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IMPACT

OF

WORKING

CAPITAL

ON

PROFITABILITY AND LIQUIDITY: MARUTI SUZUKI


PVT. LTD., BANGALORE
1. INTRODUCTION
1.1 Working Capital
Working capital may be regarded as the life blood of a business. Its effective provisions
can do much to ensure the success of business. The term working capital stands for that the
part of the capital which is required for the financial working of the company in simple
words, we can say that working capital is the investment needed for carrying out day-to-day
operations of the business smoothly.
Working capital refers to a firms investment in shortterm assets, viz. Cash short term
securities, accounts receivables and inventories of raw material, work in progress and
finished goods. It can be regarded as that portion of the firms total capital, which is,
employed in shortterm operations. Funds thus invested in current assets keep revolving false
and are being constantly concerted into cash and this cash flow out again in exchange for
other current assets. Hence, it is also called as Revolving or circulating capital.

Profitability
Profitability has been defines as ability to earn profit. It is measured in relative terms of either
size, past years. The most commonly used measure of profitability is in terms of size that is
profit or loss divided by total assets. Sometimes profitability is measured by taking profit of
two years to judge the more profitable year. In peer terms the profitability is measured by
comparing the profits of two firms in the same industry.
Profitability has been an important criterion to evaluate the overall efficiency of firm
operations. Being a relative measure, it is devoid of the pitfalls associated with interpretation
of term profit. Even if one ignores the past year or peer aspect of measuring profitability in
banking parlance denotes the efficiency with which a bank deploys its total resources to
optimize its profit and thus serves an index of assets utilization and managerial effectiveness.

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The relationship of profitability with macro dimensions of solvency and liquidity has been
that of risk return trade-off the more risk a bank is willing to take in terms of the
Lesssolvency and/or low liquidity. The more return it is able to earn. In other words, there is
adirect inverse relationship between profitability and solvency/liquidity. An increased level
of solvency means low leverage, low risk and consequently low profitability. In the same
way high liquidity increases interest burden (if purchased) or decreases earning ability (if
stored), reduces risk and profitability becomes low.
The term total assets has been used instead of working fund, As working fund is equal to
total assets/liabilities minus contra items, there is no difference between the two terms. Two
important variables, viz working fund and total income which are indicative of size, have
therefore been used to obtain relative values for these variables and also to purge the effect of
size factor. Thus, spread, burden and their four components have been divided by working
fund and total income respectively thereby giving 12 ratios for analysis.
The rationale behind using working fund and total income is that income is related to income
generating capacity. Both the criteria are independent and are guided by deposit mix, loan
portfolio, share of earning assets etc., for example,. A large company may have small amount
of total income in comparison to its size, that is working fund due to large proportion of noperforming assets and also vice versa. In spread divided by working fund is actually net
interest margin while burden has been divided by working fund to indicate efficiency of nonbanking activities. Alternatively, these two variables have also been divided by total income
to measure their contribution to total revenue, in the last stage, these two variables have been
factored into their sub-components and their relative contributions in terms of size and total
revenue have been measured by calculating eight ratio.

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1.2 INDUSTRY PROFILE

Prior to 1997 when the first M-Class rolled off Mercedes production line
Alabama produced no passenger vehicles. In 2006, Alabama built it2, 000,000th
automobile. Today, Alabama is responsible for 25% of all passenger vehicles
built in the South and is home to three automotive vehicle assembly plants, two
engine plants, and a growing automotive supplier network serving OEMs in
Alabama and neighbouring states
Highlights
Mercedes-Benz, Honda and Hyundai all operate vehicle assembly plants in Alabama. All
three manufacturers announced expansions in 2011.
In 2011, Alabamas automakers produced over 745,000 cars and light-trucks.
Alabama ranks 4th in the U.S. for vehicle exports. In 2011, export dollars for vehicles
andvehicleparts totalled
$5.4 billion.
Toyota builds four, six and eight cylinder engines in Huntsville. In 2012, Toyota announced
an expansion at it Huntsville facility.
Navistar builds V6 and V8 diesel engines at two plants in Huntsville.
Capacity among Alabamas automotive engine manufacturers (Toyota, Navistar, Honda,
Hyundai) is approximately1.6 million engines annually.

Mercedes-Benz U.S. International


Location: Tuscaloosa County
Announced: 1993
Capital Investment: $2.4 billion (by 2015)
Employment: 3,300 team members
Production Capacity: 148,000 vehicles annually
Plant size: More than 4.0 million square feet
Suppliers: 35+ auto-related suppliers in Alabama
Products: M-Class, R-Class, GL-Class Luxury SUV, C-Class, and announced CClassin 2014
and a fifth vehicle in 2015
Honda Manufacturing of Alabama
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Location: Talladega County


Announced: 1999Capital Investment: $2 billion
Employment: 4,000 associates
Production Capacity: 340,000 vehicles and engines annually
Plant size: 3.5 million square feet
Suppliers: 35+ auto-related suppliers in Alabama
Products: Odyssey minivan, Pilot SUV, Ridgeline pickup truck, V-6 engines, and announced
Acura MDX luxury SUV
Hyundai Motor Manufacturing
Location: Montgomery County
Announced: 2002
Capital Investment: $1.7 billion
Employment: 3,100 team members
Production Capacity: 350,000 vehicles and 630,000 engines annually
Plant Size: 3.2 million square feet
Suppliers: 35+ auto-related suppliers in Alabama
Products: Sonata sedan, Electra sedan; 4-cylinder 2.4-liter; 4-cylinder 2.0 later turbo and 4cylinder 1.8-liter engines
Alabamas Engine Plants
Navistar Diesel of Alabama
Location: Madison County
Announced: 1999
Capital Investment: $350 million
Employment: 335
Production Capacity: 150,000 annually
Plant Size: 700,000 square feet & 300,000 sq. ft.
Products: Navistars line of V6 and V8 diesel engines
Toyota Motor Manufacturing Alabama
Location: Madison County
Announced: 2001
Capital Investment: $637 million
Employment: 1,000
Production Capacity: 506,000 annually
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Plant Size: 780,000 square feet


Suppliers: 35+ auto-related suppliers in Alabama
Products: V8 engines for the Tundra and Sequoia, and V6engines for the Tundra and
Tacoma, 4-cylinder engines for Camry, Highlander, RAV4, Sienna and Venda 3.5-liter
V62GR engines
Major Milestones

1991: In 30 years, Alabamas automotive sector grew from 15 companies to 86.


1993: Mercedes-Benz announced its new M-Class would be built in Tuscaloosa, Alabama.
1998: Mercedes produced 68,800 units in the first full year of production.
1999: Honda chose Alabama to build the Odyssey minivan and engines. International Diesel,
now known as Navistar Diesel of Alabama, selected Huntsville, Alabama to produce a new
generation of V-6 and V-8 diesel engines.
2000: Mercedes announced a $600 million expansion.
2001: Honda announced a production increase for its Alabama plant and addition of a second
$425 million assembly line bringing Hondas total investment to $1 billion. Toyota Motor
Corporation announced that it would produce 120,000 V-8 engines annually in Huntsville,
Alabama.
2002: Hyundai selected Montgomery, Alabama as home for its first U.S. automotive
manufacturing facility, investing $1.1billion.Mercedes announced that its new plant
expansion would produce the new Grand Sports Tourer.Combined production at Mercedes
and Honda was 230,000 units.
2003: Honda announced consolidation of all North American production of Odyssey to
Alabama and that its second assembly line would produce the Honda Pilot. Mercedes
celebrated 10 years in Alabama. Toyota announced expansion plans to build a V-6 engine for
the Tacoma and Tundra pickup trucks raising the companys total investment in Alabama to
$240 million.
2004: Toyota Motor Corporation will nearly double the size of its Huntsville engine plant
with a $250 million expansion that will supply all of Toyotas planned V-8 engine needs for
North America. Honda will invest an additional $70 million in its Alabama V-6 engine
facility to machine engine crankshafts and connecting rods, currently made by Honda in
Japan and Ohio.
2005: Combined vehicle production capacity at Mercedes, Honda and Hyundai reached
760,000 vehicles per year in Alabama with Hyundais U.S. manufacturing launch at
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Montgomery. Car and truck engine production capacity in Alabama rose to 1,000,000 units
annually at Honda, Navistar Diesel, Toyota and Hyundai.
2006: With the roll-out of the Hyundai Santa Fe model in Montgomery and Mercedes GL
Class in Tuscaloosa, Alabama automakers now manufacture seven different vehicles, barely
10 years after first beginning production. Honda celebrated production of the 1 millionth
vehicle made in Alabama.
2007: Hyundai announces construction of a second engine plant at its Montgomery
production facility. Honda produced its one millionth Alabama-made Odyssey.
2008: Honda announced production of the Ridgeline pickup truck at its Lincoln facility.
Economic Development Partnership of Alabama
www.edpa.org
Al abama
Major Milestones continued
2009: Ridgeline production began in early 2009. Honda Manufacturing Alabama will become
the exclusive global source for the Odyssey minivan, Pilot SUV, Ridgeline pickup truck, and
V-6 engines. Honda announced MDXluxury SUV production to start in 2013.Hyundai
celebrated production of the 1 millionth vehicle made in Alabama. Mercedes-Benz
announced it will add production of C-class sedans to its plant in Vance, Alabama starting in
2014.
2010: Toyota Motor Manufacturing Alabama announces preparation for an expansion to
include four-cylinder engines. Hyundai announced it will build the 2011 Electra at its
Montgomery plant.
2011: Mercedes-Benz announces a $289.1 million expansion to accommodate production of
the C-Class sedan.
Hyundai announces $173 million expansion of the engine plant. Honda announces three
expansions totalling $275 million to increase annual production capacity to 340,000 vehicles
and engines and add production of the Acura MDX luxury sport utility vehicle. MercedesBenz announces a $350 million expansion o begin production of a fifth vehicle in 2015,
creating 400 jobs.
2012: Hyundai announces that it will add 877 employees to increase production. Toyota
announces an $80 million exPension at its Huntsville facility

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1.3 COMPANY PROFILE


Maruti Suzuki is one of the leading automobile manufacturers of India, and is the leaderinthe
car segment both in terms of volume of vehicle sold and revenue earned. Itwasestablished in
February, 1981 as Maruti Udyog Ltd. (MUL), but actualproductionstartedin1983 with
theMaruti 800 (based on the Suzuki Alto key car of Japan), which was the onlymodern car
available in India at that time. Previously, the Government of India helda18.28%stake in the
company, and 54.2% was held by Suzuki of Japan. However, inJune2003, the Government of
India held an initial public offeringof25%.ByMay10, 2007soldofftitscomplete sharetoIndian
financial institutionsthrough 2004, Maruti Suzuki has produced over 5 million cars. Now, the
company annually exports more than 50,000 cars and has an extremely large domestic market
in India selling over 730,000 cars annually. The Maruti 800remained the largest selling
compact car of India till 2004 since its launch in 1983. More than a million units of this car
have been sold worldwide so far. Currently, Maruti Suzuki Alto tops the sales charts and
Maruti Suzuki Swift is the largest selling in A2 segment. More than half the cars sold in India
are MarutiSuzuki cars. Maruti Suzukis are sold in India and several other countries,
depending upon export orders .ModelssimilartoMarutiSuzukis(butnotmanufactured by Maruti
Udyog )are sold by Suzuki MotorCorporation and manufactured in Pakistan and other South
Asia countries. During 2007-08, Maruti Suzuki sold 764,842 cars, of which53,
024were1Exported. In all, over six million Maruti Suzuki cars are on Indian roads since the
firstcarwas rolled out on 14 December 1983.Maruti Suzuki has two state-of-the-art
manufacturing facilities inIndia. The first facility is at Gurgaon spread over 300 acres and the
other facility is at Manesar, spread over 600 acres in North India. The Gurgaon facilityMaruti
Suzuki's facility in Gurgaon houses three fully integrated plants. While the threeplants have
atotal installed capacity of 350,000 cars perYear, several productivity improvements or shop
floor Kaizens over the years have enabled the company to manufacture nearly 700,000 cars/
annum at the Gurgaon facilities. The entire facility is equipped with more than 150 robots,
out of which 71 have been developed in-house. More than0 per cent of our shop floor
employees have been trained inJapan.
Vision and Core Values SWOT of Maruti Suzuki VisionThe leader in the Indian
automobile industry, creating customer delight and shareholders wealth; a pride for India.
Core values

Customer Obsession
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Fast, Flexible and Fast Mover


Innovation and Creativity
Networking and partnership
Openness and Learning

SWOT Analysis of MUL


Strength:

Small car technology.


Extensive Excellent image of MUL in compact car segment.
Fewer Problem with the product compared to other brands.
681 State of Art showrooms across India.
2767 quality service station.
Export facility at Mudra Port.
Expertise in product portfolio.
Quality products.
Extensive sales and service network Brand strength:
Integrated manufacturing facility.
Maruti Finance:
Maruti Insurance:

Weakness:

Commodity Price Risk: This risk relates to higher costs due to changes in prices of
inputSuch as Ferro-alloys and non-Ferro-alloys, plastic and rubber which go into production
ofSwift.
Export Rate Risk: Risk due to fluctuations in foreign exchange rates of components, raw
Materials and vehicles.
Opportunities

Increased spending by the consumers. Increased demand for compact cars in India as well as
abroad.
Threats

Threat from competitors like Toyota, Honda, Volkswagen etc.


Threats from commodity price and export rate fluctuations.

Some Important Milestones

December 14, 1983 First car, the 796 cc hatchback Maruti 800 launched
1984 Maruti Omni van launched
1985 Maruti Suzuki Gypsy launched
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1990 Three box 1000 cc car Maruti 1000 launched


1993 Zen launched
1994 Esteem 1.3 litre (1298 cc, three box car) launched
1997 New Maruti 800 (796 cc, hatchback car) launched in Standard and Deluxe

Versions
1999 Wagon R and Bale no launched
2000 Alto launched
2001 Versa launched
2002 Alto Lexi Spin launched, Wagon R Pride is launched, Esteem Diesel

Launched and all variants upgraded


2003 The new Grand Vitoria launched
2004 Maruti Suzuki Swift launched
2006 Zen Estela and Swift Dizzier launched
2007 - SX4 luxury Sedan launched with the tagline Men are back
2008 MSIL launches fifth world strategic model A-Star
2009 Maruti Suzuki launches Ritz

1. Current situation MicroenvironmentPolitical

The 2% hike in the excise duty announced in the Union Budget 2010-11 may result in
an increase in the prices of automobiles. The effect of this development could be

Insignificant for the A4 car segment.


The increase in the fuel price proposed in the budget would increase the burden on the

consumer but its impact on the A4 segment would be negligible.


The increase in weighted deduction for in-house R&D to 200% from 150% and
Outsourced R&D from 125% to 175% would spur industry focus on innovation,
R&Dand product development that would increase the competiveness of the industry

longer term
The broadening of the tax slabs would boost the disposable income in the hands of the

middle class and is a positive sign creating a larger customer base for auto sector
Allocation for road transport increased by over 13% from Rs 17,520 crore to
Rs19,894 crore will be a boost to the industry

Economic

Indian economy is expected to grow at a rate of more than 6% this year


The A4 segment is expected to grow annually at the rate of 30% per year for the next5

years
The upper middle class segment is expected to grow from 3% in 2010 to 12% in 2015
The people who fall under rich segment is expected to grow from 1% in 2010 to
4%in 2015
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The Indian economy is expected to grow at more than 7% in the coming years after

the present slowdown. Social


India is the 4th largest country by PPP index
There is rapid growth in urbanization
The mind-set of the Indian consumer is changing. From wanting a compact family car

they have started to aspire for semi luxury and luxury cars.
Indian customers are highly discerning, educated and well informed. They are
priceSensitive and put a lot of emphasis on value for money

Technology
With the flooding of global companies in the Indian market, advanced technologies,
both in product and production processes have developed.
With the development of alternate fuels, hybrid cars have made entry into the market.
1. Current Marketing Practice
Present product line of Maruti Suzuki India Limited
a. Price based classification
Segment A cars priced lower than Rs.300, 000800, Omni, Alto
Segment B cars priced between Rs.300, 000 and Rs. 500,000Estilo, A-start, Ritz, Swift,
Wagon R
Segment C cars priced between Rs.500, 000 and Rs. 1,000,000Swift Dzire, SX4
Segment D cars priced between Rs.1, 000,000 and Rs. 2,500,000
Grand Vitoria (SUV)
Segment E cars priced above Rs. 2,500,000.
b. Length based classification
Segment A1 (Mini) cars having a length up to 3,400mm800
Segment A2 (Compact) cars having a length of 3,401- 4,000mmA-start, Alto, Ritz, Estilo,
Wagon R, Swift
Segment A3 (Mid-size) cars having a length of 4,001- 4,500mmSX4, Swift Dzire
Segment A4 (Executive) cars having a length of 4,501- 4,700mm
Segment A5 (Premium) cars having a length of 4,701- 5,000mm
Segment A6 (Luxury) cars having a length of more than 5,000mm
[To see details of the current product line of Maruti Suzuki see exhibit 1]
Maruti Suzuki uses a combination of Counteroffensive defence and Contractiondefence
to defend its market share. The Contraction defence strategy can be clearly seen inMaruti
phasing out Maruti 800. As on 2010 Euro IV emission would come into place in Indias top
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10 cities. Since the sale of this model was constantly on the decline, Marutidecided not to go
for up gradation and modification. The more economically viable option was to phase out the
car, a decision which would have no impact on the overall sales figures.Pre liberalization
Maruti Suzuki was the clear market leader in the passenger car segment in India. Post
liberalization, when many foreign players started entering the market with car which were
superior to Maruti in all aspects, Marutis market share started to decline. To overcome this
situation Maruti improved the technology used in its cars and came out withmany new
models. In its counteroffensive defence strategy, Maruti took the competition headOn,
launching a full frontal attack with its new models. This later on ensured thatMarutiregained
its position as the clear market leader in the passenger car segment in India.
Present situation
Maruti Suzuki is the market leader in the A2 and A3 segments. In the A2 segment Maruti has
a market share of 53.3% and in the A3 segment it has a market share of 42.7%.Maruti is
currently is exiting the A1 segment by phasing out its 800 model. It wants to become
accompany which is capable of satisfying the needs of customers across segments (Full
market coverage, segment by segment invasion plan). The next logical step that Maruti
should take to achieve this objective is to enter into the A4 segment. Breaking into the
segment May take time but with the high growth rates expected in this segment it is an
opportunity that should not be wasted. Maruti Suzuki would be following a product
development strategy where they would be introducing a new product into the existing
market.
1. A brief overview of competition and Market
The 4 main players in the A4 segment are
1. Toyota Corolla
2. Honda Civic
3. Skoda (Octavia + Laura)
4. Volkswagen JettaChevrolet Cruz is a new entrant in the market [for details various models
see Exhibit 2]* Skoda include Skoda Octavia and Skoda Laura
[Press releases from the individual organizations]
Projected annual growth rate of 30% for the next 5 years.
2009 2010 2011 2012 2013 2014 2015
20468 26609 34592 44970 58461 76000 98800

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Toyota is the present market leader. The strategy it is adopting in this segment is
aCombination of position defence and Mobile defence. Toyota is building on its superior
brand image and superior performance along with lower price to defend its market share. At
the same time Toyota keeps on innovating its product to meet the ever changing needs of
thecustomer. Honda civic is the market challenger. Honda and Toyota are global rivals. In this
segment both the companies have decided not to go for a full frontal attack. Both the Altis
and the Civic appeal to different sections in a way. Their strategy has been such that they
have emphasised that the Civic is youthful, while the Alt is mature. The Civic is sharp and
designed to look quick and fast, while the Altis is rounded and has a majesty of bearing while
on the move. The Civic breaks new ground when it comes to sedan design, while the
Altisimproves upon what already works. The Civic appeals to those with a sportymindset,
while the Altis is for whom such things usually dont matter. The Altis stole Civics market
share in this market, by emphasising on these aspects.
Competitive forces
A4 segment determining the long run attractiveness of the market with the help of Porters
five forces.
1. Treat of intense segment rivalry At the present moment there are only 4 players the
market and a new entrant. The target customers of this segment is growing rapidly in India
and the size of the pie is increasing rapidly. Level of segment rivalry irrelatively low at this
point in time. The different players in the segment in a way are targeting different sets of
people.
2. Threat of new entrants With India being one of the fastest growing economies in the
world, this would be the perfect market for various players to enter.
3. Threat of substitute products is low
4. Threat of buyers growing bargaining power is high as more and more players enter this
segment
5. Threat of suppliers growing bargaining power is low2
Income class 2010 2015
Upper ClassRs 42,000 Rs 85,000**3 %*( 34439877) 12%* (162000000) Ric>Rs 85,000**
1 %*( 11479959) 4 %*( 54000000) **Monthly disposable income*% of total population
1. CDM Process for Cars in price range of 10-14 lacks
The consumer decision making process for cars in this segment is a very high involvement
process because of the following reasons:
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1. The cost of the product is high. Hence higher the importance of taking right decision.
2. People attach their self-image with cars which they buy.
3. The decision will affect the consumers for a long duration. Since, purchase of car is a high
involvement decision it goes through all five stages of consumer decision making. The
various steps that define the consumer decision making process are:
1. Problem Recognition: This occurs when consumers see a significant difference between
their ideal and actual state. They get the notion of ideal state because of various stimuli which
can be either internal or external.
a. Past Experience: Consumer past experience has a significant effect on the car they will
like to purchase. They may be unsatisfied with their present means transport. There can also
be a failure and lack of appeal for the existing car. The Purchase decision is aimed at solving
their past needs.
b. Future Aspirations: Consumers can have various future aspirations like status, Comfort
while driving, and driving a powerful car etc.
c. Peers: Cars used by peers (friends and family members) and views of peers on cars
significantly affect consumers.
d. Marketing: The consumer can be attracted to various features of the car
throughadvertising campaigns launched for the product. For cars advertisement shown onTV
stimulates consumers the most.
1. Information Search: The second step to the consumer decision process isinformation
search. Information search can be:
a. Internal search: The consumer recalls information, experiences, and feelings concerning
various cars within the price range they are looking at. The information that is recalled are:
i. Brands
ii. Attributes
iii. Experiences
a. External Search: Consumer look for information from external sources like internet,
retailers, peers, and various other sources of information like TV, magazines. The most
frequently used sources of information for cars is firstly, various websites on which
consumers can find detailed information about alternative cars and also compare various cars.
Companys websites also provide detailed information about the cars they have in market.
Secondly, consumer gather information directly from retailers.
1. Evaluation of Alternatives
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During the information search and from past experience consumers gather various criteria to
evaluate a car:
a. Price
b. Brand
c. Maintenance Cost
d. Comfort
e. Ease of availability and quality of service
f. Power
g. Appearance
h. Size
I. Fuel-Efficiency Consumers give more weight to the criteria that are important to them. For
cars in D-segment various factors influence the criterias for evaluating alternatives.
1. Age: Consumers within the age group of 18-35 prefers power, style and brand image in the
given order. Consumer in the age bracket of 35 and above prefers comfort, brand image,
appearance in the given order.
2. Income: Consumer buys a car that can be maintained and afforded with his/her respective
income. Upper middle class (40,000 85,000) prefers cars with high fuel Efficiency and
lower maintenance cost. Rich consumers (income 85,000 and above) buys cars prefers
powerful and stylish cars.
3. Family: Decision to buy a car gets involvement from the entire family. The weights given
to above criteria also include preferences for spouse, parents and children of a consumer.
4. Other factors like lifestyle and personality of the consumer affect weights given to each
of the above mentioned criteria. In the evaluation stage, consumers select a few brands out of
many brands available in the market.
1. Purchase Decision: In this stage consumer selects one brand of car out of a few brands of
cars available in the market. The car that a consumer buys should rank best in his/her most
preferred attribute or the consumer can buy a car which meets cut-offs in all the attributes.
2. Post-purchase behaviour: Post-purchase behaviour of consumers depends on whether
he/she is satisfied or dissatisfied with the car. A satisfied consumer will say positive things
about the car to others and is more likely to buy car of same brand

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2. RESEARCH METHODOLOGY
2.1 Need of the Study
The purpose of this study is hopefully to contribute towards a crucial element in financial
management which working capital management.

It is almost untouched in very little

research has been done in this area. Working capital management and its effects on
profitability and liquidity is focused in this study. Specific objectives are to examine a
relationship between the two objectives of liquidity and profitability of the firms and to
investigate the relationship between debt used by the firm and its profitability.

2.2objectives

To analyse the working capital management of Maruti Suzuki pvt limited


To know the relationship between liquidity ratios and profitability.
To assess the profitability position of Maruti Suzukipvt limited.
To study the liquidity position of Maruti Suzuki pvt limited.

2.3 Scope of the Study


The basis scope of the study is to understand & determine the impact of working capital on
profitability and liquidity of Maruti Suzuki pvt.Limited. The study is also includes an
observation of different years impact of working capital on profitability and liquidity
performance of the MarutiSuzuki pvt Limited

2.4 Source of Data


The study is based on secondary data. The data of Maruti Suzuki pvtLimited for the year of
2006-2015 used in the study have been collected from the financial statements published
annual reports of Maruti Suzuki pvt Limited. The data consists of annual reports of Maruti
Suzuki pvt Limited ranging for the 10 years

2.5 Tools of Analysis


Financial Tools
Current Ratio

Current ratio is the ratio between current assets and current liabilities.
Thefirm is said to the comfortable in its liquidity position if the current
ratio
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current assets
current ratio =
current liabilities
Quick Ratio/Acid Test Ratio

It is the ratio between liquid assets and liquid liabilities. It supplements the information given
by current ratio. Quick ratio is also called as acid test ratio. The standard of the quick ratio is
1:1.
quick assets
Quick ratio= current liabilities
Working Capital Turnover Ratio

The working capital turnover ratio is the ratio that expresses the relationship between
working capital & net sales. Working capital is the excess of current assets & current
liabilities. This ratio indicates the efficient or inefficient utilization of working capital of an
enterprise.
net sales
Working Capital Turnover Ratio = net working capital
Current Assets to Total Assets Ratio

It expresses the fund investment in working capital and the proportion of current assets to
total assets. This ratio helps to assess the importance of current assets in total assets. Higher
proportion reveals that the company gives more importance to working capital investments
and vice-veRsa.
current assets
Current Assets to Total Assets Ratio = total assets
Return on investment ratio

It is one of the very important parameters affecting business plans. The profitability of the
firms is measured in term of return investment. The term investment may refer to total assets,
capital employed or owner equity.
Return on Investment Ratio =

profit before intest tax


capital employed

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Inventory Turnover ratio

The inventory turnover ratio shows the relationship between sales and average inventory. It
focuses on the inventory control policy adopted by a concern.
cost of goods sold
Inventory turnover ratio = averageinventory
Debtor Turnover Ratio

Debtor turnover ratio indicates the number of debtor turnover each year. Higher the value of
debtor turnover, the more efficient is the management of
Debtors turnover ratio

credit sales
average debtors

Cash Turnover Ratio

The cash turnover ratio is computed by dividing the sales by cash during the year. Net credit
sales consist of gross credit sales minus returns, if any from customer and cash balance of the
year
sale
Cash turnover ratio= cash
Correlation

Correlation is a statistical device, which helps us in analysing the covariance of two or more
variables. With the help of correlation analysis we can measure in one figure the degree of
relationship between the variables.
NXY ( X ) ( Y )
Correlation Analysis =

r = Correlation co-efficient
X = dependent variable

N x 2( X ) 2
N = number of years
Y = independent variable

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3. DATA ANALYSIS AND INTERPRETATIONS

Table no3.1: Calculation of Liquidity Ratio:

YEAR
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Mean
SD

Current Ratio
0.93
0.69
0.74
0.63
0.67
1.23
0.97
0.69
0.54
0.46
0.76
0.23

Quick ratio
2.
2.96
3.04
2.81
3.62
3.27
2.71
3.08
3.00
2.65
2.99
0.59

Source: Data compiled from financial reports of Maruti Suzuki pvt .ltd

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Liquidity Ratio
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00

2006

2007

2008

2009

2010

Current Ratio

2011

2012

2013

2014

2015

Quick ratio

Graph liquidity ratio

INTERPRETATION:
Current ratio:
Above table refers that current ratio from the of Maruti Suzuki pvt.ltd; company over a period
of 10 years from 2006 to 2015 the highest liquidity ratio is 1.23 in the year 2011 and the least
is 0.46 in the year 2015 the current ratio also fluctuated in the study period. The average
liquidity ratio is 0.76 the standard deviation is 0.59.
Quick ratio:
Above table refers that quick ratio from the of Maruti Suzuki pvt.ltd; company over a period
of 10 years from 2006 to 2015 the highest liquidity ratio is 3.62 in the year 2010 and the least
is 2.65 in the year 2015 the quick ratio also fluctuated in the study period. The average
liquidity ratio is 2.99, the standard deviation is 0.59.

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Table no 3.2 Turnover Ratio


Calculation of Turnover Ratio
YEAR

Working

capital current assets to total Inventory

Debtors

turnover ratio
assets ratio
turnover ratio
2006
-104.08
0.29
8.22
2007
-20.76
0.21
12.14
2008
-27.18
0.22
11.35
2009
-17.41
0.21
13.31
2010
-28.11
0.17
15.64
2011
-41.31
0.34
17.60
2012
-212.08
0.32
11.64
2013
-24.13
0.20
13.01
2014
-13.46
0.17
12.47
2015
-11.59
0.16
9.14
-50.01
0.23
12.45
125.90
0.07
2.76
Source: Data compiled from financial reports of Maruti Suzuki pvt .ltd

turnover ratio
18.63
19.81
27.57
22.56
36.20
44.41
37.96
29.65
30.91
46.71
31.44
9.79

Turnover Ratio
100.00
50.00
0.00

Turnover Ratio

-50.00
-100.00

Working capital turnover


ratio
current assets to total
assets ratio
Inventary turnover ratio
Debtors turnover ratio

-150.00
-200.00
-250.00

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Interpretation:
Current assets to Total assets
Above table refers that current assets to total assets ratio from the of Maruti Suzuki pvt.ltd;
company over a period of 10 years from 2006 to 2015 the highest turnover ratio is 0.34 in the
year 2011 and the least is 0.16 in the year 2015 the quick ratio also fluctuated in the study
period .The average liquidity ratio is Ratio0.23, the standard deviation is 0.07.
Working capital Turnover Ratio:
Above table refers that working capital turnover ratio from the of Maruti Suzuki pvt.ltd;
company over a period of 10 years from 2006 to 2015 the highest turnover ratio is -11.59 in
the year 2015 and the least is -212.08 in the year 2012 the quick ratio also fluctuated in the
study period .The average liquidity ratio is -50.01, the standard deviation is 125.90.
Inventory Turnover Ratio:
Above table refers that inventory turnover ratio from the of Maruti Suzuki pvt.ltd; company
over a period of 10 years from 2006 to 2015 the highest turnover ratio is 17.60 in the year
2011 and the least is 8.22 in the year 2006 the quick ratio also fluctuated in the study
period .The average liquidity ratio is 12.45, the standard deviation is 2.76.

Debtors Turnover Ratio:


Above table refers that debtors turnover ratio from the of Maruti Suzuki pvt.ltd; company
over a period of 10 years from 2006 to 2015 the highest turnover ratio is 46.71 in the year
2015 and the least is 18.63 in the year 2006 the quick ratio also fluctuated in the study
period .The average liquidity ratio is 31.44, the standard deviation is 9.79.

Table no3.3 Profitability Ratio:


Calculation of profitability Ratio
YEAR
2006
2007
2008
2009

Return on investment ratio


0.55
0.50
0.47
0.36

Cash turnover ratio


236.39
128.98
55.76
86.73
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2010
2011
2012
2013
2014
2015

0.47
0.41
0.31
0.36
0.38
0.48
0.43
0.07

298.55
14.60
14.61
56.24
69.40
2730.63
369.19
834.93

profitability Ratio
3000.00
2500.00
2000.00
1500.00
1000.00
500.00
0.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Return on investment ratio

Cash turnover ratio

Interpretation:

Return on Investment Ratio:


Above table refers that return on investment ratio from the of Maruti Suzuki pvt.ltd; company
over a period of 10 years from 2006 to 2015 the highest turnover ratio is 0.55 in the year
2006 and the least is 0.31 in the year 2012 the quick ratio also fluctuated in the study
period .The average liquidity ratio is 0.43, the standard deviation is 0.07.

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Cash Turnover Ratio:


Above table refers that return on investment ratio from the of Maruti Suzuki pvt.ltd; company
over a period of 10 years from 2006 to 2015 the highest turnover ratio is 2730.63 in the year
2015 and the least is 14.60 in the year 2011 the quick ratio also fluctuated in the study
period .The average liquidity ratio is 369.19, the standard deviation is 834.93.
Correlation

CR

QR

WCTR

CATAR

RIR

ITR

DTR

Pearson

CR
1

QR

Correlation
Sig. (2-tailed)
N
Pearson

10
.145

Correlation
Sig. (2-tailed)
N
Pearson

.689
10
-.536

10
.360

Correlation
Sig. (2-tailed)
N
Pearson

.110
10
.954**

.307
10
-.141

10
-.690*

Correlation
Sig. (2-tailed)
N
Pearson

.000
10
.376

.698
10
.790**

.027
10
.228

10
.163

Correlation
Sig. (2-tailed)
N
Pearson

.285
10
.128

.007
10
.179

.526
10
-.062

.653
10
.074

10
.327

Correlation
Sig. (2-tailed)
N
Pearson

.725
10
-.087

.621
10
.047

.865
10
.293

.838
10
-.158

.356
10
-.380

10
-.272

Correlation
Sig. (2-tailed)
N
Pearson

.811
10
-.478

.898
10
-.360

.412
10
.229

.662
10
-.409

.279
10
-.435

.448
10
.513

10
.308

.525
10

.240
10

.209
10

.129
10

.386
10

10

Correlation
CTR
Sig. (2-tailed)
.162
.306
N
10
10
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

WCTR

CATAR

RIR

ITR

DTR

CTR

Interpretation:
Correlation between another variables (CR, QR, WCTR,, RIR,ITR,DTR,CTR).This is a
positive correlation between CR and CATAR at 0.01level of sufficient.
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4. FINDINGS
1. The current ratio of the Maruti Suzuki pvt.ltd was fluctuated because of decreasing the
current assets and increasing the current liabilities. Moreover, the current ratio was below the
standard norm2:1 that leads to poor management of current assets
2. The quick ratio of the Maruti Suzuki pvt.ltd was satisfactory during the study period,
because of efficient management of quick assets that leads to exceed the standard norm of
quick ratio.
3. The return on investment ratio of the Maruti Suzuki pvt.ltd was not satisfactory, because
of the earning capacity of the company is not constant.
4. The current assets to total assets ratio of the company was not satisfactory, because of the
less importance given to the current assets.
5. The cashturnover ratio of the company was fluctuated during the study period, because of
the changes in the cash reserves of the company.
6. The working capital turnover of the company was fluctuated, because of the changes in the
net working capital.
7. The debtors turnover ratio of the company was satisfactory, because of more efficient of
the management of debtors.
8. The inventory turnover ratio was decreased during the study period, because of inefficient
management of inventories

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5. SUGGISIONS
1. The company should maintain good relationship between current assets and current
liabilities. Then it will satisfy the day to-day financial obligations.
2. The company should give special attention to the management of inventory, as inventories
constitute the most significant part of the working capital wit in the company.
3. The cash turnover ratio of the company was fluctuated during the study period, so it is
suggested that the company should try to improve the cash turnover capacity of the company
through maintaining of cash reserves.

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6. CONCLUSION
The impact of working capital on profitability and liquidity of Maruti Suzuki pvt.ltd was
good. The company should concentrate on maintaining current assets more than is current
liabilities, then the company should satisfying the its short term obligations, and as well as
Increase its profits.

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BIBLIOGRAPHY
REFERENCE TEXT BOOKS
TEXT BOOKS
1.FINANCIAL MANAGEMENT
2. FINANCIAL MANAGEMENT
3.RESEARCH METHODOLOGY

AUTHORS
M.PANDEY
S.P.JAIN
C.R.KOTHARI

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