A SUMMER TRAINING PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT IN ESCORTS LTD

Submitted in partial fulfillment of the requirement For the award of the degree of

MASTER OF BUSINESS ADMINISTRATION 2010-2012

SUBMITTED BY:
ASHWANI SINGH MBA 2ND YEAR 2010-2012

UNDER THE GUIDENCE OF:

MRS. JYOTSNA G.B. Assist. Prof. (Internal Guide-QGC)

22Km milestone NH 72 ( Roorkee- Dehradun Highway) Roorkee Ph: 936865565

DECLARATION

hereby

declare

that

this

project

report

entitled

WORKING

CAPITAL

MANAGEMENT IN ESCORTS LTD has been prepared by me under the guidance of Mr. Anil Kapoor in partial fulfillment of the requirement of the M.B.A programme 20102012 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 Singh
M.B.A IInd year Quantum Global Campus

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 (AssistantFinance 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 (HODQuantum 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

EXECUTIVE SUMMARY

As we scale the chronological ladder of time, we find a number of industries that have assumed 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. .

LIST OF CONTENTS

S.No. 1

CHAPTER NO. 1.0

TOPICS Objectives Company Profile

PAGE NO. 8 10 35 46 50 64 67 70 72

2 2.0 3 3.0 4 4.0 5 5.0 6 6.0 7 7.0 8 8.0 9 9.0

Working Capital- An Introduction Methodology Analysis Findings Conclusion and Recommendations Limitations Bibliography

LIST OF TABLES
S.R NO.
1

NAME OF THE TABLE

Current Assets and Current Liabilities

TABLE NO.
3.1

PAGE NO.
37

LIST OF CHARTS

S. R NO.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

NAME OF THE CHART

Organization Chart Classification of Working Capital Working Capital Cycle Sources of Working Capital Current Ratio Quick Ratio Working Capital Turnover Ratio Stock Turnover Ratio Inventory Conversion Period Debtors Turnover Ratio Average Collection Period Level of Inventory Level of Cash Level of Debtors Level of Current Assets Level of Current Liabilities Net Working Capital

CHART NO.
1.1 3.1 3.2 3.3 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13

PAGE NO.
19 37 41 42 51 52 53 54 55 56 57 58 59 60 61 62 63

CHAPTER 1 OBJECTIVES OF THE STUDY

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.

CHAPTER 2 COMPANY PROFILE

ESCORTS LTD- THE PROFILE A. ABOUT THE COMPANY

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. 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 tractor manufacturers 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 for growth. 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 million tractors 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 best manufacturing 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

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. For this 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 of agriculture 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 greatest success 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. Yudi Nanda 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 driving ambition 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 Yudi Nanda as Director. Though separate business entities then, both companies had two great strengths 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 the dreams 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 for Westinghouse 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 and BMA 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 and service 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 for the manufacture of piston rings and cylinder liners - followed by production of pistons

in collaboration with MAHLE, also of Germany, in 1960. The companys incorporation in its present name, Escorts Limited, was effected on 18th January, 1960. Escorts' next major industrial activity was the assembly of tractors in 1961 in technical cooperation 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 today are 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 pioneered the 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 here for 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 and telecommunications. 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 unique Escorts 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 his own 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 the decades and will continue doing so in all our endeavors.

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 in the 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 the benefit 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 professional growth 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 a regular basis for workers where they are exposed to various training and skill development

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 regular occurrence 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 counseling sessions 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 areas on effective agriculture and horticulture practices. The company has given assistance to farmers by making available certified seeds, fertilizers and pesticides for improved agricultural 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 a land 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 air pollution. 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 reproductive health 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 of blindness. This programmed includes activities i.e. Administering vitamin A, free screening of the school going children, distribution of glasses and the like besides this,

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 Machinery 2 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 Ford agricultural 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

Escorts AMG has three recognized and well-accepted tractor brands, which are on distinct 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 hubreduction tractors from 34 to 55 HP. Indias No.1 economy range engineered to give spectacular diesel economy. Escort: Economy tractors having hub-reduction transmission and twin- cylinder engines 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 and repair 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 productivity and improving quality of life in rural India.

2. Engineering Divisions

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 in the 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 customer satisfaction, 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 Technical Collaboration 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 a comprehensive technical collaboration with world leaders Kayaba of Japan. A strong inhouse design and development infrastructure of the Division enables introduction of new applications as per specifications of customers. Broad Product Portfolio

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 pioneer in 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.

With over 30 years experience in Construction Equipment Industry, Escorts has a proven track record in: Hydraulic Mobile Cranes Loaders Forklifts Vibratory 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 Soil Compactor range were added in technical collaboration with HAMM Germany. Recently, weve further strengthened the range with a 3T Shoulder Compactor. Today our 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, small chips, etc. Escorts also offers other material handing solutions like Forklifts from Daewoo Doosan Infracore 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.

EXISTING ORGANISATION STRUCTURE OF ESCORTS LTD

Figure: 1.1 Organization Chart

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 of the 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, Hughes Communications, 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 technologically independent world class engineering organization. 1944 - Launch of Escorts (Agents) Ltd. 1948 - Pioneered farm mechanization in the country by launching Escorts Agricultural Machines 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 form Escorts Agents Pvt. Ltd. 1954 - 1st industrial venture of Escorts to manufacture piston rings in collaboration with Goetz of Germany, in an era when joint ventures of Indian firms with foreign companies were virtually unheard of. 1958 - Started importing Massey Ferguson tractors from Yugoslavia for marketing the same in India. 1959 - Collaboration with Mahle of Germany to manufacture pistons. Soon, Escorts became 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 motorcycles and 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.

Escorts Institute of Farm Mechanization (EIFM) established at Bangalore. Escorts Employees Ancillaries Ltd. (EEAL), a unique venture in industrial democracy 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 inplant manufacturing of engine parts (Block & Head). 1977 - Escorts enter the world of self-developed technology by setting up its first independent 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 technology absorption, 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 to maintain 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 to manufacture 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.

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 Venture in 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 railway equipment

D. Outlook of Escorts Sectors

The Indian Tractor market is the largest in the world, in terms of sales volumes. Many factors 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 in the 11th Plan. Further the fact that Arable land area remains limited and water tables are shrinking; again add 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 up prospects for the Industrial & Construction Machinery sector with a large number of infrastructure projects on the anvil. Further the overall construction industry is expected to grow at around 15- 20% for the next 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 further act as a growth driver. Global giants like Toyota, Nissan, and Honda are eyeing on India as one of their manufacturing 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 auto components segment has seen a growth of 26% in exports. The car and commercial vehicle segments have shown good growth in the last FY. Even the 3 wheeler segment has posted a 28% growth. However there has been a slight slow

down in 2- wheeler segment. The two-wheeler industry comprises of motorcycles, scooters and mopeds. Out of total market 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 mn worth 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, wagon manufacturers 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 to commence 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 55 bn a 162% rise y-o-y.

GLOBAL SCENARIO

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 is instead setting its own standards and is relentlessly pursuing them to achieve their desired benchmarks of excellence.

INDIAN SCENARIO

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:

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 profitable track. 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 and negotiating 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 indicate the 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

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 24 percent. 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 is expected 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% to 7% 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 sectors will 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 maximum productivity 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.

FT HERO 34 Hp

FT CHAMPION 39Hp

FT-45 42Hp

FT-60 50Hp

FT-50 EPI 45Hp

FT-60 DX 50Hp

FT-65 EPI 55Hp

FT-70 60Hp

Power track Powertrac brand of tractors are the most fuel-efficient tractors in their respective categories 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 34Hp

PT-439 39Hp

PT-445 45Hp

PT-455 55Hp

Escort -27 Hp

Escort -35 Hp

RAILWAY EQUIPMENT:
An ISO: 9001-20000 certified company, Escorts manufactures railway equipment as per international 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 builds are 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 self propelled vehicles Metal to rubber bonded vulcanized components Automatic twist locks for container freight cars

Air Brake Hose Coupling

Angle Cocks

Brake Beam Mounted Brake System

Distributor Valves

Slack Adjuster

CHAPTER 3 WORKING CAPITALAN INTRODUCTION

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 through purchase 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 shortterm 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.

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.

CURRENT ASSETS
Cash-in-hand Bills Receivables Debtors Short-term loans Inventory Prepaid Expenses Accrued Income

CURRENT LIABILITIES
Bills Payable Creditors Outstanding Expenses Bank Overdrafts

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.

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.

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

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 manufacturing

business, 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,

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 Debtors (Receivables)

Cash

Finished goods

Raw materials

Work-in-process

ure: 3.2 Working Capital Cycle

SOURCES OF WORKING CAPITAL

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.

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 trade credit 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

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 shortterm 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 shortterm 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.

CHAPTER 4 RESEARCH METHODOLOGY

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 capital management. 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 distinctive stages:

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 below3.1- RESEARCH DESIGN:This project is based on exploratory study as well descriptive study. It was an exploratory 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 as well as secondary sourcesA 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 Working capital 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, official records, news papers, magazines, management books, preserved information in the Institutes database and its website.

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

ANALYSIS

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 Current Assets Current Liabilities Current Ratio 2007 12406.2 5248.1 2.36 2008 10718.7 6679.1 1.60 2009 7728.7 11943.1 .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.

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

It measures the firm's capacity to pay off current obligations immediately Year Quick Ratio 2007 2.69 2008 1.95 2009 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. .

(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.

Year Ratio

2007 1.81

2008 3.47

2009 12

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.

(IV) Stock Turnover Ratio= Sales/ Average Inventory

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

Year Cost of goods sold Average stock Inventory turnover Ratio

2007 18097.2 3532.4 5.12 times

2008 24888.8 4349.7 5.72 times

2009 35179.8 5956.1 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.

(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 Days Inventory Turnover Ratio Inventory Conversion Period

2007 365 5.12 71 days

2008 365 5.72 64 days

2009 365 5.90 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

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 Sales Average Debtors Debtors Turnover Ratio

2007 18097.2 24888.8 6.13 times

2008 2948.2 4257.8 6 times

2009 35179.8 5044.2 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

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. Year Days Debtors Turnover Ratio Average Collection Period 2007 365 6.13 60 days 2008 365 6 61 days 2009 365 7 52 days

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.

ANALYSIS OF WORKING CAPITAL REQUIREMENT OF ESCORTS LTD (VIII) INVENTORIES Rs. In million
Year Inventories 2007 3532.4 2008 4349.7 2009 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.

(IX) CASH BALANCE

Years Cash 2007 8749.1 2008 5237.7 2009 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.

(X) DEBTORS:
Years Debtors 2007 2948.1 2008 4257.8 2009 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.

(XI) CURRENT ASSETS

Years Current Assets

2007 12406.2

2008 10718.7

2009 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.

(XII)CURRENT LIABILITIES:

Year Current Liabilities

2007 5248.1

2008 6679.1

2009 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?

(XIII) Net Working Capital:

Years Working Capital 2007 7158.1 2008 4039.6 2009 (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. .

CHAPTER 6 FINDINGS

FINDINGS

Particulars 31st March,2007 CURRENT ASSETS, LOANS & ADVANCES

31st March, 2008

31stMarch,2009

14,59,5 Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances Total Current Assets Less CURRENT LIABILITIES & PROVISIONS 14,40,2 Liabilities Provisions Total Current Liabilities Working Capital 1,55,038 17,844 1,72,882 7,74,878 30 75,1 70 15,15,4 00 12,49,4 10 0 0 0 0 2,49,252 2,36,657 77,069 11,461 3,73,321 9,47,760 00 4,96,5 60 3,89,1 30 7,8 20 4,11,8 00 27,64,8 10 0 0 0 0 0 0

51,48,65 12,20,45 5,07,38 2,83 5,76,47 74,55,78

56,40,72 1,64,42 58,05,14 16,50,64

Inventories 217.67% Debtors Cash & Bank Loans & Advances -

51.60% 21.45% 24.36%

 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 of Production & R&D The main component of companys working capital is cash-in-hand and cash-atbank, sundry debtors, inventories & other current assets.

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

CHAPTER 7 CONCLUSION AND RECOMMENDATIONS

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.

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

CHAPTER 8 LIMITATIONS

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.

CHAPTER 9 BIBLIOGRAPHY

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