. Over the

years, Escorts has surged ahead and evolved into one of India's largest conglomerates. In

this journey of six decades, Escorts has had the privilege of being associated with some ofthe world leaders in the engineering manufacturing space like Minneapolis Moline, Massey

Ferguson, Goetze, Mahle, URSUS, CEKOP, Ford Motor Company, J C Bamford

Excavators, Yamaha, Claas, Carraro, Lucky Goldstar, First Pacific Company, HughesCommunications, Jeumont Schneider, and Dynapac. These valued relationships be it

technological or marketing, are our highly cherished experiences treasures, which have

helped us inculcate best in class manufacturing practices and to emerge as a technologicallyindependent world class engineering organization.

1944 - Launch of Escorts (Agents) Ltd.

1948 - Pioneered farm mechanization in the country by launching Escorts AgriculturalMachines Limited, with a franchise from the U.S. based Minneapolis Moline, for

marketing tractors, implements, engines & other farm equipment. Launch of Escorts(Agriculture and Machines) Ltd.

1949 - Franchise of Massey Ferguson tractors for northern India

1951 - Escorts established Indias first private Institute of Farm Mechanization at Delhi.

1953 -Escorts (Agents) Ltd. and Escorts (Agriculture and Machines) Ltd. merged to formEscorts Agents Pvt. Ltd.

1954 - 1st industrial venture of Escorts to manufacture piston rings in collaboration withGoetz of Germany, in an era when joint ventures of Indian firms with foreign companieswere virtually unheard of.

1958 - Started importing Massey Ferguson tractors from Yugoslavia for marketing thesame in India.

1959 - Collaboration with Mahle of Germany to manufacture pistons. Soon, Escortsbecame the largest producer of piston assemblies in India.

1960 - Set up of Escorts Limited

1961- Setting up of manufacturing base at Faridabad for manufacture of tractors in

collaboration with URSUS of Poland and 50% indigenous components. Launch of Escort

brand of tractors. Collaboration with CEKOP of Poland for manufacture of motorcyclesand scooters. Escorts moves into high gear by nurturing the two wheeler culture. The first

Rajdoot motorcycle rolls off the assembly line.

1969 - Escorts Tractors Limited was born. A technical and financial joint venture with the

global giant Ford Motor Company, USA, to manufacture Ford tractors in India. The years

ahead saw Escorts grow as the largest tractor manufacturer in India.


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Escorts Institute of Farm Mechanization (EIFM) established at Bangalore.

Escorts Employees Ancillaries Ltd. (EEAL), a unique venture in industrialdemocracy comes into being.

1971 - 1st February, the first tractor FORD 3000 rolled out of the factory.

Escorts diversify and start manufacturing construction equipment.

1974 - Crossing national boundaries, Escorts exports for the first time. After winning a

global tender, 400 tractors were exported to Afghanistan, which was perhaps the world's

largest ever airlift of tractors.

1976 - FORD 3600, advancement in Farm Mechanization launched. Trial production of in-

plant manufacturing of engine parts (Block & Head).

1977 - Escorts enter the world of self-developed technology by setting up its firstindependent R&D Center. Escorts Scientific Research Centre marked its beginning at

Faridabad by developing its own Engines for E-27 and E-37. Due to constant technologyabsorption, indigenization level touched 72% for FORD tractors. 2nd plant at Bangalore for

manufacturing piston assemblies was set up.

1979 - Collaboration with JCB Excavators Ltd., UK for manufacture of excavators.

1980 - Foray into healthcare, Escorts Hospital and Research Center set up in Faridabad.

1983 - Escorts Tractors Limited (ETL) established a state-of-the-art research and

development centre to spearhead newer breakthroughs in Farm Mechanization and tomaintain industry leadership. Line concept introduced for engine block machining. 11,000

ton floating dry-dock Escorts I launched.

1984 - JV Escorts - Yamaha to manufacture motorcycles

1984 - Signing of agreement with the Japanese bike giant Yamaha to manufacture

motorcycles with Yamaha technology. Collaboration with Jeumont Schneider of France tomanufacture EPABX systems Collaboration with Dynapac of Sweden to manufacture

vibratory road compactors.

1985 - Escorts Tractors Limited (ETL) offered its first Bonus Issue (1:1).

1988 - Escorts Heart Institute and Research Centre (EHIRC), a world class cardiac care

facility launched in New Delhi.

1989 - Joint Venture with Claas of Germany to manufacture harvester combines.

1990-91 - First Public Issue in February 1991, over-subscribed four times. Shares listed on

Delhi and Bombay Stock Exchanges.

1993 - FORD 3620 tractor launched.


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1996 - Disengagement of joint venture collaboration with New Holland and launch of

FARMTRAC Tractor.

1997 - Joint Venture with Carraro of Italy for manufacturing and marketing of transmission

and axles.

Joint Venture with First Pacific Company of Hong Kong Escotel Mobile

Communications.

1998 - POWERTRAC series of tractors launched.

MoU was signed with Long Manufacturing Company, USA for setting up a Joint Venturein USA.

1999 - MoU for Joint Venture with a Polish Company POL-MOT was signed for assembly,

manufacturing and marketing of Farm Machinery.

2004 - Divested Escotel Mobile Telecommunications to Idea Cellular

TS16949 certification for Agri Machinery Group.

2005 Divested Escorts Heart Institute and Research Centre (EHIRC) to Fortis Healthcare.

2006 - Divested in Carraro India Ltd.

Set up new manufacturing facility in Rudrapur for manufacture of new range of railwayequipment

D. Outlook of Escorts Sectors


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The Indian Tractor market is the largest in the world, in terms of sales volumes. Manyfactors affect tractor sales including the monsoon, means of irrigation and reach of water,

government support prices for crops, commodity prices, crop production expenses & credit

policy announced by RBI (most relevant as more than 90% of tractor sales are on credit).

Tractor industry has been performing well in the last four years and the trend is expected to

continue in view of good rains in India. It recorded a growth of 21.2% in volume over last

FY & is expected to perform better with a lot of government focus shifting to agriculture inthe 11th Plan.

Further the fact that Arable land area remains limited and water tables are shrinking; againadd to the need for more mechanized farming. However Tractor density as well as the HP

input per hectares is low relative to international standards and the tractor population today

is concentrated; all this shows great potential for the growth in this industry.

It is expected that Government agriculture credit estimated at INR 1940 bn would escalate& Banks would continue their focus on tractor finance.

The Industry has also registered an increase of 16% in Exports & volumes have now begun

significantly contributing to the Industry's total production.

Indian Economy has shown some fantastic growth figures in the last financial year with

Manufacturing, Construction and Infrastructure sectors taking the lead this scenario would

be beneficial for capital goods sector.

With infrastructure identified as a key focus area by Government, development &

construction of Roads & Highways, Ports & Airports would continue, adding upprospects for the Industrial & Construction Machinery sector with a large number ofinfrastructure projects on the anvil.

Further the overall construction industry is expected to grow at around 15- 20% for thenext few years. This should translate into a rise in demand of the construction and material

handling equipments. In India the auto sector has grown at an impressive 16.82 % over last

year.

India is the largest 3 wheeler markets, 2nd largest 2 wheeler markets & 4th largest

Commercial Vehicle market. It is poised to be the 3rd largest automobile market by 2030.

The key development of road infrastructure & the connecting of major cities may furtheract as a growth driver.

Global giants like Toyota, Nissan, and Honda are eyeing on India as one of theirmanufacturing bases due to the cost and quality it has to offer.

Automobile exports have grown by over 40% in last few years and even the autocomponents segment has seen a growth of 26% in exports.

The car and commercial vehicle segments have shown good growth in the last FY. Eventhe 3 wheeler segment has posted a 28% growth. However there has been a slight slow


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down in 2- wheeler segment.

The two-wheeler industry comprises of motorcycles, scooters and mopeds. Out of totalmarket of 8.4 million in the year 2006-07, Motorcycles market at 7.1 million accounted for

84.5% of the total market. Motorcycle industry has been growing at a CAGR of almost

21.5% since last 7 years, even though the growth in the last year has been slightly less.

The Indian Railways (Railways) has seen a fantastic turn around in the last few years. It has

initiated unprecedented expansion plans targeting 1100 mn tn of freight and INR 8400 mnworth of passenger traffic. The plans are not only to extend the routes but also number &

types of trains running on them. Expenditure only for expansion of new routes is estimated

at INR 300 bn over 5 years, where as the outlay for FY 07-08 is INR 310 bn.

The Railways plan to double its freight transport capacity. This is one of the main reasons

that it has initiated more freight wagons and enhance current network to run 23T axle trains

and mineral routes to run 25T axle trains. This would be done by adding third and fourth

lines between destinations and installing automatic signaling between them.

Railways procure wagons based on RDSOs designs. However, wagonmanufacturers will now be permitted to supply wagons of their own designs, with RDSO

recommended bogies, coupler, draft and brake gear. These higher pay load, lower tare

weight wagons with new technology would be costlier compared to old wagons.

700 Coaches were added to current trains in FY 06-07 and the railways plan to add 800

more coaches to popular trains this FY. The number of unreserved coaches is also likely to

be increased by 50% for most trains.

1250 coaches specifically for handicapped, old and disabled passengers are planed

to be introduced into many trains over the next two years.

Newly designed coaches with increase passenger capacity have been manufactured at

Kapurthala Rail factory on a pilot basis and full fledged manufacture is expected tocommence soon.

The outlay for Metropolitan transport projects is INR 7.2 bn in the current FY. 150 new

suburban trains are planned to be operational in Mumbai alone with adequate expansions in

other Metros too. Budget for averaged asset replacement has also been increased to INR 55bn a 162% rise y-o-y.

GLOBAL SCENARIO


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In the Global Market Place of today, Escorts is fast on the path of an internal

transformation, which will help it to be a key driver of excellence in manufacturing,

globally. For this, it is going beyond just adhering to the prevailing norms of today, but isinstead setting its own standards and is relentlessly pursuing them to achieve their desired

benchmarks of excellence.

INDIAN SCENARIO


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The Escorts Group is among India's leading engineering conglomerates operating in

the high growth sectors of agri-machinery, construction & material handling

equipment, railway equipment and auto components.

KEY PLAYERS IN THE INDUSTRY:

SWOT ANALYSIS:


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STRENGTH:

Escorts Limited has proven through its performance in fiscal 2007-08 that the efforts to

Strengthen the fundamentals of the company, sharpen focus on core strengths, build value

for customers and drive operational efficiencies have put the company on a profitabletrack. Of the many initiatives that were undertaken, the biggest contributor has certainly

been the initiatives in revamping the economics of the business by focusing on cost

compression.

A slew of initiatives has resulted in a saving of over Rs. 100 crore by eliminating waste,

working more efficiently, right-sizing the work force, reduction of held stock andnegotiating better prices from our suppliers. Company engineering strength built over

several decades gives us this competitive advantage to continuously develop new

products, advance our processes and develop customer friendly solutions.

WEEKNESS:

Diversified Products on the list and the concentration each product receives

decreases accordingly.

2. Huge customer base has made the online services slow.

High reliance on imported raw material imports creating potential price / Quality

available issues.

Realization per meter is still lower than competition

Flexibility in organization.

OPPORTUNITY:

There is data available in case of registered motor vehicles, but for carts and bicycles,

there is no published information. Also, no reliable source of information is available

regarding vehicle penetration into rural areas. A few studies have been found to indicatethe following:

a) 50% of villages have a population less than 500.

b) 60% of villages do not have access to AWRs.c) Smaller the village, lesser the economic activity, and therefore, lesser the number of

vehicles.

Carts ferry only about 15 percent of the tone-km of goods whereas trucks carry about 83

percent. India is highly under-motorized. The penetration levels of cars, two-wheelers,buses and other commercial vehicles stand at 7, 45, 0.7 and 4 per thousand persons,

respectively. These levels of penetration only signify an even lesser extent of the same in

rural areas. Railways, good roads and reasonably taxed vehicles, all together, would


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enable the transport of goods between rural production bases and urban centers of

consumption. It definitely is not a question of either but is one that has to consider both.

Public transport needs to be enhanced and taxes need to be reduced. Taxes add to about 50

percent of the vehicle cost, in India. Export schemes have been withdrawn, Multi-Utility

Vehicles (MUVs) are taxed at a uniform rate of 16 percent and some other cars at 24percent.

THREATS:

World Bank has projected world output to grow by a mere 0.9% in 2009 compared to

2.5% in 2008 and a high of 4% in 2006. Growth in the developing countries as a whole isexpected to fall from 6.3% in 2008 to 4.5% in 2009, only to recover to 6.1% in 2010. This

is mainly due to China and India.

India, being largely domestic dependent economy, is expected to show a growth of 6% to7% during 2008-09 and 2009-10. Major effect of the decline in growth is coming in the

manufacturing sector and the services sector. It is expected that the decline in these sectorswill be compensated by high growth in the agricultural sector.

PRODUCT AND MARKET:

Farm Track

Farmtrac brand are the most powerful premium range of tractors that give maximumproductivity to the farmers.

Premium range - Powerful premium brand, 35 - 75 HP range

Exported to the most advanced markets in the world.

Well accepted internationally for its versatility.

Designed for the demanding requirements of progressive farmers. Machine with powerful features for maximum efficiency.

A status symbol.


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FT HERO FT CHAMPION FT-45

34 Hp 39Hp 42Hp

FT-60 FT-50 EPI FT-60 DX

50Hp 45Hp 50Hp

FT-65 EPI FT-70

55Hp 60Hp


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Power track

Powertrac brand of tractors are the most fuel-efficient tractors in their respectivecategories that offer excellent value for money and have helped the farmers improve their

quality of life.

Value range Value for money, Fuel efficient, 30 - 55 HP range

India's No.1 Economy Range - "Diesel Savers"

Engineered to give spectacular diesel economy.

The Diesel Saver technology - Great savings.

PT-434 PT-439 PT-445

34Hp 39Hp 45Hp

PT-455 Escort -27 Hp Escort -35 Hp55Hp


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RAILWAY EQUIPMENT:

An ISO: 9001-20000 certified company, Escorts manufactures railway equipment as perinternational standards specified by UIC, AAR and Indian Railways.

Asias largest manufacturer of air brake systems, the conversion of vacuum brake stocks

to air brakes and installation and commissioning of complete brake systems on new buildsare also undertaken by Escorts.

Diverse product range:

Shock Absorbers (Oil Dampers) for coaches, locomotives, EMUs, MEMUs,DMUs, Metro and Rail Cars

Air brakes for coaches, Freight cars, DMU and OHE Cars

Automatic/Semi Permanent Couplers for EMUs, DEMUs, MEMUs

Electro Pneumatic Brake Systems for EMUs and MEMUs

Composition brake blocks for coaches, locomotives, freight cars and EMUs Rail fastening systems for wooden, steel and concrete sleepers

Direct Admission Valves for vacuum braked coaches

Testing equipment for brake systems and shock absorbers

Air brake accessories for passenger coaches, freight cars, locomotives and selfpropelled vehicles

Metal to rubber bonded vulcanized components

Automatic twist locks for container freight cars

Air Brake Hose Angle Cocks Brake Beam Mounted BrakeCoupling System

Distributor Valves Slack Adjuster


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CHAPTER 3

WORKING CAPITAL-

AN

INTRODUCTION


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WORKING CAPITAL - AN INTRODUCTION

Every business needs funds for two purposes- for its establishments and to carry out its

day-to-day operations. Long term funds are required to create production facilities throughpurchase of fixed assets such as plant and machinery, land, building, furniture, etc

investments in these assets represents that part of firms capital which is blocked on a

permanent or fixed basis and is called fixed capital. Funds are also needed for short-term

purposes for the purchase of raw materials, payment of wages and other day-to-day

expenses etc. these funds are known as working capital.

In simple words, working capital refers to that part of the firms capital which is required

for financing short term or current assets such as cash, marketable securities, debtors and

inventories, funds, thus, invested in current assets keep revolving fast and are being

constantly converted into cash and this cash flows out again in exchange for other current

assets.

In the words of Shubin, working capital is the amount of funds necessary to cover the

cost of operating the enterprise

In short, working capital management involves the relationship between a firms short-

term assets and its short-term liabilities.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

Gross working capital

Net working capital

The gross working capital is the capital invested in total current assets of the enterprise.

Current assets are those assets which in the ordinary course of business can be converted

into cash within a short period of normally one accounting year. Examples of current

assets are: cash in hand, bills receivable, sundry debtors, and inventories.


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Net working capital is the excess of current assets over current liabilities. Or say:

Net working capital = current assets- current liabilities

Net working capital may be positive or negative. When the current assets exceed the

current liabilities the working capital is positive and the negative working capital results

when the current assets liabilities are more than the current assets. Current liabilities are

those liabilities which are intended to be paid in the ordinary course of business within a

short period of normally one accounting year out of the current assets or the income of the

business. Examples of current liabilities are: bills payable, dividends payable, sundry

creditors.

At the end it may be said that both gross and net working capital are important aspects of

the working capital management. The net concept of working capital may be suitable only

for proprietary form of organizations such as sole-trader or partnership firms. But the

gross concept is very suitable to the company form of organization where there is a

divorce between ownership, management and control.

COMPONENTS OF WORKING CAPITAL

There are two components of working capital, viz, current assets and current liabilities.

Current Assets:

Current assets are those assets which can be converted into cash in the

normal course of business within a short period say a maximum of one year.

Current Liabilities:

Current Liabilities are those liabilities which are intended to be paid

in the ordinary course of business within a short period of normally one accounting year

out of the current assets or the income of the business.


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CURRENT ASSETS CURRENT LIABILITIES

Cash-in-hand Bills Payable

Bills Receivables Creditors

Debtors Outstanding Expenses

Short-term loans Bank Overdrafts

Inventory

Prepaid Expenses

Accrued Income

Table 3.1 Current Assets and Current Liabilities

CLASSIFICATION OF WORKING CAPITAL

Figure: 3.1 Classification of Working Capital

Working Capital may be classified in two ways:

On the basis of concept

On the basis of time

On the basis of concept, working capital is classified as gross working capital and net

working capital.


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On the basis of time, working capital may be classified as:

Permanent or fixed working capital

Temporary or variable working capital

Permanent or Fixed Working Capital: Permanent or fixed working capital:

permanent or fixed working capital is the minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current assets.

There is always a minimum level of current assets which is continuously required by the

enterprise to carry out its normal business operations. For example, every firm has to

maintain a minimum level of raw material, work-in-process, finished goods and cash

balance. This minimum level of current assets is called permanent or fixed working

capital

Temporary or Variable Working Capital: Temporary or variable working

capital is the amount of working capital which is required to meet the seasonal demands

and some special exigencies. Variable working capital can be further classified as seasonal

working capital and special working capital. Most of the enterprises have to provide

additional working capital to meet the seasonal and special needs.

NEED OR OBJECTS OF WORKING CAPITAL

The need for working capital arises due to the time gap between production and

realization of cash from sales. Every business needs some amount of working capital.

There is a operating cycle involved in the sale and realization of cash.

Thus working capital is needed for the following purposes.

For the purchases 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 provided credit facilities to the customers

To maintain the inventories of raw material, work in progress, store and spares and

finished stock.


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ADVANTAGES OF WORKING CAPITAL

Working capital is the life blood and nerve centre of a business. Just as circulation of

blood is essential in the human body for maintaining life, working capital is very essential

to maintain the smooth running of a business. No business can run successfully without an

adequate amount of working capital. The main advantages of maintaining adequate

amount of working capital are as follows.

1. Solvency of the business: adequate working capital helps in maintaining

solvency of the business by providing uninterrupted flow of production.

2. Goodwill: sufficient working capital enables a business concern to make prompt

payments and hence helps in creating and maintaining goodwill.

3. Easy loans: a concern having adequate working capital, high solvency and good

credit standing can arrange loans from banks and others on easy and favorable terms.

4. Cash discounts: adequate working capital also enables a concern to avail cash

discounts on the purchases and hence it reduces costs.

5. Regular payment of salaries, wages, and other day-to-day commitments: a

company which has ample working capital can make regular payment of salaries, wages

and other day-to-day commitments which raises the morale of its employees, increases

their efficiency, reduces wastages and costs and enhances production and profits.

6. Exploitation of favorable market conditions: only concerns with adequate

working capital can exploit favorable market conditions such as purchasing its

requirements in bulk when the prices are lower and by holding its inventories for higher

prices.

FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS


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The working capital requirements of a concern depend upon a large number of factors

such as nature and size of business, the character of their operations, the length of

production cycles, the rate of stock turnover and the state of economic situation. It is not

possible to rank them because all such factors are of different important factors generally

influencing the working capital requirements.

1. Nature of character of business: the working capital requirements of a firm

basically depend upon the nature of its business. Public utility undertaking like electric,

water supply and railways need very limited working capital because they offer cash sales

only and supply services, not products, 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 but have to

invest large amounts in current assets like inventories, receivables and cash; as such they

need large amount of working capital.

2. Size of the business/ scale of operations: the working capital requirements of

a concern are directly influenced by the size of its business which may be measured in

terms of scale of operations. Greater the size of a business unit, generally larger will be the

requirements of working capital.

3. 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. If the policy is to keep production steady by accumulating

inventories it will require higher working capital.

4. Manufacturing process/ length of production cycle: in manufacturingbusiness, the requirements of working capital increases in direct proportion to length of

manufacturing process. Longer the process period of manufacture, larger is the amount of

working capital required.

5. Seasonal variations: in certain industries raw material is not available throughout

the year. They have to buy raw materials in bulk during the season to ensure an

uninterrupted flow and process them during the entire year. A huge amount is thus,


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blocked in the form of material inventories during such season, which gives rise to more

working capital requirements.

6. 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 sale

of finished products. This cycle involves purchase of raw material and stores, its

conversion into stocks of finished goods through work-in process with progressive

increment of labour and services costs, conversion of finished stock into sales, debtors and

receivables and ultimately realization of cash and this cycle continues again from cash to

purchase of raw material and so on.

.

Fig

ure: 3.2 Working Capital Cycle

SOURCES OF WORKING CAPITAL

Debtors

(Receivables)

Finished goodsCash

Raw materialsWork-in-process


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Figure: 3.3 Sources of Working Capital

FINANCING OF PERMANENT WORKING CAPITAL

Permanent working capital should be financed in such a manner that the enterprise may

have its uninterrupted use for a sufficiency long period. There are five important sources

of permanent or long-term working capital.

1. Shares: Issue of shares is the most important source for raising the permanent or

long-term capital. A company can issue various types of shares, preference shares and

deferred shares. As far as possible, a company should raise the maximum amount of

permanent capital by the issue of shares.


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2. Debentures: A debenture is an instrument issued by the company acknowledging its

debt to its holder. It is also an important method of raising long-term or permanent

working capital. The debenture holders are the creditors of the company. A fixed rate of

interest is paid on debentures. The interest on debentures is a charge against profit and loss

account.

3. Public deposits: Public deposits are the fixed deposits accepted by a business

enterprise directly from the public. Public deposits as a source of finance have a large

number of advantages such as very simple and convenient source of finance, taxation

benefits, trading on equity, no need of securities and inexpensive sources of finance.

4. Ploughing back of profits: Ploughing back of profits means the reinvestment by

concern of its surplus earnings in its business. It is an internal source of finance and is not

suitable for an established firm for its expansion, modernization and replacement etc.

FINANCING OF TEMPORARY WORKING CAPITAL

The main sources of working capital are as follows:

1. Indigenous Bankers: private money-lenders and other country bankers used to

be the only source of finance prior to the establishment of commercial banks. They use to

charge very high rates of interest and exploited the customers to the largest extent

possible.

2. Trade Credit: trade credits refer to the credit extended by the suppliers of goods in

the normal course of business. As present day commerce is built upon credit, the tradecredit arrangement of a firm with its suppliers is an important source of short-term

finance. The main advantages of trade credit as a source of short-term finance include:

3. Installment Credit: this is another by which the assets are purchased and the

possession of goods is taken immediately but the payment is made in installment over a


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pre-determined period of time. Generally, interest is charged on the unpaid price or it may

be adjusted in the price.

4. Advances: some business houses get advances from their customers and agents

against orders and this source is a short-term source of finance for them. It is a cheap

source of finance and in order to minimize their investment in working capital, some firms

having long production cycle, especially the firms manufacturing industrial products

prefer to take advances from their customers.

5. Factoring or Accounts Receivable Credit: another method of raising short-

term finance is through accounts receivables credit offered by commercial banks and

factors. Factoring is becoming popular all over the world on account of various services

offered by the institutions engaged in it.

6. Accrued Expenses: accrued expenses are the expenses which have been incurred

but not yet due and hence not yet paid also. These simply represent a liability that a firm

has to pay for the services already received by it. The most important items of accruals are

wages and salaries, interest, and taxes.

7. Commercial Paper: commercial paper represents unsecured promissory notes

issued by firms to raise short-term funds. It is an important money market instrument in

advanced countries like U.S.A. in India, the reserve bank of India introduced commercial

paper in the Indian money market on the recommendations of the working group on

money market (Vague committee).

8. Commercial Banks: commercial banks are the most important sources of short-term capital. The major portion of working capital loans are provided by commercial

banks. They provide wide variety of loans tailored to meet the specific requirements of a

concern.


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CHAPTER 4

RESEARCH METHODOLOGY


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RESEARCH METHODOLOGY

Research methodology is may be understood as a science of studying how research is

done scientifically.

This Section includes the methodology which includes research design, objectives

of study, scope of study along with research methodology and limitations of study etc.

To understand the theoretical concept of Working capital management.

To study the procedure of establishing the Working capital management.

To study the problems faced in the establishment of Working capital management

To understand the risks involved in the establishment of Working capitalmanagement.

The information is collected through secondary sources during the project. That

information was utilized for calculating performance evaluation and based on that,

interpretations were made.

Sources of secondary data:

Most of the calculations are made on the financial statements of the company

provided statements.

Referring standard texts and referred books collected some of the information

regarding theoretical aspects.

Method- to assess the performance of the company method of observation of the

work in finance department in followed.

Creating a successful Working Capital appraisal module required the following distinctivestages:


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Assessing the financial viability of operating statement

Comparing statement regarding current assets and current liabilities

Analysis of summarized balance sheet

Creating a fund flow statement

Computation of maximum permissible bank finance for working capital

The study was conducted in the manner enumerated below-

3.1- RESEARCH DESIGN:-

This project is based on exploratory study as well descriptive study. It was anexploratory study when the theoretical study of Working capital management was made.Thereafter, this concept was studied in specific relation to Escorts the organization under

study.

3.2 SOURCES OF DATA :-

To fulfill the information need of the study, the data was collected from primary aswell as secondary sources-

A SOURCE OF PRIMARY SOURCE:-

It was decided to adopt primary data collection method because our study nature

does not permit to apply observational method. The data on establishment of Workingcapital management by Escorts was collected with the help of concerned officials of the

Institute.

Further, the Balance-Sheet of the Institute was also referred for this purpose.

B SOUREC OF SECONDARY SOURCE:-

The secondary data was collected on the basis of organizational file, officialrecords, news papers, magazines, management books, preserved information in the

Institutes database and its website.


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The methods that are used for collecting information regarding Working Capital of

Escorts ltd were:

Data Collection Method

Primary data: There was no primary data available due to the confidential issues.

Secondary data

Balance sheet of the company

P&L account

Current records of the company

Statistical Tools Used

Bar graphs

Tables

CHAPTER 5


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ANALYSIS


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ANALYSIS OF WORKING CAPITAL POSITION OF THE FIRM

WITH THE HELP OF RATIOS

(I)Current Ratio= Current Assets / Current Liabilities

This ratio measures the companys ability to pay short term obligations.

Year 2007 2008 2009

Current Assets 12406.2 10718.7 7728.7

Current Liabilities 5248.1 6679.1 11943.1

Current Ratio 2.36 1.60 .64

Figure: 5.1 Current Ratio

INTERPRETATION:

As we know that ideal current ratio for any firm is 2:1. 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 shows that the companys liquidity position is

not sound.

This is because the company has taken loans for the establishment of its new plants which

has increased the companys liabilities.


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(II) Quick Ratio = Current Assets Average Stock/ Current Liabilities

It measures the firm's capacity to pay off current obligations immediately

Year 2007 2008 2009

Quick Ratio 2.69 1.95 1.14

Figure: 5.2 Quick Ratio

INTERPRETATION:

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if

quick assets are equal to the current liabilities then the concern may be able to meet its

short-term obligations.

Above chart reveals that the companys quick ratio has decreased from last three years and

came down to 1.14 which is almost equal to the standard ratio i.e. 1:1, so we can say that

the companys capacity to pay off current obligations immediately is good. .


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(III) Working Capital Turnover Ratio= Sales/ Working Capital

This ratio shows how effectively the funds available for operations have been used by an

enterprise to generate revenue.

The working capital turnover ratio is used to analyze the relationship between the money

used to fund operations and the sales generated from these operations. In a general sense,

the higher the working capital turnover, the better because it means that the company is

generating a lot of sales compared to the money it uses to fund the sales.

Figure: 5.3 Working Capital Turnover Ratio

INTERPRETATION:

Above graph reveals that the WC ratio of company in 2007 was 1.81 which increase by

1.66 to 3.47 in 2008 and again increases by 8.53 to 12 in 2009. So, it shows that the

company turnover is satisfactory as it increases from 1.81 to 12.

This shows that the ratio of 2009 is the greatest; it means that the company is generating a

lot of sales compared to the money it uses to fund the sales.

Year 2007 2008 2009

Ratio 1.81 3.47 12


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(IV) Stock Turnover Ratio= Sales/ Average Inventory

Inventory turnover ratio measures the speed with which the stock is converted into sales.

Year 2007 2008 2009

Cost of goods sold 18097.2 24888.8 35179.8

Average stock 3532.4 4349.7 5956.1

Inventory turnover

Ratio

5.12 times 5.72 times 5.90 times

Figure: 5.4 Stock Turnover Ratio

INTERPRETATION:

Usually a high inventory turnover/stock indicates efficient management of inventory

because more frequently the stocks are sold, the lesser amount of money is required to

finance the inventory. In 2007 the company has low inventory turnover ratio but in 2009 it

has increased to 5.90 times. This shows that the companys inventory management

technique is more efficient as compare to last year.


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(v) Inventory Conversion Period= 365/Inventory Turnover Ratio

Inventory conversion period shows that how many days inventories takes to convert

from raw material to finished goods

Year 2007 2008 2009

Days 365 365 365

Inventory Turnover Ratio 5.12 5.72 5.90

Inventory Conversion Period 71 days 64 days 62 days

Figure: 5.5 Inventory Conversion Periods

INTERPRETATION:

Above chart reveals that the companys conversion period has decreased from 71 day to

62 days which shows that the companys efficiency of converted its raw material into

finished goods is high.

(VI) Debtors Turnover Ratio= Total Sales/ Average Debtors


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Debtors velocity indicates the number of times the debtors are turned over during a year.

Generally higher the value of debtors turnover ratio the more efficient is the management

of debtors/sales or more liquid are the debtors.

Year 2007 2008 2009

Sales 18097.2 2948.2 35179.8

Average Debtors 24888.8 4257.8 5044.2

Debtors Turnover

Ratio

6.13 times 6 times 7 times

Figure: 5.6 Debtors Turnover Ratio

INTERPRETATION:

Above graph reveals that the speed with which debtors are being converted or turnover

into sales.

Above graph shows that in the company the debtor turnover ratio has increased from 6 to

7 times. This shows that company is utilizing its debtors efficiency. Now their credit

policy becomes conservative as compare to previous year.

(VII) Average Collection Period = Number of Working Days/ Debtors

Turnover Ratio


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The average collection period ratio represents the average number of days for which a

firm has to wait before its receivables are converted into cash.

Figure: 5.7 Average Collection Period

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. Above graph reveals that the firm average collection period has decreased from

61 days to 52 days. It shows that the firm now has conservative Credit policy.

Year 2007 2008 2009

Days 365 365 365

Debtors Turnover Ratio 6.13 6 7

Average Collection

Period

60 days 61 days 52 days


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ANALYSIS OF WORKING CAPITAL REQUIREMENT OF

ESCORTS LTD

(VIII) INVENTORIES

Rs. In million

Year 2007 2008 2009

Inventories 3532.4 4349.7 5956.1

Figure: 5.8 Level of Inventory in Escorts

INTERPRETATION:

An inventory is 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 2007 is 29%, in 2008 is 41% and in 2009 is 76% of their current assets.

The company should try to reduce the inventory up to 10% or 20% of current assets.


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(IX) CASH BALANCE

Years 2007 2008 2009

Cash 8749.1 5237.7 3816.6

Figure: 5.9 Cash Level of Escorts

INTERPRETATION:

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 8749.1 million

but in 2009 it has decrease to 3816.6 million. The results of that disturb the firms

manufacturing operations. The company should increase its cash balance so that they can

meet their operations smoothly.


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(X) DEBTORS:

Years 2007 2008 2009

Debtors 2948.1 4257.8 5044.2

Figure: 5.10 Level Of Debtors in Escorts

INTERPRETATION:

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.


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(XI) CURRENT ASSETS

Years 2007 2008 2009

Current Assets 12406.2 10718.7 7728.7

Figure: 5.11 level of Current Assets in Escorts

INTERPRETATION:

This graph shows that there is a decrease in current assets in 2009. This shows that

companys liquidity position has decreased in 2009 which is not sound for the business.

The company should invest in the current assets so that it ability to meet its liability can be

increased.


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(XII)CURRENT LIABILITIES:

Year 2007 2008 2009Current Liabilities 5248.1 6679.1 11943.1

Figure: 5.12 Level Of Current Liabilities in Escorts

INTERPRETATION:

Current liabilities show companys ability to pay short term debts to outsiders. Above

graph reveals that the companys current liabilities has increased year by year which

indicates that the companys has to pay high amount of funds to the outsiders?


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(XIII) Net Working Capital:

Years 2007 2008 2009

Working Capital 7158.1 4039.6 (4214.4)

Figure: 5.13 Net Working Capital

INTERPRETATION:

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 decrease in working capital. The decrease in working capital arises

because the companys current assets are less than the current liabilities. .


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CHAPTER 6

FINDINGS

FINDINGS


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Inventories -

217.67%

Debtors - 51.60%

Cash & Bank - 21.45%

Loans & Advances - 24.36%

Particulars 31st March,2007 31st March, 2008 31stMarch,2009

CURRENT ASSETS, LOANS &

ADVANCES

Inventories 2,49,252

14,59,5

00

51,48,65

0

Sundry Debtors 2,36,657

4,96,5

60

12,20,45

0

Cash & Bank Balances 77,069

3,89,1

30

5,07,38

0

Other Current Assets 11,461

7,8

20

2,83

0

Loans & Advances 3,73,321

4,11,8

00

5,76,47

0

Total Current Assets 9,47,760

27,64,8

10

74,55,78

0

Less CURRENT LIABILITIES

& PROVISIONS

Liabilities 1,55,03814,40,2

3056,40,72

0

Provisions 17,844

75,1

70

1,64,42

0

Total Current Liabilities 1,72,882

15,15,4

00

58,05,14

0

Working Capital 7,74,878

12,49,4

10

16,50,64

0


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Total Current Assets -

315.20%

The findings include that

The current asset ratio of company has declined year by year. So it shows that the

companys liquidity position is not satisfactory.

The company maintained inventory for the purpose ofProduction & R&D

The main component of companys working capital is cash-in-hand and cash-at-

bank, sundry debtors, inventories & other current assets.

The working capital of the company increased because the current assets are more

than the current liabilities.


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CHAPTER 7

CONCLUSION AND

RECOMMENDATIONS


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CONCLUSION AND RECOMMENDATIONS

Working capital management is important aspect of financial management. The

study of working capital management of Escorts ltd. has revealed that the current

ratio was not as per the standard industrial practice and the liquidity position of the

company showed decreasing trend.

The study has been conducted on working capital ratio analysis, working capital

components at its requirement for the business which helped the company to

manage its working capital efficiently and effectively.

Working capital of the company should not be high or too low. High working

capital indicates wastage of funds and low working capital means shortage of

funds. So, the company must give importance to its working capital so that its

liquidity position can be increased.

By analyzing the working capital position of the company it is found that its

liquidity position has decreased because the firms current assets are less than its

current liabilities which decrease its soundness and its ability to meets its

obligations.


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After the study and analysis of project report on working capital, I would like to

recommend.

The company must invest more in the current assets so that its liquidity position

can be increased.

Company should take control on debtors collection period which is a major part

of current assets.

The company should increase its payable period so that it can have much time to

pay its liabilities.

Company has to take control on cash balance because cash is non earning assets

and increasing cost of funds


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CHAPTER 8LIMITATIONS


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LIMITATIONS

Following limitations were encountered while preparing this project:

1) Limited data: This project has completed with annual reports; it just constitutes one

part of data collection i.e. secondary. There were limitations for primary data

collection because of confidentiality.

2) Limited period: This project is based on three year annual reports. Conclusions and

recommendations are based on such limited data. The trend of last three year may or

may not reflect the real working capital position of the company

3) Limited Area: Also it was difficult to collect the data regarding the competitors

and their financial information. Industry figures were also difficult to get.


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CHAPTER 9BIBLIOGRAPHY


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BIBLIOGRAPHY

Annual Report of the company

Chandra Prasana (2008) Financial Management, By Tata McGraw-Hill

publishing Company limited

Pandey, I.M (2007).Financial Management, Vikas Publishing House Pvt Ltd.

Websites:

www.escortsagri.com

www.google.com

www.ask.com

www.studyfinance.com

www.wikipedia.com
http://www.escortsagri.com/http://www.google.com/http://www.ask.com/http://www.studyfinance.com/http://www.wikipedia.com/http://www.escortsagri.com/http://www.google.com/http://www.ask.com/http://www.studyfinance.com/http://www.wikipedia.com/

ASHWANI WCM

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