SUMMER TRANING REPORT

Analysis of Working capital Management

at

Escorts Ltd.

Submitted in partial fulfillment of requirements for

the award of the degree of Masters in Business Management

Session : 2012-2014

Under Supervision of: Submitted by:

Mrs. Ashumani Bhatia Sakshi Gandhi

TPO &Assistant Professor MBA (3rd Sem)

H.I.M.T., Rohtak Roll no-3218840

HINDU INSTITUTE OF MANAGEMENT &TECHNOLOGY

MAHARSHI DAYANAND UNIVERSITY, ROHTAK

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DECLARATION

I, Sakshi Gandhi, Roll No. 3218840 of MBA Semester 3RD of Hindu Institute of

Management & Technology, Rohtak, hereby declare that the project entitled Analysis of

Working Capital Management is an original work and the same has not been submitted to

any other institute for award of any other degree. The interim report was presented to the

supervisor on ………… and the pre-submission presentation was made Of……………….

The feasible suggestions have been duly incorporated in consultation with the supervisor.

Signature of the Candidate

Counter signed

Mrs.Ashumani Bhatia

TPO &Asst. Professor, HIMT

Head of the department

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ACKNOWLEDGEMENT

“Gratitude is not a thing of expression; it is more a matter of feeling.”

There is always a sense of gratitude which one express for others for their help and supervision in achieving the goals. We too express my deep gratitude to each and everyone who has been helpful to us in completing the project report successfully.

We would like to thank almighty God for blessing showered on us during the completion of Dissertation Report.

We give our regards and sincere thanks to Mrs. Shalu Juneja(HOD in MBA Deptt.)and Mrs. Ashumani Bhatia(Project guide) who has devoted her precious time in guiding us & helping us complete it within time.

We feel self-short of words to thanks our parents and friends who had directly or indirectly instrumental in the completion of the project. We are indebted to all respondents for their time passion during the long conversations.

SAKSHI GANDHI

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PREFACE

Practical training constitutes an integral part of management studies. Training gives an

opportunity to the students to expose themselves to the industrial environment, which is quite

different from the classroom teachings. One cannot rely on theoretical knowledge. It has to be

coupled with practical to be fruitful. Training also enables the management students to see

themselves the working condition under which they have to work in the future. It thus enables

the students to undergone those experiences, which will help them later when they join any

organization.

After liberalization the Indian economic sense is changed. Industrial activity in India has

become a thing to watch & I really wanted to be a part of it &it is essential for me being a

finance student.

I underwent eight weeks of training at Escorts Ltd.at faridabad I consider myself lucky to get

my summer training in such a big Company. It really helped me to get a practical insight into

actual business environment & provide me an opportunity to make my working capital

management concepts more clear.

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EXECUTIVE SUMMARY

If development capital is what establishes a business, working capital is what keeps it going. One of the most common downfalls of business is unexpectedly high running cost. What is important is not just the size of operating costs, but the cash flows - that is when money has to be paid out in relation to the stream of income arriving in. Thus Working Capital Management is of prime importance.

This project is a small attempt to study the working capital management in Escorts Agri

Machinery Group. The project work can be divided into two sections.

Analysis of the working capital position of the company using ratio analysis

Study of Working Capital Management Techniques.

Ratio analysis has been done on the basis of three years data. For calculating various ratios

300 days have been taken as number of working days after deducting Sundays and holidays.

To analyze the performance, published Balance sheets of Escorts Limited (and not Escorts

Consolidated) have been used. This project report is based on financial data up to 2011-2012

only, as company’s financial year is 1st October to 30th September and its accounts for the

current period will close only after 30th September.

Working Capital Management basically comprises of:

Receivables Management

Payables Management

Inventory Management

Cost management is the process by which companies control and plan the costs of doing

business. Individual projects should have customized cost management plans, and companies

as a whole also integrate cost management into their overall business model. There is no

single accepted definition for this term, because it has such broad applications and possible

strategies. When properly implemented, cost management will translate into reduced cost of

production for products and services, as well as increased value being delivered to the

customer.

Cost Management basically comprises of:

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Cost Reduction

Cost Control

Escorts is maintaining the following records which is indicative of its professional approach:

Maintaining proper set of accounting records.

Maintaining an accurate cashbook reconciled with the bank statement.

Maintaining monthly statement showing profit performance and the working capital

position.

Monitoring Receivables daily.

Making a regular forecast of cash requirements based upon planned sales volume.

Ageing of debtors/creditors with comparisons to previous months.

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Table of Contents

Declaration

Acknowledgement

Preface

Summary

Chapters Page No.

Chapter-I Introduction to Company 1-20

Background & Technology

Company Profile

Mission,Vision&Values

Board of Directors

Agri machinery group

Contribution of escorts

Chapter-2 Introduction to Project 21-36

Chapter-3 Research Methodology 37-43

Meaning of Research

Types of Research

Sampling technique

Objectives of Research

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Chapter-4 Analysis and Interpretations 44-51

Chapter-5 Findings & Conclusion 52-56

Findings Suggestions Conclusion

Bibliography

Annexure

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CHAPTER- 1

INTRODUCTION

OF THE

COMPANY

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ESCORTS LTD.

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INTRODUCTION OF THE COMPANY

Background

In 1960, our parent company, Escorts, set up the strategic Agri Machinery Group

(AMG) to venture into tractors.

In 1965, we rolled out our first batch of tractors under the brand name of Escort.

In 1969 a separate company, Escorts Tractors Ltd., was established with equity

participation of Ford Motor Co., agricultural Escorts AMG has three recognized and

well-accepted tractor brands, which are on distinct and separate technology platforms

tractors in India

In the year 1996 Escorts Tractors Ltd. formally merged with the parent company,

Escorts Ltd.

Since inception, we have manufactured over 1 million tractors.

Technologies

Escorts AMG has three recognized and well-accepted tractor brands, which are on

distinct and separate technology platforms.

Farmtrac: World Class Premium tractors, with single reduction and epicyclic

reduction transmissions from: 34 to 75 HP.

Powertrac: Utility and Value-for-money tractors, offering straight-axle and hub-reduction

tractors from 34 to 55 HP. India's No.1 economy range - engineered to give spectacular diesel

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economy.

Escort: Economy tractors having hub-reduction transmission and twin-cylinder

engines from 27 to 35 HP. Pioneering brand of tractors introduced by Escorts with

unbeatable advantages.

COMPANY PROFILE

Escorts Limited is an India-based company engaged in the business of manufacturing of

agricultural tractors, engines for agricultural tractors, round end flat tubes, heating elements, double

acting hydraulic shock absorbers for railways coaches, center buffer couplers, automobile shock

absorbers, telescopic front fork and Mcpherson struts, break block, internal combustion engine and

all types of breaks used by railway’s, construction, earth moving and material handling equipments.

It also trades in oils and lubricants, implements, trailers, compressor accessories and spares,

construction, earth moving and material handling equipments and aero business. The Company

operates in agri machinery,auto ancillary products, railway equipment, construction equipments and

others. The Company’s subsidiaries include FarmtracTractors Europe Sp. Escorts Securities Ltd.

(ESL), Escorts Asset Management Ltd. and EDDAL Credit Limited.

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MANAGEMENT & SYSTEM

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15

minutes. For a complete list of exchanges and delays, please click here. The Escorts Group

is an Indian multinational engineering conglomerate that operates in the sectors of agri-

machinery, construction and material handling equipment, railway equipment and auto

components. Headquartered in Faridabad, Haryana, the company was launched in 1944 and

has operations in more than 40 countries. Escorts Group’s management team includes Rajan

Nanda as the Chairman and Managing Director and Nikhil Nanda as the Joint Managing

Director.

OPERATING PERFORMANCE

Escorts Ltd’s flat revenue of `1,028 crore in the December quarter and the tripling in net

profit to `28.1 crore from a year back were in line with Bloomberg’s consensus estimates.

But, the company’s operating margin of 5.1% was a tad below the year-ago period and nearly

130 basis points (bps) below consensus. One basis point is one-hundredth of a percentage

point. Operating margin was shored up only by the agri-machinery products division, which

accounts for around 80% of revenue. Compared with a year earlier, the 9.5% growth in

revenue also mirrored a near 6% increase in average realization of the agri-machinery

products division. Higher volumes to some extent also pushed up operating margin by 330

bps to 9.3%

FINANCIAL PERFORMANCE

The outlook for the segment is reportedly healthy given that these pending orders should

come to fruition in the next couple of quarters. However, that is not so in the construction

equipment sector, which registered a whopping 38% drop in revenue, and the travails could

continue as long as the infrastructure sector languishes. Both these divisions, therefore, posted

significant losses, which eroded profits earned by the agri-machinery products division.

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CHART FOR ESCORTS GROUP

Open 66.10 Vol 34802

High 66.65 52 Week 76.80

Low 65.00 52 Week 48.35

Prev. Close 65.75

Bid Offer

Price 65.60 65.65

Quantity 5.00 25.00

65.50 -0.40 (-0.61%) NSE : Jun 25, 10:05

Open 65.90 Vol 56051

High 66.80 52 Week 76.90

Low 65.00 52 Week 48.40

Prev. Close 65.90

Bid Offer

Pric

e65.5565.60

257

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MISSION,VISION & VALUE

For an Enterprise,Business Mission embodies of its endeavour, which acts as a guiding light for continuous development & growth.Mission of ESCORTS is:

The company wants to make a lasting difference to its shareholders, its customers, its business associates, its employee and the country as a whole. The company also gives better quality and better technology to customer and treats every customer as “special” to build respect for, and loyalty to, Escorts.

LOGO

The hexagonal nut (in red) represents a geometric perfection. In spite of modern

technologies coming in, it still remains unarguably a symbol of technology and all

that holds it together. The two pictorial elements are configured together to form

an 'E', a pneumonic for Escorts. The symbol makes a rebus or visual pun and is

rendered in red, the color of energy and dynamism. Every time it is used, it

represents the Escorts seal of quality and excellence. The philosophy behind

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Escorts and the “E” in the Escorts is “Enterprise”.

Bankers:

Andhra Bank

Axis Bank Ltd.

Citibank NA.

IDBI Bank Ltd.

Indusind Bank Ltd.

Oriental Bank of Commerce

Punjab National Bank

State Bank of Hyderabad

State Bank of India

State Bank of Patiala

State Bank of Travancore

Yes Bank Ltd.

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BOARD OF

DIRECTORS

Name Description

Rajan   Nanda Mr. Rajan Nanda is Executive Non-Independent Chairman

of the Board, Managing Director of Escorts Limited. He is

an alumnus of Doon School, Dehradun. He took over as

Chairman of Escorts Group in the year 1994. That was the

time when the Indian economy had begun to burgeon as

result of liberalization.

G. V. R.   Murthy Mr. G. V. R. Murthy is Chief Executive Officer - Escorts

Construction Equipment of Escorts Ltd. He is a mechanical

engineer with over 30 years of diverse experience in

construction industry, cement products and mineral

processing.

Lait   Pahwa Mr. Lait Kumar Pahwa is Chief Executive Officer - Escorts

Auto Products of Escorts Ltd. He holds BE (Mech), MBA

(Symbiosis Pune), possesses over 30 years of experience of

which 16 years he has shouldered different responsibilities

as CEO and MD of engineering, manufacturing and

automation businesses

Sambandam   Sridhar Mr. Sambandam Sridhar is Chief Executive Officer -

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Escorts Agri Machinery of Escorts Ltd. He is agriculture

engineer, possesses experience in engineering, automotive

industry and manufacturing

G.B.   Mathur Mr. G. B. Mathur is Executive Vice President - Law,

Compliance Officer, Company Secretary of Escorts

Limited. He is an ACS and LLB by profession. He has

more than three decades of experience in the field of

Corporate Law.

Ishan   Mehta Mr. Ishan Mehta is Executive Vice President - HR and ER

of Escorts Ltd. He is an alumnus of Xavier’s Labour

Research Institute (XLRI), possesses over 33 years of

experience in HR and ER strategies, organisational

effectiveness and workplace improvement

Nikhil   Nanda Mr. Nikhil Nanda is Joint Managing Director, Executive

Non-Independent Director of Escorts Limited. Prior to

joining the Company, Mr. Nikhil Nanda has worked as

Joint Managing Director of Escorts Yamaha Motors

Limited during the period 1997 to 2000. He was appointed

as a Executive Director of the company from 1st May,

2000 to 16th August, 2005.

Dipankar   Ghosh Mr. Dipankar Ghosh is Business Head - Escorts Railway

Products of Escorts Ltd. He was has 23 years of experience

in full lifecycle product development,manufacturing

operations, engineering management, business

development, and technology transfer from many Railway

OEMs to India

Hardeep   Singh Mr. Hardeep Singh is Non-Executive Non-Independent

Director of Escorts Ltd., since 28th November, 2011. He is

a graduate in Economics from Pune University and an

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alumnus of Kellogg School of Management. He has a

experience of holding top management positions in Indian

and foreign companies

Subhash   Bhargava Shri. S. C. Bhargava is Non-Executive Independent

Director of Escorts Limited. He is eminent personality with

experience in all facets of insurance. He has held top

position in LIC including as Executive Director

(Investrnents) and also attended seminars and workshops in

India and abroad on behalf of LIC.

S.   Dave Dr. S. A. Dave is Non-Executive Independent Director of

Escorts Limited. He is an economist of international repute.

He has a experience across multiple facets of financial and

capital, and many other reputed companies.

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EPS OF ESCORTS

EXTRA BENEFITS OF ESCORTS CO.

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AGRI MACHINERY GROUP

At Escorts Agri Machinery, the catalyst for the next wave of farm mechanization has brought

about two large customer centric initiatives to the fore at Escorts – New Products and variants

that are aligned with changing and emerging applications & end usages and the shift of

Escorts from being a standalone tractor manufacturer to being a complete 'Farm Solution'

provider.

FARMTRAC - The World Champion

Exported to the most advanced markets in the world.

Well accepted internationally for its versatility.

Designed for the demanding requirements of progressive farmers.

Machine with powerful features for maximum efficiency.

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POWERTRAC

Powertrac series from Escorts Ltd. has been engineered with the use of the most modern

technology to redefine power and performance. The series has a wide range of tractors with

powerful engines and pollution norms. Powertrac series comprises of tractors with

transmission choices, powerful PTO, advance hydraulics and ergonomic design besides

thsalient features.

Powertrac Variants

Powertrac 430

Powertrac 435

Powertrac 440

Powertrac 455

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MODERNISATION OF AGRI MACHINERY GROUP

Ecological modernization emerged in the early 1980s within a group of scholars at

Free University and the Social Science Research Centre in Berlin, among them Joseph

Huber, Martin Jänicke (de) and Udo E. Simonis. Various authors pursued similar

ideas at the time, e.g. Arthur H. Rosenfeld, Amory Lovins, Donald Huisingh, René

Kemp, or Ernst Ulrich von Weizsäcker. Further substantial contributions were made

by Arthur P.J. Mol, Gert Spaargaren and David A Sonnenfeld (Mol and Sonnenfeld,

2000; Mol, 2001).

One basic assumption of ecological modernization relates to environmental

readaptation of economic growth and industrial development. On the basis of

enlightened self-interest, economy and ecology can be favourably combined:

Environmental productivity, i.e. productive use of natural resources and

environmental media (air, water, soil, ecosystems), can be a source of future growth

and development in the same way as labour productivity and capital productivity.

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Future of tractor industry

He said the share of 50 HP (horse power) and more tractors in total industry volume

will jump from 12 per cent in 2011-12 to 23 per cent in 2018-19, while share of small

tractors having capacity of less than 35 HP will come down from 15 per cent in 2011-

12 to 8 per cent in 2018-19.

Tractors with less than 35 HP capacity are called small tractors, capacity with 35-50

HP are medium one and over 50 HP capacity are big tractors.

He also attributed the increasing volume of high capacity tractors to growing

preference by more and more progressive farmers who are now following modern and

innovative farm practices.

"New age farmers now cultivate more land and they need modern and efficient

methods to get more yield and more income and the high powered tractors are capable

of doing that," he said.

With company seeing demand for big tractors growing in various states including

Punjab, Bihar, West Bengal, Escorts is also betting big on large capacity tractors with

the launch of two new tractors with a capacity of 60-65 HP.

The company has also introduced some new features in the new variants like 24-speed

syncroshuttle gearbox providing versatility to do multiple tasks, 4-wheel drive

technology

Plant location

18/4, Mathura Road, Faridabad – 121 007

Plot No. 2 & 3, Sector – 13, Faridabad – 121 007

Plot No. 115, Sector – 24, Faridabad – 121 005

15/5 Mathura Road, Faridabad – 121 003

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CONTRIBUTION OF ESCORTS

AGRI MACHINERY GROUP CONTRIBUTION

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MARKET SHARE OF TRACTOR INDUSTRY

MARKET SHARE OF TRACTOR INDUSTRY IN 2010-2011

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MARKET SHARE OF TRACTOR INDUSTRY IN 2011-2012

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CHAPTER - 2

INTRODUCTION

OF

PROJECT

WORKING CAPITAL:

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Workingcapital=CurrentAssets−CurrentLiabilities

Current assets and current liabilities are those, which can be converted into cash within a short duration i.e. generally a period less than one year.

Current Assets = sum of inventories, debtors, cash and bank balances, prepaid expenses, loans and advances, marketable securities.

Current Liabilities = sum of creditors, outstanding expenses, tax provision, proposed and unclaimed dividend, short term loans, bank overdraft, cash credit.

Working capital is said to be adequate when Current assets/ Current Liabilities = 2:1

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The management of current assets, current liabilities and inter-relationship between them is

termed as working capital management. “Working capital management is concerned with

problems that arise in attempting to manage the current assets, the current liabilities and the

inter-relationship that exist between them.”12

In practice, “There is usually a distinction

made between the investment decisions concerning current assets and the financing of

working capital.”

From the above, the following two aspects of working capital management emerges:

(1) To determine the magnitude of current assets or “level of working capital” and

(2) To determine the mode of financing or “hedging decisions.”

Concept of Working Capital Management

There are two concepts of working capital quantitative and qualitative. Some people also

define the two concepts as gross concept and net concept. According to quantitative concept,

the amount of working capital refers to ‘total of current assets’. What we call current assets?

Smith called, ‘circulating capital’. Current assets are considered to be gross working capital

in this concept.

The qualitative concept gives an idea regarding source of financing capital. According to

qualitative concept the amount of working capital refers to “excess of current assets over the

current liabilities.”

Current assets – It is rightly observed that “Current assets have a short life span. These

type of assets are engaged in current operation of a business and normally used for short–

term operations of the firm during an accounting period i.e. within twelve months. The two

important characteristics of such assets are, (i) short life span, and (ii) swift transformation

into other form of assets. t assets over current liabilities.

Current liabilities – The firm creates a Current Liability towards creditors (sellers) from

whom it has purchased raw materials on credit. This liability is also known as accounts

payable and shown in the balance sheet till the payment has been made to the creditors.

Circulating capital – working capital is also known as ‘circulating capital or current

capital.’ “The use of the term circulating capital instead of working capital indicates that its

flow is circular in nature.”

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Factors affecting Working capital management

Factors to be considered while making an estimation of working capital requirements:-

1. Total cost incurred on materials, wages and overheads.

2. The length of time for which raw materials are to remain in stores before they are

issued for production.

3. The length of production cycle or work in progress.

4. The length of period during which finished goods are to be kept waiting for sales.

5. The average period of credit allowed to customers.

6. The amount of cash required to pay day to day expenses of the business.

7. The average amounts of cash required to make advance payments.

8. The average credit period expected to be allowed to suppliers.

9. Time lag in the payment of wages and other expenses.

Financing of working capital

After determining the optimum level of working capital, the finance manager determines the

sources of finance in such manner that is most profitable to the company. The various sources

of finance are:-

1. Trade credit.

2. Short term bank credit for working capital:

a) Cash credit.

b) Letter of credit.

c) Bills finance

d) Working capital demand loan.

e) Overdraft facility.

3. Factoring of receivables.

4. Commercial paper.

5. Long term sources comprising of equity capital and long term borrowings.

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Principles of Working Capital Management

The following are the principles of working capital management:

Principles of the risk variation─ Risk here refers to the inability of firm to maintain

sufficient current assets to pay its obligations. If working capital is varied relative to sales, the

amount of risk that a firm assumes is also varied and the opportunity for gain or loss is

increased. In other words, there is a definite relationship between the degree of risk and the

rate of return. As a firm assumes more risk, the opportunity for gain or loss increases. As the

level of working capital relative to sales decreases, the degree of risk increases. When the

degree of risk increases, the opportunity for gain and loss also increases. Thus, if the level of

working capital goes up, amount of risk goes down, and vice-versa, the opportunity for gain

is like-wise adversely affected.

Principle of maturity of payment─ A company should make every effort to relate maturity

of payments to its flow of internally generated funds. There should be the least disparity

between the maturities of a firm’s short-term debt instruments and its flow of internally

generated funds, because a greater risk is generated with greater disparity. A margin of safety

should, however, be provided for any short-term debt payment.

Principle of cost of capital─ This principle emphasizes that different sources of finance

have different cost of capital. It should be remembered that the cost of capital moves

inversely with risk. Thus, additional risk capital results in decline in the cost of capital.

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Operating Cycle

The duration of time required to complete the following sequence of events, in case of

manufacturing firm, is called the operating cycle:

1. Conversion of cash into raw materials.

2. Conversion of raw materials into work-in-progress.

3. Conversion of work in process into finished goods.

4. Conversion of finished goods into debtors and bills receivables through

sales.

5. Conversion of debtors and bills receivables into cash

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Duration of the Operating Cycle

The duration of the operating cycle is equal to the sum of the duration of each of these stages

less the credit period allowed by the suppliers of the firm. In symbols,

O = R + W + F + D – C

Where,

O = duration of operating cycle.

R = raw material storage period.

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W= work-in-process period.

F= finished goods storage period.

D=debtors collection period, and

C = creditors payment period.

The components of the operating cycle may be calculated as follows:

R= Average stock of raw materials and stores

Average raw material and stores consumption per day

W= Average work-in-process inventory

Average cost of production per day

F= Average finished goods inventory

Average cost of goods sold per day per day

D= Average book debts

Average credit sales per day

C= Average trade creditors

Average creditors

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Structure of Current Assets and Current Liabilities

Current Liabilities Current AssetsBank Overdraft Cash and Bank BalanceCreditors Inventories: Raw-Materials

Work-in-progressFinished Goods

Outstanding Expenses Spare PartsBills Payable Accounts ReceivablesShort-term Loans Bills ReceivablesProposed Dividends Accrued IncomeProvision for Taxation, etc. Prepaid Expenses

Short-term Investments

Classification of Working Capital

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The quantitative concept of Working Capital is known as gross working capital while that

under qualitative concept is known as net working capital.

Working capital can be classified in various ways. The important classifications are as given

below:

Conceptual classification – There are two concept of working capital viz., quantitative

and qualitative. The quantitative concept takes into account as the current assets while the

qualitative concept takes into account the excess of current assets over current liabilities.

Deficit of working capital exists where the amount of current liabilities exceeds the amount

of current assets. The above can be summarised as follows:

(i) Gross Working Capital = Total Current Assets

(ii) Net Working Capital = Excess of Current Assets over Current Liabilities

(iii) Working Capital Deficit = Excess of Current Liabilities over Current Assets.

Classification on the basis of financial reports – The information of working

capital can be collected from Balance Sheet or Profit and Loss Account; as such the working

capital may be classified as follows:

(i) Cash Working Capital – This is calculated from the information contained in profit

and loss account. This concept of working capital has assumed a great significance in recent

years as it shows the adequacy of cash flow in business. It is based on ‘Operating Cycle

Concept’s which is explained later in this chapter.

(ii) Balance Sheet Working Capital – The data for Balance Sheet Working Capital is

collected from the balance sheet. On this basis the Working Capital can also be divided in

three more types, viz., gross Working Capital, net Working Capital and Working Capital

deficit.

Classification on the Basis of Variability – Gross Working Capital can be divided

in two categories viz., (i) permanent or fixed working capital, and (ii) Temporary, Seasonal or

variable working capital.

Source of Working Capital

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Conventional generalizations relating to financing of working capital suggest that an amount

equal to the basic minimum of current assets should be financed from long-term source and

that only seasonal needs of working capital should be financed from short-term sources.It is

obvious that such an arrangement helps to keep the cost of working capital finance to the

minimum for an enterprise and gives a rise to its rate of return on the total funds employed.

Viewed thus, the sources of working finance can be classified into permanent and the current

sources of working capital finance.

TRENDS OF WORKING CAPITAL

The diagram below shows the working capital of the company for the past years and efforts have been made to analyze the reasons for the same.

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2007-08 2008-09 2009-10 2010-11-0.5

0

0.5

1

1.5

2

2.5

3

3.5

WORKING CAPITAL

Dimensions of working capital :

Working capital management has the following dimensions:-

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It is obvious that given a constant level of production, higher the amount of working capital,

the lower will be the return on investment since capital turnover would be less. On the other

hand, lower the amount of working capital, the higher would be the risk since the company

would not have adequate liquidity to maintain its short term obligations. Therefore, in

working capital we strike a balance between risk and profitability. We have to find out that

level of investment in working capital which gives us the reasonable amount of liquidity

subject to a good working capital turnover ratio. In fact,good working capital management

policies have a great influence on a firm’s profitability, liquidity and structural health.

Policy A

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Dimension 1:Profitalbilty, risk and

liquidity

Dimension 2: Composition & level of CA

Dimension 3:Composition

of CL

Based on the maximum level of output if the company follows three different policies of maintaining the working capital it would affect the profitability, liquidity and structural health in the following manner :-

Policy Liquidity Profitability* RiskA High Low LowB Average Average AverageC Low High High

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Policy B

Policy C

Output

Level of Working capital

For smooth running an enterprise, adequate amount of working capital is very essential.

Efficiency in this area can help, to utilize fixed assets gainfully, to assure the firm’s long-

term success and to achieve the overall goal of maximization of the shareholders, fund.

Shortage or bad management of cash may result in loss of cash discount and loss of

reputation due to non-payment of obligation on due dates. Insufficient inventories may be the

main cause of production held up and it may compel the enterprises to purchase raw materials

at unfavourable rates. Like-wise facility of credit sale is also very essential for sales

promotions. It is rightly observed that “many a times business failure takes place due to lack

of working capital.”Adequate working capital provides a cushion for bad days, as a concern

can pass its period of depression without much difficulty. O’ Donnel et al. correctly explained

the significance of adequate working capital and mentioned that “to avoid interruption in the

production schedule and maintain sales, a concern requires funds to finance inventories and

receivables.” The adequacy of cash and current assets together with their efficient handling

virtually determines the survival or demise of a concern.

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The danger of excessive working capital are as follows:

Heavy investment in fixed assets – A concern may invest heavily in its fixed

assets which are not justified by actual sales. This may create situation of over capitalization.

Reckless purchase of materials- Inventory is purchased recklessly which results in

dormant slow moving and obsolete inventory. At the same time it may increase the cost due

to mishandling, waste, theft, etc.

Speculative tendencies - Speculative tendencies may increase and if profit is increased

dividend distribution will also increase. This will hamper the image of a concern in future

when speculative loss may start.

Carelessness - Excessive working capital will lead to carelessness about costs which will

adversely affect the profitability.

Paucity of working capital is also bad and has the following dangers:

1. Implementation of operating plans becomes difficult and a concern may not

achieve its profit target.

2. It is difficult to pay dividend due to lack of funds.

3. Bargaining capacity is reduced in credit purchases and cash discount could not be

availed.

4. An enterprise looses its reputation when it becomes difficult even to meet day-to-

day commitments.

5. Operating inefficiencies may creep in when a concern cannot meet it financial

promises.

6. Stagnates growth as the funds are not available for new projects.

7. A concern will have to borrow funds at an exorbitant rate of interest in case of

need.

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OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB) states

The following objectives of financial statements: -

1. To provide reliable financial information about economic resources and obligation of a

business firm.

2. To provide other needed information about charges in such economic resources and

obligation.

3. To provide reliable information about change in net resources (recourses less obligations)

missing out of business activities.

4. To provide financial information that assets in estimating the learning potential of the

business.

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CHAPTER-3

RESEARCH

METHODOLOGY

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MEANING OF RESEARCH

Research in common parlance refers to a search for knowledge. Once can also define

research as a scientific and systematic search for pertinent information on a specific topic. In

fact, research is an art of scientific investigation. The Advanced Learner’s Dictionary of

Current English lays down the meaning of research as “a careful investigation or inquiry

specially through search for new facts in any branch of knowledge.

Redman and Mory define Research as a “systematized effort to gain new knowledge”. Some

people consider research as a movement from known to unknown.

Research is as academic activity and as such the term must be used in a technical sense.

Research is an original contribution to the existing stock of knowledge making for its

advancement. It is the pursuit of truth with the help of study, observation, and experiment.

The systematic approach concerning generalization and formulation of theory. The purpose

of Research is to discover answers to questions through the application of systematic

procedure. The main aim of Research is to find out the truth which has been not discovered.

According to Clifford Woody “ Research comprises defining and redefining problems,

formulating hypothesis or suggested solutions, collecting, organizing and evaluating data,

making deductions and reaching conclusions.”

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Characteristics of research –

1. Research is based on the scientific method.

2. Helps in answering various pertinent questions.

3. It is an organized, planned and patient investigation or a critical enquiry.

4. It has logical roots, helping to establish facts or principles.

TYPES OF RESEARCH

The basic types of research are as follows:

(i) Descriptive vs. Analytical: Descriptive research includes surveys and fact-finding

enquiries of different kinds. The major purpose of descriptive research is description

of the state of affairs as it exists at present. In social science and business research we

quite often use the term Ex post facto research for descriptive research studies.

The main characteristic of this method is that the researcher has no control over the

variables; he can only report that has happened or what is happening. In analytical

research, on the other hand, the researcher has to use facts or information already

available, and analyze these to make a critical evaluation of the material.

(ii) Applied vs. Fundamental: Research can either be applied (or action) research or

fundamental (to basic or pure) research. Applied research aims at finding a solution

for an immediate problem facing a society or an industrial/business organisation,

whereas fundamental research is mainly concerned with generalisations and

with the formulation of a theory. “Gathering knowledge for knowledge’s sake

is termed ‘pure or ‘basic’ research.”

(iii) Quantitative vs. Qualitative: Quantitative research is based on the measurement

of quantity or amount. It is applicable to phenomena that can be expressed in terms

of quantity.Qualitative research, on the other hand, is concerned with qualitative

phenomenon, i.e., phenomena relating to or involving quality or kind.

(iv) Conceptual vs. Empirical : Conceptual research is that related to some abstract idea(s)

Or theory. It is generally used by philosophers and thinkers to develop new concepts or to

reinterpret existing ones. On the other hand, empirical research relies on experience or

observation alone, often without due regard for system and theory. It is data-based research,

coming up with conclusions which are capable of being verified by observation or

experiment.

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DATA:

The data collected for the above problem is generally secondary in nature. The analysis has

been done on the basis of past financial management of the company. The primary data has

been collected after interviewing the officials of the company at various stages. The judgment

sampling has been used, as the sample size is limited in case of different problems. The

following methods are adopted for collecting information’s:

Observation.

Survey.

Special Record Searching.

COLLECTION OF DATA

Data Collection is an important aspect of any type of research study. Inaccurate data

collection can impact the results of a study and ultimately lead to invalid results. Data

collection methods for impact evaluation vary along a continuum. At the one end of this

continuum are quantatative methods and at the other end of the continuum are Qualitative

methods for data collection .

CLASSIFICATION OF DATA

The data are classified into:

Primary data

Secondary data

PRIMARY DATA

Primary data are always collected from the source. It is collected either by the investigator

himself or through his agents. There are different methods of collecting primary data. Each

method has its relative merits and demerits. The investigator has to choose a particular

method to collect the information. The choice to a large extent depends on the preliminaries

to data collection some of the commonly used methods are discussed below.

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1. Direct Personal observation

2. Indirect Oral Interviews

3. Mailed Questionnaire method

4. Schedule Method

5. From Local Agents

SECONDARY DATA

Secondary data, is data collected by someone other than the user. Common sources of

secondary data for social science include censuses, organisational records and data collected

through qualitative methodologies or qualitative research. Primary data, by contrast, are

collected by the investigator conducting the research.

Sources of secondary data

As is the case in primary research, secondary data can be obtained from two different

research strands:

Quantitative: Census, housing, social security as well as electoral statistics and other

related databases.

Qualitative: Semi-structured and structured interviews, focus groups transcripts, field

notes, observation records and other personal, research-related documents.

A clear benefit of using secondary data is that much of the background work needed has

already been carried out, for example: literature reviews, case studies might have been carried

out, published texts and statistics could have been already used elsewhere, media promotion

and personal contacts have also been utilized.

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SAMPLING TECHNIQUE

Sampling Technique

Non-probability Sampling Probability Sampling

(Convenience sampling) (Proof based sampling)

There are two broad categories of sampling techniques namely probability and non-

probability sample.

Probability samples are categorized by the fact that each element of the population has

non-zero chance of being included in the sample. Here, it is not necessary that the

probabilities of the selection are equal, but only that one can specify the probability that it

will be included in the sample for each element of the population. This is so because each

element included in the sample is selected objective somewhere in the process. Without the

knowledge of the error that can be attributed to sampling procedure, we cannot place bounds

on the precision of our estimates.

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RESEARCH OBJECTIVES :-

The following are the general problems of the research:

To study of working capital management of the Company.

The study the operating cycle.

To do a comparative analysis of the costs between escorts,Mahindra and tafe.

Cost effectiveness in various operations of the company.

The coordination of Inventory management objectives with organizational objectives.

Limitations of Escorts co.

Although every effort has been into collect the relevant information through the source

available, still some relevant Information could not be gathered.

The time duration could not provide opportunity to study every detail of management

in the company.

There are restrictions not to some specific areas in Escorts ltd. (AMG) such as cash

room, store room etc.

As some figures have not been disclosed by the company on account of confidential

reports. Moreover,in some cases separate accounts of divison are not separately

maintained thereby, leading to restriction in analysis.

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CHAPTER-4

DATA ANALYSIS

AND

INTERPRETATION

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ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF

LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit and commercial

banks short-term loans are primarily interested to know the ability of a firm to meet its

obligations in time. The short term obligations of a firm can be met in time only when it is

having sufficient liquid assets. So to with the confidence of investors, creditors, the smooth

functioning of the firm and the efficient use of fixed assets the liquid position of the firm

must be strong. But a very high degree of liquidity of the firm being tied – up in current

assets. Therefore, it is important proper balance in regard to the liquidity of the firm. Two

types of ratios can be calculated for measuring short-term financial position or short-term

solvency position of the firm.

1.     Liquidity ratios.

2.     Current assets movements ‘ratios.

A)   LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these

become due. The short-term obligations are met by realizing amounts from current, floating

or circulating assts. The current assets should either be liquid or near about liquidity. These

should be convertible in cash for paying obligations of short-term nature. The sufficiency or

insufficiency of current assets should be assessed by comparing them with short-term

liabilities. If current assets can pay off the current liabilities then the liquidity position is

satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets

then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can

be calculated:

1.     CURRENT RATIO

2.     QUICK RATIO

3.     ABSOLUTE LIQUID RATIO

 

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1.   CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and its

most widely used to make the analysis of short-term financial position or liquidity of a firm.

It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS 

                                 CURRENT LIABILITES

The two components of this ratio are:

1)     CURRENT ASSETS

2)  CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors,

inventories and work-in-progresses. Current liabilities include outstanding expenses, bill

payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay

its current obligations in time. On the hand a low current ratio represents that the liquidity

position of the firm is not good and the firm shall not be able to pay its current liabilities in

time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current

liabilities is considered to be satisfactory.

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CALCULATION OF CURRENT RATIO

YEARS CURRENT RATIO

2008-09 0.83

2009-10 0.93

2010-11 1

2011-12 0.90

2008-09 2009-10 2010-11 2011-120

0.10.20.30.40.50.60.70.80.9

1

CURRENT RATIO

CURRENT RATIO

Interpretation: - From the above diagram and the past results of the company the current ratio shows an decreasing trend in the 2011-12 in comparison to 2010-11but it is still below the ideal ratio of 2:1 , thereby showing managerial inefficiency in meeting the current liabilities thereby affecting the profitability and productivity of the company.

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2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined

as the relationship between quick/liquid assets and current or liquid liabilities. An asset is

said to be liquid if it can be converted into cash with a short period without loss of value. It

measures the firms’ capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS

                               CURRENT LIABILITES

Where Quick Assets are:

1)           Marketable Securities

2)           Cash in hand and Cash at bank.

3)           Debtors.

A high ratio is an indication that the firm is liquid and has the ability to meet its current

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 ratio of 1:1 is considered satisfactory. It is generally thought that if quick

assets are equal to the current liabilities then the concern may be able to meet its short-term

obligations. However, a firm having high quick ratio may not have a satisfactory liquidity

position if it has slow paying debtors. On the other hand, a firm having a low liquidity

position if it has fast moving inventories.

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CALCULATION OF QUICK RATIO

YEARS QUICK RATIO

2008-09 0.71

2009-10 0.77

2010-11 0.84

2011-12 0.59

Interpretation: - From the above diagram and the past results of the company the current

ratio shows an decreasing trend in the 2011-12 in comparison to 2010-11 and 2010-11 in

comparison to 2009-10 shows a increasing trend but it is still below the ideal ratio of 2:1 ,

thereby showing managerial inefficiency in meeting the current liabilities thereby affecting

the profitability and productivity of the company.

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COMPARISON OF VARIOUS COST COMPONENTS AMONG ESCORTS,MAHINDRA AND TAFE

The market position of the three companies in the tractor industry for the past three years.

This shows that Escorts is losing its footing in the Indian tractor market.The companies toughest competitor is Tafe and Mahindra.

Therefore a cost comparison to show the three companies standing.

Escorts MahindraSalary per unit 38,654.59 68706.55Power cost per unit 5702.11 5651.25Manufaturing Overhead per unit 16842.54 4315.31

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FY09 FY10 FY11

Escorts Mahindra Tafe0.00

10,000.0020,000.0030,000.0040,000.0050,000.0060,000.0070,000.0080,000.00

38654.5934191294

68706.55

15590.5172413796

Salary per unit

Salary per unit

Companies

Escorts Mahindra Tafe0.00

5000.00

10000.00

15000.00

20000.00 16842.5368079569

4315.31

9670.125

Manufaturing Overhead per unit

Manufaturing Overhead per unit

Companies Man

ufac

turin

g on

erhe

ad p

er

unit

Escorts Mahindra Tafe0.00

1000.002000.003000.004000.005000.006000.00

5702.11400663078 5651.25

3151.37

Power cost per unit

Power cost per unit

Companies

Pow

er co

st p

er u

nit

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Escorts Mahindra Tafe0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

38654.5934191294

68706.55

15590.5172413796

5702.11400663078 5651.253151.37

16842.5368079569

4315.31

9670.125

Cost Comparision

Salary per unitPower cost per unitManufaturing Overhead per unit

Companies

Sala

ry/p

ower

/Man

ufac

ture

cost

per

uni

t

Interpretation: - Tafe is the most efficient in managing its cost. Management in Escorts is

unable to curb the cost. Escorts having the 3rd largest market share, enjoys economies of

scalebut it is not able to utilise its economies of scale efficiently as its manufacturing cost per

unit is the highest.

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CHAPTER-5

FINDINGS

&

CONCLUSION

Findings

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The research results indicate that each department’s unique characteristics and

circumstances allow for the presence of different inherent limitations at the top and

bottom ends of the evaluation scale utilized.

The inherent limitations that consistently achieved the highest assessments across all

the classes of respondents are: Lack of communication, people mistakes and

management override. In the South African government sector these inherent

limitations, in most instances, represent the most immediate and urgent threats to the

effectiveness of financial control systems.

The inherent financial control limitations that in most instances (across all the classes

of respondents) are least of a concern in respect of financial control effectiveness are:

Complexity, sabotage and game playing.

None of the inherent financial control limitations are present to a degree that does not

require management’s attention or that allows management to ignore their presence.

Although certain inherent limitations are more prevalent than others, the overall

presence of these limitations, as evidenced by the empirical results, is putting

financial control effectiveness in the South African government sector in jeopardy.

Overall, the provincial department respondents consider the inherent limitations a

bigger threat than the national department respondents - 11 out of 14 limitations are

evaluated higher by the respondents from provincial departments, compared to

national departments.

The respondents from both national departments and provincial departments indicated

that the most prevalent inherent financial control limitation is "people mistakes". At

the bottom end of the scale both sets of respondents again indicated the same

limitation, namely "complexity".

Suggestions

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From the very beginning of the project, work of finding the problems in the existing

management and solutions of solving that problem was going on. In fact when the project

was implementing all suggestions were kept in mind. In the entire study suggestions are

written accordingly.

Following are the additional suggestions:-

Company should train to the dealer with modern technique so that the dealer can deal

with customer effectively and made customer loyal.

Company should focus on international level, national level as well as regional level

advertisement so that product takes position in the mind of the target customer which

will increase the sales of the company.

Company should take interest to advertise the product at different medium of

communication such as television, magazine, newspaper, board hording. So that

customer makes aware about the brand.

Some products of the company has vast difference in price in comparison to other

competitor so the company should give some discount on those sizes.

Company should improve its customer relationship through delivering qualitative

product & services because customer relationship is a process to sustain our exiting

customer and increase new customer.

The use of new technology like computer should be adopted on a large scale by the

plant to save the time.

The suggestions of employees should take in decision-making and also at the time of

new appointment, to motivate the existing employees.

Proper allocation of all the system should be done by passing one copy to each and

every individual of the company.

Proper training should be given to the employees before implementation.

There should be proper delegation of authority to the person to whom work is

assigned.

Hierarchy should be followed at all level in the organization so that every task can be

done systematically.

Checklist for every system should be filled by the people while starting or execution

of any process, so that any step will not skip.

Proper formats of every system should be available to them.

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Every system should be followed according to the prescribed time line in the new

system, which helps in completing the job on time.

All above suggestions should be considered to make study more effective and efficient.

CONCLUSION

In this project problems regarding accounting system were studied and sorted out. Crucial

thing about this project is this project has been converted into reality by implementation it

during study. Physically work was done by me during the study to implement the project

successfully. It is the biggest success of the project.

More things about conclusion are as follows:

1. Under modified accounting system everything is systematized. If this system is

followed with proper care and directed Instruction Company can AVOID the late and

wrong delivery of goods.

2. With the help of this project, company can save the extra charges for late or wrong

elivery of goods.

3. With the help of this project, each job work can be easily identified and system for

each and individual process can be done in the proper format.

4. Under this project, checklist is prepared by me which is helpful for the company

make the crosschecking of the whole process, which helps in completing the work on

TIME.

Accounting System is an essential part of management in a trading concerns as in the

study organization is in trading and servicing business. Various major problems were also

sorted out which helped the organization to cope up with the situation.

At the time of implementation of the project due attention was paid that there should be little

but effective and efficient change in the existing system, so that it can be more adjustable for

the employees of the company. Resistance to change from the part of employee was taken in

to account as employees have been working for a long time. For few days it was observed

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whether they are following the system as instructed. It was found system is working in good

condition.

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BIBLIOGRAPHY

BIBLIOGRAPHY

Millian J. Geode & Paul K. Hatl, Methods in Research, McGraw Hills, New Delhi.

Uma Shekhran, Business Research Method, Wiley Education Singapore.

Kothari, C.R., Research Methodology

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Kotler Philip and Keller, Marketing Management, PHI, New Delhi.

Kotler, Philip and Jha, Marketing Management in South Asia Perspective, Pearson

Education, New Delhi

Kerin, Hartley, Berkowtz and Rudelius, Marketing, TMH, New Delhi. Pandey, I.M.,

Financial Management, Vikas Publishing House New Delhi.

Keown, Arthur, J. Martin, John D., Petty, J. William and Scott David F.

Khan, M.Y., and Jain P.K., Financial Management, Tata McGraw

Hill, New Delhi.

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ANNEXURES

Annexures

1. Name of the company:ESCORTS LIMITED, AGRI MACHINERY GROUP.

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2. REGISTERED OFFICE: 11, SCINDIA HOUSE, CONNAUGHT CIRCUS, NEW

DELHI

3. WEBSITE; www. Escortsagri. Com

4. CHAIRMAN ,CEO AND SENIOR EXECUTIVE: MR. RAJAN NANDA

5. CHIEF HUMAN RESOURCE MANAGER: MR. YASH YADAV

HISTORIES AND CURRENT PROFILE1.PROMOTERS: MR. H.P. NANDA

2.TOTAL NO. OF EMPLOYEES: APPROX. 5,000

3. BUSINESS TURNOVER: RS. 1,000 CRORE

4. CURRENT BUSINESS ACTIVITIES (NATIONAL & INTERNATIONAL):

TRACTOR MANUFACTURING, TRACTOR EXPORTING ETC.

o MARKETING DATA

o PRODUCT : AGRICULTURAL MACHINERY

o COMPETITORS:

o MAHINDRA& MAHINDRA (M&M)

o EICHER

o SONALIKA

o PUNJAB TRACTOR LIMITED (PTL)

MARKETING STRATEGY: CONFIDENTIAL I.T. APPLICATION: ORACLE -11i

Statement of Profit and loss for the year ended 30 th sep, 2012

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Particulars Notes Year ended Year ended

30.09.2012 30.09.2011

Income

Revenue from operations 20 3997.20 3264.12

(gross)

Less: excise duty 103.32 25.96

Revenue from operations 3893.88 3238.16

(Net)

Other income 21 48.90 41.66

Total Revenue(I) 3942.78 3279.82

Expenses

Cost of raw material and 22 2674.60 2110.35

Components consumed

Purchase of traded goods 23 227.73 239.94

Changes in inventories 24 (57.81) (34.87)

Of finished goods, work-

In progress and traded

Goods

Employee benefits 25 406.12 327.93

Finance costs 26 96.44 55.77

Depreciation and amortization 27 48.43 37.97

Other expenses 28 461.00 446.76

Total expenses (II) 3856.51 3183.85

Profit before exceptional 86.27 95.97

Items and tax(I-II)

Year ended Year ended

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Particulars Notes 30.09.2012 30.09.2011

Exceptional items 29 (1.68) (4.65)

Profit before tax 87.95 100.62

Tax expense:

Current tax 19.47 30.37 Minimum alternative (14.31) -

Tax entitlement Excess provision - (38.49)

For earlier yearsWritten back

Deferred tax 13.19 (11.35)

Profit for the year 69.60 120.09Earning per share(in Rs.) (face valueRs. 10/- each)

- Basic 5.84 11.74- Diluted 5.84 11.66

Summary of significant 2.1

Accounting policies

Balance sheet as at 30 th sep, 2012

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As at As at Notes 30.09.2012

30.09.2011 30.09.2011

EQUITY AND LIABILITIES

Shareholder’s funds 3 119.27 102.31Reserves and surplus 4 1494.69 1696.23

Non-current liabilities

Long- term borrowing 5 169.65 196.49Other long-term borrowing 7 24.71 19.37Long-term provisions 8 117.63 10.32

Current Liabilities

Short-term borrowing 9 290.28 89.35Trade Payables 10 884.55 702.04Other current liabilities 11 234.07 221.67 Short-term provisions 8 81.06 99.38

Total 3415.91 3137.16

ASSETSNon-current assets

Fixed assets 12 -Tangible assets 1575.60 1456.02 -Intangible assets 10.65 5.86 -Capital work in progress 53.74 40.99 -Intangible assets under 12.75 4.28 Development Non-current investments 13 382.26 365.80Deferred tax/assets/(liabilities) 6 (2.81) 16.44(Net) Long-term loans and advances 14 25.61 43.13Other non-current assets 15 98.17 97.82 Current assetsCurrent investments 16 3.65 -Inventories 17 496.61 327.36Trade Receivables 18 445.44 340.53Cash and Bank balance 19 130.57 203.43Short-term loans and advances 14 181.96 233.06Other current assets 15 1.71 2.44

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Total 3415.91 3137.16

Summary of significant accounting 2.1 policies

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