Ashoklayland Project

A STUDY ON WORKING CAPITAL MANAGEMENT OF ASHOK
LEYLAND LTD, CHENNAI.

A PROJECT REPORT
SUBMITTED BY
LALAPETA MOHAN
(REG NO: 0920212)
IN PARTIAL FULLFILLMENT FOR THE AWARD OF THE
DEGREE
OF
MASTER OF BUSINESS ADMINISTRATION
CHRIST UNIVERSITY INSTITUTE OF MANAGEMENT

KENGERI CAMPUS, CHRIST UNIVERSITY
BANAGLORE-560 074
APRIL-MAY 2010
DECLARATION
I, LALAPETA MOHAN Student of MBA I (Finance) 2009-2011
studying at Christ University Institute of Management, Bangalore, declare that the
project work entitled A STUDY ON WORKING CAPITAL MANAGEMENT
OF ASHOK LEYLAND LTD. CHENNAI Was carried by me in the partial
fulfillment of MBA program under the Christ university institute of
management.
This project was undertaken as a part of academic curriculum

according to the University rules and norms and it have not commercial interest
and motive. It is my original work. It is not submitted to any other
organization for any other Purpose.
(LALAPETA MOHAN)
SIGNATURE OF THE STUDENT
CHRIST UNIVERSITY INSTITUTE OF MANAGEMENT
BANAGALORE
PLACE: - BANGALORE.
DATE:
ACKNOWLEDGEMENT
It gives me immense pleasure to present this project report on

Working Capital Management carried out at ASHOK LEYLAND Ltd. In
partial fulfillment of post-graduate course M.B.A.
No work can be carried out without the help and guidance of various
persons. I am happy to take this opportunity to express my gratitude to those
who have been helpful to me in completing this project report.
At the outset I would like to thank Mr. R.VENKATACHALAM
for their valuable advice and guidance during my project completion, also
MR.SANTHANAM and Mr. C.K.T CHANDRA SEKHARA (Head of mba
dept.) for timely help concerning various aspects of project. I also thanks to
all staff members of account department for help me to complete the summer
internship program.
I would be failing in my duty if I do not express my deep sense of
gratitude to Prof. ANIRBHAN GATAK sir without his guidance it
wouldnt have been possible for me to complete this project work.
Lastly I would like to thank my parents, friends and well wishers who
encouraged me to do this research work and all those who contributed directly
or indirectly in completing this project to whom I am obligated to.
TABLE OF CONTENTS:
CHAPTER
NUMBER
TITLE
PAGE
NUMBER
LIST OF TABLES
LIST OF CHARTS
SYNOPSIS
1. The Background
2. The Problem Statement
3. Objectives Of The Study
4. Method
5. Scope Of The Study
6. Limitations Of The Study
7. Chapter Scheme
8. Expectations From Study
6
8
10
11
11
11
12
14
14
14
15
II
WORKING CAPITAL MANAGEMENT

1. Introduction
2. Need Of Working Capital
3. Gross W.C and Net W.C.
4. Types Of Working Capital
5. Determinants Of Working Capital
6. Ratio analysis
16
17
18
18
19
21
25
III
COMPANY PROFILE
1. Introduction
2. Industry & Company Profile
3. History And Origin
4. Vision
5. Mission
6. Values
27
28
29
31
38
39
39
7. Policies
8. Product Profile
IV
VI
DATA ANALYSIS AND

INTERPRETATION
4.1 WORKING CAPITAL ANALYSIS
4.2 MANAGING WORKING CAPITAL
4.2.1 INVENTORY MANAGEMENT
4.2.2 RECEIVABLES MANAGEMENT
4.2.3 CASH MANAGEMENT
4.3 OPERATING CYCLE
FORECASTING
5.1 TIME SERIES ANALYSIS
5.2 LEAST SQUARE METHOD
5.3 FORECAST FOR 2009-10
5.4 ESTIMATION OF SCHEDULE OF
CHANGES OF WC
FINDINGS
RECOMMONDATIONS
CONCLUSION
BIBLIOGRAPHY
ANNEXURE
40
43
50
51
56
66
83
92
99
101
102
102
103
110
112
116
117
119
120
LIST OF TABLES:
S.NO:
TITLE
SCHEDULE OF CHANGES IN WC FOR

2004-05
2005-06
2006-07
2007-08
2008-09
NET WORKING CAPITAL RATIO
WC TURNOVER RATIO
CURRENT ASSETS TO TOTAL ASSETS
RATIO
CURRENT LIABILITIES TO TOTAL
LIABILITIES RATIO
CURRENT RATIO
LIQUID RATIO
GROSS PROFIT RATIO
NET PROFIT RATIO
INVENTORY TURNOVER RATIO
2
3
4
5
6
7
8
9
10
11
12
13
14
TABLE
NO:
1
PAGE
NO:
52
53
54
55
56
6
7
8
57
58
60
61
10
11
12
13
14
62
63
64
65
74
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
INVENTORY HOLDING PERIOD

RAW MATERIALS TURNOVER RATIO
RAW MATERIALS HOLDING PERIOD
WIP TURNOVER RATIO
WIP HOLDING PERIOD
FINISHED GOODS TURNOVER RATIO
FINISHED GOODS HOLDING PERIOD
INVENTORY TO CURRENT ASSETS
RECEIVABLES TURNOVER RATIO
DEBTORS COLLECTION PERIOD
AVERAGE INVESTMENT IN
RECEIVABLES
CREDITORS TURNOVER RATIO
CREDIT COLLECTION PERIOD
RECEIVABLES TO CA RATIO
CASH TURNOVER RATIO
CASH HOLDING PERIOD
CASH RATIO
CASH TO CA RATIO
OPERATING CYCLE
SALES FORECAST
INVENTORY FORECAST
CASH FORECAST
SUNDRY DEBTORS FORECAST
LOANS AND ADVANCES FORECAST
LIABILITIES FORECAST
PROVISIONS FORECAST
ESTIMATION OF SCHEDULE OF
CHANGES OF WC
15
16
17
18
19
20
21
22
23
24
25
75
76
77
78
79
80
81
82
86
87
88
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27
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30
31
32
33
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37
38
39
40
41
89
90
91
95
96
97
98
99
103
104
105
106
107
108
109
110
LIST OF CHARTS
S.NO:
TITLE
1
2
3
NET WORKING CAPITAL RATIO

WC TURNOVER RATIO
CURRENT ASSETS TO TOTAL ASSETS
RATIO
CURRENT LIABILITIES TO TOTAL
LIABILITIES RATIO
CURRENT RATIO
LIQUID RATIO
GROSS PROFIT RATIO
NET PROFIT RATIO
INVENTORY PROPORTION
COMPONENTS OF INVENTORY
INVENTORY TURNOVER RATIO
INVENTORY HOLDING PERIOD
RAW MATERIALS TURNOVER RATIO
RAW MATERIALS HOLDING PERIOD
WIP TURNOVER RATIO
WIP HOLDING PERIOD
FINISHED GOODS TURNOVER RATIO
FINISHED GOODS HOLDING PERIOD
INVENTORY TO CURRENT ASSETS
RECEIVABLES TURNOVER RATIO
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
CHART
NO:
1
2
3
PAGE
NO:
57
59
60
61
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
62
63
64
65
72
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80
81
82
86
87
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
AVERAGE INVESTMENT IN
RECEIVABLES
CREDITORS TURNOVER RATIO
CREDIT COLLECTION PERIOD
RECEIVABLES TO CA RATIO
CASH TURNOVER RATIO
CASH HOLDING PERIOD
CASH RATIO
CASH TO CA RATIO
OPERATING CYCLE
SALES FORECAST
INVENTORY FORECAST
CASH FORECAST
SUNDRY DEBTORS FORECAST
LOANS AND ADVANCES FORECAST
LIABILITIES FORECAST
PROVISIONS FORECAST
22
88
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
89
90
91
95
96
97
98
100
103
104
105
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107
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10
CHAPTER 1
Synopsis
1. The
Background
2. The Problem
Statement
3. Objectives Of
The Study
4. Method
5. Scope Of The
Study
6. Limitations Of
The Study
7. Chapter
Scheme
8. Expectations
11
1.1. THE BACKGROUND:

A project entitled A study on working capital management of Ashok
Leyland ltd, Chennai was carried out with an intention to analyze the utilization
of working capital. The study helps to know the level of current asset and current
liability. Various analytical tools is been used to analyze and to make inference.
Findings are based on the analysis; the major finding was that the company has a
good liquidity position and profit percentage. Based on the findings various
suggestions have been given for the further improvement of the effective
utilization of the working capital.
1.2. THE PROBLEM STATEMENT:
Managing working capital in a manufacturing firm is very difficult and
risky position. It is required to maintain the liquidity position of any firm to be
good. This is the main problem for all firms. So, components of working capital
like inventory management, cash management and receivables management should
be managed well.
1.3. OBJECTIVE OF THE STUDY:
Study of the working capital management is important because
unless the Working capital is managed effectively, monitored efficiently planed
properly And reviewed periodically at regular intervals to remove bottlenecks if
any the Company cannot earn profits and increase its turnover. With this primary
Objective of the study, the following further objectives are framed for a depth
Analysis.
To study the working capital management of Ashok Leyland Ltd.
12
To study the optimum level of current assets and current liabilities of the
Company.
To study the liquidity position through various working capital related
Ratios.
To study the working capital components such as receivables accounts, Cash
management, Inventory position.
To study the way and means of working capital finance of the Ashok
Leyland Ltd.
To estimate the working capital requirement of Ashok Leyland Ltd
To study the operating and cash cycle of the company.
1.4. METHOD:
1.4.1 INTRODUCTION:
Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying now research is
done systematically. In that various steps, those are generally adopted by a
researcher in studying his problem along with the logic behind them.
It is important for research to know not only the research method but
also know methodology. The procedures by which researcher go about their
work of describing, explaining and predicting phenomenon are called
methodology. Methods comprise the procedures used for generating, collecting and
evaluating data. All this means that it is necessary for the researcher to
design his methodology for his problem as the same may differ from problem to
problem. Data collection is important step in any project and success of any
project will be largely depend upon now much accurate you will be able to collect
and how much time, money and effort will be required to collect that necessary
data, this is also important step. Data collection plays an important role in research
work. Without proper data available for analysis you cannot do the research work
accurately.
13
1.4.2) TYPES OF DATA COLLECTION:

There are two types of data collection methods available.
Primary data collection
Secondary data collection
1.4.2.1) Primary Data:

The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal
interview, questionnaire etc. to support the secondary data.
1.4.2.2) Secondary Data Collection Method:

The secondary data are those which have already collected and stored.
Secondary data easily get those secondary data from records, journals, annual
reports of the company etc. It will save the time, money and efforts to collect the
data. Secondary data also made available through trade magazines, balance sheets,
books etc.
This project is based on primary data collected through personal interview of head
of account department, head of SQC department and other concerned staff member
of finance department. But primary data collection had limitations such as matter
confidential information thus project is based on secondary information
collected through five years annual report of the company, supported by
various books and internet sides. The data collection was aimed at study of
working capital management of the company
Project t is based on
Annual report of Ashok Leyland ltd 2004-05
14

1.5. SCOPE OF THE STUDY:

The scope of the study is identified after and during the study is conducted. The
Study of working capital is based on tools like trend Analysis, Ratio Analysis,
Working capital leverage, operating cycle etc. Further the study is based on last 5
years Annual Reports of Jain Irrigation Systems Ltd. And even factors like
Competitors analysis, industry analysis were not considered while preparing this
project.
1.6. LIMITATIONS OF THE STUDY:

Following limitations were encountered while preparing this project:
1.6.1) Limited data:This project has completed with annual reports; it just constitutes one part of Data
collection i.e. Secondary. There were limitations for primary data Collection
because of confidentiality.
1.6.2) Limited period:This project is based on five year annual reports. Conclusions and
Recommendations are based on such limited data. The trend of last five year May
or may not reflect the real working capital position of the company
1.6.3) Limited area:Also it was difficult to collect the data regarding the competitors and their
Financial information. Industry figures were also difficult to get.
15
1.7. CHAPTER SCHEME:

Chapter 1 deals with the synopsis of the project report, it tends to include
problem statement, research method, objectives, scope and limitations of the
study.
Chapter 2 relates to the introduction. It tends to give the short description
about the project which has been already dealt with the same topic.
Chapter 3 covers complete profile of the company. It tends to include the
industry profile and all details about the company.
Chapter 4 deals with analysis of the data which is being collected from the
company, and also about the inference of the data.
Chapter 5 relates to the findings from the data, and deals with suggestions
given by the researcher.
Chapter 6 covers the conclusion, which gives the ultimate result of the
study.
Chapter7 deals with Bibliography, it includes the various sources from
which information is collected.
Chapter 8 deals with the Annexure.
1.8. EXPECTATION FROM STUDY:

To be able know the financial position of the company.
To be able know the working capital requirement of the company.
To be capable to help the company in making better decisions.
16
Chapter 2
Working capital
management
1. Introduction
2. Need Of Working
Capital
3. Gross W.C and Net
W.C.
4. Types Of Working
Capital
5. Determinants Of
Working Capital
6. Ratio analysis
17
2.1 INTRODUCTION
WORKING CAPITAL MANAGEMENT

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

According to Park & GladsonThe excess of current assets of a business (i.e. cash, accounts
receivables, inventories) over current items owned to employees and others
(such as salaries & wages payable, accounts payable, taxes owned to
Government)
2.2 NEED OF WORKING CAPITAL MANAGEMENT
18
The need for working capital gross or current assets cannot be

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

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

Gross working capital refers to the firms investment I current
assets. Current Assets are the assets which can be convert in to cash within
year includes cash, Short term securities, debtors, bills receivable and
inventory.
2) Net Working Capital:
19
Net working capital refers to the difference between current assets

and current Liabilities. Current liabilities are those claims of outsiders which
are expected to mature for payment within an accounting year and include
creditors, bills payable and outstanding expenses. Net working capital can
be positive or negative.
Efficient working capital management requires that firms
should operate with some amount of net working capital, the exact amount
varying from firm to firm and depending, among other things; on the nature
of industries.net working capital is necessary because
the cash outflows
and inflows do not coincide. The cash outflows resulting from payment of
current liabilities are relatively predictable. The cash inflow are however
difficult to predict. The more predictable the cash inflows are, the less net
working capital will be required.
The concept of working capital was, first evolved by Karl Marx.
Marx used the term variable capital means outlays for payrolls advanced to
workers before the completion of work. He compared this with constant capital
which according to him is nothing but dead labor. This variable capital is
nothing wage fund which remains blocked in terms of financial management,
in work- in-process along with other operating expenses until it is released
through sale of finished goods. Although Marx did not mentioned that
workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of W.I.P, the concept of working capital, as
we understand today was embedded in his variable capital .
2.4 Types of Working Capital:
The operating cycle creates the need for current assets (working capital).
However the need does not come to an end after the cycle is completed
to explain this continuing need of current assets a destination should be
drawn between permanent and temporary working capital.
1) Permanent Working Capital:
20
The need for current assets arises, as already observed, because of the
cash cycle. To carry on business certain minimum level of working
capital is necessary on continues and uninterrupted basis. For all practical
purpose, this requirement will have to be met permanent as with other
fixed assets. This requirement refers to as permanent or fixed working capital.
2) Temporary Working Capital:
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable, working capital. This portion of the required
working capital is needed to meet fluctuation in demand consequent upon
changes in production and sales as result of seasonal changes
21
Graph shows that the permanent level is fairly castanet; while temporary
working capital is fluctuating in the case of an expanding firm the permanent
working capital line may not be horizontal. This may be because of changes in
demand for permanent current assets might be increasing to support a rising level
of activity
2.5 DETERMINANTS OF WORKING CAPITAL:

The amount of working capital is depends upon following factors:
1) Nature Of Business:
Some businesses are such, due to their very nature, that their requirement
of fixed capital is more rather than working capital. These businesses sell
services and not the commodities and that too on cash basis. As such, no
founds are blocked in piling inventories and also no funds are blocked in
receivables. E.g. public utility services like railways, infrastructure oriented
project etc. There requirement of working capital is less. On the other hand,
22
there are some businesses like trading activity, where requirement of fixed
capital is less but more money is blocked in inventories and debtors.
2) Length Of Production Cycle:
In some business like machine tools industry, the time gap between the
acquisition of raw material till the end of final production of finished products
itself is quite high. As such amount may be blocked either in raw
material or work in progress or finished goods or even in debtors. Naturally
there need of working capital is high.
3) Size And Growth Of Business:
In very small company the working capital requirement is quit high due to high
overhead, higher buying and selling cost etc. As such medium size business
positively has edge over the small companies. But if the business start growing
after certain limit, the working capital requirements may adversely affect by the
increasing size.
4) Business/ Trade Cycle:
If the company is the operating in the time of boom, the working
capital requirement may be more as the company may like to buy more raw
material, may increase the production and sales to take the benefit of
favorable market, due to increase in the sales, there may more and more amount
of funds blocked in stock and debtors etc. similarly in the case of
depressions also, working capital may be high as the sales terms of value
and quantity may be reducing, there may be unnecessary piling up of stack
without getting sold, the receivable may not be recovered in time etc.
5) Terms Of Purchase And Sales:
Some time due to competition or custom, it may be necessary for the company
to extend more and more credit to customers, as result which more and
more amount is locked up in debtors or bills receivables which increase the
working capital requirement. On the other hand, in the case of purchase, if the
credit is offered by suppliers of goods and services, a part of working
23
capital requirement may be financed by them, but it is necessary to

purchase on cash basis, the working capital requirement will be higher.
6) Profitability:
The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability
will positively reduce the strain on working capital requirement of the
company, because the profits to the extent that they earned in cash may be
used to meet the working capital requirement of the company.
7) Operating Efficiency:
If the business is carried on more efficiently, it can operate in profits
which may reduce the strain on working capital; it may ensure proper
utilization of existing resources by eliminating the waste and improved
coordination etc.
8) Seasonal Variations:
Generally, during the busy season, a firm requires larger working capital
than in slack season.
9) Working Capital Cycle:
The speed with which the working cycle completes one cycle determines the
requirements of working capital. Longer the cycle larger is the requirement
of working capital.
10)
Rate of stock turnover:
There is an inverse co-relationship between the question of working capital

and the velocity or speed with which the sales are affected. A firm having a
high rate of stock turnover will needs lower amt. of working capital as
compared to a firm having a low rate of turnover.
24
11)Credit policy:
A concern that purchases its requirements on credit and sales its product /
services on cash requires lesser amt. of working capital and vice-versa.
12)
Earning Capacity And Dividend Policy:
Some firms have more earning capacity than other due to quality of their
products, monopoly conditions, etc. Such firms may generate cash profits
from operations and contribute to their working capital. The dividend policy
also affects the requirement of working capital. A firm maintaining a steady
high rate of cash dividend irrespective of its profits needs working capital
than the firm that retains larger part of its profits and does not pay so high
rate of cash dividend.
13)
Price Level Changes:
Changes in the price level also affect the working capital requirements.
Generally rise in prices leads to increase in working capital.
2.6 RATIO ANALYSIS

A. WORKING CAPITAL RATIOS:
Turnover ratios:
1. Working capital turnover ratio= sales/working capital
Liquidity ratios:
1. Current ratio=current assets/current liabilities
2. Quick ratio= quick assets/current liabilities
25
Profitability ratios
1. Gross profit ratio=gross profit/net sales*100
2. Net profit ratio=net profit/net sales*100
B. INVENTORY MANAGEMENT RATIOS:
1. Inventory turnover ratio=sales/average inventory
2. Inventory holding period=360/inventory turnover ratio
3. Raw materials turnover ratio= raw materials/average raw materials
4. Raw material holding period=360/RM turnover ratio
5. Work in progress turnover ratio= cost of production/average WIP
(Cost of production=WIP closing stock-WIP opening stock+ depreciation
+ purchases+ employee wages power and fuel +consumption)
6. WIP holding period=360/WIP TR
7. FG turnover ratio=CGS/average FG
8. FG holding period=360/FG TR
C. RECEIVABLES MANAGEMENT RATIOS

9. Debtors turnover ratio=sales/average debtors
10.Debtors collection period=360/DTR
11.Creditors turnover ratio= credit purchases/average creditors
12.Creditors holding period=360/CTR
D. CASH MANAGEMENT RATIOS:
26
13.Cash ratio=cash and bank balances/CL

14.Cash turnover ratio=sales/average cash and bank balances
1. Introduction
2. Industry & Company
CHAPTER 3
Profile
3. History PROFILE
And Origin
COMPANY
4. Vision
5. Mission
6. Values
7. Policies
8. Product Profile
27
3.1 INTRODUCTION:
In 1948, when independent India was one year old, Ashok Leyland was born. We
were Ashok Motors then, assembling Austin cars at the first plant, at Ennore near
Chennai. In 1950 started assembly of Leyland commercial vehicles and soon local
manufacturing under license from British Leyland. With British Leyland
participation in the equity capital, in 1954, the Company was rechristened Ashok
Leyland.
Since then Ashok Leyland has been a major presence in India's commercial vehicle
industry. These years have been punctuated by a number of technological
innovations which went on to become industry standards. This tradition of
28
technological leadership was achieved through tie-ups with international

technology leaders and through vigorous in-house R&D.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The
375,000 vehicles we have put on the roads have shared the additional pressure
placed on road transportation in independent India.
The share of goods movement by road rose from 12% in 1950 to 60% in 1995. In
passenger transportation, the jump is equally dramatic: from 25% to 80%. At 60
million passengers a day, Ashok Leyland buses carry more people than the entire
Indian rail network. In the populous Indian metros, four out of the five State
Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like
double Decker and vestibule buses are unique models from Ashok Leyland, tailormade for high density routes.
In 1987, the overseas holding by LRLIH (Land Rover Leyland International
Holdings Limited) was taken over by a joint venture between the Hinduja Group,
the Non-Resident Indian transnational group and IVECO Fiat Spa, part of the Fiat
Group and Europe's leading truck manufacturer.
Global Standards, Global Markets the blue-print prepared for the future reflected
the global ambitions of the Company, captured in four words: Global Standards,
Global Markets (Liberalization and globalization were not yet in the air). Buoyed
by the backing of the two international giants, Ashok Leyland embarked on a
major product and process technology up gradation to world-class standards of
technology.
In the journey towards global standards of quality, Ashok Leyland reached a
milestone in 1993 when it became the first in India's automobile industry to win
the ISO 9002 certification. The more comprehensive ISO 9001 certification came
in 1994. 1994 was also the year, when international technology changed the way
India perceived trucks. The year when a new breed of world class trucks technologically superior and eco-friendly - rolled out on Indian roads. From our
state-of-the-art manufacturing Plant at Hosur, near Bangalore. They carried the
name Cargo. Cargo brought with it, a new set of values and an unmatched basket
of benefits, ushering in a change.
29
3.2 INDUSTRY PROFILE:

The automobile industry in India is the tenth largest in the world with an annual
production of approximately 2 million units is expected to become one of the
major global automotive industries in the coming years. A number of domestic
companies produce automobiles in India and the growing presences of
multinational investment, too has led to an increase in overall growth following the
economic reforms of 1991 the Indian growth as a result of increased
competiveness and relaxed restrictions.
History:
In 1953, the Govt of India and the Indian private sector initiated manufacturing
processes to help develop the automobile industry, which had emerged by the
1940s in a nascent form. Between 1940 to the economic liberalization of 1991, the
automobile industry continued to grow at a slow pace due to the many govt
restrictions. Japanese manufacturers entered the Indian market ultimately leading
to the establishment of Maruti udyog. A number of foreign firms joint ventures
with Indian companies.
Indian Automobile Companies:
1.
2.
3.
4.
5.
6.
Ashok Leyland ltd

Force motors
Hindustan motors
Mahindra & Mahindra ltd
Maruthi Suzuki
Tata motors
Market Share:
Table: 1
COMPANY
MARKET SHARE
30
1.Tata Motors
60.2
2.Ashok Leyland Ltd
28.4
3.Others
11.4
Chart: 1
MARKET SHARE
tata motors
ashok leyland ltd
others
11%
28%
60%
(Source: from company internal presentations)
Multinational Companies in India:
31
1.
2.
3.
4.
5.
6.
7.
Fiat
Ford motors
General motors
Honda
Hyundai
Mercedes-Benz
Mitsubishi motors
3.3 COMPANY PROFILE:

ENNORE PLANT:
(My project was carried in ennore plant located in Chennai.)
Ashok Leyland has six manufacturing plants - the mother plant at Ennore near
Chennai, two plants at Hosur (called Hosur I and Hosur II, along with a Press
shop), the assembly plants at Alwar and Bhandara. The total covered space at these
six plants exceeds 450,000 sq m and together employs over 11,500 personnel.
(Source: www.ashokleyland.com)
Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mother Plant
accounting for
over 40% ALL production. The plant manufactures a wide range
of vehicles and house production facilities for important aggregates such as
Engines, Gear Box, Axles and other key in-house components. Number of
employees in ennore plant are 4146 and number of models manufactured are 132.
Ashok Leyland is the flagship company of the hinduja group and is the second
largest manufacturer of commercial vehicles in India.
32
Ashok motor was set up in 1948 for the assembly of Austin cars. The company
name and objective changed with equity participation by British Leyland and
Ashok Leyland commenced manufacturer of commercial vehicles in 1955. It has
since than grown as a reputed manufacturer of quality automotive products ranging
from light commercial vehicles to heavy duty vehicles and for automotive,
industrial and marine applications. In 1987, the overseas hold by Land Rover
Leyland International Holidays Ltd(LRLIH) was taken over by a joint venture
between the Hinduja group, Non-Resident Indian Transitional group and IVECO
(since July 2006,the Hinduja group is 100% stake holder of LRLIH). Ashok
Leyland also acquired truck business unit of Avia, Prague (Czech Republic
effective 19-10-06).
The products of the company are of proven design for durability and reliability and
are hence very popular both in Indian and overseas markets. In recent years the
product range is upgraded in to the latest technological development in the world,
for which the company has the technical support from IVECO (FIAT group),
Italy for manufacture of IVECO cargo range of vehicles; Hino Motors, Japan for
manufacture of fuel efficient engines; and ZF , Germany for manufacture of
synchromesh gear boxes.
In the journey towards the Global standard of Quality , Ashok Leyland has reached
a major milestone in 1993 , when it became the first in Indias automobile industry
to win ISO 9002 Certification. The more comprehensive ISO 9001 certification
came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle
manufacturing units in 2002. It has also become the first Indian automobile
company to receive the latest ISO/TS 16949 corporate certification which is
specific to the auto company.
The company has the corporate office register at Chennai.
The marketing headquarter is at Chennai and the sales and services network, dealer
network and spare parts warehouse spread throughout India with regional sales
office and services centre located in all major cities and towns in the country. The
products are also exported to a range of overseas countries.
The marketing personal maintain constant interaction with customers for
application development and feedback for continuous improvement of the
33
products. The services function is carried out by qualified personal whose skills are
continuously upgraded through training to meet the servicing requirements of
newer or improved products. The design function is carried out by the product
Development Division operating through 4 centres viz. Product Development
(Ennore) for R&D related to Ashok Leyland engines, Technical centre
vellivoyalchavadi for design, proto-type developments of vehicle, vehicles and
components testing; Engine R&D (Hosur) for design and development of Hino
engines and Advanced Engineering (Chennai) for research related to future
products.
The manufacturing units of the company are located at Ennore (TN), Hosur
(TN), Alwar (Rajasthan) and Bhandara (MR). The Ennore , Hosur (plant - 1),
Hosur (plant-ii), Ambattur , Alwar and Bhandara manufacturing units are certified
ISO 9001:2000 and QS 9000:1998 certification by Indian register Quality system.
The company is also certified to ISO 14001:2000 Environmental Management
System for all the manufacturing units. The Bhandara unit of the company has won
the Golden Peacock Environmental Award 2002 of the world Environmental
Foundation in the Large/manufacturing category.
Ashok Leyland is also the 1st auto mobile company to receive the ISO/TS 16949
corporate certification in June 2006. TS 16949 reckon the nuances of automobile
Industry and is more customer centric. It integrates the salient concepts of all the
QMS standards has been accepted recognized and followed by all automobiles
manufactures in USA , Europe and Asia.
Ashok Leyland has also obtained ISO 27001 certificates for its Ennore Data canter
and Advanced Engineering group located in Chennai. Ennore data centre obtained
the certificate in May 2005 and advanced engineering in April 2007.
HISTORY AND ORIGIN:
The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by
independent India. Pandit Jawaharlal Nehru, India's first Prime Minister
persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive
manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the
assembly of Austin Cars. The Company's destiny and name changed soon with
34
equity participation by British Leyland and Ashok Leyland commenced

manufacture of commercial vehicles in 1955
(Source: www.ashokleyland.com)
Since then Ashok Leyland has been a major presence in India's commercial vehicle
industry with a tradition of technological leadership, achieved through tie-ups
with international technology leaders and through vigorous in-house R&D.
Access to international technology enabled the Company to set a tradition to be
first with technology. Be it full air brakes, power steering or rear engine busses,
Ashok Leyland pioneered all these concepts. Responding to the operating
conditions and practices in the country, the Company made its vehicles strong,
over-engineering them with extra metallic muscles. "Designing durable products
that make economic sense to the consumer, using appropriate technology", became
the design philosophy of the Company, which in turn has moulded consumer
attitudes and the brand personality.
The Company was incorporated on 7th September 1948, at Chennai. At first, they
Manufacture Comet Chassis and Leyland Tiger and Titan Chassis and Leyland
Diesel Engines. In July 1955, the name of the Company Was changed from Ashok
Motors Ltd., to Ashok Leyland Ltd.
35
In June 1956, 4 lakh shares allotted to Leyland Motors. In November 11 lakhs

share issued at par 15, 03,456 shares as rights in prop. 19:40 & 5,96,544 shares to
Leyland Motors to maintain their holding at 40%.Afterwards the Company Issued
many Share allotments and developing their growth.
In February 1979, the Company made a public issue of 49, 61,349 No. of equity
shares of Rs.5 each at a premium of Rs.3 per share.
In 1980, with the collaboration, the Company embarked on a programme of
manufacture of integral buses. The R & D division was also engaged in developing
a new vehicle prime mover with turbocharged engine which in operation with a
Tandem-Axle trailer would enable a GTW of 26T. The Company also developed a
longer integral bus with larger seating capacity. A technical collaboration
agreement was entered into for the manufacture of synchromesh transmissions to
the designs of Azhnradfabrik Friedrichshafen AG of West Germany.
In 1983, the Company entered into an agreement for a joint venture in Sri Lanka
for the assembly and progressive manufacture of Ashok Leyland vehicles. ACL
proposed to create facilities for body building and assembly of panels for front-end
structures for truck and business in order to cater to the requirements. Then the
Company entered into a technical collaboration with Hino Motor Ltd., Japan for
their w series engines.
In 1986, DGTD registration for the manufacture of metal cutting and grinding
machines at the Hosur and Alwar plants was obtained. A Prototype of a rear
engine bys chassis according to the specifications laid down by special working
group for use In State Transport Undertakings was acknowledge by the latter
during the year
In 1987, the Intermediate vehicle with 4-cylinder HINO engine was introduced
in the market under the brand name CHITAL. A test track for endurance testing
of vehicles was also commissioned.
In 1989, the Company introduced Normal Control (Bonneted) vehicle. With
access to superior IVECO TECHNOLOGY, THE Company was evaluating
36
various contemporary product options that were relevant to the requirements of

Indian road transport industry.
In 1994, the Company issued 10,771,908 GDRs at issue price of US$12.79 per
GDR for a total value of US $137.773 million. Each GDR represents 3 equity
shares of RS. 10 Each.32, 315,724 shares issued through GDRs. The Company
entered into a technical collaboration with Hino Motor Ltd., Japan for their W
series Engines.
In 1998, Ashok Leyland has introduced The Panther, a low floor bus which has
been indigenously designed to cater to the needs of the common masses and is
based on the parameters set by the Central institute of Road Transport and the
Association of State Road Transport Undertakings. The Ashok Leyland Ltd., the
commercial vehicles major, has entered into an agreement with the leading USbased management consultant, A T Kearney, to Kick-start the process reengineering work in the companys various production units. Ashok Leyland
Limited is developing a new range of low floor chassis in the passenger vehicle
sector for more convenient urban transportation. The Ministry of Defences Vehicle
Factory in Jabalpur has signed manufacturing agreements with Ashok Leyland &
Tata Electric and Locomotives Company (Telco) recently.
In 1999, the Company would enter into an alliance with dealers of tractor on a
temporary basis. The Company was talking to tractor manufacturers including
Mahindra & Mahindra, Eicher, TAFE and Punjab Tractors in this connection.
In 2000, the Company launched of two interactive Internet initiatives, one for
domestic parts operations and the other for exports. Ashok Leyland has announced
a voluntary retirement scheme for its unionized staff. Ashok Leyland Limited
(ALL) and Maruti Udyog Ltd have been selected for the IRTE National Award,
in recognition of their efforts towards promoting the cause of road safety, traffic
management and environment protection.
In 2001, Commercial vehicles manufacturers Ashok Leyland Ltd., Sundaram
Industries Ltd and Irizar of Spain have formed a joint venture company-Irizar
TVS Ltd for bus body building. The JV Company has been set up with a paid-up
capital of Rs. 75 lakhs with equal contribution from the three partners. Ashok
37
Leylands Ennore unit has received ISO 14001 certification for its environment
management system from Indian Registrar Quality Systems.
In 2002, Ashok Leyland Ltd has informed that Mr. G. Boschetti ceased to be a
Director on our Board. Mr. Marc Petit also ceased to be an Alternate Director to
Mr. G Boschetti Mr. R Sorce has been appointed as a Director in the place of Mr.
G Boschetti
In 2003, Leyland has reported a 70% increase in its sales. Ashok Leyland set to
increase HINO engine platform through in-house product development, to
deliver higher horsepower in tune with improving road infrastructure. Ashok
Leyland Ltd has supplied 25 buses to Afghanistan which is a part of Indian
Governments Assistance to the war-ravaged Afghanistan. Leyland bagged $46
million truck supply contract from the United Nations.
In 2004, Ashok Leyland unveils new range of buses and trucks in a bid. It launches
Ecomet, a light commercial vehicle, in the Andhra Pradesh market. Ashok
Leylands Hosur unit bags CIIs awards in safety, health and environment. Ashok
Leyland Ltd (ALL) and Indian Oil Corporation (IOC) have joined hands to offer
freight management services across the country. Ashok Leyland Ltd signs a
collaboration agreement with ZF of Germany local manufacturing of ZFs 9-speed
synchromesh gearbox. Now, Wipro InfoTech has signed up with Ashok Leyland
for strategic cost reduction.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness.
The 5, 00,000 vehicles we have put on the roads have considerably eased the
additional pressure placed on road transportation in independent India.
In the populous Indian metros, four out of the five State Transport Undertaking
(STU) buses come from Ashok Leyland. Some of them like the double-decker and
vestibule buses are unique models from Ashok Leyland, tailor-made for highdensity routes.
In 1987, the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja Group,
38
the Non-Resident Indian transnational group and IVECO. (Since July 2006, the
Hinduja Group is 100% holder of LRLIH).
The blueprint prepared for the future reflected the global ambitions of the
company, captured in four words: Global Standards, Global Markets. This was at a
time when liberalisation and globalisation were not yet in the air. Ashok Leyland
embarked on a major product and process up gradation to match world-class
standards of technology.
In the journey towards global standards of quality, Ashok Leyland reached a major
milestone in 1993 when it became the first in India's automobile history to win
the ISO 9002 certification. The more comprehensive ISO 9001 certification came
in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle
manufacturing units in 2002. It has also become the first Indian auto company to
receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is
specific to the auto industry.
3.4 VISION:
Achieving leadership in the medium/heavy duty segments of the domestic
commercial vehicle market and a significant presence in the world market through
transport solutions that best anticipate customer needs, with the highest value to
cost.
Be among the top Indian corporations acknowledged nationally and internationally
for
Excellence in quality of its products.
Excellence in customer focus and service.
3.5 MISSION:
39
Be a leader in the business of commercial vehicles, excelling in technology,

quality, value to customer, fully supported by customer service of the highest order
and meeting national and international environment and safety standards.
Identifying with the customer
Being the lowest cost manufacturer
Global benchmarking our products, processes & people against the best in
the industry.
3.6 VALUES:
1. CUSTUMERS:
We value our customers and will constantly endeavour to fulfil their needs by
proactivity offering them products and service appropriate to their diverse
applications.
2. EMPLOYEE:
We consider our employee as our most valuable asset and are committed to provide
full encouragement and support to them to enhance their potential and contribution
to the companys business.
3. VENDORS:
Our vendors are our valued partners in our business development and we will work
with them in a spirit of mutual co-operation to meet our business objectives.
4. DISTRIBUTERS:
Our distributers are the vital between the company and the customers and we are
committed to advice and support our distributers to continuously upgrade their
infrastructure, skills and capability to serve our customers better.
5. SHAREHOLDERS:
40
We value the trust reposed in us by our shareholders and strive unstintingly to

ensure a fair and reasonable return on their investments.
6. SOCIETY:
We are committed to add to the wealth and well-being of our society by enhancing
the quality of life and contributing to this economic development while
maintaining the highest level of environmental and safety standards.
The five Ashok Leyland CORPORATE values are:

International
Speedy
Value creator
Innovative
Ethical
3.7 POLICIES AND OBJECTIVES OF ASHOK LEYLAND:

QUALITY POLICY:
Ashok Leyland is committed to achieve customer satisfaction, by anticipating and
delivering superior value to the customers in relation to their own business,
through the products and services offered by the company and comply with
statutory requirements.
Towards this, the quality policy of ashok Leyland is to make continual
improvements in the process that constitute the quality management system, to
make them more robust and to enhance their effectiveness and efficiency in
achieving stated objectives leading to:
I). Superior products manufactured as also services offered by the company.
41
II). Max use of employee potential to contribute to quality and environment by

progressive upgradation of their knowledge and skills as appropriate to their
functions.
III). Seamless involvement from vendors and dealers in the mission of the
company to address customers changing needs and protection of the environment.
ENVIRONMENTAL POLICY:
We at ashok Leyland committed personal environmental measures.
1. We follow all legal reasons.
2. Adopt pollution prevent technology in design and manufacturing projects.
3. Conserve all resources such as power, water, oil, gas, compressed air etc...,
and optimise their usage through scientific methods.
4. Provide clean working environment to employees.
5. Set and review objectives and targets for continually improving
environment.
The Operation and Objectives of the Company are following below:To carry on the Business of manufacturers, assemblers of, dealers in, hirers,
repairers ,cleaners, stores, warehouses, pf motor cars, motor cycles, cycle-cars,
motors, scooters, motor-buses and lorries, trucks, tractors, cycles, bicycles, and
carriages, launches, boats and ships, vans aero planes, hydroplanes, and other
vehicles and conveyances of all descriptions for carrying passengers or other
personnel, goods, commodities, produce, cargoes and other things on land or sea or
by air whether propelled or assisted by means of petrol, spirit, steam, gas,
electrical, animal or other powers, and all engines, chassis, bodies, turbines, tanks,
42
tools, implements, accessories and other things, materials and products used for, in
or in connection with motors and other things. To Buy, sell, let on, hire, repair,
alter and deal in machinery, component parts, accessories and fittings of all kinds
for motors and other things and all articles and things referred to in the above item
hereof or used in or capable of being used in connection with the manufacture,
maintenance and working thereof.
To carry on the business of garage-keepers and suppliers of and dealers in petrol,
electricity and other motive power to motors and other things.
To develop, design, programme, conduct feasibility studies, act as advisor,
retainers, consultants and / or agents to all projects and to engage in project survey,
implementation, progress monitoring and turnkey installation.
To promote any other Company for the purpose of acquiring all or any of the
property and liabilities of this Company of for any other purpose which may seem
directly or indirectly calculated to benefit this Company and to buy, sell, contract
to buy or sell and deal in shares, stocks, debentures and securities of all kinds.
To invest or deposit or deal with the moneys of the Company not immediately
required for the purposes of its business in such manner as may from time to time
be determined.
To guarantee the performance of contracts.
To establish agencies or branches in India or elsewhere and to undertake the
management of any Company or Companies having objects altogether or in part
similar to those of this Company and to take all necessary steps for registering the
Company in any Country as may be thought fit.
To improve, manage, work, develop, lease, mortgage, abandon or otherwise deal
with, all or any part of the part of the property movable or immovable of the
Company and all or any of the rights and concession of the Company
The Company to do all or any of the above things in any part of the world as
43
Principals, Agents, Contractors, Trustees, Insurers, or otherwise and either alone or

in conjunction with others.
PRODUCT PROFILE:
1. Buses
2. Trucks
3. Engines
4. Defence & Special Vehicles
1. BUSES:
44
Leaders in the Indian bus market, offering unique models such as CNG, Double
Decker and Vestibule bus.
S.N
O
1.
PRODUC
T
FIGURE
S.N
O
2.
Viking
BS - III
Viking BS
- II
3.
PRODUC
T
4.
Viking BS
II
5.
Viking
SLF BSIII
6.
Viking
CNG BSIII
7.
12 M Bus
- BS II
8.
Cheetah
BS II
9.
12 M Bus
BS-II
10.
Cheetah
BS - II
Panther
BS II
FIGURE
45
11.
12.
Lynx BSII
13.
Vestibule
Bus
BSIII
14.
Airport
Tarmac
coach
Double
Decker
15.
16.
Stag BS II
Cheetah
BS - II
2. TRUCKS:
Pioneers in multi axle trucks and tractor-trailers.
S.NO PRODUCT
.
1.
4 X 2 Haulage Models
FIGURE
46
2.
4 X 2 and Multi-axle
Tippers
3.
Multi-axle Vehicles
4.
Tractors
5.
Ecomet
3. ENGINES:
Diesel engines for Industrial, Genset and Marine applications, in collaboration with
technology leaders.
Engine Dealerships:
S.N
O
PRODUCT
FIGURE
APPLICATIONS
47
1.
Genset
Application
2.
Industrial
Application
Engines ranging from 15KVA to

250KVA
Industrial Segment
Hospitals / Clinics
Commercial / Residential
Complexes
Theatres
Shopping mall / Offices
Rice Mills
Hotels / Restaurants
Engines with power rating from

40PS to 200PS.
Front End Loaders
Excavators
Compactors
Pavers
Road Sweepers
Harvestor Combines
Compressors
Cranes
Pumps
48
3.
Marine
Application
Engines with power rating from

58PS to 193PS
Trawlers, Pure -Seiners,
Gillnetters
Sailing Vessels
Marine generating sets
Pavers
Speed Boats
Passenger Launches
Ferries
Auxiliary drive in Vessels
DG Sets for
exports
Diesel and Natural Gas gensets

trom 15KVA - 250KVA
Industrial Segment
Hospitals / Clinics
Commercial / Residential
Complexes
Theatres
Shopping mall / Offices
Rice Mills
Hotels / Restaurants
4.
4. DEFENCE & SPECIAL VEHICLES:
Largest provider of logistic vehicles to the Indian army.
49
S.N
O
1.
PRODUCT
FIGURE
Special Vehicles
2.
Defence Vehicles
Chapter 4
Data analysis and

interpretation
50
4D
2M13A
EN3IOWY
ICEPOA
BWSOERI
SRHMK
MNAT
NCAGT
EINMC
NAG
GCP
EYT
MCA
EL
TE
.
.
S C.
N
N
VN
N
A
N
NA
L
I KP
A
I A
M
T
I
2
A R
V
I E G S
A G
TD
R
OT
E Y
E
A
RI
GA A
T
I
AE
PG
AE
EL
T
E
O
4.1.0 WORKING CAPITAL:

Working capital is the life blood and centre of business. Adequate amount of
working capital is very much essential for the smooth running of the business. And
the most important part is the efficient management of working capital in right
51
time. The liquidity position of the firm is totally effected by the management of
working capital. So, a study of changes in the uses and sources of working capital
is necessary to evaluate the efficiency with which the working capital is employed
in a business. This involves the need for working capital analysis.
4.1.1 Statement Showing the Schedule of Changes In Working Capital:

FOR THE YEAR 2004-2005
TABLE-1
(Rs. IN MILLIONS)
52
PARTICULARS
2004
2005
INCREASE DECREASE
inventories
5069.41
5680.81
611.4
nil
sundry debtors
4056.19
4587.66
531.47
nil
cash and bank

balances
3249.74
7966.82
4717.08
nil
loan & advances
2261.33
3337.34
1076.01
nil
(A)
14636.67
21572.63
CURRENT
LIABILITIES
liabilities
6856.71
9611.87
nil
2755.16
provisions
1470.31
2044.8
nil
574.49
(B)
8327.02
11656.67
CURRENT
ASSETS
(A-B)
6309.65
9915.96
WORKING
CAPITAL
increasing in WC 3606.31
TOTAL
9915.96
9915.96
6935.96
SOURCE: ANNUAL REPORTS OF COMPANY
3606.31
6935.96
INFERENCE:
1. The above table shows that there has been increase in need for working
capital to the extent of 3606.31 from the year 2004to 2005.
FOR THE YEAR 2005-2006:
TABLE 2
(Rs. IN MILLIONS)
53
particulars
2005
2006
increase
decrease
inventories
5680.81
9025.61
3344.8
sundry debtors
4587.66
4243.37
344.29
cash and bank

balances
7966.82
6028.76
1938.06
loan & advances
3337.34
3026.39
310.95
(A)
21572.63
22324.13
CURRENT
LIABILITIES
liabilities
9611.87
11468.95
1857.08
provisions
2044.8
2616.21
571.41
(B)
11656.67
14085.16
current assets
(A-B) WORKING 9915.96

8238.97
CAPITAL
increasing in WC
1676.99
TOTAL
9915.96
9915.96
1676.99
5021.79
5021.79
INFERENCE:
1. The above table shows that there has been decrease in the working capital to
the extent of 1676.99 from the year 2005to 2006.

TABLE-3
54
(Rs. IN MILLIONS)
PARTICULARS
2006
2007
INCREASE
9025.61
4243.37
6028.76
10703.21
5228.75
4349.39
1677.6
985.38
3026.39
22324.13
6695.79
26977.14
3669.4
liabilities
provisions
(B)
11468.95
2616.21
14085.16
16516.25
1042.3
17558.55
(A-B) WORKING
CAPITAL
8238.97
9418.59
CURRENT
ASSETS
inventories
sundry debtors
cash and bank
balances
loan & advances
(A)
DECREASE
1679.37
CURRENT
LIABILITIES
5047.3
1573.91
increasing in WC
1179.62
TOTAL
9418.59
9418.59
7906.29
1179.62
7906.29
INFERENCE:
capital to the extent of 1179.62 from the year 2006 to 2007.
TABLE 4:
55
(Rs. IN MILLIONS)
PARTICULARS
CURRENT
ASSETS
inventories
sundry debtors
cash and bank
balances
loan & advances
(A)
CURRENT
LIABILITIES
liabilities
provisions
(B)
2007
2008
INCREAS
E
10703.21
5228.75
4349.39
12239.14
3758.35
4513.7
1535.93
6695.79
26977.14
8241.385
28752.581
1545.595
16516.25
1042.3
17558.55
19267.084
3452.31
22719.394
(A-B) WORKING 9418.59

6033.19
CAPITAL
increasing in WC
3385.4
TOTAL
9418.59
9418.59
DECREASE
1470.4
164.31
2750.834
2410.01
3385.4
6631.235
6631.235
INFERENCE:
1. The above table shows that there has been decrease in need for working
capital to the extent of 3385.40 from the year 2007to 2008.
FOR THE YEAR 2008-09
TABLE- 5
(Rs. IN MILLIONS)
56
PARTICULARS
2008
2009
INCREASE
12239.14
3758.35
4513.7
13300.144
9579.742
880.836
1061
5821.391
8241.385
28752.581
7895.44
31656.14
liabilities
provisions
(B)
19267.084
3452.31
22719.394
18688.641
2680.82
21369.461
(A-B) WORKING
CAPITAL
6033.19
10286.679
CURRENT
ASSETS
inventories
sundry debtors
cash and bank
balances
loan & advances
(A)
DECREASE
3632.865
346.25
CURRENT
LIABILITIES
5784.43
771.49
increasing in WC
4253.5
TOTAL
10286.68
10286.68
8232.32
4253.5
8232.32
INFERENCE:
capital to the extent of 4253.50 from the year 2008 to 2009.
4.1.2 RATIO ANALYSIS:

I. TO STUDY OVERALL EFFECIENCY OF WORKING CAPITAL:
57
1. NET WORKING CAPITAL:

TABLE: 6
(Rs. IN MILLIONS)
YEAR
CURRENT
CURRENT
ASSETS
LIABILITIES
2004-05 21,572.63
11,656.67
2005-06 22,324.13
14,085.16
2006-07 26,977.14
17,558.55
2007-08 28,752.58
22,719.39
2008-09 31,656.16
21,369.46
NET.WORKING
CAPITAL
9,915.96
8,238.97
9,418.59
6,033.19
10,286.70
CHART: 1
12,000.00
10,000.00
8,000.00
6,000.00
9,915.96
8,238.97
10,286.70
9,418.59
4,000.00
6,033.19
2,000.00
0.00
2004-05
2005-06
2006-07
NET.WORKING CAPITAL
INTERPRETATION:
2007-08
2008-09
58
1. Net working capital of Ashok Leyland Ltd is maintained balanced in all

years.
2. Except in 2007-08. In this year the net working capital is very low.
3. 2008-09 net working capital is high.
2. WORKING CAPITAL TURN OVER RATIO:
TABLE: 7
(Rs. IN MILLIONS)
YEAR
SALES
41,818.97
NET.WORKING
CAPITAL
9,915.96
TURN OVER
RATIO
4.22
2004-05
2005-06
52,476.57
8,238.97
6.37
2006-07
71,681.76
9,418.59
7.61
2007-08
77,425.80
6,033.19
12.83
2008-09
59,810.74
10,286.70
5.81
CHART: 2
59
WC TURN OVER RATIO

14.00
12.83
12.00
10.00
7.61
8.00
6.37
5.81
6.00
4.22
4.00
2.00
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
TURN OVER RATIO
INTERPRETATAION:
1. The working capital turnover ratio of Ashok Leyland Ltd is increasing from
200-05 to 2007-08. But suddenly there is a dip in 2008-09.
2. In the year 2007-08, the performance of Ashok Leyland Ltd is in peak
position.
3. In the year 2008-09 Indian automobile industry was slowed down due to
market slowdown.
II. TO STUDY THE STRUCTURE OF WC:
60
3. CURRENT ASSETS TO TOTAL ASSETS:

TABLE: 8
(Rs. IN MILLIONS)
YEAR
CURRENT
TOTAL
CA/TA
ASSETS
ASSETS
RATIO
2004-05
21572.63
33654.54
0.64
2005-06
22324.13
36852.79
0.61
2006-07
26977.14
44632.32
0.60
2007-08
28752.58
55399.53
0.52
2008-09
31656.16
78265.8
0.40
CHART: 3
0.40
2008-09
0.52
2007-08
2006-07
0.60
2005-06
0.61
0.64
2004-05
0.00
0.10
0.20
0.30
0.40
0.50
0.60
CA/TA RATIO
INTERPRETATION:
1. This CA to TA ratio is in tending of reducing.
2. In 2004-05 it is highest and in 2008-09 it is lowest.
3. The portion of current assets is reducing year by year.
4. CURRENT LIABILITIES TO TOTAL LIABILITIES:
0.70
61
TABLE: 9
(Rs. IN MILLIONS)
YEAR
CURRENT
LIABILITIES
TOTAL
LIABILITIES
2004-05
11656.67
33847.86
2005-06
14085.16
36925.86
2006-07
17558.55
44877.5
2007-08
22719.39
55622.43
2008-09
21369.46
78362.67
CL/TL
RATIO
0.34
0.38
0.39
0.41
0.27
CHART: 4
0.45
0.40
0.35
0.30
0.25
0.20
0.38
0.34
0.39
0.41
0.27
0.15
0.10
0.05
0.00
2004-05
2005-06
2006-07
2007-08
CL/TL RATIO
INTERPRETATION:
1.
2.
3.
4.
CL to TL ratio is increasing from 2004-05 to 2007-08.

There is a decrease in 2008-09.
But company is capable of recovering.
2007-08 has highest ratio.
2008-09
62
III. LIQUIDITY RATIOS:

5. CURENT RATIO:
TABLE: 10
(Rs. IN MILLIONS)
YEAR
CURRENT
ASSETS
CURRENT
LIABILITIES
RATIO
INDUSTRY
AVERAGE
2004-05 21572.63
11656.67
1.85
2005-06 22324.13
14085.16
1.58
2006-07 26974.14
17558.55
1.54
2007-08 28752.58
22719.39
1.27
2008-09 31656.16
21369.46
1.48
1.55
1.55
1.55
1.55
1.55
CHART: 5
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1.85
1.55
1.58 1.55
1.54 1.55
1.55
1.48 1.55
1.27
2004-05
2005-06
RATIO
2006-07
2007-08
2008-09
INDUSTRY AVERAGE
INTERPRETATION:
1. Here industry ratio is 1.55.
2. Except in 2007-08 remaining all years companys current ratio is almost
near to industry average ratio.
3. In the year 2006-07 company had power to affect the industry.
63
6. LIQUID RATIO:
TABLE: 11
(Rs. IN MILLIONS)
YEAR
QUICK
ASSETS
CURRENT
LIABILITIES
RATIO
2004-05 15891.82
11656.67
1.36
2005-06 13298.52
14085.16
0.94
2006-07 16270.93
17558.55
0.93
2007-08 16513.436
22719.39
0.73
2008-09 18356.016
21369.46
0.86
INDUSTRY
AVERAGE
1.07
1.07
1.07
1.07
1.07
CHART: 6
1.60
1.40
1.20
1.36
1.07
1.07
0.94
1.00
1.07
1.07
0.93
1.07
0.86
0.73
0.80
0.60
0.40
0.20
0.00
2004-05
2005-06
RATIO
2006-07
2007-08
2008-09
INDUSTRY AVERAGE
INFERENCE:
1. Here industry ratio is 1.07
2. In 2004-05 it is higher and then started to decline slowly up to 2007-08.
3. In 2008-09 it started increasing and came near to the industry average.
64
III. PROFITABILITY RATIOS:

7. GROSS PROFIT RATIO:
TABLE: 12
YEAR
(Rs. IN MILLIONS)
GROSS PROFIT
SALES
GROSS PROFIT
RATIO
12.69
3.25
12.71
11.68
11.46
2004-05
5,307.99
41,818.97
2005-06
1,705.45
52,476.57
2006-07
9,108.21
71,681.76
2007-08
9,043.22
77,425.80
2008-09
6,855.41
59,810.74
CHART: 7
GROSS PROFIT RATIO

14.00
12.00
11.68
12.69
11.46
12.71
10.00
8.00
6.00
4.00
2.00
0.00
2004-05
3.25
2005-06
2006-07
2007-08
2008-09
GROSS PROFIT RATIO
INFERENCE:
From the table shown above gross profit of the firm is satisfactory in all the
years except in 2005-06.
But it was recovered very soon by next year and it is still doing well.
65
8. NET PROFIT RATIOS:

TABLE: 13
(Rs. IN MILLIONS)
YEAR
NET PROFIT
SALES
NET PROFIT
RATIO
6.49
6.24
6.16
6.06
3.18
2004-05
2,714.10
41,818.97
2005-06
3,273.20
52,476.57
2006-07
4,412.86
71,681.76
2007-08
4,693.10
77,425.80
2008-09
1,899.96
59,810.74
CHART:8
NET PROFIT RATIO

7.00
6.00
6.49
6.24
6.16
6.06
5.00
4.00
3.18
3.00
2.00
1.00
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
NET PROFIT RATIO
INFERENCE:
From the data given in the above table it is clear that the net profit of the
company is almost maintained constant except in the year 2008-09.
Due to market slow down the net profit of the company effected.
66
4.2 MANAGING WORKING CAPITAL:

4.2.1 INVENTORY MANAGEMENT:
Inventories are goods held for eventual sale by a firm. Inventories are thus one of
the major elements, which help the firm in obtaining the desired level of sales.
Kinds of inventories:
Inventories can be classified into 3 categories. They are,
a) Raw materials:
These are goods, which have not yet been committed to
production in a manufacturing firm. They may consist of basic raw
materials or finished goods.
b) Work in progress :
This includes those materials, which have been committed to
production process but have not yet been completed.
c) Finished goods:
These are completed products awaiting sale. They are the final
outputs of the production process in a manufacturing firm. In case of
wholesalers and retailers, they are generally referred to as merchandise
inventory.
Benefits of holding inventories:
1) Avoiding losses of sales.
2) Reducing ordering cost.
3) Achieving efficient production runs.
Effects of holding low-costs:
1) No service levels:
Often, customer demand cannot be satisfied, leading to immediate
loss of business.
2) Increased production control costs:
67
An enterprise may have to rush special production runs, recognize

the schedules, an unordinary high level chasing etc,.
3) Increased replenishment costs:
When operating with low stock levels, average replenishment orders
would be placed frequently.
Effects of holding high stock:
1. Increased storage costs:
a) Increased capital investments, which reduces the capital available for
other activities and project.
b) Increased risk of obsolescence.
2. Increased opportunities for obtaining purchases discounts by bulk ordering.
3. Stable production programs, which result in the maintenance of a steady
work force.
4. High level of service, and
5. Reduction in replacement costs.
Risks and costs associated with inventories:
Holding of inventories exposes a firm to a no: of risks and costs. Risk of
holding inventories can be put as follows.
1. Price decline
2. Product deterioration
3. Obsolescence
The costs of holding inventories are as follows:
a. Materials cost
b. Ordering cost
c. Carrying cost
Features of inventory:
A comparison of inventory with other positive components of working capital
would reveal it has some special features of its own.
On an average, it accounts for lions share of firms investment in WC.
The risk factor is holding inventory generally is higher than that of holding
other items of current assets.
68
Although holding of a more and more inventory may be desirable from the
point of view of functional managers, it affects adversely short-term
liquidity.
It involves many types of costs associated with it viz... Acquisition cost,
carrying cost, short cost, etc
It is the only item of current assets, which has direct influence on the prices,
and income of a firm.
Motives of inventory:
Ashok Leyland ltd holds inventory to achieve the following 3 motives.
Transaction motives:
It emphasizes the Ashok Leyland ltds need to maintain
inventories to facilitate smooth production and sales operations.
Precautionary motive:
It necessities the ALLs need to maintain inventories to guard
against the risk of unpredictable changes in demand and supply forces and
other conditions.
Speculative motive:
It influences the decision to increase or decrease inventory levels
in Ashok Leyland ltd to take advantage of price fluctuations.
Objectives of inventory management:
There should be optimal levels of investment for any asset, whether it is plant,
cash or inventories. Again, inadequate inventories will disrupt production and loss
sales. All this calls for an effective inventory program.
The main adjectives are:
1) To ensure that materials are available for use in production and
production services, as and when required.
2) To ensure that finished goods and available for delivery to customers to
fulfill orders.
3) To minimize investments in inventories to maximize profitability.
4) To protect the inventory against deterioration, obsolescence and
unauthorized use.
5) To enable the management to make costs and consumptions between
operations and periods.
69
A good inventory management policy should balance the requirements of opposing

and conflicting demands viz...
To maintain a leverage quality for smooth operations and efficient customers
service.
To maintain only a min possible inventory because inventory holding costs
and the opportunity cost of funds invested in inventory.
INVENTORY CONTROL TECHNIQUES:
1. Determination of stock levels:
A firm should maintain records of various levels of stocks in order to
have an effective management of inventory.
They are:
1. Minimum stock level
2. Maximum stock level
3. Reorder stock level
4. Danger stock level
5. Optimum stock level
6. Free stock level
7. Marginal stock level
8. Physical stock level
Ashok Leyland ltd is following these types of stock levels.
2. ABC analysis:
From the point of view of monitoring info for control it becomes
extremely difficult to consider each one of these items. The ABC analysis
comes in quite handy and enables the management to concentrate attention
and keep a close watch on a relatively less number of items which account
for a high percentage of the value of annual usage of all items of inventory.
A firm using ABC system segregates its inventory into 3 groups. A,B and C.
A) The A items are those in which it has the largest rupee
investment.
B) The B group items consist of the items accounting for
the next largest investment.
C) The C group typically consists of larger no: of items
accounting for a small rupee investment.
Standard values for ABC analysis:
70
Category
A
% in value
% in quantity
70-80%
5-10%
10-20%
10-20%
5-10%
70-80%
In Ashok Leyland:
Category
% in value
% in quantity
75.5%
8%
15%
12%
7.5%
72.2%
3. FSN analysis:
In Ashok Leyland according to FSN analysis the items are categorized as
follows:
1. 0-1 = Non Moving
2. 1-3 = Crawling
3. 3-6 = Slow Moving
4. 6-9 = Moderate Fast Moving
5. 9-12 = Fast Moving
4. Determination of economic order quantity (EOQ):
Determination of quantity for which the order should be placed is one of the
important problems concerned with efficient Inventory Management. EOQ
refers to the size of the order, which gives maximum economy in purchasing
in an item of Raw materials or finished products. It is fixed mainly after
taking into account the following cost.
Ordering cost
Inventory carrying cost
71
Assumptions:
1. The firm knows with certainly the annual usage or demand of the particular
items of inventories.
2. The rate at which the firm uses the inventories or makes sales is constant
throughout the year.
3. The order for replenishment of inventory is placed exactly when inventories
reach zero level.
5. Determination of optimum production quantity:
The EOQ model can be extended to production runs to determine the
optimum production quantity. The 2 costs involved are:
Setup cost
Inventory carrying cost
6. Determination of optimum Re-order level:
For optimum production quantity, it is important to decide when to order for the
new stock. New goods will arrive before the firm runs out of goods to sell. To
determine Re-order level we should know about:
The load time
The usage rate.
7. Aging Schedule Of Inventory:
By identifying the data of purchase or manufacture of each item of the inventory
is known as aging schedule of inventory.
8. Just In Time (JIT) Inventory System:
Normally high inventories blocking of capital investment, insurance etc. To
minimize that by keeping the inventories at the lowest possible level by JIT
system. JIT inventory system means all inventories whether of raw materials, WIP
& Finished goods are received in time to go into production, manufacture parts are
completed into products and products are shipped to customers. In JIT environment
the flow of goods is controlled by pull down approach.
9. Flexible Manufacturing System (FMS):
72
The basis features of FMS are automated flow of materials to the cell and
automated removal of finished items from the cell. Cells are linked together by
automated material handling system and flow of goods is controlled by a system.
RATIO ANALYSIS:
1. INVENTORY PROPORTION:
CHART:9
(Rs. IN MILLIONS)
73
INVENTORY PROPORTION
14000
12000
10000
8000
6000
4000
2000
RAW MATERIALS
WIP
FG
OTHERS
INVENTORY
(SOURCE: ANNUAL REPORTS OF COMPANY)
INFERENCE:
1. Raw materials consumed are increasing from year by year.
2. WIP increased in first 2 years and then started decreasing.
3. FG is in increasing condition. There is a rapid change in the year 2005-06.
74
4. Total inventory is increasing from year to year. There is rapid change in the
year 2005-06.
CHART: 10
(Rs. IN MILLIONS)
COMPONENTS OF INVENTORY
7000
6000
5000
4000
3000
2000
1000
0
2004-05
2005-06
2006-07
2007-08
2008-09

INFERENCE:
1. In 2004-05 raw materials consumption is the major part of inventory.
2. In 2005-06 finished goods is the major part of inventory. This was a good
sign to firm.
3. In 2006-07 finished goods is high and there was an equal ratio of change in
raw materials and finished goods up to 2007-08.
4. In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
2.1. INVENTORY TURN OVER RATIO:
TABLE:14
(Rs. IN MILLIONS)
75
YEAR
SALES
AVG INVENTORY
2004-05
41818.97
5375.11
2005-06
52476.57
7353.21
2006-07
71681.76
9864.41
2007-08
77425.801
11471.17
2008-09
59810.737
12769.64
ITR
7.78
7.14
7.27
6.75
4.68
CHART:11
ITR
9.00
7.78
8.00
7.14
7.27
7.00
6.75
6.00
4.68
5.00
Axis Title
4.00
3.00
2.00
1.00
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
1. During the 2004-05 the company has very high inventory ratio of 7.78,
which means more capital is being locked up in the inventory.
2. But from the year 2005-09 the ratio was decreased from 7.14 to 4.68.
2.2 INVENTORY HOLDING PERIOD:

TABLE:15
(Rs. IN MILLIONS)
76
YEAR
DAYS
ITR
INV HOLDING PERIOD
2004-05
360
7.78
46
2005-06
360
7.14
50
2006-07
360
7.27
50
2007-08
360
6.75
53
2008-09
360
4.68
77
CHART:12
80
77
70
60
46
50
50
50
53
40
30
20
10
0
2004-05
2005-06
2006-07
2007-08
2008-09
INV HOLDING PERIOD
INFERENCE:
1. Inventory holding period was good from 2004-05 to 2007-08. But in
2008-09 it was just increased.
3.1 RAW MATERIALS TURN OVER RATIO:
TABLE:16
(Rs. IN MILLIONS)
77
YEAR
RAW
MATERIALS
AVG RAW
MATERIALS
RM TR
2004-05
30,020.40
2109.985
2005-06
40,645.83
2517.305
2006-07
54,081.14
3290.855
2007-08
57,480.59
4041.3385
2008-09
43218.573
4777.515
14.23
16.15
16.43
14.22
9.05
CHART:13
RM TR
18.00
16.00
14.23
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2004-05
16.15
16.43
14.22
9.05
2005-06
2006-07
2007-08
RM TR
INFERENCE:
1. In 2006-07 RM TR is maximum.
2. From 2004-05 to 2006-07 it was increased.
3. From 2006-07 to 2008-09 it was decreased.
3.2 RAW MATERIALS HODING PERIOD:

TABLE:17
2008-09
78
(Rs. IN MILLIONS)
YEAR
DAYS
RTR
2004-05
360
14.23
2005-06
360
16.15
2006-07
360
16.43
2007-08
360
14.22
2008-09
360
9.05
RM HOLDING
PERIOD
25
22
22
25
40
CHART:14
45
40
40
35
30
25
25
25
22
22
2005-06
2006-07
20
15
10
5
0
2004-05
2007-08
2008-09
RM HOLDING PERIOD
INFERENCE:
1. Raw material holding period is constant in all years.
2. But it was slightly increased in 2008-09.
4.1 WORK IN PROGRESS TURN OVER RATIO:

TABLE: 18
(Rs. IN MILLIONS)
79
YEAR
COST OF
PRODUCTION
AVG WIP
2004-05
36535.13
809.35
2005-06
48370.13
1,174.86
2006-07
61741.52
1,266.19
2007-08
67,453.23
1117.769
2008-09
52745.22
1040.646
WIP TR
45.14
41.17
48.76
60.35
50.69
CHART:15
WIP TR
70.00
60.35
60.00
50.00
45.14
50.69
48.76
41.17
40.00
30.00
20.00
10.00
0.00
2004-05
2005-06
2006-07
2007-08
WIP TR
INFRENCE:
1. In 2007-08 WIP TR is highest. Remaining all years it was similar.
2. In 2005-06 it is lowest.
4.2 WIP HOLDING PERIOD:
2008-09
80
TABLE : 19
YEAR
(Rs. IN MILLIONS)
DAYS
WIP TR
WIP HOLDING
PERIOD
8
9
7
6
7
2004-05
360
45.14
2005-06
360
41.17
2006-07
360
48.76
2007-08
360
60.35
2008-09
360
50.69
CHART:16
WIP HOLDING PERIOD

WIP HOLDING PERIOD
7
2008-09
2007-08
2006-07
6
7
9
2005-06
2004-05
INFERENCE:
1. WIP holding period is highest in 2008-09.
2. WIP holding period is lowest in 2007-08.
5.1 FINISHED GOODS TURNOVER RATIO:
81
TABLE: 20
(Rs. IN MILLIONS)
YEAR
FG TR
COST OF GOODS AVG FG

SOLD
2004-05
36510.98
2,104.76
2005-06
50771.12
3,293.18
2006-07
62573.55
4,909.69
2007-08
68,382.58
5790.377
2008-09
52955.326
6360.109
17.35
15.42
12.74
11.81
8.33
CHART:17
FG TR
20.00
17.35
18.00
16.00
15.42
12.74
14.00
12.00
11.81
10.00
8.33
8.00
6.00
4.00
2.00
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
FG TR
INFERENCE:
1. Finished goods turnover ratio is decreasing from 2004-05 to 2008-09.

2. 2008-09 is the lowest and 2004-05 is the highest.
5.2 FINISHED GOODS HOLDING PERIOD:
82
TABLE: 21
YEAR
(Rs. IN MILLIONS)
DAYS
FG TR
2004-05
360
17.35
2005-06
360
15.42
2006-07
360
12.74
2007-08
360
11.81
2008-09
360
8.33
FG HOLDING
PERIOD
21
23
28
30
43
CHART:18
FG HOLDING PERIOD
FG HOLDING PERIOD
2008-09
43
2007-08
30
2006-07
28
2005-06
2004-05
23
21
INFERENCE:
1. Finished goods holding period is highest in 2008-09.

2. Finished goods holding period is lowest in 2004-05.
6. INVENTORY TO CURRENT ASSETS RATIO:
83
TABLE: 22
YEAR
(Rs. IN MILLIONS)
INVENTORY
CURRENT
ASSETS
2004-05
5680.81
21,572.63
2005-06
9025.61
22324.13
2006-07
10703.21
26977.14
2007-08
12239.14
28752.58
2008-09
13300.14
31656.16
INV TO CA
RATIO
0.26
0.40
0.40
0.43
0.42
CHART:19
INV TO CA RATIO
0.45
0.40
0.35
0.26
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2004-05
0.40
0.40
2005-06
2006-07
0.43
0.42
2007-08
2008-09
INV TO CA RATIO
INFERENCE:
1. In 2004-05, 26% of current assets are inventory. It was the least.

2. In 2007-08, 43% of current assets is inventory. It was highest.
4.2.2 RECEIVABLES MANAGEMENT
84
INTRODUCTION:
The term debtors are defined, as debt owed to the firm by the
customers arising from sale of goods or services in the ordering course of business.
Debtors or receivables are asset accounts representing amounts owed to the firm by
customers from sale of goods or services. It has to be mentioned that the credit that
is open account in the sense that no formal acknowledgement of debt obligation is
required. In fact, a credit sale, which leads to debtors, is treated as one of the
marketing tools.
Great majority of firms does not demand immediate cash payment
when goods or services are sold to their regular and credit worthy customers.
Because of this practice, most sales require the firm to maintain debtors account
for customer or a group of them for some period. Accordingly, debtors or
receivables occupy a significant role in firms current assets structure usually next
to inventories.
Objectives of Maintaining Receivables:
Achieving growth in sales and profits. If a firm allows sales, it will
usually be able to sell more goods or services then if it insists on
immediate cash payment. Similarly, an additional sale normally
results in higher profits for the firm. This proportion will hold goods
only when the marginal contribution or gross margin greater than the
additional cost associated with the administering the credit policy.
Meeting competition:
To survive in the competitive market, firm have to establish credit
policies similar to competitors. Thus, by adopting its term of trade to
the industry norms, a firm will avoid of sale from customers who
would by elsewhere if they did not receive the expected credit.
The above 2 objectives have a single purpose, that is generate larger flow of
operating revenue and hence profit, than would be achieved in the absence of a
commitment of the funds to debtors. Extension of credit involves cost and risk
management should weigh benefits against cost. The optimum point may be
considered as the point where the return on investment in further funding of
85
receivables is less than the cost of funds raised that additional credit (i.e. cost of
capital).
Cost of Maintaining Receivables:
Credit sales, and hence maintaining of debtors, involve certain costs. They are:
Cost of financing debtors.

Collection costs
Delinquency costs
Default costs
Facts affecting size of receivables:

The size of a firm is determined by its:
Level of sales
Credit terms
Collection policies
Credit Policy:
The credit policy relating to sales and purchase also affects the working capital.
The credit policy influences requirement of working capital in 2 ways.
Through credit terms granted by the firm to its customers/buyers of
goods.
Credit terms available to the firm from its creditors.
The credit terms granted to customers bearing on magnitude of working capital by
determining the level of book debts. The credit sales result in higher book debts.
Higher book debts mean more working capital. On the other need, for working
capital is less. The working capital requirements of a business are, thus affected by
the terms of purchase and sale, and the role given to credit by a company in its
dealing with creditors and debtors.
Similarly, collection procedure will differ from customer. With the permanent but
temporary defeating customers, the firm may not be very strict in following the
collection procedures. The credit evaluation procedure involves the following
steps:
86
1.
2.
3.
4.
Credit information
Credit investigation
Credit limits and
Collection procedure
For effective management of credit, a firm should lay down clear-cut guidelines
and procedures for granting credit to individual customers and collecting
individual accounts.
Size of Receivables:
An analysis of the percentage of receivables in relation assets indicates the
recovery efficiency of the company. Moreover, the % receivable in relation to sales
indicates the firm credit sales requirements. However, this kind of analysis reveals
the overall operational efficiency of the company in relation to credit sales and
their recovery.
RATIO ANALYSIS:
I. TO ANALYZE EFFICIENCY:
1. ACCOUNTS RECEIVABLES TURN OVER RATIO:
TABLE: 23
(Rs. IN MILLIONS)
87
YEAR
SALES
AVG DEBTORS
RTR
2004-05
41818.97
4321.925
2005-06
52476.57
4415.515
2006-07
71681.76
4736.06
2007-08
77425.801
4493.55
2008-09
59810.737
6669.04
9.68
11.88
15.14
17.23
8.97
CHART:20
RTR
8.97
2008-09
17.23
2007-08
15.14
2006-07
11.88
2005-06
9.68
2004-05
0.00
2.00
4.00
6.00
8.00
10.00 12.00 14.00 16.00 18.00
RTR
INFERENCE:
1. Receivables turnover ratio is highest in 2007-08.
2. Receivables turnover ratio is lowest in 2008-09.
1.2 DEBTORS COLLECTION PERIOD:

TABLE: 24
(Rs. IN MILLIONS)
88
YEAR
DAYS
RTR
2004-05
360
9.68
2005-06
360
11.88
2006-07
360
15.14
2007-08
360
17.23
2008-09
360
8.97
DEBTORS
COLLECTION
PERIOD
37
30
24
21
40
CHART:21

45
4037
35
30
25
20
15
10
5
0
2004-05
40
30
24
2005-06
2006-07
21
2007-08
2008-09
INFERENCE:
1. Receivables management in Ashok Leyland is very efficient. From 2004-05
to 2007-08 debtors collection period was decreasing.
2. But in the year 2008-09 the collection period increased slightly.
2. AVERAGE INVESTMENT IN RECEIVABLES:
89
TABLE: 25
YEAR
(Rs. IN MILLIONS)
SALES PER DAY DCP
2004-05
116
37
2005-06
146
30
2006-07
199
24
2007-08
215
21
2008-09
166
40
AVG INVST IN
RECEIVABLES
4298
4373
4779
4517
6646
CHART:22
AVG INVST IN RECEIVABLES

AVG INVST IN RECEIVABLES
7000
6646
6000
5000
4000
4298
4373
2004-05
2005-06
4779
4517
2006-07
2007-08
3000
2000
1000
0
2008-09
INFERENCE:
1. From 2004-05 to 2007-08 the investment on receivables is constant.
2. In the year 2008-09 it is slightly increased.
3.1. CREDITORS TURN OVER RATIO:
90
TABLE: 26
YEAR
(Rs. IN MILLIONS)
PURCHASES
AVG
CREDITORS
2004-05
30413.01
5494.035
2005-06
41067.86
6636.955
2006-07
55206.21
8528.465
2007-08
57856.485
11531.346
2008-09
44315.029
12012.996
CTR
5.54
6.19
6.47
5.02
3.69
CHART:23
CTR
7.00
6.00
5.00
5.54
4.00
6.19
6.47
5.02
3.69
3.00
2.00
1.00
0.00
2004-05
2005-06
2006-07
CTR
INFERENCE:
1. 2006-07 year has highest creditor turnover ratio.
2. 2008-09 year has lowest creditor turnover ratio.
3.2. CREDITORS COLLECTION PERIOD:
2007-08
2008-09
91
TABLE:27
YEAR
(Rs. IN MILLIONS)
DAYS
CTR
2004-05
360
5.54
2005-06
360
6.19
2006-07
360
6.47
2007-08
360
5.02
2008-09
360
3.69
CREDITORS
COLLECTION
PERIOD
65
58
56
72
98
CHART:24
CREDITORS COLLECTION PERIOD

120
98
100
8065
60
72
58
56
2005-06
2006-07
40
20
0
2004-05
2007-08
CREDITORS COLLECTION PERIOD
INFERENCE:
1. In the year 2006-07 creditors collection period is low 56.
2. In the year 2008-09 the creditors collection period is very high 98.
II. TO ANALYZE THE STUCTURE:
2008-09
92
1. RECEIVABLES TO CURRENT ASSETS RATIO:

TABLE: 28
YEAR
(Rs. IN MILLIONS)
RECEIVABLES
CURRENT
ASSETS
2004-05
4587.66
21,572.63
2005-06
4243.37
22324.13
2006-07
5228.75
26977.14
2007-08
3758.351
28752.58
2008-09
9579.742
31656.16
REC TO CA
RATIO
0.21
0.19
0.19
0.13
0.30
CHART:25
REC TO CA RATIO
0.35
0.30
0.30
0.25
0.21
0.20
0.19
0.19
0.13
0.15
0.10
0.05
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
REC TO CA RATIO
INFERENCE:
1. From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year.
2. But in the year 2008-09 it is the highest.
4.2.3 CASH MANAGEMENT
93
Introduction:
Cash the most liquid asset, is of vital important of the daily operations of business
firms. While the proportion of corporate assets in the form of cash is very small,
often between 1 & 3% its efficient management is crucial to the solvency of
business in a very important sense. Cash is the focal point of fund flows in
business. In view of its importance, it is generally referred to as the life blood of
a business enterprise.
Need For Holding Cash:
1. Transaction motive:
Firms need cash to meet their transaction needs. The collection of
cash (from sale of goods services, sale of goods, and additional
financing) is not perfectly synchronized with the disbursement of cash
(for purchase of goods and services acquisition of capital assets and
meeting other obligations).
2. Precautionary motive:
There may be some uncertainty about magnitude and timing of
cash inflows from sale of goods and services, sale of assets and
insurances of purchases. Like flows on account of purchases and other
obligations, to protect it against such uncertainties, a firm may require
some cash balances.
3. Speculative motive:
Firms would like to tap profit-making opportunities arising from
fluctuations in commodity prices, security prices, interest rates and
foreign exchange rates cash-rich firm is prepared to exploit such
speculative earnings, may require additional liquidity. However, for
most firms there reserve borrowing capacity and marketable securities
would suffice to meet their speculative needs.
4. Compensating motive:
Yet another motive to hold cash balances is to compensate banks
for providing certain services and loans. Banks provide a variety of
94
services to business firms, such as clearance of cheques, supply of

credit information, transfer of funds, and so on. While for some of
these services bank charges a commission or free, for others they seek
indirect compensation usually, clients are required to maintain
balances of cash at the bank. Since, clients this balance cannot be
utilized by the firms for transaction purposes. The banks themselves
can use the amount to earn a return. Such balances are compensatory
balances.
GOALS OF CASH MANAGEMENT:
Precisely speaking, the primary goals of cash management in firm to trade off
between liquidity and profitability in order to maximize long-term profit, this is
possible only when the firm aims at optimizing the use of funds in the working
capital pool. This overall objective can be translated in the following operational
goals.
To specify day to day business requirements.

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

Cash management is one of the critical areas of working capital management
and greater significance because it is most liquid asset used to specify the firms
obligations but it is sterile asset, as it does not yield anything. Therefore, financial
manager maintain its liquidity position without jeopardizing the profitability.
Problem of prognosticating cash flows accurately and absence of perfect
coincidence between the inflows of cash added to the significance of cash
management. In view of above, at one time affirm may experience dearth of cash
95
because payment of taxes, dividends, seasonal inventory etc, build up while other
times, it may have surfeit of cash stemming out of large out of cash sales and quick
collection of receivables.
It is interesting to observe that in real life management spends his considerable
time in managing cash, which constitute relatively small portion of firms current
assets.
RATIO ANALYSIS:
I. TO ANALYZE OVERALL EFFECIENCY:
96
1. CASH TURN OVER RATIO:

TABLE: 29
YEAR
(Rs. IN MILLIONS)
SALES
AVG CASH AND

BALANCE
2004-05
41818.97
5608.28
2005-06
52476.57
6997.79
2006-07
71681.76
5189.08
2007-08
77425.801
4431.55
2008-09
59810.737
2697.3
CTR
7.46
7.50
13.81
17.47
22.17
CHART:26
CTR
25.00
22.17
20.00
17.47
13.81
15.00
10.007.46
CTR
7.50
5.00
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
1. Cash turnover ratio is kept on increasing from the year 2004-05 to

2008-09.
2. There is a constant growth in increase.
1.2 CASH HOLDING PERIOD:
TABLE: 30
(Rs. IN MILLIONS)
97
YEAR
DAYS
ITR
CASH
HOLDING
PERIOD
48
48
26
21
16
2004-05
360
7.46
2005-06
360
7.50
2006-07
360
13.81
2007-08
360
17.47
2008-09
360
22.17
CHART:27
CASH HOLDING PERIOD

CASH HOLDING PERIOD
48
48
50
40
26
30
21
20
16
10
0
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
1. From the table given above in 2004-05 and 2005-06 the cash holding period
is very high 48days.
2. But from 2006-07 to 2008-09 it is decreased from 26 days to 16 days.
II. TO ANALZE LIQUIDITY:
98
1. CASH RATIO:
TABLE: 31
YEAR
(Rs. IN MILLIONS)
CASH
CURRENT
LIABILITIES
2004-05
7966.82
11656.67
2005-06
6028.76
14085.16
2006-07
4349.39
17558.55
2007-08
4513.7
22719.39
2008-09
880.84
21369.46
CASH RATIO
0.68
0.43
0.25
0.20
0.04
CHART:28
CASH RATIO
CASH RATIO
0.800.68
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2004-05
0.43
0.25
0.20
0.04
2005-06
2006-07
2007-08
2008-09
INFERENCE:
1. From the above table it is clear that cash ratio that is cash availability is
decreasing from year by year.
2. In the year 2008-09 it is just 0.04.
99
III. TO ANALYZE STRUCTURE:

1. CASH TO CURRENT ASSETS:
TABLE: 32
YEAR
(Rs. IN MILLIONS)
CASH
CURRENT
ASSETS
2004-05
7966.82
21,572.63
2005-06
6028.76
22324.13
2006-07
4349.39
26977.14
2007-08
4513.7
28752.58
2008-09
880.84
31656.16
CASH TO CA
RATIO
0.37
0.27
0.16
0.16
0.03
CHART:29
CASH TO CA RATIO
0.400.37
0.35
0.30
0.27
0.25
0.20
0.16
0.16
0.15
0.10
0.03
0.05
0.00
2004-05
2005-06
2006-07
2007-08
2008-09
CASH TO CA RATIO
INFERENCE:
From the above table it is clear that percentage of cash in current assets is
very less and decreasing from year by year.
In 2008-09 it is just 3%.
100
4.3 OPERATING CYCLE:

Operating Cycle= Raw Material Holding Period+
WIP Holding Period
FG Holding Period
Debtors Collection Period
Creditors Collection Period
TABLE: 33
(Rs. IN MILLIONS)
YEAR
RM
WIP HP FG
DCP
CCP
HP
HP
2004-05
25
8
21
37
65
2005-06
22
9
23
30
58
2006-07
22
7
28
24
56
2007-08
25
6
30
21
72
2008-09
40
7
43
40
98
OPERATING
CYCLE
26
26
25
10
32
101
CHART:30
OPERATING CYCLE
35
32
30
26
26
25
25
20
15
10
10
5
0
2004-05
2005-06
2006-07
OPERATING CYCLE
INFERENCE:
From the table given above it is clear that,

In 2007-08 it is very low that is 10. It is best one.
In 2008-09 it is increased from 10 to 32.
There is a rapid change in operating cycle.
2007-08
2008-09
102
CHAPTER 5
ESTIMATION OF
WORKING CAPITAL
1. TIME SERIES
ANALYSIS
2. LEAST SQUARES
METHOD
3.
FORECASTS
4. ESTIMATION OF
WORKING CAPITAL
103
5.1 TIME SERIES ANALYSIS:

Time series refer to a series in which one variable is time. A time series is an
arrangement of statistical data in accordance to the time of occurrence or in a
chronological analysis is done primarily for the purpose of making forecasts for
future and also for the purpose of evaluating past performances.
5.2 METHOD OF LEAST SQUARES:
Let us assume Y=a+ (b*X)
Where,
a= Y/n;
And
b=XY/(X*X)
Here we are taking for 5years that is 2004-05 to 2008-09.

So the value of n= no: of years
So, n=5.
The base year I am considering for forecasting purpose is 2007-08.
So the value of X is = zero for 2007-08.
Here I am forecasting the values for the year 2009-10.
104
5.3 FORECASTINGS FOR 2009-10:

II. ESTIMATION SALES PERFORMANE:
TABLE: 34
(Rs. IN MILLIONS)
YEAR
2004-05
SALES(Y) X
41818.97
-2
X*X
4
2005-06
52476.57
-1
2006-07
71681.76
2007-08
77425.801
2008-09
59810.737
total
303213.83
8
10
2009-10
CHART:31
X*Y
a
-83637.9 60642.767
6
-52476.6 60642.767
6
0
60642.767
6
77425.8 60642.767
6
119621.5 60642.767
6
60932.7
7
60642.767
6
b
6093.27
7
6093.27
7
6093.27
7
6093.27
7
6093.27
7
Ye=a+bX
48456.214
6
54549.4911
6093.27
7
78922.6
60642.767
6
66736.044
1
72829.320
6
105
SALES
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
The estimated value of sales for the year 2009-10 is 78922.6
Ye=a+bx is forecasted values for all 5 years.
The above chart shows the accuracy of forecasting.
II. FORECASTING OF CURRENT ASSETS:
1. INVENTORY:
TABLE: 35
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
total
2009-10
INVENT
ORY(Y)
5680.81
9025.61
10703.21
12239.14
13300.14
50948.91
CHART:32
(Rs. IN MILLIONS)
X
X*X
X*Y
Ye=a+bX
-2
-1
0
1
2
0
3
4
1
0
1
4
10
-11361.6
-9025.61
0
12239.14
26600.28
18452.19
10189.782
10189.782
10189.782
10189.782
10189.782
1845.219
1845.219
1845.219
1845.219
1845.219
6499.344
8344.563
10189.782
12035.001
13880.22
10189.782 1845.219
15725.44
106
INVENTORY
16000
14000
12000
10000
8000
6000
4000
2000
0
2004-05
2005-06
2006-07
INVENTORY(Y)
2007-08
2008-09
Ye=a+bX
INFERENCE:
The estimated value of inventory for the year 2009-10 is 15725.44

The accuracy of forecasting is very good.
2. CASH:
TABLE: 36
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
total
2009-10
CASH(Y)
7966.82
6028.76
4349.39
4513.7
880.84
23739.51
CHART:33
(Rs. IN MILLIONS)
X
-2
-1
0
1
2
0
3
X*X
4
1
0
1
4
10
X*Y
-15933.6
-6028.76
0
4513.7
1761.68
-15687
a
4747.902
4747.902
4747.902
4747.902
4747.902
b
-1569
-1569
-1569
-1569
-1569
Ye=a+bX
7885.306
6316.604
4747.902
3179.2
1610.498
4747.902
-1569
41.796
107
CASH
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
The estimated value of cash for the year 2009-10 is 41.796

Only in 2007-08 accuracy is less.
3. SUNDRY DEBTORS:
TABLE: 37
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
total
2009-10
SUNDRY
DEBTORS(Y)
4587.66
4243.37
5228.75
3758.351
9579.742
27397.873
CHART:34
(Rs. IN MILLIONS)
X
X*X X*Y
Ye=a+bX
-2
-1
0
1
2
0
3
4
1
0
1
4
10
5479.575
5479.575
5479.575
5479.575
5479.575
949.9145
949.9145
949.9145
949.9145
949.9145
3579.7456
4529.6601
5479.5746
6429.4891
7379.4036
-9175.32
-4243.37
0
3758.351
19159.48
9499.145
5479.575 949.9145 8329.32
108
SR. DEBTORS
12000
10000
8000
6000
4000
2000
0
2004-05
2005-06
2006-07
SUNDRY DEBTORS(Y)
2007-08
2008-09
Ye=a+bX
INFERENCE:
The estimated value of sundry debtors for the year 2009-10 is 8329.32
Only in the year 2007-08 forecasting accuracy is less.
4. LOANS AND ADVANCES:

TABLE: 38
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
total
2009-10
LOANS &
ADVANCES(Y)
3337.34
3026.39
6695.79
8241.385
7895.435
29196.34
CHART:35
(Rs. IN MILLIONS)
X
X*X X*Y
Ye=a+bX
-2
-1
0
1
2
0
3
4
1
0
1
4
10
5839.27
5839.27
5839.27
5839.27
5839.27
1433.12
1433.12
1433.12
1433.12
1433.12
2973.031
4406.1495
5839.268
7272.3865
8705.505
5839.27
1433.12
10138.62
-6674.68
-3026.39
0
8241.385
15790.87
14331.19
109
LOANS & ADVANCES

10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
The estimated value of loans and advances for the year 2009-10 is 10138.62
III.CURRENT LIABILITIES:
1. LIABILITIES:
TABLE: 39
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
total
2009-10
CHART:36
(Rs. IN MILLIONS)
LIABILITIE
S(Y)
9611.87
11468.95
16516.25
19267.084
18688.641
75552.795
X
-2
-1
0
1
2
0
3
X*
X
4
1
0
1
4
10
X*Y
Ye=a+bX
-19223.7
-11469
0
19267.08
37377.28
25951.68
15110.56
15110.56
15110.56
15110.56
15110.56
2595.17
2595.17
2595.17
2595.17
2595.17
9920.22
12515.39
15110.56
17705.73
20300.89
15110.56
2595.2
22896.1
110
CURRENT LIABILITIES
25000
20000
15000
10000
5000
0
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
The estimated value of liabilities for the year 2009-10 is 22896.1

The accuracy of forecasting is very good.
2. PROVISIONS:
TABLE: 40
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
total
2009-10
PROVISIONS(
Y)
2044.8
2616.21
1042.3
3452.309
2680.817
11836.436
CHART:37
(Rs. IN MILLIONS)
X
-2
-1
0
1
2
0
3
X*
X
4
1
0
1
4
10
X*Y
Ye=a+bX
-4089.6
-2616.21
0
3452.309
5361.634
2108.133
2367.29
2367.29
2367.29
2367.29
2367.29
210.81
210.81
210.81
210.81
210.81
1945.66
2156.47
2367.29
2578.10
2788.91
2367.287
210.81
2999.73
111
PROVISIONS
4000
3500
3000
2500
2000
1500
1000
500
0
2004-05
2005-06
2006-07
2007-08
2008-09
INFERENCE:
The estimated value of provisions for the year 2009-10 is 2999.73

For this forecasting accuracy is less.
5.4 ESTIMATION OF SCHEDULES OF CHANGES IN WORKING

CAPITAL:
TABLE: 41
PARTICULAR
S
CURRENT
ASSETS
inventories
sundry debtors
cash and bank
balances
loan & advances
(A)
(Rs. IN MILLIONS)
2009
2010
INCREAS
E
13300.144
9579.742
880.836
15725.4 2425.296
8329.32
41.796
7895.44
31656.14
10138.6 2243.18
34235.2
DECREAS
E
1250.422
839.04
112
CURRENT
LIABILITIES
liabilities
provisions
(B)
18688.641
2680.82
21369.461
22896.1
2999.73
25895.8
(A-B)
10286.679
WORKING
CAPITAL
increasing in WC
TOTAL
10286.679
8339.35
1947.33 1947.333
10286.7 6615.8
4207.459
318.91
6615.8
INFERENCE:
Estimation shows that there is a increase in current assets.
Estimation shows that there is a increase in current liabilities.
The entire table shows the estimation of schedule of changes of working
capital.
CHAPTER 6
SUMMARY OF
FINDINGS
SUGGESTIONS
AND
113
CONLUSION
FINDINGS:
6.1 STATEMENTS SHOWING SCHEDULE OF CHANGES IN WORKING
CAPITAL:
1.
2.
3.
4.
5.
There has been increase in the working capital for the year 2004-05.
There has been decrease in the working capital for the year 2005-06.
There has been decrease in the working capital for the year 2007-08.
6.2 WORKING CAPITAL RATIO ANALYSIS:
114
1) To study overall efficiency:

Net working capital of Ashok Leyland Ltd is maintained balanced in all
years.
The working capital turnover ratio of Ashok Leyland Ltd is increasing from
200-05 to 2007-08. But suddenly there is a dip in 2008-09.
2) To study the structure of working capital:
The portion of current assets in total assets is reducing year by year.
CL to TL ratio is increasing from 2004-05 to 2007-08.There is a
decrease in 2008-09.But company is capable of recovering. 2007-08
has highest ratio.
3) To study the liquidity of working capital:
Here industry ratio of current ratio is 1.55. Except in 2007-08 remaining
all years companys current ratio is almost near to industry average ratio.
In the year 2006-07 company had power to affect the industry.
Here industry ratio of liquid ratio is 1.07. In 2004-05 it is higher and then
started to decline slowly up to 2007-08. In 2008-09 it started increasing
and came near to the industry average.
4) To study the profitability ratios:

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

1) INVENTORY MANAGEMENT:
Raw materials consumed are increasing from year by year.
115
WIP increased in first 2 years and then started decreasing.

FG is in increasing condition. There is a rapid change in the year 2005-06.
Total inventory is increasing from year to year. There is rapid change in the
year 2005-06.
In 2004-05 raw materials consumption is the major part of inventory.
In 2005-06 finished goods is the major part of inventory. This was a good
sign to firm.
In 2006-07 finished goods is high and there was an equal ratio of change in
raw materials and finished goods up to 2007-08.
In 2008-09 finished goods is same as the previous year but raw materials
increased from previous year.
During the 2004-05 the company has very high inventory ratio of 7.78,
which means more capital is being locked up in the inventory.
But from the year 2005-09 the ratio was decreased from 7.14 to 4.68.
Inventory holding period was good from 2004-05 to 2007-08. But in 200809 it was just increased.
In 2006-07 RM TR is maximum.
From 2004-05 to 2006-07 it was increased.
From 2006-07 to 2008-09 it was decreased.
Raw material holding period is constant in all years.
But it was slightly increased in 2008-09.
In 2007-08 WIP TR is highest. Remaining all years it was similar.
In 2005-06 it is lowest.
WIP holding period is highest in 2008-09.
WIP holding period is lowest in 2007-08.
Finished goods turnover ratio is decreasing from 2004-05 to 2008-09.
2008-09 is the lowest and 2004-05 is the highest.
Finished goods holding period is highest in 2008-09.
Finished goods holding period is lowest in 2004-05.
In 2004-05, 26% of current assets are inventory. It was the least.
In 2007-08, 43% of current assets is inventory. It was highest.
2) RECEIVABLES MANAGEMENT:
Receivables turnover ratio is highest in 2007-08.
116
Receivables turnover ratio is lowest in 2008-09.

Receivables management in Ashok Leyland is very efficient. From 2004-05
to 2007-08 debtors collection period was decreasing.
But in the year 2008-09 the collection period increased slightly.
From 2004-05 to 2007-08 the investment on receivables is constant.
In the year 2008-09 it is slightly increased.
2006-07 year has highest creditor turnover ratio.
2008-09 year has lowest creditor turnover ratio.
In the year 2006-07 creditors collection period is low 56.
In the year 2008-09 the creditors collection period is very high 98.
From the table given above, it is clear that receivable to current asset ratio is
low in 2007-08. That means receivables management is very efficient in that
year. But in the year 2008-09 it is the highest.
3) CASH MANAGEMENT:
Cash turnover ratio is kept on increasing from the year 2004-05 to 2008-09.
There is a constant growth in increase.
From the table given above in 2004-05 and 2005-06 the cash holding period
is very high 48days.
But from 2006-07 to 2008-09 it is decreased from 26 days to 16 days.
From the above table it is clear that cash ratio that is cash availability is
decreasing from year by year.
In the year 2008-09 it is just 0.04
From the above table it is clear that percentage of cash in current assets is
very less and decreasing from year by year.
In 2008-09 it is just 3%.
6.4 OPERATING CYCLE:
From the table given above it is clear that,

In 2007-08 it is very low that is 10. It is best one.
In 2008-09 it is increased from 10 to 32.
There is a rapid change in operating cycle.
117
6.5 TREND ANALYSIS:

It is forecasted that there is an increase in sales of the year 2010 when
compared to the year 2009.
It is forecasted that there is an increase in inventory of the year 2010 when
compared to the year 2009.
It is forecasted that there is a huge decrease in cash and bank balances of the
year 2010 when compared to the year 2009.
It is forecasted that there is a decrease in sundry debtors of the year 2010
when compared to the year 2009.
It is forecasted that there is an increase in loans and advances of the year
2010 when compared to the year 2009.
It is forecasted that there is an increase in current assets of the year 2010
It is forecasted that there is an increase in current liabilities of the year 2010
RECOMMENDATIONS:
Recommendations can be use by the firm for the betterment increased of

the firm after study and analysis of project report on study and analysis of working
capital.
I would like to recommend.
118
Company should raise funds through short term sources for short
term requirement of funds, which comparatively economical as
compare to long term funds.
Company should take control on debtor s collection period which
is major part of current assets.
Company has to take control on cash balance because cash is
non earning assets and increasing cost of funds.
Company should reduce the inventory holding period with use of
zero inventory concepts.
Company should make a policy in respect of investment of excess cash,
if any; in marketable securities and overall cash policy should be
introduced.
Management should develop a credit policy and proper self realization
system from customers so that efficient and effective management of
accounts receivable can be ensured. This will significantly improve the
profitability and liquidity of the company.
Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company is increasing sales volume per year which supported to
company to increase the market share year by year.
CONCLUSION
Working capital management is important aspect of financial management. The
study of working capital management in Ashok Leyland ltd , has revealed that the
current ration was as per the standard industrial practice but the liquidity
position of the company showed an increasing trend. The study has been
conducted on working capital ratio analysis, working capital leverage,
working capital components which helped the company to manage its working
capital efficiency and affectively.
119
Working capital of the company was increasing and showing positive

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

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

more than increase in the current liabilities.
Companys current assets were always more than requirement it affect on

profitability of the company.
Current assets are more than current liabilities indicate that
company used long term funds for short term requirement, where long
term funds are most costly then short term funds.
Current assets components shows sundry debtors were the major part in
Current assets it shows that the inefficient receivables collection
management.
The company has a good operating cycle, liquidity position, and has sufficient
funds to repay its liabilities. It is being found that components of working capital
like inventory management, receivables management and cash management was
managing effectively. It is being found that the production target of the company
has been achieved in time; thereby the profit percentage of company is good.
The company is matured one and it has contributed towards the countries growth
and development and will also continue to perform and contribute to the whole
nation. To conclude company has sound and effective management of working
capital, which helps them to control the cost and increase the profit.
120
Appendic
es
BIBLIOGRAPHY:
121
BOOKS REFERRED:
M.Y. KHAN AND P.K. JAIN --FINANCIAL MANAGEMENT;-Tata McGraw-Hill Publication
I. M. PANDEY FINACIAL MANAGEMENT;--Vikas Publishing

House Pvt Ltd.
PRASANNA CHANDRAFINANCIAL MANAGEMENT-- Tata
McGraw-Hill Publication
WEBSITES:
WWW.ASHOKLEYLAND.COM
WWW.MENTORMYPROJECT.COM
WWW.SCRIBD.COM
WWW.MANAGEMENTPARADISE.COM
WWW.BIZSTATS.COM
WWW.FINDARTICLES.COM
WWW.BRITANNICA.COM
WWW.INDIAINFOLINE.COM
WWW.BIZRESEARCHPAPERS.COM
WWW.OPPAPERS.COM
WWW.ALLBUSINESS.COM
WWW.DOCSTOC.COM
ANNEXURE
BALANCE SHEET:
122
(Rs.IN MILLIONS)
PARTICULARS 2004-05
Source Of
Funds
Shareholders
Fund
Capital
1,189.29
Reserves And
10,489.36
Surplus
11,678.65
Loan Funds
Secured Loans
2,634.96
Unsecured Loans 6,169.10
8,804.06
Deferred Tax
1,708.48
Liability-Net
Foreign Currency
Monetary Item
Translation
Difference-Net
Total
22,191.19
Application Of
Funds
Fixed Assets
Gross Block
20,022.50
Less
11,084.04
Depreciation
Net Block
8938.46
Capital Work-In- 851.55
Progress
9790.01
Investments
2291.9
Current Assets,
Loans And
Advances
Inventories
5680.81
2005-06
2006-07
2007-08
2008-09
1,221.59
12,902.94
1,323.87
17,621.81
1,330.34
20,159.48
1,330.34
33,408.65
14,124.53
18,945.68
21,489.83
34,738.99
1,846.91
5,072.37
6,919.28
1,796.89
3,602.16
2,801.82
6,403.98
1,969.29
1,902.40
6,972.61
8,875.01
2,538.20
3,044.13
16,537.31
19,581.44
2,634.37
22,840.70
27,318.95
32,903.03
56,993.21
21,384.99
11925.28
26,201.97
13131.64
29,424.38
14,168.88
49,532.72
15,541.56
9432.71
1414.17
13070.33
2374.91
15,255.50
5,292.45
33,991.16
9,982.89
10846.88
3681.78
15445.24
2210.94
20,547.95
6,098.99
43,974.06
2,635.57
9025.61
10703.21
12239.14
13,300.14
123
Sundry Debtors
Cash And Bank
Balances
Loans And
Advances
Less Current
Liabilities And
Provisions
Liabilities
Provisions
Net Current
Assets
Miscellaneous
Expenditure
Total
4587.66
7966.82
4243.37
6028.76
5228.75
4349.39
3758.35
4513.7
9,579.74
880.836
3337.34
3026.39
6695.79
8241.39
7,895.44
21572.63
22324.13
26977.14
28752.58
31,656.14
9611.87
2044.8
11,656.67
9915.96
11468.95
2616.21
14085.16
8238.97
16516.25
1042.3
17558.55
9418.59
19267.08
3452.31
22,719.39
6033.187
18,688.64
2,680.82
21,369.46
10,286.68
193.32
73.07
244.18
222.91
96.88
22,191.19
22,840.70
27,318.95
32,903.03
56,993.21
(Source: annual reports of the company)

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A STUDY ON WORKING CAPITAL MANAGEMENT OF ASHOK

LEYLAND LTD, CHENNAI.

CHRIST UNIVERSITY INSTITUTE OF MANAGEMENT

This project was undertaken as a part of academic curriculum

It gives me immense pleasure to present this project report on

WORKING CAPITAL MANAGEMENT

DATA ANALYSIS AND

SCHEDULE OF CHANGES IN WC FOR

INVENTORY HOLDING PERIOD

NET WORKING CAPITAL RATIO

1.1. THE BACKGROUND:

1.4.2) TYPES OF DATA COLLECTION:

1.4.2.1) Primary Data:

1.4.2.2) Secondary Data Collection Method:

Annual report of Ashok Leyland ltd 2005-06

1.5. SCOPE OF THE STUDY:

1.6. LIMITATIONS OF THE STUDY:

1.7. CHAPTER SCHEME:

1.8. EXPECTATION FROM STUDY:

WORKING CAPITAL MANAGEMENT

Definition:According to Guttmann & DougallExcess of current assets over current liabilities

The need for working capital gross or current assets cannot be

2.3 GROSS WORKING CAPITAL AND NET WORKING

1) Gross Working Capital:

Net working capital refers to the difference between current assets

2.5 DETERMINANTS OF WORKING CAPITAL:

capital requirement may be financed by them, but it is necessary to

Rate of stock turnover:

There is an inverse co-relationship between the question of working capital

Earning Capacity And Dividend Policy:

Price Level Changes:

2.6 RATIO ANALYSIS

C. RECEIVABLES MANAGEMENT RATIOS

13.Cash ratio=cash and bank balances/CL

technological leadership was achieved through tie-ups with international

3.2 INDUSTRY PROFILE:

Ashok Leyland ltd

2.Ashok Leyland Ltd

ashok leyland ltd

(Source: from company internal presentations)

Multinational Companies in India:

3.3 COMPANY PROFILE:

equity participation by British Leyland and Ashok Leyland commenced

In June 1956, 4 lakh shares allotted to Leyland Motors. In November 11 lakhs

various contemporary product options that were relevant to the requirements of

Be a leader in the business of commercial vehicles, excelling in technology,

We value the trust reposed in us by our shareholders and strive unstintingly to

The five Ashok Leyland CORPORATE values are:

3.7 POLICIES AND OBJECTIVES OF ASHOK LEYLAND:

II). Max use of employee potential to contribute to quality and environment by

Principals, Agents, Contractors, Trustees, Insurers, or otherwise and either alone or

Engines ranging from 15KVA to

Engines with power rating from

Engines with power rating from

Diesel and Natural Gas gensets

4. DEFENCE & SPECIAL VEHICLES:

Largest provider of logistic vehicles to the Indian army.

Data analysis and

4.1.0 WORKING CAPITAL:

4.1.1 Statement Showing the Schedule of Changes In Working Capital:

cash and bank

loan & advances

cash and bank