PROJECT REPORT

ON

“WORKING CAPITAL
MANAGEMENT OF TATA
MOTORS”

Submitted by:- Under Supervision of:-

Name:Utkarsh Thakur Prof. Manish Sharma

Enrollment Number:1321001286

Submitted in partial fulfillment of the requirements for qualifying

Post Graduate Diploma in management.

(FINANCE)

May, 2015

INSTITUTE OF MANAGEMENT TECHNOLOGY CENTRE FOR 
DISTANCE LEARNING GHAZIABAD.
 CERTIFICATE

This is to certify that Utkarsh Thakur, a student of IMT –

CDL Ghaziabad has completed project work on titled
WORKING CAPITAL MANAGEMENT OF TATA MOTORS
under my guidance and supervision.

I certify that this is an original work and has not been

copied from any source.

Signature of Guide:____________________________

Name of Project Guide :___________________________

Date :____________________________
 ACKNOWLEDGEMENT
With Candor and Pleasure I take opportunity to express my sincere
thanks and obligation to my esteemed guide ……………. It is because
of his able and mature guidance and co-operation without which it
would not have been possible for me to complete my project.

It is my pleasant duty to thank all the staff member of the computer

center who never hesitated me from time during the project.

Finally, I gratefully acknowledge the support, encouragement &

patience of my family, and as always, nothing in my life would be
possible without God, Thank You!

NAME : UTKARSH THAKUR

ENROLLMENT NO. : 1321001286

DECLARATION
I, the undersigned, hereby declare that the Project Report entitled
WORKING CAPIATL MANAGEMENT OF TATA MOTORS is my
original work and the conclusions drawn therein are based on the
material collected by myself.
 TABLE OF CONTENTS

S .No CHAPTER CONTENTS PAGE NO.

1. CERTIFICATE 2

2. ACKNOWLEDGEMENT & DECLARATION 3

3. INDEX 4

4. INTRODUCTION TO THE STUDY 6

COMPANY OVERVIEW 6

THEORY OF WORKING CAPITAL 8

5. REVIEW OF LITERATURE 22

6. OBJECTIVE AND SCOPRE OF PROJECT 33

7. RESEARCH METODOLOGY 34

8. DATA ANALYSIS AND INTERPRETATION 35

9. COCLUSION 46

10. RECOMMENDATION AND LIMITATION 47

11. APPENDIX 48

REFERENCES 48

BALANCE SHEET 51

PROFIT AND LOSS ACCOUNT 52

CHAPTER – 1

INTRODUCTION TO THE STUDY

COMPANY PROFILE:

Tata Motors Limited is India’s largest automobile company, with consolidated revenues of INR
1,23,133 crores (USD 27 billion) in 2010-11. It is the leader in commercial vehicles in each segment,
and among the top three in passenger vehicles with winning products in the compact, midsize car
and utility vehicle segments. It is the world’s fourth largest truck and bus manufacturer. The
company’s over 25,000 employees are guided by the vision to be ”best in the manner in which we
operate, best in the products we deliver, and best in our value system and ethics.”
Established in 1945, Tata Motors’ presence indeed cuts across the length and breadth of India. Over
6.5 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company’s
manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra),
Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and Dharwad (Karnataka).
Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat
Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat
powertrains. The company’s dealership, sales, services and spare parts network comprises over
3,500 touch points; Tata Motors also distributes and markets Fiat branded cars in India.
Tata Motors, the first company from India’s engineering sector to be listed in the New York Stock
Exchange (September 2004), has also emerged as an international automobile company. Through
subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea,
Thailand, Spain and South Africa. Among them is Jaguar Land Rover, a business comprising the
two iconic British brands that was acquired in 2008. JLR supports two state of the art engineering
and design facilities and three manufacturing plants (Solihull, Castle Bromwich & Halewood) in the
UK. In 2004, Tata Motors acquired the Daewoo Commercial Vehicles Company, South Korea’s
second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has
launched several new products in the Korean market, while also exporting these products to several
international markets. Today two-thirds of heavy commercial vehicle exports out of South Korea are
from Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed
Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano’s
presence is being expanded in other markets. In 2006, Tata Motors formed a joint venture with the
Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture
fully-built buses and coaches for India and select international markets. In 2006, Tata Motors
entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to
manufacture and market the company’s pickup vehicles in Thailand. The new plant of Tata Motors
(Thailand) has begun production of the Xenon pickup truck, with the Xenon having been launched in
Thailand in 2008. Tata Motors (SA) (Proprietary) Ltd., Tata Motors’ joint venture with Tata Africa
Holding (Pty) Ltd., has its assembly plant in South Africa at Rosslyn, north of Pretoria, in the
Gauteng province of South Africa. The plant can assemble, from semi knocked down (SKD) kits,
light, medium and heavy commercial vehicles ranging from 4 – 50 tonnes.

Tata Motors is also expanding its international footprint, established through exports since 1961. The
company’s commercial and passenger vehicles are already being marketed in several countries in
Europe, Africa, the Middle East, South East Asia, South Asia, CIS, Russia and South America. It has
franchisee/joint venture assembly operations in Bangladesh, Ukraine, and Senegal.
The foundation of the company’s growth over the last 65 years is a deep understanding of economic
stimuli and customer needs, and the ability to translate them into customer-desired offerings through
leading edge R&D. With over 4,500 engineers and scientists, the company’s Engineering Research
Centre, established in 1966, has enabled pioneering technologies and products. The company today
has R&D centres in Pune, Jamshedpur, Lucknow, Dharwad in India, and in South Korea, Spain, and
the UK. It was Tata Motors, which developed the first indigenously developed Light Commercial
Vehicle, India’s first Sports Utility Vehicle and, in 1998, the Tata Indica, India’s first fully indigenous
passenger car. Within two years of launch, Tata Indica became India’s largest selling car in its
segment. In 2005, Tata Motors created a new segment by launching the Tata Ace, India’s first
indigenously developed mini-truck.
In January 2008, Tata Motors unveiled its People’s Car, the Tata Nano, which India and the world
have been looking forward to. The Tata Nano has been subsequently launched, as planned, in India
in March 2009. A development, which signifies a first for the global automobile industry, the Nano
brings the comfort and safety of a car within the reach of thousands of families.
Designed with a family in mind, it has a roomy passenger compartment with generous leg space and
head room. It can comfortably seat four persons. Its mono-volume design will set a new benchmark
among small cars. Its safety performance exceeds regulatory requirements in India. Its tailpipe
emission performance too exceeds regulatory requirements. In terms of overall pollutants, it has a
lower pollution level than two-wheelers being manufactured in India today. The lean design strategy
has helped minimise weight, which helps maximise performance per unit of energy consumed and
delivers high fuel efficiency. The high fuel efficiency also ensures that the car has low carbon dioxide
emissions, thereby providing the twin benefits of an affordable transportation solution with a low
carbon footprint.
In May 2009, Tata Motors ushered in a new era in the Indian automobile industry, in keeping with its
pioneering tradition, by unveiling its new range of world standard trucks called Prima. In their power,
speed, carrying capacity, operating economy and trims, they will introduce new benchmarks in India
and match the best in the world in performance at a lower life-cycle cost. In October 2010, Tata
Motors launched the Tata Aria, the first Indian four-wheel drive crossover. The Tata Aria redefines
several benchmarks with its design and technologies, offering class leading features that take
comfort and safety to a new height.
Tata Motors is equally focussed on environment-friendly technologies in emissions and alternative
fuels. It has developed electric and hybrid vehicles both for personal and public transportation. It has
also been implementing several environment-friendly technologies in manufacturing processes,
significantly enhancing resource conservation.
Through its subsidiaries, the company is engaged in engineering and automotive solutions,
construction equipment manufacturing, automotive vehicle components manufacturing and supply
chain activities, machine tools and factory automation solutions, high-precision tooling and plastic
and electronic components for automotive and computer applications, and automotive retailing and
service operations.
Mr. Ratan N. Tata (Chairman)
Mr. Ravi Kant
Mr. Nusli N. Wadia
Mr. S. M. Palia
Dr. R. A. Mashelkar
Mr. Nasser Munjee
Mr. Subodh Bhargava
Mr. V. K. Jairath
Mr. Ranendra Sen
Dr. Ralf SpethMr. P. M. Telang
THEORY OF WORKING CAPITAL

Financial Management is that managerial activity which is concerned with the planning and
controlling of the firm’s financial resources. Financial management focuses on finance manager
performing various tasks as Budgeting, Financial Forecasting, Cash Management, Credit
Administration, Investment Analysis, Funds Management, etc. which help in the process of decision
making. Financial management includes management of assets and liabilities in the long run and the
short run.

The management of fixed and current assets, however, differs in three important ways: Firstly, in
managing fixed assets, time is very important; consequently discounting and compounding aspects
of time element play an important role in capital budgeting and a minor one in the management of
current assets. Secondly, the large holdings of current assets, especially cash, strengthen firm’s
liquidity position but it also reduces its overall profitability. Thirdly, the level of fixed as well as current
assets depends upon the expected sales, but it is only the current assets, which can be adjusted
with sales fluctuation in the short run. Here, we will be focusing mainly on management of current
assets and current liabilities. Management of current assets needs to seek an answer to the
following question:

1. Why should you invest in current assets?

2. How much should be invested in each type of current assets?
3. What should be the proportion of short term and long-term funds to finance the current assets?
4. What sources of funds should be used to finance current assets?

WORKING CAPITAL MANAGEMENT

Working Capital is the lifeblood and controlling nerve of an organization. ONGC being a large
organization, dealing in exploration and exploitation of hydrocarbons requires a large amount of
funds. The complexity and risks involved in exploration business like whole procedure of search of
oil, geographical and physical conditions, day to day reduction in oil reserves and many other things
tend to maintain a substantial amount of working capital. Hence, there is a need for proper
management of working capital, so that day by day operations do not hamper; at the same time
there would not be any idle investment in working capital. Working Capital is the amount of capital
that a business has available to meet the day to day cash requirements of its operations. It is
concerned with the problem arise in attempting to manage the current assets, the current liabilities
and the inter relationship that exist between them. Working Capital is the difference between
resources in cash or readily convertible into cash and organizational commitments for which cash
will soon be required or within one year without undergoing a diminution in value and without
disrupting the operation of the firm. It also refers to the amount of current Assets that exceeds
current Liabilities. [1]

Working Capital refers to that part of the firm capital, which is required for financing Short-Term or
Current Assets such as Cash, Marketable Securities, Debtors and Inventories. Working Capital is
also known as Revolving or Circulating Capital or Short Term Capital. 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.

Capital required for a business can be classifies under two main categories:
• Fixed Capital
• Working Capital

Every business needs funds for two purposes for its establishments and to carry out day to day
operations. Long term funds are required to create production facilities through purchase of fixed
assets such as plant and machinery, land and building, furniture etc. Investments in these assets are
representing that part of firm’s capital which is blocked on a permanent or fixed basis and is called
fixed capital. Funds are also needed for short term purposes for the purchasing of raw materials,
payments of wages and other day to day expenses etc. These funds are known as working capital.
In simple words, Working capital refers to that part of the firm’s capital which is required for financing
short term or current assets such as cash, marketable securities, debtors and inventories.

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital:
• Balance Sheet concepts
• Operating Cycle or circular flow concept

BALANCE SHEET CONCEPT:

There are two interpretation of working capital under the balance sheet concept:
• Gross Working Capital
• Net Working Capital

The term working capital refers to the Gross working capital and represents the amount of funds
invested in current assets. Thus, the gross working capital is the capital invested in total current
assets of the enterprises. Current assets are those assets which are converted into cash within short
periods of normally one accounting year. Example of current assets is:
Constituents of Current Assets:

• Cash in hand and Bank balance

• Bills Receivable
• Sundry Debtors
• Short term Loans and Advances
• Inventories of Stock as:
Raw Materials
Work in Process
Stores and Spaces
Finished Goods
• Temporary Investments of Surplus Funds
• Prepaid Expenses
• Accrued Incomes

The term working capital refers to the net working capital. Net working capital is the excess of
current assets over current liabilities or say:

Net Working Capital = Current Assets – Current Liabilities.

NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:

When the current assets exceed the current liabilities, the working capital is positive and the
negative working capital results when the current liabilities are more than the current assets. Current
liabilities are those liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year of the current assets or the income of the business.
Examples of current liabilities are:

CONSTITUENTS OF CURRENT LIBILITIES:

• Bills Payable
• Sundry Creditors or Account Payable
• Accrued or Outstanding Expenses
• Short term Loans, Advances and Deposits
• Dividends Payable
• Bank Overdraft
• Provision for Taxation, If does not amount to appropriation of profits.
The gross working capital concept is financial or going concern concept whereas net working capital
is an accounting concept of working capital.

OPERATING CYCLE OR CIRCULATING CASH FORMAT:

Working Capital refers to that part of firm’s capital which is required for financing short term or
current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in
current assets keep revolving fast and being constantly converted into cash and these cash flows
out again in exchange for other current assets. Hence it is also known as revolving or circulating
capital. The circular flow concept of working capital is based upon this operating or working capital
cycle of a firm. The cycle starts with the purchase of raw material and other resources. [2]

And ends with the realization of cash from the sales of finished goods. It involves purchase of raw
material and stores, its conversion into stocks of finished goods through work in progress with
progressive increment of labor and service cost, conversion of finished stocks into sales, debtors
and receivables and ultimately realization of cash and this cycle continuous again from cash to
purchase of raw materials and so on. The speed/ time of duration required to complete one cycle
determines the requirements of working capital longer the period of cycle, larger is the requirement
of working capital.

Receivable conversion period Raw material storage

(RCP) conversion period (RMSCP)

Cash received form

Debtors and paid to suppliers
Of raw materials

Sales of finished Raw materials

Goods introduced into process

Finished Goods
Produced

Finished goods conversion Work in process

Period (FGCP) Conversion period
(WIPCP)
The gross operating cycle of a firm is equal to the length of the inventories and receivables
conversion periods. Thus,

Where,
RMCP = Raw Material Conversion Period
WIPCP = Work –in- Process Conversion Period
FGCP = Finished Goods Conversion Period
RCP = Receivables Conversion Period
However, a firm may acquire some resources on credit and thus defer payments for certain period.
In that case, net operating cycle period can be calculated as below:

Further, following formula can be used to determine the conversion periods.

Raw Material Conversion Period = Average Stock of Raw Material.

Raw Material Consumption per day
Work in process Conversion Period = Average Stock of Work-in-Progress
Total Cost of Production per day
Finished Goods Conversion Period = Average Stock of Finished Goods
Total Cost of Goods sold per day
Receivables Conversion Period = Average Accounts Receivables
Net Credit Sales per day
Payable Deferral Period = Average Payable
Net Credit Purchase per day

TATA MOTORS OPERATING CYCLE:

The operating cycle of Tata Motors Ltd is as follows:-

Procurement of raw material

The operating cycle for a company primarily begins with the purchase of raw materials, which are
paid for after a delay representing the creditor’s payable period. Tata Motors is a capital goods
manufacturer. Some raw materials are procured from outside, some manufactured by its own.
Sometimes it may happen that company needs product in the form of raw material manufactured by
its own SBU’s. In this case stock is transferred within the company but it won’t be considered as
actual sale and no sale tax levied but it is liable to pay excise duty since excise duty is paid on
production and it is the liability of manufacturer.
Conversion of Raw material into finished goods

These purchased raw materials are then converted by the production unit into finished goods and
then sold. The time lag between the purchase of raw materials and the sale of finished goods is
known as the inventory period.
Labor
Labor is vital for conversion of inputs into finished goods. There are three types of labour here.

Skilled Labor
Here a lob our hour rate is fixed and the number of hours required to perform that work is
determined and on the basis of this labor expenses are determined. This is treated as fixed
overheads.

Casual labor

This is not permanent labor. They are paid on daily basis to perform work of a non- recurrent nature.
They are sourced from the Contractors of the Company.
Vendoring
When there is a capacity constraint then a part of the work is done by vendors and the parts
manufactured by these vendors are assembled. This is also called job work

Conversion of Work-in-progress into finished goods

Sale of Finished Goods
Goods are sold either on cash basis or credit basis. Upon sale of finished goods on credit terms,
there exists a time lag between the sale of finished goods and the collection of cash on sale. This
period is known as the accounts receivables period
Conversion of Receivables into Cash

There are basically two ways available to vendors to pay their dues to Tata Motors Ltd. These are:-

Cash Payment method

In this a vendor is supposed to clear his dues within a limited amount of time and mode of payment
must be highly liquid. The vendors can pay by demand drafts, pay orders, or cheques of party which
are subject to realization.

Channel Financing
Channel financing is used to receive fast money from debtors. Most of the firms generally sells
goods or services on credit and it takes a little time to realize. Hence, receivables form an important
part of working capital management.

CLASSIFICATION OR KIND OF WORKING CAPITAL:

Working capital may be classified in two ways:

• On the basis of concept
• On the basis of time
On the basis of concept, working capital is classified as gross working capital and net working
capital. The classification is important from the point of view of the financial manager.
On the basis of time, working capital may be classified as:
• Permanent or Fixed working capital.
• Temporary or Variable working capital.

1. PERMANENT OR FIXED WORKING CAPITAL:

Permanent or fixed working capital is the minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. There is always a
minimum level of current assets which is continuously required by the enterprises to carry out its
normal business operations.

2. TEMPRORAY OR VARIABLE WORKING CAPITAL:

Temporary or variable working capital is the amount of working capital which is required to meet the
seasonal demands and some special exigencies.Varibles working capital can be further classified as
second working capital and special working capital. The capital required to meet the seasonal needs
of the enterprises is called the seasonal working capital.

Temporary working capital differs from permanent working capital in the sense that is required for
short periods and cannot be permanently employed gainfully in the business

IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:

Working capital is the life blood and nerve centre of a business. Just a circulation of a blood is
essential in the human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an adequate amount of
working capital. The main advantages of maintaining adequate amount of working capital are as
follows:
• Solvency of the Business
• Goodwill
• Easy Loans
• Cash discounts
• Regular supply of Raw Materials
• Regular payments of salaries, wages & other day to day commitments.
• Exploitation of favorable market conditions
• Ability of crisis
• Quick and regular return on investments
• High morals

DISADVANTAGES OF INADEQUATE WORKING CAPITAL:

Every business needs some amounts of working capital. The need for working capital arises due to
the time gap between production and realization of cash from sales. There is an operating cycle
involved in sales and realization of cash. There are time gaps in purchase of raw material and
production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
• For the purpose of raw material, components and spares.
• To pay wages and salaries
• To incur day-to-day expenses and overload costs such as office expenses.
• To meet the selling costs as packing, advertising, etc.
• To provide credit facilities to the customer.
• To maintain the inventories of the raw material, work-in-progress, stores and spares and finished
stock.
For studying the need of working capital in a business, one has to study the business under varying
circumstances such as a new concern requires a lot of funds to meet its initial requirements such as
promotion and formation etc. These expenses are called preliminary expenses and are capitalized.
The amount needed for working capital depends upon the size of the company and ambitions of its
promoters. Greater the size of the business unit, generally larger will be the requirements of the
working capital.[3]
The requirement of the working capital goes on increasing with the growth and expensing of the
business till it gains maturity. At maturity the amount of working capital required is called normal
working capital.
There are others factors also influence the need of working capital in a business.
THE NEED OR OBJECTS OF WORKING CAPITAL:
The need for working capital cannot be emphasized. Every business needs some amount of working
capital. The need of working capital arises due to the time gap between production and realization of
cash from sales. There is an operating cycle involved in the sales and realization of cash. There are
time gaps in purchase of raw materials and production, production and sales,

And sales, and realization of cash, thus, working capital is needed for the following purposes:

For the purchase of raw materials, components and spaces.

To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power and office expenses etc.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customers.
To maintain the inventories of raw materials, work –in- progress, stores and spares and finished
stock.

FACTORS DETERMING THE WORKING CAPITAL REQUIRMENT:

The working capital requirements of a concern depend upon a large number of factors such as
nature and size of the business, the characteristics of their operations, the length of production
cycle, the rate of stock turnover and the state of economic situation. However the following are the
important factors generally influencing the working capital requirements.

• NATURE OR CHARACTERSTICS OF A BUSINESS:

The nature and the working capital requirement of enterprises are interlinked. While a manufacturing
industry has a long cycle of operation of the working capital, the same would be short in an
enterprises involve in providing services. The amount required also varies as per the nature, an
enterprises involved in production would required more working capital then a service sector
enterprise.

• MANAFACTURE PRODUCTION POLICY:

Each enterprises in the manufacturing sector has its own production policy, some follow the policy of
uniform production even if the demand varies from time to time and other may follow the principles of
demand based production in which production is based on the demand during the particular phase
of time. Accordingly the working capital requirements vary for both of them.

• OPERATIONS:
The requirement of working capital fluctuates for seasonal business. The working capital needs of
such business may increase considerably during the busy.

• MARKET CONDITION:

If there is a high competition in the chosen project category then one shall need to offer sops like
credit, immediate delivery of goods etc for which the working capital requirement will be high.
Otherwise if there is no competition or less competition in the market then the working capital
requirements will be low.

• AVABILITY OF RAW MATERIAL:

If raw material is readily available then one need not maintain a large stock of the same thereby
reducing the working capital investment in the raw material stock . On other hand if raw material is
not readily available then a large inventory stocks need to be maintained, there by calling for
substantial investment in the same.

• GROWTH AND EXAPNSION:

Growth and Expansions in the volume of business result in enhancement of the working capital
requirements. As business growth and expands it needs a larger amount of the working capital.
Normally the needs for increased working capital funds processed growth in business activities.

• PRICE LEVEL CHANGES :

Generally raising price level requires a higher investment in the working capital. With increasing
prices, the same levels of current assets needs enhanced investments.

• MANAFACTURING CYCLE:
The manufacturing cycle starts with the purchase of raw material and is completed with the
production of finished goods. If the manufacturing cycle involves a longer period the need for
working capital would be more. At time business needs to estimate the requirement of working
capital in advance for proper control and management. The factors discussed above influence the
quantum of working capital in the business. The assessment of the working capital requirement is
made keeping this factor in view. Each constituents of the working capital retains it form for a certain
period and that holding period is determined by the factors discussed above. So for correct
assessment of the working capital requirement the duration at various stages of the working capital
cycle is estimated. Thereafter proper value is assigned to the respective current assets, depending
on its level of completion. The basis for assigning value to each component is given below:
COMPONENTS OF WORKING CAPITAL BASIS OF VALUATION
Stock of Raw Material Purchase of Raw Material
Stock of Work -in- Process At cost of Market value which is lower
Stock of finished Goods Cost of Production
Debtors Cost of Sales or Sales Value
Cash Working Expenses

Each constituent of the working capital is valued on the basis of valuation Enumerated above for the
holding period estimated. The total of all such valuation becomes the total estimated working capital
requirement. The assessment of the working capital should be accurate even in the case of small
and micro enterprises where business operation is not very large. We know that working capital has
a very close relationship with day-to-day operations of a business. Negligence in proper assessment
of the working capital, therefore, can affect the day-to-day operations severely. It may lead to cash
crisis and ultimately to liquidation. An inaccurate assessment of the working capital may cause either
under-assessment or over-assessment of the working capital and both of them are dangerous.[4]

FACTORS INFLUENCING THE WORKING CAPITAL REQUIREMENT

All firms do not have the same WC needs .The following are the factors that affect the WC needs:
1. Nature and size of business: The WC requirement of a firm is closely related to the nature of the
business. We can say that trading and financial firms have very less investment in fixed assets but
require a large sum of money to be invested in WC. On the other hand Retail stores, for example,
have to carry large stock of variety of goods little investment in the fixed assets.
Also a firm with a large scale of operations will obviously require more WC than the smaller firm. The
following table shows the relative proportion of investment in current assets and fixed assets for
certain industries:

Current assets
(%) Fixed assets
(%) Industries
10-20 80-90 Hotel and restaurants
20-30 70-80 Electricity generation and Distribution
30-40 60-70 Aluminum, Shipping
40-50 50-60 Iron and Steel, basic industrial chemical
50-60 40-30 Tea plantation
60-70 30-40 Cotton textiles and Sugar
70-80 20-30 Edible oils, Tobacco
80-90 10-20 Trading, Construction

2. Manufacturing cycle: It starts with the purchase and use of raw materials and completes with the
production of finished goods. Longer the manufacturing cycle larger will be the WC requirement; this
is seen mostly in the industrial products.
3. Business fluctuation: When there is an upward swing in the economy, sales will increase also the
firm’s investment in inventories and book debts will also increase, thus it will increase the WC
requirement of the firm and vice-versa.
4. Production policy: To maintain an efficient level of production the firm’s may resort to normal
production even during the slack season. This will lead to excess production and hence the funds
will be blocked in form of inventories for a long time, hence provisions should be made accordingly.
Since the cost and risk of maintaining a constant production is high during the slack season some
firm’s may resort to producing various products to solve their capital problems. If they do not, then
they require high WC.
5. Firm’s Credit Policy: If the firm has a liberal credit policy its funds will remain blocked for a long
time in form of debtors and vice-versa. Normally industrial goods manufacturing will have a liberal
credit policy, whereas dealers of consumer goods will a tight credit policy.
6. Availability of Credit: If the firm gets credit on liberal terms it will require less WC since it can
always pay its creditors later and vice-versa.
7. Growth and Expansion Activities: It is difficult precisely to determine the relationship between
volume of sales and need for WC. The need for WC does not follow the growth but precedes it.
Hence, if the firm is planning to increase its business activities, it needs to plan its WC requirements
during the growth period.
8. Conditions of Supply of Raw Material: If the supply of RM is scarce the firm may need to stock it in
advance and hence need more WC and vice-versa.
9. Profit Margin and Profit Appropriation: A high net profit margin contributes towards the WC pool.
Also, tax liability is unavoidable and hence provision for its payment must be made in the WC plan,
otherwise it may impose a strain on the WC.

Also if the firm’s policy is to retain the profits it will increase their WC, and if they decide to pay their
dividends it will weaken their WC position, as the cash will flow out. However this can be avoided by
declaring bonus shares out of past profits. This will help the firm to maintain a good image and also
not part with the money immediately, thus not affecting the WC position.

Depreciation policy of the firm, through its effect on tax liability and retained earnings, has an
influence on the WC. The firm may charge a high rate of depreciation, which will reduce the tax
payable and also retain more cash, as the cash does not flow out. If the dividend policy is linked with
net profits, the firm can pay fewer dividends by providing more depreciation. Thus depreciation is an
indirect way of retaining profits and preserving the firms WC position.[5]
PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY:

The following are the general principles of a sound working capital management policy:

1. PRINCIPLE OF RISK VARAITAION (CURRENT ASSETS POLICY):

Risk here refers to the inability of a firm to meet its obligations as and when they become due for
payment. Larger investment in current Assets with less dependence on short term borrowings,
increase liquidity, reduces risk and thereby decreases the opportunity for gain or loss. On the other
hand less investments in current assets with greater dependence on short term borrowings, reduces
liquidity and increase profitability. In other words there is a definite inverse relationship between the
degree of risk and profitability. In other words, there is a definite inverse relationship between the
risk and profitability. A conservative management prefers to minimize risk by maintaining a higher
level of current assets or working capital while a liberal management assumes greater risk by
reducing working capital. However, the goal of management should be to establish a suitable
tradeoff between profitability and risk.

2. PRINCIPLES OF COST OF CAPITAL:

The various source of raising working capital finance have different cost of capital and the degree of
risk involved. Generally, higher and risk however the risk lower is the cost and lower the risk higher
is the cost. A sound working capital management should always try to achieve a proper balance
between these two.

3. PRINCIPLE OF EQUITY POSITION:

The principle is concerned with planning the total investments in current assets. According to this
principle, the amount of working capital invested in each component should be adequately justified
by a firm’s equity position. Every rupee invested in current assets should contribute to the net worth
of the firm. The level of current assets may be measured with the help of two ratios:

1. Current assets as a percentage of total assets and

2. Current assets as a percentage of total sales
While deciding about the composition of current assets, the financial manager may consider the
relevant industrial averages.

4. PRINCIPLES OF MATURITY OF PAYMENT:

The principle is concerned with planning the source of finance for working capital. According to the
principles, a firm should make every effort to relate maturities of payment to its flow of internally
generated funds. Maturity pattern of various current obligations is an important factor in risk
assumptions and risk assessments. Generally shorter the maturity schedule of current liabilities in
relation to expected cash inflows, the greater the inability to meet its obligations in time.

CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL:

Growth may be stunted. It may become difficult for the enterprises to undertake profitable projects
due to non availability of working capital.
Implementations of operating plans may brome difficult and consequently the profit goals may not
be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to non availability of the
working capital.

The business may fail to honour its commitment in time thereby adversely affecting its creditability.
This situation may lead to business closure. The business may be compelled to by raw materials on
credit and sell finished goods on cash. In the process it may end up with increasing cost of purchase
and reducing selling price by offering discounts. Both the situation would affect profitable adversely.
Now avaibility of stocks due to non availability of funds may result in production stoppage. While
underassessment of working capital has disastrous implications on business overassesments of
working capital also has its own dangerous.[7]

CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:

Excess of working capital may result in un necessary accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and very poor recovery system  & cash
management.
It may make management complacent leading to its inefficiency.
Over investment in working capital makes capital less productive and may reduce return on
investment.

Working Capital is very essential for success of business & therefore needs efficient management
and control. Each of the components of working capital needs proper management to optimize profit.
CHAPTER – 2

REVIEW OF LITERATURE

The purpose of this chapter is to present a review of literature relating to the working capital
management. Although working capital is an important ingredient in the smooth working of business
entities, it has not attracted much attention of scholars. Whatever studies have conducted, those
have exercised profound influence on the understanding of working capital management good
number of these studies which pioneered work in this area have been conducted abroad, following
which, Indian scholars have also conducted research studies exploring various aspects of working
capital. Special studies have been undertaken, mostly economists, to study the dynamics of
inventory investment which often represented largest component of total working capital.

Every business needs funds for two purposes basically; they are for establishment and to carry day-
to-day operations. Long term funds are required for establishment of the organization, it is required
for production facility through purchase of fixed assets and it needs fixed capital and the funds which
are needed for short term purposes for the purchase of raw materials, payment of wages, payment
of day to day expenses etc, the funds required for these are known as WORKING CAPITAL.[6]

Working capital refers to that part of the firm’s capital which is required for financing short term or
current assets such as cash, marketable securities, debtors and inventories. Funds, thus, invested in
current assets keep revolving fast and are being constantly converted into cash and this cash flow
out in exchange for other current assets. Hence it is also known as CIRCULATING CAPITAL or
REVOLVING CAPITAL or SHORT TERM CAPITAL.

ACCORDING TO GENESTENBERG:-
“Circulating capital means current assets of a company that are changed in the ordinary course of
business from one form to another, as for example, from cash to inventories, inventories to
receivables into cash.”

Need for working capital cannot be over emphasized. Every business needs some amount of
working capital. The need of working capital arises due to the time gap between production and
realization of cash from sales. Thus, the working capital is needed for the following purposes:-
a) For the purchase of raw materials, components and spares.
b) To pay wages and salaries.
c) To incur day-to-day expenses and overhead costs such as fuel, power and office expenses etc.
d) To met the selling costs as packing, advertising etc.
e) To provide credit facility to customers.
f) To maintain the inventories of raw material, work-in-progress, stores and spares and finished
stock.

For studying the need of working capital in a business, one has to study the business under varying
circumstances such as a new concern, as a going concern and as one which has attained maturity.
Many researchers have studied working capital from different views and in different environments.
The following ones were very interesting and useful for our research

According to Eljelly, in 2004:-

Elucidated that efficient liquidity management involves planning and controlling current assets and
current liabilities in such a manner that eliminates the risk of inability to meet due short-term
obligations and avoids excessive investment in these assets. The relation between profitability and
liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on a
sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The
study found that the cash conversion cycle was of more importance as a measure of liquidity than
the current ratio that affects profitability. The size variable was found to have significant effect on
profitability at the industry level. The results were stable and had important implications for liquidity
management in various Saudi companies. First, it was clear that there was a negative relationship
between profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample
examined. Second, the study also revealed that there was great variation among industries with
respect to the significant measure of liquidity.

According to Deloof, in 2003:-

Discussed that most firms had a large amount of cash invested in working capital. It can therefore be
expected that the way in which working capital is managed will have a significant impact on
profitability of those firms. Using correlation and regression tests he found a significant negative
relationship between gross operating income and the number of days accounts receivable,
inventories and accounts payable of Belgian firms. On basis of these results he suggested that
managers could create value for their shareholders by reducing the number of days accounts
receivable and inventories to a reasonable minimum. The negative relationship between accounts
payable and profitability is consistent with the view that less profitable firms wait longer to pay their
bills.[8]

According to Ghosh and Maji, in 2003:-

In this paper made an attempt to examine the efficiency of working capital management of the Indian
cement companies during 1992 – 1993 to 2001 – 2002. For measuring the efficiency of working
capital management, performance, utilization, and overall efficiency indices were calculated instead
of using some common working capital management ratios. Setting industry norms as target-
efficiency levels of the individual firms, this paper also tested the speed of achieving that target level
of efficiency by an individual firm during the period of study. Findings of the study indicated that the
Indian Cement Industry as a whole did not perform remarkably well during this period.

According to Shin and Soenen, in 1998:-

Highlighted that efficient Working Capital Management (WCM) was very important for creating value
for the shareholders. The way working capital was managed had a significant impact on both
profitability and liquidity. The relationship between the lengths of Net Trading Cycle, corporate
profitability and risk adjusted stock return was examined using correlation and regression analysis,
by industry and capital intensity. They found a strong negative relationship between lengths of the
firm’s net trading Cycle and its profitability. In addition, shorter net trade cycles were associated
with higher risk adjusted stock returns.

The Effect of Working Capital Management on Firm Profitability: Evidence from Turkey

F. Samiloglu and K. Demirgunes (2008)

The aim of this study is to analyze the effect of working capital management on firm profitability. In
accordance with this aim, to consider statistically significant relationships
between firm profitability and the components of cash conversion cycle at length, a sample
consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the period of 1998-2007
has been analyzed under a multiple regression model. Empirical findings of the study show that
accounts receivables period, inventory period and leverage affect firm profitability negatively, while
growth (in sales) affects firm profitability positively. All the above studies provide us a solid base and
give us idea regarding working capital management and its components. They also give us the
results and conclusions of those researches already conducted on the same area for different
countries and environment from different aspects. On basis of these researches done in different
countries, we have developed our own methodology for research.[10]

According to Smith and Begemann 1997:-

Emphasized that those who promoted working capital theory shared that profitability and liquidity
comprised the salient goals of working capital management. The problem arose because the
maximization of the firm’s returns could seriously threaten its liquidity, and the pursuit of liquidity had
a tendency to dilute returns. This article evaluated the association between traditional and alternative
working capital measures and return on investment (ROI), specifically in industrial firms listed on the
Johannesburg Stock Exchange (JSE). The problem under investigation was to establish whether the
more recently developed alternative working capital concepts showed improved association with
return on investment to that of traditional working capital ratios or not. Results indicated that there
were no significant differences amongst the years with respect to the independent variables. The
results of their stepwise regression corroborated that total current liabilities divided by funds flow
accounted for most of the variability in Return on Investment (ROI). The statistical test results
showed that a traditional working capital leverage ratio, current liabilities divided by funds flow,
displayed the greatest associations with return on investment. Wellknown liquidity concepts such as
the current and quick ratios registered insignificant associations whilst only one of the newer working
capital concepts, the comprehensive liquidity index, indicated significant associations with return on
investment. All the above studies provide us a solid base and give us idea regarding working capital
management and its components. They also give us the results and conclusions of those researches
already conducted on the same area for different countries and environment from different aspects.
On basis of these researches done in different countries, we have developed our own methodology
for research.
According to Marc Deloof 25th April 2003:-
The relation between working capital management and corporate profitablity is investigated for a
sample of 1,009 large Belgian non-financial firms for the 1992-1996 period. Trade credit policy and
inventory policy are measured by number of days accounts receivable, accounts payable and
inventories, and the cash conversion cycle is used as a comprehensice measure of working capital
management. The results suggest that managers can increase corporate profitablity by reducing the
number of days accounts receivable and inventories. Less profitable firms wait longer to pay their
bills.[11]

M. A., Zariyawati a, M. N., Annuar b and A.S., Abdul Rahim c a ,b & c Univeristi Putra Malaysia,
Malaysia.

Working capital management is important part in firm financial management decision. An optimal
working capital management is expected to contribute positively to the creation of firm value. To
reach optimal working capital management firm manager should control the trade off between
profitability and liquidity accurately. The purpose of this study is to investigate the relationship
between working capital management and firm profitability. Cash conversion cycle is used as
measure of working capital management. This study is used panel data of 1628 firm-year for the
period of 1996-2006 that consist of six different economic sectors which are listed in Bursa Malaysia.
The coefficient results of Pooled OLS regression analysis provide a strong negative significant
relationship between

Amber Collins University of Phoenix:-

Working Capital Management Concepts Worksheet Concept Application of Concept in the

Simulation Reference to Concept in Reading Describe the firm’s cash conversion cycle: Cash inflow
“Most firms keep track of the average time it takes customers to pay their bills. From this they can
forecast what proportion of a quarter’s sales is likely to be converted into cash in that quarter and
what proportion is likely to be carried over to the next quarter as accounts receivable” (Allen,
Brealey, & Myers 2005). Lawrence having a positive cash balance would have help in the event of
emergencies as well as unplanned outflow of money. Cash flow comes from collections on accounts
receivable (Allen, Brealey, & Myers 2005). Examine the effects of credit policy on cash conversion
cycle and revenue: Commitment Lawrence had a commitment to the bank, Mayo, Murray, and
Gartner.

According to Carole Howorth and Paul Westhead March 2003:-

Working capital management routines of a large random sample of small companies in the UK are
examined. Considerable variability in the take-up of 11 working capital management routines was
detected. Principal components analysis and cluster analysis confirm the identification of four distinct
‘types’ of companies with regard to patterns of working capital management. The first three ‘types’ of
companies focused upon cash management, stock or debtors routines respectively, whilst the fourth
‘type’ were less likely to take-up any working capital management routines. Influences on the
amount and focus of working capital management are discussed. Multinomial logistic regression
analysis suggests that the selected independent variables successfully discriminated between the
four ‘types’ of companies. The results suggest that small companies focus only on areas of working
capital management where they expect to improve marginal returns. The difficulties of establishing
causality are highlighted and implications for academics, policy-makers and practitioners are
reported.

According to Maynard E. Rafuse, (1996):-

Argues that attempts to improve working capital by delaying payment to creditors is counter-
productive to individuals and to the economy as a whole. Claims that altering debtor and creditor
levels for individual tiers within a value system will rarely produce any net benefit. Proposes that
stock reduction generates system-wide financial improvements and other important benefits. Urges
those organizations seeking concentrated working capital reduction strategies to focus on stock
management strategies based on “lean supply-chain” techniques.

According to James A. Gentry, Dileep R. Mehta:-

Working capital literature is rather limited and the process of managing shortterm resources is not
understood well by academicians. In contrast, corporate managers are continuously involved in the
working capital decision-making process, but their perspective is limited to the practices within their
firm. In order to fill this gap in the working capital literature, a study of management perceptions of
the working capital process was undertaken. A survey was used to collect information from a sample
of marketing, production, and financial executives in large corporations in Belgium, France, India,
and the United States. The study interprets management ranking of working capital objectives and
indicates the need to improve financial planning models to include explicitly short-run objectives;
further, predictability of cash inflows and outflows is examined and the potential factors affecting
predictability are evaluated. Finally, this study examines management perceptions of long-range
objectives in order to provide a proper perspective to the short run financial planning.[9]

According to M.K. Kolay:-

The article analyses the “pros” and “cons” of different strategies to be adopted to manage and avoid
working capital crisis situations in any organisation. The working capital position depends on many
organisational parameters which are interrelated and interdependent, and also vary over time. In
such a situation, the use of a system dynamics approach has been advocated to reflect the relevant
dynamic cause-and-effect relationships for the development of appropriate long-term and short-term
strategies.

According to Wang Zhuquan et al 2007:-

Working capital management is the main contents of corporate finance, so the study in this field
should gain much attention. Compared with the rapidly development of the practice, the
development of the theory has been lagged obviously since 1990’s.We suggest that the study
should begin from the reclassification of working capital, and then, the new framework of the theory
should be set up, which is based on the supply-chain management, the channel management and
the customer relationship management. Meanwhile, we should launch on the survey of working
capital management of Chinese companies and promulgate the results, which can offer the data for
the study and evaluation of working capital management.

According to James A. Gentry, Paul Newbold, David T. Whitford, (1984)

The objectives of this study are to offer cash based funds flow components as an alternative to
financial ratios for classifying the financial performance of companies; to test empirically the ability of
funds flow components to distinguish between failed and no failed companies with special emphasis
on working capital components; to analyze the empirical results and make recommendations for
future study.

According to Jeffrey Ashe 2000:-

Working Capital is the United States’ largest peer-group lending program. This article reviews what
Working Capital has learned about the market, its customers, program impact, and service delivery
over its ten year history. It presents a model for understanding how participating in peer lending
groups develops “social and economic capital” in poor communities. The article then discusses how
participants judge the group model as they identify the characteristics of successful groups and the
impact of the group on their businesses, on themselves personally, and on the larger community.
The rest of the article discusses how Working Capital evolved from a start-up operation in a single
town into a multistate program and explores the advantages and limitations of rapid expansion. A
checklist for choosing affiliate partners is presented, along with a list of the lessons learned about
delivering services though affiliates.
According to Alan P. Hamlin, David F. Heathfield 2000:-
Working capital is a necessary input to the production process and yet is ignored in most economic
models of production. The implications of modeling the time dimension of production, and hence the
working capital requirements of firms, are explored, with particular stress placed on the competitive
advantage gained by firms that retain flexibility in the time structure of their production.

According to VELLANKI S.S. KUMAR, AWAD S. HANNA, TERESA ADAMS, (2000):-

The systematic assessment of working capital requirement in construction projects deals with the
analysis of various quantitative and qualitative factors in which information is subjective and based
on uncertainty. There exists an inherent difficulty in the classical approach to evaluate the impact of
qualitative factors for the assessment of working capital requirement. This paper presents a
methodology to incorporate linguistic variables into workable mathematical propositions for the
assessment of working capital using fuzzy set theory. This article takes into consideration the
uncertainty associated with many of the project resource variables and these are reflected
satisfactorily in the working capital computations. A case study illustrates the application of the fuzzy
set approach. The results of the case study demonstrate the superiority of the fuzzy set approach to
classical methods in the assessment of realistic working capital requirements for construction
projects.[12]
According to Richard Petty, James Guthrie, (2000):-

The rise of the “new economy”, one principally driven by information and knowledge, is attributed to
the increased prominence of intellectual capital (IC) as a business and research topic. Intellectual
capital is implicated in recent economic, managerial, technological, and sociological developments in
a manner previously unknown and largely unforeseen. Whether these developments are viewed
through the filter of the information society, the knowledge-based economy, the network society, or
innovation, there is much to support the assertion that IC is instrumental in the determination of
enterprise value and national economic performance. First, we seek to review some of the most
significant extant literature on intellectual capital and its developed path. The emphasis is on
important theoretical and empirical contributions relating to the measurement and reporting of
intellectual capital. The second part of this paper identifies possible future research issues into the
nature, impact and value of intellectual management and reporting.

According to Sushma Vishnani, FCA, and Finance Faculty:-

It is felt that there is the need to study the role of working capital management policies on profitability
of a company. Conventionally, it has been seen that if a company desires to take a greater risk for
bigger profits and losses, it reduces the size of its working capital in relation to its sales. If it is
interested in improving its liquidity, it increases the level of its working capital. However, this policy is
likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company should
strike a balance between liquidity and profitability. In this paper an effort has been made to make an
empirical study of Indian Consumer Electronics Industry for assessing the impact of working capital
policies & practices on profitability during the period 1994–95 to 2004–05. The impact of working
capital policies on profitability has been examined by computing coefficient of correlation and
regression analysis between profitability ratio and some key working capital policy indicator ratios.

According to Charles O. Egbu, (2004):-

Innovation is viewed as a major source of competitive advantage and is perceived to be a pre-

requisite for organizational success and survival. The ability to innovate depends largely on the way
in which an organisation uses and exploits the resources available to it. The paper explores the
importance of knowledge management (KM) and intellectual capital (IC) in organisations. It also
considers the critical factors that lead to successful innovations and the role of KM and IC in this
regard. The paper argues that effective management of knowledge assets involves a holistic
approach to a host of factors. It is also suggested that there are a host of factors that combine in
different ways to produce successful organizational innovations.[14] It recommends that more is
needed on the education and training of construction personnel and that these education and
training programmes should reflect the nature of innovation and KM dimensions as very complex
social processes.

According to Kenneth A. Froot and Jeremy C. Stein in 1998:-

We develop a framework for analyzing the capital allocation and capital structure decisions facing
financial institutions. Our model incorporates two key features: (i) value-maximizing banks have a
well-founded concern with risk management; and (ii) not all the risks they face can be frictionlessly
hedged in the capital market. This approach allows us to show how bank-level risk management
considerations should factor into the pricing of those risks that cannot be easily hedged. We
examine several applications, including: the evaluation of proprietary trading operations, and the
pricing of unhedgeable derivatives positions. We also compare our approach to the RAROC
methodology that has been adopted by a number of banks.

According to Pradeep Singh (2008):-

Empirically analysed that a firm’s working capital consists of its investments in current assets, which
includes short-term assets—cash and bank balance, inventories, receivable and marketable
securities. Therefore, the working capital management refers to the management of the levels of all
these individual current assets. On the other hand, inventory, which is one of the important elements
of current assets, reflects the investment of a firm’s fund. Hence, it is necessary to efficiently
manage inventories in order to avoid unnecessary investments. A firm, which neglects the
management of inventories, will have to face serious problems relating to long-term profitability and
may fail to survive. With the help of better inventory management, a firm can reduce the levels of
inventories to a considerable degree. ‘This paper tries to evaluate the effect of the size of inventory
and the impact on working capital through inventory ratios, working capital ratios, trends,
computation of inventory and working capital, and liquidity ranking. Finally, it was found that the size
of inventory directly affects working capital and it’s management. Size of the inventory and working
capital of Indian Farmers Fertilizer Cooperative Limited (IFFCO) is properly managed and controlled
compared to National Fertilizer Ltd. (NFL). [17]

According to Pedro Juan Garcı´a-Teruel and Pedro Martı´nez-Solano (2007):-

Conducted research for the object of the research presented in this paper is to provide empirical
evidence on the effects of working capital management on the profitability of a sample of small and
medium-sized Spanish firms. The results, which are robust to the presence of endogeneity,
demonstrate that managers can create value by reducing their inventories and the number of days
for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also
improves the firm’s profitability. The aim is to ensure that the relationships found in the analysis
carried out are due to the effects of the cash conversion cycle on corporate profitability and not vice
versa.

According to Naila Iqbal (2001):-

Examined that for increasing shareholder’s wealth a firm has to analyze the effect of fixed assets
and current assets on its return and risk. Working Capital Management is related with the
Management of current assets. The Management of current assets is different from fixed assets on
the basis of the following points i.e Current assets are for short period while fixed assets are for
more than one Year.The large holdings of current assets, especially cash, strengthens Liquidity
position but also reduces overall profitability, and to maintain an optimum level of liquidity and
profitability, risk return trade off is involved holding Current assets.Only Current Assets can be
adjusted with sales fluctuating in the short run. Thus, the firm has greater degree of flexibility in
managing current Assets. The management of Current Assets helps affirm in building a good market
reputation regarding its business and economic condition.

According to Vellanki S. Kumar, Awad S.Hanna, Teresa Adams (2000):-

Conducted research and examined that the systematic assessment of working capital requirement in
construction projects deals with the analysis of various quantitative and qualitative factors in which
information is subjective and based on uncertainty. There exists an inherent difficulty in the classical
approach to evaluate the impact of qualitative factors for the assessment of working capital
requirement. This paper presents a methodology to incorporate linguistic variables into workable
mathematical propositions for the assessment of working capital using fuzzy set theory. This article
takes into consideration the uncertainty associated with many of the project resource variables and
these are reflected satisfactorily in the working capital computations. A case study illustrates the
application of the fuzzy set approach. The results of the case study demonstrate the superiority of
the fuzzy set approach to classical methods in the assessment of realistic working capital
requirements for construction projects.[16]

According to Maynard E. Rafuse (1996):-

Argues that attempts to improve working capital by delaying payment to creditors is counter-
productive to individuals and to the economy as a whole. Claims that altering debtor and creditor
levels for individual tiers within a value system will rarely produce any net benefit. Proposes that
stock reduction generates system wide financial improvements and other important benefits. Urges
those organizations seeking concentrated working capital reduction strategies to focus on stock
management strategies based on “lean supply-chain” techniques.

Studies on Working Capital Management

Studies adopting a new approach towards working capital management are reviewed here. Sagan in
his paper (1999),1 perhaps the first theoretical paper on the theory of working capital management,
emphasized the need for management of working capital accounts and warned that it could vitally
affect the health of the company. He realized the need to build up a theory of working capital
management. He discussed mainly the role and functions of money manager inefficient working
capital management. Sagan pointed out the money manager’s operations were primarily in the area
of cash flows generated in the course of business transactions. However, money manager must be
familiar with what is being done with the control of inventories, receivables and payables because all
these accounts affect cash position. Thus, Sagan concentrated mainly on cash component of
working capital. Sagan indicated that the task of money manager was to provide funds as and when
needed and to invest temporarily surplus funds as profitably as possible in view of his particular
requirements of safety and liquidity of funds by examining the risk and return of various investment
opportunities. He suggested that money manager should take his decisions on the basis of cash
budget and total current assets position rather than on the basis of traditional working capital ratios.
This is important because efficient money manager can avoid borrowing from outside even when his
net working capital position is low. The study pointed out that there was a need to improve the
collection of funds but it remained silent about the method of doing it. Moreover, this study is
descriptive without any empirical support.

Welter, in his study (2001), stated that working capital originated because of the global delay
between the moment expenditure for purchase of raw material was made and the moment when
payments were received for the sale of finished product. Delay centres are located throughout the
production and marketing functions. The study requires specifying the delay centres and working
capital tied up in each delay centre with the help of information regarding average delay and added
value. He recognized that by more rapid and precise information through computers and improved
professional ability of management, saving through reduction of working capital could be possible by
reducing the length of global delay by rescuing and/or favorable redistribution of this global delay
among the different delay centres. However, better information and improved staff involve cost.
Therefore, savings through reduction of working capital should be tried till these saving are greater
or equal to the cost of these savings. Thus, this study is concerned only with return aspect of
working capital management ignoring risk. Enterprises, following this approach, can adversely affect
its short-term liquidity position in an attempt to achieve saving through reduction of working capital.
Thus, firms should be conscious of the effect of law current assets on its ability to pay-off current
liabilities. Moreover, this approach concentrated only on total amount of current assets ignoring the
interactions between current assets and current liabilities. [15]

CHAPTER – 3

OBJECTIVE AND SCOPE OF THE PROJECT

Objective:

1. To analyze the various components of working capital of Tata Motors Ltd.

2. To study the financing of working capital of Tata Motors Ltd.

Scope:
3.
The management of working capital helps us to maintain the working capital at a satisfactory level by
managing the current assets and current liabilities.
CHAPTER – 4

RESEARCH METHODOLOGY

Research methodology in a way is a written game plan for conducting research. Research
methodology has many dimensions. It includes not only the research methods but also considers the
logic behind the methods used in the context of the study and complains why only a particular
method of technique has been used. Descriptive research procedure was used for describing the
recent situations in the organization and analytical research to analyze the results by using research
tools.

Data source & Collection Methods:

Secondary Data:

Here will be done the analysis on basis of secondary data, which include:
Balance Sheet of company

Tools used:
I was using the different tools to analyze the working capital management of Tata Motors Limited:–

Analysis through Working capital ratios.

Current ratio
Quick ratio

STASTICAL TOOLS:

The tools used in this study were MS-EXCEL, MS-WORD. MS-EXCEL was used to prepare pie-
charts and graph.

TIME FRAME OF THE STUDY:

5 years financial statements of Tata Motors Limited are:

CHAPTER – 5

DATA ANALYSIS AND INTERPRETATION

Balancesheet – Tata Motors Ltd. Rs (in Crores)

Particulars Mar’13 Mar’12 Mar’11 Mar’10 Mar’09

Liabilities 12 Months 12 Months 12 Months 12 Months 12 Months
Share Capital 638.07 634.75 637.71 570.60 514.05
Reserves & Surplus 18496.77 18991.26 19375.59 14208.55 11855.15
Net Worth 19134.84 19626.01 20013.30 14803.78 12394.27
Secured Loan 5877.72 6915.77 7708.52 7742.60 5251.65
Unsecured Loan 8390.97 4095.86 6929.67 8883.31 7913.91
TOTAL LIABILITIES 33403.53 30637.64 34651.49 31429.69 25559.83
Assets
Gross Block 25190.73 23676.46 21002.78 18416.81 13905.17
(-) Acc. Depreciation 9734.99 8656.94 7585.71 7212.92 6259.90
Net Block 15455.74 15019.52 13417.07 11179.26 7620.20
Capital Work in Progress 4752.80 4036.67 3799.03 5232.15 6954.04
Investments 19934.39 20493.55 22624.21 22336.90 12968.13
Inventories 4455.03 4588.23 3891.39 2935.59 2229.81
Sundry Debtors 1818.04 2708.32 2602.88 2391.92 1555.20
Cash and Bank 462.86 1840.96 2428.92 1753.26 1141.82
Loans and Advances 5305.91 5832.03 5426.95 5248.71 5909.75
Total Current Assets 12041.84 14969.54 14350.14 12329.48 10836.58
Current Liabilities 16580.47 20280.82 16271.85 16909.30 10968.95
Provisions 2200.77 3600.82 3267.11 2763.43 1877.26
Total Current Liabilities 18781.24 23881.64 19538.96 19672.73 12846.21
NET CURRENT ASSETS -6739.40 -8912.10 -5188.82 -7343.25 -2009.63
Misc. Expenses .00 .00 .00 .00 2.02
TOTAL ASSETS(A+B+C+D+E) 33403.53 30637.64 34651.49 31429.69 25559.83

Profit & Loss – Tata Motors Ltd. Rs (in Crores)

Mar’13 Mar’12 Mar’11 Mar’10 Mar’09
12Months 12Months 12Months 12Months 12Months
INCOME:
Sales Turnover 44765.72 54306.56 47088.44 38173.39 28538.20
Excise Duty .00 .00 .00 2800.10 2877.53
NET SALES 44765.72 54306.56 47088.44 35373.29 25660.67
Other Income 0 0 0 0 0
TOTAL INCOME 46853.92 54880.64 47511.41 35775.56 26502.21
EXPENDITURE:
Manufacturing Expenses 910.42 550.89 471.28 1652.22 1171.59
Material Consumed 33620.80 40457.95 34692.83 24759.49 19039.41
Personal Expenses 2837.00 2691.45 2294.02 1836.13 1551.39
Selling Expenses .00 .00 .00 1583.24 1224.15
Administrative Expenses 5679.52 6428.72 4965.17 2249.92 1867.05
Expenses Capitalised .00 .00 .00 -740.54 -916.02
Provisions Made .00 .00 .00 .00 .00
TOTAL EXPENDITURE 43047.74 50129.01 42423.30 31340.46 23937.57
Operating Profit 1717.98 4177.55 4665.14 4032.83 1723.10
EBITDA 3806.18 4751.63 5088.11 4435.10 2564.64
Depreciation 1817.62 1606.74 1360.77 1033.87 874.54
Other Write-offs .00 .00 .00 144.03 51.17
EBIT 1988.56 3144.89 3727.34 3257.20 1638.93
Interest 1387.76 1218.62 1383.70 1246.25 704.92
EBT 600.80 1926.27 2343.64 2010.95 934.01
Taxes -126.88 98.80 384.70 589.46 12.50
Profit and Loss for the Year 727.68 1827.47 1958.94 1421.49 921.51
Non Recurring Items -425.87 -585.24 -147.12 818.59 79.75
Other Non Cash Adjustments .00 .00 .00 .00 15.29
Other Adjustments .00 .00 .00 .00 -15.29
REPORTED PAT 301.81 1242.23 1811.82 2240.08 1001.26
KEY ITEMS
Preference Dividend .00 .00 .00 .00 .00
Equity Dividend 566.17 1280.70 1274.23 859.05 311.61
Equity Dividend (%) 88.73 201.76 199.81 150.55 60.61
Shares in Issue (Lakhs) 31901.16 31735.47 6346.14 5705.58 5140.08
EPS – Annualised (Rs) .95 3.91 28.55 39.26 19.48

Cash Flow Rs (in Crores)

Particulars Mar’13 Mar’12 Mar’11 Mar’10 Mar’09

Profit Before Tax 301.81 1242.23 1811.82 2240.08 1001.26
Net Cash Flow from Operating Activity 2258.44 3653.59 1505.56 6586.03 1295.02
Net Cash Used in Investing Activity 991.50 144.72 -2521.88 -11848.29 -10644.67
Net Cash Used in Financing Activity -4045.69 -4235.59 1648.42 5348.49 8104.70
Net Inc/Dec In Cash and Cash Equivalent -714.07 -432.50 635.87 86.23 -1244.95
Cash and Cash Equivalent – Beginning of the Year 919.64 1352.14 716.27 630.04 2386.77
Cash and Cash Equivalent – End of the Year 205.57 919.64 1352.14 716.27 1141.82

Capital Structure – Tata Motors Ltd.

Period Instrument Authorized Capital Issued Capital – P A I D U P –

From To (Rs. cr) (Rs. cr) Shares (nos) Face Value Capital (Rs. Cr)
2012 2013 Equity Share 900.0 638.0 3190115771 2.0 638.0
2011 2012 Equity Share 900.0 634.7 3173546570 2.0 634.7
2010 2011 Equity Share 900.0 634.6 634613990 10.0 634.6
2009 2010 Equity Share 900.0 570.6 570557544 10.0 570.6
2008 2009 Equity Share 900.0 514.0 514008314 10.0 514.0
2007 2008 Equity Share 450.0 385.5 385503954 10.0 385.5
2006 2007 Equity Share 450.0 385.4 385373885 10.0 385.4
2005 2006 Equity Share 410.0 382.8 382834131 10.0 382.8
2004 2005 Equity Share 400.0 361.8 361751751 10.0 361.8
2003 2004 Equity Share 400.0 353.0 352958130 10.0 353.0
2002 2003 Equity Share 350.0 319.9 319784387 10.0 319.8
2001 2002 Equity Share 350.0 319.9 319782395 10.0 319.8
2000 2001 Equity Share 350.0 255.9 255856343 10.0 255.9
1999 2000 Equity Share 300.0 255.9 255856343 10.0 255.9
1998 1999 Equity Share 300.0 255.9 255856832 10.0 255.9
1996 1998 Equity Share 300.0 255.9 255920932 10.0 255.9
1995 1996 Equity Share 300.0 241.9 241884646 10.0 241.9
1994 1995 Equity Share 200.0 137.1 137062019 10.0 137.1
1993 1994 Equity Share 200.0 128.8 128844214 10.0 128.8
1992 1993 Equity Share 145.5 139.6 114453700 10.0 114.5
1992 1993 Equity Share 145.5 139.6 14372540 7.5 10.8
1991 1992 Equity Share 145.5 117.5 106437808 10.0 106.4
1991 1992 Equity Share 145.5 117.5 22059800 5.0 11.0
1990 1991 Equity Share 145.5 103.7 103673600 10.0 103.7
1989 1990 Equity Share 145.5 103.7 103673600 10.0 103.7
1987 1989 Equity Share 145.5 103.7 10366501 100.0 103.7
1983 1984 Equity Share 55.5 52.9 5286732 100.0 52.9
1982 1983 Equity Share 55.5 40.9 4092197 100.0 40.9
1981 1982 Equity Share 55.5 40.9 4092197 100.0 40.9
1978 1979 Equity Share 3.6 2.9 2922998 10.0 2.9
1977 1978 Equity Share 25.5 18.9 1889856 100.0 18.9
1975 1977 Equity Share 17.5 15.7 1574880 100.0 15.7
1971 1974 Equity Share 17.5 15.1 1510915 100.0 15.1
1967 1971 Equity Share 15.0 14.4 1434928 100.0 14.3
1966 1967 Equity Share 13.0 12.3 1229630 100.0 12.3
1965 1966 Equity Share 13.0 12.0 1199582 100.0 12.0
1963 1965 Equity Share 13.0 12.0 999935 100.0 10.0
1962 1963 Equity Share 13.0 10.0 799993 100.0 8.0
1959 1962 Equity Share 8.0 8.0 799538 100.0 8.0
1955 1957 Equity Share 5.0 5.0 500000 100.0 5.0
1950 1955 Equity Share 4.0 3.0 300000 100.0 3.0
1948 1950 Equity Share 4.0 2.0 200000 100.0 2.0
1945 1948 Equity Share 4.0 2.0 20000 1000.0 2.0

NET WORKING CAPITAL SIZE

NET WORKING CAPITAL SIZE (Rs. CRORE)

YEAR TOTAL CURRENT ASSETS TOTAL CURRENT LIABILITIES NET WORKING CAPITAL
2012-2013 12041.84 18781.24 -6739.4
2011-12 789789 9789789 -8912.1
2010-11 789789 19538.96 -5188.82
2009-10 879789 789789 978978
2008-09 87978978 12846.21 789879

Observations:-

It was observed that major source of liquidity problem is not the mismatch between current
payments and current receipts from the Comparison of funds flow statements of Tata Motors for five
years. This company net working capital is continue decrease and to the present level is not good.
The growth in working capital is a clear indication that the company does utilizing its short term
resources with efficiency. In year 2008-09 the company net working capital was -2009.63 and after 3
years it decreasing and 2011-12the company net working capital was -8912.1cr.

CURRENT ASSETS

Total assets are basically classified in two parts as fixed assets and current assets. Fixed assets are
in the nature of long term or life time for the organization. Current assets convert in the cash in the
period of one year. It means that current assets are liquid assets or assets which can convert in to
cash within a year.

Current Assets Size (Rs. Crore)

YEAR 2012-2013 2011-12 2010-11 2009-10 2008-09

Inventories 768678768 4588.23 789789 2935.59 2229.81
Sundry Debtors 67867878 76867867 9789789 897897 1555.2
Cash and Bank 67867867867 67876876 2428.92 1753.26 1141.82
Loans and Advances 8768768 76867867 5426.95 5248.71 5909.75
Total Current Assets 12041.84 14969.54 14350.14 12329.48 10836.58

Observations:-

It was observed that the size of current assets is increasing with increases in the sales. The excess
of current assets is showing positive liquidity position of the firm but it is not always good because
excess current assets then required, it may adversely affects on profitability. Current assets include
some funds investments for which company pay interest.

CURRENT LIABILITIES

Current liabilities mean the liabilities which have to pay in current year. It includes sundry creditor’s
means supplier whose payment is due but not paid yet, thus creditors called as current liabilities.
Current liabilities also include short term loan and provision as tax provision. Current liabilities also
includes bank overdraft. For some current assets like bank overdrafts and short term loan, company
has to pay interest thus the management of current liabilities has importance

Total Current Liabilities Size

(Rs. Crore)
YEAR 2012-2013 2011-12 2010-11 2009-10 2008-09
Current Liabilities 16580.47 787687 1677878.85 16909.3 10968.95
Provisions 2200.77 3600.82 3267.11 2763.43 1877.26
Total Current Liabilities 18781.24 23881.64 19538.96 19672.73 12846.21

Observations:-

Current liabilities show continues growth and slightly changes each year because company creates
the credit in the market by good transaction. To get maximum credit from supplier which is profitable
to the company it reduces the need of working capital of firm. As a current liability increase in the
year 2008-09 to 12846.21 cr. And company enjoyed over creditors which may include indirect cost of
credit terms.

CHANGES IN WORKING CAPITAL

There are so many reasons to changes in working capital as follow

1. Changes in sales and operating expanses

The changes in sales and operating expenses may be due to three reasons

2. Policy changes

The second major case of changes in the level of working capital is because of policy

3. Technology changes

balance sheet of last two year.

Changes in Working Capital

(Rs. Crore)
Statement of Changes in Working Capital
Particular 2011-13 2012-13 Changes in W.C
A)Current Assets Increase Decrease
Inventories 4588.23 4455.03 133.2
Sundry Debtors —– 1818.04 890.28
Cash and Bank —- —- 1378.1
Loans and Advances 5832.03 5305.91 526.12
Total A 14969.54 —-
B)Current Liabilities
Current Liabilities 20280.82 16580.47 3700.35
Provisions —- 2200.77 1400.05
Total of B 23881.64 18781.24
W.C (A-B) —– -6739.4
Net increase in W.C -2172.7 -2172.7
Total -8912.1 -8912.1 5100.4 5100.4
WORKING CAPITAL TURNOVER RATIO

It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase
in sales contemplated working capital should be adequate and thus this ratio helps management to
maintain the adequate level of working capital. The ratio measures the efficiency with which the
working capital is being used by a firm. It may thus computer net working capital turnover by dividing
sales by working capital.

Working Capital Turnover Ratio= ____Sales___

Net Working Capital

Working Capital Turnover (Rs. Crore)

YEAR SALES NET WORKING CAPITAL W.C Turnover Ratio

2012-2013 44765.72 -6739.4 -6.6
2011-12 54306.56 -8912.1 -6
2010-11 47088.44 -5188.82 -9
2009-10 35373.29 -7343.25 -4.8
2008-09 25660.67 -2009.63 -12.7

Observations:-

High working capital ratio indicates the capability of the organization to achieve maximum sales with
the minimum investment in working capital. Company working capital ratio shows mostly decrease,
except for the year 2008-09, In the year 2009-10 the ratio was around -4.8, it indicates that the
capability of the company to achieve maximum sales with the minimum investment in working
capital.

CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current liabilities. This
ratio, also known as working capital ratio, is a measure of liquidity and is most widely used to make
the analysis of short-term financial position or liquidity of affirm it is calculated with the help of
following formula:

FORMULA= Current Assets

Current liabilities

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2012-2013 12041.84 18781.24 0.64
2011-12 14969.54 23881.64 0.62
2010-11 14350.14 19538.96 0.73
2009-10 12329.48 19672.73 0.62
2008-09 10836.58 12846.21 0.84

INTERPRETATION:

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time and when they become due. On the other hand, a low current ratio
represents that the liquidity position of the firm is not good and the firm shall not be able to pay its
current liabilities in time. The above table indicates that there are also fluctuations in the current ratio
of Tata Motors. In FY 2008-9 it was 0.84 and in FY 20010-11 is 0.73, the current ratio decrease.

QUICK/ LIQUID/ OR ACID TEST RATIO:

Quick Ratio, also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the
current ratio. The term ‘liquidity’ refers to the ability of a firm to pay short-term obligations as and
when they become due. An asset is said to be liquid if it can be converted into cash within a short
period without loss of value. Quick ratio can be calculated with the help of following formula:

FORMULA= Quick or Liquid Assets

Current Liabilities
(Amount in cr.)
YEAR QUICK ASSETS CURRENT LIABILITIES QUICK RATIO
2012-2013 7586.81 18781.24 0.4
2011-12 10381.31 23881.64 0.43
2010-11 10458.75 19538.96 0.53
2009-10 9393.89 19672.73 0.47
2008-09 8606.77 12846.21 0.66

.
INTERPRETATION:

The ideal Quick Ratio is 1:1. The liquid or quick ratio indicates the liquid financial position of an
enterprise. Almost in all 2 years the liquid ratio is slightly different, which is better for the company to
meet the urgency. The liquid ratio of the company has shown 0.43 to 0.40 in year 2011-12 to 2012-
13. Day to day solvency is sounder for company. Liquid ratio of Company is favorable because the
quick assets of the company are more than the quick liabilities. The liquid ratio shows the company’s
ability to meet its immediate obligations promptly.

TOTAL ASSETS TURNOVER RATIO

This ratio is useful to determine the amount of sales that are generated from each dollar of assets.
As noted above, companies with low profit margins tend to have high asset turnover, those with high
profit margins have low asset turnover. Cory’s Tequila Co.’s asset turnover seems to be relatively
low, meaning that it makes a high profit margin on its products. For companies in the retail industry
you would expect a very high turnover ratio – mainly because of cutthroat and competitive pricing.

Total assets turnover ratio = Net Sales

Total Assets

YEAR SALES Total Assets Total assets turnover ratio

2012-2013 44765.72 33403.53 1.3
2011-12 54306.56 30637.64 1.7
2010-11 47088.44 34651.49 1.35
2009-10 35373.29 31429.69 1.1
2008-09 25660.67 25559.83 1

DEBT EQUITY RATIO

Definition: The Debt to Equity Ratio measures how much money a company should safely be able to
borrow over long periods of time. It does this by comparing the company’s total debt (including short
term and long term obligations) and dividing it by the amount of owner’s equity .For now; you only
need to know that the number can be found at the bottom of the balance sheet. Actually calculate
the debt to equity ratio in segment two when we look at real balance sheets.)

Debt Equity Ratio

Rs. Crore
YEAR TOTAL LIABILITIES SHAREHOLDERS EQUITY DEBT EQUITY RATIO
2012-2013 33403.53 19134.84 1.74
2011-12 30637.64 19626.01 1.56
2010-11 34651.49 20013.3 1.73
2009-10 31429.69 14803.78 2.12
2008-09 25559.83 12394.27 2.06

Observations:-
The debt-equity ratio is normally defined as the long term debts divided by shareholders’ equity,
which is the sum of t equity capital, any preference capital issued, and free reserves and surplus
with the —————————

NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales, and indicates the
efficiency of management in manufacturing, selling, administrative and other activities of the firm. It
is calculated as:

Net Profit Ratio= Net Profit after tax X 100

Net Sales

YEAR Net Profit SALES Net Profit Ratio

2012-2013 727.68 44765.72 2%
2011-12 1827.47 54306.56 3%
2010-11 1958.94 47088.44 4%
2009-10 1421.49 35373.29 4%
2008-09 921.51 25660.67 4%

.
Observations:-

The net profit ratio of the company is low in all year but the net profit is in decreasing order from this
ratio of 5 years it has been observe that the from year 2008-09 to 2012-13 the net
————————-
CHAPTER – 6

CONCLUSION

Conclusion

1. The growth in working capital is a clear indication that the company does utilizing its short term
resources with efficiency. . In year 2008-09 the ——————–
2. —————————————–

3. In the year 2009-09 to 2012-13 working capitals continuous decrease because expenses as
manufacturing expenses and increases —————–
CHAPTER – 7

RECOMMENDATION AND LIMITATION

Recommendation:-

1. inistrate their credit on the basis of certain well recognized and established principle of credit
administration.
2. Establish credit limits for each customer and stick to them.
3. Company should take steps to increase the level of current assets to current liabilities. If this
procession could be increased, Tata motors can get more credit from its suppliers, as suppliers look
into the ability of the firm to pay its cash.

Limitations:-

Even though every effort will be taken to minimize the variation and present a factual picture with the
help of statistical methods, but still there are some limitations, which are as follows:

• The preparation and interpretation of data may not be 100% free from errors and may be affected
by the Respondents based mindset to some extent.
• The study will be based on the balance sheet of the company and depends directly on balance
sheet and annual reports of the company.
APPENDIX

REFERENCES
[
[1] Afza, T. and M. S. Nazir, (2007). Working Capital Management Policies of Firms: Empirical
Evidence from Pakistan. Conference Proceedings of 9th South Asian Management Forum (SAMF)
on February 24-25, North South University, Dhaka, Bangladesh.

[2] Afza, T. and M. S. Nazir, (2008). Working Capital Approaches and Firm’s Returns. Pakistan
Journal of Commerce and Social Sciences. 1(1), 25-36.

[3] Baltagi, B. H. (2001). Econometric Analysis of Panel Data. 2nd Edition, John Wiley & Sons.
Chichester.

[4] Blinder, A. S. and L. Macinni, (1991). Taking Stock: A critical Assessment of Recent Research on
Inventories. Journal of Economic Perspectives. 5(1), 73-96.

[5] Czyzewski, A.B., and D.W. Hicks, (1992). Hold Onto Your Cash. Management Accounting. 27-30.

[6] Deloof, M. (2003). Does Working Capital Management Affects profitability of Belgian Firms?
Journal of Business Finance & Accounting. 30(3) & (4), 0306-686X.

[7] Economic Survey of Pakistan, (2006-07). Finance Division, Government of Pakistan.

[8] Eljelly, M.A. (2004). Liquidity – Profitability Tradeoff: An empirical investigation in an emerging
market. International Journal of Commerce & Management. 14(2).

[9] Filbeck, G. and T. M. Krueger, (2005). An Analysis of Working Capital Management results
across Industries. American Journal of Business. 20(2), 11-18.

[10] Garcia-Teruel, P.J. and Martinez-Solano, P. (2007). Effects of Working Capital Management on
SME Profitability. International Journal of Managerial Finance. 3(2), 164-177. International Research
Journal of Finance and Economics – Issue 47 (2010) 162
[11] Gitman, L.J. (1991). Principles of Managerial Finance. Collins Publishers Inc. Harper. New York.

[12] Hausman, J.A. (1978), Specification Tests in Econometrics. Econometrica. 46, 1251-71.
[13] Jose, M. L., C. Lancaster, and J. L. Stevens, (1996). Corporate Returns and Cash Conversion
Cycles. Journal of Economics and Finance. 20(1), 33-46.

[14] Kargar, J. and R. A. Blumenthal, (1994). Leverage Impact of Working Capital in Small
Businesses. TMA Journal. 14(6), 46-53.

[15] Lazaridis, I. and D. Tryfonidis, (2006). Relationship between Working Capital Management and
Profitability of Listed Companies in the Athens Stock Exchange. Journal of Financial Management
and Analysis. 19 (1), 26 – 35.

[16] Mukhopadhyay, D. (2004). Working Capital Management in Heavy Engineering Firms—A Case
Study. Accessed from myicwai.com/knowle dgebank /fm4 8.

[17] Padachi, K. (2006). Trends in Working Capital Management and its Impact on Firms’
Performance: An Analysis of Mauritian Small Manufacturing Firms. International Review of Business
Research Papers. 2(2), 45 – 58.

Reference of Books

1. Management Accounting and Business Finance-By R.K. Sharma and Shashi K Gupta-16th
Edition 2008
2. Working Capital Management- By B. Murali Krishna 2010
3. Financial Management: Theory & Practice-By Prasanna Chandra 2004

Reference of Web Pages

1. http://www.answers.com/topic/cash-management
2. www.tatamotors.com
3. www.google.co.in
4. www.emarketer.com
5. www.marketreaserchworld.net
6. www.moneycontrol.com
7. money.rediff.com
8. http://economictimes.indiatimes.com/
Balancesheet – Tata Motors Ltd. Rs (in Crores)

Particulars Mar’13 Mar’12 Mar’11 Mar’10 Mar’09

Liabilities 12 Months 12 Months 12 Months 12 Months 12 Months
Share Capital 638.07 634.75 637.71 570.60 514.05
Reserves & Surplus 18496.77 18991.26 19375.59 14208.55 11855.15
Net Worth 19134.84 19626.01 20013.30 14803.78 12394.27
Secured Loan 5877.72 6915.77 7708.52 7742.60 5251.65
Unsecured Loan 8390.97 4095.86 6929.67 8883.31 7913.91
TOTAL LIABILITIES 33403.53 30637.64 34651.49 31429.69 25559.83
Assets
Gross Block 25190.73 23676.46 21002.78 18416.81 13905.17
(-) Acc. Depreciation 9734.99 8656.94 7585.71 7212.92 6259.90
Net Block 15455.74 15019.52 13417.07 11179.26 7620.20
Capital Work in Progress 4752.80 4036.67 3799.03 5232.15 6954.04
Investments 19934.39 20493.55 22624.21 22336.90 12968.13
Inventories 4455.03 4588.23 3891.39 2935.59 2229.81
Sundry Debtors 1818.04 2708.32 2602.88 2391.92 1555.20
Cash and Bank 462.86 1840.96 2428.92 1753.26 1141.82
Loans and Advances 5305.91 5832.03 5426.95 5248.71 5909.75
Total Current Assets 12041.84 14969.54 14350.14 12329.48 10836.58
Current Liabilities 16580.47 20280.82 16271.85 16909.30 10968.95
Provisions 2200.77 3600.82 3267.11 2763.43 1877.26
Total Current Liabilities 18781.24 23881.64 19538.96 19672.73 12846.21
NET CURRENT ASSETS -6739.40 -8912.10 -5188.82 -7343.25 -2009.63
Misc. Expenses .00 .00 .00 .00 2.02
TOTAL ASSETS(A+B+C+D+E) 33403.53 30637.64 34651.49 31429.69 25559.83
Profit & Loss – Tata Motors Ltd. Rs (in Crores)
Mar’13 Mar’12 Mar’11 Mar’10 Mar’09
12Months 12Months 12Months 12Months 12Months
INCOME:
Sales Turnover 44765.72 54306.56 47088.44 38173.39 28538.20
Excise Duty .00 .00 .00 2800.10 2877.53
NET SALES 44765.72 54306.56 47088.44 35373.29 25660.67
Other Income 0 0 0 0 0
TOTAL INCOME 46853.92 54880.64 47511.41 35775.56 26502.21
EXPENDITURE:
Manufacturing Expenses 910.42 550.89 471.28 1652.22 1171.59
Material Consumed 33620.80 40457.95 34692.83 24759.49 19039.41
Personal Expenses 2837.00 2691.45 2294.02 1836.13 1551.39
Selling Expenses .00 .00 .00 1583.24 1224.15
Administrative Expenses 5679.52 6428.72 4965.17 2249.92 1867.05
Expenses Capitalised .00 .00 .00 -740.54 -916.02
Provisions Made .00 .00 .00 .00 .00
TOTAL EXPENDITURE 43047.74 50129.01 42423.30 31340.46 23937.57
Operating Profit 1717.98 4177.55 4665.14 4032.83 1723.10
EBITDA 3806.18 4751.63 5088.11 4435.10 2564.64
Depreciation 1817.62 1606.74 1360.77 1033.87 874.54
Other Write-offs .00 .00 .00 144.03 51.17
EBIT 1988.56 3144.89 3727.34 3257.20 1638.93
Interest 1387.76 1218.62 1383.70 1246.25 704.92
EBT 600.80 1926.27 2343.64 2010.95 934.01
Taxes -126.88 98.80 384.70 589.46 12.50
Profit and Loss for the Year 727.68 1827.47 1958.94 1421.49 921.51
Non Recurring Items -425.87 -585.24 -147.12 818.59 79.75
Other Non Cash Adjustments .00 .00 .00 .00 15.29
Other Adjustments .00 .00 .00 .00 -15.29
REPORTED PAT 301.81 1242.23 1811.82 2240.08 1001.26
KEY ITEMS
Preference Dividend .00 .00 .00 .00 .00
Equity Dividend 566.17 1280.70 1274.23 859.05 311.61
Equity Dividend (%) 88.73 201.76 199.81 150.55 60.61
Shares in Issue (Lakhs) 31901.16 31735.47 6346.14 5705.58 5140.08
EPS – Annualised (Rs) .95 3.91 28.55 39.26 19.48