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2013
Seminar Presentation on TREND IN WORKING
CAPITAL MANGEMENT:CASE OF FIVE NIFTY
COMPANIES IN INDIA
Vincent Konadu Tawiah
INTRODUCTION.
Working capital is the cash needed to pay for the day today
operation of the business
Working capital is the difference between the current
assets of a business and its current liabilities
Working capital management is the function of
maintaining trade off between liquidity and profitability
• Current Asset
InventorySundry debtors
Cash Loans and advance
• Current liabilities
Sundry creditorsTaxationsoverdraft
LESs
CONCEPTS OF WORKING CAPITAL
Gross working capital concept
Net working capital concept
TYPES OF WORKING CAPITAL
Permanent working capital
Temporary working capital
Negative working capital
Reserve working capital
FACTORS AFFECTING THE COMPOSITION OF WC.
Nature of the business , i.e products, production process,
management, size of business
Degree of competition: high competition high wc ; low
competition low wc
Easy access to working capital such raw materials and
cash
Customers’ culture; cash or credit oriented
Danger of Overtrading : OvercapitalizationOvertrading happens when a business tries to do too much, too quickly with too little long term capital
Excess current liability over current asset
Over-Capitalizationhappens when business do less so slow with
more resourcesExcessive investment in current asset.
WHY WORKING CAPITAL MANAGEMENT?
Unlike fixed asset, current asset can be managed in a
shorter time span ( no need for TVM)
CA can be easily adjusted to the DD & SS variation of the
product
Managing CA directly affects the liquidity of the firm
Working Capital Ratios
Current ratio 2:1
Cur. AssetCur. Liab.
The number of times current asset can pay current debts
Acid Test1:1
CA – InventoryCur. liab
The number of times CA less inventory can pay current
debts
Debtors days
Creditors days
Inventory days
Trad. dbt *365Credit sales
Trad. Cred. *365Credit purchase
Avg. invent. *365Cost of sales
The number of days to receive
cash from debtors
The number of days to
pay cash to suppliers
The number of
days to convert
invent. to sales
THE COMPANIES
Nifty, is a stock market index and benchmark index for
Indian equity on national stock exchange market. They are
made up 50 companies.
;
.
BAJAJ AUTO LTDYR/RT
2013 2012 2011 2010 2009 2008
C /R1.5 :
11.1 :
10.7 :
10.6 :
11 : 1
0.9 :1
ATR1.3 :
11 : 1
0.6 : 1
0.4 : 1
0.8 : 1
0.7 : 1
Db D 14 8 8 7 15 10
Cr D 50 50 60 71 45 48
CA/TA%
70.5 70.8 64.9 51.0 60.0 56.1
from overtrading to
normal
less investment in
inventory
good credit policy
Bulk of current asset
is loan and advances
Increasing in current
asset as against fixed
assets
MAHINDRA & MAHINDRA LTD
YR/RT
2013 2012 2011 2010 2009 2008
C /R1.1 :
11.1 :
10.9 :
11.2 :
11.1 :
11.1 :
1
ATR0.8 :
10.8 :
10.7 :
10.9 :
10.8 :
10.8 :
1
Db D 19 21 20 23 27 30
Cr D 67 72 98 91 126 98
CA/TA%
52.9 54.5 58.4 62.0 61.2 60
matching current asset against current liability
high investment in inventory
Improvement in debtors collection days
deteriorating creditors payment days
short term investment from 2012
bulk of the company’s current liabilities is advance acceptance from customers.
TATA MOTRS LTDYR/RT
2013 2012 2011 2010 2009 2008
C /R0.5 :
10.6 :
10.9 :
10.7 :
10.9 :
1 1 :1
ATR0.3 :
10.4 :
10.6 :
10.5 :
10.7 :
10.8 :
1
Db D 13 17 18 23 20 12
Cr D 93 79 58 80 177 156
CA/TA%
29.8 37.7 44.6 41.2 39.8 49.7
overtrading and
deteriorating working
capital
more investment in
inventory
high investment in
debtors but low debtors
days
Customer’s advance
payment bulk of liabilities
MARUTI SUZUKIYR/RT
2013 2012 2011 2010 2009 2008
C /R1.8 :
11.7 :
11.6 :
11.1 :
1 1 : 1 0.8 :1
ATR1.5 :
11.4 :
11.2 :
10.7 :
10.8 :
10.6 :
1
Db D 9 9 8 10 11 15
Cr D 50 43 37 38 35 30
CA/TA%
50.6 52.9 55.6 41.1 38.3 35.2
continuously improve
its working capital
management
bulk of its current
asset in short term
investment
Increase its creditors
days
advance payment from
its customers as
liabilities
HERO MOTORCORPYR/RT
2013 2012 2011 2010 2009 2008
C /R1.2 :
11.1 :
10.2 :
10.6 :
10.5 :
10.5 :
1
ATR1.1 :
1 1 : 1 0.1 : 1
0.4 : 1
0.3 : 1
0.3 : 1
Db D 10 4 2 2 4 9
Cr D 39 48 36 36 27 35
CA/TA%
52.6 48.8 26.3 62.8 37.4 37.6
sign of good
working capital in
future
invest less in
inventory
good credit policy
asset is mainly in
the form of short
term investment
GENERAL TRENDAcceptance of advance from customers for
guarantee sales
Loans to suppliers for reliable raw materials
Investment in short term vehicles such as
mutual fund
Long creditors days
Long term investment with related parties.
General RecommendationsOPTION WARNING
Reduce the stock holding period forfinished goods and raw materials eg JIT
May result in production delays or shortages if demand increases unexpectedly
Reduce the credit period offered to tradedebtors and chase amounts due
May upset customers – or cause them to reduce the amount they buy
Extend the time taken to pay creditors
suppliers may refuse to supply or may charge interest if their payment terms are exceeded
Use invoice discounting or debt factoring to obtain cash from trade debtors
A good way to obtain cash quickly – but usually costly
Sale and leaseback of assets This leaves the business with higher costs and payment obligations
CONCLUSION
“As human cannot survival without the flow of blood so as business cannot survival without the flow of working capital because is the lifeblood of business”
Wc lubricate the wheels of fixed assets
Varship & Vincent
ReferencesHill R.A, Strategic Financial Management
Macmillan (London). http://www.en.wikipedia.org/niftycompanies :
retrieved on 22/9/2013 @ 10amhttp://www.bajajauto.com/annualreport:
retrieved on 19/09/2013 @ 8pmhttp://www.tatamotors.com/annualreport:
retrieved on 19/09/2013 @ 8 : 30pmhttp://www.mahindra.com/annualreport:
retrieved on 18/09/2013 @ 7pmhttp://www.heromotocorp.com/
annualreport: retrieved on 17/09/2013 @ 5pmhttp://www.marutisuzuki.com/annualreport:
retrieved on 16/09/2013 @ 8pm
