Professional Documents
Culture Documents
Session : 2012-2014
Under Supervision of: Mrs. Ashumani Bhatia TPO &Assistant Professor H.I.M.T., Rohtak
DECLARATION
of Hindu Institute of
Management & Technology, Rohtak, hereby declare that the project entitled Analysis of Working Capital Management is an original work and the same has not been submitted to any other institute for award of any other degree. The interim report was presented to the supervisor on and the pre-submission presentation was made Of. The feasible suggestions have been duly incorporated in consultation with the supervisor.
Counter signed
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ACKNOWLEDGEMENT
Gratitude is not a thing of expression; it is more a matter of feeling. There is always a sense of gratitude which one express for others for their help and supervision in achieving the goals. We too express my deep gratitude to each and everyone who has been helpful to us in completing the project report successfully. We would like to thank almighty God for blessing showered on us during the completion of Dissertation Report. We give our regards and sincere thanks to Mrs. Shalu Juneja(HOD in MBA Deptt.)and Mrs. Ashumani Bhatia(Project guide) who has devoted her precious time in guiding us & helping us complete it within time. We feel self-short of words to thanks our parents and friends who had directly or indirectly instrumental in the completion of the project. We are indebted to all respondents for their time passion during the long conversations.
SAKSHI GANDHI
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PREFACE
Practical training constitutes an integral part of management studies. Training gives an opportunity to the students to expose themselves to the industrial environment, which is quite different from the classroom teachings. One cannot rely on theoretical knowledge. It has to be coupled with practical to be fruitful. Training also enables the management students to see themselves the working condition under which they have to work in the future. It thus enables the students to undergone those experiences, which will help them later when they join any organization. After liberalization the Indian economic sense is changed. Industrial activity in India has become a thing to watch & I really wanted to be a part of it &it is essential for me being a finance student. I underwent eight weeks of training at Escorts Ltd.at faridabad I consider myself lucky to get my summer training in such a big Company. It really helped me to get a practical insight into actual business environment & provide me an opportunity to make my working capital management concepts more clear.
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EXECUTIVE SUMMARY
If development capital is what establishes a business, working capital is what keeps it going. One of the most common downfalls of business is unexpectedly high running cost. What is important is not just the size of operating costs, but the cash flows - that is when money has to be paid out in relation to the stream of income arriving in. Thus Working Capital Management is of prime importance. This project is a small attempt to study the working capital management in Escorts Agri Machinery Group. The project work can be divided into two sections. Analysis of the working capital position of the company using ratio analysis Study of Working Capital Management Techniques. Ratio analysis has been done on the basis of three years data. For calculating various ratios 300 days have been taken as number of working days after deducting Sundays and holidays. To analyze the performance, published Balance sheets of Escorts Limited (and not Escorts Consolidated) have been used. This project report is based on financial data up to 2011-2012 only, as companys financial year is 1st October to 30th September and its accounts for the current period will close only after 30th September. Working Capital Management basically comprises of: Receivables Management Payables Management Inventory Management
Cost management is the process by which companies control and plan the costs of doing business. Individual projects should have customized cost management plans, and companies as a whole also integrate cost management into their overall business model. There is no single accepted definition for this term, because it has such broad applications and possible strategies. When properly implemented, cost management will translate into reduced cost of production for products and services, as well as increased value being delivered to the customer. Cost Management basically comprises of:
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Escorts is maintaining the following records which is indicative of its professional approach: Maintaining proper set of accounting records. Maintaining an accurate cashbook reconciled with the bank statement. Maintaining monthly statement showing profit performance and the working capital position. Monitoring Receivables daily. Making a regular forecast of cash requirements based upon planned sales volume. Ageing of debtors/creditors with comparisons to previous months.
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Table of Contents
Declaration Acknowledgement Preface Summary Chapters Chapter-I Introduction to Company Background & Technology Company Profile Mission,Vision&Values Board of Directors Agri machinery group Contribution of escorts Page No. 1-20
Chapter-2
Introduction to Project
21-36
Chapter-3
Research Methodology
37-43
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Chapter-4
44-51
Chapter-5
52-56
Bibliography
Annexure
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ESCORTS LTD.
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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., agricultural Escorts AMG has three recognized and well-accepted tractor brands, which are on distinct and separate technology platforms tractors in India
In the year 1996 Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd.
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 epicyclic 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. India's 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 brand of tractors introduced by Escorts with
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unbeatable advantages.
COMPANY PROFILE
Escorts Limited is an India-based company engaged in the business of manufacturing of agricultural tractors, engines for agricultural tractors, round end flat tubes, heating elements, double acting hydraulic shock absorbers for railways coaches, center buffer couplers, automobile shock absorbers, telescopic front fork and Mcpherson struts, break block, internal combustion engine and all types of breaks used by railways, construction, earth moving and material handling equipments. It also trades in oils and lubricants, implements, trailers, compressor accessories and spares, construction, earth moving and material handling equipments and aero business. The Company operates in agri machinery,auto ancillary products, railway equipment, construction equipments and others. The Companys subsidiaries include FarmtracTractors Europe Sp. Escorts Securities Ltd. (ESL), Escorts Asset Management Ltd. and EDDAL Credit Limited.
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OPERATING PERFORMANCE
Escorts Ltds flat revenue of `1,028 crore in the December quarter and the tripling in net profit to `28.1 crore from a year back were in line with Bloombergs consensus estimates. But, the companys operating margin of 5.1% was a tad below the year -ago period and nearly 130 basis points (bps) below consensus. One basis point is one-hundredth of a percentage point. Operating margin was shored up only by the agri-machinery products division, which accounts for around 80% of revenue. Compared with a year earlier, the 9.5% growth in revenue also mirrored a near 6% increase in average realization of the agri-machinery products division. Higher volumes to some extent also pushed up operating margin by 330 bps to 9.3%
FINANCIAL PERFORMANCE
The outlook for the segment is reportedly healthy given that these pending orders should come to fruition in the next couple of quarters. However, that is not so in the construction equipment sector, which registered a whopping 38% drop in revenue, and the travails could continue as long as the infrastructure sector languishes. Both these divisions, therefore, posted significant losses, which eroded profits earned by the agri-machinery products division.
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LOGO
The hexagonal nut (in red) represents a geometric perfection. In spite of modern technologies coming in, it still remains unarguably a symbol of technology and all that holds it together. The two pictorial elements are configured together to form an 'E', a pneumonic for Escorts. The symbol makes a rebus or visual pun and is rendered in red, the color of energy and dynamism. Every time it is used, it represents the Escorts seal of quality and excellence. The philosophy behind Escorts and the E in the Escorts is Enterprise.
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Bankers:
Andhra Bank Axis Bank Ltd. Citibank NA. IDBI Bank Ltd. Indusind Bank Ltd. Oriental Bank of Commerce Punjab National Bank State Bank of Hyderabad State Bank of India State Bank of Patiala State Bank of Travancore Yes Bank Ltd.
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BOARD OF DIRECTORS
Name
Rajan Nanda
Description
Mr. Rajan Nanda is Executive Non-Independent Chairman of the Board, Managing Director of Escorts Limited. He is an alumnus of Doon School, Dehradun. He took over as Chairman of Escorts Group in the year 1994. That was the time when the Indian economy had begun to burgeon as result of liberalization.
G. V. R. Murthy
Mr. G. V. R. Murthy is Chief Executive Officer - Escorts Construction Equipment of Escorts Ltd. He is a mechanical engineer with over 30 years of diverse experience in construction industry, cement products and mineral processing.
Lait Pahwa
Mr. Lait Kumar Pahwa is Chief Executive Officer - Escorts Auto Products of Escorts Ltd. He holds BE (Mech), MBA (Symbiosis Pune), possesses over 30 years of experience of which 16 years he has shouldered different responsibilities as CEO and MD of engineering, manufacturing and automation businesses
Sambandam Sridhar
Mr. Sambandam Sridhar is Chief Executive Officer Escorts Agri Machinery of Escorts Ltd. He is agriculture engineer, possesses experience in engineering, automotive industry and manufacturing
G.B. Mathur
Mr. G. B. Mathur is Executive Vice President - Law, Compliance Officer, Company Secretary of Escorts
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Limited. He is an ACS and LLB by profession. He has more than three decades of experience in the field of Corporate Law. Ishan Mehta Mr. Ishan Mehta is Executive Vice President - HR and ER of Escorts Ltd. He is an alumnus of Xaviers Labour Research Institute (XLRI), possesses over 33 years of experience in HR and ER strategies, organisational effectiveness and workplace improvement Nikhil Nanda Mr. Nikhil Nanda is Joint Managing Director, Executive Non-Independent Director of Escorts Limited. Prior to joining the Company, Mr. Nikhil Nanda has worked as Joint Managing Director of Escorts Yamaha Motors Limited during the period 1997 to 2000. He was appointed as a Executive Director of the company from 1st May, 2000 to 16th August, 2005. Dipankar Ghosh Mr. Dipankar Ghosh is Business Head - Escorts Railway Products of Escorts Ltd. He was has 23 years of experience in full lifecycle product development,manufacturing management, business
operations,
engineering
development, and technology transfer from many Railway OEMs to India Hardeep Singh Mr. Hardeep Singh is Non-Executive Non-Independent Director of Escorts Ltd., since 28th November, 2011. He is a graduate in Economics from Pune University and an alumnus of Kellogg School of Management. He has a experience of holding top management positions in Indian and foreign companies Subhash Bhargava Shri. S. C. Bhargava is Non-Executive Independent Director of Escorts Limited. He is eminent personality with
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experience in all facets of insurance. He has held top position in LIC including as Executive Director
(Investrnents) and also attended seminars and workshops in India and abroad on behalf of LIC. S. Dave Dr. S. A. Dave is Non-Executive Independent Director of Escorts Limited. He is an economist of international repute. He has a experience across multiple facets of financial and capital, and many other reputed companies.
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EPS OF ESCORTS
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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.
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POWERTRAC
Powertrac series from Escorts Ltd. has been engineered with the use of the most modern technology to redefine power and performance. The series has a wide range of tractors with powerful engines and pollution norms. Powertrac series comprises of tractors with transmission choices, powerful PTO, advance hydraulics and ergonomic design besides thsalient features.
Powertrac Variants
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Ecological modernization emerged in the early 1980s within a group of scholars at Free University and the Social Science Research Centre in Berlin, among them Joseph Huber, Martin Jnicke (de) and Udo E. Simonis. Various authors pursued similar ideas at the time, e.g. Arthur H. Rosenfeld, Amory Lovins, Donald Huisingh, Ren Kemp, or Ernst Ulrich von Weizscker. Further substantial contributions were made by Arthur P.J. Mol, Gert Spaargaren and David A Sonnenfeld (Mol and Sonnenfeld, 2000; Mol, 2001).
One basic assumption of ecological modernization relates to environmental readaptation of economic growth and industrial development. On the basis of enlightened self-interest, economy and ecology can be favourably combined: Environmental productivity, i.e. productive use of natural resources and environmental media (air, water, soil, ecosystems), can be a source of future growth and development in the same way as labour productivity and capital productivity.
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He said the share of 50 HP (horse power) and more tractors in total industry volume will jump from 12 per cent in 2011-12 to 23 per cent in 2018-19, while share of small tractors having capacity of less than 35 HP will come down from 15 per cent in 201112 to 8 per cent in 2018-19.
Tractors with less than 35 HP capacity are called small tractors, capacity with 35-50 HP are medium one and over 50 HP capacity are big tractors.
He also attributed the increasing volume of high capacity tractors to growing preference by more and more progressive farmers who are now following modern and innovative farm practices.
"New age farmers now cultivate more land and they need modern and efficient methods to get more yield and more income and the high powered tractors are capable of doing that," he said.
With company seeing demand for big tractors growing in various states including Punjab, Bihar, West Bengal, Escorts is also betting big on large capacity tractors with the launch of two new tractors with a capacity of 60-65 HP.
The company has also introduced some new features in the new variants like 24-speed syncroshuttle gearbox providing versatility to do multiple tasks, 4-wheel drive technology
Plant location
18/4, Mathura Road, Faridabad 121 007 Plot No. 2 & 3, Sector 13, Faridabad 121 007 Plot No. 115, Sector 24, Faridabad 121 005 15/5 Mathura Road, Faridabad 121 003
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WORKING CAPITAL:
Current assets and current liabilities are those, which can be converted into cash within a short duration i.e. generally a period less than one year. Current Assets = sum of inventories, debtors, cash and bank balances, prepaid expenses, loans and advances, marketable securities. Current Liabilities = sum of creditors, outstanding expenses, tax provision, proposed and unclaimed dividend, short term loans, bank overdraft, cash credit.
Working capital is said to be adequate when Current assets/ Current Liabilities = 2:1
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The management of current assets, current liabilities and inter-relationship between them is termed as working capital management. Working capital management is concerned with problems that arise in attempting to manage the current assets, the current liabilities and the inter-relationship that exist between them. In practice, There is usually a distinction made between the investment decisions concerning current assets and the financing of working capital. From the above, the following two aspects of working capital management emerges: (1) To determine the magnitude of current assets or level of working capital and (2) To determine the mode of financing or hedging decisions.
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Current assets It is rightly observed that Current assets have a short life span. These
type of assets are engaged in current operation of a business and normally used for short term operations of the firm during an accounting period i.e. within twelve months. The two important characteristics of such assets are, (i) short life span, and (ii) swift transformation into other form of assets. t assets over current liabilities.
Current liabilities The firm creates a Current Liability towards creditors (sellers) from
whom it has purchased raw materials on credit. This liability is also known as accounts payable and shown in the balance sheet till the payment has been made to the creditors.
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Operating Cycle
The duration of time required to complete the following sequence of events, in case of manufacturing firm, is called the operating cycle: 1. Conversion of cash into raw materials. 2. Conversion of raw materials into work-in-progress. 3. Conversion of work in process into finished goods. 4. Conversion of finished goods into debtors and bills receivables through sales. 5. Conversion of debtors and bills receivables into cash
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W= work-in-process period. F= finished goods storage period. D=debtors collection period, and C = creditors payment period.
F= Average finished goods inventory Average cost of goods sold per day per day
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Outstanding Expenses Bills Payable Short-term Loans Proposed Dividends Provision for Taxation, etc.
Current Assets Cash and Bank Balance Inventories: Raw-Materials Work-in-progress Finished Goods Spare Parts Accounts Receivables Bills Receivables Accrued Income Prepaid Expenses Short-term Investments
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Conceptual classification There are two concept of working capital viz., quantitative
and qualitative. The quantitative concept takes into account as the current assets while the qualitative concept takes into account the excess of current assets over current liabilities. Deficit of working capital exists where the amount of current liabilities exceeds the amount of current assets. The above can be summarised as follows: (i) Gross Working Capital = Total Current Assets (ii) Net Working Capital = Excess of Current Assets over Current Liabilities (iii) Working Capital Deficit = Excess of Current Liabilities over Current Assets.
(i) Cash Working Capital This is calculated from the information contained in profit
and loss account. This concept of working capital has assumed a great significance in recent years as it shows the adequacy of cash flow in business. It is based on Operating Cycle Concepts which is explained later in this chapter.
(ii) Balance Sheet Working Capital The data for Balance Sheet Working Capital is
collected from the balance sheet. On this basis the Working Capital can also be divided in three more types, viz., gross Working Capital, net Working Capital and Working Capital deficit.
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WORKING CAPITAL
3.5 3 2.5 2 1.5 1 0.5 0 -0.5 2007-08 2008-09 2009-10 2010-11
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Dimension 3: Composition of CL
It is obvious that given a constant level of production, higher the amount of working capital, the lower will be the return on investment since capital turnover would be less. On the other hand, lower the amount of working capital, the higher would be the risk since the company would not have adequate liquidity to maintain its short term obligations. Therefore, in working capital we strike a balance between risk and profitability. We have to find out that level of investment in working capital which gives us the reasonable amount of liquidity subject to a good working capital turnover ratio. In fact,good working capital management policies have a great influence on a firms profitability, liquidity and structural health.
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Policy A
Policy B Policy C
Output
Based on the maximum level of output if the company follows three different policies of maintaining the working capital it would affect the profitability, liquidity and structural health in the following manner :Policy A B C Liquidity High Average Low Profitability* Low Average High Risk Low Average High
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For smooth running an enterprise, adequate amount of working capital is very essential. Efficiency in this area can help, to utilize fixed assets gainfully, to assure the firms long term success and to achieve the overall goal of maximization of the shareholders, fund. Shortage or bad management of cash may result in loss of cash discount and loss of reputation due to non-payment of obligation on due dates. Insufficient inventories may be the main cause of production held up and it may compel the enterprises to purchase raw materials at unfavourable rates. Like-wise facility of credit sale is also very essential for sales promotions. It is rightly observed that many a times business failure takes place due to lack of working capital.Adequate working capital provides a cushion for bad days, as a concern can pass its period of depression without much difficulty. O Donnel et al. correctly explained the significance of adequate working capital and mentioned that to avoid interruption in the production schedule and maintain sales, a concern requires funds to finance inventories and receivables. The adequacy of cash and current assets together with their efficient handling virtually determines the survival or demise of a concern.
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The danger of excessive working capital are as follows: Heavy investment in fixed assets A concern may invest heavily in its fixed
assets which are not justified by actual sales. This may create situation of over capitalization.
Carelessness - Excessive working capital will lead to carelessness about costs which will
adversely affect the profitability.
Paucity of working capital is also bad and has the following dangers:
1. Implementation of operating plans becomes difficult and a concern may not achieve its profit target. 2. It is difficult to pay dividend due to lack of funds. 3. Bargaining capacity is reduced in credit purchases and cash discount could not be availed. 4. An enterprise looses its reputation when it becomes difficult even to meet day-today commitments. 5. Operating inefficiencies may creep in when a concern cannot meet it financial promises. 6. Stagnates growth as the funds are not available for new projects. 7. A concern will have to borrow funds at an exorbitant rate of interest in case of need.
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MEANING OF RESEARCH
Research in common parlance refers to a search for knowledge. Once can also define research as a scientific and systematic search for pertinent information on a specific topic. In fact, research is an art of scientific investigation. The Advanced Learners Dictionary of Current English lays down the meaning of research as a careful investigation or inquiry specially through search for new facts in any branch of knowledge. Redman and Mory define Research as a systematized effort to gain new knowledge. Some people consider research as a movement from known to unknown. Research is as academic activity and as such the term must be used in a technical sense. Research is an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of study, observation, and experiment. The systematic approach concerning generalization and formulation of theory. The purpose of Research is to discover answers to questions through the application of systematic procedure. The main aim of Research is to find out the truth which has been not discovered. According to Clifford Woody Research comprises defining and redefining problems, formulating hypothesis or suggested solutions, collecting, organizing and evaluating data, making deductions and reaching conclusions.
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Characteristics of research
1. Research is based on the scientific method. 2. Helps in answering various pertinent questions. 3. It is an organized, planned and patient investigation or a critical enquiry. 4. It has logical roots, helping to establish facts or principles.
TYPES OF RESEARCH
The basic types of research are as follows: (i) Descriptive vs. Analytical: Descriptive research includes surveys and fact-finding enquiries of different kinds. The major purpose of descriptive research is description of the state of affairs as it exists at present. In social science and business research we quite often use the term Ex post facto research for descriptive research studies. The main characteristic of this method is that the researcher has no control over the variables; he can only report that has happened or what is happening. In analytical research, on the other hand, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material. (ii) Applied vs. Fundamental: Research can either be applied (or action) research or fundamental (to basic or pure) research. Applied research aims at finding a solution for an immediate problem facing a society or an industrial/business organisation, whereas fundamental research is mainly concerned with generalisations and with the formulation of a theory. Gathering knowledge for knowledges sake is termed pure or basic research.
(iii) Quantitative vs. Qualitative: Quantitative research is based on the measurement of quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity.Qualitative research, on the other hand, is concerned with qualitative phenomenon, i.e., phenomena relating to or involving quality or kind. (iv) Conceptual vs. Empirical: Conceptual research is that related to some abstract idea(s) Or theory. It is generally used by philosophers and thinkers to develop new concepts or to reinterpret existing ones. On the other hand, empirical research relies on experience or observation alone, often without due regard for system and theory. It is data-based research, coming up with conclusions which are capable of being verified by observation or experiment.
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DATA:
The data collected for the above problem is generally secondary in nature. The analysis has been done on the basis of past financial management of the company. The primary data has been collected after interviewing the officials of the company at various stages. The judgment sampling has been used, as the sample size is limited in case of different problems. The following methods are adopted for collecting informations: Observation. Survey. Special Record Searching.
COLLECTION OF DATA
Data Collection is an important aspect of any type of research study. Inaccurate data collection can impact the results of a study and ultimately lead to invalid results. Data collection methods for impact evaluation vary along a continuum. At the one end of this continuum are quantatative methods and at the other end of the continuum are Qualitative methods for data collection .
CLASSIFICATION OF DATA
The data are classified into: Primary data Secondary data
PRIMARY DATA
Primary data are always collected from the source. It is collected either by the investigator himself or through his agents. There are different methods of collecting primary data. Each method has its relative merits and demerits. The investigator has to choose a particular method to collect the information. The choice to a large extent depends on the preliminaries to data collection some of the commonly used methods are discussed below.
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1. Direct Personal observation 2. Indirect Oral Interviews 3. Mailed Questionnaire method 4. Schedule Method 5. From Local Agents
SECONDARY DATA
Secondary data, is data collected by someone other than the user. Common sources of secondary data for social science include censuses, organisational records and data collected through qualitative methodologies or qualitative research. Primary data, by contrast, are collected by the investigator conducting the research.
Quantitative: Census, housing, social security as well as electoral statistics and other related databases.
Qualitative: Semi-structured and structured interviews, focus groups transcripts, field notes, observation records and other personal, research-related documents.
A clear benefit of using secondary data is that much of the background work needed has already been carried out, for example: literature reviews, case studies might have been carried out, published texts and statistics could have been already used elsewhere, media promotion and personal contacts have also been utilized.
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SAMPLING TECHNIQUE
Sampling Technique
There are two broad categories of sampling techniques namely probability and nonprobability sample.
Probability samples are categorized by the fact that each element of the population has non-zero chance of being included in the sample. Here, it is not necessary that the probabilities of the selection are equal, but only that one can specify the probability that it will be included in the sample for each element of the population. This is so because each element included in the sample is selected objective somewhere in the process. Without the knowledge of the error that can be attributed to sampling procedure, we cannot place bounds on the precision of our estimates.
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RESEARCH OBJECTIVES :The following are the general problems of the research: To study of working capital management of the Company. The study the operating cycle. To do a comparative analysis of the costs between escorts,Mahindra and tafe. Cost effectiveness in various operations of the company. The coordination of Inventory management objectives with organizational objectives.
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A) LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assts. The current assets should either be liquid or near about liquidity. These should be convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. If current assets can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be calculated: 1. 2. 3. CURRENT RATIO QUICK RATIO ABSOLUTE LIQUID RATIO
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1. CURRENT RATIO Current Ratio, also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm. It is defined as the relation between current assets and current liabilities. Thus,
2) CURRENT LIABILITES Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend payable etc. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. On the hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.
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CURRENT RATIO
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 200809 2009-10 2010-11 2011-12
CURRENT RATIO
Interpretation: - From the above diagram and the past results of the company the current
ratio shows an decreasing trend in the 2011-12 in comparison to 2010-11but it is still below the ideal ratio of 2:1 , thereby showing managerial inefficiency in meeting the current liabilities thereby affecting the profitability and productivity of the company.
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2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash with a short period without loss of value. It measures the firms capacity to pay off current obligations immediately.
QUICK RATIO = QUICK ASSETS CURRENT LIABILITES Where Quick Assets are: 1) 2) 3) Marketable Securities Cash in hand and Cash at bank. Debtors.
A high ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand a low quick ratio represents that the firms liquidity position is not good. 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. However, a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a low liquidity position if it has fast moving inventories.
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Interpretation: - From the above diagram and the past results of the company the current
ratio shows an decreasing trend in the 2011-12 in comparison to 2010-11 and 2010-11 in comparison to 2009-10 shows a increasing trend but it is still below the ideal ratio of 2:1 , thereby showing managerial inefficiency in meeting the current liabilities thereby affecting the profitability and productivity of the company.
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FY09
FY10
FY11
This shows that Escorts is losing its footing in the Indian tractor market.The companies toughest competitor is Tafe and Mahindra. Therefore a cost comparison to show the three companies standing.
Salary per unit Power cost per unit Manufaturing Overhead per unit
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Cost Comparision
80,000.00 Salary/power/Manufacture cost per unit 70,000.00 60,000.00 50,000.00 40,000.00 30,000.00 20,000.00 10,000.00 0.00 Escorts Mahindra Companies Tafe 16842.54 5702.11 15590.52 9670.13 3151.37 38,654.59 Salary per unit Power cost per unit Manufaturing Overhead per unit 5651.25 4315.31 68706.55
Interpretation: - Tafe is the most efficient in managing its cost. Management in Escorts is unable to curb the cost. Escorts having the 3rd largest market share, enjoys economies of scalebut it is not able to utilise its economies of scale efficiently as its manufacturing cost per unit is the highest.
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Findings
The research results indicate that each departments unique characteristics and circumstances allow for the presence of different inherent limitations at the top and bottom ends of the evaluation scale utilized. The inherent limitations that consistently achieved the highest assessments across all the classes of respondents are: Lack of communication, people mistakes and management override. In the South African government sector these inherent limitations, in most instances, represent the most immediate and urgent threats to the effectiveness of financial control systems. The inherent financial control limitations that in most instances (across all the classes of respondents) are least of a concern in respect of financial control effectiveness are: Complexity, sabotage and game playing. None of the inherent financial control limitations are present to a degree that does not require managements attention or that allows management to ignore their presence. Although certain inherent limitations are more prevalent than others, the overall presence of these limitations, as evidenced by the empirical results, is putting financial control effectiveness in the South African government sector in jeopardy. Overall, the provincial department respondents consider the inherent limitations a bigger threat than the national department respondents - 11 out of 14 limitations are evaluated higher by the respondents from provincial departments, compared to national departments. The respondents from both national departments and provincial departments indicated that the most prevalent inherent financial control limitation is "people mistakes". At the bottom end of the scale both sets of respondents again indicated the same limitation, namely "complexity".
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Suggestions
From the very beginning of the project, work of finding the problems in the existing management and solutions of solving that problem was going on. In fact when the project was implementing all suggestions were kept in mind. In the entire study suggestions are written accordingly.
Company should train to the dealer with modern technique so that the dealer can deal with customer effectively and made customer loyal. Company should focus on international level, national level as well as regional level advertisement so that product takes position in the mind of the target customer which will increase the sales of the company.
Company should take interest to advertise the product at different medium of communication such as television, magazine, newspaper, board hording. So that customer makes aware about the brand.
Some products of the company has vast difference in price in comparison to other competitor so the company should give some discount on those sizes. Company should improve its customer relationship through delivering qualitative product & services because customer relationship is a process to sustain our exiting customer and increase new customer.
The use of new technology like computer should be adopted on a large scale by the plant to save the time. The suggestions of employees should take in decision-making and also at the time of new appointment, to motivate the existing employees. Proper allocation of all the system should be done by passing one copy to each and every individual of the company. Proper training should be given to the employees before implementation. There should be proper delegation of authority to the person to whom work is assigned. Hierarchy should be followed at all level in the organization so that every task can be done systematically.
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Checklist for every system should be filled by the people while starting or execution of any process, so that any step will not skip. Proper formats of every system should be available to them. Every system should be followed according to the prescribed time line in the new system, which helps in completing the job on time.
All above suggestions should be considered to make study more effective and efficient.
CONCLUSION
In this project problems regarding accounting system were studied and sorted out. Crucial thing about this project is this project has been converted into reality by implementation it during study. Physically work was done by me during the study to implement the project successfully. It is the biggest success of the project. More things about conclusion are as follows: 1. Under modified accounting system everything is systematized. If this system is followed with proper care and directed Instruction Company can AVOID the late and wrong delivery of goods. 2. With the help of this project, company can save the extra charges for late or wrong elivery of goods. 3. With the help of this project, each job work can be easily identified and system for each and individual process can be done in the proper format. 4. Under this project, checklist is prepared by me which is helpful for the company make the crosschecking of the whole process, which helps in completing the work on TIME.
Accounting System is an essential part of management in a trading concerns as in the study organization is in trading and servicing business. Various major problems were also sorted out which helped the organization to cope up with the situation.
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At the time of implementation of the project due attention was paid that there should be little but effective and efficient change in the existing system, so that it can be more adjustable for the employees of the company. Resistance to change from the part of employee was taken in to account as employees have been working for a long time. For few days it was observed whether they are following the system as instructed. It was found system is working in good condition.
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BIBLIOGRAPHY
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BIBLIOGRAPHY
Millian J. Geode & Paul K. Hatl, Methods in Research, McGraw Hills, New Delhi. Uma Shekhran, Business Research Method, Wiley Education Singapore. Kothari, C.R., Research Methodology Kotler Philip and Keller, Marketing Management, PHI, New Delhi. Kotler, Philip and Jha, Marketing Management in South Asia Perspective, Pearson Education, New Delhi Kerin, Hartley, Berkowtz and Rudelius, Marketing, TMH, New Delhi. Pandey, I.M., Financial Management, Vikas Publishing House New Delhi. Keown, Arthur, J. Martin, John D., Petty, J. William and Scott David F. Khan, M.Y., and Jain P.K., Financial Management, Tata McGraw Hill, New Delhi.
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ANNEXURES
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Annexures
1. Name of the company:ESCORTS LIMITED, AGRI MACHINERY GROUP. 2. REGISTERED OFFICE: 11, SCINDIA HOUSE, CONNAUGHT CIRCUS, NEW DELHI 3. WEBSITE; www. Escortsagri. Com 4. CHAIRMAN ,CEO AND SENIOR EXECUTIVE: MR. RAJAN NANDA 5. CHIEF HUMAN RESOURCE MANAGER: MR. YASH YADAV HISTORIES AND CURRENT PROFILE 1.PROMOTERS: MR. H.P. NANDA 2.TOTAL NO. OF EMPLOYEES: APPROX. 5,000 3. BUSINESS TURNOVER: RS. 1,000 CRORE 4. CURRENT BUSINESS ACTIVITIES (NATIONAL & INTERNATIONAL): TRACTOR MANUFACTURING, TRACTOR EXPORTING ETC.
o o o o
MARKETING DATA PRODUCT: AGRICULTURAL MACHINERY COMPETITORS: MAHINDRA& MAHINDRA (M&M) o EICHER o SONALIKA o PUNJAB TRACTOR LIMITED (PTL) MARKETING STRATEGY: CONFIDENTIAL I.T. APPLICATION: ORACLE -11i
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Statement of Profit and loss for the year ended 30th sep, 2012
Particulars
Notes
Income Revenue from operations (gross) Less: excise duty Revenue from operations (Net) Other income Total Revenue(I) Expenses Cost of raw material and Components consumed Purchase of traded goods Changes in inventories Of finished goods, workIn progress and traded Goods Employee benefits Finance costs Depreciation and amortization Other expenses Total expenses (II) Profit before exceptional Items and tax(I-II) 25 26 27 28 406.12 96.44 48.43 461.00 3856.51 86.27 327.93 55.77 37.97 446.76 3183.85 95.97 23 24 227.73 (57.81) 239.94 (34.87) 22 2674.60 2110.35 21 48.90 3942.78 41.66 3279.82 103.32 3893.88 25.96 3238.16 20 3997.20 3264.12
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Exceptional items Profit before tax Tax expense: Current tax Minimum alternative Tax entitlement Excess provision For earlier years Written back Deferred tax Profit for the year Earning per share (in Rs.) (face value Rs. 10/- each) - Basic - Diluted Summary of significant Accounting policies
29
(1.68) 87.95
(4.65) 100.62
19.47 (14.31) -
30.37 (38.49)
13.19 69.60
(11.35) 120.09
11.74 11.66
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119.27 1494.69
102.31 1696.23
Non-current liabilities
Long- term borrowing Other long-term borrowing Long-term provisions 5 7 8 169.65 24.71 117.63 196.49 19.37 10.32
Current Liabilities
Short-term borrowing Trade Payables Other current liabilities Short-term provisions 9 10 11 8 290.28 884.55 234.07 81.06 3415.91 89.35 702.04 221.67 99.38 3137.16
1575.60 10.65 53.74 12.75 13 6 14 15 16 17 18 19 14 15 382.26 (2.81) 25.61 98.17 3.65 496.61 445.44 130.57 181.96 1.71
1456.02 5.86 40.99 4.28 365.80 16.44 43.13 97.82 327.36 340.53 203.43 233.06 2.44
Current assets
Current investments Inventories Trade Receivables Cash and Bank balance Short-term loans and advances Other current assets
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Total
Summary of significant accounting policies 2.1
3415.91
3137.16
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