1.
I N TR O DU C T IO N
WORKING CAPITAL: Working capital may be regarded as the life blood of business. Working capital i s of major importance to internal and external analysis because of its close rel ationship with the current day-to-day operations of a business. Every business n eeds funds for two purposes. Long term funds Long term funds are required to create production facilities through purchase o f fixed assets such as plants, machineries, lands, buildings & etc Short term funds Short term funds are required for the purchase of raw materials, payment of wage s, and other day-to-day expenses. . It is otherwise known as revolving or circul ating capital. It is nothing but the difference between current assets and current liabilities. i.e. Working Capital = Current Asset – Current Liability. Businesses use capital for construction, renovation, furniture, software, equipm ent, or machinery. It is also commonly used to purchase inventory, or to make pa yroll. Capital is also used often by businesses to put a down payment down on a piece of commercial real estate. Working capital is essential for any business t o succeed. It is becoming increasingly important to have access to more working capital when we need it.
1.1
STATEMENT OF THE PROBLEM
To study the working capital management to analyze and evaluate the financial an d working capital position of Ashok Leyland Limited with special reference to th e working capital ratios.
1 .2
OBJECTIVE OF THE STUDY
To examine the combined effect of the ratios relating to working capital management point with the assistance of correlation co-efficient. Management practices of the company To analyses the impact of profitability on working capital. To determine the working capital leverage for examining the sensitivity of ROI to changes in the level of gross working capital of the company.
1.3
HYPOTHESIS OF THE STUDY
Having identified the object of the study the following hypothesis have been formulated and tested during the period of study: There is no significant difference between the five years average Curren t Ratio of this company to the standard. Correlation between ROI and Liquidity Ratio of does not differ significa ntly. Correlation between ROI and Working Capital Turnover Ratio of does not d iffer significantly. Correlation between ROI and Cash Position Ratio of does not differ signi ficantly. Correlation between ROI and Inventory Turnover Ratio of does not differ significantly. Correlation between ROI and Debtors Turnover Ratio of does not differ si gnificantly. Correlation between ROI and Cash Turnover Ratio of does not differ signi ficantly. Correlation between ROI and Working Capital to Total Assets Ratio of doe s not differ significantly. Correlation between ROI and Current Assets Turnover Ratio of does not di ffer significantly.
1.4
SCOPE OF THE STUDY
The study is conducted at Ashok Leyland Limited. The topic selected is “A study on the Working Capital Management of Ashok Leyland Limited from the fin ancial year 2002-2003 to 2006-2007. So the project work is confined to finance department only. Tools of financial analyze like working capital ratio have bee n used. Based on analyze some findings and recommendation are given. 1 .5
LIMITATIONS OF THE STUDY
The study is restricted for the five years from 2002-2003 to 2006-2007.
The analyses are based on secondary data taken from annual reports of th e company.
Time has been a limited factor and it has been difficult to analysis the various aspect of finance within the prescribed time.
The figures from the working capital statement for analysis were histori cal in natures.
Working capital ratios will not completely show the company’s good or ba d financial position.
1 .6
CH A PT E R IS A TI O N
CHAPTER -1 The first chapter deals with introduction, statement of the problem, sco pe of the study, objectives of the study & the study, objectives of the study & Limitations of the study. CHAPTER -2 The Second Chapter is related to the industry profile cum company profil e. CHAPTER -3 The Third Chapter deals with the review of literature of the study. CHAPTER -4 The fourth Chapter deals with overview of the Theoretical Perspective of the study. CHAPTER -5 The fifth chapter deals with Research Methology, research design, sampli ng design, data collection, analytical tool applied and statistical tools. CHAPTER -6 The sixth chapter deals with data analysis and interpretation. CHAPTER -7 The seventh chapter deals with findings, suggestion and conclusion. CHAPTER -8 The eight chapter deals with bibliography. 2.
INDUSTRY CUM COMPANY PROFILE
INDUSTRIAL PROFILE The industry encompasses commercial vehicles, multi-utility vehicles, pa ssenger cars, two wheelers, three wheelers, tractors and auto components. There are in place 15 manufacturers of and multi utility vehicles, 9 of commercial ve hicles, 14 of Two/Three wheelers, and 10 of Tractors besides 5 of engines. With an investment of Rs.50, 000 Cores, the turnover was Rs.50, 9000 Cores in Automo tive Sector during 1999 – 2000. It employs 4, 50, 00 people directly and 100, 0 0,000 people indirectly and is now inhabited by global majors in keen contention . India manufactures about 38, 00,000 2-wheelers, 5, 70,000 passenger cars, 1, 25.000 Multi utility Vehicles, 1, 70.000 Commercial Vehicles and 2, 60,000 tract ors annually. India ranks seconds in the production of two wheelers and fifth i n commercial vehicles. India’s automatic component industries manufacture the entire range of parts req uired by the domestic automobile industry and currently employ about 250,000 per sons. Auto component manufacturers supply to two kinds of two kinds of buyers – original equipment manufacturers (OEM) and the replacement market. The replace ment market is characterized by the presence of several small-scale suppliers wh o lower overheads. The demand from the OEM market, on the other hand, is depend ent on the demand for new vehicles. There has been a slowdown in the automob8le sector in the past two years. However, the component industry maintained a low but positive growth rate mainly due to its export performance. Over the years, the component industry has maintained a 10% - 12% share of exports in the total production. Roads occupy an eminent position in transportation as they, as per the present estimate, carry nearly 65% of freight and 87% of passenger traffic. Although, India has 3.3 million kilometers of road network, which is the second largest in the world, the Indian highways are getting overpopulated. Traffic m
anagement and road sense also need attention. COMPANY PROFILE The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by independent India. Pandit Jawaharlal Nehru, India’s first Prime Minist er persuaded Mr. Raghunadan Saran, an industrialist, to enter automotive manufac ture in 1948, Ashok Motors was set up in what was then Madras, for the assembly of Austin Cars. The Company’s destiny and name changed soon with equity partici pation by British Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955. Since then Ashok Leyland has been a major presence in India’s commercial vehicle industry with a tradition of technological leadership, achieved through tie-ups with international technology leaders and through vigorous in-house R&D . Access to international technology enabled the Company to set a traditio n to be first with technology. Be it full air brakes, power steering or rear en gine busses, Ashok Leyland pioneered all these concepts. Responding to the oper ating conditions and practices in the country, the Company made its vehicles str ong, over-engineering them with extra metallic muscles. “Designing durable prod ucts that make economic sense to the consumer, using appropriate technology”, be came the design philosophy of the Company, which in turn has mould consumer atti tudes and the brand personality. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 5, 00,000 vehicles we have put on the road s have considerably eased the additional pressure placed on road transportation in independent India. In the populous Indian metros, four out of the five State Transport Unde rtaking (STU) buses come from Ashok Leyland. Some of them like the double-decke r and vestibule buses are unique models from Ashok Leyland, tailor-made for high -density routes. In 1987, the overseas holding by Land Rover Leyland International Holdin gs Limited (LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO. (Since July 2006, the Hi nduja Group is 100% holder of LRLIH). The blueprint prepared for the future reflected the global ambitions of the company, captured in four words: Global Standards, Global Markets. This was at a time when liberalization and globalization were not yet in the air. Ashok Leyland embarked on a major product and process up gradation to match world-cla ss standards of technology. In the journey towards global standards of quality, Ashok Leyland reache d a major milestone in 1993 when it became the first in India’s automobile histo ry to win the ISO 9002 certification. The more comprehensive ISO 9001 certifica tion came in 1994, QS and ISO 14001 certification for all vehicle manufacturing units in 2002. It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Corporate Certifi Certification cation (I n July July 2006) 2006) which which is is specific specific t o the auto industry. Ashok Leyland has six manufacturing plants – the mother plant at Ennore near Chennai, two plants at Hosur (called Hosur I and Hosur II, along with a Pre ss shop), the assembly plants at Alwar and Bhandara. The total covered the spac e at these six plants exceeds 450,000 sq m and together employ over 11,500 perso nnel. Ennore: Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mothe r Plant accounting for over 40% All production. The plant manufactures a wide r ange of vehicles and house production facilities for important aggregates such a
