Project Report

(Submitted for the partial fulfilment of the Degree of B.com Honours in

Accounting and Finance under the University of Calcutta for the session 2016-
17.)

Title of the Project

WorkingCapitalManagement
(A Case Study FOR ASHOK LEYLAND COMPANY)
FOR THE PERIOD 2008-12
Submitted by

Name of the candidate: Gaurav Kumar Pandey

Registration No: 117-1121-0675-11
Roll no: 1117-61-0022
College Roll no : 3 (Sec-A)
Name of the college: UMESCHANDRA COLLEG

Supervised by

Name of the Supervisor: Prof. Dr. Umasankar Saha, Associate Professor,

Department of commers
Name of the college: :

Year of submission: 2016-2017

Page | 1
 Acknowledgement

I am grateful to all teachers of my colleg and the persons from whom I have
taken suggestions for the purpose of improvement of my project work.

I wish to convey my thanks to my project guide Prof. Dr. Umasankar

Saha , and all other faculty members who helped me in various aspects to
complete this project work.

Finally, I would like to thank my friends and parents who motivated me to carry
out the project in a methodical process .

Signature Of Student

Page | 2
 Supervisors Certificate

This is to certify that Mr. Gaurav Kumar Pandey a student of B.com Honours
in Accounting and finance UMESCHANDRA COLLEGE, under the
University of Calcutta, has worked under my supervision and guidance for his
Project work and prepared a Project Report with the title Working Capital
Management . A case study for Ashok Leyland Company for the period 2008-
2012 . This project work is the result of his hard and methodical work .

The project report which he has submitted is satisfactory .

Place: Kolkata Signature:

Date: Name: Prof. Dr.Umasankar Saha

Designation: Associate Professor,

Department of Commerce

Name of the College: UMESCHANDRA

COLLEGE

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 Students Declaration

I hereby declare that the Project Work with the title A STUDY OF
THE ROLE OF WORKING CAPITAL MANAGEMENT A CASE STUDY
OF ASHOK LEYLAND submitted by me for the partial fulfillment of the
degree of B.com Honours in Accounting and Finance under the University
of Calcutta is my methodical work and has not been submitted earlier to
any other University / Institution for the fulfillment of the requirement for
any course of study .

I also declare that no chapter of this manuscript in whole or in part

has been incorporated in this report from any earlier work done by others
or me . However , extracts of any literature which has been used for this
report has been duly acknowledgement providing details of such literature
in the references.

Place: Howrah Signature:

Date: Name: Gaurav Kumar Pandey

Address:23 New Seal Lane

Registration No.:117-1121-0675-11

Roll No. : 1117-61-0022

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 Table of Contents
1 Introduction 7
Statement of Problem 8
Objective of Study 8
Need for Study 9
Scope of Study 9
Limitation of Study 9
Review of Literature in Brief 10-12
Brief Research Methodology 12
2 Working Capital Management A 13-23
theoretical discussion
3 Company Profile 24
Data Analysis and Interpretation
Ratio Analysis 25-32
Working capital Analysis 33-37
Trend Analysis and prediction of 38-43
W.C
4 Summary and Conclusion 44-45
5 References 46-47

Page | 5
 List of Exhibits
Exhibits No. Title Page No.
1 Current Ratio 25-26
2 Quick Ratio 27-28
3 Stock Turnover Ratio 28-29
4 Debtors Turnover Ratio 30-31
5 Working Capital Turnover Ratio 31-32
6 Working Capital Analysis 33-35
7 Profit and Loss account 36
8 Balance Sheet 37

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 CHAPTER 1
Introduction
Concept of Working Capital

Working capital management is a significant facet of financial

management due to the fact that it plays a pivotal role in keeping the wheels of a
business enterprise running. The requirements of working capital for day to day
business activities cannot be overemphasized. It cannot be denied that a firm
invests a part of its permanent capital in fixed assets and keeps a part of it in
working capital i.e. for meeting day to day requirements. We will hardly find a
firm which does not require any amount of working capital for its normal
operation. The requirement of working capital varies from firm to firm
depending upon the nature of business, production policy, market conditions,
seasonality of operations, conditions of supply etc.

It is known to us that the aim of a business concern is to maximize

the proprietors wealth. To fulfill this objective the firm should earn sufficient
and steady return from its operations. It depends upon the successful sales
activity. It will only be possible when a firm invests sufficient amount of fund
in current assets for the production as well as sales activity. Considering the
importance of working capital in any type of business an analysis of working
capital of Ashok Leyland was made.

Page | 7
Statement of problem

Working capital is required for every business and it helps in the

management of the day to day activities. The analysis of working capital should
be done very carefully as it is the decisive factor to plan the day to day
activities. In order to plan the working capital for the future the requirement of
future funds should be done carefully. There are various tools of working
capital that can be used for analyzing for the future.

Each firm must analyze the working capital for future operations in order to
avoid the shortage of funds to cater the future needs. The working capital of
Ashok Leyland has been increasing during the period of study. The company
must take efforts to maintain this current trend of working capital in future also.

Objective of the study

To understand the structure of working capital

To study the working capital management with references to liquidity and

solvency of the company.

To analyze the financial efficiency of the company through ratio analysis.

To study various sources and application of working capital of the

company.

To suggest the management on effective working capital management

Need for the study

Working capital analysis is helpful to know the financial position of the
company. Cheapest source of funds can be identified and analyzed and
prioritize the utilization of funds for the working capital requirement. The credit
period of the company can be easily known through this analysis to give
suggestion to the company to improve its financial position, if any.

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Scope of the study
The scope of the study is confined to the detailed study about the organization
and to identify the companys position in the market and to suggest the means
of improvement in the existing system.

Limitation of study
Past details are not necessarily true indicators of the future.

The study is based on the result of limited period i.e. 5 years.

The analysis and interpretation are based on secondary data taken from
financial reports.

Ratio will not completely show the companies good or bad financial
position.

The figures from the financial statement for analysis were historical in
nature and the time value of money is not considered.

All the data available are yearend figures. So, analysis of financial position
holds good only for the year end.

The ideal ratios & recommendations are not industry specific.

In academics certain assumptions are made to ease learning, whereas practical

difficulties exist in the real world.

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Review of Literature in Brief

Misra (1975) studied the problems of working capital with special reference to
six selected public sector undertakings in India over the period 1960-61 to
1967-68. Analysis of financial ratios and responses to a questionnaire revealed
somewhat the same results as those of NCAER study with respect to
composition and utilization of working capital. In all the selected enterprises,
inventory constituted the more important element of working capital. The study
further revealed the overstocking of inventory in regard to its each component,
very low receivables turnover and more cash than warranted by operational
requirements and thus total mismanagement of working capital in public sector
undertaking.

Agarwal (1983) also studied working capital management on the basis of

sample of 34 large manufacturing and trading public limited companies in ten
industries in private sector for the period 1966-67 to 1976-77. Applying the
same techniques of ratio analysis, responses to questionnaire and interview, the
study concluded the although the working capital per rupee of sales showed a
declining trend over the years but still there appeared a sufficient scope for
reduction in investment in almost all the segments of working capital. An
upward trend in cash to current assets ratio and a downward trend in cash
turnover showed the accumulation of idle cash in these industries. Almost all
the industries had overstocking of raw materials shown by increase in the share
of raw material to total inventory while share of semi-finished and finished
goods came down. It also revealed that long-term funds as a percentage of total
working capital registered an upward trend, which was mainly due to restricted
flow of bank credit to the Industries.

Verma (1989) evaluated working capital management in iron and steel industry
by taking a sample of selected units in both private and public sectors over the
period 1978-79 to 1985-86. Sample included Tata Iron and Steel Company Ltd.
Page | 10
(TISCO) in private sector and Steel Authority of India Ltd. (SAIL) and Indian
Iron and Steel Company, a wholly owned subsidiary of SAIL, in public sector.
By using the techniques of ratio analysis, growth rates and simple linear
regression analysis, the study revealed that private sector had certainly an edge
over public sector in respect of working capital management. Simple regression
results revealed that working

64capital and sales were functionally related concepts. The study further
showed that all the firms in the industry had made excessive use of bank
borrowings to meet their working capital requirement vis--vis the norms
suggested by Tandon Committee.

Vijaykumar and Venkatachalam (1995) studied the impact of working

capital on profitability in sugar industry in Tamil Nadu by selecting a sample
of 13 companies; 6 companies in co-operative sector and 7 companies in private
sector over the period 1982-83 to 1991-92. They applied simple correlation and
multiple regression analysis on working capital and profitability ratios. They
concluded through correlation and regression analysis that liquid ratio inventory
turnover ratio, receivables turnover ratio and cash turnover ratio influenced the
profitability of sugar industry in Tamil Nadu. They also estimated the demand
functions of working capital components i.e. cash, receivables, inventory, gross
working capital and net working capital, by applying regression analysis. They
showed the impact of sales and interest rate on working capital and its
components. When only sales was taken as independent variable, coefficient of
sales was more than unity in all the equations of working capital and its
components showing more than unity sales elasticity and diseconomies of scale.
When sales and interest rate were taken as independent variable, sales elasticity
was again more than unity in demand functions of working capital and its
components except cash. So far as capital costs were concerned, these had

Page | 11
negative signs in all the equations but significant only in inventory, gross
working capital and net working capital showing negative impact of interest
rates on investment in working capital and its components. Thus study showed
that demand for working capital and its components was a function of both sales
and carrying costs.

Methodology
The project work is based on secondary data.

Analysis of different ratio

Working Capital analysis for the year 2008 09 10 - 11 and 12

Profit and loss account

Balance sheet .

Plan of work
The study has been further segmented into the following chapters:

Chapter 2: Working Capital Management - a theoretical discussion.

Chapter 3: Company Profile , Data Analysis and Interpretation.

Chapter 4: Summary and Conclusion.

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Chapter 2
Working Capital Management a theoretical

discussion

Need for working capital:

The need for working capital cannot be over emphasized. Every business needs
some amount of working capital. The need arise due to the time gap between
production and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps between sales;
and sales and realization of cash. The working capital is needed for the
following purposes.

For the purchase of raw material, components and spares.

To pay wages and salaries.

To incur day to day expenses and overhead cost such as fuel, power and
office expenses etc.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to customers.

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 To maintain the raw material inventories, work-in-progress, stores and
spares and finished stock.

Types of working capital:

Working capital is the amount of funds necessary to cover the cost of operating
the enterprises. Although it can be classified into a number of types, on the basis
of time we classify working capital as follows:

Working
Capital

Floating
Fixed Working
Working
Capital
Capital

Regular Reserve Seasonal Special

Fixed working capital:

Permanent or fixed working capital represents that part of capital which is
locked up in the current assets to carry out the business smoothly throughout the
year. It is the minimum level of investment of working capital which is required
permanently to operate at a minimum level of activity. It increases with increase
in size of the business. Fixed working capital can be classified into:

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 Regular working Capital: It is the minimum amount of liquid capital
required to keep up the circulation of capital from ash to inventories,
receivable and again to cash. A sufficient amount of bank balance is a
good source of regular working capital.
Reserve Margin or Cushion Working Capital: It is the excess of
capital over the needs of regular working capital which should be kept to
meet the contingencies that may arise any time. These contingencies
include rising prices, business depression, strikes, special operations such
as experiment with new products, etc.

Floating working capital:

It represents that part of the total working capital which is required over and
above the permanent working capital. It is the additional assets required at
different points of the time during the year. This type of working capital is not
needed by the firm always throughout the year. It is needed to meet the seasonal
fluctuations and for any other special purpose. There are two subdivisions of
floating working capital:

Seasonal Variable Working Capital: It is that part of the working

capital required to meet the seasonal demands of the business is regarded
as Seasonal Variable Working Capital. In peak seasons more raw
materials are required to be purchased, more expenses need to be
incurred, etc. this short term requirement of working capital would be
financed from short term sources of capital.

Special Variable Working Capital: It is that part of working capital

which is required for financing special operations such as, extensive

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 marketing campaign, experiments with products or methods of
productions, carrying of special jobs, etc. this is also to be financed from
short term debt financing.

Factors determining working capital requirement:

The undernoted factors are important for determing Working Capital
Requirement >

Nature of business : The working capital requirements of a firm

basically depend upon the nature of its business. Public utility
undertakings like electricity, water supply and railways require very
limited working capital because they only offer cash sales and as such no
funds are tied up in inventories and receivables. On the other hand,
trading and financial firms require less investment in fixed assets but
have to invest large amount in the current assets like receivables and
cash. Thus they require more amount of working capital.
Size of business: The working capital requirements of a concern are
directly influenced by the size of its business that may be measured in
terms of scale of operations. Greater the size of business unit, larger will
be the requirements of working capital, however small organizations may
also need higher working capital due to large overhead charges,
inefficient use of available resources and other economic disadvantages
of small size.
Production policy: In certain industries the demand is subject to wide
fluctuations due to seasonal variations. The requirements of working
capital in such cases depend upon the production policy. The production
could be kept either steady by accumulating inventory during slack period
with a view to meet high demand during the peak season or the
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 production could be curtailed during the slack season and increased
during the peak season. If the policy is to keep the production steady by
accumulating inventories, it will require higher working capital.
Length of production cycle: In manufacturing business, the working
capital increase in direct proportion to the length of manufacturing
process. Longer the process period of manufacturing, higher the working
capital.
Seasonal variation: In certain industries, raw material is not available
throughout the year. Raw materials have to be bought in bulk during the
season to ensure uninterrupted flow and process them during the entire
year. A huge amount is thus blocked in the form of raw material during
such season which gives rise to more working capital requirements.
Operating efficiency: The operating efficiency is also a vital factor for
determining the level of working capital. It means the optimum utilization
of resources at minimum costs as a result of which profitability increases.
Thus, it helps in increasing generation of internal funds which reduces the
pressure on working capital.
Credit policy: Credit policy refers to the terms and conditions on which
goods are sold and purchased. If long periods are allowed to customers,
huge amounts of money would remain blocked with customers. However
if sales are made in cash it will have very little impact on working capital.
Again if the firm does not enjoy long credit facilities from its suppliers, a
big amount of money will be required for purchase of raw materials.
Technological developments: Technological developments relating to
the productions process have a sharp effect on the need for working
capital. A firm may be able to cut down its production cycle by applying
modern manufacturing process, as a result of which the need for
permanent working capital may come down.

Page | 17
 Extent of competition: to survive in todays competitive market, a firm
may have to liberalise its credit policy for debtors and may have to store
sufficient stock of finished goods to meet the demand of the customers at
the right time. Otherwise, the customers may go to some other
competitor. This will result in higher investment in inventory and
receivables which will ultimately increase the need of working capital.

Working capital cycle:

In a manufacturing concern the working capital cycle starts with the
purchase of raw material and ends with the realization of cash from the sales of
finished products. This cycle involves purchase of raw materials and stores, its
conversion into stock of finished goods through work in progress with
progressive increment of labor and service cost, conversion of finished stock
into sales, debtors and receivable and ultimately realization of cash and this
cycle continues again from cash to purchase of raw materials and so on. The
speed with which the working capital completes the cycle determines the
requirements of working capital-longer the period of the cycle; larger is the
requirement of working capital. A pictorial representation of concepts involved
in the working capital cycle is shown here.

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 Raw
Cash
Materials

Work in
Receivables
Progress

Finished
Goods

Figure: Working Capital Cycle.

Concept of working capital:

There are two concept of working capital:
Gross working capital

Net working capital

In the board sense, the term working capital refers to the gross working
capital and represents the amount of funds invested in current assets. Thus, the
gross working capital is the capital invested in the ordinary course of business
can be converted into cash within a short period, normally within one year. In
the narrow sense, the term working capital refers to the net working capital. Net
working capital is the excess of current assets over current liabilities, or say:
Net working capital= current assets current liabilities

Page | 19
Financing of working capital:
It is to be remembered that more business fail because of lack of cash
than want of profit. Thus maintaining cash is very crucial for the success or
failure of a business. Working capital also comes under the same frame.
Although there are various sources, as discussed already, the working capital
requirements of a concern can be classified as:
Fixed working capital

Variable working capital

In any concern, some operations stay permanent such as investments

fixed assets. This can be easily maintained by fixed working capital, which is
permanently blocked in current assets. Similarly, the amount of capital required
to meet seasonal demands or rise in prices, strikes, etc. highlight the need for
variable working capital, which cannot be permanently employed gainfully in
the business.
The fixed portion of working capital should be generally financed from the
fixed capital sources while the variable working capital requirements of a
concern may be met from the short-term sources of capital. While these are the
broad categories, they can be further broken down and discussed in detail as
explained below. The various sources of financing for working capital are as
follows:

Financing of fixed working capital:

Ploughing back of profit/retention
Issue of debentures
Loan from financial institutions

Page | 20
Financing of variable working capital:
Commercial banks
Loans
Cash credit
Overdraf
Purchasing and discounting of bills
Trade credits
Advances

Ratio analysis:
The analysis and interpretation of financial statements with the help of ratios
is termed as Ratio analysis. Ratio analysis involves the process of computing,
determining and presenting the relationship of items or groups of items of
financial statements.
A Ratio is a mathematical relationship between two items expressed in a
quantitative form. Ratios can be defined as Relationships expressed in
quantitative terms, between figures which have cause and effect relationships of
or which are connected with each other in some, manner or the other.
The essence of ratio is putting together of two figures to study their relationship.
The study is in the form of analysis, interpretation and expression of all the
ramifications of the relationship. It helps in understanding of financial strengths
and weakness of the firm. With the use of ratio analysis one can measure the
financial conditions of a firm and can point out whether it is strong, good,
questionable or poor. The conclusion can also be drawn as to whether the
performance of the firm is improving or deteriorating.

Importance of ratio analysis:

Page | 21
 Ratio analysis is relevant in assessing the performance of a firm in respect
of the following aspects:
It helps the management to gauze the efficiency of performance
and assess the financial health of the business.
It is essential tool for checking the efficiency with which the
working capital is being used and managed.
Where ratios are based on analysis and scrutiny of past results, they
assist the management to formulate policy to arrive at correct
decisions, to prepare budgets and to plan for future.
Similarly, comparative ratio analysis injects trend analysis. The
improvement or deterioration of a business is clearly disclosed by
ratio analysis.
It helps to make financial forecasts.
Moneylenders and creditors can ascertain whether a business will
be a desirable debtor or a potential investment zone.
It is an integral part for introduction of standard costing and
budgetary control.
Its inherent feature easiness is its greatest advantage. Ratio
analysis can be easily made and easily understood.
It helps to make inter-firm comparisons, that is, to know the
relative position of a vis--vis its competitors.
The ability of a firm to pay its short debts denotes its liquidity
position. Ratio analysis helps to draw correct conclusions regarding
liquidity position of a firm.
Ratios are meaningfully used to indicate the relative performances
of different industries. These help the government to take suitable
plans and policies accordingly.
There are different types of ratios which are as follows:

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 Current ratio
Current asset
Current ratio = -------------------
Current liability

Quick ratio
Quick asset
Quick ratio = ---------------------
Current liability

Stock turnover ratio

Cost of goods sold
Stock turnover ratio = --------------------------
Average stock

Debtors turnover ratio

Net sales
Debtors turnover ratio = -----------------
Receivables

Working capital turnover ratio

Net sales
Working capital turnover ratio = ------------------------
Net working capital

Page | 23
Chapter 3
Company Profile
Soon after the independence, there was a need for self reliance. Pundit
Jawaharlal Nehru persuaded Mr. Raghunandan Saran, an industrialist to enter into the
automobile industry. The company was established in 1948 as Ashok Motors, with an
aim to assemble Austin cars. Manufacturing of commercial vehicles was started in
1955 with equity contribution from Leyland Motors. Today the Company is the
flagship of the Hindu Group, an England-based transnational conglomerate. In 1948,
Ashok Motors was set up in what was then Madras (now Chennai), for the assembly
of Austin Cars. The Company's destiny and name changed soon with equity
participation by British Leyland and Ashok Leyland commenced manufacture of
commercial vehicles in 1955.

Early products included the Leyland Comet bus chassis, which sold in large
numbers to many operators, including Hyderabad Road Transport, Ahmedabad
Municipality, Travancore State Transport, Bombay State Transport and Delhi Road
Transport Authority. By 1963 the Comet was operated by every State Transport
undertaking in India, and over 8,000 were in service. The Comet was soon joined in
production by a version of the Leyland Tiger.

The company has six manufacturing locations in India:

Ennore, Chennai
Hosur, Tamilnadu (3 plants)
Alwar, Rajasthan
Bhandara, Maharastra

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Data analysis and interpretatio

Ratio Analysis:
Current ratio:

Current asset
Current ratio = -------------------
Current liability

(Rs.
Crores)

March08 March09 March10 March11 March12

Current Asset 2759.38 3195.69 4107.54 4360.81 4796.04
Current 2541.72 2475.37 3371.37 3995.59 5334.35
Liabilities
Current Ratio 1.08 1.29 1.22 1.09 0.88

Table no.1

Sources : www. Ashok Leyland Company pdf file 2008-2012 .com

Page | 25
 Current Ratio
1.29
1.3

1.25 1.22

1.2

1.15
1.08 1.09
1.1

1.05

0.95
2008 2009 2010 2011 2012

Sources : www. Ashok Leyland Company pdf file 2008-2012 .com

Interpretation:

The ideal ratio is 2:1. In the year 2008 it was found the current ratio was 1.0:1
which is below the standard of 2:1. It is due to decrease in the total assets from
the previous year to the current year. Similarly, the current ratio for the year
2009,2010,2011 and 2012 was 1.29,1.22,1.09,and0.88 respectively. In each year
the ratios were below the standard 2:1 because of the decrease in current assets
from the previous year and increase in current liabilities in the current year. This
is not a good indication as the firm will not be able to meet its short term
obligations.

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Quick ratio:
Quick asset
Quick ratio = ---------------------
Current liability
(Rs. Crores)

March08 March09 March10 March11 March12

Quick Asset 1535.47 1865.68 2469.30 2151.91 2565.43
Current 2541.72 2475.37 3371.37 3995.59 5334.35
Liability
Quick Ratio 0.60 0.72 0.72 0.53 0.48

Table no.2

Sorces : www. Ashok Leyland Company pdf file 2008-2012 .com

Quick Ratio

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2008 2009 2010 2011 2012
Quick Ratio 0.6 0.72 0.72 0.53 0.48

Sources : www. Ashok Leyland pdf file 2008-2012 .com

Page | 27
Interpretation:

The traditional rule of thumb of this ratio has been 1:1. The quick ratio
gradually decreases from 0.60 in the year 2008 to 0.48 in the year 2012. The
ideal ratio is not met during any of the years from 2008 to 2012. The ideal ratio
is met once the inventories are sold and converted into debtors or cash.

Stock turnover ratio:

Cost of goods sold

Stock turnover ratio =--------------------------

Average stock

(Rs.Crores)

March08 March09 March10 March11 March12

Cost of 9062.17 6844.51 7583.90 11272.12 14717.01
goods sold
Average 1147.11 1276.96 1484.13 1923.57 2219.76
stock
Stock 7.90 5.36 5.11 5.86 6.63
turnover
ratio

Table no.3

Source: www.Ashok Leyland Company pdf file 2008 -2012 .com

Page | 28
 Stock Turnover Ratio

8
7
6
5
4
3
2
1
0
2008 2009 2010 2011 2012
Stock Turnover Ratio 7.9 5.36 5.11 5.86 6.63

Sources : www.Ashok Leyland pdf file 2008-2012.com

Interpretation:

This ratio indicates efficiency of the firm in selling its product. For Ashok
Leyland company the highest recorded was in the year 2008 as 7.90 and then it
went on decreasing in the following years. This shows that the companys
inventory management technique is less efficient as compare to last year.

Page | 29
Debtors turnover ratio:

Net sales
Debtors turnover ratio = -----------------
Receivables

(Rs. Crores)
March08 March09 March10 March11 March12
Net sales 7972.52 6168.99 7436.18 11407.15 13309.59
Receivables 449.41 666.92 990.17 1103.20 1207.77
Debtors 17.74 9.25 7.51 10.34 11.02
turnover ratio

Table no.4
Source: www.Ashok Leyland Company pdf file 2008 2012 .com

Debtor's turnover ratio

18
16
14
12
Axis Title

10
8
6
4
2
0
2008 2009 2010 2011 2012
Debtor's turnover ratio 17.74 9.25 7.51 10.34 11.02

Sources : www.Ashok Leyland Company pdf file 2008-2012.com

Page | 30
Interpretation:

The receivable turnover ratio (debtors turnover ratio, accounts receivable

turnover ratio) indicates the velocity of a company's debt collection, the number
of times average receivables are turned over during a year. The higher the
values of debtors turnover, the more efficient is the management of credit. But
in the company the debtor turnover ratio is decreasing year to year from 17.74
in 2008 to 11.02 in 2012.This shows that company is not utilizing its debtors
efficiently. Now their credit policy has become liberal as compare to previous
year.

Working capital turnover ratio:

Net sales
Working capital ratio = --------------------------
Net working Capital

(Rs.Crores)
March08 March09 March10 March11 March12
Net sales 7972.52 6168.99 7436.18 11407.15 13309.59
Net working 217.66 720.32 736.23 365.22 538.31
capital
Working 36.63 8.56 10.10 31.23 24.72
capital
turnover
ratio

Table no.5

Sources : www.Ashok Leyland Company pdf file 2008-2012.com

Page | 31
Sources : www.Ashok Leyland Company pdf file 2008-2012.com

Interpretation:

The working capital turnover ratio is fluctuating year to year that was high in
the year 2008, 36.63 times; there was a huge fall in the ratio in the year 2009,
8.56 times. Again it started increasing in the year 2010 by 10.10 times, 2011
by31.23 times and 2012 by 24.72 times. This shows that the the company is
utilizing its working capital efficiently.

Page | 32
Working capital analysis
(Rs.Crores)

Particular 2008 2009 2010 2011 2012 Increase/Decrease in Working Capital

2008w.r. 2009w.r. 2010w.r. 2011w.r.t20
t. 2009 t. 2010 t. 2011 12
Current
Asset(A)
Inventori 1223.9 1330.0 1638.2 2208.9 2230.63 106.10 308.23 570.66 21.73
1 1 4 0
es
Sundry 375.84 957.97 1022.0 1185.2 1230.37 582.13 64.09 163.15 45.16
6 1
Debtors
Cash and 44.55 86.93 188.92 179.53 32.56 42.38 101.99 (9.39) (146.97)

Bank
balance
Total A= 1644.3 2374.9 2849.2 3573.6 3493.56 730.61 474.31 724.42 (80.08)
0 1 2 4

Current
Liabilities
(B)
Liabilities 2196.4 2207.2 3002.6 3505.2 4837.41 10.8 795.39 502.58 1332.15
9 9 8 6

Total B= 2196.4 2207.2 3002.6 3505.2 4837.41 10.8 795.39 502.58 132.15
9 9 8 6

Net (552.19 167.62 (153.46 68.38 (1343.8 719.81 (321.08) 221.84 (1412.23)
) ) 5)
working
capital
(A-B)

Table No.6

Sources : www.Ashok Leyland Company pdf file 2008-2012.com

Page | 33
Interpretation:

Inventories have gone up in each year from 2008 to 2012.This is due to

the increase in activity levels, robust demand in export market and launch
of new products and also due to increase in consumption of raw
materials.

Sundry debtors of every year has increased due to increase in credit sales
level. But the increase in debtors and inventory is less than proportionate
to the activity increase.

Cash & Bank balance has decreased by 146.97 crores in the year 2012
due to utilization of funds inwarded last year and also due to increased
investment in capacity expansion or upgradation. Whereas in other years
it has increased due to deposit of funds in banks.

Current liabilities have increased due to higher bills payable.

The has been an increase in net working capital during the year 2008 with
respect to 2009 by 719.81 crores and in the year 2010 with respect to
2011 by 221.84 crores. This is due to the inwarding of funds during the
respective years and also for higher inventory levels. Again, there has
been a decrease in net working capital in the year 2009 with respect to
2010 by 321.08 crores and 1412.23 in the year 2011 with respect to 2012
which has occurred due to utilization of funds.

Page | 34
Profit and Loss Account
(Rs.Crorss)
Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08
Income

Operating income 13,309.59 11,407.15 7,436.18 6,168.99 7,972.52

Expenses

Material consumed 9,527.17 8,230.64 5,282.39 4,553.31 5,855.39

Manufacturing expenses 176.42 151.22 89.98 88.72 102.76
Personnel expenses 1,039.07 974.60 671.61 566.26 616.17
Selling expenses 872.64 761.38 571.69 430.77 194.63
Administrative expenses 463.02 95.81 74.36 65.04 399.76
Expenses capitalised -25.09 -24.06 -15.25 -8.20 -0.67
Cost of sales 12,053.23 10,189.60 6,674.79 5,695.90 7,168.04
Operating profit 1,256.36 1,217.56 761.40 473.08 804.48
Other recurring income 36.87 38.70 36.39 62.80 70.30
Adjusted PBDIT 1,293.23 1,256.25 797.79 535.88 874.78
Financial expenses 255.25 188.92 101.85 157.30 83.63
Depreciation 352.81 267.43 204.11 178.41 177.36
Other write offs - - - - 0.49
Adjusted PBT 685.16 799.90 491.83 200.17 613.30
Tax charges 124.00 170.50 121.10 18.45 168.84
Adjusted PAT 561.16 629.40 370.73 181.72 444.46
Nonrecurring items 4.81 1.90 52.95 8.27 24.85
Other non cash adjustments - - - 0.26 -
Reported net profit 565.98 631.30 423.67 190.25 469.31
Earnings before appropriation 1,317.16 1,208.75 905.98 692.53 831.00
Equity dividend 266.07 266.07 199.55 133.03 199.77
Preference dividend - - - - -
Dividend tax 43.16 43.16 33.14 22.61 33.95
Retained earnings 1,007.93 899.52 673.28 536.89 597.27

Sources : www.Ashok Leyland Company pdf file 2008-2012.com

Page | 35
 Balance sheet
Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08
Sources of funds
Owner's fund
Equity share capital 266.07 133.03 133.03 133.03 133.03
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 2,632.34 2,523.65 2,190.10 1,976.00 1,993.57
Loan funds
Secured loans 960.43 1,272.22 788.12 304.41 190.24
Unsecured loans 1,435.10 1,385.97 1,492.33 1,657.57 697.26
Total 5,293.94 5,314.88 4,603.57 4,071.02 3,014.11
Uses of funds
Fixed assets
Gross block 7,174.30 6,691.89 6,018.63 4,953.27 2,942.44
Less : revaluation reserve 1,313.36 1,306.28 1,333.17 1,364.86 22.38
Less : accumulated depreciation 2,147.77 2,058.10 1,769.07 1,554.16 1,416.89
Net block 3,713.17 3,327.52 2,916.39 2,034.25 1,503.17
Capital work-in-progress 577.31 387.82 619.71 1,043.19 661.08
Investments 1,534.48 1,230.00 326.15 263.56 609.90
Net current assets
Current assets, loans & advances 4,796.02 4,360.81 4,107.53 3,195.70 2,759.38
Less : current liabilities & provisions 5,334.35 3,995.59 3,371.37 2,475.37 2,541.72
Total net current assets -538.33 365.23 736.15 720.33 217.66
Miscellaneous expenses not written 7.31 4.31 5.17 9.69 22.29
Total 5,293.94 5,314.88 4,603.57 4,071.02 3,014.11
Notes:
Book value of unquoted investments 1,362.95 1,117.49 244.01 101.69 365.07
Market value of quoted investments 681.52 524.13 328.36 193.98 391.84
Contingent liabilities 985.92 881.77 445.03 754.37 1,783.97
Number of equity shares outstanding (Lakhs) 26606.77 13303.38 13303.38 13303.38 13303.38

Sources : www.Ashok Leyland Company pdf file 2008-2012.com

Page | 36
Trend Analysis

Trend analysis is a method of making comparative study of the financial

statement over a series of accounting year. More specifically, it is a statistical
device of identifying direction, speed and extent of trends in individual items in
the finanacial statements over a long period of time, say, five years or even ten
years. It sheds light on how key financial numbers such as sales, profit etc. have
moved in past and thereby guides the financial analysts to make prediction
about how those number are likely to behave in the future.

Various Tools for Tread Analysis

The trend analysis can be done in the following ways:
Percentage changes Method:
Under this method the changes in an accounting number over the period of
study are expressed in percentage. For instance Ashok Leyland company
records the following profit in the five years period.

(Rs.crores)
March08 March09 March10 March11 March12
Net profit 469.31 190.25 423.67 631.30 565.98

% change - -59.5% +122.7% +49% -10.35%

Source : www. Ashok Leyland Company pdf file 2008-2012.com

Page | 37
The percentage changes illustrate the change taking place in each year . For
example, in the above case the net profit of the company has increased every
year but the rate of increase in net profit has declined.
The main disadvantage of this method is that the figures ignore the effect
of inflation.

Graphical method : Under this method financial data of the period of study
are presented in the graphical form i.e., line diagram . The greatest advantage of
this method is that it enables the analyst to understand the trend of the data at a
glance. For example, from the following line diagram, we can make quick
understanding about the trend of Net profit and % Change.

Trend ratios : Trend ratios give a good indication of how the result over a
series of years compare with each other , and the general direction of the trend .
Following steps are usually followed for finding out trend ratios and doing
trend analysis :
One year is taken as base year. Usually the first year of period of study is
taken as the base year. In any case it should be a normal year i.e., a year
which is free from any abnormal activity .
The figures of the base year are to be taken as 100 .
For each item trend percentage is to be calculated in relation to the base
year as follows :

Absolute value of a certain year other than base year

Page | 38
 Trend Ratio = -------------------------------------------------------------
100
Absolute value of that item for the base period
It should be kept in mind that trend ratios of only logically relared accounting
numbers are meaningful for trend analysis . Haphazard computation of trend
ratios will not be of much use .

Page | 39
 Net sales to working capital

Working Capital : Current Asset Current Liabilities

(Rs.crores)
March08 March09 March10 March11 March12
Net sales(x) 7972.52 6168.99 7436.18 11407.15 13309.59
W.C (y) 217.66 720.32 736.17 365.22 -538.31
( C.A C.L )

Interpretation : This ratio indicates efficiency of the firm in selling its

product. For Ashok Leyland Company the highest recorded was in the year
2012 as 13309.59 and then it went on decreasing in the following years .
This shows that the companys inventory management technique is less
efficient as compare to last year .

Page | 40
For getting working capital for the year 2013:

Assuming straight line trend i.e., y = a + bx between the given tume series
values ( y ) and time ( x ) then normal equations determining the values of
a and b are given by ,

y = na + bx -----------(1)
xy = ax + bx2 ----------(2)

Years Net Sales(x) W.C(y) XY X2

2008 7972.52 217.66 1735298.70 63561075.15

2009 6168.99 720.32 4443646.88 38056437.62
2010 7436.18 736.17 5474292.63 55296772.99
2011 11407.15 365.22 4166119.32 130123071.12
2012 13309.59 - 538.31 -7164685.39 177145185.97
---------------- -------------- -------------------- ---------------------
----
X=46294.43 Y=1501.06 XY=8654672.14
X2=464182542.85
---------------- -------------- -------------------- ------------------------
-

Clearly, n = number of given time series values = 5.

Putting the values of X , Y , XY, X2 in equation (1) and (2) ,

Page | 41
1501.06 = 5a + 46294.43b ------------------- (1) ( 46294.43 )
8654672 = 46294.43a + 464182542.85b ---------(2) ( 5 )
Now,

69490717.1 = 231472.15a + 2143174249.02b

43273360 = 231472.15a + 2320912714.5b

-----------------------------------------------------------
26217357.1 = 0 177738465.48b
177738465.48
b = ------------------------ = 6.78
26217357.1
Putting the value of b in (1) , the trend line equation is given by,
1501.06 = 5a + 46294.43 (- 6.78)
Or, 1501.06 = 5a 313876.24
Or, 5a = 1501.06 + 313876.24
Or, a = 315377.3

Assuming net sales for the year 2013 is 60000 , then working capital is
Y = na + bX
Or, Y = 5 315377.3 + (- 6.78 ) 60000
Or, Y = 1576886.5 406800
Or, Y = 1170086.5

Page | 42
Chapter 4
Suggestions and Conclusion

Suggestions
The current ratio and quick ratio did not meet the standard requirement
that is 2:1. The company has to increase its current ratio to meet its standard
requirement otherwise it will not be able to meet the short term obligations. In
the year 2012 the current ratio was 0.88 which indicates insolvency of the firm.
For meeting the current ratio standard requirement the company has to increase
its current assets.

A high stock turnover ratio stands foe even movement of stock. A low
ratio hints at excessive stock level. In the above analysis it is seen the
movement is slow that invites higher storage cost, higher exposure to risks of
wastage, etc. The company should take steps like quality control to improve the
movement.

A high working capital turnover ratio indicates efficient utilization of

working capital and a low ratio indicates otherwise as in the year 2009 and
2010. But a very high working capital turnover ratio may also mean lack of
sufficient working capital which is not a good situation. In the year 2012 the
working capital turnover ratio was 24.72 which is quite satisfactory compared to
other years.
Page | 43
Conclusion

Through the project study, practical exposure of the business was

understood. The theory was so simple and with lot of assumption in the book.
But there are so many issues which are so practical and could not be learnt
theoretically and that was possible in the project study.

With the help of ratio analysis, a business understanding was possible and was
able to reason out the movement in the various elements. It also gave ideas for
better analysis with the use of statistical tools like correlation analysis. The
company is able to demonstrate and exercise significant control & reduction in
working capital where in the sale revenue has doubled during the review period.

Page | 44
 Chapter 5
References
Books
Agarwal, N.K., , (1975) Problem of W.C

ISBN-978-93-80664-11-8

Basu, A., (2102) Financial Accounting,

ISBN-978-81-927018-7-5

Ghosh, J., (2005) Financial Statement Analysis

Kumar, A.V and (1995) W.C and Profitability

Venkatachalam,A.

Mishra, R.K , (1983) Management of W.C

ISBN- 978-93-80649-19-1

Verma, H.L , (1989) Management of Working Capital

ISBN-978-93-80979-01-4

Page | 45
Webliography:
www.moneycontrol.com
www.google.com
www.wikipedia.com
www.Ashok Leyland company pdf file.com

Page | 46
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