Budget Control in Maruti

AMITY SCHOOL OF BUSINESS

A SUMMER TRAINING REPORT ON

REVIEWING THE WHOLE PROCESS OF BUDGET PREPARATION AND BUDGETARY CONTROL (In partial fulfillment of Bachelor of Business Administration)

SUBMITTED TO:

SUBMITTED BY:

MRS PRIYA SOLOMEN

GAURAV MAHESHWARI BBA(GEN) E-46 (2008-2011)

Amity School of Business Amity University, Uttar Pradesh 1


DECLARATION I hereby declare that the present study entitled entitled Reviewing the whole process of of Budget Preparation and Budgetary Control at MARUTI SUZUKI INDIA LTD. Is based on my original original research work for the fulfilment fulfilment of the continuous continuous evaluation of the assessment of two months summer internship internship program, program, BACHELOR OF BUSINESS ADMINISTRATION -Class of 2008-2011.The report has been done by me under under the guidance of M r Narayan Murthy(Industry Murthy(Industry guide).And Mrs Priya Solomen (Fa culty Guide).the research presented in this study has not been submitted in full or part in this or any other university of the award of any degree or diploma.

GAURAV MAHESHWARI

Place: Noida

BBA(GEN)2008- 2011

Date:

A3906408154

2


CERTIFICATE

This is to certify that Mr. GAURAV MAHESHWARI (A3906408154), a student of Bachelor Of Business Administration Administration (BBA GENERAL),class of 2008 -2011 Amity School Of Business, Amity University has undertaken the summer internship training at Maruti Suzuki India Ltd during May 2010 to June 2010. 2010. He has worked under the guidance for the project project tit le BUDGET PREPARATION AND BUDGETARY CONTROL at Maruti Suzuki India Ltd.

This project report in partial fulfilment of Bachelor Of Business Administration (BBA GENERAL) to be awarded by Amity University, Uttar Pradesh.

To the best of my knowledge, this price of work is original and no part of this report has been submitted to any other Institute/University Institute/University earlier.

Mrs Priya Solomen

Date:

Faculty Guide

3


ACKNOWLEDGEMENT

I express my sincere& deep sense of gratitude to my industry guide for their constant support which which m ade me work in right direction an d their encouraging attitude at every stage of preparation of this project. I am also thankful to my faculty guide , Mrs Priya Solomen for her help in the completion of this project. I would also also like to thank the whole Finance D epartment , Maruti Suzuki India Ltd, for making me familiar with the intricacies of project development and ensuring that work in a systematic way. Also, I would like to extend my gratitude to my institute Amity School Of Business Business (Noida) for giving me an opportunity to have a pra ctical experience of job. It is a great pleasure for me to ac knowledge the assistance of these people who have taken keen interest in m y work and extended their help. It was a great experience knowing the attitude of different different people towards the system. I owe my sincere thanks to all of them.

Gaurav Maheshwari BBA(GEN)2008-2011

4


ABSTRACT The

first

project

- REVIEWING THE WHOLE PROCESS OF BUDGET

PREPARATION AND BUDGETARY CONTROL FOLLOWED IN MARUTI SUZUKI INDIA LIMITED involves the reviewing the whole process of budget preparation and budgetary control

followed in Maruti Suzuki India limited. The budgetary system followed in Maruti Suzuki India limited is very unique and is based upon a similar system followed in its parent company from Suzuki Motor Corporation Japan. Annual budgeting exercise for Maruti Suzuki India limited starts in December every year for next accounting year and gets finalized by February end. This budgetary process followed by Maruti ensures proper utilizations of funds by different departments of the company. There are over 350 + departments in the company. So without effective budgetary control system in place, it would be impossible for the company to ensure proper utilization of the funds in the company. The first step of this project is to understand and review how the different departments prepare their budgets and how the budgeted balance sheet and budgeted profit and loss account for the whole company is prepared. Every year each department prepares a budget for their department on the basis of their projected expenses. These b udgets are sent to the budgeting and costing department of the company, which on the basis of these budgets prepares budgeted balance sheet and budgeted profit and loss account. After preparing budgeted balance sheet and budgeted profit and loss account, budgeting department presents these a ccounts in front of board of directors for their approval. The second step of this project is to understand and review the process of budgetary control followed in Maruti Suzuki India limited. In Maruti Suzuki budgetary control and budget monitoring is a continuous process, which involves monitoring of the budgets of different departments by comparing the actual expenses of the respective departments with their projected expenses and finding out reasons for any deviations if any. The final step of this project is to suggest measures to make this whole process more effective, less time consuming and error proof.

5


6


TABLE OF CONTENTS ..͙ 1. INTRODUCTION .͙ ....... . ͙ ͙ ͙͙ ͙ ͙͙ ͙ ͙ ͙͙

8

2. REVIEW OF LITERATURE .͙ ... 13 .. ͙͙ ͙ ͙ ͙ ͙ 3. COMPANY PROFILE͙ ͙ .............................................................

15

4. SWOT ANALYSIS.......................................................................

20

5. RESEARCH METHOLODOGY ................................ 24 ͙ ͙ ͙ ͙ 6. OBJECTIVES ͙........................................................................

29

7. BUDGETS PREPARATION PROCESS FOLLOWED IN MARUTI SUZUKI 8. BUDGETARY CONTROL PROCESS IN MARUTI SUZUKI . ͙ ͙ ͙ 9.

37

RATIO ANALYSISǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥǥ

10. CONCLUSI ON...................... .................................................... .................

11. RECOMMEN DATIONS.................................. ........................................

12. BIBLIOGRAPHY.......................................................................................

7

33

42

45

46

4 7

AMITY S

OF B SINESS

MARUTI SUZUKI INDIA LTD

INTRODUCTION ʹ Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the passenger car segment, both in terms of volume of vehicles sold and revenue earned. It is largely credited for bringing an automobile revolution to India. Maruti Udyog Limited was established in Feb 1981 through an Act of Parliament, as a Government company with Suzuki Motor Corporation of Japan holding 26 per cent stake. The Joint Venture agreement was signed between Government of India and Suzuki Motor Company (now Suzuki Motor Corporation of Japan) on Oct 1982. Suzuki Motor Company was chosen from seven prospective partners worldwide. This was because of their undisputed leadership in small cars and also because of their commitment to actively bring to MUL contemporary technology and Japanese management practices (which had catapulted Japan over USA to the status of the top auto manufacturing country in the world).

Maruti Udyog l imite d w as renamed t o Maruti Suzuki I nd ia Limited ( MSI L) on 17

September, 2007.

Until recently, 18.28% share of Maruti Suzuki, a subsidiary of Suzuki Motor Corporation Japan, was owned by the Indian Government, and 54.2% by Suzuki of Japan. On May 10, 2007 Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Suzuki India limited. The company went into production in a record time of 13 months and the first car was rolled out from Maruti Suzuki India Limited Gurgaon in December, 1983. In 2001, Maruti Suzuki India Ltd became one of the first automobile companies anywhere in the world to get an ISO 9001 2000 certification. A V Belgium has rated the 8


company͛s quality systems and practices as a͞ INDUSTRY

WORLD-WIDE ,͟

global

auditors

BENCHMARK FOR THE AUTOMOTIVE

for

International

Organization

for

Standardization. Since inception, Maruti Suzuki produced and sold over 7.5 million vehicles, including almost 500,000 units in Europe a nd other export markets. In fact, every 22 seconds a car is rolled out of Maruti Suzuki. It is Suzuki͛s largest m anufacturing facility, outside Japan offering 11 models i over 100 v ri

t s .

9


MANUFACTURING FACILITIES -

Maruti Suzuki have two manufacturing facilities

in India, one in Gurgaon and the other in Manesar, Nor th India .

Gurgaon plant

- Maruti Suzuki`s Gurgaon plant houses three fully integrated plants.

While the three plants have a total installed capacity of 350,000 cars per year, several productivity improvements or shop floor Kaizens over the years have enabled the company to

manufacture

nearly

650,000

cars

per

year

at

the

Gurgaon

facilities.

The entire facility is equipped with more than 150 robots, out of which 71 ha ve been developed in-house. More than 50 per cent of shop floor employees have been trained in Japan.

Manesar plant

- Maruti Suzuki`s Manesar plant has been made to suit Suzuki Motor

Corporation (SMC) and Maruti Suzuki India Limited's (MSIL) global ambiti ons. It is rated high among Suzuki's best plants worldwide the plant was inaugurated in February 2007. . The plant has several in-built systems and mechanisms to ensure that cars being manufactured here are of good quality. There is a high degree of automation and robotic control in the press shop, weld shop and paint shop to carry on manufacturing work with acute precision and high quality. In particular, areas where manual operations are hazardous

or

unsafe

have

been

equipped

with

robots.

The plant is designed to be flexible: diverse car models can be made here conveniently owing to automatic tool changers, centralized weld control system and numerical control machines that ensure high quality.

.

The plant at Manesar is the company's fourth car assembly plant and has started with an initial capacity of 100,000 cars per year. This will be scaled up to 300,000 cars per year. A total investment of Rs 2,500 crore will be made in this car plant by 2010

Diesel engine plant

- Suzuki Powertrain India Limited the diesel engine plant at

Manesar is Suzuki & Maruti's first and perhaps the only plant designed to produce world

10


class diesel engine and transmissions for cars.

.

This plant is under a joint venture company, called Suzuki Powertrain India Limited (SPIL) in which SMC holds 70 per cent equity with the rest held by Maruti Suzuki. This facility has an initial capacity to manufacture 100,000 diesel engines a year. This will be scaled up to 300,000 engines per year by 2010.

.

The diesel engines manufactured at this plant will also be exported to SMC companies across the world.

.

This facility, too, has a high level of automation. Final inspection of components is done through automatic measuring and marking machines, which leads to a uniform and error free production.

Marut i Suzuk ͛is con tr ibut ion as the engine of gr ow th of the Indi an aut o ind ustry, indeed i ts Impact on the lifesty le and psy che of an ent i r e generat ion of Indi an middle cl ass , is widel y ack nowledged.

11


12


REVIEW OF LITERATURE

BUDGET:

A budget is a detailed plan expressed in quantitative terms that specifies

how an organization will acquire and use resources during a particular period of time.

In other words a budget is a systematic plan for the efficient utilization of resources. Budget serves as a b enchmark against which actual results can be compared.

What are the Key Purposes of Budget?



Planning: Preparing budgets forces organization to plan ahead.

 Facilitate

Co-ordination:

To be effective, each department throughout the

organization must be aware of plans made by other departments.  Allocating

Resources: As resources are limited, budget provides one means of

allocating resources among competing uses. So, that resources can be used in a best possible manner.  Exercising control: Budgets helps in managing financial and operational performance,

by comparing actual performance ag ainst the planned performance.

In a business organization, a budget represents an estimate of future costs and revenues. Budgets may be divided into two basic categories:

1) Capital Budgets 2) Revenue Budgets.

13


Capital budgets are directed towards proposed expenditures for new projects and often require special financing. For example ʹ installing a new plant or expanding the production capacity.

Revenue budgets are directed towards achieving short-term operational goals of the organization, for instance, production or profit goals in a business firm. Operating budgets may be sub-divided into v arious departmental of functional budgets.

Budgetary control: No system of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budgets is known as budgetary control. The process of budgetary control includes:

1. Preparation of various budgets.

.

2. Continuous comparison of actual performance with budgetar y performance.

.

3. Revision of budgets in the light of changed circumstances.

14


COMPANY PROFILE 15


Maruti Udyog Limited, a subsidiary of Suzuki Motor Corporation of Japan, has been

the leader of the Indian car market for about two decades. Its manufacturing plant, located some 25 km south of New Delhi in Gurgaon, has an installed capacity of 3,50,000 units per annum, with a capability to produce about half a million vehicles. The company has a portfolio of 11 brands, including Maruti 800, Omni, premium small car Zen, international brands Alto and WagonR, off-roader Gypsy, mid size Esteem, luxury car Baleno, the MPV, Vers a, Swift and Luxury SUV Grand Vitara XL7. In recent years, Maruti has made major strides towards its goal of becoming Suzuki Motor Corporation's R and D hub for Asia. It has introduced upgraded versions of Wagon -R Zen

and

Esteem,

completely

designed

and

styled

in-house.

Maruti's contribution as the engine of growth of the Indian auto industry, indeed its impact on the lifestyle and psyche of an entire generation of Indian middle class, is widely acknowledged. Its emotional connect with the customer co ntinues Maruti tops customer satisfaction again for sixth year in a row according to the J.D. Power

Asia

Pacific

2005

India

Customer

Satisfaction

Index

(CSI)

Study.

The company has also ranked highest in India Sales Satisfaction Study. The company's quality systems and practices have been rated as a "benchmark for the automotive industry world-wide" by A V Belgium, global auditors for International Organisation for Standardisation.

In keeping with its leadership position, Maruti supports safe driving and t raffic management through mass media messages and a state-of-the art driving training and research institute that it manages for the Delhi Government. The company's service businesses including sale and purchase of pre owned cars (TrueValue), lease and fleet management service for corporates (N2N), Maruti Insurance and Maruti Finance are now fully operational.. These initiatives, besides providing total mobility solutions to customers in a convenient and transparent manner, have helped improve economic viability of The company's dealerships. The company is listed on Bombay Stock Exchange and National Stock Exchange.

16


OBJECTIVES ʹ  Modernization of the Indian Automobile Industry.  Production of fuel -efficient vehicles to conserve scarce resources.  Production of large number of motor vehicles which was necessary for economic

growth.

17


BOARD OF DIRECTORS:

y

Mr Shinzo Nakanishi, Chairman

y

Mr Jagdish Khattar, Managing Director

y

Mr Hirofumi Nagao, Joint Managing Director

y

Mr Shinichi Takeuchi, Joint Managing Director

y

Mr Osamu Suzuki, Director

y

Mr R C Bhargava, Director

y

Dr. Surajit Mitra, Director

y

Mr Kumar Mangalam Birla, Director

y

Mr. Amal Ganguli, Director

y

Ms Pallavi Shroff, Director

y

Mr Manvinder Singh Banga, Director

18


Profile of Products

19


20


EXPORTS OF MARUTI SUZUKI INDIA LIMITED

In March 2007 Maruti Suzuki India limited crossed cumulative export figure of 450,000 vehicles since its first export in 1986. It is India͛ s largest passenger car manufacturer and has a global presence with a well established network in several countries across Asia, Europe, Africa, South and Latin America. Europe has been the largest market with exports of over 280000 units. Even in the highly developed markets of Netherlands, UK, Germany, France & Italy, Maruti vehicle have made a mark. The top ten destinations of the cumulative exports have been Netherlands, Italy, U.K., Germany, Algeria, Chile, Hungary, Sri Lanka, Nepal and Denmark in that o rder. Maruti has also entered some unconventional markets like Angola, Benin, Djibouti, Ethiopia, Morocco, Uganda, Algeria, Egypt, Chile, Costa Rica and El Salvador and witnessed sizeable growth. The Middle-East region has also opened up and is showing good potential for growth. Some markets in this region where Maruti has a good presence are Saudi Arabia, Jordan, Kuwait, Bahrain, Qatar and UAE. In Europe the number of units sold is 280000 in 34 countries, in Africa it is 45000units, in Latin America it is 29000units and Oceania the number of units sold is 6300units.

21


9%

2%

10%

EUROPE ASIA AFRICA

15%

AMERICA 64%

OCEANIA

CONTINENT WISE EXPORTS OF MARUTI SUZUKI SINCE ITS INCEPTION

PROD CT PORTFOLIO ʹ The company has a product portfolio of 11 brands with over 100 variants, including - Maruti 800, Omni, Alto, WagonR, Swift, Zen Estilo, Gypsy, DZire ,Versa, SX4, Ritz, A-Star and Grand Vitara. Three Maruti Suzuki`s cars namely Maruti Zen Estilo, Maruti Swift and Maruti SX4 walked away with 2007- India Automotive Performance, Execution and Layout Study (APEAL) Award in their respective categories.

.

In 2007 Initial Quality Study also, Maruti Swift walked away with the highest IQS in the Premium Compact car segment.

22


ACCOL ADES 2008-2009

 Maruti Suzuki was ranked first in customer satisfaction in an annual survey conducted by

JD Power for the seventh time in a row.  The company was ranked first in India for sales satisfaction for the third time in a row by

JD Power Asia Pacific.  The company won the Ava ya Global Connect Customer Responsiveness award 2006.  The company was ranked 91among world`s most reputed companies reported by Forbes

magazine. Among automobile players, it ranked 5th in the world, ahead of many global giants.  Business World ranked Maruti as India͛ s most respected automobile company.  Business today listed the company among India͛ s 10 best marketers.  Maruti Suzuki won the Asia Pacific PLM excellence award for 2006 from UGC Corp,

leading global provider of product life cycle manag ement (PLM) software and services.  TNS Automotive ranked Maruti Suzuki first for Corporate Social Responsibility.  Manesar car assembly plant is ranked amongst the top two Japanese subsidiaries

overseas, by Nikkei (Nihon Keizai Shimbun), for the year 2007.

23

.


SWOT A ALY SIS OF M ARUTI SUZUK I

M AJOR STR ENGHTS OF M ARUTI SUZUK I INDI A LIMIT ED ʹ 1) LOW LABOR COST - Maruti Suzuki India limited is operating in a country in which cost of

labor is very low as compared to other developing and developed countries. This is a major strength for Maruti Suzuki. 2) STRONG DISTRIBUTION AND SERVICE NETWORK - Maruti Suzuki has the largest

Distribution and Service Netw ork in India  600 showrooms covering 393 cities  150 rural format sales outlets in 143 cities  620 dealer service st ations &1900 Maruti Authorized Service Stations

 Over 1190 cities covered by Service Network

3) STRONG PRODUCT PORTFOLIO - Maruti Suzuki has a large and strong product portfolio  Maruti Suzuki͛s overall portfolio consists of 11 basic models & over 150 variants

spanning across all seg ments of the industry.

 It has widest product range in India

 Majority of new showrooms & workshops coming from existing dealers

 Maruti Suzuki is Present in Gasoline, Diesel and LPG

 6 models launched in last 30 months including Swift Diesel & Wagon R Duo.

24


4) EXCLUSIVE TIE UPS WITH AUTO FINANCE COMPANIES - In India, a large proportion of cars

ʹ about 75

are sold via finance. Company`s exclusive tie ups with financers helps the

customers to get their vehicles financed easily.

M AJOR WE AK NESSES FOR M ARUTI SUZUK I INDI A LIMITED -

Diesel Segment A3 Perceived as entry level car only ͙

M AJOR OPPURTINITI ES FOR M ARUTI SUZUK I INDI A LIMITED -

1) India is among the few countries that are showing a growth rate of 30

in demand for

passenger cars as domestic automobile market is growing at a high rate. Automobile industry expert pr edicts that by 2050 every sixth car in the world will be for Indians

2) There are about 700 million vehicles on road in the world today. It is estimated that this vehicle population would grow to about 1.3 billion in the year 2030. Most of this increase of 600 million will come from developing countries. These markets will

look for low-cost automobiles. India has the opportunity to meet this need. And, in the process create a huge export market. This presents a major opportunity for Maruti Suzuki as it is a m ajor player in Indian automobile sector.

3) By 2010, India is expected to witness over Rs 30,000 crore of investment.

25


4) According to estimation the compound annual growth rate (CAGR) of Indian automobile sales will grow at 9.5

5) About 77

and will touch a mark of 13,008 million by 2010.

of the Indian automobile sector is still owned by 2 wheeler m anufacturers,

which can be a potential market for small car m anufacturers.

6) Maruti Suzuki believes that there are millions of Indians who can afford a car but for various reasons are not buying one. With focused marketing efforts, many of these people can be persuaded to buy a car. This is a major opportunity for the company. The company also took several initiatives like Special Schemes for certain sections of society like government employees etc., Employee referral scheme where each employee was veiled as sales man. Dealer and vendor scheme are some other examples of these initiatives.

26


7)

The above graph shows the positive correlation between GDP and the no. of cars per 1000 people. GDP of India is growing at a very healthy rate and is expected to grow between 6 to 8

. India͛s fast paced GDP growth and pent up demand are expected to fuel growth in

automotive sales. This presents a great opportunity for automobile manufacturers .

8) Low car penetration, about 8 cars per 1000 Population in India.

9) By 2020 more than half of India͛s population is expected to live in urban areas this will bring about a dramatic growth in demand of passenger cars.

10) Indian rural market is on the verg e of opening up, this will present a huge growth opportunity for automobiles manufacturers.

27


M AJOR T HR E ATS FOR M ARUTI SUZ UK I INDI A LIMIT ED -

1) TATA`S one lakh car ʹ NANO is a big threat to Maruti Suzuki as Maruti Suzuki is a small car manufacturing company and its smallest and cheapest car Maruti 800 is of approx 2 lakhs . Maruti 800 is also the smallest and cheapest car in India right now. After the final launch of TATA`S NANO it will become the cheapest car in the Indian automobile sector 2) Wage rates in India are increasing at a very fast pace, this can be a potential threat to the company.

28


RESEARCH METHODOLOGY RESE ARCH DESIGN The research method selected for the study is a combination of a survey and an industrial study. The survey research method is described here under that: (i)

It is a design in which primary data is gathered from members of the sample that represents a specific population

(ii)

It is a design in which a structure and systematic research instrument like a questionnaire or an interview schedule is utilized together with the primary data

(ii)

It is a method in which the researcher manipulates no explanatory variables because they have already occurred an d so they cannot be m anipulated

(iii)

Data are got directly from the subjects . The subjects give the data in the natural settings of their workplaces

Interview The method of communication of the research instrument is by means of the personal interview. The method has the merit that it produces a better sample of the population than either mail or the telephone methods. It also has the merit that it gives a very high completion and response rates. It has the merit that the interview has a bigger sensitively misunderstandings by the respondents and gives a chance for clarification of misunderstood questions. It has the merit that it is a very feasible method . The personal interview method has the demerit that it is more costly than the mail or the telephone methods of communication of a questionnaire.

29


Observations In addition to questionnaire and face- to face interviews, observation was also carried out. This was to enable the resear cher to witness by the officers of this firm and to interact with these people.

Secondary data: (1) Annual reports (2) Company databases (3) Auto journals (4) Industry analysis reports (5) Company websites

limitation of The Study Research work is subject to one form of limitation or the othe r, mine is not an exemption. It was the initial thought that the exercise was easy but the contrary was the case. As a student, several academic demands compete with the limited but precious time available. This implies that none of the competing exerci se could be effectively handled without the others being worse off. This was my situation. Although the time expended was too small to do justice to the study. The opportunity cost in terms of other equally important activities forgone or cursorily attended to, was made. The researcher faces some embarrassment arising from low-level educated staff who could not understand the essence of the resea rch work as this. 30


Current budget of the company could not be studied due to the confidential nature of the data.

31


OB JECTIVES 1) Maruti is a multinational company & is globally known for its automobiles & due to its well known reputation in the market I a finance student has chosen to study the ͞BUDGET PREPARATION & BUDGETARY CONTROL of the company. ͟ 2) To gain experience & knowledge that how a company prepares budget & contro l it. 3) The budget forms a base for a company͛ s operations & working.

32


Budget preparation process followed in MARUTI SUZUKI INDIA LIMITED Production / sales target finalized by top management

Detailed production plan

Sales budget From M&S  Domestic sales  Export sales  Spare parts sales

Manpower budget

Revenue expenditure budget from departments

Consolidation of divisional budget

Discussion between finance & other departments

Consolidation of divisional budget to company budget 33

Capital investment plan

Indigenization plan

Material cost budget  Imported components  Indigenous components  Raw materials  Paints and direct consumables

Preparation of model wise and month wise unit standard statement and consolidation


Preparation of draft cash budget and profit & loss a/c

Budget presentation by divisional heads to MD & directors. Budgetary targets for each division set b directors.

Whether budget target acceptable

NO

REVIEW

YES Prep ration of cash bud et projected profit & loss a/c and balance sheet

This chart shows the unique process of budget preparation followed in Maruti Suzuki, which is based upon a similar process followed in its parent company Suzuki Motor Corporation Japan.

34


Annual Budgeting exercise in Maruti Suzuki starts from December and gets finalized during February. Ev ery year top manag ement decides the total number of cars to be sold or produced on the basis of past trends, industry growth rate, feedback from marketing and selling department and various other factors which effect the demand of cars. On the basis of the number of cars to be produced, a detailed production plan is prepared. This production plan indicates the resources required to produce the desired number of cars. On the basis this production plan every d epartment plans their expected requirements of funds for the next financial year. These departments enter their respective requirements of funds in an online form sent by finance department, on a monthly basis along with the purpose for which funds are required. When the save button on this form is clicked this data gets stored in a central database. Similar expenses of all the departments are stored in one place for example training expenses of all the departments ar e stored in one and st ationary expenses of all the departments are saved in one database. Budgeting department prepares a master budget on the basis of these databases, which represents an overall plan of the organization. Annual Budget is divided into quarterly budgets i.e. Q1, Q2, Q3 and Q4.

Budget for Q3 and Q4 is revised based on actual expenditure up to July and expected trends for the remaining year. This exercise starts on July and revised budget is finalized by August.

Budgeting department also prepares projected profit & loss account and balance sheet of the company. This projected profit & loss account and balance sheet is presented before board of directors for their approval. If the Board of directors are satisfied with the expected profit and sales, then the bu dget is approved if not then the respective departments are told to reduce their budget and the whole process is repeated .

Zero-based budgeting ʹ

In Maruti Suzuki, a zero based budgeting (ZBB) system is

followed. ZBB is a top-down budgeting system where resource allocation decisions are made through a function-by-function assessment. No function is assumed to be necessary. The criteria for evaluation are passed down from higher levels, enhanced and made more 35


appropriate for each area as the criteria are passed down to office and department heads. Department and office heads develop justifications within these evaluation guidelines for each function and justifications for increased resources. These pass back up through the organization with each level setting priorities for resource allocations to individual functions from the levels below.

36


Budgetary control process followed in M ARUTI SUZUK I INDI A LIMITED Maruti Suzuki follows a unique process of budgetary control, which ensures proper utilizations of funds by different departments of the company. There are over 350 + departments in the company. So without effective budgetary control system in place, it would be impossible for the company to ensure proper utilization of the funds in the company. Monitoring of the budget is done on the monthly basis by budgeting department, in which

it compares the a ctual expenses of the respective departments with the projected expenses and finds out reasons for any deviations if any and presents the report to the board of the directors at the beginning of each mont h. Budget controlling is done on a quarterly basis at Maruti Suzuki India limited. For effective

control of the funds all the expenses are divided into 3 categories, according to their relative importance. A category expenses are very tightly controlled and monitored because of their relative high degree of controllability. For example- Consultancy fees, Gifts, Seminar / Conference Exp, etc. B category expenses are less closely monitored and controlled, because of their low degree of controllability B category expenses can be controlled to a extent only. For example Travel, Journals, Stationary, Phone, Conveyance, etc. and no control is exercised over C i.e. Their payment is not stopped even they shoot over their budget but for A and B category expenses payment is allowed to the level of budget approved.

37


A͛ Category ʹ Items of similar nature are grouped together (have same first 5 digit a/c

code), and control is exercised over the group budget. Budget control exists at a parent level or 5 digit account code level.

For example-

A-P2110701-COMPUTER CONSUMABLES A-P2110702- SOFTWARE PURCHASE EXPENSES A-P2110703- SOFTWARE DEVELOPMENT EXPENSES A-P21107- SOFTWARE RELATED EXPENSES

Account A-P21229

Budget 01

A-P2122902

500,000 100,000

A-P2122903

Total

Actual

600,000

Balance 500,000

400,000

(300,000)

200,000

(200,000)

600,000

Nil

These A category expenses are monitored or controlled at 5 digit code (A-P21229) and not at individual 7 digit item code level ie 2122901, which basically means that respective department cannot spend

more on SOFTWARE RELATED EXPENSES then the budgeted

amount but it can spend the whole am ount on any of its components. 38


B category expenses are general expenses and are monitored at cost center level i.e.

expenses related to a particular department.

For example ʹ

B-P2111501- SNACKS EXPENSES B-P2111501-LUNCH EXPENSES B-P21115- SNACKS EXPENSES

B-P2113201-POSTAL STAMPS B-P2113202-POSTAL EXPENSES B-P2113203-COURIER CHARGES B-P21132-POSTAL EXPENSES

Account

Budget

Actual

Balance

B-P2123401

50,000

5,000

45,000

B-P2123402

40,000

40,000

B-P2145665

40,000

(40,000)

B-P2645872

45,000

(45,000)

39


Total

90,000

90,000

Nil

These B category expenses are monitored and controlled at a cost center or departmental level which means that expenses are not monitored on B-P21234-POSTAL EXPENSES or BP21115- SNACKS EXPENSES level but on total of all these expenses of that particular

department. For example in the above table expenses will not be monitored at individual account code level but at a departmental level.

Maruti Suzuki India limited is using a financial module of Oracle for its financial function. Special codes are assigned to all the entries that come in profit & loss account and balance sheet (7 digit code), cost centers (every department is a cost center) ʹ 4 digit code and companies (2 digit code). Booking of expenses c an only be done by entering specific codes. My project in maruti Suzuki India limited involves understanding and analyzing this whole process and to suggest ways to make this unique process more effective and free from any faults.

40


Appendix Ȃ 1

RATIO CALCULATION OF M A

Z RS. IN MILLIONS 2008-2009

2007-2008

2006-2007

PARTICULARS

LIQUIDITY R ATIOS Current assets

38,459

37,496

29,720

Current liabilities

25,015

19,771

16,080

CURRENT RATIO = Cu rre t asset s / Curre t l ia bi li ties

1.54 (times)

1.90 (times)

1.85 (times)

Current assets

38,459

37,496

29,720

7,132

8,812

6,666

Liquid assets

31,327

28,684

23,054

Current liabilities

25,015

19,771

16,080

ACID TEST RATIO =

1.25

1.45

1.43

Less inventories

LIQUID ASSETS CURRENT LIABILITIES

ACTIVITY R ATIOS Average assets =

88,665

69,962

60,031.5

171,442

147,043

132,914

Op. balance + Cl.. Balance 2 Gross sales

41


ASSET TURNOVER RATIO =

1.93

2.10

2.21

Cost of goods sold

12,9349

107110

99966

Average inventory

7972

7739

5532

INVENTORY TURNOVER RATIO

16.22

13.84

18.07

SALES AVERAGE ASSETS

LEVER AGE R ATIOS Total debt

32998

21354

20256

Equity

68539

54526

43788

DEBT EQUITY RATIO

0.48

0.39

0.46

Total debt

32998

21267

20256

Total assets

101537

75793

64044

DEBT-ASSET RATIO

0.32

0.28

0.32

Earnings before interest and taxes

23174

17704

13409

PROFIT ABILITY R ATIOS Gross profit

32913

22404

19585

Net sales

145,922

120,034

109108

GROSS PROFIT MARGIN RATIO

22.55

18.66

17.95

42


Net profit

15,620

11,891

8,536

Net sales

145,922

120,034

109108

NET PROFIT MARGIN RATIO

10.70

9.90

7.82

Net income (profit after tax)

15,620

11,891

8,536

Number of outstanding shares

288.910000

288.910000

288.910000

EARNING PER SHARE =

54.065

41.16

29.54

Net income

15,620

11,891

8,536

Equity Capital

68539

54526

43788

RETURN ON EQUITY =

22.79

21.81

19.49

DIVIDEND PER SHARE

4.5

3.5

2

EARNING PER SHARE

54.065

41.16

29.54

DIVIDEND PAY OUT RATIO =

8.32

8.50

6.77

DIVIDEND PER SHARE

4.5

3.5

2

MARKET PRICE PER SHARE

865.40

577.22

426.32

DIVIDEND YIELD =

0.52

0.61

0.47

NET NCOME (PROFIT AFTER TAX NUMBER OF OUTSTANDING SHARES

NET INCOME AVERAGE EQUITY

DIVIDEND PER SHARE EARNING PER SHARE

DIVIDEND PER SHARE MARKET PRICE PER SHARE

43


EXPENSES

TO NET SALES R ATIOS

Consumption of raw material

108630

94247

86502

Net sales

145,922

120,034

109108

CONSUMPTION OF RAW MATERIAL TO NET SALES

74.44

78.52

79.28

Employees remuneration and benefits

2,884

2,287

1,960

Net sales

145,922

120,034

109108

1.91

1.80

EMPLOYEER REMUNERATION AND BENEFITS TO NET 1.98 SALES

Selling and distribution expenses

4,999

3,560

3,699

Net sales

145,922

120,034

109108

SELLING AND DISTIBUTION EXPENSES TO NET SALES

3.42

2.97

3.39

Interest expenses

376

204

360

Net sales

145,922

120,034

109108

INTEREST EXPENSES TO NET SALES RATIO

0.26

0.17

0.33

Depreciation

2,714

2,854

4,568

Net sales

145,922

120,034

109108

DEPRECIATION TO NET SALES

1.86

2.38

4.19

RATIO

44


CONCLUSION When summarizing the financial results of͞ MARUTI UDYOG LIMITED. I have observed that ͟ their working is quite reasonable financial. It is very good company. There are no any debts of long term liabilities of the company. To conclude, from of the o verall analysis of financial management of the company, I can say that it is financial sound and well managed three consecutive year͛s shows and applauding position. I was also able to well understand my financial concepts. The formal budgeting system has the following major benefits. 1. Budgeting due to its formal time table or schedule compels managers to think ahead apart from taking care of their current ac tivities. 2. Budgeting, due to its approval and authorization by the superiors, provides definite expectations that are the best fra mework for judging subsequent performanc e. 3. Budgeting helps in coordinating the various departments of the organization. The budget harmonizes the goals (objectives) of the individual departments into the organization wide goals (objectives).

45


RECOMMENDATION We need to know that many financial reporting frauds have their genesis in overly optimistic budgets that subsequently lead to an environment of "cooking the books" to reach unrealistic goals. These events usually start small, with the expectation that time will make up for a temporary problem. To maintain organizational integrity, senior-level managers need to be careful to provide realistic budget directives. Lower-level managers need to be truthful in reporting "bad news" relative to performance against a budget, even if they find fault with the budget guidelines.

46

Budget Control in Maruti

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