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Transcript of Wc-project Report [Simar]
SUBMITTED BY:
MANINDER KR. PANCHAL
MBA
AL-FAHLA SCHOOL OF MGT. & TECH.
DHAUJ (FARIDABAD)
ESCORTS
ACKNOWLEDGEMENT
At the outset I would like to thank the Management of ESCORTS AGRI
MACHINERY GROUP for the wholehearted co-operation and guidance extended by
them, which made my summer training project possible.
I am very grateful to my project guide Mr. Ashok Behl & Mr. Nitin Aggarwal
[Manager-Finance Department, Escorts Limited (AMG)] for his support and
suggestions, which led to the completion of this project.
I would also like to thank Mr. Ajay Wadhawan, Mr. Rajesh khanna, Mr. DK
Srivastava & Mr. Halder for their support and co-operation.
A Special thanks to Mr. Bharat Madan [Finance Head, AMG] for providing me this
opportunity to carry out the project.
MANINDER KR. PANCHAL
Date: _______
Place: Faridabad
1
ESCORTS
EXECUTIVE SUMMARY
If development capital is what establishes a business, working capital is what keeps it
going. One of the most common downfalls of business is unexpectedly high running cost.
What is important is not just the size of operating costs, but the cash flows – that is when
money has to be paid out in relation to the stream of income arriving in. Thus Working
Capital Management is of prime importance.
This project is a small attempt to study the working capital management in Escorts Agri
Machinery Group. The project can be divided into two sections. First is the analysis of the
working capital position of the company using ratio analysis and second is the study of
working capital management techniques.
Ratio analysis has been done on the basis of five years data. For calculating various ratios
300 days have been taken as number of working days after deducting Sundays and holidays
except for 2006-07, 2007-08 where 375 days have been taken. Reason being the company
has changed its financial year from 2006-07, therefore balance sheet figures for 2007-08
comprises of 15 months. Ratios have been discussed to compare working capital
performance over the years and to comment and not the absolute values. Therefore figures
have not been converted into 12 months in this report. To analyze the performance,
published balance sheets of Escorts Limited (not Escorts consolidated) have been used. This
project report is based on financial data up to 2007-08 only. Apart from liquidity and
activity ratios cash and loans & advances has been discussed separately as these two appears
to be crucial in Escorts working capital analysis.
2
ESCORTS
EXECUTIVE SUMMARY
Working Capital Management basically comprises of Receivables Management, payables
Management and Inventory Management. These three have been discussed separately along
with company’s policy on these areas.
Escorts is maintaining the following records which is indicative of its professional approach:
Maintaining proper sets of accounting records.
Maintaining an accurate cashbook reconciled with the bank statement.
Maintaining monthly statement showing profit performance and the working capital position.
Monitoring receivables daily.
Making a regular forecast of cash requirements based upon planned sales volume.
Ageing of debtors/creditors with comparisons to previous months.
At the end, observations/recommendations have been given.
3
ESCORTS
STUDENT DECLARATION
I, student of Masters in Business Administration AL-FAHLA SCHOOL OF MGT. &
TECH., hereby declare that the dissertation/thesis entitle ‘Study of Cash Flow
Management’ of the Escort Agri Machinery Group (AMG) submitted in fulfillment of the r
training; is my original work and is not submitted for the award for any other degree,
fellowship or similar title or prize.
MANINDER KR. PANCHAL (MBA)
4
ESCORTS
TABLE OF CONTENTS
THE ESCORTS SYMBOL
MISSION
QUALITY POLICY
ABOUT TRACTOR INDUSTRY
Introduction
Future of Tractor Industry
Market Share
Industry Performance
INTRODUCTION TO COMPANY
Background and Business
Financial Performance
Timeline
AGRI MACHINERY GROUP
Introduction
Company’s Future
Sales Trend
Products
MANAGERIAL USEFULNESS OF STUDY
OBJECTIVES OF TRAINING
WORKING CAPITAL
RATIO ANALYSIS
Liquidity Ratio
Activity Ratio
TABLE OF CONTENTS
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ESCORTS
WORKING CAPITAL MANAGEMENT
Receivable Management
Inventory Management
Payable Management
SWOT ANALYSIS OF AGRI MACHINERY GROUP
RESEARCH METHODOLOGY
FINDINGS
RECOMMENDATIONS
LIMITATIONS
BIBLIOGRAPHY
ANNEXURE
6
ESCORTS
THE ESCORTS SYMBOL
The Escorts Symbol means more than a seen by the eye. It has been prepared with certain
objectives in mind and is symbolic in more than one way.
The philosophy behind Escorts and the “E” in the Escorts is “Enterprise”. The Hexagon is a
symbol of productivity, precision when interposed as a nut. It symbolizes a craftsmanship, and
mending productivity. The sprains super imposed on the Hexagon represent the workers and the
people of the Escorts. This forms the letter “E” the first of Escorts a company even of the more
changing unveiling the future.
MISSION
7
ESCORTS
For an Enterprise business mission embodies of its endeavor, which acts as a guiding light for
continuous development & growth.
Mission of ESCORTS is:
Engineering Changes through core competency for greater synergy reinforcing bonds with
customers & establishing powerful symbiotic relationship with international allies, preparing
global market. The company wants to make a lasting difference to its shareholders, its customers,
business associates, its employee and country as a whole. Company also gives better quality and
better technology to customer and treats every customer as “special” to build respect for, and
loyalty to, Escorts.
QUALITY POLICY
8
ESCORTS
We shall strive to continuously improve to meet the ever-rising Expectations of our
customers at the lowest cost.
Each one of us must fulfill the need of our customer, both internal and external with the
highest degree of commitment thereby creating a quality organization geared to ensure total
customer satisfaction and the sustained health and prosperity of our business.
Customer Orientation: To fulfill the requirement of our internal and external customer.
Process Orientation: To optimize and harmonize interrelated process rather than individual
functions.
Preventive Behavior: To prevent the mistakes to happen.
Introduction
9
ESCORTS
About Tractor Industry
Introduction
10
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India’s long-term economic prospects, even today, depend to a large extend on the
agricultural sector, which contributes a quarter to the gross domestic project and
provides livelihood to 2/3 of the population. A gradual and perceptible shift from
subsistence farming to enterprise farming is harbinger of modernization of the
agriculture economy and this will increase the contribution sector to the overall GDP in
the time to come. The central government as well as several state governments is giving
due priority to agriculture and rural developments.
A tractor is a product, which has maximum utility in the agricultural sector. The tractor
industry is segmented on the basis of the power of the tractor engine measured in terms
of horsepower (HP). The maximum consumption is for 30-40 HP tractors. With the
increase in the availability of low cost finance for longer tenures & expected to go up.
The new trend observed in this sector is the shift in consumption from majority in the
northern states to other parts of the country, too. The soil in the northern states is alluvial
in nature and thus requires a low powered tractor for tilling it. However, states located in
the western and southern parts of the country where the soil being laterite or black etc. is
harder and needs high-powered tractors.
About Tractor Industry
11
ESCORTS
Tractors industry in India has passed through various phases before reaching where it is
today. During 1945 to 1960 demand was met entirely through imports. There were
37000 tractors by 1960. Production began in 1961 with five manufacturers producing a
total of 880 units per year. By 1965 it increased to over 5000 units per year and by 1970
annual production rose to more than 20,000 units. Six new manufacturers were
established during 1971-1980. In 1971 Escorts also started local manufacturing of Ford
Tractors in collaboration with Ford, UK. During 1990 annual production rose to
1,40,000 making India an exporter mainly to countries in Africa. After De-licensing of
industry, production exceeded 2,55,000 units in 1997.
The growth of the industry over the last three decades resulted in entry of several new
entrants including all the major multinational companies. The industry now consists of
14 manufacturers with an aggregate installed capacity of approx. 4.50 Lac tractors. In
the tractor industry, following are the key manufacturers: Mahindra and Mahindra Ltd.,
VST Industries Ltd., Eicher Ltd., Escorts Ltd., Punjab Tractors Ltd., International
Tractors Ltd., Gujarat Tractors Ltd., Tractors and Farm Equipment Ltd., Hindustan
Machine Tools Ltd., & Bajaj Tempo Ltd.
Future of Tractor Industry
12
ESCORTS
The tractor industry in India has been on a growth trajectory since the second half 2003-
04, after going through a trough for consecutive years. The key factors driving this
growth are increasing farm incomes, aggressive financing resulting in easy availability
of low-cost credit, sharp inventory correction and strong export growth.
The demand in tractor industry is expected to grow mainly due to the agricultural sector,
with the expected increase in agricultural production. Also, the shift in trend for demand
towards higher HP tractors is expected to continue. This will be further strengthened by
the launch of several new models. In the next 2-3 year, demand for tractors is expected
to increase significantly in the eastern states, where traditionally, tractor usage has been
low. Exports are expected to increase significantly as several Indian players are targeting
the “hobby farming” segment in the U.S, which is considerably large. Also, tractors of
most Indian manufacturers comply with the emission standards accepted in the U.S.
Most exports are likely to be through overseas partnerships or joint ventures. McKinley
has also forecasted tractor population requirements of 75 lacs over the next 18 years vs.
current population of 26 lacs. The extension of the 150 per cent deduction on R&D
expenditure up to march 31, 2009, in the Budget 2008-09 will also benefit the industry
in terms of new product development besides increase in the area under irrigation under
the Bahrat Nirman Project and the micro irrigation scheme.
MARKET SHARE OF TRACTOR INDUSTRY
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For the year 2007-08
1
TRACTOR INDUSTRY PERFORMANCE
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COMPANY 2005-06 2006-07 2007-08
ESCORT
FARMTRAC
11138
18287
23200
32800
20950
26900
TOTAL(ESCORT + FARMTRAC) 29425 56000 47850
MAHINDRA & MAHINDRA
PTL
TAFE
EICHER
HMT
SONALIKA
BTL(FML)
L & T
FORD NEW HOLLAND
OTHERS
85028
31396
7900
32017
4464
19951
13214
8450
102500
30010
52400
27700
6500
36200
5050
19720
19400
7195
98700
28040
53400
25450
4770
30920
4820
28530
23250
4520
TOTAL INDUSTRY 302435 362675 350300
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ESCORTS
ESCORTS LIMITED
Background And Business
The Escorts Group, with Escorts Limited as its flagship company, is among India’s
leading corporations operating in the diverse field of agri machinery, construction &
material handling equipment, automotive & railway ancillaries information technology
and financial services. The group has 15 modern manufacturing facilities & an extensive
marketing network spread across the country. The genesis of Escorts goes back to 1944
when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launched a small agency
house, Escorts Agents Ltd., in Lahore. The company’s principal activities were trading
and representing leading overseas manufacturers for the sale of their products in India.
One of its dealerships was for the “Massey Ferguson” brand of tractors.
In December 1959, EAPL was converted into a public limited company and was
renamed as Escorts Limited (EL). In January 1960, EL decided to set up manufacturing
facilities for making tractors in India under the “Escorts” brand name in the 25-40
Horsepower categories. EL promoted Escorts Tractors Limited in 1969 as joint venture
with Ford Motor Company of USA for the manufacturing of ‘Ford’ series of tractors.
The tractors manufactured were in
ESCORTS LIMITED
16
ESCORTS
the 45-50 HP range and ETL became the market leader in this segment with a share of
above 50%. Consequent to FMC’s disposal of tractors operations to Ford New Holland,
USA, FNH acquired the shares of FMC in ETL. Following an agreement in 1995 to end
the joint venture association, EL acquired the entire stake of NH in August 1995,
making ETL a subsidiary of EL.
Over the years, Escorts has sured ahead and evolved into one of India’s largest
conglomerates. Till 1993-94, all these activities were being carried out in various
divisions of EL. EL undertook a major restructuring exercise between 194-98 spinning
off the divisions into separate companies.
The restructuring exercise-comprised consolidation of the agir-machinery business by
merger of ETL with EL and having off various divisions into separate companies.
Biwheeler division was spun off to Escorts Yamaha Motors Ltd., construction
equipment division to Escorts construction equipment Ltd., telecommunication
equipment division to Escorts communication Ltd., EL booked gains of Rs. 2091 million
over the four year period 1994-95 to 1997-98 though the sale of these the sale of these
divisions.
The main products of Escorts group currently comprise of agri-machinery, information
technology, health care, financial services, railway components, auto components,
construction and material handling equipment.
ESCORTS TIMELINE
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ESCORTS
Escorts journey started in 1944 as a small agency house, Escorts Agents Ltd., in Lahore. Its
principal business was trading and representing leading overseas manufacturers for the sale
of their products in India.
Escorts started its manufacturing operations in 1954, and since the following range of
products has been introduced in the country.
1954 Piston rings and cylinder liners
1960 Pistons
1961 Assembly of Tractors
1962 Motorcycles and Railway couplers
1965 Agricultural tractors under Escorts brand name
1969 Agricultural tractors under Ford brand name
1971 Industrial and construction equipment
1979 Excavator loaders
1980 100cc Motorbike
1985 Electronic PABXs
1991 Harvesters combine
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ESCORTS
ESCORTS TIMELINE
1992 VSAT satellite communication system
1993 Mobile communication
1995 Forklift truck
1996 Disengagement of joint venture and launch of Farmtrac Tractor.
1997 Joint venture with CARRARO for manufacturing of transmission and axles.
1998 Powertrac series of tractors were launched
1999 Joint venture with POL MOT for manufacturing of Farm Machinery.
2004 Divested Escotel Mobile Telecommunications to idea cellular TS16949
Certification for Agri Machinery Group.
2005 Divested Escorts Heart Institute and Research center (EHIRC) to Fortis
Healthcare.
2006 Divested in Carraru India Ltd. Set up in new manufacturing facility in
Radurapur for manufacture of new range of railway equipments.
BOARD OF DIRECTORS OF ESCORTS LIMITED
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ESCORTS
Managing Director &
Chairman Mr. Rajan Nanda
Joint Managing Directors Mr. Nikhil Nanda
Directors Dr. M.G.K. Menon
Dr. S.A. Dave
Dr. P.S. Pritam
Mr. S.C. Bhargava
Sr.Vice President-
Law & Company Secretary Mr. G.B. Mathur
Exec. Vice President &
Group Chief Financial Officer Mr. R.K.Budhiraja
20
ESCORTS
OUTLINE ORANISATION – ESCORTS GROUP
Chairman & Managing Director – Sh. Rajan Nanda
Secretariat
Flagship Operating Division
Escorts Limited Faridabad
Agri Machinery Engineering International Business
Corporate Center Faridabad Escorts Research Institute of Farm Center, Faridabad Mechanization,
Bangalore
Personnel Finance Project Escorts Heart Research Escorts Medical Institute, New Delhi Center, Faridabad
Administration and Law Export andSecurity Communication
Associates Companies Subsidiary Companies
Escorts Employees Welfare Trust Faridabad
21
ESCORTS
OUTLINE ORANISATION – ESCORTS LIMITED
Chairman & Managing Director – Sh. Rajan Nanda
Secretriat
Corporate Office Registered Office Corporate Center, Faridabad New Delhi
Personnel Finance
Project Law
Administration Export and and Security Communication
Agri Machinery Automotive AncillariesMarketing Division and Railway Equipment Division
Farmtrac Division Escorts Tractor Division
Corporate Office Functional Units Corporate Office Functional Units(Line Duties) (Production & Operation) (Line Duties) Production & Operation)
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ESCORTS
BANKERS
1) IDBI BANK.
2) ABN AMRO BANK N.V.
3) BANK OF BARODA.
4) CITIBANK, N.A.
5) DEUTSCHE BANK AG.
6) HONGKONG & SHANGHAI BANKING CORPORAYION LIMITED.
7) HDFC BANK LIMITED.
8) PUNJAB NATIONAL BANK.
9) STATE BANK OF INDIA.
10) STATE BANK OF TRAVANCORE.
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\AGRI MACHINERY GROUP
Introduction
Having pioneered farm mechanization in the country, Escorts has played a pivotal role in the
agricultural growth of India for over five decades. One of the leading tractor manufacturers
of the country, Escorts produces tractors in the 27-75 HP range and has already sold over 6
tax tractors. Escorts Agri Machinery Group was set up in 1960 and they rolled out their
batch of tractors in 1965 under the brand name of Escorts, Powertrac and Farmtrac.
Escort brands of tractors is symbolic of reliability and trust and enjoy the confidence of the
farming community for the last 40 years.
Powertrac brand of tractors are the most fuel-efficient tractors in their respective categories
that offer excellent value for the money and have helped the farmer improve their quality of
life.
Framtrac brands are the most powerful premium range of tractors that give maximum
productivity to the farmers.
Spanning these three brands, they company has a full range of tractors to cater to the
domestic as well as overseas markets The company is developing state-
24
ESCORTS
AGRI MACHINERY GROUP
of-the-art highly fuel efficient engines with the assistance of AVL of Austria and have also
entered into a joint venture with Carraro SPA of Italy for the manufacturing of transmission
and axies.
To sustain the present momentum and to realize the future goals, Escorts has invested Rs.60
crore towards strengthening new product development programs and enhancement of R&D
capabilities. Additionally, Rs. 400 crore has been invested towards modernization of its
manufacturing facilities bringing them to international standards, The company has one of
the most comprehensive distribution networks comprising of over 500 dealership / outlets
and 30 area offices spread across the country. It has a manufacturing capacity of 75000
tractors per annum. Escorts Agri Machinery Group is looking at forward and backward
integration through food processing, food processing, food chains and genetic engineering.
In line to their vision for becoming a major player in sub 100 HP segment by 2005 in the
global markets, they have increased their vision for becoming a major regional player to
major global markets, which stretch from North America to Australia covering all the
continents. Despite the strict competition by other
25
ESCORTS
AGRI MACHINERY GROUP
major tractor manufacturers they have been able to gain constant volumes in the global
market. Their target for this year is to export 15% of the volumes of their total production
volumes.
To consolidate its presence in the overseas markets, the company has ventures in the USA
and Europe (Poland). It has recently acquires a majority stake in Long Agribusiness LLC, a
tractor distributing company in the USA and Pol-Mot Escorts Spolka Z.O.O., Poland.
Besides the USA and Poland, Escorts has strong presence in Turkey, Australia, Bangladesh,
Sri Lanka, Nepal, Kenya, Tanzania, South Africa etc. though its dealers network in these
countries. Escorts have very ambitious plans to expand the dealers network in other
potential countries in the coming year. By the end of the next year, the Company hopes to
be the largest exporter of the Indian Tractor Industry, Besides tractors, the RR6 riding type
paddy transplanter, in association with Yanmar of Japan, is the first offering of Escorts to
the rice planters of India.
26
ESCORTS
AGRI MACHINERY GROUP
Modernization of Agri Machinery Group R&D Center
Escorts Agri Machinery Group (AMG) has invested over US $ 7.5 million in a state of the
art Research and Development Center, Virtual prototypes of components and aggregate
assemblies are made and assembled on computer workstations using 3D technology. The
performance is checked on computers using simulation techniques thus saving a lot of time
for the end-user as well as lowering development costs. The R&D Center uses advanced 3D
modeling, analysis and simulation software for engines, transmission and vehicles, Physical
prototypes are then extensively tested for performance, durability and reliability. Facilities
include a high-technology engine laboratory featuring fully computerized test-beds with
online control, data acquisition and analysis.
27
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AGRI MACHINERY GROUP
PRODUCTS
Escorts FarmtracE-325 Josh F T –30
E-335 F T –35E-335P F T –45E-430 F T –45Live PTE-430XL F T –50DB
E-435 F T –50E-440(6+2 & 8+2)PT F T –60E-440(6+2 & 8+2)XL F T –60DB
E-450 F T –60DeluxeE-450(8+2)PT F T –60Live PTE-450(8+2)XL F T –70
28
ESCORTS
MANAGERIAL USEFULNESS OF STUDY
For a fresher like me, in a big organization like Escorts Ltd. gave me a feel of the real working
atmosphere. It enhanced my horizones about how the members of the organization work as a
team, co-ordinating with each other, their interdependence on each other. I became aware of the
synergy effect i.e., how different members in different profiles produce greater results with co-
ordination.
The usefulness of Study:
In-depth knowledge of Company’s workings.
Familiar atmosphere of Company motivates the researcher.
Awareness of difference between the bookish knowledge and the practical workings of the
company.
Knowledge of Company’s policies.
Motivates to work as a team member.
To get aware of Current Position of the Company.
The various designation in an organization, the respective work profiles and the
interdependence among them.
Synergy effect.
29
ESCORTS
MANAGERIAL USEFULNESS OF STUDY
It helps to understand how to tackle work pressure and meet dead lines.
Difference between budgeted and actual performance.
Time utilization.
Wealth maximization.
Data analysis and interpretation helps to increase capability of mind.
Knowledge of Company’s decisions to solve the problems.
30
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OBJECTIVE OF THE TRAINING
It is well known fact that we remember 20% of what we hear, we remember 40% of what
we see but we remember 75% of what we do.
There are two fold of the management of working capital
Maintenance of working capital at appropriate level.
Availability of ample funds as and when they are needed.
The present study in ESCORTS LIMITED (Agri Machinery Group) mainly focus on the
above objectives as well as some other objectives which I have taken into consideration
during the project training.
To access the requirement of working capital of the company.
To assess the changes in working capital needs over the years.
How management of working capital affects the financial position of the company?
Evaluate current assets and current liabilities to find out liquidity position of the
company.
To prepare the statement of working capital of the concern.
31
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WORKING CAPITAL
Definition
Working Capital refers to the cash a business requires for day-to-day, or, more
specifically, for financing the conversion of raw material into finished goods, which the
company sells for payment. In other words ‘Working Capital’ is the money the business
process consumes. The longer the process takes, the more money is consumed. Working
Capital is calculated by deducting current assets from current liabilities. Current assets
are resources, which are in cash or will soon be converted into cash (normally with in
one year). Whereas Current liabilities are commitments, which will soon require cash
settlement in the ordinary course of business.
Working Capital can also be defined with an approach that encompasses all the
processes surrounding accounts payable, accounts receivable and inventory and one
begins to understand the potential knock-on impacts of a change in working capital
practice or policy. When looking in detail at any of these three core areas, it soon
becomes clear that WCM can touch all the firm buys, makes and sells.
32
ESCORTS
WORKING CAPITAL
A ‘total’ approach to working capital covers all the company’s activities relating to
vendor, the customer and the product.
Concepts of Working Capital
1. Gross Working Capital Concepts
2. Net working Capital Concepts
Gross working capital concept
According to this concept, working capital means working capital which is total of the
current assets of a business.
Gross Working Capital = Total current assets
Net Working Capital Concept
According to this concept, working capital means net working capital which is the excess of
current assets over the current liabilities
Net Working Capital = Current Assets – Current liabilities
33
ESCORTS
WORKING CAPITAL
IMPORTANCE
The better a company manages its working capital, the less the company needs to borrow.
Without adequate working capital there can be no progress. A business must expand and
assert itself in a competitive world. If expansion takes place without the firm being able to
cover its commitments, then over trading will be the result. Available working capital is
stretched a capacity until, finally, bankruptcy or liquidation is forced upon the business.
Even companies with cash surpluses need to manage working capital to ensure that those
surpluses are invested in ways that will generate suitable returns for investors.
The lengths of production and sales cycle pay an important part in the over trading process.
If short, and the period of credit is not excessive, then money from sales will help to
replenish working capital. However the longer the total period from the buying of the raw
material to the receipt of the cash from sales, the more likely is overtrading.
Working capital management can be subject to compromise and best practice is often hard
to identify, pursue or benchmark. From a funding optimization perspective, however,
generating extra cash from internal sources has the advantage over bank and public debt of
greater opportunity and access, typically at lower cost.
34
ESCORTS
WORKING CAPITAL
In terms of the impact felt across the company in the business units and customer- facing
staff, it is not the financial but the operational benefits that are most keenly felt following a
reappraisal of working capital practices. The greater efficiencies in dealing with customers
and suppliers greater control of and information on the processes related to ordering/ paying
and delivering / getting paid- can ultimately feed into improve delivery of goods and
services at lower cost. Improve working capital leads to increase shareholder value because
it enables firms to generate more profit with less capital.
35
ESCORTS
RATIO ANALYSIS
Working Capital Management Performance using Ratio Analysis
A “ratio” is defined as the indicated quotient of two mathematical expressions and as the
relationship between two or more things. In financial analysis, a ratio is used as a
benchmark for evaluating the financial position and performance of a firm.
Ratio analysis involves comparison for a useful interpretation of the financial
statements. Single ratio in itself does not indicate favorable or unfavorable condition.
Therefore in this report it is compared with:
Past ratios, i.e. ratios calculated from the past financial statements of the same company.
Since liquidity ratios and activity ratios helps to measure the firm ability to meet current
obligations and firms efficiency in utilizing its assets respectively. Those two have been
used.
Limitations of Ratio Analysis
It is difficult to decide on the proper basis of comparison.
Price level changes make the interpretation of ratio invalid.
The differences in the definition of items in the balance sheet and profit & loss account
make the interpretation of ratios difficult.
The results are based on highly summarized information. Consequently situations, which
require control, might not be apparent or situations, which do not warrant significant effort,
might be unnecessarily highlighted.
LIQUIDITY RATIOS
36
ESCORTS
Liquidity ratio measures the ability of the firm to meet its current obligations. It is
necessary to strike a proper balance between high liquidity and lack of liquidity. A high
degree of liquidity means that a firm’s fund will be unnecessarily tied up in current
assets. Whereas lack of liquidity, implies failure of a company to meet its obligations
due to lack of sufficient liquidity.
The ratios, which are used for the analysis of Escorts liquidity position in this report,
are:
Current Ratio
Quick Ratio
Activity Ratio
LIQUIDITY RATIOS
37
ESCORTS
CURRENT RATIO
Current ratio is calculated by dividing current assets by current liabilities:
Current ratio = Current Assets
Current Liabilities
2004-05 2005-06 2006-07 2007-08
Current Ratio 1.19 1.03 1.12 1.16
From the above table it can be interpreted that Escorts liquidity position is not constant.
As a conventional rule a current ratio of 2:1 or more is considered satisfactory because
in a worse situation, even if the value of current assets become half, the firm will be able
to meet its obligations. Current ratio refers to a margin of safety for creditors therefore
higher the current ratio, the greater the margin of safety.
LIQUIDITY RATIOS
38
ESCORTS
QUICK RATIO
Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably
soon without a loss of value. Inventories are considered to be less liquid therefore
calculating quick ratio they are deducted from current assets.
Quick Ratio = Current Assets – inventory
Current liabilities
2004-05 2005-06 2006-07 2007-08
Quick Ratio 0.76 0.71 0.90 0.99
Escorts quick ratio in the current year has decreased in comparison to previous year, yet
it can be considered to be satisfactory, as it is 1:1 times of current liabilities. Although
quick ratio is more penetrating test of liquidity than current ratio. Yet it should be used
cautiously, as all debtors may not be liquid and cash may be immediately needed to pay
operating expenses.
The value of quick ratio is decreasing every year. The satisfactory level of the quick
ratio is 1:1. This shows the worse situation of the company. The current liabilities are
more than the quick assets.
ACTIVITY RATIOS
39
ESCORTS
Activity Ratios are used to evaluate the efficiency with which the firm manages and
utilizes its assets. The ratios are called Turnover Ratios as they indicate the speed with
which the firm manages and utilizes its assets.
Activity ratios, which are used to analyze Escorts effectiveness in Asset utilization, are
Inventory Turnover Ratio
Fixed Assets Turnover Ratio
Working Capital Turnover Ratio
Debtors Turnover Ratio
Creditors Turnover Ratio
ACTIVITY RATIOS
40
ESCORTS
INVENTORY TURNOVER RATIO
It indicates the efficiency of the firm in producing and selling its product. It is calculated
by dividing sales by avg. inventory. In a manufacturing company inventory of finished
goods is used to calculate inventory turnover.
Inventory Turnover = Cost of goods sold
Avg. Inventory
2004-05 2005-06 2006-07 2007-08
Inventory
turnover 10.36 13.07 14.42 15.10
If the company is comfortably meeting the customer needs with 9.73 days inventory of
finished goods, all India basis.
It is a good achievement for the Escorts Limited.
ACTIVITY RATIO
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ESCORTS
FIXED ASSETS TURNOVER RATIO
A firm’s ability to produce a large volume of sales for a given amount of net assets is the
most important aspect of its operating performance. Unutilized or underutilized assets
increase the firm’s need for costly financing as well as expenses for maintenance and
upkeep. Fixed assets turnover is calculated by dividing net sale by net fixed assets.
Fixed Assets Turnover = Sales
Fixed Assets
2004-05 2005-06 2006-07 2007-08
F.A.T 1.98 2.24 2.29 2.35
Escorts fixed asset turnover have increased in 2003-04. The fixed asset turnover of 2.78
implies that it is producing Rs.2.78 of sales for one rupee of capital employed.
The higher the ratio, more it is satisfactory…
It should be interpreted very cautiously because the denominator of the ratio includes
fixed asset net of depreciation. Thus old assets with lower book value may create a
misleading impression of high turnover without any improvement in sales.
ACTIVITY RATIO
42
ESCORTS
DEBTORS TURNOVER RATIO
Debtor’s turnover indicates the number of times debtors’ turnover each year. Higher the
value of Debtors turnover, the more efficient is the management of credit. The liquidity
position of the firm depends on the quality of the debtors to a great extent.
Debtors Turnover = Credit Sales
Avg. Debtors
2004-05 2005-06 2006-07 2007-08
Debtors Turnover 7.62 6.12 4.44 4.29
Escorts debtors turnover is quite lower. The debtor’s turnover ratio is high at 2003-04 .
The ratio is decreasing. Also the debt collection period has its own importance. The debt
collection period of Escorts was 76 days in 2003-04 but in the year 2004-05, it is
increased to 95 days and it is maintained till today. This does not show the satisfactory
level. The shorter the collection period, the better the quality of debtors, since a short
collection period implies prompt payment by debtors.
A too low collection period is also not necessarily favorable as it may indicate a very
restrictive collection and credit policy. Because of the fear of bad debt loses the firm
may be selling to those only whose financial conditions are sound and who are very
prompt in making the payments.
ACTIVITY RATIO
43
ESCORTS
CREDITOR TURNOVER RATIO
Creditors Turnover = Total Purchases
Creditors
2004-05 2005-06 2006-07 2007-08
Creditors Turn. 5.70 3.67 3.55 3.45
Though the days are very high and apparently appears to substitute right collection, this
extended credit has its own drawback like:
High interest inbuilt in cost system.
Sub-quality creditors may be accepted.
Quality of material may be accepted.
The payment period of Escorts Limited is 90 days in 2074-08, which is more reasonable
than previous years. This helps to make good quality product and also better relationship
with suppliers.
ACTIVITY RATIO
44
ESCORTS
WORKING CAPITAL TURNOVER RATIO
Working capital turnover ratio has its own significance in the business organizations. It
shows the efficiency of the firm. How much sale that the company get with the
utilization of the limited working capital.
Working Capital Turnover = Net Sales
Net Working Capital
2004-05 2005-06 2006-07 2007-08
Working.Cap.Turn. 23.02 113.45 28.30
In the case of working capital turnover ratio Escorts is significantly going very
downward. This is a very dangerous point of the firm. The company should try to
improve it earlier. It shows that the company requires more money to generate sales.
45
ESCORTS
Working Capital Management
Receivable Management
The term receivable is defined as “debt owed to the firm by customers arising from sales of
goods in the ordinary course of business”. The sale of goods on credit is an essential part of
modern day business. The credit sales are generally made on open account in the sense that
there are no formal obligations through a financial instrument. However extension of credit
involves risks and cost. Management should weigh the benefits as well as the cost to
determine the goal of receivable management.
The benefits from receivables are the increased sales and profits anticipated because of more
liberal policy. When firm extend trade credit, i.e. invest in receivables, they intend on
increase the sales level. The motive of liberal credit policy can be either growth oriented or
sales retention. The extension of credit has a major impact on sales, costs and profitability.
Other things being equal, a relatively liberal policy and therefore higher investments in
receivables will produce larger sales. However the cost will be higher with liberal policies
then with more stringent measures. Therefore account receivable management should aim at
a trade- of between profit and risk.
The costs associated with the extension of credit and account receivables are collection cost,
capital cost, delinquency cost and default cost. Collection costs are administrative costs
incurred in collecting the receivables from the customers to whom credit sale has been
made.
46
ESCORTS
WORKING CAPITAL MANAGEMENT
Capital Cost- The increased level of accounts receivable is an investment in assets. They
have to be financed thereby involving cost. The cost on the use of additional capital to
support credit sales, which alternatively could be profitably employed elsewhere, is
therefore a part of the cost of extending credit or receivables.
Delinquency cost- This cost arises out of the failure of the customers to meet their
obligations when payment on credit sales becomes due after the expiry of the period of
credit. Blocking up of funds for an extended period and cost associated with steps that have
to be initiated to collect the over dues are important components of such type of costs.
Default cost- When firms are unable to recover the over dues because of the inability of the
customers, the debts are treated as bad debts and have to be write off as they can’t be
realized. Such costs are known as default cost
47
ESCORTS
WORKING CAPITALMANAGEMENT
Receivable management
Decision areas
There are three crucial decision areas in receivable management:
Credit Policies
Credit terms
Collection Policies
Credit Policies
The credit policy of a firm provides the framework to determine whether or not to extend
credit to a customer and also how much credit to extend. It has two broad dimensions, the
first is credit standard and second is the credit analysis. Credit standards represent the basic
criteria for the extension of credit to customers. The trade- off with reference to credit
standards covers collection costs, average collection period, level of bad debts losses and
level of sales. With a relaxed credit standard the collection costs, bad debts expenses and
sales goes up and in reverse case vice-versa happens. The second aspect of credit policy is
credit analysis. It begins with obtaining credit information of the customers and ends up
with the analysis of the obtained credit information. Information can be collected either
internally or externally.
48
ESCORTS
WORKING CAPITAL MANAGEMENT
Internal source of credit information is derived from the records of the firm. The analysis of
credit information should cover both qualitative as well as quantitative aspects. The
quantitative aspect is based on the available financial statements whereas qualitative aspects
cover the quality of management.
Credit terms
The second decision area in accounts receivable management is the credit terms. After the
credit standard have been establish and the credit worthiness of the customers is assessed,
the management of a firm must determine the terms and conditions on which trade credit
will be made available. Credit terms have three components : credit period, cash discount
and cash discount period. Credit period is the duration of time for which trade credit is
extended whereas cash discount is the amount by which the over the due amount will be
reduced thus benefiting the customer.
The credit terms like the credit standard affect the profitability as well as the cost of the
firm therefore a firm should determine the credit terms on the basis of cost-benefit trade-off.
49
ESCORTS
WORKING CAPITAL MANAGEMENT
Collection policies
The collection policies refer to the procedures followed to collect account receivable when
after expiry of the credit period they become due. This policy covers two aspects : first is the
degree of effort to collect the over due and second is the type of collection efforts.
Receivable Management
Escort Limited has a zero debt credit policy. However it is giving the following facilities to
its dealers to promote the sales, as liberal credit policy has a direct impact on sales.
Channel finance facilities
The company arranges these facilities with various bankers for the company dealers to
support their working capital needs. The goods are sold on credit against hundis. Hundis can
be drawn for 50 or 75 or 90 days subject to qualifying criteria of bank.
50
ESCORTS
WORKING CAPITAL MANAGEMENT
Credit facilities
Escort provides thirty days interest free credit to the dealers. For this in respect of all hundis
the company bears 30 days interest and the remaining cost of interest, delayed payment
charges are borne by the dealers.
Penalty on bouncing of hundis / cheques
Bouncing of hundis/ cheques drawn in favor of the company is viewed very strongly and
usually following actions are taken.
Tractor supplies are suspended and restored only after all dues are cleared.
All charges debited by the bank such as collection charges, penal interest are debited to the
dealer.
The bank extending channel financing policy have clearly stated that if a dealer has two or
more bouncing he will be black listed and his limit will be withdrawn with immediate effect.
Company also makes sales to such dealers only against letter of credit or demand draft.
Cash discount on credit outstanding/ early payment incentives
Cash discount of 1% is payable on tractors dispatched against funds available in the form of
letter of credit or demand draft. Interest is charged/ paid at 12% per annum on outstanding/
credit balance early payment incentive.
51
ESCORTS
WORKING CAPITAL MANAGEMENT
Inventory Management
Inventories are stock of the product, a company is manufacturing for sale. Inventories can
exist in the form of raw material, work-in-progress, finished goods, components and
supplies, whereas motive for holding inventories can be transaction motive, precautionary
motive and speculative motive.
Inventories constitute the most significant part of Current assets. Because of the large size of
inventories maintained by firms, a considerable amount of funds is required to be committed
to them. It is therefore, absolutely imperative to manage inventory efficiently and effectively
in order to avoid unnecessary investment. Managing inventory is a juggling act. Excessive
stock can place a heavy burden on the cash resources of a business whereas insufficient
stocks can result in lost sales, delays for customers etc. The less time a company holds
inventory, the lower its working capital investment will be. There is a magic threshold,
beyond which the length of time the seller needs to acquire materials and make and ship a
product is less than the length of time between order placement and when the customer
expects to receive the product. If a business can cross that line, it can completely eliminate
inventory and acquire exactly the right materials after each sale has been made.
52
ESCORTS
WORKING CAPITAL MANAGEMENT
But many companies can’t operate under this model. Those that sell time- sensitive items
have to have materials, if not finished products, on hand to satisfy the expectations of a
customer who needs and order right a way. Many large manufactures operate on a just-in-
time (JIT) basis thereby all the components to be assembled on particular day, arrive at the
factory early that morning, no earlier-no later. This helps to minimize manufacturing cost.
Objectives
The objective of inventory management is to: avoidance of over and under investment in
inventories, provide the right quantity of material to the production department at the right
time. Factors to be considered when determining optimum stock levels are:
The projected sales of each product.
Availability of raw materials, components etc.
Delivery time by the suppliers and finally.
Can one remove slow movers from one’s product range without compromising best
sellers?
53
ESCORTS
WORKING CAPITAL MANAGEMENT
Inventory Management Techniques
Inventory Management techniques include the followings:
I. Effective and efficient purchasing, storage and issuing procedures.
II. Setting of various levels like max., min., reorder level.
III. Fixation of Economic Order Quantity.
IV. Establishment of inventory budgets.
V. Min-Max plan.
VI. Two-Bin system.
VII. ABC analysis.
VIII. VED analysis.
IX. XYZ analysis.
X. Use of inventory rations.
XI. Aging Schedule of inventories.
XII. Kardex system.
54
ESCORTS
WORKING CAPITAL MANAGEMENT
Inventory Management
Company policy doesn’t specify any period for keeping inventory but it is generally kept
for 30-90 days. However 3 days stock is considered as the minimum stock level for the item
which is purchased locally (Faridabad) and 7 days stock is considered as the minimum stock
level for the inventory item, which are purchased from outside. 15 days stock is considered
as maximum stock level of the inventory item which are purchase locally and one month
stock for the inventory item which are purchased from outside.
Inventory Valuation
I. Raw material and components, stores and machinery spares are stated at lower of cost
and net realizable value.
II. Tools, jigs and dies are stated at cost or under.
III. Work in progress, finished and trading goods are stated at lower of cost net realizable
value.
IV. To determine the cost of raw material and components, weighted average cost method is
used while in the case of trading FIFO method is used.
V. Work in progress and finished goods include cost of conversion and other incurred in
bringing the inventories to finished condition.
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ESCORTS
WORKING CAPITAL MANAGEMENT
For Inventory Management Escorts has taken the following steps:
1. Business Process Re-Engineering
All the manufacturing facilities are being modernized in accordance with global norms,
towards this substantial investment in R&D has been made to the tune of US $ 7.5
million to incorporate state of art technology in manufacture of new models and BPR for
product and process up gradation, which seeks to do away with purchasing, materials
receipts and accounts payable procedures and documents and substitute them with
annual contracts with few suppliers and payments for quantities received, inspected or
accepted.
2. Total Quality Management
Escorts Limited is following TQM. It aims at zero defect production, which has far
reaching implications on inventory levels.
56
ESCORTS
WORKING CAPITAL MANAGEMENT
3. Just in Time Approach
Escorts Limited, like many large manufactures operate on a just – in - time (JIT) basis
whereby all the components to be assembled on a particular day, arrive at the factory on
same day. This help to minimize manufacturing costs as JIT stocks as discussed above
take up little space, minimize stock for a very short time, they are able to conserve
substantial cash, which is otherwise blocked up in inventories.
3. Vendor Reduction
The company today is following the policy of reducing the number of vendors. It is
trying to shrink the vendor base radically and then trying to use its clout to negotiate
longer terms with the vendor.
Among theses other steps taken by Escorts Management include Suggestion schemes
and Centralization of funds.
57
ESCORTS
WORKING CAPITAL MANAGEMENT
Payable Management
Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position. Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems. Ironically, some companies looking
to take working capital off the balance sheet nurture slow, inefficient or even obstructive
A/P process. It’s one case where negligence can improve financial performance. But
squeezing the vendors is a shortsighted policy. A better strategy is to shrink the vendor
base radically, then use one’s clout to negotiable longer terms with the vendors. Vendor
rationalization is a process that can pay off in a big way. Apart from the question that
who should authorize purchasing in the company – should it be tightly managed or spea
among a number of (junior) people? The following comes under good payable
management.
Purchase quantities should be geared to demand forecasts.
Order quantities should be used which takes account of stock holding and purchasing
costs.
The cost to the company of carrying stock should be clearly defined.
A Company should have alternative sources of supply. It should get quotes from Major
suppliers and shop around for the best discounts, credit terms and reduce dependence on
a single supplier.
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ESCORTS
WORKING CAPITAL MANAGEMENT
Maximum Level
It is the largest quantity of a particular material, which should be kept in the store at any
one time. The fixation of maximum level is necessary to avoid unnecessary blocking up
of capital in inventories.
Minimum level
The minimum level is the lowest quantitative balance of material in hand, which must be
maintained at all, times so that the assembly line may not be stopped on account of non
availability of materials.
Re-Ordering Level
It is the point at which if the material in store reaches, further supplies must be ordered.
The re-ordering level is fixed somewhere between maximum and minimum level each
such a way that the quantity of material represented by the difference between the re-
ordering level and minimum level will be sufficient to meet the demands of production
till the order materializes and supplies are received.
59
ESCORTS
WORKING CAPITAL MANAGEMENT
Economic order quantity
It refers to the size of order, which gives maximum economy in purchasing any
materials. It is also referred to as optimum or standard ordering quantity. It is fixed after
taking into consideration ordering cost, stock out cost and inventory carrying cost the
EOQ is determined by formula method, tabular method or graphic method.
Ordering cost
It is the cost of placing an order and securing the supplies. The more frequently orders
are placed and fewer the quantities purchased on each order, the greater will be the
ordering cost and vice versa.
Stock out Cost
In includes the cost of expediting purchases, obtaining rush deliveries, keeping track of
back orders etc.
Inventories Carrying Cost
It is the cost of keeping item in stock. It includes interest on investment, obsolescence
loses, storekeeping cost, insurance premium etc.
60
ESCORTS
WORKING CAPITAL MANAGEMENT
Perpetual Inventory System
It is also known as automatic inventory system. It is a method of recording store
balances after every receipt and issue, to facilitate regular checking and to obviate
closing down for stocktaking.
Min- Max Plan
This is one of the oldest techniques of inventory control. According to this technique for
each item of inventory the maximum and minimum levels are fixed. The maximum level
lays down the limit above which an inventory item will not be kept in the stores.
Two bin system
In case of this technique, for each item of inventory two bins are maintained. The first
bin contains such quantity of inventory, which is sufficient to meet the consumption
requirement till the next order is placed and the second contains the safety stock.
Order Cycling System
In case of this technique the stock of each item of inventory is reviewed periodically,
e.g., monthly, BI-monthly or quarterly. In case the review discloses that stock level of a
particular item of inventory will not be sufficient till the next schedule that of review on
the basis of probable rate of consumption, an order is placed to replenish its supply.
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ESCORTS
WORKING CAPITAL MANAGEMENT
ABC Analysis
ABC analysis is the technique of exercising selective control over inventory item the
technique is based on assumption that a firm should not exercise some degree of control
on all items of inventory. It should rather keep greater control over those items, which
are more costly, compared to those items, which are less costly. According to this
approach, the inventory items are divided into three categories: A, B and C.
VED Analysis
VED Analysis is of the nature of ABC analysis though it is generally used in case of
spare parts. The parts are classified into three categories – vital, Essential and desirable
the firm keeps spare parts in stock only for lead-time, as these are those items, which are
readily available in the market.
XYZ Analysis
XYZ analysis is based on value of inventory in stock. It is different from ABC analysis,
which is based on value of materials consumed and VED analysis, which is base on
relative importance of inventory in stock.
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WORKING CAPITAL MANAGEMENT
Aging Schedule of Inventory
Under this inventories are classified according to age. It helps in identifying inventories,
which are moving slowly into production or sales.
Kardex System
Kardex System is an improvement of loose- leaf card system. In case of this technique a
card is maintained for each item of materials. The cards are arranged in a metallic tray
and kept in Kardex cabinets specially meant for that purpose.
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SWOT ANALYSIS OF ESCORTS LIMITED
STRENGTHS
Good image in market.
Ability to deliver in time.
Excellent distributorship network across the India.
Latest technology.
Good quality standards.
Better services.
WEAKNESS
High prices as compared to the market.
Physical distance between plant & marketing department.
OPPORTUNITIES AND THREATS
The growing domestic demand for food grains and agri products promises a very good
future for company’s core business. We believe that India can be a major exporter of grains
and other Agri products and increased demand both Domestic and Exports will call for
increased yields, which besides other key inputs will result in increased Farm
mechanization. Tractor density as well as the HP input per hectare is extremely low relative
to International standards, tractor population today is concentrated in 10% of villages and
even today 70% of our villages do not have a tractor. CRISIL INFA has estimated a growth
of 7.5%-8.5% CAGR for the next five years. All this shows great potential for the growth in
this industry.
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RESEARCH
METHODOLOGY
65
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RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. In it step
by step methods are followed to solve a particular problem. It refers to a search for
knowledge. It can also be defined as a scientific search for pertinent information on a
specific topic. In fact, research is an art of scientific investment.
Redman & mory defines research “systematized effort to gain new knowledge.”
RESEARCH DESIGN
Research Designs the way in which the research is carried out. It works as a blue print.
Research Design is the arrangement of the conditions for the collections and analysis of
data in a manner that to combine relevance to the research purpose with economy in
procedure.
TYPES OF RESEARCH DESIGN
Exploratory Research Design
Descriptive & Diagnostic Research Design
Experimental Research Design
66
ESCORTS
RESEARCH METHODOLOGY
Exploratory Research Design
In it, a problem is formulated for precise investigation and working and hypothesis are
developed.
Descriptive & Diagnostic Research Design
In descriptive research design: those studies are taken which are concerned with
describing the characteristics of a particular individual or a group.
Experimental Research Design
In it casual relationships between the variables are tested. It is also known as Hypothesis
Testing Research Design
The present project is descriptive in nature. The major purpose of descriptive research is
the description of the state of affairs, as it exists in present. The main characteristic of
this method is that the researcher has no control over the variables. He can only report
what has happened or what is happening.
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RESEARCH METHODOLOGY
SAMPLE DESIGN
It is not possible for any researcher to include each and every member of the universe in
his research process. So, he selects small portion of the universe, which is its true
representative. This group is known as sample and this process is called sampling.
Sampling Techniques can be categorized into two broad categories namely:
Non-probability Sample
Probability Sampling
Non-probability Sampling
In it, researcher selects sample deliberately, by using his own judgement, in it every item
of the universe does not have equal chances of inclusion in the sample.
It can be of following type:
Convenience Sampling
Judgement Sampling
Quota Sampling
68
ESCORTS
RESEARCH METHODOLOGY
Probability Sampling
It is known as “Random Sampling” or “Chance Sampling”. In it, each population
element has equal chance of selection.
It can be of following types:
Simple Random Sampling
Stratified Sampling
Cluster Sampling
In the present project, non-probability sampling has been used because sample is
selected by researcher’s own view and every item of the universe has not equal chances of
being selected. Under non-probability sampling, convenient sampling has been used because
sample has been selected according to own convenience.
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ESCORTS
RESEARCH METHODOLOGY
DATA COLLECTION
The data can be of two types:
Primary Data
Secondary Data
Primary Data
Primary data are those data, which is originally collected afresh.
Secondary Data
Secondary data are those data which are already collected and stored and which has been
passed through statistical research.
In this project, Secondary data has been collected from following sources:-
Annual report
Books
M.I.S
Other material and report published by company
70
ESCORTS
FINDINGS
71
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FINDINGS
There has been a significant decline in volume over the years from 2001-02 to 2005-
06 as can be seen in the graph below:
The Net sales of Tractor has increased considerably from 2004-05 to 2007-08,
This can be mainly attributed to changes in Variable and material costs and in the price.
The Net sale of Tractor has increased considerably from 2004-05 to 2007-08,
that is an decrease of Rs.7216 per tractor. This can be mainly attributed to changes in
Variable and material costs and in the prices.
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RECOMMENDATION
73
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RECOMMENDATION
Loans & Advances
Special efforts should be made to analyze loans & advances, which are between 35% to 56% of
current assets. This can be classified between production / operation relation related and non-
production / operation related. No production related cases might be financed from other sources
like debenture etc. and treated separately.
Inventory
Inventory should be reviewed constantly to identify show / dead / obsolete item and then
disposed until 2000-01 level is again achieved.
Optimum level should be revised periodically, keeping in view, distance of suppliers, production
lead time of supplier, transport problem if any and reliability of suppliers. This will help to avoid
obsolesce and dead inventory.
Debtors
A study may be conducted if required by experts to pinpoint reason behind Escorts high
correction period of 95 days in 2007-08 against 50 days of Mahindra & Mahindra. It is due to
quality of products, quality of customer, the segment of customers marketing effort, distribution
pattern or other reasons.
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RECOMMENDATIONS
Creditors
Though high payout days may be appartenly beneficial for the company. It has it very heavy
long term cost like high interest cost, bad credit ratings and shyness of good quality / standard
suppliers.
Ratios
The company should try to improve its current situation. The ratios, which are taken in this
research to evaluate the company’s position, are Current ratio, Quick ratio and Activity ratio.
These ratios show the actual position of the company. The Quick ratio is declining since 2001-02
till now. There is a drastic declining in the working capital turnover ratio. This ratio goes to –ve
position in current year compared to previous. The Debts collection period is 359 days for
Exporters. This shows the poor collection policy. The current ratio is 1.12 in 2006-07, which is
not upto the ideal ratio. This shows that the current assets are equal to the current liabilities. Not
satisfactory.
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LIMITATIONS
76
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LIMITATIONS
Although every effort has been in to collect the relevant information through the sources
available, still some relevant information could not be gathered.
Busy Schedule of Concerned Executives: The concerned executives were having very busy
schedule because of which they were reluctant to give appointment.
Time: The time duration could not provide ample opportunity to study every detail of
working capital management of the company.
Unawareness: Executives were unaware of many terms related to working capital study
while asking to them.
Confidential Information: As the company on account of confidential report has not
disclosed some figures. Moreover, in some cases separate accounts of division are not
separately maintained thereby, leading to restrictions in study.
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BIBLIOGRAPHY
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BIBLIOGRAPY
Books
Financial Management- S.K Gupta
Management Accountancy-D k Gole
Cost and Management Accountancy, S.N.Maheshwari
Financial Management And Policy, James C.Van Horne
World Wide Web
www.escortsagri.com
www.economictimes.com
www.planware.com
www.icraindia.com
Other than Web
M.I.S of the company
Annual Reports
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ESCORTS
ANNEXURE & GLOSSARY
80
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ANNEXURE-1
1. GENERAL INFORMATION
NAME OF THE COMPANY: ESCORTS LIMITED, AGRI MACHINERY
GROUP.
REGISTERED OFFICE: 11, SCINDIA HOUSE, CONNAUGHT CIRCUS, NEW
DELHI.
WEBSITE: www.escortsagri.com
CHAIRMAN, CEO AND SENIOR EXECUTIVE: MR. RAJAN NANDA
CHIEF HUMAN RESOURSE MANAGER: MR. YASH YADAV
2. HISTORY AND CURRENT PROFILE
PROMOTERS: MR.H.P. NANDA
TOTAL NO. OF EMPLOYEES: APPROX. 5,000
BUSINESS TURNOVER: RS. 1,000 CRORE
CURRENT BUSINESS ACTIVITIES (NATIONAL & INTERNATIONAL) :
TRACTOR MANUFACTURING, TRACTOR EXPORTING ETC.
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3. MARKETING DATA
oPRODUCT : AGRICULTURAL MACHINERY
oCOMPETITORS : MAHINDRA & MAHINDRA( M& M)
EICHER
SONALIKA
PUNJAB TRACTOR LIMITED (PTL)
oMARKETING STRATEGY : CONFIDENTIAL
o I. T. APPLICATION : ORACLE- 11i
1. FINCIAL DATA PROVIDER
oFINANCIAL CONCERN : MR. M. M. HALDER
oJOB PROFILE : ASSISTANT FINANCE MANAGER
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ANNEXURE-2
Table 1
PROFIT & LOSS ACCOUNT
DESCRIPTRION 2006-07
(OCT 06 TO SEP
07)
2005-06
(OCT 05 TO SEP
06)
INCOME
SALES
SALES-INTER DIVISION
OTHER INCOME
INTER DIVISION RECEIPT
18,782,874,734.63
11,205,736.06
122,599,057.46
15,031,912.00
15,692,391,469.97
19,215,106.56
177,874,066.93
20,928,339.00
TOTAL INCOME 18,931,711,440.15 15,910,408,982.46
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EXPENDITURE
MATERIAL &MANUFACTURING
MATERIAL CONSUMED
PERSONNEL
SALES EXPENSES
INTEREST
BANK & FINANCE CHARGE
AMORTISATION EXPENSESE
PROVISION & WRITE OFF
EXCISE
INTER DIVISION SERVICES
TOTAL EXPENSES
PROFIT BEFORE DEPRECIATION
DEPRECIATION
TRANSFER FROM REVALUTION –
RESERVE
FRINGE BENEFIT TAX
14,529,371,114.89
398,075.00
1,591,586,402.78
1,627,772,755.06
165,814,609.56
15,305,698.84
41,905,702.98
10,078,938.32
61,023,664.00
9,888,491.17
18,189,145,452.60
742,565,987.55
398,799,618.31
-53,935,917.51
18,230,265.00
12,079,154,538.57
214,342.00
1,356,484,006.69
1,364,709,104.99
220,379,177.86
145,221,302.13
38,996,216.86
27,462,421.16
89,388,565.09
33,372,434.04
15,355,382,109.39
555,026,873.07
347,139,550.25
- 45,415,612.79
17,171,364.00
PROFIT/LOSS CARRIED TO
BALANCE SHEET
379,472,021.75 236,131,571.61
84
ESCORTS
ANNEXURE-3Table 2
INTER DIVISION SALES
DESCRIPTION 2006-07
(OCT 06 TO SEP 07)
2005-06
(OCT 05 TO SEP 07)
INTER SALE TO A.S.P.
INTER SALE TO R.E.D.
11,205,736.06
0.00
19,215,106.56
0.00
TOTAL 11,205,736.06 19,215,106.56
Table 3
INTER DIVISION PURCHASES
DESCRIPTION 2006-07
(OCT 06 TO SEP 07)
2005-06
(OCT 05 TO SEP 07)
A.S.P.
R.E.D.
0.00
398,075.00
0.00
214,342.00
TOTAL 398,075.00 214,342.00
ANNEXURE-4Table 4
INTER DIVISION RECEIPTS
85
ESCORTS
DESCRIPTION 2006-07
(OCT 06 TO SEP 07)
2005-06
(OCT 05 TO SEP 07)
CORPORATE
A.S.P.
R.E.D.
826,770.00
12,873,523.00
1,331,619.00
8841,891.00
11,436,774.00
649,674.00
TOTAL 15,031,912.00 20,928,339.00
Table 5
INTER DIVISION SERVICES
DESCRIPTION 2006-07
(OCT 06 TO SEP 07)
2005-06
(OCT 05 TO SEP 07)
CORPORATE
A.S.P.
R.E.D.
3,195302.17
1,330,896.00
5,362,293.00
25,473,731.04
1,330,896.00
6,567,807.00
TOTAL 9,888,491.17 33,372,434.04
ANNEXURE-5
Table 6
OTHER INCOME (AMG)
86
ESCORTS
DESCRIPTION 2006-07
(OCT 06 TO
SEP 07)
2005-06
(OCT 05 TO
SEP 07)
INTEREST OTHERS
MISC. INCOME
COMMISSION
ERECTION & SERVICING
SURPLUS SALE (ASSETS)
EXPORT INCENTIVE
SALE OF SCRAP
PROV. DOUDTFUL DEBTS
PROV. NOT REQ. WRITTEN
PROV. DOUBTFUL ADVANCES
UNCLAIMED BALANCES
OTHERS
SUB TOTAL MISC. INCOME
EXCHANGE VARIATION(NET)
TOTAL
0.00
0.00
1,083,593.00
141,199.40
383,224.10
10,026,328.11
29,332,859.35
1,845,381.95
19,540,782.16
0.00
3,100,758.91
57,144,930.48
122,599,057.46
0.00
122,599,057.46
0.00
0.00
3,500,000.00
153,000.00
970,338.40
56,452828.37
23,295,943.93
16,166,105.56
153,433.91
0.00
0.00
43,629,574.42
144,321,224.59
33,552,842.34
177,874,066.93
ANNEXURE-6
87
ESCORTS
Table 7
MATERIAL, MANUFACTURING & OPERATING EXPENSES
DESCRIPTION 2006-07
(OCT 06 TO
SEP 07)
2005-06
(OCT 05 TO
SEP 07)
RAW MATERIAL CONSUMED
OPENING STOCK
ADD: PURCHASES
LESS: CLOSING STOCK
863,340,753.22
13,269,344,609.85
783,817,238.18
736,593,624.50
11,195,201,510.14
863,340,753.22
FINISHED &TRDING GOODS
& WIP CONSUMED
OPENING STOCK:-
FINISHED& TRADING GOODS
WORK-IN-PROGRESS
ADD: PURCHASES
LESS: CLOSING STOCK
13,348,868,124.89
330,019,759.15
86,858,651.33
416,878,410.48
425,100,951.73
841,979,362.21
11,068,454,381.42
166,428,824.08
16,026,397.45
182,455,221.53
741,928,170.88
924,383,392.41
88
ESCORTS
FINISHED&TRADINGGOODS
WIP
MATERIAL CONSUMED
EXCISE DUTY
STORES, SPARES & TOOLS
LEASE CHARGES (PLANT
POWER & FUEL
REPAIRS (BUILDING)
REPAIRS (MACHINERY)
TOTAL OPERATING COST
GRAND TOTAL
146,232,198.77
84,049,204.68
611,697,958.76
13,960,566,083.65
11,265,635.00
186,622,382.42
0.00
251,377,328.64
20,431,627.93
99,108,057.25
557,539,396.24
14,529,371,114.89
330,019,759.15
86858,651.33
507,504,981.93
11,575,959,363.35
0.00
166,418,846.68
0.00
231,908,150.90
27,432,710.54
77,435,467.10
503,195,175.22
12,079,154,538.57
89
ESCORTS
90