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THE STUDY ON WORKING CAPITAL

MANAGEMENT
OF TVS MOTOR COMPANY ,
NALAGARH(H.P)

A SUMMER INTERNSHIP REPORT

Submitted by

PUNEET KASHYAP
University Roll No.- 1729688

In partial fulfillment of summer internship for the award of the degree on

MASTERS OF BUSINESS ADMINISTRATION

CHANDIGARH GROUP OF COLLEGE

Jhanjeri, Mohali (P.B.)

July, 2018
CERTIFICATE
Certified that summer internship project report “The Study On Working Capital
Management Of TVS MOTOR COMPANY ’’ is the bonafide work of
PUNEET KASHYAP, university roll no.- 1729688, student of Masters Of
Business Administration of Chandigarh group of colleges Jhanjeri Mohali Punjab
carried out under my supervision during June 01,2018 to July 16,2018.

Date : July 16, 2018

Name of Supervisor :

Designation
ACKNOWLEDGEMENT

I express my gratitude to the Chandigarh group of colleges jhanjeri Mohali for giving me
the opportunity to work on the Industrial Training during my summer internship of MBA .
Industrial Training is an important aspect in the field of MBA .

I would also like to thanks to TVS MOTOR COMPANY NALAGARGH that gave me
opportunity to work on the industrial training during my summer internship.

It is not until you undertake Industrial Training like these that you realize how massive the effort
it really is, or how much you must really upon the selfless efforts and goodwill of others. There
are many who helped us with these Industrial Training, and I want to thank them all.

I would like to thanks to MR. Y.S GULERIA (G.M OF TVS MOTOR COMPANY
NALAGARH), MR. ASHOK SHARMA (DGM of Finance Dept.) for his invaluable
guidance throughout our Industrial Training work.

I would like to specially thanks to MR. ASHOK DHIMAN (Assistant Manager of finance
dept.), MR. SUNIL NEGI (Sr. Executive of finance dept.) Industrial Training guide, whose
invaluable guidance in this difficult and endeavor period has provided me with the requisite
motivation to complete my Industrial Training successfully.

I would like to thanks to the help and guidance of all those people who have directly or indirectly
helped me in Industrial Training.
CONTENTS

Sr Page
Content
No. No.

1. INTRODUCTION TO A COMPANY

2. MEANING OF TVS

3. KEY MILESTONE OF COMPANY

4. LOCATION OF MANUFACTURING PLANTS

5. MISSION OF COMPANY

6. VISION OF COMPANY

7. NALAGARH PLANT

8. ORGANISATIONAL CHART

9. STRUCTURE OF FINANCE DEPARTMENT

10.
INTRODUCTION

The TVS group has always been inspired by a century long mission and vision of its own
destiny. it is not just a business but a way of doing business, which sets TVS apart from others.
Back in 1911, to the founder of the company, the ordinary ambitions of a bus fleet operator or a
vehicle servicing business would not suffice. Rather, he wanted to create an enduring business
led by a family of like minded workers and managers united by a set of shared high principles.
Driven by this inspiration, the TVS group has today emerged as India's leading supplier of
automotive components. Today the TVS Group is the largest automotive component
manufacturer in India, with annual turnover of more than USD 4 billion. The group has over 30
companies employing a work- force of 40,000 people. Underlying the success of the group is its
philosophy of commitment to the cherished values of promoting trust, value and customer
service. TV sundaram Iyengar
This was the personal philosophy of the Group's Founder Shri Thirukkurungudi Vengaram
Sundaram lyengar, and it remains the overarching code by which the Group functions. Market
leadership and rewards of business have followed naturally. Although the letters TVS represent
the initials of our founder, T V Sundaram lyengar, to us within TVS they have always stood for
Trust, Value and Service. The founder of the company embodied these values and set an
example for all employee to emulate.
Figure 1.2 TVS way

CHAPTER - 3

MEANING OF TVS

TVS stands for


T – TRUST
V – VALUE
S – SERVICE

TVS stands for Thirukkurungudi Vengaram Sundram. Thirukkurungudi Vengaram Sundram


Iyengar was the founder of the TVS group. So the name TVS comes from his initial name
Thirukkurungudi Vengaram Sundram.

TVS is one of the largest manufacturers of motorcycles, mopeds and auto rickshaws in India.

TVS believes that the success of any enterprise is built on the solid foundation of customer
satisfaction. Continuous innovation and close customer interaction have enabled TVS companies
to stay ahead of competition. Quality at TVS determines not only the end product but the
systems, processes and operations at all levels. The first
four companies in India, which have won the coveted Deming Prize are from the TVS group.

Figure 1.3 TVS Group

The business ranges across automobile component manufacturing, components distribution,


manufacturing of powered two-wheelers, computer peripherals, financial
services, contract manufacturing services and software development.
TVS Motor company Ltd (TVS Motor) - member of the TVS group is the largest company of the
group in terms of size and turnover.

KEY MILESTONE OF TVS MOTOR COMPANY


LOCATION OF TVS MANUFACTURING PLANTS

TVS Motor Company has 9 manufacturing plants all over the world, which are as follows:
Plant 1 - Moped Division, Hosur started in 1979.
Plant 2 - Motorcycle Division, Hosur started in 1984.
Plant 3 - Engine Component Division, Hosur started in 1988.
Plant 4 - Scooter & Motorcycle Division, Mysore started in 1998.
Plant 5 - Spares Warehouse Division, Hosur started in 1988.
Plant 6 - Engine Component Division, Mysore started in 2003.
Plant 7 - Motorcycle Division, Nalagarh started in 2007.
Plant 8 - Bebek Motorcycle Division, Jakarta Indonesian started in 2007.
Plant 9 - Auto Manufacturing Division, Hosur started in 2007.

TVS motor company has manufacturing units at:

 Hosur
 Mysore
 Nalagarh
 Indonesia

TVS has launched 36 models starting from mopeds XL in 1979 to Flame-125 in 2008. The first
18 models were launched in the first 18 years and next set of 18 has been launched in next 8
years. Out of our total product range 22% are mopeds, 60% are motorcycles and 18% of scooter.
CHAPTER – 4

MISSION STATEMENT

We are committed to being a highly profitable and socially responsible, leading manufacturer of
high value for money, environmentally friendly, lifetime personal
transportation products under TVS brand for customers predominantly in Asian markets and to
provide fulfillment and prosperity for employees, dealers and suppliers.

Venu Srinivasan
(Managing Director)
VISION STATEMENT
TVS Company will be:
• Driven by customer
TVS Motor will be responsive to customer requirements consonant with its core competence and
profitability. TVS Motor will provide total customer satisfaction by giving the customer the right
product, at the right price, at the right time.

• Industry leader
TVS Motor will be one among the top two two-wheeler manufacturers in India and one among
the top five two-wheeler manufacturers in Asia.

 Global overview
TVS Motor will have profitable operations overseas especially in Asian markets,
Capitalizing on the expertise developed in the areas of manufacturing, technology and
marketing. The thrust will be to achieve a significant share for international business in
the total turnover.

 At the cutting edge of Modern technology


TVS Motor will hone and sustain its cutting edge of technology by constant
benchmarking against international leaders.

• Employee dependent
TVS Motor believes that people make an organization and that its well-being is
dependent on the commitment and growth of its people. There will be a sustained effort
through systematic training and planning career growth to develop employees’ talents
and enhance job satisfaction. TVS Motor will create an enabling ambience where the
maximum self-actualization of every employee is achieved. TVS Motor will support and
encourage the process of self-renewal in all its employees and nurture their sense of self .
NALAGARH PLANT

This is the latest manufacturing plant. Nalagarh plant is situated at village Bhattian, 5 Kms away
from Nalagarh city on Bharatgarh Road in Himachal Pradesh. First vehicle rolled out at this plant
on 29th April 2007, which marked the beginning of new chapter in TVS motors.

CLIMATIC CONDITIONS:
• Maximum Temperature - 45°C
• Minimum Temperature - 3°C
• Humidity – 60% (min) to 90 % (max)

PRODUCTS:
• Star City KS & ES
• Star Sport KS & ES
• Jupiter
• Moped

TVS MOTOR NALAGARH CORPORATE SOCIAL RESPONSIBLITY


• Construction of drainage canal at village Bhattian.
• Parapet wall for school entry culvert at village Bhattian.
• Primary health center at village Bhattian.
• Participation in sports day function
• Painting competition organized of school children in company on Environment Day
ORGANISATION CHART
PRODUCTS OF NALAGARH PLANT

• TVS SART CITY PLUS

• TVS SPORTS
• TVS JUPITER

 TVS XL 100
FINANCE DEPARTMENT
TVS have a finance department for transacting all types of financial dealings. The finance
department is the integral part of any organization which plays pivotal role in all organization.
Because money is the medium without which we can even think to do anything. And finance
department can only solve the problems which are arises for the money .finance department
dealing with the sources of fund and application of the fund. To take any operation any operation
in the consideration we must have to budget it according to the financial condition of the
organization. And foremost is that to handle this financial department TVS has its own latest
technology through which it can run financial activity smoothly.

Finance department mainly divided in the following section:

 Bills Payment Section


 Marketing Account Section
 Bank Section
 Establishment Section
 Insurance Section
 Indirect Tex Section
 Central Account Section
 Concurrence Section
 Stores Account Section

Functions of the finance department:-


1. Accounting system of the organization is on SAP
( Systems, Application, Products).
2. Sources of funds of TVS motor company are shareholders funds, loans, debentures etc.
3. Allocation of funds are into the fixed assets, investment etc.
4. TVS motor company also use the electronic data in decision making.
CHART OF FINANCE DEPARTMENT

VICE
PRESIDENT

SENIOR GM

PLANT PLANT PLANT


HOSUR PLANT H.P
MYSORE INDONESIA

GM

DGM

ASSISTANT
MANAGER

SENIOR
EXECUTIVE

EXECUTIVES
PROJECT STUDY ON WORKING
CAPITAL MANAGEMENT
OBJECTIVE OF STUDY WORKING CAPITAL
MANAGEMENT:
Working capital is most widely and powerful technique of financial analysis. The main objective
of the present study is to know financial condition of a company.+

 To know the overall operational efficiency and performance of the TVS MOTOR
COMPANY .
 To study the working capital components such as receivables accounts ,cash management
,and inventory management .
 To understand how the company finances its working capital .
 To interpret the financial position of company of is appropriate (or) not.

RESEARCH METHODOLOGY:
Research methodology is away to systematically solve the research problem. It may understood
as a science of studying now research is done systematically .

SOURCES OF DATA:
The study of working capital management is based on primary as well as secondary data .

The data relating to has been collected through

PRIMARY DATA: The data which is collected fresh or first hand , and for first time which is
original in nature . In this study the primary data has been collected from personal intraction with
finance manager ,. MR. Ashok Sharma. And other members of finance department.

SECONDARY DATA: The secondary data are those whioch have already collected and stored .
secondary data easily get those secondary data from records , annual reports of company etc. it
will save the time ,money and efforts to collect the data

WORKING CAPITAL MANAGEMENT


 Working capital, also known as net working capital, is a financial metric which represents
operating liquidity available to a business. Along with fixed assets such as plant and
equipment, working capital is considered a part of operating capital. It is calculated as current
assets minus current liabilities. If current assets are less than current liabilities, an entity has a
working capital deficiency, also called a working capital deficit.
 A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both maturing
short-term debt and upcoming operational expenses. The management of working capital
involves managing inventories, accounts receivable and payable and cash.

Concepts of working capital:


 There are two concepts of working capital-gross and net.
 Gross working capital refers to the firm’s investment in total current assets.
 Net working capital refers to the difference between current assets and current liabilities. Net
working capital is positive when CA exceed CL and negative when CL exceeds CA.
 A finance manager should ensure there is sufficient liquidity in the firm’s operations. This is
possible only when the CA and CL are managed efficiently. Liquidity of the firm is defined
as the firm’s ability to meet its short-term obligations as and when payable.

Objective:

Liquidity V. Profitability

The basis objective of working capital management is to maintain the smooth functioning of the
normal business operations of a firm. The company has to decide on the sufficient quantity of
working capital to be maintained. A company following a conservative approach will have more
current assets at its disposal. Holding large amount of CA is not very advisable as the firms lose
on the profitability aspect. They can earn more by putting these resources to alternative uses or
by investing CA into short term investment avenues. This approach is dynamic wherein only
small amounts of cash are held by companies and the rest put to alternative uses.

Need for Working Capital:


Different firms have different requirements of working capital. One of the objectives, the firm
should earn good returns from its operations which mean that earning a steady amount of profit
requires good amount of sales. The firm should invest adequately in current assets to enable it to
generate sales continuously without any break. Sales do not convert into cash instantaneously
and there is always on operating cycle involved in the conversion of sales into cash.

Operating cycle:

It is the length of time required to convert sales into cash. This involves three phases:

 Acquisition of resources-procuring raw materials, labour, fuel, etc.


 Manufacture of the product-conversion of raw material into inventory.
 Sale of the product-conversion of sales into cash or credit in which case the firm has
accounts receivable.
The length of the operating cycle is the sum total of:

 Raw Material storage period


 Conversion period
 Average collection period
This total is referred to as Gross Operating Cycle (GOC). Form this; the firm has to make
payables which are the Average Payment Period. Subtracting payables deferrals from GOC, we
get Net Operating Cycle or the Cash Conversion Cycle.
Calculation of Operating Cycle of TVS MOTOR COMAPNY:

1) Inventory Conversion Period (ICP)

The inventory conversion is the sum of raw material conversion period, work in process and
finished goods conversion period:

ICP=RMCP + WIPCP + FGCP

i) Raw Material Conversion Period ( RMCP )


RMCP = Average raw material inventory
Raw material consumption per day
Raw material consumption per day = Raw material consumption / 360

Average raw material inventory = (Opening stock of RM + Closing stock of RM)/2

Particular 2016-17 2015-16 2014-15 2013-14

Average raw material 410.4 451.05 245.02 191.73


inventory

Raw Material consumption 23.61 20.97 19.62 14.85


per day

Raw Material Conversion 17.38 21.50 12.49 12.91


Period (RMCP) (in days)
Raw material conversion period
500
450
400
350
300
250
200
150
100
50
0
2013-14 2014-15 2015-16 2016-17
average raw material inventory raw material consumption raw material conversion period (per day )

Work in Progress Conversion Period (WIPCP)


WIPCP = Average work in process inventory
Cost of production per day
Average work in progress inventory = (Opening WIP + Closing WIP) / 2

Cost of production per day = (Raw material consumed + power, fuel and other Utilities +
stores chemicals + Opening WIP – Closing WIP) / 360

Particular 2016-17 2015-16 2014-15 2013-14

Average Work in Progress 78.56 40.79 40.75 35.89


Inventory

Cost of Production per day 23.64 21.03 19.90 15.10

Work in Progress Conversion 3.32 1.94 2.04 2.37


Period (WIPCP) (in days)
Work in progress conversion period
90

80

70

60

50

40

30

20

10

0
2013-14 2014-15 2015-16 2016-17

Average work in progress cost of production per day work in progress conversion period ( in days )

Finished Goods Conversion Period (FGCP)


FGCP = Average Finished goods Inventory
Cost of goods sold per day

2016-17 2015-16 2014-15 2013-14

Average finished 144 182.41 197.90 164.68


goods Inventory

Cost of goods sold per 33.57 30.79 27.69 22.20


day

Finished goods 4.29 5.92 7.15 7.42


conversion Period
(FGCP) (in days)
Finish goods conversion period
250

200

150

100

50

0
2013-14 2014-15 2015-16 2016-17

Average finished goods inventory Cost of goods sold per day


finished goods conversion period ( in days )

Inventory Conversion Period (ICP):

Particular 2016-17 2015-16 2014-15 2013-14

Raw Material Conversion Period (RMCP) 17 22 12 13


(in days)

Work in Progress Conversion Period 3 2 2 2


(WIPCP) (in days)

Finished Goods Conversion Period (FGCP) 4 6 7 7


(in days)

Inventory Conversion Period (ICP) (in 24 30 21 22


days)
Inventory conversion period
35

30

25

20

15

10

0
2013-14 2014-15 2015-16 2016-17

Raw material coversion period ( in days ) Work in progress conversion period (in days)
Finished goods conversion period (in days) Inventory conversion period (in days)

From the above calculation we can see that since last 4 years the ICP is nearer to 25 days. For
maintaining operating cycle successfully this conversion period of inventory is fair for TVS
MOTOR COMAPNY.

Debtors conversion Period (DCP) :

Debtors conversion period = Debtors * 365


Credit Sales

2016-17 2015-16 2014-15 2013-14

Debtors 1301.8 1081.61 837.98 650.97

Credit Sales 12932.96 11870.53 10561.71 8458.61

Debtors Conversion 37 33 29 28
Period (DCP) (in
days)
Debtor conversion period

14000
12000
10000
8000
6000
4000 Debtors conversion Period (in days)
Credit sales
2000
Debtors
0
2013-14 2014-15 2015-16 2016-17

Debtors Credit sales Debtors conversion Period (in days)

The debtors’ conversion period represents the length of time required to collect the sales receipts.
It can be called process of cash inflow. From the above calculation the conversion periods are
increasing. It was highest in 2016-17 i.e. 37days which affects adversely to the firm. In 2013-14
it increases from 28 days to 37 days which is not fair for TVS MOTOR COMPANY

Gross Operating Cycle (GOC):

Gross operating cycle = Inventory conversion period + Debtors Conversion Period

2016-17 2015-16 2014-15 2013-14

Inventory Conversion Period 24 30 21 22


(In days)

Debtors Conversion Period 37 33 29 28


(In days)

Gross Operating cycle (In 61 63 50 50


days)
Gross operating period

70
60
50
40
30
20
10 Gross operating period (in days)
0 Debtors Coversion (in days)
2013-14 inventory conversion period (in days)
2014-15
2015-16
2016-17

inventory conversion period (in days) Debtors Coversion (in days) Gross operating period (in days)

From the above calculation we can say that gross operating cycle is highest in 2015-16 i.e. 63
days because of high collection period. In 2016-17 it is decreased to 60 days because of low
collection period. The time taken in completing one round from cash outflow to cash inflow
takes nearly 55 days.

Payable Deferred Payment (PDP):


PDP = Average Creditors * 365
Credit Purchase

Credit purchase = raw material consumed + power fuel and other utilities + stores and chemicals
+ packing material + purchase of good for sale + closing stock of raw material + closing stork of
stores and spares – (opening stock of raw material + opening stock of stores and spares).

2016-17 2015-16 2014-15 2013-14


Average Creditors 1701.53 1511.10 1238.29 903.33

Credit Purchase 8819.78 7672.60 7263.44 5424.28

Payable Deferred Payment (PDP) (In Days) 71 72 62 61


Payble deferred payment

10000

8000

6000

4000

2000 Payble deferred payment (in days)


0 Credit purchase
2013-14 Average creditors
2014-15
2015-16
2016-17

Average creditors Credit purchase Payble deferred payment (in days)

Payable deferred payment is the time that lapse between the dates of various resources received
on credit and the date when payment is made. In the last 4 years it is highest in 2015-16 i.e.
72days. An increase in the length of the operating cycle, without a corresponding increase in
payable deferred period, creates the further working capital financing needs. The days are lowest
in 2013-14 i.e. 61days.

Net operating cycle (NOC):

Net operating cycle = gross operating cycle - payable deferred period

2016-17 2015-16 2014-15 2013-14


Gross operating cycle (GOC) 61 63 50 50
(in days)
Payable deferred payment (PDP) 71 72 62 61
(in days)
Net operating cycle (NOC) (10) (9) (12) (11)
(in days)
Net operating cycle
80
72 71
70 63
61 62 61
60
50 50
50

40

30

20

10

0
2013-14 2014-15 2015-16 2016-17
-10
-11 -9 -10
-20 -12

Gross operating cycle (in days) Payble deferred payment (in days) Net operating cycle (in days)

The difference between gross operating cycle and payable deferred period is known as net
operating cycle. The operating cycle is -11 days in 2014-15 which goes up in 2015-16 i.e. -9
days. An increase in the length of operating cycle creates further working capital financing
needs. In 2016-17 the cycle days are increse -10 days.

Current Asset to Fixed Asset Ratio:


Higher of current asset to fixed asset is useful to measure a level of current asset. The three
policies are follows:

 Higher CA / FA ratio indicates conservative current asset policy. It implies greater


liquidity and lower risk.
 Lower CA/FA ratio indicates aggressive current asset policy. It implies higher risk
and poor liquidity.
 Between these two extreme levels, there is an average current asset policy.

2016-17 2015-16 2014-15 2013-14

Current Asset 2186.89 1886.37 1943.39 1408.72

Fixed Asset 3717.78 3065.81 2610.36 2155.98

CA / FA (Times) 0.59 0.62 0.74 0.65

CA/FA (times)
0.8
0.74

0.7 0.65
0.62
0.59
0.6

0.5

0.4

0.3

0.2

0.1

0
2013-14 2014-15 2015-16 2016-17

CA/FA (times)

From the above data we can say that TVS is following average policy. In 2013-14 current asset
was less than fixed asset and 2014-15 it follows greater difference. The ratio is highest in 2015-
16 i.e. 0.74 which indicates conservative current asset policy. It shows greater liquidity and
lower risk of the company.
Determinants of working capital:

A firm should plan its operations in such a way that there is neither too much nor too little
working capital. The following factors are identified as significant factors affecting the
composition of working capital or current assets:

 Nature of business: working capital requirements are basically influenced by the nature of
business. Trading organizations invest little on fixed asset and are have a large stock of
finished goods, accounts receivable (arising out of credit sales) and accounts payables
(due to credit purchases). In contrast, public utilizes do not have large stocks of current
asset and they invest heavily on fixed assets.
 Nature of Raw Material Used: the nature of raw material also influences the quantum of
inventory. For example, if the raw material is based on the agricultural produce, the
seasonality of production affects the raw material requirements. Consequently, the
percentage of raw material inventory to total current asset will be very high.
 Sales and Demand Conditions/ Business Cycle: companies which are growing will have
large quantities of finished goods inventory. Sales depend on the demand conditions
which vary depending on the seasonality and cyclicality of product demand.
 Processing Technology: the manufacturing cycle comprises the purchase and use of raw
material and production of finished goods. Longer the manufacturing cycle, larger is the
firm’s requirement of working capital. This will also lead to an extended manufacturing
time span and larger tie-up of funds in inventory.
 Credit Policy: the credit policy of the firm affects the working capital. The credit terms to
be granted to customers depend on the industry norms. If the industry standard is 45 days
and the firm restricts its credit terms to 20 days, it works heavily on the company’s sales.
On the other hand, if the company follows the industry standard and grants credit of 45
days, extra efforts are to be put in towards collection. Incidence of bad debts is higher in
such cases.
 Operation Efficiency: use of working capital is improved and the velocity of cash
conversion cycle is stepped up. Better utilization of resources improves profitability and
helps in reducing the pressure on working capital.
Decision Criteria:

 Working capital management entails short term decisions – generally, relating to the next
one year period which is “reversible”. These decisions are therefore not taken on the
same basis as capital investment decisions (NPV or related, as above) rather they will be
based on cash flows and / or profitability.
 One measure of cash flow is provided by the cash conversion cycle the net number of
days from the outlay of cash for raw material to receiving payment from the customer. As
a management tool, this metric makes explicit the inter- relatedness of decisions relating
to inventories, account receivable and payable, and cash. Because this number effectively
corresponds to the time that firm’s cash is tied up in operations and unavailable for other
activities, management generally aims at a low net count.
 In this context, the most useful measure of profitability is return on capital (ROC). The
result is shown as a percentage, determined by dividing relevant income for the 12
months by capital employed; return on equity (ROE) shows this result for the firm’s
shareholders. Firm value is enhanced when, and if the return on capital, which results
from working capital management, exceeds the cost of capital, which results from capital
investment decisions as above. ROC measures are therefore useful as a management tool,
in that they link short-term policy with long-term decision making. See economic value
added (EVA).

Management of working capital:


Management uses a combination of policies and techniques for the management of working
capital. These policies aim at managing the current asset (generally cash and cash equivalents,
inventories and debtors) and the short term financing, such that cash flows and returns are
acceptable.

 Cash management: identify the cash balance which allows for the business to meet day to
day expenses, but reduces cash holding costs.
 Inventory management: indentify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials and minimizes reordering costs
and hence increases cash flow; i.e. credit terms which will attract customers, such that
any revenue and hence return on capital (or vice versa) discounts and allowances.
 Short term financing: identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier;
however, it may be necessary to utilize a bank loan (or overdraft), or to “convert debtors
to cash” through “factoring”.

Calculation of gross working capital:


Gross working capital refers to the current assets of the firm. Current assets are the assets which
can be converted into cash within a year and it includes cash, short term securities, debtors, bills
receivables etc.

Sources of funds 2013-14 2014-15 2015-16 2016-17

Current assets
Inventories 548.15 733.78 696.33 966.95

Trade receivable 334.12 503.58 578.03 723.77


Cash and cash equivalents 80.46 2.85 28.34 4.37
Bank balance 2.11 2.46 4.40 4.14
Other current assets 443.88 700.72 579.27 487.66
Gross working capital 1408.72 1943.39 1886.37 2186.89
Gross working capital
2500
2186.89
1943.39 1886.37
2000

1500 1408.72

1000

500

0
2013-14 2014-15 2015-16 2016-17

Gross working capital


Calculation of Net Working Capital of TVS MOTOR Ltd.:
Net working capital is a difference between current assets and current liabilities.

Net working capital= current asset – current liabilities

Sources of funds 2013-14 2014-15 2015-16 2016-17

Current asset
548.15 733.78 696.33 966.95
Inventories

Sundry debtors 334.12 503.58 578.03 723.77

Cash and cash equivalents 80.46 2.85 28.34 4.37

bank balance 2.11 2.46 4.40 4.14

Other current assets 443.88 700.72 579.27 487.66

(A) Total Current Assets 1408.72 1943.39 1886.37 2186.89

Current liabilities
616.38
Borrowings
33.47 399.76 264.23
Provisions 67.96 39.47 58.47 62.87

Trade payble 998.91 1478.50 1543.71 1859.36

Other current liabilities 428.82 260.54 449.47 312.47

(B) Total Current Liabilities 1529.16 2178.27 2315.58 2851.08

Net Working Capital (A-B) (120.44) (234.88) (429.15) (664.19)


Net working capital
0
-100 2013-14 2014-15
-120.44 2015-16
-200 2016-17
-300 -234.88
-400
-500
-600 -429.15
-700

-664.19

Net working capital

Net working capital can be positive or negative. From the above information the working capital
of the tvs motor company is negative. All years working capital is negative.
Retail and restaurant companies like Amazon, Wal-Mart, and McDonald's often have negative
Working Capital because customers pay upfront - so they can use the cash generated to pay off
their Accounts Payable rather than keeping a large cash balance on-hand. This can be a sign of
business efficiency.

Negative working capital is when a company's current liabilities exceed its current assets. This
means that the liabilities that need to be paid within one year exceed the current assets that are
monetizable over the same period.

In accounting terms, these companies, more specifically, have negative operating working
capital, or negative capital after subtracting their current liabilities from their current accounts
receivables and inventory. ... Ordinarily, having negative anything is not a good thing, but with
operating working capital it can be.

If a company's current assets substantially decrease as a result of a large one-time cash


payment, for example, or current liabilities increase due to significant credit extension resulting
in an increase in accounts payable, its working capital may turn negative.

There are three types of working capital:-

Positive Working Capital

When a company has more current assets than current liabilities, it has positive working capital.
Having enough working capital ensures that a company can fully cover its short-term liabilities
as they come due in the next 12 months. This is a sign of a company's financial strength.
However, having too much working capital in unsold and unused inventories, or uncollected
accounts receivables from past sales, is an ineffective way of using a company's vital resources.

The additional funds parked in inventories or receivables are not financed by short-term
liabilities but rather long-term capital, which should be used for longer-term investments to
increase investment effectiveness. Therefore, the key is to maintain an optimal level of working
capital that balances the needed financial strength with satisfactory investment effectiveness. To
accomplish this goal, working capital is often kept at 20% to 100% of total current liabilities.

Zero Working Capital

When a company has exactly the same amount of current assets and current liabilities, there is
zero working capital in place. This is possible if a company's current assets are fully funded by
current liabilities. Having zero working capital, or not taking any long-term capital for short-term
uses, potentially increases investment effectiveness, but it also poses significant risks to a
company's financial strength. Certain current assets may not be easily and quickly converted to
cash when liabilities become due, such as illiquid inventories. Keeping some extra current assets
ensures that a company can pay its bills on time.
Negative Working Capital

Negative working capital is closely tied to the concept of current ratio, which is calculated as a
company's current assets divided by its current liabilities. If a current ratio is less than 1, the
current liabilities exceed the current assets and the working capital is negative.

If working capital is temporarily negative, it typically indicates that the company may have
incurred a large cash outlay or a substantial increase in its accounts payable as a result of a large
purchase of products and services from its vendors. However, if the working capital is negative
for an extended period of time, it may be a cause of concern for certain types of companies,
indicating that they are struggling to make ends meet and have to rely on borrowing or stock
issuances to finance their working capital.

The amount of a company's working capital changes over time as a result of different operational
situations. Thus, working capital can serve as an indicator of how a company is operating. When
there is too much working capital, more funds are tied up in daily operations, signaling the
company is being too conservative with its finances. Conversely, when there is too little working
capital, less money is devoted to daily operations – a warning sign the company is being too
aggressive with its finances.
Calculation of Net Working Capital of BAJAJ AUTO COMPANY :

Net working capital is a difference between current assets and current liabilities.

Net working capital= current asset – current liabilities

Sources of funds 2013-14 2014-15 2015-16 2016-17


Current asset
639.72 814.15 719.07 728.38886.39
Inventories
Current investment 2289.70 5800.56 1319.94 6050.08
Cash and cash equivalents 495.48 586.15 859.52 293.68
Short term advances & 978.45 1261.61 7.05 6.47
loans
Trade receivable 796.21 716.96 717.93 953.29
Other current assets 417.07 346.84 1101.74 1359.47
(A) Total Current Assets 5616.63 9526.27 4725.25 9391.37
Current liability 2013-14 2014-15 2015-16 2016-17
Short term provision 120.93 112.95 1904.57 1852.70
Trade payable 2111.40 1799.75 2027.04 2235.73
Other current liabilities 2111.40 767.47 641.00 855.92
(B) Total Current Liabilities 4730.25 4476.79 2780.99 3212.58
Net Working Capital (A-
B) 886.39 5049.48 1944.26 6178.79
Diagram of BAJAJ AUTO COMAPANY

Net working capital


7000
6000 6178.79
5049.48
5000
4000
3000
2000 886.39 1944.26
1000
0
2013-14
2014-15
2015-16
2016-17

Net working capital

Net working capital can be positive or negative. For BAJAJ AUTO has positive working capital
which means current assets exceeds current liability .it is highest in 2016-17 i.e. 6178.79 which
so it is negative affect on firm. Excessive investment in current assets should be avoided because
it affects the firm’s profitability. And indicates that company is dependent upon the suppliers for
their business cycle .
Comparison of TVS MOTOR & BAJAJ AUTO COMPANY:

From above we can see tha TVS MOTOR COMPANY has negative working capital and BAJAJ
AUTO COMAPANY has positive working capital which means

TVS BAJAJ
2013-14 -120.44 886.39
2014-15 -234.88 5049.48
2015-16 -429.15 1944.26
2016-17 -664.19 6178.79

7000
Chart Title
6000

5000

4000

3000

2000

1000

0
2013-14 2014-15 2015-16 2016-17
-1000

-2000

TVS BAJAJ
WORKING CAPITAL CYCLE OF TVSMOTOR COMPANY :-

The Working Capital Cycle for a business is the length of time it takes to convert net working
capital (current assets less current liabilities) all into cash. Businesses typically try to manage
this cycle by selling inventory quickly, collecting revenue from customers quickly, and paying
bills slowly, to optimize cash flow.

INVENTORY
CONVERSION PERIOD

(DAYS)

YEARS 13-14 14-15 15-16 16-17


DAYS 24 23 24 25

PAYBLE INVENTORY
DEFFERD CONVERSION
PAYMENT PERIOD

DEBTORS
CONVERSION
PERIOD
DEBTORS
CONVERSION PERIOD

PAYBLE
YEARS 13-14 14-15 15-16 16-17
DEFFERED PAYMENT DAYS 14 14 17 18

YEARS 13-14 14-15 15-16 16-17


DAYS 14 14 17 18
Receivable management
Businesses sell goods on credit to increase the volume of sale. In the present era of intense
competition, one way to improve sale deals is to offer relaxed payment conditions to customers.
Finished goods get converted to receivables when sold on credit terms. Trade credit is a
marketing tool that tries to bridge the gap between production and distribution of company’s
products. Trade credit creates receivables or book debts which the firm hopes to realize in the
near future. The receivables are a very important component assets.
Objectives:
The term ‘receivables’ is defined as ‘debt owed to the firm by customers arising from the sale of
goods or services in the ordinary course of business’. The main objective of having receivables
in the current assets is to promote and encourage sales which will lead to increased profits. In
competitive situations, the firms will be forced to offer goods on credit keeping in line with
competitor’s strategies. All firms therefore grant credit to increase sales, profits and to meet
competition.
Costs Associated with Maintaining Receivables:
The following are the different costs incurred with the extension of credit and accounts
receivable:
 Capital cost: A firm offering goods on credit can surely expect higher sales but some of the
firm’s resources remain blocked in them as there is a time lag between a credit sale and cash
receipt from customers. The cost of use of additional capital to maintain its obligations will
definitely have an effect on the firm’s profits.
 Collection cost: These are the costs incurred in collecting receivables. They are
administrative in nature and these costs include(a)additional expenses on the creation and
maintenance of staff, stationery, postage, registers etc.
 Delinquency cost: This cost arises out of the failure of customers to meet their obligations
when payment on credit sales becomes due after the expiry of credit period. Additional costs
in the form of reminders, legal charges etc. will be incurred.
 Default cost: The firm may not be able to recover its dues because of its customers’ inability
to pay off their debts. Such dues are bad debts and go on to reduce the profits of company.
The size of the receivables is determined by the firm’s credit policy and the level of its sales.

Receivable management of TVS MOTOR COMAPANY:


At TVS MOTOR COMPANY the receivables are approx. 35% of current assets. The company
credit policy varies from 15 days to 90 days. On every 30 days company prepares the receivables
list which shows the total receivables and due date for each bill. The list is prepared by
accounting department. Account department coordinates with marketing department for
collection of receivables.
Credit policy:
The credit policy of a company can be regarded as a tradeoff between increased credit sales
leading to higher profits and the cost of having large cash locked up in receivables. The credit
policy to be adopted in businesses largely depends upon competitors’ strategies. If the
competitors are grating a 15 day credit period and if the firm decides to extend the credit period
to30days, the firm will be flooded with customers’ demand for company’s products. Firms
average investment in account receivable 90days credit per month.
The credit policy is a framework to determine
(a) Credit standards,
(b) Period of credit,
(c) Cash discount to be offered and
(d) Collection program.

All these variables listed influence the amount of sales, the amount of sales, and the amounts
locked up in receivables and the bad debts incidence.
Credit Standards :
The term ‘credit standard’ represents the criteria for extending credit to customers. The
quantitative basis for setting credit standards are credit rating, references, average payment
period and ratio analysis. Professional credit rating agencies’ help may be sought to rate a
customer’s creditworthiness. After rating, the customers are rated as ‘excellent’, ‘very good’,
‘good’,’ average’, ‘poor’ , etc. The overall credit standards can be divided into (a) tight or
restrictive and (b) liberal or easy-going.
Credit period:
This refers to the time given to customers to pay for their purchase. It is generally expressed in
days like 15 days or 30 days. Generally, firms give a discount if payments are made within a said
period beyond which they will not lose on the benefit that can be availed. Increasing the credit
period will bring in new sales and new customers decrease, which is not desirable.

Cash Discounts:

Firms offer cash discount to induce prompt payment s. Cash discounts has implications on sales
volume, average collection period, investment in receivables, incidence of bad debt losses and
profits. Change in discount rate will bring in additional sales-granting a discount implies reduced
pieces and this factor brings in new sales.

Collection Program:

The success of a collection program will be depended on the collection policy. The objective of a
collection policy is to achieve timely collection of receivables, thereby releasing funds locked up
in receivables and minimize bad debts occurrence. The collection program consists of the
following:
 Monitoring receivables
 Informing customers about the due date for payment
 Initiating legal action to overdue customers after sending repeated notices
Collection policy should be so formulated that it is not too rigorous as it acts as an irritant to
customers, leading to bad relationship with them.

Credit policy at TVS MOTOR COMPANY


 The company sales its product on both cash and credit basis.
 Daily reporting of sales is done for organizations.
 The Company follows a rigorous system of credit evaluation for both corporate client and
dealers. The customers are required to make payments through cheques.
 ICRA rating is the standard for selecting and granting credit to customer
 Clients are required to give pre signed cheques to the TVS MOTOR COMPANY for
purchasing the product.
 Company has non operative sales collection account at each sales office for cash collection.
 If clients pay before due date then interest is charged @ % per year on total amount. If
clients pay before due date then % discount is given on the total amount.
 If the cheque bounces from the account then % of total amount or Rs. whichever is
higher is charged to customer.
 Prorate of quantity: if TVS MOTOR COMPANY doesn’t have quantity if product then it is
entitled to follow all the conditions.

Findings:

 The value of gross working capital is highest in 2016-17 i.e. 2186.89 Major proportion of
investment is done into account receivables and inventories.

 The value of net working capital is increasing and highest in 2016-17 i.e. (664.19)which
indicates good liquidity position of TVS MOTOR COMPANY but it is negative but in some
companies negative working capital seems to be positive .

 The inventory conversion period is on an average 25 days during last 4 years. It means
average 25 days time is required for producing and selling the product.

 Debtors’ conversion period was highest in 2016-17 i.e. 37days which affects adversely to the
firm. In 2013-14 it increases from 28 days to 37 days which is not fair for TVS MOTOR
COMPANY.
 Gross operating cycle is highest in 2015-16 i.e. 63 days because of high collection period. In
2016-17 it is decreased to 60 days because of low collection period. The time taken in
completing one round from cash outflow to cash inflow takes nearly 55 days.
 Payment period In the last 4 years it is highest in 2015-16 i.e. 72days. An increase in the
length of the operating cycle, without a corresponding increase in payable deferred period,
creates the further working capital financing needs. The days are lowest in 2013-14 i.e.
61days.

 The net operating cycle is higher in .

 Current assets to fixed assets ratio is higher in 2014-15 i.e.0.74 TVS MOTOR COMPANY is
following average policy in which there is an equal level of risk and liquidity.

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