1

A SUMMER INTERNSHIP REPORT

On
A STUDY ON WORKING

CAPITAL MANAGEMENT

AND FINANCIAL STATEMENTS

OF LAST FIVE YEARS

Submitted to
PUNJAB TECHNICAL UNIVERSITY

In partial fulfillment of the requirements for the

award of degree of
Master in business Administration (MBA)

Submitted by

Project Guider

Anmoldeep singh dhillon

Mr. Sandeep

Kohli
University Roll no -1426421

Metro Tyres Ludhiana

Session(2014-2016)
APEEJAY INSTITUTE OF MANAGEMENT

Certificate

CONTENT

Certificate by Guide
Preface
Acknowledgements
CHAPTER NO
1.
1.1
1.2
2.
3.
3.1
3.2
3.3
4.
4
4.1
4.2
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
4.3
4.3.1
4.3.2
4.4
5.
6.
7.
7.1
7.2
References
Annexure
Questionnaire

CHAPTER TITLE

PAGE NO

Introduction
Introduction to the Metro Tyres
Introduction to the Report
Review of Literature
Need, Scope and Objectives of the Study
Need of the Study
Scope of the Study
Objectives of the Study
Research and Methodology
Introduction
Research Design
Sampling Design
Universe
Sampling Frame
Sampling Unit
Sampling Size
Sampling Techniques
Data Collection and Analysis
Data Collection
Tools of Presentation and Analysis
Limitations of the Study
Data Analysis and Interpretation
Findings of the Study
Conclusions and Recommendations
Conclusions
Recommendations

6-13
7-8
9-13
14-16
17-18
18
18
18
19-23
20
20-21
21
21
21
21
22
22
22
22-23
23
23
24-34
35-36
37-39
38
39
40
41-43
44-45

PREFACE

Major changes in the economic climates and regulatory environment had seriously altered the
conditions for Indian companies in recent years. Widening wings of globalization and
increasing exposure to international markets had resulted in increased competitions and
relocation of production and distribution capacities. Furthermore, volatile exchange rate,
increased raw material prices had an impact on the cost and risk profile of the companies
and thus on their financing structure.
Irrespective of whether it was a question of carrying out acquisition, financing further
growth, averting imminent insolvency or simply ensuring that a company can continue to
exist as a going concern, all of these factors required a new or at least revised approaches for
corporate financial management, professional financial management, which was helpful
instrument for avoiding liquidity bottlenecks, helped for boosting returns and also facilitated
a systematic control of financial risk.
With regard to developing alternatives financial arrangements, companies were increasingly
focused on their own resources. Efforts were directed towards optimized the time span
during which the working capital, defined as current assets minus current liability was tied
up in the company. The attractiveness of working capital management was based on its two
fold impact:
A reduction in the time span during which capital was tied up release liquidity and thus had
a direct impact on the companys financial position. However return on capital was also
increased, balance sheet structures are optimized and company financials were improved.
Working capital management thus opens up way for further forms of external finance ,for
instance via capital market issues of equity and debt securities ,private equity in other words,
forms of financing via financers who focus to a greater extent on balance sheet structures and
the company financials.

ACKNOWLEDEMENT

Words are indeed inadequate to convey my deep sense of gratitude to all those who have
helped me in completing this summer project to the best of my ability. Being a part of this
project has certainly been a unique and a very productive experience on my part.

I am really thankful to Mr. Bhattnagar , Finance Manager for making all kinds of
arrangements to carry the project successfully and for guiding and helping me to solve all
kinds of quarries regarding the project work. His systematic way of working and
incomparable guidance has inspired the pace of the project to a great extent.

This project would not have been successful without the help of all Senoir members of
METRO TYRES LTD. I would like to thanks Group Chairman Mr. Man Singh, who has led
the Group since 1968, Group Managing Director, Mr. Rummy Chhabra, who has been
associated with the Metro Group since 1978,

Last but not least I would like to thank all the employees of METRO TYRES Ltd. who have
directly or indirectly helped me with their moral support for the completion of my project.

AnmolDeep singh dhillon

CHAPTER 1
INTRODUCTION

1.1 INTRODUCTION

TO METRO TYRES LTD

Metro Group was a US $140 million conglomerate consisting of Metro Tyres Limited, Metro
International and Metro Ortem Limited. The Group had seven ISO 9001:2008 certified,
state-of-the-art manufacturing facilities, producing Tyres and tubes for bicycles, motorcycles,
scooters,3-wheelers.

Technical collaboration with Germany's Continental AG has greatly enhanced Metro Group's
position and today it was regarded as a company manufacturing superior quality products.
Gradually the company was increased its volumes and venturing into overseas markets
where it is developing a niche for its products. Today the group had a presence in more than
53 countries and was the largest exporter of bicycle tyres and tubes from India. Under the
aegis of Metro Ortem Limited, the group had diversified into manufacturing a whole range
of fans and other home appliances. Metro Group has manufacturing capacity close to 30
Million tyres and 30 Million tubes annually and it enjoys around 24% market share in India.
Currently, Metro Group employs over 4000 people who are its greatest asset.
Its aimed to become a focused market leader providing excellent quality products and
services to our valued customers both in the domestic and international markets.
Its believed in the power of people to achieved results and realize that people respond to
recognition and trust, from the opportunity to learned, the freedom to participate, and the
chance to develop personally and professionally.
Metro Group has manufacturing capacity close to 30 Million tyres and 30 Million tubes
annually and it enjoys around 24% market share in India. Currently, Metro Group employs
over 4000 people who are its greatest asset.
From its conception in 1968, Metro Tyres Limited had made steady progress to establish
itself as a market leader for bicycle tyres and tubes in India. With steadily increased volumes
of quality products, the Company ventured into overseas markets where it developed a niche
for itself. Technical collaboration with Germany's Continental AG, has greatly enhanced

Metro Group's position as a company manufacturing superior quality products. Metro

International was our Export Division that works with our overseas clients.

VISION & MISSION OF THE COMPANY

VISION
Our company had become a significant player in the Indian Tyre & Appliances Industry with
International footprints

MISSION
To build

a truly professional, Customer Centric, Quality Conscious, Socially responsible

Organization by provided a platform of over four decades of business experience, reputation,

corporate strength and environment conducive for growth of all.

GOAL
Its goal was to maintained leadership position in Cycle Tyres/Tubes segment and to be a
significant player in Motorcycle/2-3 Wheeler Tyres and Tubes segment and they would insure
abt it in future also.

SWOT ANALYSIS
STRENGTHS
Wide product offering at different rates.

Large distribution network

Lack of advertisement activities.

Focus only on middle class

Rise of Indian middle class and small cities.

A booming economy

WEAKNESS

OPPORTUNITY

THREATS

Many players fighting for the same cake

1.2 INTRODUCTION TO THE STUDY/PROJECT

The project aimed

to study the working capital management and financial statements

analysis at METRO TYRES LTD.

Working capital management

Working Capital Management is the process of planning and controlling the level and mix of
current assets of the firm as well as financing these assets. Specifically, Working Capital
Management required financial managers to decide what quantities ofcash, other liquid
assets, accounts receivables and inventories the firm will hold at any point of time.

Types of Working Capital

Gross working capital refers to the firms investment in the current assets and includes cash,
short term securities, debtors, bills receivables and inventories. It was

necessary to

concentrate on the fact that the investment in the current assets should be neither excessive
nor inadequate.
WC requirement of a firm keeps changing with the change in the business activity and hence
the firm must be in a position to strike a balance between them. The financial manager should
know where to source the funds from, in case the need arise and where to invest in case of
excess funds.
Net working capital refers to the difference between the current assets and the current
liabilities. Current liabilities are those claims of outsiders, which are expected to mature for
payment within an accounting year and include creditors, bills payable, bank overdraft and
outstanding expenses. When current assets exceed current liabilities it is called Positive WC
and when current liabilities exceed current assets it is called Negative WC.

10

The Net WC being the difference between the current assets and current liabilities is a
qualitative concept. It indicates:
It is a normal practice to maintain a current ratio of 2:1. Also, the quality of current assets is
to be considered while determining the current ratio. On the other hand a weak liquidity
position poses a threat to the solvency of the company and implies that it is unsafe and
unsound. The Net WC concept also covers the question of judicious mix of long term and
short-term funds for financing the current assets.

Permanent and variable working capital:

The minimum level of current assets required is referred to as permanent working capital and
the extra working capital needed to adapt to changing production and sales activity is called
temporary working capital.

NEED OF WORKING CAPITAL

The prime objective of the Metro tyres is to obtain maximum profit thought the business.
The amount of profit largely depends upon the magnitude of sales. However the sale does not
convert into cash instantaneously. There is always a time gap between sale of goods and
receipt of cash. The time gap between the sales and their actual realization in cash is
technically termed as operating cycle. Additional capital required to have uninterrupted
business operations, and the amount will be locked up in the current assets. Regular
availability of adequate working capital is inevitable for sustained business operations. If the
proper fund is not provided for the purpose, the business operations will be effected and
hence this part of finance to be managed well.

SOURCES OF WORKING CAPITAL

LONG TERM SOURCES
Long term sources of permanent working capital include equity and preference shares,
retained earnings, debentures and other long term debts from public deposits and financial
institution. The long term working capital needs should meet through long term means of

11

financing. Financing through long term means provides stability, reduces risk or payment and
increases liquidity of the business concern.

Retained earnings
Retain earning accumulated profits are a permanent sources of regular working capital. It is
regular and cheapest. It creates not charge on future profits of the enterprises.
Issue of debentures

Long term debt

Company can raise fund from accepting public deposits, debts from financial institution like
banks, corporations etc. the cost is higher than the other financial tools.
Other sources consist of the sale of idle fixed assets, securities received from employees and
customers are examples of other sources of finance.

SHORT TERM SOURCES

Temporary working capital is required to meet the day to day business expenditures. The
variable working capital would finance from short term sources of funds and only for the
period needed. It has the benefits of low cost and establishes closer relationships with banker.

Commercial bank
A commercial bank constitutes a significant source for short term or temporary working
capital. This will be in the form of short term loans, cash credit, and overdraft and though
discounting the bills of exchanges.

Public deposits
Most of the companies in recent years depend on these sources to meet their short term
working capital requirements ranging from six month to three years.

12

FINANCIAL STATMENTS
A financial statement is a collection of data organized according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some financial aspects of
a business firm. It may show a position at a moment in time, as in the case of Balance Sheet
or may reveal a series of activities over a given period of time; as in the case of an Income
Statement or may show the sources and uses of funds, as in the case of Fund Flow Statement

Balance sheet
The balance sheet is the first of the three major financial statements. The balance sheet shows
the assets, liabilities and the equity for the firm as of the last day of the accounting period. In
effect, it matches resources (assets) with sources (liabilities and equity). It is commonly
presented in two columns that illustrate the relationship between assets and the sources of
these assets. The assets or resources of the firm are displayed in the right hand column and
the sources of these assets in the left hand column.

Income statement Or Profit or Loss account

The income statement is a report of the firms activities during a given accounting period.
Firms often publish income statements showing the results of each quarter, each half year and
the full accounting year. It shows the revenues and expenses of the firm, the effect of interest
and taxes, and the net income for the period. It may be called by other titles, such as the
profit-and-loss statement or the statement of earnings. It is an accounting device designed to
show stockholders and creditors whether the firm is making money. It can also be used as a
tool to identify the factors that affect the degree of profitability

13

Flow of funds statements

This statement shows the Movement of funds into the forms current asset account from
external sources such as stockholders, creditors and customers. It also shows the movement
of funds to meet the firms obligations retires stock or pay dividends. The movements are
shown for a specific period of time, normally the same time period as the firms income
statement. The financial manager makes decisions to ensure that the firm has sufficient funds
to meet financial obligations when they are due and to take advantage of financial
opportunities

Ratio analysis
Ratio analysis is a very powerful analytical tool for measuring performance of an
organization. The ratio analysis concentrates on the inter-relationship among the figures
appearing in the aforementioned four financial statements. The ratio analysis helps the
management to analyze the past performance of the firm and to make further projections.
Ratio analysis allows interested parties like shareholders, investors, creditors, Govt. and
analyst to make an evaluation of certain aspects of a firms performance.

14

CHAPTER II
REVIEW OF LITERATURE

15

INTRODUCTION
A literature review is a text of a scholarly paper, which includes the current knowledge
including substantive findings, as well as theoretical and methodological contributions to a
particular topic. Literature reviews use secondary sources, and do not report new or original
experimental work
A literature review is a critical analysis of a segment of a published body of knowledge
through summary, classification, and comparison of prior research studies, reviews of
literature, and theoretical articles (University of Wisconsin Writing Center). Do not confuse
a literature review with an annotated bibliography.
The review of literature guided the researchers for getting better understanding of
methodology used, limitationd of various available estimation procedures and database, and
lucid interpretation and reconciliation of the conflicting results. Besides this, the review of
empirical studies explores the avenues for future and present research efforts related to the
subject matter. In case of conflicting and unexpected results, the research can take the
advantage of knowledge of their researchers simply through the medium of their published
works. A number of research studies have been carried out on different aspects of
performance appraisal by the researchers, economists and academicians in India and abroad.
Different authors have analyzed performance in different perspectives. A review of these
analyses is important in order to develop an approach that can be employed in the context of
the study of Indian automobile industry. Therefore, the present chapter reviews the empirical
studies related with different aspects of Financial Efficiency.
1.Pai, Vadivel and Kamal (1995)studied the diversified companies and financial performance:
A study. An effort was made to study the relationship between diversified firms and their
financial performance. Seven large firms having different products-both related and
otherwise-in their portfolio and operating in diverse industries were analyzed. A set of
performance measures / rations and employed to determine the level of financial
performance. The results reveal that the diversified firms studied have been healthy financial
performance. However, variation in performance from one firm to another has been observed
and statistically established.

16

2. Susma Vishnani and Bhupesh Kr Shah (2006) have studied the role of working capital in
profit generating process. If a company desires to take a greater risk for bigger profits and
losses, it reduces the size of its working capital in relation to its sales. If it was interested in
improving its liquidity, it increases the level of it working capital. However, this policy was
likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company
should strike a balance between liquidity and profitability. In this study an effort had been
made to make an empirical study of Indian Consumer Electronics Industry for assessing the
impact of working capital on profitability during the period 1994-95 to 2004-05. The impact
of working capital on profitability had been examined by computing co-efficient of
correlation and regression analysis between profitability and working capital ratio
3. Adina Elena Danuletiu (2010), the purpose of this study to analyze the efficiency of
working capital management of companies or firms or industries in the country, The
researcher also study the relation between the efficiency of the working capital management
and profitability. The conclusion of the study says that there is a negative relationship
between working capital management and profitability.
4. David Mathuva (2010), the study focuses the impact of Working Capital Management
components of corporate profitability. There exists a highly significant negative relationship
between the times taken by the firms to collect cash from their costumers secondly there
exists a highly significance positive relationship between the period taken to convert
inventories into sales. Thirdly there exists a highly significance positive relationship between
the time to pay its creditor the more profitable it is.
5. P.D. Erasmus (2010)It has long been argued that efficient working capital management
should contribute to the creation of shareholder value. This study investigates the relationship
between working capital management and firm profitability for a sample containing both
listed and delisted South African industrial firms. The results obtained from the full sample
revealed statistically significant negative relationships between a firms profitability (as
quantified by the return on assets in the narrower sense) and its net trade cycle (NTC), debt
ratio and liquidity ratio. Similar results are onserved if the listed firms are investigated
separately. In the case of firms that delisted during the period under review, however, the
liquidity and debt ratios appear to play a more important role than the NTC. Based on the

17

results of this study, it would appear that management could attempt to improve firm
profitability by decreasing the overall investment in net working capital.

CHAPTER 3

NEED OF THE STUDY

SCOPE OF THE STUDY
AND
OBJECTIVIES OF THE STUDY

18

3.1 NEED OF THE STUDY

1. The study has great significance and provided benefits to various parties whom directly or
indirectly interact with the company.
2. It was beneficial to management of the company by providing crystal clear picture regarding
important aspects like liquidity, leverage, activity and profitability.
3. The study was also beneficial to employees and offers motivation by showing how actively
they are contributing for companys growth.

3.2 SCOPE OF THE STUDY

This study assess the working capital investments, evaluates working capital investments and
working capital components of Metro Tyres Ltd. The Emphasis is to given analysis of
financial performance in terms of solvency, liquidity, leverage, profitability and efficiency.
The period covered in this study is of last 5 years.

3.3 OBJECTIVIES OF THE STUDY

The important objectives of the working capital.
1.To ensure optimum investment in Current Assets.
2.To strike a balance between the twin objectives of liquidity and Profitability in the use of
funds.
3.To ensure adequate flows of funds for current operations.
4.To speed up the flow of funds or to minimize the stagnation of funds. To attain the above
objectives of working capital managing the coordination between higher level and lower level
authority is very crucial. The study speaks itself to the problem of how to working capital

19

effectively in small scale industry.

CHAPTER 4

RESEARCH METHOLDOLGY

20

OBJECTIVES OF THE RESEARCH

To study the working capital of metro tyres ltd.

To study the different parameters influence the financial statements

To study last five years data

To know the net operations of the financial statements.

RESEARCH METHODOLOGY
Research can be defined as a scientific and systematic search for pertinent information on a
specific topic. According to Clifford Woody research comprises defining and redefining
problem, formulating hypothesis or suggested solutions; collecting, organizing and evaluating
data; making deductions and reaching conclusions and at last carefully testing the conclusions
to determine whether they fit the formulating hypothesis.
Research methodology is a way to systematically solve the research problem. It may be
understood as the science of studying how research is done scientifically.

4.1 Research design

A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure.
In fact, the research design is the conceptual structure within which research is conducted; it
constitutes the blueprint for the collection, measurement and analysis of data. One may split
the overall research design into following parts:
a) The sampling design which deals with the method of selecting items to be observed for the
given study.
b) The observational design which relates to the condition under which the observations are
to be made.
c) The statistical design which concerns with the question of how many items are to be
observes and how the information and the data gathered are to be analyzed.
d) The operational design which deals with the techniques by which the procedure specified
in the sampling, statistical and observational design can be carried out.

21

Need for a research design

Research design is needed because it facilitates the smooth sailing of the various research
operations thereby making research as efficient and possible yielding maximal information
with minimal expenditure of effort time and money. It stands for the advance planning of the
method used or adopted for collecting the relevant data and the techniques to
be used in their analysis, keeping in view of the objectives, time and money.

4.2 Sampling design

A sample design is a definite plan for obtaining a sample from a given population. It refers to
the technique or procedure the researcher would adopt in selecting items for the sample.
Sample design may as well lay down the items to be included in the sample i.e., the size of
the sample. Sample design is designed before data are collected. There are many sample
designs from which a researcher can choose. Some design is relatively more precise and
easier to apply than others.

4.2.1 Population
Population refers to part of universe from which the sample for conducting the research is
selected. Universe and population can be same in some researches. It may be finite or infinite.
In finite universe the number of items is certain, but in case of infinite the number of item is
infinite i.e., we cannot have an idea about the total number of items. The population for my
study is different respondent from villages and nearby Hosiarpur

4.2.2 Sampling frame

Frame is the list of respondents i.e. list of all the users of different tyres

4.2.3 Sampling unit

Sampling unit refers to smallest possible individual eligible respondent. In my study the
sampling unit is single individual user of tyres .

22

4.2.4 Sampling size

This refers to the total number of respondents selected from the universe to constitute a
sample. The size of the sample should neither be excessively large, nor too small. It should be
optimum. An optimum sample is one which fulfills the requirement of efficiency,
representativeness, reliability and flexibility. The sample size for my research is hundred
respondents.

4.2.5 Sampling techniques

In this research study, non-probability convenience sampling is opted for. Convenience
sampling is done purely on the basis of convenience or accessibility. This sampling method
has been mainly chosen because of time, financial constraints and lack of expertise

4.3 DATA COLLECTION AND ANALYSIS

The choice of the many methods for collecting fishery data will depend on the variables to be
measured, the source and the resources available. In many cases, there is a natural way to
collect particular variables

4.3.1

DATA COLLECTION

The following sources have been sought for the preparation report:
Primary sources such as business magazines, current annual reports, book on
Financial Management by various authors and internet websites the imp amongst
them being www.metrotyres.co.in
Secondary sources like previous years annual reports, CMA Data, reports on working
capital for research, analysis and comparison of the data gathered,financial
statements.
While doing this project, the data relating to working capital, cash management,
receivables management, inventory management and short term financing and
financial statements was required.
This data was gathered through the companys websites, its corporate intranet,Metro
tyres annual reports and Data of the last five years.

23

A detailed study on the actual working processes of the company is also done through
direct interaction with the employees and by timely studying the happenings at the
company.
Also, various text books on financial management like

Khan & Jain, Prasanna

Chandra and I.M.Pandey were consulted to equip ourselves with the topic.

4.3.2 TOOLS OF DATA ANALYSIS

The tools used for the study are Ratio analysis, Cash Conversion Cycle, and Schedule of
changes in working capital.

4.4 LIMITATIONS OF THE STUDY

We cannot do comparisons with other companies unless and until we have the data of
other companies on the same subject.
Only the printed data about the company will be available and not the backend
details.
Future plans of the company will not be disclosed to the trainees.
Lastly, due to shortage of time it is not possible to cover all the factors and details
regarding the subject of study.
The latest financial data could not be reported as the companys websites have not
been updated.

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CHAPTER 5
DATA ANALYSIS AND INTERPRETATION

5.1 DATA ANALYSIS

25
The collected data is analyzed through working capital calculations, ratio analysis using financial
statements and only important tables are used for data discussion as per research need and which are
taken for data analysis

5.2 INTERPREATION
WORKING CAPITAL ANALYSIS IN METRO TYRES LIMITED
Net working Capital ( CURRENT ASSETS CURRENT LIABILITIES)
Particulars
Total Assets
Total Fixed
Assets
Total other
Non Current
assets
Total
Noncurrent
assets
Total
Current
Assets
Less

Total
Shareholders'
Funds
Share
Application
Money
Pending
Allotment

2011

2012

2013

2014

2015

110.86

143.11

147.59

141.76

155.94

570.78

578.4

563.21

554.7

610.17

681.64

721.51

710.79

696.46

766.11

1164.58

1055.73

1013.26

1072.5

1179.75

650.87

663.72

684.91

685.3

753.83

1.43

2.64

150.16

82.28

51.13

56.24

239.21

246.08

336.07

369.68

95.02

56.39

39.97

43.96

Total Non
Current
191.44
Liabilities

Total Current 320.84

Liabilities
Net
Working
162.10
Capital

26

Sales

2011
2012
2013
2014
2015

Data Interpretation
If we analysis the five years working capital position of the company, we find out that company has
sufficient working capital to meets its short term liability, it is good indicator for the company but in
2012, working capital is decreased but in 2015 it increased by 3.9 lacs from yr 2014which shows
that a sufficient amount has been blocked in working capital which could be used for some other more
beneficial purpose.

Positive working capital means that the business is able to pay off its short-term liabilities.
Also, a high working capital can be a signal that the company might be able to expand its
operations.
Negative working capital means that the business currently is unable to meet its short-term
liabilities with its current assets. Therefore, an immediate increase in sales or additional
capital into the company is necessary in order to continue its operations.
Working capital also gives an idea of company's efficiency. Money tied up in inventory or
accounts receivable cannot pay off any of the company's short term financial obligations.

27

Therefore, working capital analysis is very important, but very complex too. For example, an
increase in working capital can be explained by sales increase, but can also be explained by
slow collection or inadequate increase in inventory.

5.2.2 RATIO ANALYSIS

1. LIQUIDITY RATIO
1.1 Current Ratio
For current year 2015
Current Ratio= Current Assets/Current liabilities = 413.64/369.68 = 1.11
For previous year 2014
Current Ratio= Current Assets/Current liabilities = 376.04/336.07 = 1.11
For year 2013
Current Ratio = Current Assets/Current liabilities = 302.47/246.08 =1.22
For year 2012
Current Ratio = Current Assets/Current liabilities = 334.23/239.21 = 1.39
For year 2011
Current Ratio = Current Assets/Current liabilities = 482.94/320.84 = 1.50

YEAR
Current Assets
Current Liabilities
Current Ratio

2011
2012
2013
2014
2015
482.94 334.23 302.47 376.04 413.64
320.94 239.21 246.08 336.07 369.68
1.5
1.39
1.22
1.11
1.11

From this table it is clear that in last two years it was constant .In Year 2011 it was quickest liquidity
of

a firm.

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1.2 Quick Ratio

This is already calculated as mentioned in Ratio analysis Table in Annexure.
YEAR
Quick Ratio

2011
1.19

2012
1.12

2013
1.03

2014
0.63

2015
0.69

Quick Ratio = Current Assets Stock/Current Liabilities

The quick ratio indicates the relation of quick assets with current liabilities. Quick or liquid assets
include all current assets except stock and prepaid expenses. Quick ratio measures the extent to
which liquid resources are immediately available to meet current obligations. This ratio is a better
test of financial strength as it gives no consideration to inventory which may be very slow.
Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition.
The table above indicates the quick ratio if Metro tyres. is 0.69 :1 as against 1:1. It means the
company hasnt enough liquid assets to meet short term liabilities. The short term liquidity position
of the concern is satisfactory

2. SOLVENCY RATIO
2.1 Debt equity Ratio
YEAR
Debt equity Ratio

2011
0.36

2012
0.3

2013
0.43

2014
0.41

2015
0.45

In last three years margin of difference is 0.2.The debt equity Ratio ranges in between 0.36 to 0.45.
Debt-equity ratio indicates the proportion of borrowed capital to the net worth. Generally 2:1 debtequity is considered to be satisfactory. This could be calculated as formula Long term
Debt/shareholders fund, Shareholders funds = equity capital+ reserves + profit or loss accountfactious assets.

29

2.2 Interest coverage Ratio

YEAR
Interest coverage Ratio

2011
10.66

2012
9.66

2013
9.68

2014
13.45

2015
14.8

The lower the ratio, the more the company is burdened by debt expense. When a company's
interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be
questionable. An interest coverage ratio below 1 indicates the company is not generating
sufficient revenues to satisfy interest expenses. In this case firstly it decreases in yr 2011 to
2012 then increases then again increase in last year it increases but less than 1.5 so its
ability is questionionable.

2.3 Debt to total funds Ratio

YEAR
Long term debt Equity Ratio

2011
0.29

2012
0.24

2013
0.32

2014
0.35

2015
0.39

Solvency is the term which is used to describe the financial position of any business which is
capable to meet outside obligations in full out of its own assets. So this ratio establishes relationship
between total liabilities and total assets.

30

3. ACTIVITY RATIO
3.1 Stock turnover Ratio
Stock turnover ratio=Cost of goods sold/net sales
YEAR
Stock turnover ratio

2011
9.18

2012
8.43

2013
9.09

2014
9

2015
9.9

This ratio indicates the efficiency of the firm in producing and selling its products. The inventory or
stock turnover ratio measures how quickly inventory is sold. It is the test of efficient inventory
management. In general, a high inventory ratio is better than a low ratio. A high ratio implies good
inventory management. However, it may be of underinvestment in, or very low level of inventory.
Similarly, a very low inventory turnover ratio is dangerous. It signifies excessive inventory or
overinvestment in inventory.

3.2 Debtors turnover Ratio

Debtors turnover Ratio = Net Sales/average Debtors
Average Debtors = opening Debtors+ Closing Debtors +Bill receivable/2
The debtors turnover ratio shows how quickly receivables or debtors are converted into cash.
These throw light on the collection and credit policies of the firm. Debtors turnover ratio is
found out by dividing credit sales by average debtors. At the end of last financial year the
debtors turnover ratio of METRO Tyres Ltd was 9.09,9 and 9.9 :1 in previous year.

YEAR
Debtors turnover ratio

2011
9.18

2012
8.43

3.3 FIXED ASSETS TURNOVER RATIO

2013
9.09

2014
9

2015
9.9

31

Fixed Assets turnover Ratio = Net Sales/Average fixed assets

YEAR
Fixed assets turnover ratio

2011
2.21

2012
2.24

2013
2.36

2014
1.93

2015
2.12

This ratio helps to know the efficiency of management in using the fixed assets. It is
calculated by dividing sales to fixed assets. This ratio is an important measure of the
efficiency and profit earning capacity of the business. A high ratio indicates efficiency in
utilizing the fixed assets while a low ratio suggest idle capacity and excessive investment in
fixed assets. Fixed Asset turnover ratio of Metro tyres was 2.21and 2.12. It means the
efficiency of utilizing fixed assets have increased.

3.4 TOTAL ASSETS TURNOVER RATIO

Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to
maximize sales. The relationship between sales and total assets is called as total assets
turnover ratio. This ratio shows the firms ability in generating sales from all financial
resources committed to total assets. Total assets include net fixed and current assets. The ratio
indicates the sales generated per rupee of investment in total assets. This ratio indicates the
efficiency in use of total assets. Higher ratio indicates that more revenue is generated per
rupee of total investment in the assets. The total asset turnover ratio of Metro tyres Ltd was
1.34:1at the end last financial year. Considering the industry standard it is satisfactory. It
means the Metro tyres have efficiently utilized its assets.
Total assets turnover Ratio = net sales/average total assets

YEAR
Total assets turnover Ratio

4. Profitability Ratio

2011
1.68

2012
1.74

2013
1.54

2014
1.22

2015
1.34

32

4.1Gross profit Ratio

Gross profit Ratio= Gross profit/net sales*100/
Gross profit = gross income other interest
Gross profit ratio establishes a relationship between net profit (after tax) and sales and
indicates the efficiency of the management in manufacturing, selling administrative and
other activities of the firm.

2011
6.73

YEAR
Gross profit Ratio

4.2

2012
5.91

2013
5.66

2014
7.02

2015
7.72

2013
5.5

2014
6.72

2015
7.39

Net profit Ratio

Net profit Ratio = net profit/net sales

YEAR
Net profit Ratio

2011
5.96

2012
5.7

Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates
the efficiency of the management in manufacturing, selling administrative and other activities
of the firm.

4.3 Return on total assets

Profitability can be measured in terms of relationship between net profit and assets. This ratio
is also known as profit-to-assets ratio. It measures the profitability of investments. The
overall profitability can be known.
Return on total assets = Net profit/total assets

4.4 Return on capital employed

Return on capital employed= Net profit/capital employed

33

Capital employed = share capital + reserves + profit & loss account (credit)
fictitious assets

4.5 Operating profit ratio

Operating ratio establishes the relationship between cost of goods sold and other operating
expenses on the one hand and the sales on the other.
Operating Ratio = operating cost/net sales
However 75 to 85% may be considered to be a good ratio in case of a manufacturing under
taking. Operating profit ratio is calculated by dividing operating profit by sales.
. 4.6 PRICE - EARNING RATIO
Price earnings ratio is the ratio between market price per equity share and earnings per
share. The ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether (or) not to buy shares in a
particular company. Generally, higher the price-earnings ratio, the better it is. If the price
earnings ratio falls, the management should look into the causes that have resulted into the
fall of the ratio.

34

CASH FLOW STATEMENT

INTERPRETAION
The cash flow statement shows how much cash comes in and goes out of the company over
the quarter or the year. In Current year cash goes out of the company over the year.

Particulars

2011

2012

2013

2014

2015

58.55

10.55

108.80

140.49

154.54

136.88

2.22

(35.97)

(83.52)

-88.17

(92.11)

(69.24)

(78.31)

(44.67)

-40.19

1031.62

(56.47)

(5.48)

12.30

13.53

Net cash flow

from operating
activities
Net cash flow
from Investing
activities
Net cash flow
from Financial
activities
Net
increaseCash
equivalent

35

CHAPTER 6
FINDINGS

FINDINGS

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of

36

the company for years 2011-2013 has decreased but in last 2 years in 2013-2014 and In
2014-2015 financial years It remains constant This depicts that companys liquidity position
is same. Its current assets are more than its current liabilities.

A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time. The ideal quick ratio is 1:1. Companys quick ratio is more
than ideal ratio. This shows company has no liquidity problem.

Inventory conversion period shows that how many days inventories take to convert
from raw material to finished goods. In the company inventory conversion period is
decreasing. This shows the efficiency of management to convert the inventory into
cash.

Current liabilities shows company short term debts pay to outsiders. In 2014-2015
financial years current liabilities of the company increased. But still increase in
current assets is more than its current liabilities.

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 increase in working capital. The increase in working capital
arises because the company has expanded its business.

37

CHAPTER 7
CONCLUSION AND RECOMMODIATIONS

CONCLUSION

38

In the present study I have analyzed the working management of METRO TYRES LTD.I
found that inventory is increasing which shows that company has sufficient stocks to meet up
out production of the company. Inventory Turnover Ratio measures the velocity of
conversion of stock into sales. Usually, a high inventory turnover indicates efficient
management of inventory because more frequently the stocks are sold; the lesser amount of
money is required to finance the inventory.

The working capital position of the company is sound and the various sources through
which it is funded are optimal.
The company has used its purchasing, financing and investment decisions to good
effect can be seen from the inferences made earlier in the project.
The debts doubtful have been doubled over the years but their percentage on the debts
has almost become half. This implies a sales and collection policy that get along with
the receivables management of the firm.
The various ratios calculated are an indicator as to the fact that the profitability of the
firm and sales are on a rise and also the deletion of the inefficiencies in the working
capital management.
The firm has not compromised on profitability despite the high liquidity is
commendable.
Metro Tyres Ltd . has reached a position where the default costs are as low as
negligible and where they can readily factor their accounts receivables for availing
finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

The management of working capital plays a vital role in running of a

successful business. So, things should go with a proper understanding for

39

managing cash, receivables and inventory. Proper Calculations of Ratio

analysis should be done
Metro Tyres Ltd is managing its working capital in a good manner, but still
there is some scope for improvement in its management. This can help
the company in raising its profit level by making less investment in
accounts receivables and stocks etc. This will ultimately improve the
efficiency of its operations. Following are few recommendations given to
the company in achieving its desired objectives:

The business runs successfully with adequate amount of the working capital but the
company should see to it that the cash should not be tied up in excessive amount of

working capital.
Though the present collection system is near perfect, the company as due to the
increasing sales should adopt more effective measures so as to counter the threat of

bad debts.
The over purchasing function should be avoided as it could lead to liquidity

problems.
The investment of cash in marketable securities should be increased, as it is very

profitable for the company.

Holding of excessive and insufficient stock must be avoided as it creates a burden
on the cash resources of a business and results in lost sales, delays for customers, etc
respectively.

REFERENCES
Following sources have been sought for the preparation of this report:
Corporate Intranet
Financial Statements (Annual Reports)

40

CMA Data
Direct interaction with the employees of the company
Internet ---Websites
www.metrotyres.com
www.moneycontrol.com
Metrogroup.co.in
Textbooks on financial management I.M.Pandey
Khan and Jain
Other Resources
Annual Report of METRO Tyres Ltd and Google
Centre for Monitoring Indian Economy (CMIE) database software.

Capitaline.com

ANNEXURE

Balance Sheet

41

Particulars

FY11

FY12

FY13

FY14

FY15

Total Shareholders' Funds

650.87

663.72

684.91

685.3

753.83

Share

Application

Money
1.43

Pending Allotment

2.64

Total Non Current Liabilities

191.44

150.16

82.28

51.13

56.24

Total Current Liabilities

320.84

239.21

246.08

336.07

369.68

Total Equity And Liabilities

1164.58 1055.73 1013.26 1072.5

1179.75

Total Fixed Assets

110.86

143.11

147.59

141.76

155.94

Total Other Non Current Assets 570.78

578.4

563.21

554.7

610.17

Total Non Current Assets

681.64

721.51

710.79

696.46

766.11

Total Current Assets

482.94

334.23

302.47

376.04

413.64

Total Assets

1164.58 1055.73 1013.26 1072.5

1179.75

Cash Flow Statement

Particulars

FY11

FY12

FY13

FY14

FY15

Profit Before Taxation

89.81

6.09

29.48

23.34

25.67

58.55

10.55

108.80

140.49

154.54

136.88

2.22

(35.97)

(83.52)

-88.17

(92.11)

(69.24)

(78.31)

(44.67)

-40.19

103.62

(56.47)

(5.48)

12.30

13.53

Net

Cash

From

Operating

From

Investing

Activities
Net

Cash

Activities
Net Cash Used In Financing
Activities
Net Increase In Cash And Cash
Equivalents

42

Ratio Analysis
Particulars

FY11

FY12

FY13

FY14

FY15

10.19

8.54

7.91

9.6

10.56

Profit Before Interest And Tax Margin(%) 6.61

5.78

5.53

6.84

7.52

Gross Profit Margin(%)

6.73

5.91

5.66

7.02

7.72

Cash Profit Margin(%)

9.35

8.27

7.71

9.23

10.15

Adjusted Cash Margin(%)

9.35

8.27

7.71

9.23

10.15

Net Profit Margin(%)

5.96

5.7

5.5

6.72

7.39

Adjusted Net Profit Margin(%)

5.96

5.7

5.5

6.72

7.39

Return On Capital Employed(%)

12.82

12.55

10.97

10.42

11.46

Return On Net Worth(%)

12.29

11.73

11.15

10.51

11.56

Adjusted Return on Net Worth(%)

12.29

11.73

11.15

10.51

11.56

Return on Long Term Funds(%)

13.46

13.21

11.94

10.88

11.97

Current Ratio

1.46

1.43

1.11

0.89

0.98

Quick Ratio

1.19

1.12

1.03

0.63

0.69

Debt Equity Ratio

0.36

0.3

0.43

0.41

0.45

Long Term Debt Equity Ratio

0.29

0.24

0.32

0.35

0.39

Interest Cover

10.66

9.66

9.68

13.45

14.8

Total Debt to Owners Fund

0.36

0.3

0.43

0.41

0.45

Financial Charges Coverage Ratio

14.93

12.78

12.42

17.04

18.74

Financial Charges Coverage Ratio Post Tax 12.79

11.04

10.6

14.18

15.6

Profitability Ratios
Operating Profit Margin(%)

Liquidity And Solvency Ratios

Debt Coverage Ratios

Management Efficiency Ratios

43

Inventory Turnover Ratio

9.18

8.43

9.09

9.9

Debtors Turnover Ratio

18.4

23.78

34.61

42.95

47.25

Investments Turnover Ratio

9.18

8.43

9.09

9.9

Fixed Assets Turnover Ratio

2.1

2.24

2.36

1.93

2.12

Total Assets Turnover Ratio

1.68

1.74

1.54

1.22

1.34

Asset Turnover Ratio

1.5

1.57

1.51

1.12

1.23

Particulars

FY11

FY12

FY13

FY14

FY15

Total Revenue

706.96

402.35

449.8

780.02

858.02

Total Expenses

493.26

345.77

395.7

717.85

789.64

EBIDTA

213.7

56.58

54.1

62.17

68.39

Finance Costs

41.89

32.56

27.64

29.23

32.15

Depreciation

54.1

17.9

13.61

9.6

10.56

Exceptional Items Before Tax

-27.9

-0.03

16.63

Profit Before Tax

89.81

6.09

29.48

23.34

25.67

Total Tax Expense

-13.98

-11.79

10.45

17.7

19.47

Profit After Tax

103.79

17.88

19.03

5.64

6.2

Profit And Loss Account

44

QUESTIONNAIRE
Objective- To know the working capital policy and financial
statements of tyres industry
Name of Concerned Person .
Designation

....

Contact No.

DEMOGRAPHIC PROFILE
GENDER : MALE

FEMALE

AGE

30-35

25-30

I am working in Metro tyres ltd

2yrs

4 ys

6 yrs

45

Q.1. Does your Industry have an overall policy for the management of its working capital?
Yes

No

Q.2. Who sets the management policy for working capital for Metro Tyres Ltd ?
Board of Management
President/Chairman
Finance committee
Q.3. How often the management policy for working capital reviewed?
Monthly
Quarterly
Annually
Q4.How net operations affect the business?
Strongly
Immensely
Badly
Q5.Is Working capital based on operating cycles?
Yes

No

Q6.Does your demand vary per person ?

Yes
Q7.

No
How do you arrange additional working capital ?

Loan
Q8. How would you describe your policy for the management of working capital?
Cautious
Aggressive

46

Situational
Changes overtime
Q9.Does you get enough profit in last 5yrs?
Yes

No

Q10.How financial statements affected your business?

Strongly

Badly

Worst

Cant Say