it gives detials on working capital management in automobile industries of India, it also establish a 5 year trend of these companies

1. 2013
Seminar Presentation on
TREND IN WORKING
CAPITAL MANGEMENT:
CASE OF FIVE NIFTY
COMPANIES IN INDIA
Vincent Konadu Tawiah

2. INTRODUCTION.
 Working capital is the cash needed to pay for the day today
operation of the business
 Working capital is the difference between the current assets
of a business and its current liabilities
 Working capital management is the function of maintaining
trade off between liquidity and profitability

3. • Current
Asset
Inventory
Sundry debtors
Cash
Loans and advance
• Current
liabilities
Sundry creditors
Taxations
overdraft
L
E
S
s

4. CONCEPTS OF WORKING CAPITAL
 Gross working capital concept
 Net working capital concept

5. TYPES OF WORKING CAPITAL
 Permanent working capital
 Temporary working capital
 Negative working capital
 Reserve working capital

6. FACTORS AFFECTING THE
COMPOSITION OF WC.
 Nature of the business , i.e products, production process,
management, size of business
 Degree of competition: high competition high wc ; low
competition low wc
 Easy access to working capital such raw materials and
cash
 Customers’ culture; cash or credit oriented

7. Danger of Overtrading : Overcapitalization
Overtrading happens when a business
tries to do too much, too quickly
with too little long term capital
Excess current liability over
current asset
Over-Capitalization
happens when business do less so slow with more
resources
Excessive investment in current asset.

8. WHY WORKING CAPITAL MANAGEMENT?
 Unlike fixed asset, current asset can be managed in a
shorter time span ( no need for TVM)
 CA can be easily adjusted to the DD & SS variation of the
product
 Managing CA directly affects the liquidity of the firm

9. Working Capital Ratios
Current ratio
2:1
Cur. Asset
Cur. Liab.
The number of times
current asset can pay
current debts
Acid Test
1:1
CA – Inventory
Cur. liab
The number of
times CA less
inventory can pay
current debts

10. Debtors days
Creditors days
Inventory days
Trad. dbt *365
Credit sales
Trad. Cred. *365
Credit purchase
Avg. invent. *365
Cost of sales
The number of
days to receive
cash from
debtors
The number
of days to
pay cash to
suppliers
The
number of
days to
convert
invent. to
sales

11. THE COMPANIES
Nifty, is a stock market index and benchmark index for
Indian equity on national stock exchange market. They are
made up 50 companies.
;
.

12. BAJAJ AUTO LTD
YR/
RT
2013 2012 2011 2010 2009 2008
C /R
1.5 :
1
1.1 :
1
0.7 :
1
0.6 :
1
1 : 1
0.9
:1
ATR
1.3 :
1
1 : 1
0.6 :
1
0.4 :
1
0.8 :
1
0.7 :
1
Db D 14 8 8 7 15 10
Cr D 50 50 60 71 45 48
CA/
TA%
70.5 70.8 64.9 51.0 60.0 56.1
 from overtrading to
normal
 less investment in
inventory
 good credit policy
 Bulk of current asset is
loan and advances
 Increasing in current
asset as against fixed
assets

13. MAHINDRA & MAHINDRA
LTD
YR/
RT
2013 2012 2011 2010 2009 2008
C /R
1.1 :
1
1.1 :
1
0.9 :
1
1.2 :
1
1.1 :
1
1.1
:1
ATR
0.8 :
1
0.8 :
1
0.7 :
1
0.9 :
1
0.8 :
1
0.8 :
1
Db D 19 21 20 23 27 30
Cr D 67 72 98 91 126 98
CA/
TA%
52.9 54.5 58.4 62.0 61.2 60
 matching current asset
against current liability
 high investment in
inventory
 Improvement in debtors
collection days
 deteriorating creditors
payment days
 short term investment
from 2012
 bulk of the company’s
current liabilities is
advance acceptance from
customers.

14. TATA MOTRS LTD
YR/
RT
2013 2012 2011 2010 2009 2008
C /R
0.5 :
1
0.6 :
1
0.9 :
1
0.7 :
1
0.9 :
1
1 :1
ATR
0.3 :
1
0.4 :
1
0.6 :
1
0.5 :
1
0.7 :
1
0.8 :
1
Db D 13 17 18 23 20 12
Cr D 93 79 58 80 177 156
CA/
TA%
29.8 37.7 44.6 41.2 39.8 49.7
 overtrading and
deteriorating working
capital
 more investment in
inventory
 high investment in debtors
but low debtors days
 Customer’s advance
payment bulk of liabilities

15. MARUTI SUZUKI
YR/
RT
2013 2012 2011 2010 2009 2008
C /R
1.8 :
1
1.7 :
1
1.6 :
1
1.1 :
1
1 : 1
0.8
:1
ATR
1.5 :
1
1.4 :
1
1.2 :
1
0.7 :
1
0.8 :
1
0.6 :
1
Db D 9 9 8 10 11 15
Cr D 50 43 37 38 35 30
CA/
TA%
50.6 52.9 55.6 41.1 38.3 35.2
 continuously improve its
working capital
management
 bulk of its current asset in
short term investment
 Increase its creditors days
 advance payment from its
customers as liabilities

16. HERO MOTORCORP
YR/
RT
2013 2012 2011 2010 2009 2008
C /R
1.2 :
1
1.1 :
1
0.2 :
1
0.6 :
1
0.5 :
1
0.5
:1
ATR
1.1 :
1
1 : 1
0.1 :
1
0.4 :
1
0.3 :
1
0.3 :
1
Db D 10 4 2 2 4 9
Cr D 39 48 36 36 27 35
CA/
TA%
52.6 48.8 26.3 62.8 37.4 37.6
 sign of good working
capital in future
 invest less in
inventory
 good credit policy
 asset is mainly in the
form of short term
investment

17. GENERAL TREND
 Acceptance of advance from customers for guarantee
sales
 Loans to suppliers for reliable raw materials
 Investment in short term vehicles such as mutual fund
 Long creditors days
 Long term investment with related parties.

18. General Recommendations
OPTION WARNING
Reduce the stock holding period for
finished goods and raw materials eg
JIT
May result in production delays or
shortages if demand increases
unexpectedly
Reduce the credit period offered to
trade
debtors and chase amounts due
May upset customers – or cause them to
reduce the amount they buy
Extend the time taken to pay
creditors
suppliers may refuse to supply or may
charge interest if their payment terms
are exceeded
Use invoice discounting or debt
factoring to obtain cash from trade
debtors
A good way to obtain cash quickly – but
usually costly
Sale and leaseback of assets This leaves the business with higher
costs and payment obligations

19. CONCLUSION
“As human cannot survival without the
flow of blood so as business cannot
survival without the flow of working
capital because is the lifeblood of
business”
Wc lubricate the wheels of fixed assets
Varship & Vincent

21. References
 Hill R.A, Strategic Financial Management
Macmillan (London).
 http://www.en.wikipedia.org/niftycompanies :
retrieved on 22/9/2013 @ 10am
 http://www.bajajauto.com/annualreport: retrieved on
19/09/2013 @ 8pm
 http://www.tatamotors.com/annualreport: retrieved
on 19/09/2013 @ 8 : 30pm
 http://www.mahindra.com/annualreport: retrieved
on 18/09/2013 @ 7pm
 http://www.heromotocorp.com/annualreport:
retrieved on 17/09/2013 @ 5pm
 http://www.marutisuzuki.com/annualreport:
retrieved on 16/09/2013 @ 8pm