Working Capital Management (Ashok Leyland 2010-11) (Further Information Contact Jeetesh.s@itm - Edu)

A REPORT ON
STUDY OF WORKING CAPITAL MANAGEMENT AND

FORECASTING WORKING CAPITAL REQUIREMENT OF
ASHOK LEYLAND LTD
SUBMITTED BY
Jeetesh Kumar
(CH2009PGDM15F76)
The Report is submitted as partial fulfillment of the requirement of PGDM
programme of ITM Business School, Siruseri, Chennai.
Institute for Technology and Management Business School.

Siruseri, Chennai
June 2010
ACKNOWLEDGEMENT
It gives me immense pleasure to present this project report on

Working Capital Management carried out at ASHOK LEYLAND Ltd. In
partial fulfillment of post-graduate course PGDM.
No work can be carried out without the help and guidance of various
persons. I am happy to take this opportunity to express my gratitude to those
who have been helpful to me in completing this project report.
At the outset I would like to tha nk my Director Dr. G.K.

Sharma (ITM Chennai) & Mr. R. Venugopal (GM Finance Ashok Leyland)
for this wonderful opportunity. I am very grateful to MR. R. Venkatachalam
(Dy. Manager Finance) and Mr. R. Padmanabhan (Faculty Guide) for
timely help concerning various aspects of project. I also thanks to all staff
members of account department for help me to complete the summer
internship program.
I would be failing in my duty if I do not express my deep sense of

gratitude to Prof. V.S.Kumar sir without his guidance it wouldn‟t have
been possible for me to complete this project work.
Lastly I would like to thank my parents, friends and well wishers who
encouraged me to do this research work and all those who contributed directly
Or indirectly in completing this project to whom I am highly obliged to.
Jeetesh Kumar
TABLE OF CONTENTS
CHAPTER TITLE PAGE

NUMBER NUMBER
Cover & Title Page
Certificate from SIP Company i
Acknowledgements ii
Synopsis iii
List of Tables & Charts ix
2 WORKING CAPITAL MANAGEMENT 1

2.1 Introduction 2
2.2 Need Of Working Capital 3
2.3 Gross W.C and Net W.C. 3
2.4 Types Of Working Capital 5
2.5 Determinants Of Working Capital 6
2.6 Ratio analysis 10
3 COMPANY PROFILE 12
3.1 Introduction 13
3.2 Industry & Company Profile 13 & 16
3.3 History And Origin 24
3.4 Vision 24
3.5 Mission 24
3.6 Values 24
3.7 Policies 26
3.8 Product Profile 28
4 DATA ANALYSIS AND INTERPRETATION 29

4.1 WORKING CAPITAL ANALYSIS 30
4.2 MANAGING WORKING CAPITAL 44
4.2.1 INVENTORY MANAGEMENT 44
4.2.2 RECEIVABLES MANAGEMENT 62
4.2.3 CASH MANAGEMENT 71
4.3 OPERATING CYCLE 78
5 FORECASTING 80
5.1 TIME SERIES ANALYSIS 81
5.2 LEAST SQUARE METHOD 81
5.3 FORECAST FOR 2009-10 82
5.4 ESTIMATION OF SCHEDULE OF 89
CHANGES OF WC
6 FINDINGS 91
7 RECOMMENDATIONS 95
CONCLUSION 96
8 BIBLIOGRAPHY 100
ANNEXURE 101
Synopsis
1. The Background
2. The Problem Statement
3. Objectives Of The Study
4. Method
5. Scope Of The Study
6. Limitations Of The Study
7. Chapters Scheme
8. Expectations From Study
1.1. THE BACKGROUND:
A project entitled “A study on working capital management of Ashok

Leyland ltd, Chennai” was carried out with an intention to analyze the utilization
of working capital. The study helps to know the level of current asset and current
liability. Various analytical tools is been used to analyze and to make inference.
Findings are based on the analysis; the major finding was that the company has a
good liquidity position and profit percentage. Based on the findings various
suggestions have been given for the further improvement of the effective
utilization of the working capital.
1.2. THE PROBLEM STATEMENT:
Managing working capital in a manufacturing firm is very difficult and

risky position. It is required to maintain the liquidity position of any firm to be
good. This is the main problem for all firms. So, components of working capital
like inventory management, cash management and receivables management should
be managed well.
1.3. OBJECTIVE OF THE STUDY:
Study of the working capital management is important because

unless the Working capital is managed effectively, monitored efficiently planed
properly And reviewed periodically at regular intervals to remove bottlenecks if
any the Company cannot earn profits and increase its turnover. With this primary
Objective of the study, the following further objectives are framed for a depth
Analysis.
• To study the working capital management of Ashok Leyland Ltd.
• To study the optimum level of current assets and current liabilities of the
Company.
• To study the liquidity position through various working capital related

Ratios.
• To study the working capital components such as receivables accounts, Cash

management, Inventory position.
• To study the way and means of working capital finance of the Ashok
Leyland Ltd.
• To estimate the working capital requirement of Ashok Leyland Ltd
• To study the operating and cash cycle of the company.
1.4. METHOD:
1.4.1 INTRODUCTION:
Research methodology is a way to systematically solve the research

problem. It may be understood as a science of studying now research is
done systematically. In that various steps, those are generally adopted by a
researcher in studying his problem along with the logic behind them.
It is important for research to know not only the research method but
also know methodology. The procedures by which researcher go about their
work of describing, explaining and predicting phenomenon are called
methodology. Methods comprise the procedures used for generating, collecting and
evaluating data. All this means that it is necessary for the researcher to
design his methodology for his problem as the same may differ from problem to
problem. Data collection is important step in any project and success of any
project will be largely depend upon now much accurate you will be able to collect
and how much time, money and effort will be required to collect that necessary
data, this is also important step. Data collection plays an important role in research
work. Without proper data available for analysis you cannot do the research work
accurately.
1.4.2) TYPES OF DATA COLLECTION:
There are two types of data collection methods available.
• Primary data collection
• Secondary data collection

1.4.2.1) Primary Data:
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal
interview, questionnaire etc. to support the secondary data.
1.4.2.2) Secondary Data Collection Method:
The secondary data are those which have already collected and stored.
Secondary data easily get those secondary data from records, journals, annual
reports of the company etc. It will save the time, money and efforts to collect the
data. Secondary data also made available through trade magazines, balance sheets,
books etc.
This project is based on primary data collected through personal interview of head
of account department, head of SQC department and other concerned staff member
of finance department. But primary data collection had limitations such as matter
confidential information thus project is based on secondary information
collected through five years annual report of the company, supported by
various books and internet sides. The data collection was aimed at study of
working capital management of the company
Project t is based on
• Annual report of Ashok Leyland ltd 2004-05

1.5. SCOPE OF THE STUDY:
The scope of the study is identified after and during the study is conducted. The
Study of working capital is based on tools like trend Analysis, Ratio Analysis,
Working capital leverage, operating cycle etc. Further the study is based on last 5
years Annual Reports of Jain Irrigation Systems Ltd. And even factors like
Competitor‟s analysis, industry analysis were not considered while preparing this
project.
1.6. LIMITATIONS OF THE STUDY:
Following limitations were encountered while preparing this project:
1.6.1) Limited data:-
This project has completed with annual reports; it just constitutes one part of Data
collection i.e. Secondary. There were limitations for primary data Collection
because of confidentiality.
1.6.2) Limited period:-
This project is based on five year annual reports. Conclusions and

Recommendations are based on such limited data. The trend of last five year May
or may not reflect the real working capital position of the company
1.6.3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their
Financial information. Industry figures were also difficult to get.
1.7. CHAPTER SCHEME:
 Chapter 1 deals with the synopsis of the project report, it tends to include
problem statement, research method, objectives, scope and limitations of the
study.
 Chapter 2 relates to the introduction. It tends to give the short description
about the project which has been already dealt with the same topic.
 Chapter 3 covers complete profile of the company. It tends to include the

industry profile and all details about the company.
 Chapter 4 deals with analysis of the data which is being collected from the
company, and also about the inference of the data. It also includes the
forecasting of the various datas.
 Chapter 5 deals with the analysis and calculation of forecasted sales, cash
etc. and schedule of changes in WC.
 Chapter 6 relates to the findings from the data, and deals with suggestions
given by the researcher.
 Chapter 7covers the conclusion, which gives the ultimate result of the
study.
 Chapter8 deals with Bibliography, it includes the various sources from

which information is collected, and the annexure.
1.8. EXPECTATION FROM STUDY:
 To be able know the financial position of the company.

 To be able know the working capital requirement of the company.
 To be capable to help the company in making better decisions.
TABLE PAGE
S.NO: TITLE
NO: NO:
1 SCHEDULE OF CHANGES IN WC FOR 2005-06 1 30
6 NET WORKING CAPITAL RATIO 6 36
7 WC TURNOVER RATIO 7 37
8 CURRENT ASSETS TO TOTAL ASSETS RATIO 8 38
CURRENT LIABILITIES TO TOTAL LIABILITIES
9 9 39
RATIO
10 CURRENT RATIO 10 40
11 LIQUID RATIO 11 41
12 GROSS PROFIT RATIO 12 42
13 NET PROFIT RATIO 13 43
14 INVENTORY TURNOVER RATIO 14 53
15 INVENTORY HOLDING PERIOD 15 54
16 RAW MATERIALS TURNOVER RATIO 16 55
17 RAW MATERIALS HOLDING PERIOD 17 56
18 WIP TURNOVER RATIO 18 57
19 WIP HOLDING PERIOD 19 58
20 FINISHED GOODS TURNOVER RATIO 20 59
21 FINISHED GOODS HOLDING PERIOD 21 60
22 INVENTORY TO CURRENT ASSETS 22 61
23 RECEIVABLES TURNOVER RATIO 23 65
24 DEBTORS COLLECTION PERIOD 24 66
25 AVERAGE INVESTMENT IN RECEIVABLES 25 67
26 CREDITORS TURNOVER RATIO 26 68
27 CREDIT COLLECTION PERIOD 27 69
28 RECEIVABLES TO CA RATIO 28 70
29 CASH TURNOVER RATIO 29 74
30 CASH HOLDING PERIOD 30 75
31 CASH RATIO 31 76
32 CASH TO CA RATIO 32 77
33 OPERATING CYCLE 33 78
34 SALES FORECAST 34 82
35 INVENTORY FORECAST 35 83
36 CASH FORECAST 36 84
37 SUNDRY DEBTORS FORECAST 37 85
38 LOANS AND ADVANCES FORECAST 38 86
39 LIABILITIES FORECAST 39 87
40 PROVISIONS FORECAST 40 88
41 ESTIMATION OF SCHEDULE OF CHANGES OF WC 41 89
CHART PAGE
S.NO: TITLE
NO: NO:
1 NET WORKING CAPITAL RATIO 1 36
2 WC TURNOVER RATIO 2 37
3 CURRENT ASSETS TO TOTAL ASSETS RATIO 3 38
CURRENT LIABILITIES TO TOTAL LIABILITIES
4 4 39
RATIO
5 CURRENT RATIO 5 40
6 LIQUID RATIO 6 41
7 GROSS PROFIT RATIO 7 42
8 NET PROFIT RATIO 8 43
9 INVENTORY PROPORTION 9 51
10 COMPONENTS OF INVENTORY 10 52
11 INVENTORY TURNOVER RATIO 11 53
12 INVENTORY HOLDING PERIOD 12 54
13 RAW MATERIALS TURNOVER RATIO 13 55
14 RAW MATERIALS HOLDING PERIOD 14 56
15 WIP TURNOVER RATIO 15 57
16 WIP HOLDING PERIOD 16 58
17 FINISHED GOODS TURNOVER RATIO 17 59
18 FINISHED GOODS HOLDING PERIOD 18 60
19 INVENTORY TO CURRENT ASSETS 19 61
20 RECEIVABLES TURNOVER RATIO 20 65
21 DEBTORS COLLECTION PERIOD 21 66
22 AVERAGE INVESTMENT IN RECEIVABLES 22 67
23 CREDITORS TURNOVER RATIO 23 68
24 CREDIT COLLECTION PERIOD 24 69
25 RECEIVABLES TO CA RATIO 25 70
26 CASH TURNOVER RATIO 26 74
27 CASH HOLDING PERIOD 27 75
28 CASH RATIO 28 76
29 CASH TO CA RATIO 29 77
30 OPERATING CYCLE 30 79
31 SALES FORECAST 31 82
32 INVENTORY FORECAST 32 83
33 CASH FORECAST 33 84
34 SUNDRY DEBTORS FORECAST 34 85
35 LOANS AND ADVANCES FORECAST 35 86
36 LIABILITIES FORECAST 36 87
37 PROVISIONS FORECAST 37 88
Chapter 2
Working capital
management
1. Introduction
2. Need Of Working Capital
3. Gross W.C and Net W.C.
4. Types Of Working Capital
5. Determinants Of Working Capital
6. Ratio analysis
INTRODUCTION
WORKING CAPITAL MANAGEMENT
Working capital management is concerned with the problems arise

in attempting to manage the current assets, the current liabilities and the
inter Relationship that exist between them. The term current assets refers to
those Assets which in ordinary course of business can be, or, will be, turned in
to cash within one year without undergoing a diminution in value and
without Disrupting the operation of the firm. The major current assets are
cash, marketable securities, account receivable and inventory. Current liabilities
ware those liabilities which intended at their inception to be paid in ordinary
course of business, within a year, out of the current assets or earnings of the
concern. The basic current liabilities are account payable, bill payable, bank
over-draft, and outstanding expenses. The goal of working capital management
is to manage the firm s current assets and current liabilities in such way that the
satisfactory level of working capital is mentioned. The current should be large
enough to cover its current liabilities in order to ensure a reasonable margin of
the safety.
Definition:-
According to Guttmann & Dougall-
“Excess of current assets over current liabilities”
According to Park & Gladson-
“The excess of current assets of a business (i.e. cash, accounts

receivables, inventories) over current items owned to employees and others
(such as salaries & wages payable, accounts payable, taxes owned to
Government)
2.1 NEED OF WORKING CAPITAL MANAGEMENT
The need for working capital gross or current assets cannot be
over emphasized. As already observed, the objective of financial decision
making is to maximize the shareholders wealth. To achieve this, it is necessary
to generate sufficient profits can be earned will naturally depend upon the
magnitude of the sales Among other things but sales cannot convert into cash.
There is a need for working capital in the form of current assets to deal
with the problem arising out of lack of immediate realization of cash
against goods sold. Therefore sufficient working capital is necessary to
sustain sales activity. Technically this is refers to operating or cash cycle. If the
company has certain amount of cash, it will be required for purchasing the raw
material may be available on credit basis. Then the company has to spend
some amount for labor and factory overhead to convert the raw material
in work in progress, and ultimately finished goods. These finished goods
convert in to sales on credit basis in the form of sundry debtors. Sundry debtors
are converting into cash after expiry of credit period. Thus some amount of
cash is blocked in raw materials, WIP, finished goods, and sundry debtors
and day to day cash requirements. However some part of current assets may be
financed by the current liabilities also. The amount required to be invested in
this current assets is always higher than the funds available from current
liabilities. This is the precise reason why the needs for working capital arise
2.2 GROSS WORKING CAPITAL AND NET WORKING

CAPITAL
There are two concepts of working capital management
1) Gross Working Capital

Gross working capital refers to the firm‟s investment I current assets.
Current Assets are the assets which can be convert in to cash within year
includes cash, Short term securities, debtors, bills receivable and inventory.
2) Net Working Capital:

Net working capital refers to the difference between current assets
and current Liabilities. Current liabilities are those claims of outsiders which
are expected to mature for payment within an accounting year and include
creditors, bills payable and outstanding expenses. Net working capital can
be positive or negative.
Efficient working capital management requires that firms

should operate with some amount of net working capital, the exact amount
varying from firm to firm and depending, among other things; on the nature
of industries.net working capital is necessary because the cash outflows
and inflows do not coincide. The cash outflows resulting from payment of
current liabilities are relatively predictable. The cash inflow are however
difficult to predict. The more predictable the cash inflows are, the less net
working capital will be required.
The concept of working capital was, first evolved by Karl Marx.

Marx used the term variable capital means outlays for payrolls advanced to
workers before the completion of work. He compared this with constant capital
which according to him is nothing but dead labor. This variable capital is
nothing wage fund which remains blocked in terms of financial management,
in work- in-process along with other operating expenses until it is released
through sale of finished goods. Although Marx did not mentioned that
workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of W.I.P, the concept of working capital, as
we understand today was embedded in his variable capital .
2.4 Types of Working Capital:
The operating cycle creates the need for current assets (working capital).
However the need does not come to an end after the cycle is completed
to explain this continuing need of current assets a destination should be
drawn between permanent and temporary working capital.
1) Permanent Working Capital:

The need for current assets arises, as already observed, because of the
cash cycle. To carry on business certain minimum level of working
capital is necessary on continues and uninterrupted basis. For all practical
purpose, this requirement will have to be met permanent as with other
fixed assets. This requirement refers to as permanent or fixed working capital.
2) Temporary Working Capital:

Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable, working capital. This portion of the required
working capital is needed to meet fluctuation in demand consequent upon
changes in production and sales as result of seasonal changes
Graph shows that the permanent level is fairly castanet; while temporary
working capital is fluctuating in the case of an expanding firm the permanent
working capital line may not be horizontal. This may be because of changes in
demand for permanent current assets might be increasing to support a rising level
of activity
2.5 DETERMINANTS OF WORKING CAPITAL:
The amount of working capital is depends upon following factors:
1) Nature Of Business:
Some businesses are such, due to their very nature, that their requirement
of fixed capital is more rather than working capital. These businesses sell
services and not the commodities and that too on cash basis. As such, no
founds are blocked in piling inventories and also no funds are blocked in
receivables. E.g. public utility services like railways, infrastructure oriented
project etc. There requirement of working capital is less. On the other hand,
there are some businesses like trading activity, where requirement of fixed
capital is less but more money is blocked in inventories and debtors.
2) Length Of Production Cycle:
In some business like machine tools industry, the time gap between the
acquisition of raw material till the end of final production of finished products
itself is quite high. As such amount may be blocked either in raw
material or work in progress or finished goods or even in debtors. Naturally
there need of working capital is high.
3) Size And Growth Of Business:
In very small company the working capital requirement is quit high due to high
overhead, higher buying and selling cost etc. As such medium size business
positively has edge over the small companies. But if the business start growing
after certain limit, the working capital requirements may adversely affect by the
increasing size.
4) Business/ Trade Cycle:
If the company is the operating in the time of boom, the working

capital requirement may be more as the company may like to buy more raw
material, may increase the production and sales to take the benefit of
favorable market, due to increase in the sales, there may more and more amount
of funds blocked in stock and debtors etc. similarly in the case of
depressions also, working capital may be high as the sales terms of value
and quantity may be reducing, there may be unnecessary piling up of stack
without getting sold, the receivable may not be recovered in time etc.
5) Terms Of Purchase And Sales:
Some time due to competition or custom, it may be necessary for the company
to extend more and more credit to customers, as result which more and
more amount is locked up in debtors or bills receivables which increase the
working capital requirement. On the other hand, in the case of purchase, if the
credit is offered by suppliers of goods and services, a part of working
capital requirement may be financed by them, but it is necessary to
purchase on cash basis, the working capital requirement will be higher.
6) Profitability:
The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability
will positively reduce the strain on working capital requirement of the
company, because the profits to the extent that they earned in cash may be
used to meet the working capital requirement of the company.
7) Operating Efficiency:
If the business is carried on more efficiently, it can operate in profits

which may reduce the strain on working capital; it may ensure proper
utilization of existing resources by eliminating the waste and improved
coordination etc.
8) Seasonal Variations:
Generally, during the busy season, a firm requires larger working capital
than in slack season.
9) Working Capital Cycle:
The speed with which the working cycle completes one cycle determines the
requirements of working capital. Longer the cycle larger is the requirement
of working capital.
10) Rate of stock turnover:
There is an inverse co-relationship between the question of working capital

and the velocity or speed with which the sales are affected. A firm having a
high rate of stock turnover will needs lower amt. of working capital as
compared to a firm having a low rate of turnover.
11) Credit Policy:
A concern that purchases its requirements on credit and sales its product /
services on cash requires lesser amt. of working capital and vice-versa.
12) Earning Capacity And Dividend Policy:
Some firms have more earning capacity than other due to quality of their
products, monopoly conditions, etc. Such firms may generate cash profits
from operations and contribute to their working capital. The dividend policy
also affects the requirement of working capital. A firm maintaining a steady
high rate of cash dividend irrespective of its profits needs working capital
than the firm that retains larger part of its profits and does not pay so high
rate of cash dividend.
13) Price Level Changes:
Changes in the price level also affect the working capital requirements.
Generally rise in prices leads to increase in working capital.
2.6 RATIO ANALYSIS
A. WORKING CAPITAL RATIOS:
Turnover ratios:
Working capital turnover ratio= sales/working capital
Liquidity ratios:
Current ratio=current assets/current liabilities
Quick ratio= quick assets/current liabilities
Profitability ratios:
Gross profit ratio=gross profit/net sales*100
Net profit ratio=net profit/net sales*100
B. INVENTORY MANAGEMENT RATIOS:
Inventory turnover ratio=sales/average inventory
Inventory holding period=360/inventory turnover ratio
Raw materials turnover ratio= raw materials/average raw materials

Raw material holding period=360/RM turnover ratio
Work in progress turnover ratio= cost of production/average WIP (Cost of

production=WIP closing stock-WIP opening stock+ depreciation +
purchases+ employee wages power and fuel +consumption)
WIP holding period=360/WIP TR
FG turnover ratio=CGS/average FG
FG holding period=360/FG TR
C. RECEIVABLES MANAGEMENT RATIOS:
Debtors turnover ratio=sales/average debtors
Debtors collection period=360/DTR
Creditors turnover ratio= credit purchases/average creditors
Creditors holding period=360/CTR
D. CASH MANAGEMENT RATIOS:
Cash ratio=cash and bank balances/CL
Cash turnover ratio=sales/average cash and bank balances

Chapter 3
COMPANY PROFILE
1. Introduction
2. Industry & Company Profile
3. History And Origin
4. Vision
5. Mission
6. Values
7. Policies
8. Product Profile
3.1 INTRODUCTION:
In 1948, when independent India was one year old, Ashok Leyland was
established. We were Ashok Motors then, assembling Austin cars at the first plant,
at Ennore near Chennai. In 1950 started assembly of Leyland commercial vehicles
and soon local manufacturing under license from British Leyland. With British
Leyland participation in the equity capital, in 1954, the Company was rechristened
Ashok Leyland.
Since then Ashok Leyland has been a major presence in India's commercial vehicle
industry. These years have been punctuated by a number of technological
innovations which went on to become industry standards. This tradition of
technological leadership was achieved through tie-ups with international
technology leaders and through vigorous in-house R&D.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The
375,000 vehicles we have put on the roads have shared the additional pressure
placed on road transportation in independent India.
The share of goods movement by road rose from 12% in 1950 to 60% in 1995. In
passenger transportation, the jump is equally dramatic: from 25% to 80%. At 60
million passengers a day, Ashok Leyland buses carry more people than the entire
Indian rail network. In the populous Indian metros, four out of the five State
Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like
double Decker and vestibule buses are unique models from Ashok Leyland, tailor-
made for high density routes.
In 1987, the overseas holding by LRLIH (Land Rover Leyland International

Holdings Limited) was taken over by a joint venture between the Hinduja Group,
the Non-Resident Indian transnational group and IVECO Fiat Spa, part of the Fiat
Group and Europe's leading truck manufacturer.
Global Standards, Global Markets the blue-print prepared for the future reflected
the global ambitions of the Company, captured in four words: Global Standards,
Global Markets (Liberalization and globalization were not yet in the air). Buoyed
by the backing of the two international giants, Ashok Leyland embarked on a
major product and process technology up gradation to world-class standards of
technology.
In the journey towards global standards of quality, Ashok Leyland reached a

milestone in 1993 when it became the first in India's automobile industry to win
the ISO 9002 certification. The more comprehensive ISO 9001 certification came
in 1994. 1994 was also the year, when international technology changed the way
India perceived trucks. The year when a new breed of world class trucks -
technologically superior and eco-friendly - rolled out on Indian roads. From our
state-of-the-art manufacturing Plant at Hosur, near Bangalore. They carried the
name Cargo. Cargo brought with it, a new set of values and an unmatched basket
of benefits, ushering in a change.
3.2 INDUSTRY PROFILE:
The automobile industry in India is the tenth largest in the world with an annual
production of approximately 2 million units – is expected to become one of the
major global automotive industries in the coming years. A number of domestic
companies produce automobiles in India and the growing presences of
multinational investment, too has led to an increase in overall growth following the
economic reforms of 1991 the Indian growth as a result of increased
competiveness and relaxed restrictions.
History:
In 1953, the Govt of India and the Indian private sector initiated manufacturing
processes to help develop the automobile industry, which had emerged by the
1940‟s in a nascent form. Between 1940 to the economic liberalization of 1991, the
automobile industry continued to grow at a slow pace due to the many govt
restrictions. Japanese manufacturers entered the Indian market ultimately leading
to the establishment of Maruti udyog. A number of foreign firms joint ventures
with Indian companies.
Indian Automobile Companies:
1. Ashok Leyland ltd

2. Force motors
3. Hindustan motors
4. Mahindra & Mahindra ltd
5. Maruthi Suzuki
6. Tata motors
Market Share:
COMPANY MARKET SHARE

1.Tata Motors 60.2
2.Ashok Leyland Ltd 28.4
3.Others 11.4
Table: 1
MARKET SHARE
tata motors ashok leyland ltd others
12%
28%
60%
Chart: 1
(Source: from company internal presentations)
Multinational Companies in India:

1. Fiat
2. Ford motors
3. General motors
4. Honda
5. Hyundai
6. Mercedes-Benz
7. Mitsubishi motors
3.3 COMPANY PROFILE:

ENNORE PLANT:
(My project was carried in ennore plant located in Chennai.)
Ashok Leyland has six manufacturing plants - the mother plant at Ennore near
Chennai, two plants at Hosur (called Hosur I and Hosur II, along with a Press
shop), the assembly plants at Alwar and Bhandara. The total covered space at these
six plants exceeds 450,000 sq m and together employs over 11,500 personnel.
(Source: www.ashokleyland.com)
Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mother Plant
accounting for over 40% ALL production. The plant manufactures a wide
range of vehicles and house production facilities for important aggregates such as
Engines, Gear Box, Axles and other key in-house components. Number of
employees in ennore plant are 4146 and number of models manufactured are 132.
Ashok Leyland is the flagship company of the hinduja group and is the second
largest manufacturer of commercial vehicles in India.
Ashok motor was set up in 1948 for the assembly of Austin cars. The company
name and objective changed with equity participation by British Leyland and
Ashok Leyland commenced manufacturer of commercial vehicles in 1955. It has
since than grown as a reputed manufacturer of quality automotive products ranging
from light commercial vehicles to heavy duty vehicles and for automotive,
industrial and marine applications. In 1987, the overseas hold by Land Rover
Leyland International Holidays Ltd(LRLIH) was taken over by a joint venture
between the Hinduja group, Non-Resident Indian Transitional group and IVECO
(since July 2006,the Hinduja group is 100% stake holder of LRLIH). Ashok
Leyland also acquired truck business unit of Avia, Prague (Czech Republic
effective 19-10-06).
The products of the company are of proven design for durability and reliability and
are hence very popular both in Indian and overseas markets. In recent years the
product range is upgraded in to the latest technological development in the world,
for which the company has the technical support from IVECO (FIAT group),
Italy for manufacture of IVECO cargo range of vehicles; Hino Motors, Japan for
manufacture of fuel efficient engines; and ZF , Germany for manufacture of
synchromesh gear boxes.
In the journey towards the Global standard of Quality , Ashok Leyland has reached
a major milestone in 1993 , when it became the first in India‟s automobile industry
to win ISO 9002 Certification. The more comprehensive ISO 9001 certification
came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle
manufacturing units in 2002. It has also become the first Indian automobile
company to receive the latest ISO/TS 16949 corporate certification which is
specific to the auto company.
The company has the corporate office register at Chennai.
The marketing headquarter is at Chennai and the sales and services network, dealer
network and spare parts warehouse spread throughout India with regional sales
office and services centre located in all major cities and towns in the country. The
products are also exported to a range of overseas countries.
The marketing personal maintain constant interaction with customers for
application development and feedback for continuous improvement of the
products. The services function is carried out by qualified personal whose skills are
continuously upgraded through training to meet the servicing requirements of
newer or improved products. The design function is carried out by the product
Development Division operating through 4 centres viz. Product Development
(Ennore) for R&D related to Ashok Leyland engines, Technical centre
vellivoyalchavadi for design, proto-type developments of vehicle, vehicles and
components testing; Engine R&D (Hosur) for design and development of Hino
engines and Advanced Engineering (Chennai) for research related to future
products.
The manufacturing units of the company are located at Ennore (TN), Hosur
(TN), Alwar (Rajasthan) and Bhandara (MR). The Ennore , Hosur (plant - 1),
Hosur (plant-ii), Ambattur , Alwar and Bhandara manufacturing units are certified
ISO 9001:2000 and QS 9000:1998 certification by Indian register Quality system.
The company is also certified to ISO 14001:2000 – Environmental Management

System for all the manufacturing units. The Bhandara unit of the company has won
the “Golden Peacock Environmental Award 2002” of the world Environmental
Foundation in the “Large/manufacturing “category.
Ashok Leyland is also the 1st auto mobile company to receive the ISO/TS 16949
corporate certification in June 2006. TS 16949 reckon the nuances of automobile
Industry and is more customer centric. It integrates the salient concepts of all the
QMS standards has been accepted recognized and followed by all automobiles
manufactures in USA , Europe and Asia.
Ashok Leyland has also obtained ISO 27001 certificates for its Ennore Data canter
and Advanced Engineering group located in Chennai. Ennore data centre obtained
the certificate in May 2005 and advanced engineering in April 2007.
HISTORY AND ORIGIN:
The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by
independent India. Pandit Jawaharlal Nehru, India's first Prime Minister
persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive
manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the
assembly of Austin Cars. The Company's destiny and name changed soon with
equity participation by British Leyland and Ashok Leyland commenced
manufacture of commercial vehicles in 1955
(Source: www.ashokleyland.com)
Since then Ashok Leyland has been a major presence in India's commercial vehicle
industry with a tradition of technological leadership, achieved through tie-ups
with international technology leaders and through vigorous in-house R&D.
Access to international technology enabled the Company to set a tradition to be

first with technology. Be it full air brakes, power steering or rear engine busses,
Ashok Leyland pioneered all these concepts. Responding to the operating
conditions and practices in the country, the Company made its vehicles strong,
over-engineering them with extra metallic muscles. "Designing durable products
that make economic sense to the consumer, using appropriate technology", became
the design philosophy of the Company, which in turn has moulded consumer
attitudes and the brand personality.
The Company was incorporated on 7th September 1948, at Chennai. At first, they
Manufacture Comet Chassis and Leyland „Tiger‟ and „Titan‟ Chassis and Leyland
Diesel Engines. In July 1955, the name of the Company Was changed from Ashok
Motors Ltd., to Ashok Leyland Ltd.
In June 1956, 4 lakh shares allotted to Leyland Motors. In November 11 lakhs

share issued at par 15, 03,456 shares as rights in prop. 19:40 & 5,96,544 shares to
Leyland Motors to maintain their holding at 40%.Afterwards the Company Issued
many Share allotments and developing their growth.
In February 1979, the Company made a public issue of 49, 61,349 No. of equity
shares of Rs.5 each at a premium of Rs.3 per share.
In 1980, with the collaboration, the Company embarked on a programme of

manufacture of integral buses. The R & D division was also engaged in developing
a new vehicle prime mover with turbocharged engine which in operation with a
Tandem-Axle trailer would enable a GTW of 26T. The Company also developed a
longer integral bus with larger seating capacity. A technical collaboration
agreement was entered into for the manufacture of synchromesh transmissions to
the designs of Azhnradfabrik Friedrichshafen AG of West Germany.
In 1983, the Company entered into an agreement for a joint venture in Sri Lanka
for the assembly and progressive manufacture of Ashok Leyland vehicles. ACL
proposed to create facilities for body building and assembly of panels for front-end
structures for truck and business in order to cater to the requirements. Then the
Company entered into a technical collaboration with Hino Motor Ltd., Japan for
their „w‟ series engines.
In 1986, DGTD registration for the manufacture of metal cutting and grinding
machines at the Hosur and Alwar plants was obtained. A Prototype of a rear
engine bys chassis according to the specifications laid down by special working
group for use In State Transport Undertakings was acknowledge by the latter
during the year
In 1987, the “Intermediate” vehicle with 4-cylinder HINO engine was introduced
in the market under the brand name “CHITAL”. A test track for endurance testing
of vehicles was also commissioned.
In 1989, the Company introduced Normal Control (Bonneted) vehicle. With
access to superior IVECO TECHNOLOGY, THE Company was evaluating
various contemporary product options that were relevant to the requirements of
Indian road transport industry.
In 1994, the Company issued 10,771,908 GDRs at issue price of US$12.79 per
GDR for a total value of US $137.773 million. Each GDR represents 3 equity
shares of RS. 10 Each.32, 315,724 shares issued through GDRs. The Company
entered into a technical collaboration with Hino Motor Ltd., Japan for their “W”
series Engines.
In 1998, Ashok Leyland has introduced “The Panther”, a low floor bus which has
been indigenously designed to cater to the needs of the common masses and is
based on the parameters set by the Central institute of Road Transport and the
Association of State Road Transport Undertakings. The Ashok Leyland Ltd., the
commercial vehicles major, has entered into an agreement with the leading US-
based management consultant, A T Kearney, to Kick-start the process re-
engineering work in the company‟s various production units. Ashok Leyland
Limited is developing a new range of low floor chassis in the passenger vehicle
sector for more convenient urban transportation. The Ministry of Defence‟s
Vehicle Factory in Jabalpur has signed manufacturing agreements with Ashok
Leyland & Tata Electric and Locomotives Company (Telco) recently.
In 1999, the Company would enter into an alliance with dealers of tractor on a
temporary basis. The Company was talking to tractor manufacturers including
Mahindra & Mahindra, Eicher, TAFE and Punjab Tractors in this connection.
In 2000, the Company launched of two interactive Internet initiatives, one for
domestic parts operations and the other for exports. Ashok Leyland has announced
a voluntary retirement scheme for its “unionized staff”. Ashok Leyland Limited
(ALL) and Maruti Udyog Ltd have been selected for the IRTE National Award,
in recognition of their efforts towards promoting the cause of road safety, traffic
management and environment protection.
In 2001, Commercial vehicles manufacturers Ashok Leyland Ltd., Sundaram

Industries Ltd and Irizar of Spain have formed a joint venture company-Irizar
TVS Ltd for bus body building. The JV Company has been set up with a paid-up
capital of Rs. 75 lakhs with equal contribution from the three partners. Ashok
Leyland‟s Ennore unit has received ISO 14001 certification for its environment
management system from Indian Registrar Quality Systems.
In 2002, Ashok Leyland Ltd has informed that Mr. G. Boschetti ceased to be a
Director on our Board. Mr. Marc Petit also ceased to be an Alternate Director to
Mr. G Boschetti Mr. R Sorce has been appointed as a Director in the place of
Mr. G Boschetti
In 2003, Leyland has reported a 70% increase in its sales. Ashok Leyland set to
increase “HINO” engine platform through in-house product development, to
deliver higher horsepower in tune with improving road infrastructure. Ashok
Leyland Ltd has supplied 25 buses to Afghanistan which is a part of Indian
Government‟s Assistance to the war-ravaged Afghanistan. Leyland bagged $46
million truck supply contract from the United Nations.
In 2004, Ashok Leyland unveils new range of buses and trucks in a bid. It launches
Ecomet, a light commercial vehicle, in the Andhra Pradesh market. Ashok
Leyland‟s Hosur unit bags CII‟s awards in safety, health and environment. Ashok
Leyland Ltd (ALL) and Indian Oil Corporation (IOC) have joined hands to offer
freight management services across the country. Ashok Leyland Ltd signs a
collaboration agreement with ZF of Germany local manufacturing of ZF‟s 9-speed
synchromesh gearbox. Now, Wipro InfoTech has signed up with Ashok Leyland
for strategic cost reduction.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness.
The 5, 00,000 vehicles we have put on the roads have considerably eased the
additional pressure placed on road transportation in independent India.
In the populous Indian metros, four out of the five State Transport Undertaking
(STU) buses come from Ashok Leyland. Some of them like the double-decker and
vestibule buses are unique models from Ashok Leyland, tailor-made for high-
density routes.
In 1987, the overseas holding by Land Rover Leyland International Holdings

Limited (LRLIH) was taken over by a joint venture between the Hinduja Group,
the Non-Resident Indian transnational group and IVECO. (Since July 2006, the
Hinduja Group is 100% holder of LRLIH).
The blueprint prepared for the future reflected the global ambitions of the
company, captured in four words: Global Standards, Global Markets. This was at a
time when liberalisation and globalisation were not yet in the air. Ashok Leyland
embarked on a major product and process up gradation to match world-class
standards of technology.
In the journey towards global standards of quality, Ashok Leyland reached a major
milestone in 1993 when it became the first in India's automobile history to win
the ISO 9002 certification. The more comprehensive ISO 9001 certification came
in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle
manufacturing units in 2002. It has also become the first Indian auto company to
receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is
specific to the auto industry.
3.4 VISION:
Achieving leadership in the medium/heavy duty segments of the domestic

commercial vehicle market and a significant presence in the world market through
transport solutions that best anticipate customer needs, with the highest value to
cost.
Be among the top Indian corporations acknowledged nationally and internationally

for
Excellence in quality of its products.
Excellence in customer focus and service.
3.5 MISSION:
Be a leader in the business of commercial vehicles, excelling in technology,

quality, value to customer, fully supported by customer service of the highest order
and meeting national and international environment and safety standards.
Identifying with the customer
Being the lowest cost manufacturer
Global benchmarking our products, processes & people against the best in
the industry.
3.6 VALUES:
1. CUSTOMERS:
We value our customers and will constantly endeavour to fulfil their needs by
proactivity offering them products and service appropriate to their diverse
applications.
2. EMPLOYEE:
We consider our employee as our most valuable asset and are committed to
provide full encouragement and support to them to enhance their potential and
contribution to the company‟s business.
3. VENDORS:
Our vendors are our valued partners in our business development and we will
work with them in a spirit of mutual co-operation to meet our business objectives.
4. DISTRIBUTERS:
Our distributers are the vital between the company and the customers and we are
committed to advice and support our distributers to continuously upgrade their
infrastructure, skills and capability to serve our customers better.
5. SHAREHOLDERS:
We value the trust reposed in us by our shareholders and strive unstintingly to

ensure a fair and reasonable return on their investments.
6. SOCIETY:
We are committed to add to the wealth and well-being of our society by enhancing
the quality of life and contributing to this economic development while
maintaining the highest level of environmental and safety standards.
The five Ashok Leyland CORPORATE values are:
International
Speedy
Value creator
Innovative
Ethical
3.7 POLICIES AND OBJECTIVES OF ASHOK LEYLAND:
QUALITY POLICY:
Ashok Leyland is committed to achieve customer satisfaction, by anticipating and

delivering superior value to the customers in relation to their own business,
through the products and services offered by the company and comply with
statutory requirements.
Towards this, the quality policy of ashok Leyland is to make continual

improvements in the process that constitute the quality management system, to
make them more robust and to enhance their effectiveness and efficiency in
achieving stated objectives leading to:
I). Superior products manufactured as also services offered by the company.
II). Max use of employee potential to contribute to quality and environment by

progressive upgradation of their knowledge and skills as appropriate to their
functions.
III). Seamless involvement from vendors and dealers in the mission of the
company to address customer‟s changing needs and protection of the environment.
ENVIRONMENTAL POLICY:
We at ashok Leyland committed personal environmental measures.
1. We follow all legal reasons.
2. Adopt pollution prevent technology in design and manufacturing projects.
3. Conserve all resources such as power, water, oil, gas, compressed air etc...,
and optimise their usage through scientific methods.
4. Provide clean working environment to employees.
5. Set and review objectives and targets for continually improving

environment.
The Operation and Objectives of the Company are following below:-
To carry on the Business of manufacturers, assemblers of, dealers in, hirers,

repairers ,cleaners, stores, warehouses, pf motor cars, motor cycles, cycle-cars,
motors, scooters, motor-buses and lorries, trucks, tractors, cycles, bicycles, and
carriages, launches, boats and ships, vans aero planes, hydroplanes, and other
vehicles and conveyances of all descriptions for carrying passengers or other
personnel, goods, commodities, produce, cargoes and other things on land or sea or
by air whether propelled or assisted by means of petrol, spirit, steam, gas,
electrical, animal or other powers, and all engines, chassis, bodies, turbines, tanks,
tools, implements, accessories and other things, materials and products used for, in
or in connection with motors and other things. To Buy, sell, let on, hire, repair,
alter and deal in machinery, component parts, accessories and fittings of all kinds
for motors and other things and all articles and things referred to in the above item
hereof or used in or capable of being used in connection with the manufacture,
maintenance and working thereof.
To carry on the business of garage-keepers and suppliers of and dealers in petrol,

electricity and other motive power to motors and other things.
To develop, design, programme, conduct feasibility studies, act as advisor,
retainers, consultants and / or agents to all projects and to engage in project survey,
implementation, progress monitoring and turnkey installation.
To promote any other Company for the purpose of acquiring all or any of the
property and liabilities of this Company of for any other purpose which may seem
directly or indirectly calculated to benefit this Company and to buy, sell, contract
to buy or sell and deal in shares, stocks, debentures and securities of all kinds.
To invest or deposit or deal with the moneys of the Company not immediately
required for the purposes of its business in such manner as may from time to time
be determined.
To guarantee the performance of contracts.
To establish agencies or branches in India or elsewhere and to undertake the

management of any Company or Companies having objects altogether or in part
similar to those of this Company and to take all necessary steps for registering the
Company in any Country as may be thought fit.
To improve, manage, work, develop, lease, mortgage, abandon or otherwise deal

with, all or any part of the part of the property movable or immovable of the
Company and all or any of the rights and concession of the Company
The Company to do all or any of the above things in any part of the world as
Principals, Agents, Contractors, Trustees, Insurers, or otherwise and either alone or
in conjunction with others.
PRODUCT PROFILE:
1. Buses
2. Trucks
3. Engines
4. Defence & Special Vehicles

Chapter 4
Data analysis and interpretation
DATA ANALYSIS
AND
INTERPRETATION
4.2 MANAGING
4.1 WORKING 4.3 OPERATING
WORKING
CAPITAL CYCLE
CAPITAL
4.2.1. INVENTORY 4.2.2.RECEIVABLES 4.2.3. CASH

MANAGEMENT MANAGEMENT MANAGEMENT
4.1.0 WORKING CAPITAL:
Working capital is the life blood and centre of business. Adequate amount of
working capital is very much essential for the smooth running of the business. And
the most important part is the efficient management of working capital in right
time. The liquidity position of the firm is totally effected by the management of
working capital. So, a study of changes in the uses and sources of working capital
is necessary to evaluate the efficiency with which the working capital is employed
in a business. This involves the need for working capital analysis.
4.1.1 Statement Showing the Schedule of Changes In Working Capital:
FOR THE YEAR 2005-2006 (Rs. IN MILLIONS)
PARTICULARS 2005 2006 increase decrease
CURRENT
ASSESTS
inventories 5680.81 9025.61 3344.8
sundry debtors 4587.66 4243.37 344.29
cash and bank 7966.82 6028.76 1938.06
balances
loan & advances 3337.34 3026.39 310.95
(A) 21572.63 22324.13
CURRENT
LIABILITIES
liabilities 9611.87 11468.95 1857.08
provisions 2044.8 2616.21 571.41
(B) 11656.67 14085.16
(A-B) WORKING 9915.96 8238.97

CAPITAL
increasing in WC 1676.99 1676.99
TOTAL 9915.96 9915.96 5021.79 5021.79
TABLE 1
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. The above table shows that there has been decrease in the working capital to
the extent of 1676.99 from the year 2005to 2006.
FOR THE YEAR 2006-2007 :(Rs. IN MILLIONS)
PARTICULARS 2006 2007 INCREASE DECREASE
CURRENT
ASSETS
inventories 9025.61 10703.21 1677.6
sundry debtors 4243.37 5228.75 985.38
cash and bank 6028.76 4349.39 1679.37
balances
loan & advances 3026.39 6695.79 3669.4
(A) 22324.13 26977.14
CURRENT
LIABILITIES
liabilities 11468.95 16516.25 5047.3
provisions 2616.21 1042.3 1573.91
(B) 14085.16 17558.55
(A-B) WORKING 8238.97 9418.59

CAPITAL
TOTAL 9418.59 9418.59 7906.29 7906.29
TABLE 2
INFERENCE:
1. The above table shows that there has been increase in need for working
capital to the extent of 1179.62 from the year 2006 to 2007.
CURRENT
ASSETS
inventories 10703.21 12239.14 1535.93
sundry debtors 5228.75 3758.35 1470.4
cash and bank 4349.39 4513.7 164.31
balances
loan & advances 6695.79 8241.385 1545.595
(A) 26977.14 28752.581
CURRENT
LIABILITIES
liabilities 16516.25 19267.084 2750.834
provisions 1042.3 3452.31 2410.01
(B) 17558.55 22719.394
(A-B) WORKING 9418.59 6033.19

CAPITAL
TOTAL 9418.59 9418.59 6631.235 6631.235
TABLE 3
( SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. The above table shows that there has been decrease in need for working
capital to the extent of 3385.40 from the year 2007to 2008.
CURRENT
ASSETS
inventories 12239.14 13300.144 1061
sundry debtors 3758.35 9579.742 5821.391
cash and bank 4513.7 880.836 3632.865
balances
loan & advances 8241.385 7895.44 346.25
(A) 28752.581 31656.14
CURRENT
LIABILITIES
liabilities 19267.084 18688.641 5784.43
provisions 3452.31 2680.82 771.49
(B) 22719.394 21369.461
(A-B) WORKING 6033.19 10286.679

CAPITAL
TOTAL 10286.68 10286.68 8232.32 8232.32
TABLE 4
INFERENCE:
1. The above table shows that there has been increase in need for working
capital to the extent of 4253.50 from the year 2008 to 2009.
CURRENT ASSETS
inventories 13300.14 16382.40 3082.26
sundry debtors 9579.74 10226.90 647.16
cash and bank balances 880.84 5189.20 4308.36
loan & advances 7895.44 9604.60 1709.16
(A) 31656.14 41403.10
CURRENT
LIABILITIES
liabilities 18688.64 25920.60 7231.96
provisions 2680.82 3686.90 1006.08
(B) 21369.46 29607.50
(A-B) WORKING 10286.68 11795.60

CAPITAL
TOTAL 11795.60 11795.60 9746.94 9746.96
TABLE 5
(SOURCES ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. 1 The above table shows that there has been increase in need for working
capital to the extent of 1508.92 from the year 2009 to 2010
4.1.2 RATIO ANALYSIS:
I. TO STUDY OVERALL EFFECIENCY OF WORKING CAPITAL:
1. NET WORKING CAPITAL (Rs. IN MILLIONS)
YEAR CURRENT CURRENT NET.WORKING
ASSETS LIABILITIES CAPITAL
2004-05 21572.63 11656.67 9915.96
2005-06 22324.13 14085.16 8238.97
2006-07 26977.14 17558.55 9418.59
2007-08 28752.58 22719.39 6033.19
2008-09 31656.16 21369.46 10286.70
2009-10 41403.10 29607.50 11795.60
TABLE 6
( SOURCE: ANNUAL REPORTS OF COMPANY)
11795.60
12000.00 9915.96 10286.70
9418.59
10000.00 8238.97
8000.00 6033.19
6000.00
4000.00
2000.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
NET.WORKING CAPITAL
CHART: 1
INTERPRETATION:
1. Net working capital of Ashok Leyland Ltd is maintained balanced in all
years.
2. Except in 2007-08. In this year the net working capital is very low.
3. 2009-2010 net working capital is high.
2. WORKING CAPITAL TURN OVER RATIO (Rs. IN MILLIONS)
YEAR SALES NET.WORKING TURN OVER
CAPITAL RATIO
2004-05 41818.97 9915.96 4.22
2005-06 52476.57 8238.97 6.37
2006-07 71681.76 9418.59 7.61
2007-08 77425.80 6033.19 12.83
2008-09 66666.40 10286.70 5.81
2009-10 78726.00 11795.60 6.67
TABLE: 7
TURN OVER RATIO

14.00
12.00
10.00
8.00
6.00 TURN OVER RATIO
4.00
2.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CHART: 2
INTERPRETATION:
1. The working capital turnover ratio of Ashok Leyland Ltd is increasing from
2004-05 to 2007-08. But suddenly there is a dip in 2008-09.
2. In the year 2007-08, the performance of Ashok Leyland Ltd is in peak
position.
3. In the year 2008-09 Indian automobile industry was slowed down due to
market slowdown.
II. TO STUDY THE STRUCTURE OF WC:
3. CURRENT ASSETS TO TOTAL ASSETS: Rs. IN MILLIONS)
YEAR CURRENT TOTAL ASSETS CA/TA RATIO
ASSETS
2004-05 21572.63 33654.54 0.64
2005-06 22324.13 36852.79 0.61
2006-07 26977.14 44632.32 0.60
2007-08 28752.58 55399.53 0.52
2008-09 31656.16 78265.80 0.40
2009-10 41396.83 92768.65 0.45
TABLE:8
2009-10 0.45
2008-09 0.40
2007-08 0.52
2006-07 0.60
2005-06 0.61
2004-05 0.64
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70
CA/TA RATIO
CHART: 3
INTERPRETATION:
1. This CA to TA ratio is of reducing tendency.
2. In 2004-05 it is highest and in 2009-10 it is lowest.
3. The portion of current assets is reducing year by year.
4. CURRENT LIABILITIES TO TOTAL LIABILITIES (Rs. IN MILLIONS)
YEAR CURRENT TOTAL CL/TL RATIO

LIABILITIES LIABILITIES
2004-05 11656.67 33847.86 0.34
2005-06 14085.16 36925.86 0.38
2006-07 17558.55 44877.50 0.39
2007-08 22719.39 55622.43 0.41
2008-09 21369.46 78362.67 0.27
2009-10 29607.56 92820.45 0.32
TABLE: 9
0.45 0.41
0.38 0.39
0.40 0.34
0.32
0.35
0.27
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CL/TL RATIO
CHART: 4
INTERPRETATION:
1. CL to TL ratio is increasing from 2004-05 to 2007-08.
2. There is a decrease in 2008-09.
3. But company is capable of recovering. in 2009-2010
4. 2007-08 has highest ratio.
III. LIQUIDITY RATIOS:
5. CURENT RATIO: (Rs. IN MILLIONS)
YEAR CURRENT CURRENT RATIO INDUSTRY
ASSETS LIABILITIES AVERAGE
2004-05 21572.63 11656.67 1.85 1.55
2005-06 22324.13 14085.16 1.58 1.55
2006-07 26974.14 17558.55 1.54 1.55
2007-08 28752.58 22719.39 1.27 1.55
2008-09 31656.16 21369.46 1.48 1.55
2009-10 41396.83 29607.56 1.40 1.55
TABLE: 10
1.851.55 1.55 1.55 1.55 1.55 1.55

2.00
1.58 1.54 1.48 1.40
1.50 1.27
1.00
0.50
INDUSTRY AVERAGE
RATIO
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
RATIO INDUSTRY AVERAGE
CHART: 5
INTERPRETATION:
1. Here industry ratio is 1.55.
2. Except in 2007-08 remaining all year‟s company‟s current ratio is almost
near to industry average ratio.
3. In the year 2006-07 company had power to affect the industry.
6. LIQUID RATIO (Rs. IN MILLIONS)
YEAR QUICK ASSETS CURRENT RATIO INDUSTRY
LIABILITIES AVERAGE
2004-05 15891.82 11656.67 1.36 1.07
2005-06 13298.52 14085.16 0.94 1.07
2006-07 16270.93 17558.55 0.93 1.07
2007-08 16513.44 22719.39 0.73 1.07
2008-09 18356.02 21369.46 0.86 1.07
2009-10 25014.43 29607.56 0.84 1.07
TABLE: 11
1.36
1.40
1.07 1.07
1.20 1.07 1.07 1.07 1.07
1.00 0.94 0.93
0.80 0.86
0.73 0.84
0.60
0.40
0.20
0.00
INDUSTRY AVERAGE
2004-05
2005-06 RATIO
2006-07
2007-08
2008-09
2009-10
RATIO INDUSTRY AVERAGE
CHART: 6
INFERENCE:
1. Here industry ratio is 1.07
2. In 2004-05 it is higher and then started to decline slowly up to 2007-08.
3. In 2008-09 it started increasing and came near to the industry average.
III. PROFITABILITY RATIOS:
7. GROSS PROFIT RATIO: Rs. IN MILLIONS)
YEAR GROSS PROFIT SALES GROSS PROFIT
RATIO
2004-05 10689.73 41818.97 25.56
2005-06 13390.00 52476.57 25.52
2006-07 16410.70 71681.76 22.89
2007-08 18298.30 77425.80 23.63
2008-09 14321.60 59810.74 23.94
2009-10 19544.85 72447.10 26.98
TABLE: 12
GROSS PROFIT RATIO

28.00
27.00 26.98
26.00
25.56 25.52
25.00
24.00 23.94
23.63 GROSS PROFIT RATIO
23.00 22.89
22.00
21.00
20.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CHART: 7
INFERENCE:
From the table shown above gross profit of the firm is satisfactory in all the
years except in 2006-07.
But it was recovered very soon by next year and it is still doing well.
8. NET PROFIT RATIOS: (Rs. IN MILLIONS)
YEAR NET PROFIT SALES NET PROFIT
RATIO
2004-05 2714.10 41818.97 6.49
2005-06 3273.20 52476.57 6.24
2006-07 4412.86 71681.76 6.16
2007-08 4693.10 77425.80 6.06
2008-09 1899.96 59810.74 3.18
2009-10 4236.80 72447.10 5.85
TABLE: 13
NET PROFIT RATIO

7.00
6.49
6.24 6.16 6.06
6.00 5.85
5.00
4.00
3.00 3.18 NET PROFIT RATIO
2.00
1.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CHART: 8
INFERENCE:
From the data given in the above table it is clear that the net profit of the
company is almost maintained constant except in the year 2008-09.
Due to market slow down the net profit of the company effected.
But in 2009-10 it shot up as the company recovered very fast.
4.2 MANAGING WORKING CAPITAL:
4.2.1 INVENTORY MANAGEMENT:
Inventories are goods held for eventual sale by a firm. Inventories are thus one of
the major elements, which help the firm in obtaining the desired level of sales.
Kinds of inventories:
Inventories can be classified into 3 categories. They are,
a) Raw materials:
These are goods, which have not yet been committed to
production in a manufacturing firm. They may consist of basic raw
materials or finished goods.
b) Work – in – progress :
This includes those materials, which have been committed to
production process but have not yet been completed.
c) Finished goods:
These are completed products awaiting sale. They are the final
outputs of the production process in a manufacturing firm. In case of
wholesalers and retailers, they are generally referred to as merchandise
inventory.
Benefits of holding inventories:
1) Avoiding losses of sales.
2) Reducing ordering cost.
3) Achieving efficient production runs.
Effects of holding low-costs:
1) No service levels:
Often, customer demand cannot be satisfied, leading to immediate
loss of business.
2) Increased production control costs:
An enterprise may have to rush special production runs, recognize
the schedules, an unordinary high level chasing etc,.
3) Increased replenishment costs:
When operating with low stock levels, average replenishment orders
would be placed frequently.
Effects of holding high stock:
1. Increased storage costs:
a) Increased capital investments, which reduces the capital available for
other activities and project.
b) Increased risk of obsolescence.
2. Increased opportunities for obtaining purchases discounts by bulk ordering.
3. Stable production programs, which result in the maintenance of a steady
work force.
4. High level of service, and
5. Reduction in replacement costs.
Risks and costs associated with inventories:
Holding of inventories exposes a firm to a no: of risks and costs. Risk of
holding inventories can be put as follows.
1. Price decline
2. Product deterioration
3. Obsolescence
The costs of holding inventories are as follows:

a. Materials cost
b. Ordering cost
c. Carrying cost
Features of inventory:
A comparison of inventory with other positive components of working capital
would reveal it has some special features of its own.
On an average, it accounts for lion‟s share of firm‟s investment in WC.
The risk factor is holding inventory generally is higher than that of holding
other items of current assets.
Although holding of a more and more inventory may be desirable from the
point of view of functional managers, it affects adversely short-term
liquidity.
It involves many types of costs associated with it viz... Acquisition cost,
carrying cost, short cost, etc…
It is the only item of current assets, which has direct influence on the prices,
and income of a firm.
Motives of inventory:
Ashok Leyland ltd holds inventory to achieve the following 3 motives.
Transaction motives:
It emphasizes the Ashok Leyland ltd‟s need to maintain
inventories to facilitate smooth production and sales operations.
Precautionary motive:
It necessities the ALL‟s need to maintain inventories to guard
against the risk of unpredictable changes in demand and supply forces and
other conditions.
Speculative motive:
It influences the decision to increase or decrease inventory levels
in Ashok Leyland ltd to take advantage of price fluctuations.
Objectives of inventory management:
There should be optimal levels of investment for any asset, whether it is plant,
cash or inventories. Again, inadequate inventories will disrupt production and loss
sales. All this calls for an effective inventory program.
The main adjectives are:
1) To ensure that materials are available for use in production and
production services, as and when required.
2) To ensure that finished goods and available for delivery to customers to
fulfill orders.
3) To minimize investments in inventories to maximize profitability.
4) To protect the inventory against deterioration, obsolescence and
unauthorized use.
5) To enable the management to make costs and consumptions between
operations and periods.
A good inventory management policy should balance the requirements of opposing
and conflicting demands viz...
To maintain a leverage quality for smooth operations and efficient customers
service.
To maintain only a min possible inventory because inventory holding costs
and the opportunity cost of funds invested in inventory.
INVENTORY CONTROL TECHNIQUES:
1. Determination of stock levels:
A firm should maintain records of various levels of stocks in order to
have an effective management of inventory.
They are:
1. Minimum stock level
2. Maximum stock level
3. Reorder stock level
4. Danger stock level
5. Optimum stock level
6. Free stock level
7. Marginal stock level
8. Physical stock level
Ashok Leyland ltd is following these types of stock levels.
2. ABC analysis:
From the point of view of monitoring info for control it becomes
extremely difficult to consider each one of these items. The ABC analysis
comes in quite handy and enables the management to concentrate attention
and keep a close watch on a relatively less number of items which account
for a high percentage of the value of annual usage of all items of inventory.
A firm using ABC system segregates its inventory into 3 groups. A,B and C.
A) The „A‟ items are those in which it has the largest rupee
investment.
B) The „B‟ group items consist of the items accounting for
the next largest investment.
C) The „C‟ group typically consists of larger no: of items
accounting for a small rupee investment.
Standard values for ABC analysis:

Category % in value % in quantity
A 70-80% 5-10%
B 10-20% 10-20%
C 5-10% 70-80%
In Ashok Leyland:
Category % in value % in quantity
A 75.5% 8%
B 15% 12%
C 7.5% 72.2%
3. FSN analysis:
In Ashok Leyland according to FSN analysis the items are categorized as

follows:
1. 0-1 = Non Moving
2. 1-3 = Crawling
3. 3-6 = Slow Moving
4. 6-9 = Moderate Fast Moving
5. 9-12 = Fast Moving
Determination of economic order quantity (EOQ):
Determination of quantity for which the order should be placed is one of the
important problems concerned with efficient Inventory Management. EOQ
refers to the size of the order, which gives maximum economy in purchasing
in an item of Raw materials or finished products. It is fixed mainly after
taking into account the following cost.
Ordering cost
Inventory carrying cost
Assumptions:
1. The firm knows with certainly the annual usage or demand of the particular
items of inventories.
2. The rate at which the firm uses the inventories or makes sales is constant
throughout the year.
3. The order for replenishment of inventory is placed exactly when inventories
reach zero level.
5. Determination of optimum production quantity:
The EOQ model can be extended to production runs to determine the
optimum production quantity. The 2 costs involved are:
Setup cost
Inventory carrying cost
6. Determination of optimum Re-order level:
For optimum production quantity, it is important to decide when to order for the
new stock. New goods will arrive before the firm runs out of goods to sell. To
determine Re-order level we should know about:
The load time
The usage rate.
7. Aging Schedule Of Inventory:
By identifying the data of purchase or manufacture of each item of the inventory
is known as aging schedule of inventory.
8. Just – In – Time (JIT) Inventory System:
Normally high inventories blocking of capital investment, insurance etc. To
minimize that by keeping the inventories at the lowest possible level by JIT
system. JIT inventory system means all inventories whether of raw materials, WIP
& Finished goods are received in time to go into production, manufacture parts are
completed into products and products are shipped to customers. In JIT
environment the flow of goods is controlled by pull down approach.
9. Flexible Manufacturing System (FMS):

The basis features of FMS are automated flow of materials to the cell and
automated removal of finished items from the cell. Cells are linked together by
automated material handling system and flow of goods is controlled by a system.
RATIO ANALYSIS:
1. INVENTORY PROPORTION: Rs. IN MILLIONS)
Inventory Proportion
18000.00
16000.00
14000.00
12000.00
10000.00
8000.00
6000.00
4000.00
2000.00
0.00
Raw Materials WIP FG Othes Inventory
2004-05 2306.29 912.41 2092.68 369.43 5680.81
2005-06 2728.32 1437.30 4493.67 366.32 9025.61
2006-07 3853.39 1095.07 5325.70 429.05 10703.21
2007-08 4229.28 1140.46 6255.05 614.33 12239.12
2008-09 5325.74 940.82 6465.16 568.41 13300.13
2009-10 5860.65 3465.62 6458.81 597.20 16382.28
CHART 9
INFERENCE:
1. Raw materials consumed are increasing from year by year.
2. WIP increased in first 2 years and then started decreasing.
3. FG is in increasing condition. There is a rapid change in the year 2005-06.
4. Total inventory is increasing from year to year. There is rapid change in the
year 2005-06.
2. COMPONENTS OF INVENTORY (Rs. IN MILLIONS)
Components Of Inventory
18000.00
16000.00
14000.00
12000.00
10000.00
8000.00
6000.00
4000.00
2000.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Raw Materials 2306.29 2728.32 3853.39 4229.28 5325.74 5860.65
WIP 912.41 1437.30 1095.07 1140.46 940.82 3465.62
FG 2092.68 4493.67 5325.70 6255.05 6465.16 6458.81
Othes 369.43 366.32 429.05 614.33 568.41 597.20
Inventory 5680.81 9025.61 10703.21 12239.12 13300.13 16382.28
CHART 10 (SOURCE: ANNUAL REPORTS OF COMPANY)

INFERENCE:
1. In 2004-05 raw materials consumption is the major part of inventory.
2. In 2005-06 finished goods is the major part of inventory. This was a good
sign to firm.
3. In 2006-07 finished goods is high and there was an equal ratio of change in
raw materials and finished goods up to 2007-08.
4. In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
5. In 2009-10 rest all are same as previous except the WIP which increased
drastically
2.1. INVENTORY TURN OVER RATIO (Rs. IN MILLIONS)
YEAR SALES INVENTORY ITR
2004-05 41818.97 5375.11 7.78
2005-06 52476.57 7353.21 7.14
2006-07 71681.76 9864.41 7.27
2007-08 77425.80 11471.17 6.75
2008-09 59810.74 12769.64 4.68
2009-10 72447.10 16382.40 4.42
TABLE:14
ITR
9.00
8.00
7.78
7.14 7.27
7.00
6.75
6.00
5.00
4.68
4.42
4.00 ITR
3.00
2.00
1.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CHART: 11
INFERENCE:
1. During the 2004-05 the company has very high inventory ratio of 7.78,
which means more capital is being locked up in the inventory.
2. But from the year 2005-10 the ratio was decreased from 7.14 to 4.42.
2.2 INVENTORY HOLDING PERIOD: (Rs. IN MILLIONS)
YEAR DAYS ITR INV HOLDING
PERIOD
2004-05 360.00 7.78 46.00
2005-06 360.00 7.14 50.00
2006-07 360.00 7.27 50.00
2007-08 360.00 6.75 53.00
2008-09 360.00 4.68 77.00
2009-10 360.00 4.42 81.45
TABLE: 15
90.00 81.45
77.00
80.00
70.00
60.00 53.00
50.00 50.00
46.00
50.00
40.00
30.00
20.00
10.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
INV HOLDING PERIOD
CHART:12
INFERENCE:
1. Inventory holding period was good from 2004-05 to 2007-08. But in
2009-10 it was just increased.
3.1 RAW MATERIALS TURN OVER RATIO:(Rs. IN MILLIONS)
YEAR RAW AVG RAW RM TR
MATERIALS MATERIALS
2004-05 30020.40 2109.99 14.23
2005-06 40645.83 2517.31 16.15
2006-07 54081.14 3290.86 16.43
2007-08 57480.59 4041.34 14.22
2008-09 43218.57 4777.52 9.05
2009-10 52552.32 5593.15 9.40
TABLE:16
( (SOURCE: ANNUAL REPORTS OF COMPANY)
18.00
16.00
14.00
12.00
10.00
8.00
RM TR
6.00
4.00
2.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Axis Title
CHART: 13
INFERENCE:
1. In 2006-07 RM TR is maximum.
2. From 2004-05 to 2006-07 it was increased.
3. From 2006-07 to 2008-09 it was decreased.
3.2 RAW MATERIALS HODING PERIOD: (Rs. IN MILLIONS)
YEAR DAYS RTR RM HOLDING
PERIOD
2004-05 360.00 14.23 25.00
2005-06 360.00 16.15 22.00
2006-07 360.00 16.43 22.00
2007-08 360.00 14.22 25.00
2008-09 360.00 9.05 40.00
2009-10 360.00 9.40 38.30
TABLE:17
2009-10 38.30
2008-09 40.00
2007-08 25.00
2006-07 22.00
2005-06 22.00
2004-05 25.00
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00
RM HOLDING PERIOD
CHART:14
INFERENCE:
1. Raw material holding period is constant in all years.
2. But it was slightly increased in 2008-09.
4.1 WORK IN PROGRESS TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR COST OF AVG WIP WIP TR
PRODUCTION
2004-05 31153.39 809.35 38.49
2005-06 36685.58 1174.86 31.23
2006-07 54439.03 1266.19 42.99
2007-08 58198.15 1117.77 52.07
2008-09 45279.034 1040.65 43.51
2009-10 52612.25 2203.20 23.88
TABLE: 18
60.00
52.07
50.00 42.99 43.51

38.49
40.00
31.23
30.00 23.88
20.00
10.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
WIP TR
CHART:15
INFRENCE:
1. In 2007-08 WIP TR is highest. Remaining all years it was similar.
2. In 2009-10 it is lowest.
4.2 WIP HOLDING PERIOD: (Rs. IN MILLIONS)
YEAR DAYS WIP TR WIP HOLDING
PERIOD
2004-05 360.00 38.49 9.35
2005-06 360.00 31.23 11.53
2006-07 360.00 42.99 8.37
2007-08 360.00 52.07 6.91
2008-09 360.00 43.51 8.27
2009-10 360.00 23.88 15.08
TABLE : 19
15.08
16.00
14.00
11.53
12.00
9.35
10.00 8.37 8.27
8.00 6.91
6.00
4.00
2.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
WIP HOLDING PERIOD
CHART: 16
INFERENCE:
1. WIP holding period is highest in 2009-10.
2. WIP holding period is lowest in 2007-08.
5.1 FINISHED GOODS TURNOVER RATIO: (Rs. IN MILLIONS)
YEAR COST OF GOODS AVG FG FG TR
SOLD
2004-05 31129.24 2104.76 17.35
2005-06 39086.57 3293.18 15.42
2006-07 55271.06 4909.69 12.74
2007-08 59127.50 5790.38 11.81
2008-09 45489.14 6360.11 8.33
2009-10 52902.25 6461.90 8.19
TABLE: 20
FG TR
20.00
18.00
17.35
16.00
15.42
14.00
12.74
12.00 11.81
10.00
FG TR
8.00 8.33 8.19
6.00
4.00
2.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CHART:17
INFERENCE:
1. Finished goods turnover ratio is decreasing from 2004-05 to 2009-10.
2. 2009-10 is the lowest and 2004-05 is the highest.
5.2 FINISHED GOODS HOLDING PERIOD: (Rs. IN MILLIONS)

YEAR DAYS FG TR FG HOLDING
PERIOD
2004-05 360.00 17.35 21.00
2005-06 360.00 15.42 23.00
2006-07 360.00 12.74 28.00
2007-08 360.00 11.81 30.00
2008-09 360.00 8.33 43.00
2009-10 360.00 8.19 43.97
TABLE: 21
2009-10 43.97
2008-09 43.00
2007-08 30.00
2006-07 28.00
2005-06 23.00
2004-05 21.00
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00
FG HOLDING PERIOD
CHART:18
INFERENCE:
1. Finished goods holding period is highest in 2009-10.
2. Finished goods holding period is lowest in 2004-05.
6. INVENTORY TO CURRENT ASSETS RATIO: Rs. IN MILLIONS)
YEAR INVENTORY CURRENT ASSETS INV TO CA RATIO
2004-05 5680.81 21572.63 0.26
2005-06 9025.61 22324.13 0.40
2006-07 10703.21 26977.14 0.40
2007-08 12239.14 28752.58 0.43
2008-09 13300.14 31656.16 0.42
2009-10 16382.40 41403.10 0.40
TABLE: 22
0.43 0.42
0.45 0.40 0.40 0.40
0.40
0.35
0.30 0.26
0.25
0.20
0.15
0.10
0.05
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
INV TO CA RATIO
CHART: 19
INFERENCE:
1. In 2004-05, 26% of current assets are inventory. It was the least.
2. In 2007-08, 43% of current assets are inventory. It was highest.
4.2.2 RECEIVABLES MANAGEMENT
INTRODUCTION:
The term debtors are defined, as debt owed to the firm by the
customers arising from sale of goods or services in the ordering course of business.
Debtors or receivables are asset accounts representing amounts owed to the firm by
customers from sale of goods or services. It has to be mentioned that the credit that
is open account in the sense that no formal acknowledgement of debt obligation is
required. In fact, a credit sale, which leads to debtors, is treated as one of the
marketing tools.
Great majority of firms does not demand immediate cash payment

when goods or services are sold to their regular and credit worthy customers.
Because of this practice, most sales require the firm to maintain debtors account
for customer or a group of them for some period. Accordingly, debtors or
receivables occupy a significant role in firm‟s current assets structure usually next
to inventories.
Objectives of Maintaining Receivables:
 Achieving growth in sales and profits. If a firm allows sales, it will

usually be able to sell more goods or services then if it insists on
immediate cash payment. Similarly, an additional sale normally
results in higher profits for the firm. This proportion will hold goods
only when the marginal contribution or gross margin greater than the
additional cost associated with the administering the credit policy.
 Meeting competition:
To survive in the competitive market, firm have to establish credit

policies similar to competitors. Thus, by adopting its term of trade to
the industry norms, a firm will avoid of sale from customers who
would by elsewhere if they did not receive the expected credit.
The above 2 objectives have a single purpose, that is generate larger flow of
operating revenue and hence profit, than would be achieved in the absence of a
commitment of the funds to debtors. Extension of credit involves cost and risk
management should weigh benefits against cost. The optimum point may be
considered as the point where “the return on investment in further funding of
receivables is less than the cost of funds raised that additional credit (i.e. cost of
capital)”.
Cost of Maintaining Receivables:
Credit sales, and hence maintaining of debtors, involve certain costs. They are:
 Cost of financing debtors.

 Collection costs
 Delinquency costs
 Default costs
Facts affecting size of receivables:
The size of a firm is determined by its:
 Level of sales
 Credit terms
 Collection policies
Credit Policy:
The credit policy relating to sales and purchase also affects the working capital.
The credit policy influences requirement of working capital in 2 ways.
 Through credit terms granted by the firm to its customers/buyers of

goods.
 Credit terms available to the firm from its creditors.
The credit terms granted to customers bearing on magnitude of working capital by

determining the level of book debts. The credit sales result in higher book debts.
Higher book debts mean more working capital. On the other need, for working
capital is less. The working capital requirements of a business are, thus affected by
the terms of purchase and sale, and the role given to credit by a company in its
dealing with creditors and debtors.
Similarly, collection procedure will differ from customer. With the permanent but
temporary defeating customers, the firm may not be very strict in following the
collection procedures. The credit evaluation procedure involves the following
steps:
1. Credit information
2. Credit investigation
3. Credit limits and
4. Collection procedure
For effective management of credit, a firm should lay down clear-cut guidelines
and procedures for granting credit to individual customers and collecting
individual accounts.
Size of Receivables:
An analysis of the percentage of receivables in relation assets indicates the

recovery efficiency of the company. Moreover, the % receivable in relation to sales
indicates the firm credit sales requirements. However, this kind of analysis reveals
the overall operational efficiency of the company in relation to credit sales and
their recovery.
RATIO ANALYSIS:
I. TO ANALYZE EFFICIENCY:
1. ACCOUNTS RECEIVABLES TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR SALES AVG DEBTORS RTR
2004-05 41818.97 4321.93 9.68
2005-06 52476.57 4415.52 11.88
2006-07 71681.76 4736.06 15.14
2007-08 77425.80 4493.55 17.23
2008-09 59810.74 6669.04 8.97
2009-10 78726.00 9900.15 7.95
TABLE: 23
2009-10 7.95
2008-09 8.97
2007-08 17.23
2006-07 15.14
2005-06 11.88
2004-05 9.68
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00
RTR
CHART:20
INFERENCE:
1. Receivables turnover ratio is highest in 2007-08.
2. Receivables turnover ratio is lowest in 2009-10.
1.2 DEBTORS COLLECTION PERIOD: Rs. IN MILLIONS)
YEAR DAYS RTR DEBTORS
COLLECTION
PERIOD
2004-05 360.00 9.68 37.00
2005-06 360.00 11.88 30.00
2006-07 360.00 15.14 24.00
2007-08 360.00 17.23 21.00
2008-09 360.00 8.97 40.00
2009-10 360.00 7.95 45.28
TABLE: 24
DEBTORS COLLECTION PERIOD

45.28
40.00
37.00
30.00
24.00
21.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
DEBTORS COLLECTION PERIOD
CHART:21
INFERENCE:
1. Receivables management in Ashok Leyland is very efficient. From 2004-05
to 2007-08 debtors collection period was decreasing.
2. But in the year 2009-10 the collection period increased to more than 100%
2. AVERAGE INVESTMENT IN RECEIVABLES: Rs. IN MILLIONS)
YEAR SALES PER DAY DCP AVG INVST IN

RECEIVABLES
2004-05 116.00 37.00 4298.00
2005-06 146.00 30.00 4373.00
2006-07 199.00 24.00 4779.00
2007-08 215.00 21.00 4517.00
2008-09 166.00 40.00 6646.00
2009-10 218.68 45.28 9901.83
TABLE: 25
2009-10 9901.83
2008-09 6646.00
2007-08 4517.00
2006-07 4779.00
2005-06 4373.00
2004-05 4298.00
0.00 2000.00 4000.00 6000.00 8000.00 10000.00
AVG INVST IN RECEIVABLES
CHART: 22
INFERENCE:
1. From 2004-05 to 2007-08 the investment on receivables is constant.
2. In the year 2008-09 it is slightly increased.
3. Then in 2009-10 it increased more than 50% approx.
3.1. CREDITORS TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR PURCHASES AVG CREDITORS CTR
2004-05 30413.01 5494.04 5.54
2005-06 41067.86 6636.96 6.19
2006-07 55206.21 8528.47 6.47
2007-08 57856.49 11531.35 5.02
2008-09 44315.03 12013.00 3.69
2009-10 52017.40 13362.75 3.89
TABLE: 26
7.00
6.47
6.19
6.00 5.54
5.02
5.00
3.89
4.00 3.69
3.00
2.00
1.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CTR
CHART: 23
INFERENCE:
1. 2006-07 year has highest creditor turnover ratio.
2. 2008-09 year has lowest creditor turnover ratio.
3.2. CREDITORS COLLECTION PERIOD: (Rs. IN MILLIONS)
YEAR DAYS CTR CREDITORS
COLLECTION
PERIOD
2004-05 360.00 5.54 65.00
2005-06 360.00 6.19 58.00
2006-07 360.00 6.47 56.00
2007-08 360.00 5.02 72.00
2008-09 360.00 3.69 98.00
2009-10 360.00 3.89 92.54
TABLE:27
CREDITORS COLLECTION PERIOD
98.00
92.54
72.00
65.00
58.00 56.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CREDITORS COLLECTION PERIOD
CHART:24
INFERENCE:
1. In the year 2006-07 creditors‟ collection period is low 56.
2. In the year 2008-09 the creditor‟s collection period is very high 98.
II. TO ANALYZE THE STUCTURE:
1. RECEIVABLES TO CURRENT ASSETS RATIO: (Rs. IN MILLIONS)
YEAR RECEIVABLES CURRENT ASSETS REC TO CA
RATIO
2004-05 4587.66 21572.63 0.21
2005-06 4243.37 22324.13 0.19
2006-07 5228.75 26977.14 0.19
2007-08 3758.35 28752.58 0.13
2008-09 9579.74 31656.16 0.30
2009-10 10220.61 41403.10 0.25
TABLE: 28
2009-10 0.25
2008-09 0.30
2007-08 0.13
2006-07 0.19
2005-06 0.19
2004-05 0.21
0.00 0.05 0.10 0.15 0.20 0.25 0.30
REC TO CA RATIO
CHART:25
INFERENCE:
1. From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year.
2. But in the year 2008-09 it is the highest.
4.2.3 CASH MANAGEMENT
Introduction:
Cash the most liquid asset, is of vital important of the daily operations of business
firms. While the proportion of corporate assets in the form of cash is very small,
often between 1 & 3% its efficient management is crucial to the solvency of
business in a very important sense. Cash is the focal point of fund flows in
business. In view of its importance, it is generally referred to as the “ life blood of
a business enterprise”.
Need For Holding Cash:
1. Transaction motive:
Firms need cash to meet their transaction needs. The collection
of cash (from sale of goods services, sale of goods, and additional
financing) is not perfectly synchronized with the disbursement of cash
(for purchase of goods and services acquisition of capital assets and
meeting other obligations).
2. Precautionary motive:
There may be some uncertainty about magnitude and timing of
cash inflows from sale of goods and services, sale of assets and
insurances of purchases. Like flows on account of purchases and other
obligations, to protect it against such uncertainties, a firm may require
some cash balances.
3. Speculative motive:
Firms would like to tap profit-making opportunities arising from
fluctuations in commodity prices, security prices, interest rates and
foreign exchange rates cash-rich firm is prepared to exploit such
speculative earnings, may require additional liquidity. However, for
most firms there reserve borrowing capacity and marketable securities
would suffice to meet their speculative needs.
4. Compensating motive:
Yet another motive to hold cash balances is to compensate banks
for providing certain services and loans. Banks provide a variety of
services to business firms, such as clearance of cheques, supply of
credit information, transfer of funds, and so on. While for some of
these services bank charges a commission or free, for others they seek
indirect compensation usually, clients are required to maintain
balances of cash at the bank. Since, clients this balance cannot be
utilized by the firms for transaction purposes. The banks themselves
can use the amount to earn a return. Such balances are compensatory
balances.
GOALS OF CASH MANAGEMENT:
Precisely speaking, the primary goals of cash management in firm to trade off
between liquidity and profitability in order to maximize long-term profit, this is
possible only when the firm aims at optimizing the use of funds in the working
capital pool. This overall objective can be translated in the following operational
goals.
To specify day to day business requirements.

To provide for scheduled major payments.
To face unexpected cash drains.
To seize potential opportunities for profitable long-term
investments.
To meet requirements of bank relationships.
To build image of credit worthiness.
To earn on cash balances.
To minimize the operating cost by cash management.
IMPORTANCE OF CASH MANAGEMENT:
Cash management is one of the critical areas of working capital management

and greater significance because it is most liquid asset used to specify the firm‟s
obligations but it is sterile asset, as it does not yield anything. Therefore, financial
manager maintain its liquidity position without jeopardizing the profitability.
Problem of prognosticating cash flows accurately and absence of perfect
coincidence between the inflows of cash added to the significance of cash
management. In view of above, at one time affirm may experience dearth of cash
because payment of taxes, dividends, seasonal inventory etc, build up while other
times, it may have surfeit of cash stemming out of large out of cash sales and quick
collection of receivables.
It is interesting to observe that in real life management spends his considerable

time in managing cash, which constitute relatively small portion of firm‟s current
assets.
RATIO ANALYSIS:
I. TO ANALYZE OVERALL EFFECIENCY:
1. CASH TURN OVER RATIO: (Rs. IN MILLIONS)
YEAR SALES AVG CASH AND CTR
BALANCE
2004-05 41818.97 5608.28 7.46
2005-06 52476.57 6997.79 7.50
2006-07 71681.76 5189.08 13.81
2007-08 77425.80 4431.55 17.47
2008-09 59810.74 2697.30 22.17
2009-10 78726.00 3035.00 25.94
TABLE: 29
30.00 25.94
25.00 22.17
20.00 17.47
13.81
15.00
10.00 7.46 7.50
5.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CTR
CHART:26
INFERENCE:
1. Cash turnover ratio is kept on increasing from the year 2004-05 to
2009-10.
2. There is a constant growth in increase.
1.2 CASH HOLDING PERIOD: (Rs. IN MILLIONS)
YEAR DAYS CTR CASH HOLDING
PERIOD
2004-05 360.00 7.46 48.00

2005-06 360.00 7.50 48.00
2006-07 360.00 13.81 26.00
2007-08 360.00 17.47 21.00
2008-09 360.00 22.17 16.00
2009-10 360.00 25.94 14.00
TABLE: 30
48.00 48.00
50.00
45.00
40.00
35.00
30.00 26.00
25.00 21.00
20.00 16.00
13.88
15.00
10.00
5.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CASH HOLDING PERIOD
CHART:27
INFERENCE:
1. From the table given above in 2004-05 and 2005-06 the cash holding period
is very high 48days.
2. But from 2006-07 to 2009-10 it is decreased from 26 days to 14 days.
II. TO ANALZE LIQUIDITY:
1. CASH RATIO: (Rs. IN MILLIONS)
YEAR CASH CURRENT CASH RATIO
LIABILITIES
2004-05 7966.82 11656.67 0.68
2005-06 6028.76 14085.16 0.43
2006-07 4349.39 17558.55 0.25
2007-08 4513.70 22719.39 0.20
2008-09 880.84 21369.46 0.04
2009-10 5189.20 29607.56 0.18
TABLE: 31
0.68
0.70
0.60
0.50 0.43
0.40
0.30 0.25
0.20
0.18
0.20
0.10 0.04
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
CASH RATIO
CHART:28
INFERENCE:
1. From the above table it is clear that cash ratio that is cash availability is
decreasing from year by year.
2. In the year 2008-09 it is just 0.04.
III. TO ANALYZE STRUCTURE:
1. CASH TO CURRENT ASSETS: (Rs. IN MILLIONS)
YEAR CASH CURRENT ASSETS CASH TO CA
RATIO
2004-05 7966.82 21572.63 0.37
2005-06 6028.76 22324.13 0.27
2006-07 4349.39 26977.14 0.16
2007-08 4513.70 28752.58 0.16
2008-09 880.84 31656.16 0.03
2009-10 5189.20 41403.10 0.13
TABLE: 32
2009-10 0.13
2008-09 0.03
2007-08 0.16
2006-07 0.16
2005-06 0.27
2004-05 0.37
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40
CASH TO CA RATIO
CHART:29
INFERENCE:
From the above table it is clear that percentage of cash in current assets is
very less and decreasing from year by year.
In 2008-09 it is just 3%.
4.3 OPERATING CYCLE:
Operating Cycle= Raw Material Holding Period+
WIP Holding Period +
FG Holding Period +
Debtors Collection Period -
Creditors Collection Period
(Rs. IN MILLIONS)
WIP OPERATING
YEAR RM HP FG HP DCP CCP
HP CYCLE
2004-05 25.00 8.00 21.00 37.00 65.00 26.00

2005-06 22.00 9.00 23.00 30.00 58.00 26.00
2006-07 22.00 7.00 28.00 24.00 56.00 25.00
2007-08 25.00 6.00 30.00 21.00 72.00 10.00
2008-09 40.00 7.00 43.00 40.00 98.00 32.00
2009-10 38.30 12.24 34.85 45.28 92.54 38.13
TABLE 33
OPERATING CYCLE
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
OPERATING CYCLE 26.00 26.00 25.00 10.00 32.00 38.13
CHART:30
INFERENCE:
From the table given above it is clear that,
In 2007-08 it is very low that is 10. It is best one.
In 2009-10 it is increased from 10 to 38.
There is a rapid change in operating cycle.
Chapter 5
ESTIMATION OF
WORKING CAPITAL
1. TIME SERIES ANALYSIS
2. LEAST SQUARES METHOD
3. FORECASTS
4. ESTIMATION OF WORKING
CAPITAL
5.1 TIME SERIES ANALYSIS:
Time series refer to a series in which one variable is time. A time series is an
arrangement of statistical data in accordance to the time of occurrence or in a
chronological analysis is done primarily for the purpose of making forecasts for
future and also for the purpose of evaluating past performances.
5.2 METHOD OF LEAST SQUARES:
Let us assume Y=a+ (b*X)
Where,
a= ∑Y/n;
And b=∑XY/∑(X*X)
Here we are taking for 5years that is 2005-06 to 2009-10.
So the value of n= no: of years
So, n=5.
The base year I am considering for forecasting purpose is 2007-08.
So the value of X is = zero for 2007-08.
Here I am forecasting the values for the year 2010-11.

5.3 FORECASTINGS FOR 2010-11:
II. ESTIMATED SALES PERFORMANCE :(Rs. IN MILLIONS)
YEAR SALES(Y) X X*X X*Y a b Ye=a+bX

2005-06 52476.57 -2.00 4.00 -104953.14 68024.17 4062.78 59898.61
2006-07 71681.76 -1.00 1.00 -71681.76 68024.17 4062.78 63961.39
2007-08 77425.80 0.00 0.00 0.00 68024.17 4062.78 68024.17
2008-09 59810.74 1.00 1.00 59810.74 68024.17 4062.78 72086.95
2009-10 78726.00 2.00 4.00 157452.00 68024.17 4062.78 76149.73
total 340120.87 0.00 10.00 40627.84
2010-11 3.00 68024.17 4062.78 80212.51
TABLE 34
Forecasted Sales
90000.00
80000.00
70000.00
60000.00
50000.00
40000.00
30000.00 SALES(Y)
20000.00 Ye=a+bX
10000.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
SALES(Y) 52476.57 71681.76 77425.80 59810.74 78726.00 80212.51
Ye=a+bX 59898.61 63961.39 68024.17 72086.95 76149.73 80212.51
Axis Title
CHART:31
INFERENCE:
The estimated value of sales for the year 2010-11 is 80212.51

Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
II. FORECASTING OF CURRENT ASSETS:
1. INVENTORY: (Rs. IN MILLIONS)
YEAR INVENTORY X X*X X*Y a b Ye=a+bX

(Y)
2005-06 9025.61 -2.00 4.00 -18051.22 12330.10 1731.05 8868.00
2006-07 10703.21 -1.00 1.00 -10703.21 12330.10 1731.05 10599.05
2007-08 12239.14 0.00 0.00 0.00 12330.10 1731.05 12330.10
2008-09 13300.14 1.00 1.00 13300.14 12330.10 1731.05 14061.15
2009-10 16382.40 2.00 4.00 32764.80 12330.10 1731.05 15792.20
total 61650.50 0.00 10.00 17310.51
2010-11 3.00 12330.10 1731.05 17523.25
TABLE: 35
Forecasted Inventory
20000.00
18000.00
16000.00
14000.00
12000.00
10000.00
8000.00
6000.00
4000.00
2000.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
INVENTORY(Y) 9025.61 10703.21 12239.14 13300.14 16382.40 17523.25
Ye=a+bX 8868.00 10599.05 12330.10 14061.15 15792.20 17523.25
CHART:32
INFERENCE:
The estimated value of inventory for the year 2010-11 is 17523.25
The accuracy of forecasting is very good.
2. CASH: (Rs. IN MILLIONS)
YEAR CASH(Y) X X*X X*Y a b Ye=a+bX

2005-06 6028.76 -2.00 4.00 -12057.52 4192.38 -514.77 5221.91
2006-07 4349.39 -1.00 1.00 -4349.39 4192.38 -514.77 4707.15
2007-08 4513.70 0.00 0.00 0.00 4192.38 -514.77 4192.38
2008-09 880.84 1.00 1.00 880.84 4192.38 -514.77 3677.61
2009-10 5189.20 2.00 4.00 10378.40 4192.38 -514.77 3162.84
total 20961.89 0.00 10.00 -5147.67
2010-11 3.00 4192.38 -514.77 2648.08
TABLE: 36
Forecasted Cash
7000.00
6000.00
5000.00
4000.00
3000.00
2000.00
1000.00
0.00
Ye=a+bX
2005-06
2006-07 CASH(Y)
2007-08
2008-09
2009-10
2010-11
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

CASH(Y) 6028.76 4349.39 4513.70 880.84 5189.20 2648.08
Ye=a+bX 5221.91 4707.15 4192.38 3677.61 3162.84 2648.08
CHART: 33
INFERENCE:
The estimated value of cash for the year 2010-11 is 2648.08

Only in 2007-08 accuracy is less.
3. SUNDRY DEBTORS: (Rs. IN MILLIONS)
YEAR SUNDRY X X*X X*Y a b Ye=a+bX

DEBTOR(
Y)
2005-06 4243.37 -2.00 4.00 -8486.74 6606.16 1630.55 3345.07
2006-07 5228.75 -1.00 1.00 -5228.75 6606.16 1630.55 4975.62
2007-08 3758.35 0.00 0.00 0.00 6606.16 1630.55 6606.16
2008-09 9579.74 1.00 1.00 9579.74 6606.16 1630.55 8236.71
2009-10 10220.60 2.00 4.00 20441.20 6606.16 1630.55 9867.25
total 33030.81 0.00 10.00 16305.45
2010-11 3.00 6606.16 1630.55 11497.80
TABLE: 37
Forecasted Sundry Debtors

15000.00
10000.00
5000.00
0.00
Ye=a+bX
2005-06 2006-07
2007-08 SUNDRY DEBTORS(Y)
2008-09
2009-10
2010-11
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

SUNDRY DEBTORS(Y) 4243.37 5228.75 3758.35 9579.74 10220.60 11497.80
Ye=a+bX 3345.07 4975.62 6606.16 8236.71 9867.25 11497.80
CHART:34
INFERENCE:
The estimated value of sundry debtors for the year 2010-11 is 11497.80
Only in the year 2007-08 forecasting accuracy is less.
4. LOANS AND ADVANCES: (Rs. IN MILLIONS)
YEAR LOANS & X X*X X*Y a b Ye=a+bX

ADVANCE(Y)
2005-06 3026.39 -2.00 4.00 -6052.78 7092.72 1435.61 4221.51

2006-07 6695.79 -1.00 1.00 -6695.79 7092.72 1435.61 5657.11
2007-08 8241.39 0.00 0.00 0.00 7092.72 1435.61 7092.72
2008-09 7895.44 1.00 1.00 7895.44 7092.72 1435.61 8528.33
2009-10 9604.60 2.00 4.00 19209.20 7092.72 1435.61 9963.93
total 35463.60 0.00 10.00 14356.07
2010-11 3.00 7092.72 1435.61 11399.54
TABLE: 38
Forecasted Loans & Adv.

12000.00
10000.00
8000.00
6000.00
4000.00
2000.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
LOANS & ADVANCES(Y) 3026.39 6695.79 8241.38 7895.44 9604.60 11399.54
Ye=a+bX 4221.51 5657.11 7092.72 8528.33 9963.93 11399.54
CHART:35
INFERENCE:
The estimated value of loans and advances for the year 2010-11 is 11399.54
III.CURRENT LIABILITIES:
1. LIABILITIES: (Rs. IN MILLIONS)

YEAR LIABILITIE X X*X X*Y a b Ye=a+bX
S(Y)
2005-06 11468.95 -2.00 4.00 -22937.90 18372.32 3107.58 12157.16
2006-07 16516.25 -1.00 1.00 -16516.25 18372.32 3107.58 15264.74
2007-08 19267.08 0.00 0.00 0.00 18372.32 3107.58 18372.32
2008-09 18688.64 1.00 1.00 18688.64 18372.32 3107.58 21479.89
2009-10 25920.65 2.00 4.00 51841.30 18372.32 3107.58 24587.47
total 91861.58 0.00 10.00 31075.79
2010-11 3.00 18372.32 3107.58 27695.05
TABLE: 39
Forecasted Liability
30000.00
25000.00
20000.00
15000.00
10000.00
5000.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
LIABILITIES(Y) 11468.95 16516.25 19267.08 18688.64 25920.65 27695.05
Ye=a+bX 12157.16 15264.74 18372.32 21479.89 24587.47 27695.05
CHART:36
INFERENCE:
The estimated value of liabilities for the year 2010-11 is 27695.05

The accuracy of forecasting is very good.
2. PROVISIONS: (Rs. IN MILLIONS)
YEAR PROVISIO X X*X X*Y a b Ye=a+bX

NS(Y)
2005-06 2616.21 -2.00 4.00 -5232.42 2695.71 377.99 1939.73
2006-07 1042.30 -1.00 1.00 -1042.30 2695.71 377.99 2317.72
2007-08 3452.31 0.00 0.00 0.00 2695.71 377.99 2695.71
2008-09 2680.82 1.00 1.00 2680.82 2695.71 377.99 3073.70
2009-10 3686.91 2.00 4.00 7373.82 2695.71 377.99 3451.69
total 13478.55 0.00 10.00 3779.92
2010-11 3.00 2695.71 377.99 3829.68
TABLE: 40
Forecasted Provision
4000.00
3000.00
2000.00
1000.00
0.00
Ye=a+bX
2005-06
2006-07 PROVISIONS(Y)
2007-08
2008-09
2009-10
2010-11
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

PROVISIONS(Y) 2616.21 1042.30 3452.31 2680.82 3686.91 3829.68
Ye=a+bX 1939.73 2317.72 2695.71 3073.70 3451.69 3829.68
CHART:37
INFERENCE:
The estimated value of provisions for the year 2010-11 is 3829.68.

For this forecasting accuracy is less.
5.4 ESTIMATION OF SCHEDULES OF CHANGES IN WORKING
CAPITAL: (Rs. IN MILLIONS)

CURRENT ASSETS
inventories 16382.40 17523.25 1140.85
sundry debtors 10226.90 11497.80 1270.90
cash and bank balances 5189.20 2648.08 2541.12
loan & advances 9604.60 11399.54 1794.94
(A) 41403.10 43068.67
CURRENT
LIABILITIES
liabilities 25920.60 27695.05 1774.45
provisions 3686.90 3829.68 142.78
(B) 29607.50 31524.74
(A-B) WORKING 11795.60 11543.93

CAPITAL
TOTAL 11795.60 11795.60 4458.36 4458.36
TABLE: 41
INFERENCE:
Estimation shows that there is a increase in current assets.

Estimation shows that there is a increase in current liabilities.
The entire table shows the estimation of schedule of changes of working
capital.
Chapter 6
SUMMARY OF FINDINGS
SUGGESTIONS
FINDINGS:
6.1 STATEMENTS SHOWING SCHEDULE OF CHANGES IN WORKING

CAPITAL:
1. There has been increase in the working capital for the year 2004-05.
2. There has been decrease in the working capital for the year 2005-06.
4. There has been decrease in the working capital for the year 2007-08.
6. There has been increase in the working capital for the year 2009-10
6.2 WORKING CAPITAL RATIO ANALYSIS:
1) To study overall efficiency:

Net working capital of Ashok Leyland Ltd is maintained balanced in all
years.
The working capital turnover ratio of Ashok Leyland Ltd is increasing from
200-05 to 2007-08. But suddenly there is a dip in 2008-09.
2) To study the structure of working capital:

The portion of current assets in total assets is reducing year by year.
CL to TL ratio is increasing from 2004-05 to 2007-08.There is a
decrease in 2008-09.But company is capable of recovering in 2009-
10. 2007-08 has highest ratio.
3) To study the liquidity of working capital:

Here industry ratio of current ratio is 1.55. Except in 2007-08 remaining
all year‟s company‟s current ratio is almost near to industry average ratio.
In the year 2006-07 company had power to affect the industry.
Here industry ratio of liquid ratio is 1.07. In 2004-05 it is higher and then
started to decline slowly up to 2007-08. In 2008-09 it started increasing
and came near to the industry average.
4) To study the profitability ratios:

From the table shown gross profit of the firm is satisfactory in
all the years except in 2005-06. But it was recovered very soon
by next year and it is still doing well.
From the data given in the above table it is clear that the net
profit of the company is almost maintained constant except in
the year 2008-09. Due to market slow down the net profit of the
company effected.
6.3 MANAGING WORKING CAPITAL:

1) INVENTORY MANAGEMENT:
Raw materials consumed are increasing from year by year.
WIP increased in first 2 years and then started decreasing. But 2009-10 it
again shot up
FG is in increasing condition. There is a rapid change in the year 2005-06.
Total inventory is increasing from year to year. There is rapid change in the
year 2005-06.
In 2004-05 raw materials consumption is the major part of inventory.
In 2005-06 finished goods is the major part of inventory. This was a good
sign to firm.
In 2006-07 finished goods is high and there was an equal ratio of change in
raw materials and finished goods up to 2007-08.
In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
In 2009-10 finished goods is same as previous year but WIP has increased.
During the 2004-05 the company has very high inventory ratio of 7.78,
which means more capital is being locked up in the inventory.
But from the year 2005-10 the ratio was decreased from 7.14 to 4.42.
Inventory holding period was good from 2004-05 to 2007-08. But in 2008-
10 it has just increased.
In 2006-07 RM TR is maximum.
From 2004-05 to 2006-07 it was increased.
From 2006-07 to 2008-09 it was decreased.
Raw material holding period is constant in all years.
But it was slightly increased in 2008-09.
In 2007-08 WIP TR is highest. Remaining all years it was similar.
In 2005-06 it is lowest.
WIP holding period is highest in 2009-10.
WIP holding period is lowest in 2007-08.
Finished goods turnover ratio is decreasing from 2004-05 to 2008-09.
2008-09 is the lowest and 2004-05 is the highest.
Finished goods holding period is highest in 2008-09.
Finished goods holding period is lowest in 2004-05.
In 2004-05, 26% of current assets are inventory. It was the least.
In 2007-08, 43% of current assets are inventory. It was highest.
2) RECEIVABLES MANAGEMENT:
Receivables turnover ratio is highest in 2007-08.
Receivables turnover ratio is lowest in 2009-10
Receivables management in Ashok Leyland is very efficient. From 2004-05
to 2007-08 debtors collection period was decreasing.
But in the year 2009-10 the collection period increased slightly.
From 2004-05 to 2007-08 the investment on receivables is constant.
In the year 2008-09 it is slightly increased.
In year 2009-10 it increased up to 50 %.
2006-07 year has highest creditor turnover ratio.
2008-09 year has lowest creditor turnover ratio.
In the year 2006-07 creditors‟ collection period is low 56.
In the year 2008-09 the creditor‟s collection period is very high 98.
From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year. But in the year 2008-09 it is the highest.
3) CASH MANAGEMENT:
Cash turnover ratio is kept on increasing from the year 2004-05 to 2009-10.
There is a constant growth in increase.
From the table given above in 2004-05 and 2005-06 the cash holding period
is very high 48days.
But from 2006-07 to 2009-10 it is decreased from 26 days to 14 days.
From the above table it is clear that cash ratio that is cash availability is
decreasing from year by year.
In the year 2008-09 it is just 0.04
From the above table it is clear that percentage of cash in current assets is
very less and decreasing from year by year.
In 2008-09 it is just 3%.
6.4 OPERATING CYCLE:

From the table given above it is clear that,
In 2007-08 it is very low that is 10. It is best one.
In 2008-10 it is increased from 10 to 38
There is a rapid change in operating cycle.
6.5 TREND ANALYSIS:

It is forecasted that there is an increase in sales of the year 2011 when
compared to the year 2010.
It is forecasted that there is an increase in inventory of the year 2011 when
compared to the year 2010.
It is forecasted that there is a huge decrease in cash and bank balances of the
year 2011 when compared to the year 2010.
It is forecasted that there is a increase in sundry debtors of the year 2011
when compared to the year 2010.
It is forecasted that there is an increase in loans and advances of the year
2011 when compared to the year 2010
It is forecasted that there is an increase in current assets of the year 2011
It is forecasted that there is an increase in current liabilities of the year 2011
RECOMMENDATIONS:
Recommendations can be use by the firm for the betterment increased of

the firm after study and analysis of project report on study and analysis of working
capital.
I would like to recommend.
Company should raise funds through short term sources for short
term requirement of funds, which comparatively economical as
compare to long term funds.
Company should take control on debtor s collection period which
is major part of current assets.
Company has to take control on cash balance because cash is
non earning assets and increasing cost of funds.
Company should reduce the inventory holding period with use of
zero inventory concepts.
Company should make a policy in respect of investment of excess cash,
if any; in marketable securities and overall cash policy should be
introduced.
Management should develop a credit policy and proper self realization
system from customers so that efficient and effective management of
accounts receivable can be ensured. This will significantly improve the
profitability and liquidity of the company.
Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company is increasing sales volume per year which supported to
company to increase the market share year by year.
Chapter 7
CONCLUSION
CONCLUSION:
Working capital management is important aspect of financial management. The

study of working capital management in Ashok Leyland ltd , has revealed that the
current ration was as per the standard industrial practice but the liquidity
position of the company showed an increasing trend. The study has been
conducted on working capital ratio analysis, working capital leverage,
working capital components which helped the company to manage its working
capital efficiency and affectively.
Working capital of the company was increasing and showing positive

working capital per year. It shows good liquidity position.
Positive working capital indicates that company has the ability of

payments of short terms liabilities.
Working capital increased because of increment in the current assets is

more than increase in the current liabilities.
Company‟s current assets were always more than requirement it affect on

profitability of the company.
Current assets are more than current liabilities indicate that

company used long term funds for short term requirement, where long
term funds are most costly then short term funds.
Current assets components shows sundry debtors were the major part in
Current assets it shows that the inefficient receivables collection
management.
The company has a good operating cycle, liquidity position, and has sufficient
funds to repay its liabilities. It is being found that components of working capital
like inventory management, receivables management and cash management was
managing effectively. It is being found that the production target of the company
has been achieved in time; thereby the profit percentage of company is good.
The company is matured one and it has contributed towards the countries growth
and development and will also continue to perform and contribute to the whole
nation. To conclude company has sound and effective management of working
capital, which helps them to control the cost and increase the profit.
Chapter 8
Appendices
BIBLIOGRAPHY:
BOOKS REFERRED:
M.Y. KHAN AND P.K. JAIN – 5th EDITION-MANAGEMENT
ACCOUNTING – NOIDA:-- Tata McGraw-Hill Publication
I. M. PANDEY – 2008 - FINACIAL MANAGEMENT- NEW
DELHI;--Vikas Publishing House Pvt Ltd.
HRISHIKESH BHATTACHARYA – 2007 – WORKING
CAPITAL MANAGEMENT – NEW DELHI: Prentice-Hall of India
P.Ltd.
WEBSITES:
Available from : www.ashokleyland.com [accessed on 15 june2010]
Available from : www.mentormyproject.com [accessed on 15 june2010]
Available from : www.scribd.com [accessed on 15 june2010]
Available from : www.managementparadise.com[accessed on 15

june2010]
Available from : www.bizstats.com [accessed on 15 june2010]
Available from : www.findarticles.com [accessed on 15 june2010]
Available from : www.britannica.com [accessed on 15 june2010]
Available from : www.indiainfoline.com [accessed on 15 june2010]
Available from : www.bizresearchpapers.com [accessed on 15 june2010]
Available from : www.oppapers.com [accessed on 15 june2010]
Available from : www.allbusiness.com [accessed on 15 june2010]
Available from : www.docstoc.com [accessed on 15 june2010]

ANNEXURE
BALANCE SHEET:
(Rs.IN MILLIONS)
PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Source Of Funds
Shareholders
Fund
Capital 1,189.29 1,221.59 1,323.87 1,330.34 1,330.34 1,330.34
Reserves And 10,489.36 12,902.94 17,621.81 20,159.48 33,408.65 35,357.23
Surplus
11,678.65 14,124.53 18,945.68 21,489.83 34,738.99 36,687.57
Loan Funds
Secured Loans 2,634.96 1,846.91 3,602.16 1,902.40 3,044.13 7,115.66
Unsecured Loans 6,169.10 5,072.37 2,801.82 6,972.61 16,537.31 14,923.32
8,804.06 6,919.28 6,403.98 8,875.01 19,581.44 22,038.98
Deferred - - - - -
Liability 765.48
Deferred Tax 1,708.48 1,796.89 1,969.29 2,538.20 2,634.37 3,845.36
Liability-Net
Foreign Currency 38.41 (124.50)
Monetary Item
Translation
Difference-Net
Total 22,191.19 22,840.70 27,318.95 32,903.03 56,993.21 63,212.89
Application Of
Funds
Fixed Assets
Gross Block 20,022.50 21,384.99 26,201.97 29,424.38 49,532.72 60,186.33
Less 11,084.04 11925.28 13131.64 14,168.88 15,541.56 17,690.74
Depreciation
Net Block 8938.46 9432.71 13070.33 15,255.50 33,991.16 42,495.59
Capital Work-In- 851.55 1414.17 2374.91 5,292.45 9,982.89 5614.69
Progress
9790.01 10846.88 15445.24 20,547.95 43,974.06 48,110.28
Investments 2291.9 3681.78 2210.94 6,098.99 2,635.57 3261.54
Current Assets,
Loans And
Advances
Inventories 5680.81 9025.61 10703.21 12239.14 13,300.14 16382.4
Sundry Debtors 4587.66 4243.37 5228.75 3758.35 9,579.74 10220.61
Cash And Bank 7966.82 6028.76 4349.39 4513.7 880.836 5189.2
Balances
Loans And 3337.34 3026.39 6695.79 8241.39 7,895.44 9604.62
Advances
21572.63 22324.13 26977.14 28752.58 31,656.14 41396.83
Less Current
Liabilities And
Provisions
Liabilities 9611.87 11468.95 16516.25 19267.08 18,688.64 25920.65
Provisions 2044.8 2616.21 1042.3 3452.31 2,680.82 3686.91
11,656.67 14085.16 17558.55 22,719.39 21,369.46 29607.56
Net Current 9915.96 8238.97 9418.59 6033.187 10,286.68 11789.27
Assets
Miscellaneous 193.32 73.07 244.18 222.91 96.88 51.74
Expenditure
Total 22,191.19 22,840.70 27,318.95 32,903.03 56,993.21 63,212.83
(Source: annual reports of the company)

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A REPORT ON

STUDY OF WORKING CAPITAL MANAGEMENT AND

Institute for Technology and Management Business School.

It gives me immense pleasure to present this project report on

At the outset I would like to tha nk my Director Dr. G.K.

I would be failing in my duty if I do not express my deep sense of

CHAPTER TITLE PAGE

2 WORKING CAPITAL MANAGEMENT 1

4 DATA ANALYSIS AND INTERPRETATION 29

A project entitled “A study on working capital management of Ashok

1.2. THE PROBLEM STATEMENT:

Managing working capital in a manufacturing firm is very difficult and

1.3. OBJECTIVE OF THE STUDY:

Study of the working capital management is important because

• To study the working capital management of Ashok Leyland Ltd.

• To study the liquidity position through various working capital related

• To study the working capital components such as receivables accounts, Cash

• To estimate the working capital requirement of Ashok Leyland Ltd

• To study the operating and cash cycle of the company.

Research methodology is a way to systematically solve the research

1.4.2) TYPES OF DATA COLLECTION:

There are two types of data collection methods available.

• Primary data collection

• Secondary data collection

1.4.2.2) Secondary Data Collection Method:

• Annual report of Ashok Leyland ltd 2004-05

• Annual report of Ashok Leyland ltd 2005-06

• Annual report of Ashok Leyland ltd 2006-07

• Annual report of Ashok Leyland ltd 2007-08

• Annual report of Ashok Leyland ltd 2008-09

1.6. LIMITATIONS OF THE STUDY:

Following limitations were encountered while preparing this project:

1.6.1) Limited data:-

1.6.2) Limited period:-

This project is based on five year annual reports. Conclusions and

1.6.3) Limited area:-

1.7. CHAPTER SCHEME:

 Chapter 3 covers complete profile of the company. It tends to include the

 Chapter8 deals with Bibliography, it includes the various sources from

1.8. EXPECTATION FROM STUDY:

 To be able know the financial position of the company.

WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems arise

According to Guttmann & Dougall-

“Excess of current assets over current liabilities”

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts

2.2 GROSS WORKING CAPITAL AND NET WORKING

There are two concepts of working capital management

1) Gross Working Capital

2) Net Working Capital:

Efficient working capital management requires that firms

The concept of working capital was, first evolved by Karl Marx.

2.4 Types of Working Capital:

1) Permanent Working Capital:

2) Temporary Working Capital:

2.5 DETERMINANTS OF WORKING CAPITAL:

The amount of working capital is depends upon following factors:

2) Length Of Production Cycle:

3) Size And Growth Of Business:

4) Business/ Trade Cycle:

If the company is the operating in the time of boom, the working

5) Terms Of Purchase And Sales: