1

A
PROJECT REPORT
ON
Working Capital Management
Of
Maruti Suzuki india ltd.

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION (FINANCE)
SESSION (2015-16)
SUBMITTED TO: SUBMITTED BY:
ADITI ARORA
MBA-1
ROLL NO.-49054
UNDER GUIDANCE OF
MR. AASHIT JAIN
(TRAINNER)

MATA GUJRI COLLEGE,

FATEHGARH SAHIB

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ACKNOWLEDGEMENT

To test the students academic knowledge in practical situations of corporate world, Semester
summer internship has been included in the M.B.A course. I would like to take this moment to
express my deepest gratitude to the group of people without whose help and support I would not
have been able to complete this project.

I would like to deeply thank my training mentor Mr. Aashit Jain for his valuable insights and
constant guidance and support. I express my deep sense of gratitude to the management of
Infowiz software solution for imparting me with the required help. I would like to specially thank
my college mentor Mr.Sourav, for his guidelines, support and motivation which have been a
great help to me for this project.

I would also like to thank all those people who spent their valuable time in this project, and all
those people who directly or indirectly contributed in making this project a success.

ADITI ARORA

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PREFACE

I have prepared this Project on the topic Working Capital Management in Maruti Suzuki India
Limited. The project was made after analyzing the data of Maruti Suzuki India Ltd. This
Report is prepared during my semester training. Training is lifes greatest treasure as it is full of
experience, observation and knowledge. The training held was very gainful as it took us close to
real life. This period also provide a chance to give theoretical knowledge a practical shape and to
learn from practical results.

Thanks

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DECLARATION

I, Aditi Arora declare that the project Working Capital Management in Maruti Suzuki India
Limited submitted to Mata gujri college, Fatehgarh Sahib in partial fulfillment of the
requirement for the award of the degree of Masters of Business Administration is a record of
original project work done by me.

I further declare that this project report has not been submitted to any other university/
institution/ board for award of any degree.

ADITI ARORA

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INDEX

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INTRODUCTION

OF

COMPANY

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Industry Name Auto - Cars & Jeeps

House Name MNC Associate

Collaborative Country Name N.A.

Joint Sector Name N.A.

Year Of Incorporation 1981

Year Of Commercial Production N.A.

HISTORY OF COMPANY:

MarutiUdyog Limited was established in February 1981, though the actual production
commenced only in 1983. It started with the Maruti 800, based on theSuzuki Alto kei car which
at the time was the only modern car available in India. Its only competitors were the Hindustan
Ambassador and Premier Padmini. Originally, 74% of the company was owned by the Indian
government, and 26% by Suzuki of Japan.[14] As of May 2007, the government of India sold its
complete share to Indian financial institutions and no longer has any stake in MarutiUdyog.It is a
subsidiary of Japanese automobile and motorcycle manufacturer Suzuki Motor Corporation. As
of January 2016, it had a market share of 47% of the Indian passenger car market. The company
is headquartered at New Delhi.

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AFFILIATION WITH SUZUKI

In 1982, a license & Joint Venture Agreement (JVA) was signed between MarutiUdyog Ltd.
and Suzuki of Japan. Finally, in 1983, the Maruti 800 was released. This 796 cc hatchback was
based on the SS80 Suzuki Alto and was Indias first affordable car. Initial product plan was 40%
saloons, and 60% Maruti Van.[17] Local production commenced in December 1983.[13] In 1984,
the Maruti Van with the same three-cylinder engine as the 800 was released and the installed
capacity of the plant inAfter liberalization of the Indian economy in 1991, Suzuki increased its
stake in Maruti to 50 percent, making the company a 50-50 JV with the Government of India the
other stake holder. Gurgaonreached 40,000 units. In 1998, the new Maruti 800 was released, the
first change in design since 1986. Zen D, a 1527 cc diesel hatchback and Maruti's first diesel
vehicle and a redesigned Omni were introduced. The 1.6 litre MarutiBaleno three-box saloon
and Wagon R were also launched.

In 2000, Maruti became the first car company in India to launch a Call Center for internal and
customer services. The new Alto model was released.

In 2002, Suzuki Motor Corporation increased its stake in Maruti to 54.2 percent. In 2006 Suzuki
and Maruti set up another joint venture, "Maruti Suzuki Automobiles India", to build two new
manufacturing plants, one for vehicles and one for engines. In February 2012, Maruti Suzuki
sold its ten millionth vehicle in India.For the Month of July 2014, it had a Market share of 45 %.

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Board of Directors

Mr. R. C. Bhargava Mr. Kenichi Ayukawa

Chairman Managing Director & CEO

Mr. Toshiaki Hasuike Mr. Osamu Suzuki

Joint Managing Director Director

Mr. Amal Ganguli Mr. D. S. Brar

Independent Director Independent Director

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Mr. Toshihiro Suzuki M r. Kazuhiko Ayabe

Director Director

Mr. Shigetoshi Torii Mr. Kinji Saito

Director (Production) D irector

Ms. Pallavi Shroff Mr. R.P. Singh

Independent DirectorIndependent Director

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PRODUCT AND SERVICES

Current models

Model Launched Category

Omni 1984 Minivan

Gypsy 1985 SUV

WagonR 1999 Hatchback

Swift 2005 Hatchback

Grand Vitara 2007 Mini SUV

Dezire 2008 Sedan

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Ritz 2009 Hatchback

Eeco 2009 Hatchback

Alto K10 2010 Hatchback

Ertiga 2012 Mini MPV

Alto 800 2012 Hatchback

Stingray 2013 Hatchback

Celerio 2014 Hatchback

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Ciaz 2014 Sedan

Baleno 2015 Hatchback

S-Cross 2015 Mini SUV

Mini SUV
VitaraBrezza 2016

Discontinued models

Model Launched Discontinued Category Image

Gypsy E 1985 2000 SUV

1000 1990 2000 Sedan

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Zen 1993 2006 Hatchback

Esteem 1994 2008 Sedan

Baleno 1999 2007 Sedan

Versa 2001 2010 Minivan

Grand Vitara XL7 2003 2007 Mini SUV

800 1983 2012 Hatchback

Alto 2000 2012 Hatchback

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Zen Estilo August 2009 2013 Hatchback

A-star 2008 2014 Hatchback

Maruti Suzuki SX4 2008 2014 Sedan [[File:Maruti Suzuki SX4 Sedan

Product range of the company includes:

It offer full range of cars from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star,
Swift, Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara.

Maruti Alto 800

Omni
Gypsy
Zen Estilo
Wagon R
Versa
A Star
Ritz
SX4
Dzire
Grand Vitara
Ertiga
Celerio

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Milestones :

2014: Maruti Suzuki announces global debut of Celerio with revolutionary Auto Gear Shift
2013: Maruti Suzuki introduces stylish Stingray
2012 :India's favourite car Maruti Suzuki Alto crosses the 20 Lakh sales mark
2011: Maruti Suzuki India unveiled its much awaited sportier and stylish car, the all new 'Swift'.
2011: On march 15, Maruti Suzuki India rolled out its 1 Crore (ten millionth) car.The historic 1
Crore car, a Metallic Breeze Blue coloured WagonR VXi (Chassis No 243899) rolled out from
the Company's Gurgaon plant.
2010: Maruti Suzuki has been ranked India's most Trusted Brand in Automobile Sector by
India's leading Business newspaper The Economic Times.
2009 MSIL adopts voluntary fuel disclosure.First shipment of Astar leaves Mundra Portjan
10.Astar bags,Zigwheelscar of the year awardAstar rated best small car of the yearautocar
UTVi.
2008 World Premiere of concept Astar at 9th Auto Expo, New Delhi.
2007 Swift diesel launched.New car plant and the diesel engine facility commences operations
during 200607 at manesar,Haryana.SX4Luxury Sedan Launched with the tag line Men are
black.Maruti launches Grand Vitara.
2006J.D.Power Survey award for the sixth year.MSIL has changed its EMS from ISO
14001:1996 version to ISO 14001:2004 version w.e.f.1st july
2005 MSIL was recertified in 2005 as per ISO 14001:2004 standards.
2004 A new esteem launched second successful facelift by maruti engineers.
2003 Maruti gets listed on BSE and NSE.IPO(issue oversubscribed 11.2 times)New zen
launchedfirst facelift by maruti engineers.
2002 Divestment Suzuki Motor Corporation(SMC)acquires majority stake in MUL.Maruti
Finance & Insurance launched.
2001 Turn around with profits Rs104.5 crore.Four new businessTrue
value,Insurance,Finance.Maruti Versa launched.Maruti True Value launched.
2000 Maruti alto launched.First car company in India to launch call centre.IDTR launched
jointly with the Delhi government to promote safe driving habits.

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Achievements/ recognition

The company takes great pride in sharing that customers have rated Maruti Suzuki first once
again in Customer Satisfaction Survey conducted by independent body, J.D.Power Asia
Pacific. It is 9th time in a row.
Maruti Suzuki wins 'Golden Peacock EcoInnovation Award'
Maruti Suzuki Ranks Highest in Automotive Customer Satisfaction in India For Ninth
Consecutive Year.
Maruti Suzuki becomes the first Indian car company to export half a million cars
The Brand Trust Report published by Trust Research Advisory, a brand analytics company,
has ranked Maruti Suzuki in the thirty seventh position in 2013 and eleventh position in
2014 among the most trusted brands of India.

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Current Position Of Maruti Suzuki

Today, Maruti Suzuki alone makes 1.5 million family cars every year. Thats one car every 12
seconds. They drove up head and shoulders above every major global auto company. Yet, their
story was not just about making a mark. It was about revolutionary cars that delivered great
performance, efficiency and environment friendliness with low cost of ownership. Thats what
they call true value. They built their story with a belief in small cars for a big future.
Their story encouraged millions of Indians to make driving a way of life. India stepped up with
their vision to take on the fast lane. A comradeship had begun. Something incredible had begun.
A team of over 13200 dedicated and passionate professionals that turned out 15 car models with
over 150 variants. The drive is backed up by a nationwide service network spanning over 1500
cities and towns and a sales network that spreads across 1471 cities, 2 state of art factories,
which together turn out 15 lakh cars annually. And a commitment to make Indian roads safer
through a network of training infrastructure that imparts driving skills.
Finally, Their inspiration comes from one place Indias hopes, dreams and aspirations. The
Maruti Suzuki journey has been nothing less than spectacular. But to be honest, Theyve only
just begun.

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Competitors of Maruti Suzuki India Ltd.

Company Current Price Book Value P/E Ratio Market Cap

(Rs. Cr.)

Hindustan Motors Ltd. 4.80 -4.83 0.00 100.16

Mahindra & Mahindra Ltd. 1,351.60 361.08 26.50 83,946.85

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Maruti Finance

To promote its bottom line growth, Maruti Suzuki launched Maruti Finance in January 2002.
Prior to the start of this service Maruti Suzuki had started two joint ventures Citicorp Maruti and
Maruti Countrywide with Citi Group and GE Countrywide respectively to assist its client in
securing loan. Maruti Suzuki tied up with ABN Amro Bank, HDFC Bank, ICICI Limited, Kotak
Mahindra, Standard Chartered Bank, and Sundaram to start this venture including its strategic
partners in car finance. Again the company entered into a strategic partnership with SBI in
March 2003. Since March 2003, Maruti has sold over 12,000 vehicles through SBI-Maruti
Finance. SBI-Maruti Finance is currently available in 166 cities across India.

Citicorp Maruti Finance Limited is a joint venture between Citicorp Finance India and
MarutiUdyog Limited its primary business stated by the company is "hire-purchase financing of
Maruti Suzuki vehicles". Citi Finance India Limited is a wholly owned subsidiary of Citibank
Overseas Investment Corporation, Delaware, which in turn is a 100% wholly owned subsidiary
of Citibank N.A. Citi Finance India Limited holds 74% of the stake and Maruti Suzuki holds the
remaining 26%. GE Capital, HDFC and Maruti Suzuki came together in 1995 to form Maruti
Countrywide. Maruti claims that its finance program offers most competitive interest rates to its
customers, which are lower by 0.25% to 0.5% from the market rates.

Now we are going to study the working capital management of maruti Suzuki to know the
requirement of current assets and current liabilities in the company. So that we can manage the
cash properly. To study the working capital management, we should know about what type of
data is required to prepare the working capital. Here we discuss in detail about the working
capital management.

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RESEARCH
METHODOLOGY

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Research
Research refers to a search for the knowledge. One can also define research as a scientific and
systematic search for pertinent information on a specified topic.
Redman and Mory defines as a systematized effort to gain new knowledge. In short, the
search of knowledge through objective and systematic method of finding solution to a problem
is research.

Methodology
Methodology for study refers to the techniques and methods used in order to find out the
problem.

RESEARCH METHODOLOGY
Is a design to systematically solve the research problem or the methods that are used in research
the purpose of the research methodology is to describe the research procedure.
"Research Methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically."

RESEARCH DESIGN
Research Design is an arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy on procedure. The
research problem having been formulated in clear-cut term helps the researcher to prepare a
research design.

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TYPES OF THE RESEARCH

Descriptive research:
Descriptive research includes surveys, facts, finding and inquiries of different
kinds. The major purpose of descriptive research is description of the state of affairs as it exists
at present. Descriptive research is that kind of research where the researcher has no control over
the variables. Reporter can only report what has happened or what is going to happen. But these
incidents cannot be changed by the researcher. In social science and business research the quite
often term used for descriptive research is Ex- Post research. So present research was a
Descriptive research.

Conclusion oriented research:

Conclusion oriented research is that in which we conclude on basis of research. Present research
was conclusion oriented because this research aims at finding the reasons behind the increasing
need of working capital and its importance to company.

OUTLINE OF THE STUDY:-

The management of working capital is very important. It involves the study of day-to-
day affairs of the company. The motive behind the study is to develop an understanding about
the working capital management in the running business organization and to help the company in
developing the efficient working capital management. So it helps in future planning and control
decisions.

OBJECTIVES OF THE STUDY:-

To learn and experience the practical functioning of the organization.

To evaluate the composition of current assets and current liabilities.
To ascertain the companies financial strength and weakness.
To ascertain the companys profitability position.

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To know the future need of working capital in the running organization.

To find out how the working capital needs are fulfilled.

SCOPE OF THE STUDY:-

The concept of working capital i.e. both gross and net working capital is used. To get the proper
understanding of the concepts, balance sheet and profit and loss account have been studied. The
scope of the study is limited upto the availability of financial records and information provided
by employees. The study is related to period of last two years.

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WORKING
CAPITAL
MANAGEMENT

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The success of the industry largely depends on the effective and efficient management of
finance. The finance manager should have foresight, so that they may prepare the organisation to
face the coming events.The finance manager examines the strength and weakness of the
organisation and appraises the new situation to meet it he works out a strategy. This strategy
makes demands on their business strength in terms of the resources that are its command where
men, material and money.

Working Capital refers to the funds required in the business to carry on its day to day operating
activities e.g. funds required for purchase of raw materials/ stocks, payment of wages and other
day- to-day expenses. Working capital,thus, refers to the amount invested in current assets like
inventory, sundry debtors, cash/bank balances, prepaid expenses etc. Less the credit facilities
availed from the creditors/ suppliers etc. In short we can say that working capital is the excess of
current assets over the current liabilities.

TYPES OF WORKING CAPITAL

On The Basis of Concept :

- Gross Working Capital
Gross working capital refers to the total amount invested in current assets.
- Net Working Capital
Net working capital refers to the difference currentassetsand current liabilities.
Net Working Capital = Current assets - Current liabilities

On The Basis Of Time :

-Fixed Working Capital
Fixed working capital refers to the minimum level of current assets that is continuously required
by the firm to carry out its normal business operations.
- Variable Working Capital
Variable working capital refers to the extra working capital required over and above the fixed
working capital to meet the seasonal demands.

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TEMPORARY WORKING CAPITAL = FLUCTUATING WORKING CAPITAL = VARIABLE

WORKING CAPITAL

Temporary capital
Amount of working
capital

Permanent Capital

Time

CONSTITUENTS OF CURRENT ASSETS

1. Cash in hand and bank balances
2. Bills Receivables
3. Sundry debtors (less provision fro bad debts)
4. Short-term loans and advances
5. Inventories of stocks, as:
(a) Raw Materials
(b) Work-in-progress
(c) Stores and spares.
(d) Finished Goods
6. Temporary Investments of surplus funds
7. Prepared expenses
8. Accured Incomes

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CONSTITUENTS OF CURRENT LIABILITIES

1. Bills Payable
2. Sundry creditors or accounts payable
3. Accured or outstanding expenses
4. Short- term loans, advances and deposits
5. Dividends Payable
6. Bank overdraft
7. Provision for taxation, if it does not amount
to appreciation of profits

To conclude, it may be said that, both, gross and net, concepts of working capital are important
aspects as working capital management. The net concept of working capital may be suitable
only for proprietary form of organizations such as sole-trader or partnership firms. But the
gross concept is very suitable to the company form of organization were there is a divorce
between ownership, management and suitable to the company form of organization where
there is a divorce between ownership, management and control.

Operating cycle or Circular Flow Concept

Working Capital refers to that part of firms capital which is required for financing short-term or
current assets such as cash, marketable securities, debtors and inventories. Funds, thus invested
in current assets.
Current assets keep revolving fast and are being constantly converted into cash and these cash
flows out again in exchange for other current assets. Hence, it is also known as revolving or
circulating capital. The circular flow concept of working capital is based upon this operating or
working capital cycle of a firm. The cycle starts with the purchase of raw material and other
resources and ends with the realization of cash from the sale of finished goods. It involves
purchase of raw material and stores, its conversion into stock of finished goods through work-in-
progress with progressive increment of labour and service costs, conversion of finished stock
into sales, debtors and receivables and ultimately realization of cash and this cycle continues
again from cash to purchase of raw material and so on. The speed/ time duration required to
complete one cycle determines the requirements of working capital- longer the period of cycle,
larger is the requirement of working capital.

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The gross operating cycle of a firm is equal to the length of the inventories and receivables
conversion periods.
Gross Operating Cycle = RMCP+ WIPCP+ FGCP+ RCP
Where, RMCP= Raw material conversion period
WIPCP= Work- in- progress conversion period
FGCP= Finished goods conversion period
RCP= Receivables Conversion Period
However, a firm may acquire some resources on credit and thus defer payments for certain
period. In that case, net operating cycle can be calculated as below:

NET OPERATING CYCLE PERIOD= GROSS OPERATING CYCLE PERIOD

PAYABLE DEFERRAL PERIOD
Further , following formula can be used to determine the conversion periods.
Raw material conversion period = average stock of raw material/ raw marterial
consumption per day
work- in progress conversion period = average stock of work-in-progress/ total cost of
production per day
finished goods conversion period= average stock of finished goods/ total cost of goods
sold per day
receivables conversion period = average accounts receivables/ net credit sales per day
payables deferral period average payables/ net credit purchases per day

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NEED FOR WORKING CAPITAL

The Organisation cannot run efficiently, if it does not have adequate finance to meet its day to
day operations. Working capital is essential not only for the large scale industries but also to the
small scale industries. An effective utilisation of working capital results in maximum of
productivity and profit.

Working capital consists broadly of that portion of the assets of a business which are utilised in
current operation and represented at any time by operating cycle of such item as against
receivables, inventories of raw material, stores, work in progress, finished goods and cash.
Inefficient management of working capital can lead not only to loss of profits and also business
failure. However it permits the entrepreneurs to gain control of real resources which enables
them to engage in industry by producing and distributing industrial product. Adequate working
capital is not only essential for meeting out day to day expenditure but also to maintain financial
stability and profitability of the firm.

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FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1.NATURE OF THE BUSINESS :

Working capital requirement of the firm depends upon the nature of its business. A trading
concern, for eg., needs a very small investment in fixed assets but requires a large sum of money
invested in current assets, particularly in stock in trade.

2.SCALE OF OPERATIONS :
Working capital requirement of the firm is closely related to the scale of its operations. Higher
the scale of operations, higher will be the need of working capital.

3. SEASONAL VARIATIONS :
Seasonal variations also affect the working capital requirements. Taking an example of Air
Conditioners- its demand reaches a peak during the summer months ands drops sharply during
the winter period.

4. PRODUCTION CYCLE :
The term `production cycle' refers to the time span required for conversion of raw materials into
finished goods. The longer the time span, the larger will be the need of working capital and vice-
versa.

5.CREDIT POLICY OF THE FIRM :

Higher the credit sales or higher the credit period allowed by the firm to its customers, higher
will be the book debts and consequently higher will be the need of working capital.

6.COMPETITION :
When the competition is tough, the larger inventory of finished goods is essential to serve the

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customers without delay, otherwise the customers will move to the other manufacturers. Further
liberal credit terms are usually offered to attract the customers in a highly competitive market.

7. BUSINESS CYCLES :
The term 'business cycle' refers to the ups and downs of an economy. In the period of economic
boom, the sales of products will increase and hence the firm's investment in inventories will also
increase and vice-versa.

8. OPERATING EFFICIENCY :
It relates to optimum utilisation of available resources. Management can ensure the effective
utilisation of resources by eliminating the waste etc. This will increase the firm's efficiency
which in turn will reduce the funds required to be blocked into working capital.

9. PRICE LEVEL CHANGES :

Changes in the price level also affect the working capital requirements. Generally, the rising
prices will require the firm to maintain larger amount of working capital as more funds will be
required to maintain the same current assets.

10.AVAILABILITY OF RAW MATERIAL :

If the raw material is easily available in the market, the firm can manage with small inventory
however, if the availability is irregular, then the firm, in order to ensure uninterrupted flow of
production, would have to accumulate stocks as and when required. Carrying larger inventory
will require a large amount of working capital.

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METHODS FOR ESTIMATING THE WORKING CAPITAL

REQUIREMENT:

There are broadly three methods of estimating or analyzing the requirement of working capital of
a company viz. percentage of revenue or sales, regression analysis, and operating cycle method.
Estimating working capital means calculating future working capital. It should be as accurate as
possible because the planning of working capital would be based on these estimates and bank
and other financial institutes finance the working capital needs to be based on such estimates
only.
3 Methods of Estimating / Analyzing Working Capital are as follows:

1 .PERCENTAGE OF SALES METHOD:

Percentage of sales method is a working capital forecasting method which is based on past
relationship between sales and working capital. Just like technical analysis in the stock market, it
assumes that the history will repeat itself and thus the ratio of working capital to sales will
remain constant. In other words, it assumes that the whole business will move in tandem with
sales.
Percentage of sales method is the simplest and easiest way of finding future working capital.
First, each component of working capital as a percentage of sales is calculated. Like, accounts
payable are 20 million, and sales are 100 million, accounts payable as a percentage of sales
would be 20%. Secondly, the coming year sales forecast is taken as a base and the component is
calculated as per the percentage. In our instant example, if forecasted sales are 150 million,
accounts payable should be 30 million.

2. REGRESSION ANALYSIS METHOD:

This statistical estimation tool is utilized by mass for various types of estimation. It tries to
establish trend relationship. We will use it for working capital estimation. This method expresses
the relationship between revenue & working capital in the form of an equation (Working Capital
= Intercept + Slope * Revenue). The slope is the rate of change of working capital with one unit
change in revenue. Intercept is the point where regression line and working capital axis meets

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(Will not go deeper into statistical details). At the end of the statistical exercise with past revenue
and working capital data, we will get an equation like below:
Working Capital = -6.34 + 0.46 * Revenue
To calculate working capital, just put the targeted revenue figure in the above equation, say 200
million dollars.
Working Capital = -6.34 + 0.46 * 200 = -6.34 + 92 = 85.66 ~ 86 Million Dollar.
Therefore, we need 86 million dollars of working capital to achieve revenue of 200 million
dollars

3. OPERATING CYCLE METHOD:

This is probably the best of the methods because it takes into account the actual business or
industry situation into consideration while giving an estimate of working capital. A general rule
can be stated in this method. Longer the working capital operating cycle, higher would be the
requirement of working capital and vice versa. We would agree to the point also. The following
formula can be used to estimate or calculate the working capital
Working Capital = Cost of Goods Sold (Estimated) * (No. of Days of Operating Cycle / 365
Days) + Bank and Cash Balance.

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WORKING
CAPITAL
ANALYSIS

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ANALYSIS OF WORKING CAPITAL FROM DIFFERENT ASPECTS ON

THE BASIS OF THE HISTORICAL DATA
There are the number of devices to analyze working capital, one of them is ratio Analysis.
Ratio Analysis
Ratio analysis is a technique of analysis and interpretation of financial statements. It is the
process of establishing and interpreting various ratios for helping in making decisions. The main
ratios related with the working capital are as follows:-

Liquidity Ratios
Liquidity refers to the ability of a concern to meet its current obligations as and when these
becomes due. It measures short term solvency of the firm. To measure the liquidity of a firm, the
following ratios can be calculated.

1. CURRENT RATIO:

The current ratio is the relationship between current assets and current liabilities. It is also known
as working capital ratio because it is a measure of general liquidity and is most widely used to
make the analysis of short-term financial position.

It is calculated by dividing total of current assets by current liabilities.

The current assets of a firm represents those assets which can be converted into cash within a
short period of time normally one year. The current liabilities are those obligations which are
payable within a short period of generally, one year.

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COMPONENTS OF CURRENT RATIO:-

Current Assets Current Liabilities

1. Cash in Hand 1.Outstanding expenses
2. Cash at Bank 2.Bills Payable
3. Marketable Securities 3.Sundry Creditors
4. Short-term Investments 4.Short-term Advances
5. Bills receivables 5.Income Tax Payable
6. Sundry debtors 6.DividendsPayable
7. Inventories 7.Bank Overdraft(if not permanent)
8. Work-in-progress
9. Prepaid expenses

INTERPRETATION OF CURRENT RATIO:-

A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liability is
considered to be satisfactory.This means to provide for delays and losses in the realisation of
current assets. However, the rule of 2:1 should not be blindly followed while making
interpretation of the ratio, because firms having less than 2:1 ratio may be having a better
liquidity than even firms having more than 2:1 ratio. This is so because the current ratio
measures only the quantity of current assets and not quality of current assets.

2. QUICK RATIO :

The quick ratio is also known as quick assets ratio or acid-test ratio. The quick ratio is the
relationship between quick assets and current liabilities. An asset is said to be liquid if it can be
converted into cash within a short period without loss of value. So we can say that the cash in
hand and cash at bank are the most liquid assets. Other quick assets are bills receivables, sundry
debtors, marketable securities. The quick ratio is more conservative than the current ratio
because it excludes inventory and other current assets, which are relatively more difficult to turn
into cash within a given period of time. Therefore, a higher ratio means a more liquid current

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position.

Quick Ratio = Quick or Liquid Asset /Current Liabilities

Liquid Assets = current assets (inventories + prepaid expenses)

COMPONENTS OF QUICK /LIQUID RATIO:-

Quick/ Liquid Assets Current Liabilities

1. Cash In Hand 1.Outstanding Expenses
2. Cash at Bank 2.Bills Payable
3. Bills Receivables 3.Sundry Creditors
4. Sundry Debtors 4.Short Term Advances
5. Marketable Securities 5.Income Tax Payable
6. Temporary Investments 6.Dividend Payable
7.Bank Overdraft

The basics use of this ratio are similar to the current ratio in that it gives users an idea of the
ability of a company to meet its short-term liabilities with its short-term assets. Another
beneficial use is to compare the quick ratio with the current ratio. If the current ratio is
significantly higher, it is a clear indication that the company's current assets are dependent on
inventory.

INTERPRETATION OF QUICK RATIO:-

Usually, a high acid test ratio is an indication that the firm is liquid and has the ability to meet its
current or liquid liabilities in time and on the other hand a low quick ratio represents that the
firms liquidity position is not good.
As a rule of thumb of the acid test ratio is 1:1 is considered satisfactory. It is generally thought

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that if quick assets are equal to current liabilities than the concern may be able to meet its short
term obligations. A quick ratio of 1:1 does not necessarily means satisfactory liquidity position if
all the debtors cannot be realized and cash is needed immediately to meet the current obligations.
In the same manner, a low quick ratio does not necessarily means a bad liquidity position as
inventories are not absolutely non liquid. Hence, a firm having a high quick ratio may not have a
satisfactory liquidity position if it has a slow paying debtors. On the other hand, firm having a
low quick ratio may have a good liquidity position if it has fast moving inventories.

The firm quick ratio is same as current ratio as the firms doesnt involve with the inventory, both
the ratios focuses on the more liquid assets of a company.

3. CASH RATIO :

The cash ratio, which is most conservative of the current ratios, is calculated in conjunction with
the current ratio and the quick ratio by taking into account only of cash, cash equivalents and
invested funds out of current assets to cover current liabilities.

Cash ratio = Cash & Bank + Short-term Securities /Current Liabilities

COMPONENTS OF CASH/ ABSOLUTE RATIO:-

Quick/ Liquid Assets Current Liabilities

1. Cash In Hand 1. Outstanding Expenses
2. Cash at Bank 2 .Bills Payable
3. Marketable Securities 3. Sundry Creditors
4. Temporary Investments 4. Short Term Advances
5. Income Tax Payable
6. Dividend Payable
7. Bank Overdraft

Cash ratio is also known as absolute liquid ratio. It includes cash in hand and cash at bank and

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marketable securities or temporary investments. The acceptable norm for this ratio is 1:2 or 0.5:1
or 50%.

INTERPRETATION OF CASH RATIO :

The cash ratio is the most stringent and conservative of the three short-term liquidity ratios
(current, quick and cash). It only looks at the most liquid short-term assets of the company,
which are those that can be most easily used to pay off current obligations. It also ignores
inventory and receivables, as there are no assurances that these two accounts can be converted to
cash in a timely matter to meet current liabilities.

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STATEMENT SHOWING WORKING CAPITAL NEEDED FOR THE

YEAR ENDED (2013-2014) (in crores)
PARTICULARS DETAILS AMOUNTS

CURRENT ASSETS:
Current investments 8813.10

Inventories 1705.90

Debtors 1413.70

Cash and Cash equivalents 629.70

Short term loans and advances 1251.10

Other current assets 358.20

14171.7
TOTAL CURRENT ASSETS
Less:

CURRENT LIABILITIES:

Short term borrowings

1224.70
Bills payable
4897.50
Other current liabilities
1274.20
Short term provisions
677.70
TOTAL CURRENT LIABILITIES
8074.1
WORKING CAPITAL 6097.6

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STATEMENT SHOWING WORKING CAPITAL NEEDED FOR THE

YEAR ENDED (2014-2015)

PARTICULARS DETAILS AMOUNTS

CURRENT ASSETS:
Current investments 2996.4

Inventories 2615.0

Debtors 1069.8

Cash 18.3

Short term provisions 1172.8

Other current assets 325.6

TOTAL CURRENT ASSETS 8197.9

Less:

CURRENT LIABILITIES:

Short term borrowings 35.4

Bills payable 5561.4

Other current liabilities 1865.8

Short term provisions 1360.4

8823
TOTAL CURRENT LIABILITIES

WORKING CAPITAL -625.1

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Findings

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1. From the analysis, I found that our working capital in 2013-14 is 6097.6 and in 2014-15 is -
625.1which shows our working capital of company is decreasing.

2. Decrease in working capital shows that the liquidity position of company is very low, which
need to improve it.

3. The companys liabilities in 2013-14 are 8074.1 and in 2014-15 are 8823 which are
increasing and shows companys debt towards their creditors.

4. Excess inventory shows more blockage of money in stock which also leads to reduce in
working capital.

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MEASURES

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

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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.

7. Working capital management is an important yardstick to measure a company's operational

and financial efficiency. This aspect must form part of the company's strategic and operational
thinking. Efforts should constantly be made to improve the working capital position. This will
yield greater efficiency and improve customer satisfaction.

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Disadvantages of Inadequate Working Capital

A concern which has inadequate working capital cannot pay its short-term liabilities in
time.
It cannot buy its requirements in bulk and cannot avail of discounts, etc.
The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies,
increases costs and reduces the profits of the business.
It stagnates growth. It becomes difficult for the firm to undertake profitable projects for
non-availability of working capital funds.
It becomes difficult to implement operating plans and to achieve the firms profit target.
Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments.
Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the
firms profitability would deteriorate.
Paucity of working capital funds render the firm unable to avail attractive credit
opportunities etc.
The firm loses its reputation when it is not in a position to honour its short- term
obligations. As a result, the firm faces tight credit terms.

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Bibliography

1. Gupta Shashi.K & Sharma. R.K Financial Management Kalyani

Publishers
2. H.S. Grewal. Analysis of Financial Statements Sultan Chand Publishers

WEBSITE:

https://en.wikipedia.org/wiki/Maruti_Suzuki

http://www.moneycontrol.com/financials/marutisuzukiindia/cash-
flowVI/MS24#MS24

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ANNEXURE

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Data Required To Prepare statement of working capital

Balance Sheet Of Maruti Suzuki India Ltd.

Balance Sheet of Maruti Suzuki India ------------------- in Rs. Cr. -------------------

Mar 15 Mar 14
12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 151.00 151.00
Total Share Capital 151.00 151.00
Reserves and Surplus 23,553.20 20,827.00
Total Reserves and Surplus 23,553.20 20,827.00
Total Shareholders Funds 23,704.20 20,978.00
NON-CURRENT LIABILITIES
Long Term Borrowings 144.80 460.40
Deferred Tax Liabilities [Net] 481.00 586.60
Other Long Term Liabilities 105.40 238.60
Long Term Provisions 292.60 198.00
Total Non-Current Liabilities 1,023.80 1,483.60
CURRENT LIABILITIES
Short Term Borrowings 35.40 1,224.70
Trade Payables 5,561.40 4,897.50
Other Current Liabilities 1,865.80 1,274.20
Short Term Provisions 1,360.40 677.70
Total Current Liabilities 8,823.00 8,074.10
Total Capital And Liabilities 33,551.00 30,535.70
ASSETS
NON-CURRENT ASSETS
Tangible Assets 11,967.00 10,607.70
Intangible Assets 292.30 182.70
Capital Work-In-Progress 1,882.80 2,621.40
Fixed Assets 14,142.10 13,411.80
Non-Current Investments 9,817.60 1,304.80
Long Term Loans And Advances 1,349.30 1,638.40

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Other Non-Current Assets 44.10 9.00

Total Non-Current Assets 25,353.10 16,364.00
CURRENT ASSETS
Current Investments 2,996.40 8,813.10
Inventories 2,615.00 1,705.90
Trade Receivables 1,069.80 1,413.70
Cash And Cash Equivalents 18.30 629.70
Short Term Loans And Advances 1,172.80 1,251.10
OtherCurrentAssets 325.60 358.20
Total Current Assets 8,197.90 14,171.70
Total Assets 33,551.00 30,535.70
OTHER ADDITIONAL INFORMATION
CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 9,232.50 7,210.20
CIF VALUE OF IMPORTS
Raw Materials 3,181.80 3,095.50
Stores, Spares And Loose Tools 75.80 68.30
Trade/Other Goods 23.10 41.60
Capital Goods 1,011.20 1,731.20
EXPENDITURE IN FOREIGN EXCHANGE
Expenditure In Foreign Currency 3,300.30 3,087.40
REMITTANCES IN FOREIGN CURRENCIES FOR
DIVIDENDS
Dividend Remittance In Foreign Currency 203.70 135.80
EARNINGS IN FOREIGN EXCHANGE
FOB Value Of Goods 4,633.20 4,141.70
Other Earnings - -
BONUS DETAILS
Bonus Equity Share Capital - -
NON-CURRENT INVESTMENTS
Non-Current Investments Quoted Market Value 560.50 237.70
Non-Current Investments Unquoted Book Value 9,791.10 1,278.30
CURRENT INVESTMENTS
Current Investments Quoted Market Value - -
Current Investments Unquoted Book Value 2,996.40 8,813.10

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