A STUDY ON WORKING CAPITAL MANAGEMENT

SUNDARAM CLAYTON LTD.,

Submitted by
M.MANIMALA
OF
DEPARTMENT OF MANAGEMENT STUDIES
SRI MUTHUKUMARAN INSTITUTE OF TECHNOLOGY

(ACCREDIATED BY NBA & 9001:2000 CERTIFIED INSTITUTIONS)

A PROJECT REPORT
Submitted to the
FACULTY OF MANAGEMENT STUDIES
In partial fulfillment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION IN
FINANCE
 ABSTRACT

Sundaram Clyaton limited (SCL) is a member of the Rs. 6400 crore TVS
group companies, the largest automotive, component manufacturing and distributing group in
India. SCL was established n 1962 in collaboration with clayton Dewandre Holding
(WABCO Automotive / American standard inc), pioneering the manufacture of air brake
system in India. The market leader since inception SCL recorded a turnover of Rs. 1732
million during 1998-99 it employed a capital of Rs. 1768. 8 million and with 1010
employees.

Sundaram Clayton limited collaborated with Clayton Dewar Holdings PLC.

UK., presently WABCO Automotive and Automotive and part of $6 billion, American
standardsInc., Financial Statement Analysis of Sundaram Clayton, Ltd. is taken up the office
at Chennai for analyzing the stability of the organization in terms of analyzing and
computing the various ratio analysis from the balance sheet and profit and Loss Accounts of
the organization for 5 consecutive years form 2004 to 2009 with this study we are able to
predict the financial state of the organization.

Its strength and weakness and its stages where it has to improve and giving
the overall position of the organization for the management for decision making so that its
resources are used most effectively and efficiently. This study not only help the management,
it also gives a clear - view to the owners, share holders, creditors and investors.

TABLE OF CONTENT
 CHAPTER PARTICULARS PAGE NO
I INTRODUCTION 1
INTRODUCTION TO THE STUDY 1
OBJECTIVE OF THE STUDY 6
SCOPE OF THE STUDY 7
NEED OF THE STUDY 6
LIMTATION OF THE STUDY 9
COMPANY PROFILE 10
INDUSTRY PROFILE 15
PRODUCT PROFILE 16
II WORKING CAPITAL 19
31
35

III REVIEW OF LITERATURE AND 37

RESEARCH METHODOLOGY
STRATEGIES AND TECHNIQUES BOOK 37
DESCRIPTION

TECHNIQUES USED BY SMALL MANUFACTURERS 38

RESEARCH DESIGN 43
TOOLS USED FOR ANALYSIS 44
IV DATA ANALYSIS AND INTERPRETATION 45
WORKING CAPITAL TURNOVER RATIO ANALYSIS 46
NET WORKING CAPITAL ANALYSIS 48
SCHEDULE OF CHANGES IN WORKING CAPITAL 50
V CONCLUSION 59
FINDINGS 59
SUGGESTIONS 60
CONCLUSION 61
ANNEXURE
BIBLIOGRAPHY

LIST OF TABLES

TABLE NO. PARTICULARS PAGE NO.

1 CURRENT RATIO 51
2 QUICK RATIO 52
3 FIXED ASSETS TURNOVER RATIO 53
 4 WORKING CAPITAL TURNOVER RATIO 54
5 RETURN ON INVESTMENT RATIO 55
6 CAPITAL TURNOVER RATIO 58
7 PROPRIETARY RATIO 59
8 DEBT EQUITY RATIO 60
9 FIXED ASSET RATIO 61
10 STOCK TURNOVER RATIO 62

LIST OF CHARTS

CHART NO. PARTICULARS PAGE NO.

4.1.1 CURRENT RATIO 51
4.1.2 QUICK RATIO 52
4.1.3 FIXED ASSETS TURNOVER RATIO 53
4.1.4 WORKING CAPITAL TURNOVER RATIO 54
4.1.5.A RETURN ON INVESTMENT RATIO 55
4.1.5.B GROSS PROFIT RATIO 56
4.1.5.C NET PROFIT RATIO 57
4.1.6 CAPITAL TURNOVER RATIO 58
4.1.7 PROPRIETARY RATIO 59
4.1.8 DEBT EQUITY RATIO 60
4.1.9 FIXED ASSET RATIO 61
4.1.10 STOCK TURNOVER RATIO 62
CHAPTER – 1
 INTRODUCTION

Meaning of Working Capital

“Working capital refers to the amount of funds that a company must have to
finance its day-to-day operations. It is that proportion of company’s total capital that is
employed in the current assets, which are expected to be converted to cash in a short term.”

WORKING CAPITAL MANAGEMENT:

Working capital means the excess of current assets over current liabilities.
Statement of changes in the working capital is prepared to show that changes in the working
capital between the two balance sheet dates. This statement is prepared with the help of
current assets and liabilities derived from the two balance sheets as:

Working capital = Current Assets – Current Liabilities

Working capital is the fund available for meeting day-to-day requirements of an

enterprise. It is a part of the fixed or permanent capital is invested in assets, which are kept in
the business permanently or for a long period, for the purpose of earning profit. They are
known as fixed assets viz. land and buildings, plant and machinery, furniture and fittings and
intangibles like goodwill, patents and trademarks and long term investments. Similarly, yet
another part of permanent capital is available for supporting the day-to-day normal
operations is known as working capital. This working capital produces various costs namely
materials, wages and expenses.

There are two concepts of working capital, namely,

1. Gross working capital

2. Net working capital

According to the gross concept, working capital refers to sum total of all current assets
of the enterprise employed in the business process. This is going concern concept since the
financial manager is highly concerned with the management of these assets with a view to
bring about productivity from other assets. It deals with the problems of managing individual
current assets in day-to-day expenses.
Contrary to the gross working capital, the net working capital represents excess of current
assets over current liabilities and is the amount normally available to finance current
operations.
 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVES:

• To study about the working capital management in Sundaram Clayton Limited at Padi,
Chennai.

SECONDARY OBJECTIVES:

• To measure the changes in working capital over years.

• To highlight the techniques used for managing working capital by the company.
• To find the crisis faced by the company on working capital issues.
• To evaluate the financial analysis of its business operations.
 SCOPE OF THE STUDY

The scope of the study is limited to collecting the financial data published in
the annual reports of the company with reference to the objectives stated above.

The study helps the management to get new techniques for managing working
capital effectively.

The other scopes are:

• To help the management in understanding the position, progress and

prospect of Sundaram Clayton Ltd.
• To help the management to increase the funds for mobilizing working
capital.
• The management will be able to take effective decisions only when
correct and reliable information is at its disposal.
 NEED OF THE STUDY

• The need for study is to improve the working capital management

techniques of the company.
• To know the operation of the company.
• To analyze the existing situation of the company.
• To improve the gray areas of the company.
• Proper technical tool with the experts have been handled.
• A detail analysis of source of funds in the past acts as a guide for
obtaining funds for future requirement.
• It throws light on the consequences of day to day business operations.
 LIMITATIONS OF THE STUDY

• Analysis will be effective in the figures taken from financial statement

are comparable.
• Result of the analysis may be interpreted differently by different users.
• Working capital management analysis cannot be a substitute for
judgment.
• The study is limited to the working capital analysis of Sundaram
Clayton Ltd.
• The limitation of the study is time constraint as the time given for the
study was 1 month it was not possible to make an extensive study.
 COMPANY PROFILE

TVS- Thirugarangudi Vengaru Sundaram Iyengar Sons & Private

Limited.

Shri. T.V. Sundaram Iyengar

VISION STATEMENT:

“To be the first choice”

MISSION STATEMENT:

 We will be the preferred provider of complete solutions to our

customers of light alloy machined casting.
 We will be among the top 5 suppliers of machined light alloy casting
in the world. We will achieve this position through excellence in NPD and
manufacturing.
 Process veracity and cost leadership.
 We will be a profitable, social responsible and environment friendly
organization.
PROFILE:

Sundaram-Clayton Limited (SCL) is part of the US $3 billion TVS group of

companies, the largest automotive component manufacturing and distributing group in India.

SCL established its Die casting division in 1968 for quality and high precision
aluminum castings. The division's two plants, one at Chennai and the other at Hosur are
equipped with the latest technology in Pressure Die Casting, Gravity Die Casting and Low
Pressure Die Casting.

Having a wide customer base, SCL is one of the largest suppliers of aluminum die-
castings in the country. SCL exports its products to international Original Equipment
Manufacturers having proven its credentials as a reliable supplier of world class products.

The Die casting division's infrastructure supports two modern and fully equipped
plants: Plant-I at Chennai with a capacity of 14000 Metric Tons per annum and Plant-II at
Hosur with a capacity of 10000 Metric Tons per annum.

Together these two plants have capability to produce Pressure Die Castings in the
weight range of 0.25 kg to 22 kg, Gravity die Castings ranging from 0.2 kg to 28 kg and Low
pressure Die castings ranging from 2.5 kg to 18 kg. Additionally these facilities are supported
by the company's allied capabilities in product design and development, machining and
assemble and machine building.

Thus, this provide a robust foundation to the company's intent of providing total
engineering solutions for the industry's die casting needs (full service support).

COMPANY GOALS (2009-2010):

Achieve Sales: Rs.451 crores

New product sales: RS.41 crores

Profitability: > 5%.

Overall rejection: < 6%.

ACHIEVE ZERO:

Total Productivity Management

• Breakdown

•Accident

•Defect
CREATE BEST 4M:

• Man

• Machines

• Material

• Method

DEPARTMENT:

• Finance

• Die Casting

• Information System Development

• Personnel Engineering Department

• Production Department

• Purchase Department

• Quality Assurance Department

• Advance Engineering Department

• Total Quality Control Department

• Marketing Department
MILESTONES:

1962 Joint venture with Clayton Dewandre Holdings Plc

1968 Established Die casting facility

1996 Conferred Deming award (Brakes division)

1998 Awarded Japanese Quality Medal (Brakes division)

1998 Established plant at Hosur

2005 Established separate facility for brakes

2007 Spun-off Brakes division as Wabco-TVS

2009 Established plant at Mahindra World City, Chennai

2009 Achieved TPM Excellence award

SPECIALTIES:

Aluminum Die - Casting

COMPANY OBJECTIVES

• To produce good quality products like aluminum die - castings for the two
wheelers.

• Co-operation between all the staff involved.

• Well defined responsibilities for the work force.

• Project management focusing on effective production.

• Develop a better understanding and maintain relations with clients be open to a

more customer driven process.
 • To achieve this, the company develops deeper knowledge and experience in process
and enterprise model.

FACE SHEET:

C.N.Prasad, 1. Padi, Tamil Nadu, India.

President & CEO 2. Hosur, Tamil Nadu, India.
3. Mahindra World City, Tamil Nadu,
P.H. Narayanan, India.
President - Sundaram Clayton Limited

Domestic - 60% ISO/ TS 16949

Export - 40% FORD Q1
ISO 14001
OHSAS 18001

USD 110 million (2008 - 09) 30,000 tones per annum

COMPANY INTERNAL FUNCTION:

PURCHASING OF ALLOY INGOTS

MELTING

PURCHASE OF DIE

TO PRODUCE CASTING

FELTING

MACHINING

HEAT TREATMENT

LEAK TESTING

WASHING

FINAL INSPECTION

DISPATCH
 INDUSTRY PROFILE

The TVS Group was established in 1911 by Shri. T.V. Sundaram Iyengar. As one of
India’s largest industrial entities it epitomizes Trust, Value and Service.

There are over thirty companies in the TVS Group, employing more than 40,000
people worldwide and a turnover in excess of USD 4 billion.

With steady growth, expansion and diversification, TVS commands a strong

presence in manufacturing of two-wheelers, auto components and computer peripherals. We
also have vibrant businesses in the distribution of heavy commercial vehicles, passenger cars,
finance and insurance. Uniting these multiple businesses is a common ethos of quality,
customer service and social responsibility.

The TVS Group includes companies like Sundaram Fasteners, Lucas TVS, Brakes
India, Wheels India, Sundaram Brake Linings, TVS Motor Company and TVS Electronics.
These companies with their ability to deliver products of the right quality, at the right price
and at the right time have made a mark in the Indian and global markets.

Underlying the success of the group is its philosophy of Trust, Value and Service.

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. The group endeavors to be competitive without
compromising on quality. Quality at TVS determines not only the end product but the
systems, processes and operations at all levels.
 PRODUCT PROFILE

SCL manufactures aluminum pressure die castings for heavy commercial vehicles,
passenger cars and two wheelers. The product range includes flywheel housing, gear
housing, clutch housing, filter heads, air connectors, lube oil cooler cover assembly, filtration
module casting, turbo charger, compressor cover assembly, charge air pipe, intake manifold,
cover coolant duct for the truck segment. Cylinder head, case transaxle assembly, oil pan,
chain case, cylinder head cover, adaptor oil filter, fuel pump housing, fork gear shift, starter
housing, A/C compressor housing for passenger cars. Crank case, cylinder head, cylinder
barrel, wheel hub for powered two wheelers and brake equipment valve bodies.

PASSENGER CARS:

NAME: Clutch housing NAME: Case transaxle assembly

PROCESS: PDC PROCESS: PDC

NAME: Transmission case NAME: Oil pan

PROCESS: PDC PROCESS: PDC
HEAVY COMMERCIAL VECHILE:

NAME: Fly wheel housing NAME: Inlet Manifold

PROCESS: PDC PROCESS: PDC
WEIGHT: 23.2Kg WEIGHT: 7.6Kg, 5.2Kg, 7.3Kg

NAME: Lube oil filter head NAME: Cover coolant duct

PROCESS: PDC PROCESS: PDC
WEIGHT: 9.5Kg WEIGHT: 7.8Kg
TWO WHEELERS:

NAME: Cylinder block NAME: Crank case left

PROCESS: PDC PROCESS: PDC

NAME: Crank case left NAME: Cover variator

PROCESS: PDC PROCESS: PDC
CHAPTER – 3
 REVIEW OF LITERATURE AND RESEARCH METHODOLOGY

Working Capital Management:

Strategies And Techniques Book Description

Working capital is commonly understood as the funds needed to meet day-to-day expenses in
any organization. For a finance manager it is the funds locked up in current assets and
therefore he finds liquidity support in net working capital (NWC) which is equivalent to the
excess of current assets over current liabilities. A banker also looks for the size of NWC and
the long-term stake of the business in funding the working capital. But for a production
manager, liquidity is synonymous with uninterrupted supply of material inputs to his
production lines. Similarly for a marketing manager, if there is no production, his marketing
outlets dry up despite demand in the market. While the finance manager discourages
overstocking of materials, the production manager and the marketing manager avoid the
situation of being out of stock. In this conflict the goal of the organization often takes a back
seat.
The book aims at resolving these controversies and conflicts by adopting a techno- financial
approach to working capital management. A comprehensive treatise dealing extensively in all
aspects of working capital management, the book presents the concepts with numerous
worked out examples and case studies for easy comprehension of the subject.
Primarily addressed to postgraduate students who are majoring in finance and to those
pursuing professional courses in Accounts (CA) and Cost Accounting (ICWA), the book will
also prove to be very useful to practicing finance managers as well as to purchase and
materials managers.

Book Details

Title: Working Capital Management: Strategies And Techniques

Publisher: PHI

Author: Bhattacharya Hrishikes

No. of Pages: 464

Deliverable Countries: This product ships to India, Sri Lanka.

TECHNIQUES USED BY SMALL MANUFACTURERS:
SURVEY AND ANALYSIS
ABSTRACT
This article summarized the responses of 103 small manufacturers to a mail questionnaire
survey sent to the chief financial officer of 477 firms located in the southern region of the
U.S. The major thrust of the paper was to provide insight into the importance of and
utilization of financial analysis and working capital management concepts by small
manufacturers. Findings from the study suggest that respondents considered financial
analysis and working capital management to be important and most firms were heavy user of
these concepts. While the findings were encouraging, a significant percentage of the small
firms expressed little or no usage of the concepts. Academicians need to continue efforts to
communicate to practitioners of the potential benefits of applying these financial
management concepts.

A leading industrial conglomerate with worldwide sales presence in all of its divisions
recently conducted a comprehensive, group-wide working capital program with a strong
commitment of top management levels. Critical success factors were a holistic approach to
the entire value chain and the definition of clear and practicable measures, together with
employees responsible for implementation on the operational level. Improvement measures
ranged from more easily implemented quick wins, such as optimizing payment processes, to
complete restructuring of production processes. Quick wins not only paid off the initiative
after a few months, but also served as a beacon for the initiative and proof of concept. The
overall NWC reduction added up to more than 40%. Roughly half of the improvement
potential was already realized within one year from start of the implementation.

In order to anchor working capital management in the organization, a pragmatic controlling

tool was set up and regular reporting cycles were established. Working capital goals were
integrated into budgets and incentive programs to further foster sustainability.

Before the program brought the change, a number of initiatives had fallen short of
expectations. The main reasons had been an undifferentiated top-down approach, and the
lack of a comprehensive perspective on working capital. Thus, the symptoms rather than the
root causes of excess accounts receivable and inventory or low positions in payables had
been approached and no sustainable results had been achieved.
Conclusion
Best-in-class companies understand the company- and industry-specific drivers behind each
component of operative working capital, and focus on optimizing the most promising ones.
During this process, they consider the entire value chain to reveal the root causes of tied-up
cash and take into account all interdependencies between the respective components. They
apply a holistic approach in which they do not randomly reduce costs but consider all
tradeoffs with costs and capital employed to optimize the company value. By applying the
appropriate levers for each component, obstacles that slow cash flow can be removed and
overall company processes can be improved.

With credit at a premium, freeing up funds from working capital gains a new urgency.

Jason Karaian - CFO Europe Magazine

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Karlheinz Hornung takes nothing for granted. He joined a subsidiary of German

conglomerate Metallgesellschaft in the late 1970s, shortly before the group's 100th
anniversary, and worked his way through the ranks. Then, in 1993, he was dispatched to the
company's head office in Frankfurt to help save the group from bankruptcy as the markets
moved against huge, ill-judged derivatives positions built by oil traders in a US unit.
Hornung participated in negotiations for the massive rescue package that saved the firm from
collapse, later becoming finance chief of the smaller, humbler company. "That's where I
learned my lessons," he says.

Now, as CFO of MAN, a €15.5 billion commercial vehicles, engines and engineering group,
Hornung is teaching colleagues across the Munich-based company about the importance of
liquidity. Aided by a working capital reduction programme launched in 2006, the lessons
appear to be taking hold. Last year, MAN's operating cash flow grew nearly threefold, to
more than €2 billion.

Work Out
As Hornung can attest, it was much harder for finance chiefs to focus their colleagues'
attention on cash before the credit crunch. When he joined MAN in 2004, one of his first
contributions at a board meeting was to claim that the group could release at least €1 billion
from the €5 billion that was tied up in working capital. Gaining support for this goal
occupied Hornung for the best part of the following year, as colleagues came up with "all
sorts of arguments about why this was not possible," he recalls. Results were positive and
cash flow was healthy, so why was he agitating for widespread changes.
Based on past experience, he argued that "more liquidity is always good. Since last August,
nobody argues against having more liquidity on the balance sheet."

According to REL, MAN released more than €1.3 billion in cash over the past two years,
cutting DWC from around 160 in 2005 to 120 in 2007. For companies now scrambling for
cash, the measures taken by MAN and other forward-looking firms could serve as useful
guides to freeing up much needed funds from working capital.

Hornung's breakthrough came in 2006, when MAN sold 65% of its printing-systems business
to a private equity firm. Shortly after the sale, the printing firm's chairman, a long-time critic
of Hornung's working capital reduction plan, conceded that Manroland — as the firm is now
called — could indeed release millions of euros of trapped cash. This change of heart
kickstarted a MAN-wide initiative which will run through to next year.

Within two months, "we found ways to achieve my famous €1 billion reduction in working
capital," says Hornung, who chaired the project's steering committee. The first steps were to
adjust incentives for staff, alter collection conditions and change payment practices.

Each quarter, MAN's board decides on a credit line to extend to each subsidiary from its
central cash pool. A hefty 14% interest rate is now levied on any amount drawn beyond this
limit. Charged to the unit's P&L, this affects profit-linked bonus schemes for a number of
employees.

Collections and payments offered plenty of "low-hanging fruit," Hornung says. At the start of
the working capital project, he identified more than 300 payment terms. Today, this has been
reduced to around 30 standard collection conditions. Hornung also changed the finance
department's payment run from Friday to Monday. Suppliers receive payments at the same
time as always, but now it is MAN, rather than the bank, that earns a weekend's extra interest
on the cash.

Spin Cycle

Such simple measures generate a lot of cash for a company of MAN's size. Another company
that finds it's the little things that count — quite literally — is Indesit.

In 2004, when Andrea Crenna joined the €3.4 billion Italian white-goods manufacturer as
CFO (it was then known as Merloni Elettrodomestici), it was leading its sector in terms of
working capital performance, with a ratio of net working capital to sales of only 3%. At the
end of last year, the ratio was down to 0.1% — or 0.1 DWC — the lowest it could go without
the company turning into a retailer or utility, Crenna jokes. The median DWC for Europe's
household-durables sector is 100.
Despite an impressive working capital track record, a 50% plunge in profit at Indesit in 2005
led to the creation of a new three-year plan that meant an even stronger emphasis on cash
generation. Operating cash flow was added to the incentive scheme for senior and middle
managers, who subsequently released more cash from Indesit's already lean processes by
"attacking the areas that were somehow neglected," Crenna says.

Hidden in the dark corners of the accounts-receivable department in the UK's after-sales
service operation, for example, were a host of delinquent, albeit small, payments — in some
cases overdue by a year or more. "If you don't put a specific focus on these receivables, it's
very easy for them to become neglected," Crenna says. "In theory, nobody worries about
collecting £20. In reality, we were sitting on a huge amount of receivables, though each
individual bill was for a small amount."

More trapped cash was found in the company's spare-parts inventory. The stock is worth
around €30m today compared with around €40m three years ago. "This was a good result
that came just from paying the same level of attention to spare parts as to finished products,"
Crenna says. In general, Indesit has been able to improve working capital performance
through "fine-tuning rather than launching epic projects." Over the past two years, according
to REL, Indesit has released €115m from its working capital processes.

Liberation Hero

With cash now an increasingly scarce resource, companies will want to tap internal sources
of funds, however small. Even an industry-leading company such as Indesit has been able to
shake sizeable sums from "areas of inefficiency that were thought to be immaterial," Crenna
explains. Now he's mulling over a more targeted approach to extending credit to customers
and, when the markets improve, the possibility of securitisation.

But in the short term, the CFO expects Indesit's working capital to rise from its currently low
level. "I want it to remain a concern," he says. "If the CFO doesn't fly the flag about the
importance of working capital management, it's easy for the company to lose focus and end
up with trapped cash."

At MAN, Hornung is similarly eagle-eyed. "You have to push people, follow up and have
power behind it," he says. "Otherwise, there will be a lot of discussions, a lot of good ideas,
but no execution." The company must continue to improve, Hornung maintains, as by his
calculations MAN still lags behind its key competitor, Volvo, by 10-15 days of working
capital. (REL's calculations put them even further behind.)

When the current working capital programme ends next year, "we will start again," the CFO
says, "analysing which areas we can still do better." As he already knows, and many other
finance chiefs are now learning, abrupt changes in business conditions can hit companies
hard. Cash is the best cushion.

Jason Karaian is deputy editor at CFO Europe.

Payables Panic

Rather than double efforts to collect what they're owed, many companies' initial reaction to
the credit crunch has been to squeeze suppliers. At least, that's one way to explain the jump
in days payables outstanding in the latest working capital scorecard for Europe's largest
1,000 firms. (See "Feel the Squeeze" at the end of this article.)

While some of it may be due to a unilateral refusal to pay on time by cash-strapped

companies, there are "win-win" ways to extend payment terms, notes Gavin Swindell,
European managing director of REL, a research and consulting firm. "A lot of businesses
aren't worried about getting paid in 40 or 45 days, but are more interested in the certainty of
payment on a specific date," he says.

Jas Sahota, a partner in Deloitte's UK restructuring practice, says that three-month extensions
are common, "as long as the supplier can see that there is a plan." In times of stress, he says,
it's important to negotiate with only a handful of the most important partners — squeezing
suppliers large and small only generates grief and distracts employees with lots of calls.

More fundamentally, the benefits of pulling the payables lever in isolation is "questionable,"
notes Andrew Ashby, director of the working capital practice at KPMG in London,
"especially as the impact on the receivables balance is typically a lot more than the payables
balance." It's surprising, he says, to see so little movement in average collection times in the
latest data.

Improving collections, such as achieving longer payment terms, relies on the strength of
relationships built over time, notes Robert Hecht, a London-based managing director of
turnaround consultancy AlixPartners. "You can't wait for a crisis, and then expect suppliers
to step up and be your best friends."
 RESEARCH METHODOLOGY

METHODOLOGY
The systemized method adopted by the researcher for completing the project
is called Research methodology. It is simply the plan of action for a research which explains
in detail how data is to be collected, analyzed and interpreted.

RESEARCH DESIGN
A research design is purely and simply the framework and plan for the
study that guides the collection and analysis of data. It is a blue print that is followed in
completing a study. Exploratory research design was used here which helped in formulating a
problem in terms of problem definition or hypothesis and in clarifying concepts. It was used
to establish priorities in studying the competing explanation of the phenomenon.

TYPES OF DATA
The type of data that have been collected for this study is,

• Secondary data:
The secondary data are those which have already been collected by someone
else. The analyses of working capital management of the company necessitate accurate and
reliable data. Therefore the sources for collection the data include secondary data.
Secondary data is mainly collected from annual reports of the company.

SAMPLING
Research conducted by considering a few units of population is called as
sampling. It is the selection of some part of an aggregate or totality on the basis of which a
judgment or inference is made. Non probability sampling has been adopted for the purpose of
the study. It is also called non random sampling because it is not based on theory of
probability and also it does not provide equal chance of selection to each population element.
Under the non probability sampling convenience sampling has been taken for the purpose of
study. Here the sampling units are chosen primarily on the basis of convenience of the
researcher and the respondent.

TOOLS USED FOR ANALYSIS

In analysis SPSS tool like correlation is used . In addition Ms- Excel

is used to facilitate the analysis with charts and diagrams.

CORRELATION:

Correlation used to find out the relationship between two variables.

The relationship ranges from (-1) to (+1). (-1) is negative correlation which refers to inverse
relationship. (+1) refers to positive relationship which refers direct relationship.
CHAPTER – 4
 DATA ANALYSIS AND INTERPRETATION

RATIO ANALYSIS

CURRENT RATIO:
Current ratio =Current assets/Current Liabilities.

Current Assets= Inventories+ Sundry Debtors+ Cash and Bank Balances+ Other
Current Assets+ Loans & Advances.

Current Liabilities = Current Liabilities + Provisions.

Table-1

The table shows the Current Ratio of the company

(Rupees in Lakhs)

Year Current assets Current Liabilities Ratio

2004-2005 17507.21 14470.98 1.21

2005-2006 23797.28 16058.99 1.48

2006-2007 31256.28 14190.44 2.20

2007-2008 29341.41 7973.69 3.68

2008-2009 27959.46 6055.44 4.61

 Graph - Current ratio

Current Ratio

5 4.61
4.5
4 3.68
3.5
3
Ratio

2.5 2.2
2 1.48
1.5 1.21
1
0.5
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Years

Interpretation:

The Current Ratio gradually increases from 1.21 to 4.61 from the year 2004 to 2009.
This is due to balanced maintenance of Current Assets to Current Liabilities.

Quick Ratio:
Quick ratio=Quick assets/Current liabilities

Quick Assets = Current Assets – Stock

Current Liabilities = Current Liabilities + Provisions

Ideal liquid ratio is 1.1.

 Table-2

The table shows the Quick Ratio of the company

(Rupees in Lakhs)

Year Quick asset Current liabilities Ratio

2004-2005 13334.82 14470.98 0.92

2005-2006 16531.2 16058.99 1.02

2006-2007 20964.29 14190.44 1.47

2007-2008 17611.05 7973.69 2.20

2008-2009 15458.39 6055.44 2.55

Graph - Quick Ratio

Quick Ratio

3
2.55
2.5
2.2
2

Ratio 1.47
1.5
1 0.92 1.02

0.5
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Years

Interpretation:
 The Company’s Liquid Ratio gradually increases from 0.92 to 2.55 during the year
2004 to 2009. This is because; Company’s Liquidity position is sound.

CAPITAL TURN OVER RATIO:

Capital Turn Over Ratio = Sales / Capital employed

Capital Employed = Total Assets – Current Liabilities

Table - 3

The table shows the Capital Turnover Ratio of the company

(Rupees in Lakhs)

Year Sales Capital Employed Ratio

2004-2005 53629.92 36258.39 1.48

2005-2006 62927.07 45092.17 1.39

2006-2007 81619.31 57937.4 1.40

2007-2008 42693.28 52332.16 0.81

2008-2009 48161.84 59061.83 0.81

Graph - Capital turnover Ratio

 Capital Turnover Ratio

1.6 1.48 1.39

1.4
1.4
1.2
1 0.81 0.81
Ratio 0.8
0.6
0.4
0.2
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Years

Interpretation:

The Capital Turn over Ratio is constant during the year 2007 to 2009. But Capital Turn over
Ratio during the last two years is less when compared to previous years. Hence the company
has effective usage of capital.

WORKING CAPITAL:

Working Capital= Current Assets – Current Liabilities

Table - 4

The table shows the Working capital of the company

(Rupees in Lakhs)

Year Current assets Current Liabilities Working capital

2004-2005 17507.21 14470.98 3036.23
2005-2006 23797.28 16058.99 7738.29
2006-2007 31256.28 14190.44 17065.84
2007-2008 29341.41 7973.69 21367.72
2008-2009 27959.46 6055.44 21904.02
 Graph: Working Capital

Figure 1

Interpretation:

From the above table it is inferred that there is a rapid increase in working capital in the
last five years. But when compared 2007-2008 and 2008-2009 there is only less increase.
WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio = Sales / Working capital

Working Capital = Current Assets – Current Liabilities

Table - 5

The table shows the Working Capital Turnover Ratio of the company

(Rupees in Lakhs)

Year Sales Working capital Ratio

2004-2005 53629.92 3036.23 17.66

2005-2006 62927.07 7738.29 8.13

2006-2007 81619.31 17065.84 4.78

2007-2008 42693.28 21367.72 1.99

2008-2009 49236.99 21904.02 2.19

Graph: Working Capital Turnover Ratio

WorkingCapitalTurnoverRatio

2
0
1
8
1
7.6
6
1
6
1
4
1
2
R
atio 1
0
8 8
.13
6
4
.78
4
2 1.9
9 2
.19
0
2
004- 2
005- 2
006- 2
007- 20
08-
200
5 200
6 200
7 2008 2009
Y
ears

Interpretation:
 The Working Capital Turnover Ratio measures the effective utilization of Working
Capital and the smooth running of business. There is a decrease in Working Capital Turnover
Ratio over the first four years 2004 to 2007 mainly because of increase in sales. Hence
during the year 2008, the company invested low in working capital and more profit. During
the year 2008 to 2009, there is decrease in working capital ratio. This implies the company
invested more in working capital and less in profit due to decrease in sales.
 Table - 10

SCHEDULE OF CHANGES IN WORKING CAPITAL (2007- 2008)

(Rupees in lakhs)

PARTICULARS As on As on Increase in Decrease in

31.03.2007 31.03.2008 capital capital

Current assets:
Inventories 10292 11730 1438 -

Sundry Debtors 13847 8491 - 5356

Cash & Bank Balance 971 837 - 134

Other Current Assets 17 14 - 3

Loans & advances 6129 8268 2139 -

Total(a) 31256 29340 - -

Current Liabilities:
Current liabilities 9756 5484 4272 -

Provisions 4436 2490 1946 -

Total(b) 14192 7974 - -

Working Capital(a-b) 17064 21366 - -

Increase in Working Capital 4302 - - 4302

Total 21366 21366 9795 9795

INTERPRETATION:

The working capital in 2007 and 2008 is increased from 170.64 (lakhs) to 21267.62 (lakhs)
by 21196.98 (Lakhs). This was due to decrease in Current Assets i.e., Inventories, Sundry
Debtors, Cash and Bank balance, Other Current Assets, Loans and Advances and also
increase in current Liabilities i.e., Provisions.

Table - 11

SCHEDULE OF CHANGES IN WORKING CAPITAL (2008- 2009)

(Rupees in lakhs)

PARTICULARS As on As on Increase in Decrease in

31.03.2008 31.03.2009 Capital Capital

Current assets:
Inventories 11730 12501 771 -

Sundry Debtors 8491 8668 177 -

Cash & Bank Balance 837 243 - 594

Other Current Assets 14 23 9 -

Loans & advances 8268 6525 - 1743

Total(a) 29341 27960 - -

Current Liabilities:
Current liabilities 5484 3982 1502 -

Provisions 2490 2074 416 -

Total(b) 7974 6056 - -

Working Capital(a-b) 21367 21904 - -

Increase in Working Capital 537 - - 537

Total 21904 21904 2875 2875

INTERPRETATION:

The working capital in 2008 and 2009 is increased from 21367.72 (lakhs) to 21904.02 (lakhs)
by 536.3 (Lakhs). This was due to decrease in Current Assets i.e., Inventories, Sundry
Debtors, Cash and Bank balance, Other Current Assets, Loans and Advances and also
increase in current Liabilities i.e., Provisions.

CORRELATION:

Table - 12
 Correlation between sales and working capital
Sales Working Capital
Pearson
1 -.260
Correlation
Sales Sig. (2-tailed) .673
N 5 5
Pearson
-.260 1
Working Correlation
Capital Sig. (2-tailed) .673
N 5 5

Interpretation:
From the above table it is inferred that the relationship between
working capital and sales is negative. The value says that the relationship is
very low as the value is only -0.260.
 Table - 13

Correlation between net profit and working capital

Working Capital Net Profit
Pearson
1 -.560
Working Correlation
Capital Sig. (2-tailed) .326
N 5 5
Pearson
-.560 1
Net Profit Correlation
Sig. (2-tailed) .326
N 5 5

Interpretation:
From the above table it is inferred that the relationship between
working capital and sales is negative. The value says that the relationship is not
so high as well as low as the value is only -0. 560.
CHAPTER – 5
 FINDINGS, SUGGESTTIONS AND CONCLUSIONS

5.1 FINDINGS
1. The working capital has been gradually increasing in the last five years from 2004to
2009.

2. There is a decrease in Working Capital Turnover Ratio over the first four years 2004
to 2007. In 2008 to 2009, there is decrease in working capital ratio.

3. The working capital in 2005 and 2006 is decreased from 3036.23(lakhs) to 77.38
(lakhs) by 4702 (lakhs).

4. The working capital in 2006 and 2007 is increased from 77.38 (lakhs) to 170.64
(lakhs) by 93.26(lakhs).

5. The working capital in 2007 and 2008 is increased from 170.64 (lakhs) to 21267.62
(lakhs) by 21196.98 (Lakhs).

6. The working capital in 2008 and 2009 is increased from 21367.72 (lakhs) to 21904.02
(lakhs) by 536.3 (Lakhs).

7. The relationship between working capital and sales is (negative) -0.260.

8. The relationship between working capital and net profit is (negative)

-0. 560.
 5.2 SUGGESTIONS

1. The essence of effective working capital management is proper cash flow forecasting. This
should take into account the impact of unforeseen events, market cycles, loss of a prime
customer, and actions by competitors. The effect of unforeseen demands on working capital
should be factored in.

2. It pays to have contingency plans to tide over unexpected events. While market leaders can
manage uncertainty better, other companies must have risk management procedures. These
must be based on an objective and realistic view of the role of working capital.

3. Addressing the issue of working capital on a corporate-wide basis has certain advantages.
Cash generated at one location can well be utilized at another. For this to happen,
information access, efficient banking channels, good linkages between production and
billing, internal systems to move cash and good treasury practices should be in place.

4. An innovative approach, combining operational and financial skills and an all

encompassing view of the company’s operations will help in identifying and implementing
strategies that generate short term cash. This can be achieved by having the right set of
executives who are responsible for setting targets and performance levels. They are then held
accountable for delivering. They are also encouraged to be enterprising and to act as change
agents.

5. Effective dispute management procedures in relation to customers will go along way in

freeing up cash otherwise locked in due to disputes. It will also improve customer service and
free up time for legitimate activities like sales, order entry, and cash collection. Overall,
efficiency will increase due to reduced operating costs.

6. Collaborating with your customers instead of being focused only on your own operations
will also yield good results. If feasible, helping them to plan their inventory requirements
efficiently to match your production with their consumption will help reduce inventory
levels. This can be done with suppliers also.
 5.3 CONCLUSIONS

From the study it is concluded that the working capital of the company as
increasing gradually but when compare to 2004-2006, there is an increase in working capital
in the year 2007-2009 is less. They also have a good technique of managing working capital.
Tvs.Sundaram clayton pvt ltd as shown efficiency in the working capital management by
having the sufficient working capital for day to day transaction.
 ANNEXURE

BALANCE SHEET OF LAST FIVE YEARS

(Rupees in Lakhs)

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Source of funds
Share Capital 1897 1897 1897 948 948
Reserve & Surplus 18708 27046 32525 22964 23012
Deferred taxation 1133 1540 1935 1981 1993
Loan Funds
Secured Loan 652 8340 11685 10605 18230
Unsecured Loan 2186 6272 9894 16133 15700
Current Liabilities
Current Liability 6991 10503 9756 5436 3982
Provision 3707 5556 4436 2538 2074
Total 35,274 61154 72128 60605 65939
Application Of Funds
Fixed Assets 18377 30251 32643 24023 30430
Investment 5508 7103 8229 6942 6728
Current Assets
Inventories 2400 7266 10292 11730 12501
Sundry Debtors 6366 11468 13847 8491 8668
Cash and Bank balances 272 1478 971 837 243
Other Current Assets 10 48 17 14 23
Loans & Advances 2342 3537 6129 8268 6525
Total 35275 61151 72128 60305 65118

INCOME STATEMENT OF LAST FIVE YEARS

(Rupee in Lakhs)

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Income
Sales 53630 62927 81619 41183 48162
Sales traded goods - - - 1511 1075
Other Income 3253 4533 4862 3448 3633
Total Income(A) 56883 67460 86481 46142 52870
Expenditure
Material Consumed 27438 30698 43098 20120 26641
Cost Of Traded Goods Sold 311 209 180 1445 1034
Salaries & Wages store 18975 22442 25593 17186 19187
consumed and other
expenses
Total Expenditure(B) 46723 53349 68870 38751 46862
Gross Profit/Loss (A-B) 10159 14111 17611 7391 6008
Less: Interest 384 789 1524 1081 2207
Depreciation 2142 2690 3279 2774 3105
Provision 2100 3185 3692 1143 63
Net Profit/ Loss 7072 7447 9116 2392 633
 BIBLIOGRAPHY

TEXTBOOKS ON FINANCIAL MANAGEMENT:

• I.M.Pandey

• Khan and Jain

• Prasanna Chandra

WEBSITES:

• Tvs sundaram clayton.com

• Google

• wikipedia