1

A SUMMER INTERNSHIP REPORT

On

A STUDY ON WORKING CAPITAL MANAGEMENT

AND FINANCIAL STATEMENTS OF LAST FIVE YEARS

Submitted to

PUNJAB TECHNICAL UNIVERSITY

In partial fulfillment of the requirements for the

award of degree of

Master in business Administration (MBA)

Submitted by Project Guider

Anmoldeep singh dhillon Mr. Sandeep Kohli

University Roll no -1426421 Metro Tyres Ludhiana

Session(2014-2016)

APEEJAY INSTITUTE OF MANAGEMENT

2

Certificate

3

CONTENT

Certificate by GuidePrefaceAcknowledgementsCHAPTER NO CHAPTER TITLE PAGE NO

1. 1.1 1.2

IntroductionIntroduction to the Metro TyresIntroduction to the Report

6-137-89-13

2. Review of Literature 14-16 3. 3.1 3.2 3.3

Need, Scope and Objectives of the StudyNeed of the StudyScope of the StudyObjectives of the Study

17-18 18 18 18

4. 4 4.1 4.2 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.3 4.3.1 4.3.2 4.4

Research and MethodologyIntroductionResearch DesignSampling DesignUniverseSampling FrameSampling UnitSampling SizeSampling TechniquesData Collection and AnalysisData CollectionTools of Presentation and AnalysisLimitations of the Study

19-23 20 20-21 21 21 21 21 22 22 22 22-23 23 23

5. Data Analysis and Interpretation 24-34 6. Findings of the Study 35-36 7. 7.1 7.2

Conclusions and RecommendationsConclusionsRecommendations

37-39 38 39

References 40Annexure 41-43Questionnaire 44-45

4

PREFACE

Major changes in the economic climates and regulatory environment had seriously altered the

conditions for Indian companies in recent years. Widening wings of globalization and

increasing exposure to international markets had resulted in increased competitions and

relocation of production and distribution capacities. Furthermore, volatile exchange rate,

increased raw material prices had an impact on the cost and risk profile of the companies

and thus on their financing structure.

Irrespective of whether it was a question of carrying out acquisition, financing further

growth, averting imminent insolvency or simply ensuring that a company can continue to

exist as a going concern, all of these factors required a new or at least revised approaches for

corporate financial management, professional financial management, which was helpful

instrument for avoiding liquidity bottlenecks, helped for boosting returns and also facilitated

a systematic control of financial risk.

With regard to developing alternatives financial arrangements, companies were increasingly

focused on their own resources. Efforts were directed towards optimized the time span

during which the working capital, defined as current assets minus current liability was tied

up in the company. The attractiveness of working capital management was based on its two

fold impact:

A reduction in the time span during which capital was tied up release liquidity and thus had

a direct impact on the company’s financial position. However return on capital was also

increased, balance sheet structures are optimized and company financials were improved.

Working capital management thus opens up way for further forms of external finance ,for

instance via capital market issues of equity and debt securities ,private equity in other words,

forms of financing via financers who focus to a greater extent on balance sheet structures and

the company financials.

5

ACKNOWLEDEMENT

Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part.

I am really thankful to Mr. Bhattnagar , Finance Manager for making all kinds of arrangements to carry the project successfully and for guiding and helping me to solve all kinds of quarries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent.

This project would not have been successful without the help of all Senoir members of METRO TYRES LTD. I would like to thanks Group Chairman Mr. Man Singh, who has led the Group since 1968, Group Managing Director, Mr. Rummy Chhabra, who has been associated with the Metro Group since 1978,

Last but not least I would like to thank all the employees of METRO TYRES Ltd. who have directly or indirectly helped me with their moral support for the completion of my project.

AnmolDeep singh dhillon

6

CHAPTER 1

INTRODUCTION

7

1.1 INTRODUCTION TO METRO TYRES LTD

Metro Group was a US $140 million conglomerate consisting of Metro Tyres Limited, Metro

International and Metro Ortem Limited. The Group had seven ISO 9001:2008 certified,

state-of-the-art manufacturing facilities, producing Tyres and tubes for bicycles, motorcycles,

scooters,3-wheelers. .

Technical collaboration with Germany's Continental AG has greatly enhanced Metro Group's

position and today it was regarded as a company manufacturing superior quality products.

Gradually the company was increased its volumes and venturing into overseas markets

where it is developing a niche for its products. Today the group had a presence in more than

53 countries and was the largest exporter of bicycle tyres and tubes from India. Under the

aegis of Metro Ortem Limited, the group had diversified into manufacturing   a whole range

of fans and other home appliances. Metro Group has manufacturing capacity close to 30

Million tyres and 30 Million tubes annually and it enjoys around 24% market share in India.

Currently, Metro Group employs over 4000 people who are its greatest asset.

Its aimed to become a focused market leader providing excellent quality products and

services to our valued customers both in the domestic and international markets.

Its believed in the power of people to achieved results and realize that people respond to

recognition and trust, from the opportunity to learned, the freedom to participate, and the

chance to develop personally and professionally.

Metro Group has manufacturing capacity close to 30 Million tyres and 30 Million tubes

annually and it enjoys around 24% market share in India. Currently, Metro Group employs

over 4000 people who are its greatest asset.

From its conception in 1968, Metro Tyres Limited had made steady progress to establish

itself as a market leader for bicycle tyres and tubes in India. With steadily increased volumes

of quality products, the Company ventured into overseas markets where it developed a niche

for itself. Technical collaboration with Germany's Continental AG, has greatly enhanced

Metro Group's position as a company manufacturing superior quality products. Metro

International was our Export Division that works with our overseas clients.

8

VISION & MISSION OF THE COMPANY

VISION

Our company had become a significant player in the Indian Tyre & Appliances Industry with

International footprints

MISSION

To build a truly professional, Customer Centric, Quality Conscious, Socially responsible

Organization by provided a platform of over four decades of business experience, reputation,

corporate strength and environment conducive for growth of all.

GOAL

Its goal was to maintained leadership position in Cycle Tyres/Tubes segment and to be a

significant player in Motorcycle/2-3 Wheeler Tyres and Tubes segment and they would

insure abt it in future also.

SWOT ANALYSIS

STRENGTHS

Wide product offering at different rates.

Large distribution network

WEAKNESS

Lack of advertisement activities.

Focus only on middle class

OPPORTUNITY

Rise of Indian middle class and small cities.

A booming economy

THREATS

Many players fighting for the same cake

9

1.2 INTRODUCTION TO THE STUDY/PROJECT

The project aimed to study the working capital management and financial statements

analysis at METRO TYRES LTD.

Working capital management

Working Capital Management is the process of planning and controlling the level and mix of

current assets of the firm as well as financing these assets. Specifically, Working Capital

Management required financial managers to decide what quantities ofcash, other liquid

assets, accounts receivables and inventories the firm will hold at any point of time.

Types of Working Capital

Gross working capital refers to the firm’s investment in the current assets and includes cash,

short term securities, debtors, bills receivables and inventories. It was necessary to

concentrate on the fact that the investment in the current assets should be neither excessive

nor inadequate.

WC requirement of a firm keeps changing with the change in the business activity and hence

the firm must be in a position to strike a balance between them. The financial manager should

know where to source the funds from, in case the need arise and where to invest in case of

excess funds.

Net working capital refers to the difference between the current assets and the 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, bank overdraft and

outstanding expenses. When current assets exceed current liabilities it is called Positive WC

and when current liabilities exceed current assets it is called Negative WC.

The Net WC being the difference between the current assets and current liabilities is a

qualitative concept. It indicates:

10

It is a normal practice to maintain a current ratio of 2:1. Also, the quality of current assets is

to be considered while determining the current ratio. On the other hand a weak liquidity

position poses a threat to the solvency of the company and implies that it is unsafe and

unsound. The Net WC concept also covers the question of judicious mix of long term and

short-term funds for financing the current assets.

Permanent and variable working capital:

The minimum level of current assets required is referred to as permanent working capital and

the extra working capital needed to adapt to changing production and sales activity is called

temporary working capital.

NEED OF WORKING CAPITAL

The prime objective of the Metro tyres is to obtain maximum profit thought the business.

The amount of profit largely depends upon the magnitude of sales. However the sale does not

convert into cash instantaneously. There is always a time gap between sale of goods and

receipt of cash. The time gap between the sales and their actual realization in cash is

technically termed as operating cycle. Additional capital required to have uninterrupted

business operations, and the amount will be locked up in the current assets. Regular

availability of adequate working capital is inevitable for sustained business operations. If the

proper fund is not provided for the purpose, the business operations will be effected and

hence this part of finance to be managed well.

SOURCES OF WORKING CAPITAL

LONG TERM SOURCES

Long term sources of permanent working capital include equity and preference shares,

retained earnings, debentures and other long term debts from public deposits and financial

institution. The long term working capital needs should meet through long term means of

financing. Financing through long term means provides stability, reduces risk or payment and

increases liquidity of the business concern.

11

Retained earnings

Retain earning accumulated profits are a permanent sources of regular working capital. It is

regular and cheapest. It creates not charge on future profits of the enterprises.

Issue of debentures

Long term debt

Company can raise fund from accepting public deposits, debts from financial institution like

banks, corporations etc. the cost is higher than the other financial tools.

Other sources consist of the sale of idle fixed assets, securities received from employees and

customers are examples of other sources of finance.

SHORT TERM SOURCES

Temporary working capital is required to meet the day to day business expenditures. The

variable working capital would finance from short term sources of funds and only for the

period needed. It has the benefits of low cost and establishes closer relationships with banker.

Commercial bank

A commercial bank constitutes a significant source for short term or temporary working

capital. This will be in the form of short term loans, cash credit, and overdraft and though

discounting the bills of exchanges.

Public deposits

Most of the companies in recent years depend on these sources to meet their short term

working capital requirements ranging from six month to three years.

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FINANCIAL STATMENTS

A financial statement is a collection of data organized according to logical and consistent

accounting procedures. Its purpose is to convey an understanding of some financial aspects of

a business firm. It may show a position at a moment in time, as in the case of Balance Sheet

or may reveal a series of activities over a given period of time; as in the case of an Income

Statement or may show the sources and uses of funds, as in the case of Fund Flow Statement

Balance sheet

The balance sheet is the first of the three major financial statements. The balance sheet shows

the assets, liabilities and the equity for the firm as of the last day of the accounting period. In

effect, it matches resources (assets) with sources (liabilities and equity). It is commonly

presented in two columns that illustrate the relationship between assets and the sources of

these assets. The assets or resources of the firm are displayed in the right hand column and

the sources of these assets in the left hand column.

Income statement Or Profit or Loss account

The income statement is a report of the firm’s activities during a given accounting period.

Firms often publish income statements showing the results of each quarter, each half year and

the full accounting year. It shows the revenues and expenses of the firm, the effect of interest

and taxes, and the net income for the period. It may be called by other titles, such as the

profit-and-loss statement or the statement of earnings. It is an accounting device designed to

show stockholders and creditors whether the firm is making money. It can also be used as a

tool to identify the factors that affect the degree of profitability

13

Flow of funds statements

This statement shows the Movement of funds into the form’s current asset account from

external sources such as stockholders, creditors and customers. It also shows the movement

of funds to meet the firm’s obligations retires stock or pay dividends. The movements are

shown for a specific period of time, normally the same time period as the firm’s income

statement. The financial manager makes decisions to ensure that the firm has sufficient funds

to meet financial obligations when they are due and to take advantage of financial

opportunities

Ratio analysis

Ratio analysis is a very powerful analytical tool for measuring performance of an

organization. The ratio analysis concentrates on the inter-relationship among the figures

appearing in the aforementioned four financial statements. The ratio analysis helps the

management to analyze the past performance of the firm and to make further projections.

Ratio analysis allows interested parties like shareholders, investors, creditors, Govt. and

analyst to make an evaluation of certain aspects of a firm’s performance.

14

CHAPTER II

REVIEW OF LITERATURE

INTRODUCTION

15

A literature review is a text of a scholarly paper, which includes the current knowledge

including substantive findings, as well as theoretical and methodological contributions to a

particular topic. Literature reviews use secondary sources, and do not report new or original

experimental work

A literature review is a “critical analysis of a segment of a published body of knowledge

through summary, classification, and comparison of prior research studies, reviews of

literature, and theoretical articles” (University of Wisconsin Writing Center). Do not confuse

a literature review with an annotated bibliography.

The review of literature guided the researchers for getting better understanding of

methodology used, limitationd of various available estimation procedures and database, and

lucid interpretation and reconciliation of the conflicting results. Besides this, the review of

empirical studies explores the avenues for future and present research efforts related to the

subject matter. In case of conflicting and unexpected results, the research can take the

advantage of knowledge of their researchers simply through the medium of their published

works. A number of research studies have been carried out on different aspects of

performance appraisal by the researchers, economists and academicians in India and abroad.

Different authors have analyzed performance in different perspectives. A review of these

analyses is important in order to develop an approach that can be employed in the context of

the study of Indian automobile industry. Therefore, the present chapter reviews the empirical

studies related with different aspects of Financial Efficiency.

1.Pai, Vadivel and Kamal (1995)studied the diversified companies and financial

performance: A study. An effort was made to study the relationship between diversified firms

and their financial performance. Seven large firms having different products-both related and

otherwise-in their portfolio and operating in diverse industries were analyzed. A set of

performance measures / rations and employed to determine the level of financial

performance. The results reveal that the diversified firms studied have been healthy financial

performance. However, variation in performance from one firm to another has been observed

and statistically established.

2. Susma Vishnani and Bhupesh Kr Shah (2006) have studied the role of working capital in

profit generating process. If a company desires to take a greater risk for bigger profits and

16

losses, it reduces the size of its working capital in relation to its sales. If it was interested in

improving its liquidity, it increases the level of it working capital. However, this policy was

likely to result in a reduction of the sales volume, therefore of profitability. Hence, a

company should strike a balance between liquidity and profitability. In this study an effort

had been made to make an empirical study of Indian Consumer Electronics Industry for

assessing the impact of working capital on profitability during the period 1994-95 to 2004-05.

The impact of working capital on profitability had been examined by computing co-efficient

of correlation and regression analysis between profitability and working capital ratio

3. Adina Elena Danuletiu (2010), the purpose of this study to analyze the efficiency of

working capital management of companies or firms or industries in the country, The

researcher also study the relation between the efficiency of the working capital management

and profitability. The conclusion of the study says that there is a negative relationship

between working capital management and profitability.

4. David Mathuva (2010), the study focuses the impact of Working Capital Management

components of corporate profitability. There exists a highly significant negative relationship

between the times taken by the firms to collect cash from their costumers secondly there

exists a highly significance positive relationship between the period taken to convert

inventories into sales. Thirdly there exists a highly significance positive relationship between

the time to pay its creditor the more profitable it is.

5. P.D. Erasmus (2010)It has long been argued that efficient working capital management

should contribute to the creation of shareholder value. This study investigates the relationship

between working capital management and firm profitability for a sample containing both

listed and delisted South African industrial firms. The results obtained from the full sample

revealed statistically significant negative relationships between a firm’s profitability (as

quantified by the return on assets in the narrower sense) and its net trade cycle (NTC), debt

ratio and liquidity ratio. Similar results are onserved if the listed firms are investigated

separately. In the case of firms that delisted during the period under review, however, the

liquidity and debt ratios appear to play a more important role than the NTC. Based on the

results of this study, it would appear that management could attempt to improve firm

profitability by decreasing the overall investment in net working capital.

17

CHAPTER 3

NEED OF THE STUDY

SCOPE OF THE STUDY

AND

OBJECTIVIES OF THE STUDY

18

3.1 NEED OF THE STUDY

1. The study has great significance and provided benefits to various parties whom directly or

indirectly interact with the company.

2. It was beneficial to management of the company by providing crystal clear picture

regarding important aspects like liquidity, leverage, activity and profitability.

3. The study was also beneficial to employees and offers motivation by showing how

actively they are contributing for company’s growth.

3.2 SCOPE OF THE STUDY

This study assess the working capital investments, evaluates working capital investments and

working capital components of Metro Tyres Ltd. The Emphasis is to given analysis of

financial performance in terms of solvency, liquidity, leverage, profitability and efficiency.

The period covered in this study is of last 5 years.

3.3 OBJECTIVIES OF THE STUDY

The important objectives of the working capital.

1.To ensure optimum investment in Current Assets.

2.To strike a balance between the twin objectives of liquidity and Profitability in the use of

funds.

3.To ensure adequate flows of funds for current operations.

4.To speed up the flow of funds or to minimize the stagnation of funds. To attain the above

objectives of working capital managing the coordination between higher level and lower level

authority is very crucial. The study speaks itself to the problem of how to working capital

effectively in small scale industry.

19

CHAPTER 4

RESEARCH METHOLDOLGY

OBJECTIVES OF THE RESEARCH

To study the working capital of metro tyres ltd.

20

To study the different parameters influence the financial statements

To study last five years data

To know the net operations of the financial statements.

RESEARCH METHODOLOGY

Research can be defined as a scientific and systematic search for pertinent information on a

specific topic. According to Clifford Woody research comprises defining and redefining

problem, formulating hypothesis or suggested solutions; collecting, organizing and evaluating

data; making deductions and reaching conclusions and at last carefully testing the conclusions

to determine whether they fit the formulating hypothesis.

Research methodology is a way to systematically solve the research problem. It may be

understood as the science of studying how research is done scientifically.

4.1 Research design

A research design is the arrangement of conditions for collection and analysis of data in a

manner that aims to combine relevance to the research purpose with economy in procedure.

In fact, the research design is the conceptual structure within which research is conducted; it

constitutes the blueprint for the collection, measurement and analysis of data. One may split

the overall research design into following parts:

a) The sampling design which deals with the method of selecting items to be observed for the

given study.

b) The observational design which relates to the condition under which the observations are

to be made.

c) The statistical design which concerns with the question of how many items are to be

observes and how the information and the data gathered are to be analyzed.

d) The operational design which deals with the techniques by which the procedure specified

in the sampling, statistical and observational design can be carried out.

Need for a research design

Research design is needed because it facilitates the smooth sailing of the various research

operations thereby making research as efficient and possible yielding maximal information

21

with minimal expenditure of effort time and money. It stands for the advance planning of the

method used or adopted for collecting the relevant data and the techniques to be used in their

analysis, keeping in view of the objectives, time and money.

4.2 Sampling design

A sample design is a definite plan for obtaining a sample from a given population. It refers to

the technique or procedure the researcher would adopt in selecting items for the sample.

Sample design may as well lay down the items to be included in the sample i.e., the size of

the sample. Sample design is designed before data are collected. There are many sample

designs from which a researcher can choose. Some design is relatively more precise and

easier to apply than others.

4.2.1 Population

Population refers to part of universe from which the sample for conducting the research is

selected. Universe and population can be same in some researches. It may be finite or infinite.

In finite universe the number of items is certain, but in case of infinite the number of item is

infinite i.e., we cannot have an idea about the total number of items. The population for my

study is different respondent from villages and nearby Hosiarpur

4.2.2 Sampling frame

Frame is the list of respondents i.e. list of all the users of different tyres

4.2.3 Sampling unit

Sampling unit refers to smallest possible individual eligible respondent. In my study the

sampling unit is single individual user of tyres .

4.2.4 Sampling size

This refers to the total number of respondents selected from the universe to constitute a

sample. The size of the sample should neither be excessively large, nor too small. It should be

22

optimum. An optimum sample is one which fulfills the requirement of efficiency,

representativeness, reliability and flexibility. The sample size for my research is hundred

respondents.

4.2.5 Sampling techniques

In this research study, non-probability convenience sampling is opted for. Convenience

sampling is done purely on the basis of convenience or accessibility. This sampling method

has been mainly chosen because of time, financial constraints and lack of expertise

4.3 DATA COLLECTION AND ANALYSIS

The choice of the many methods for collecting fishery data will depend on the variables to be

measured, the source and the resources available. In many cases, there is a natural way to

collect particular variables

4.3.1 DATA COLLECTION

The following sources have been sought for the preparation report:

Primary sources such as business magazines, current annual reports, book on

Financial Management by various authors and internet websites the imp amongst

them being –www.metrotyres.co.in

Secondary sources like previous years annual reports, CMA Data, reports on working

capital for research, analysis and comparison of the data gathered,financial

statements.

While doing this project, the data relating to working capital, cash management,

receivables management, inventory management and short term financing and

financial statements was required.

This data was gathered through the company’s websites, its corporate intranet,Metro

tyres annual reports and Data of the last five years.

A detailed study on the actual working processes of the company is also done through

direct interaction with the employees and by timely studying the happenings at the

company.

23

Also, various text books on financial management like Khan & Jain, Prasanna

Chandra and I.M.Pandey were consulted to equip ourselves with the topic.

4.3.2 TOOLS OF DATA ANALYSIS

The tools used for the study are Ratio analysis, Cash Conversion Cycle, and Schedule of

changes in working capital.

4.4 LIMITATIONS OF THE STUDY

We cannot do comparisons with other companies unless and until we have the data of

other companies on the same subject.

Only the printed data about the company will be available and not the back–end

details.

Future plans of the company will not be disclosed to the trainees.

Lastly, due to shortage of time it is not possible to cover all the factors and details

regarding the subject of study.

The latest financial data could not be reported as the company’s websites have not

been updated.

24

CHAPTER 5

DATA ANALYSIS AND INTERPRETATION

5.1 DATA ANALYSIS

The collected data is analyzed through working capital calculations, ratio analysis using financial

statements and only important tables are used for data discussion as per research need and which are

taken for data analysis

5.2 INTERPREATION

WORKING CAPITAL ANALYSIS IN METRO TYRES LIMITED

Net working Capital ( CURRENT ASSETS – CURRENT LIABILITIES)

25

Particulars 2011 2012 2013 2014 2015Total AssetsTotal Fixed Assets 110.86 143.11 147.59 141.76 155.94

Total other Non Current assets

570.78 578.4 563.21 554.7 610.17

Total Noncurrent assets

681.64 721.51 710.79 696.46 766.11

Total Current Assets

1164.58 1055.73 1013.26 1072.5 1179.75

Less

Total Shareholders' Funds

650.87 663.72 684.91 685.3 753.83

Share Application Money Pending Allotment

1.43 2.64

Total Non Current Liabilities

191.44 150.16 82.28 51.13 56.24

Total Current Liabilities

320.84 239.21 246.08 336.07 369.68

Net Working Capital

162.10 95.02 56.39 39.97 43.96

26

Sales

20112012201320142015

Data Interpretation

If we analysis the five years working capital position of the company, we find out that company has

sufficient working capital to meets its short term liability, it is good indicator for the company but in

2012, working capital is decreased but in 2015 it increased by 3.9 lacs from yr 2014which shows that

a sufficient amount has been blocked in working capital which could be used for some other more

beneficial purpose.

Positive working capital means that the business is able to pay off its short-term liabilities.

Also, a high working capital can be a signal that the company might be able to expand its

operations.

Negative working capital means that the business currently is unable to meet its short-term

liabilities with its current assets. Therefore, an immediate increase in sales or additional

capital into the company is necessary in order to continue its operations.

Working capital also gives an idea of company's efficiency. Money tied up in inventory or

accounts receivable cannot pay off any of the company's short term financial obligations.

Therefore, working capital analysis is very important, but very complex too. For example, an

increase in working capital can be explained by sales increase, but can also be explained by

slow collection or inadequate increase in inventory.

5.2.2 RATIO ANALYSIS

27

1. LIQUIDITY RATIO

1.1 Current Ratio

For current year 2015

Current Ratio= Current Assets/Current liabilities = 413.64/369.68 = 1.11

For previous year 2014

Current Ratio= Current Assets/Current liabilities = 376.04/336.07 = 1.11

For year 2013

Current Ratio = Current Assets/Current liabilities = 302.47/246.08 =1.22

For year 2012

Current Ratio = Current Assets/Current liabilities = 334.23/239.21 = 1.39

For year 2011

Current Ratio = Current Assets/Current liabilities = 482.94/320.84 = 1.50

YEAR 2011 2012 2013 2014 2015

Current Assets 482.94 334.23 302.47 376.04 413.64

Current Liabilities 320.94 239.21 246.08 336.07 369.68

Current Ratio 1.5 1.39 1.22 1.11 1.11

From this table it is clear that in last two years it was constant .In Year 2011 it was quickest

liquidity of a firm.

1.2 Quick Ratio

28

This is already calculated as mentioned in Ratio analysis Table in Annexure.

YEAR 2011 2012 2013 2014 2015

Quick Ratio 1.19 1.12 1.03 0.63 0.69

Quick Ratio = Current Assets – Stock/Current Liabilities

The quick ratio indicates the relation of quick assets with current liabilities. Quick or liquid assets

include all current assets except stock and prepaid expenses. Quick ratio measures the extent to

which liquid resources are immediately available to meet current obligations. This ratio is a better

test of financial strength as it gives no consideration to inventory which may be very slow.

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition.

The table above indicates the quick ratio if Metro tyres. is 0.69 :1 as against 1:1. It means the

company hasn’t enough liquid assets to meet short term liabilities. The short term liquidity position

of the concern is satisfactory

2. SOLVENCY RATIO

2.1 Debt equity Ratio

YEAR 2011 2012 2013 2014 2015

Debt equity Ratio 0.36 0.3 0.43 0.41 0.45

In last three years margin of difference is 0.2.The debt equity Ratio ranges in between 0.36 to 0.45.

Debt-equity ratio indicates the proportion of borrowed capital to the net worth. Generally 2:1 debt-

equity is considered to be satisfactory. This could be calculated as formula – Long term

Debt/shareholder’s fund, Shareholder’s fund’s = equity capital+ reserves + profit or loss account-

factious assets.

2.2 Interest coverage Ratio

YEAR 2011 2012 2013 2014 2015

29

Interest coverage Ratio 10.66 9.66 9.68 13.45 14.8

The lower the ratio, the more the company is burdened by debt expense. When a company's

interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be

questionable. An interest coverage ratio below 1 indicates the company is not generating

sufficient revenues to satisfy interest expenses. In this case firstly it decreases in yr 2011 to

2012 then increases then again increase in last year it increases but less than 1.5 so its

ability is questionionable.

2.3 Debt to total funds Ratio

YEAR 2011 2012 2013 2014 2015

Long term debt Equity Ratio 0.29 0.24 0.32 0.35 0.39

Solvency is the term which is used to describe the financial position of any business which is

capable to meet outside obligations in full out of its own assets. So this ratio establishes relationship

between total liabilities and total assets.

3. ACTIVITY RATIO

30

3.1 Stock turnover Ratio

Stock turnover ratio=Cost of goods sold/net sales

YEAR 2011 2012 2013 2014 2015

Stock turnover ratio 9.18 8.43 9.09 9 9.9

This ratio indicates the efficiency of the firm in producing and selling its products. The inventory or

stock turnover ratio measures how quickly inventory is sold. It is the test of efficient inventory

management. In general, a high inventory ratio is better than a low ratio. A high ratio implies good

inventory management. However, it may be of underinvestment in, or very low level of inventory.

Similarly, a very low inventory turnover ratio is dangerous. It signifies excessive inventory or

overinvestment in inventory.

3.2 Debtors turnover Ratio

Debtors turnover Ratio = Net Sales/average Debtors

Average Debtors = opening Debtors+ Closing Debtors +Bill receivable/2

The debtors’ turnover ratio shows how quickly receivables or debtors are converted into cash.

These throw light on the collection and credit policies of the firm. Debtor’s turnover ratio is

found out by dividing credit sales by average debtors. At the end of last financial year the

debtor’s turnover ratio of METRO Tyres Ltd was 9.09,9 and 9.9 :1 in previous year.

YEAR 2011 2012 2013 2014 2015

Debtors turnover ratio 9.18 8.43 9.09 9 9.9

3.3 FIXED ASSETS TURNOVER RATIO

Fixed Assets turnover Ratio = Net Sales/Average fixed assets

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YEAR 2011 2012 2013 2014 2015

Fixed assets turnover ratio 2.21 2.24 2.36 1.93 2.12

This ratio helps to know the efficiency of management in using the fixed assets. It is

calculated by dividing sales to fixed assets. This ratio is an important measure of the

efficiency and profit earning capacity of the business. A high ratio indicates efficiency in

utilizing the fixed assets while a low ratio suggest idle capacity and excessive investment in

fixed assets. Fixed Asset turnover ratio of Metro tyres was 2.21and 2.12. It means the

efficiency of utilizing fixed assets have increased.

3.4 TOTAL ASSETS TURNOVER RATIO

Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to

maximize sales. The relationship between sales and total assets is called as total assets

turnover ratio. This ratio shows the firm’s ability in generating sales from all financial

resources committed to total assets. Total assets include net fixed and current assets. The ratio

indicates the sales generated per rupee of investment in total assets. This ratio indicates the

efficiency in use of total assets. Higher ratio indicates that more revenue is generated per

rupee of total investment in the assets. The total asset turnover ratio of Metro tyres Ltd was

1.34:1at the end last financial year. Considering the industry standard it is satisfactory. It

means the Metro tyres have efficiently utilized its assets.

Total assets turnover Ratio = net sales/average total assets

YEAR 2011 2012 2013 2014 2015

Total assets turnover Ratio 1.68 1.74 1.54 1.22 1.34

4. Profitability Ratio

4.1Gross profit Ratio

32

Gross profit Ratio= Gross profit/net sales*100/

Gross profit = gross income – other interest

Gross profit ratio establishes a relationship between net profit (after tax) and sales and

indicates the efficiency of the management in manufacturing, selling administrative and

other activities of the firm.

YEAR 2011 2012 2013 2014 2015

Gross profit Ratio 6.73 5.91 5.66 7.02 7.72

4.2 Net profit Ratio

Net profit Ratio = net profit/net sales

YEAR 2011 2012 2013 2014 2015

Net profit Ratio 5.96 5.7 5.5 6.72 7.39

Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates

the efficiency of the management in manufacturing, selling administrative and other activities

of the firm.

4.3 Return on total assets

Profitability can be measured in terms of relationship between net profit and assets. This ratio

is also known as profit-to-assets ratio. It measures the profitability of investments. The

overall profitability can be known.

Return on total assets = Net profit/total assets

4.4 Return on capital employed

Return on capital employed= Net profit/capital employed

33

Capital employed = share capital + reserves + profit & loss account (credit) –

fictitious assets

4.5 Operating profit ratio

Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the one hand and the sales on the other.

Operating Ratio = operating cost/net sales

However 75 to 85% may be considered to be a good ratio in case of a manufacturing under taking. Operating profit ratio is calculated by dividing operating profit by sales.

. 4.6 PRICE - EARNING RATIO

Price earnings ratio is the ratio between market price per equity share and earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether (or) not to buy shares in a particular company. Generally, higher the price-earnings ratio, the better it is. If the price earnings ratio falls, the management should look into the causes that have resulted into the fall of the ratio.

34

CASH FLOW STATEMENT

INTERPRETAION

The cash flow statement shows how much cash comes in and goes out of the company over

the quarter or the year. In Current year cash goes out of the company over the year.

Particulars2011 2012 2013 2014 2015

Net cash flow

from operating

activities

58.55 10.55 108.80 140.49 154.54

Net cash flow

from Investing

activities136.88 2.22 (35.97) (83.52) -88.17

Net cash flow

from Financial

activities

(92.11) (69.24) (78.31) (44.67) -40.19

Net

increaseCash

equivalent

1031.62 (56.47) (5.48) 12.30 13.53

35

CHAPTER 6

FINDINGS

FINDINGS

36

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of

the company for years 2011-2013 has decreased but in last 2 years in 2013-2014 and

In 2014-2015 financial years It remains constant This depicts that company’s

liquidity position is same. Its current assets are more than its current liabilities.

A quick ratio is an indication that the firm is liquid and has the ability to meet its

current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is more

than ideal ratio. This shows company has no liquidity problem.

Inventory conversion period shows that how many days’ inventories take to convert

from raw material to finished goods. In the company inventory conversion period is

decreasing. This shows the efficiency of management to convert the inventory into

cash.

Current liabilities shows company short term debts pay to outsiders. In 2014-2015

financial years current liabilities of the company increased. But still increase in

current assets is more than its current liabilities.

Working capital is required to finance day to day operations of a firm. There should

be an optimum level of working capital. It should not be too less or not too excess. In

the company there is increase in working capital. The increase in working capital

arises because the company has expanded its business.

37

CHAPTER 7

CONCLUSION AND RECOMMODIATIONS

CONCLUSION

38

In the present study I have analyzed the working management of METRO TYRES LTD.I

found that inventory is increasing which shows that company has sufficient stocks to meet up

out production of the company. Inventory Turnover Ratio measures the velocity of

conversion of stock into sales. Usually, a high inventory turnover indicates efficient

management of inventory because more frequently the stocks are sold; the lesser amount of

money is required to finance the inventory.

The working capital position of the company is sound and the various sources through

which it is funded are optimal.

The company has used its purchasing, financing and investment decisions to good

effect can be seen from the inferences made earlier in the project.

The debts doubtful have been doubled over the years but their percentage on the debts

has almost become half. This implies a sales and collection policy that get along with

the receivables management of the firm.

The various ratios calculated are an indicator as to the fact that the profitability of the

firm and sales are on a rise and also the deletion of the inefficiencies in the working

capital management.

The firm has not compromised on profitability despite the high liquidity is

commendable.

Metro Tyres Ltd . has reached a position where the default costs are as low as

negligible and where they can readily factor their accounts receivables for availing

finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

39

The management of working capital plays a vital role in running of a successful business. So,

things should go with a proper understanding for managing cash, receivables and inventory.

Proper Calculations of Ratio analysis should be done

Metro Tyres Ltd is managing its working capital in a good manner, but still there is some

scope for improvement in its management. This can help the company in raising its profit

level by making less investment in accounts receivables and stocks etc. This will ultimately

improve the efficiency of its operations. Following are few recommendations given to the

company in achieving its desired objectives:

The business runs successfully with adequate amount of the working capital but the

company should see to it that the cash should not be tied up in excessive amount of

working capital.

Though the present collection system is near perfect, the company as due to the

increasing sales should adopt more effective measures so as to counter the threat of

bad debts.

The over purchasing function should be avoided as it could lead to liquidity

problems.

The investment of cash in marketable securities should be increased, as it is very

profitable for the company.

Holding of excessive and insufficient stock must be avoided as it creates a burden

on the cash resources of a business and results in lost sales, delays for customers, etc

respectively.

REFERENCES

40

Following sources have been sought for the preparation of this report:

Corporate Intranet

Financial Statements (Annual Reports)

CMA Data

Direct interaction with the employees of the company

Internet ----

Websites

www.metrotyres.com

www.moneycontrol.com

Metrogroup.co.in

Textbooks on financial management -

I.M.Pandey

Khan and Jain

Other Resources

Annual Report of METRO Tyres Ltd and Google

Centre for Monitoring Indian Economy (CMIE) database software.

Capitaline.com

ANNEXURE

41

Balance Sheet

Particulars FY11 FY12 FY13 FY14 FY15

Total Shareholders' Funds 650.87 663.72 684.91 685.3 753.83

Share Application Money

Pending Allotment1.43 2.64

Total Non Current Liabilities 191.44 150.16 82.28 51.13 56.24

Total Current Liabilities 320.84 239.21 246.08 336.07 369.68

Total Equity And Liabilities 1164.58 1055.73 1013.26 1072.5 1179.75

Total Fixed Assets 110.86 143.11 147.59 141.76 155.94

Total Other Non Current Assets 570.78 578.4 563.21 554.7 610.17

Total Non Current Assets 681.64 721.51 710.79 696.46 766.11

Total Current Assets 482.94 334.23 302.47 376.04 413.64

Total Assets 1164.58 1055.73 1013.26 1072.5 1179.75

Cash Flow Statement

Particulars FY11 FY12 FY13 FY14 FY15

Profit Before Taxation 89.81 6.09 29.48 23.34 25.67

Net Cash From Operating

Activities58.55 10.55 108.80 140.49 154.54

Net Cash From Investing

Activities136.88 2.22 (35.97) (83.52) -88.17

Net Cash Used In Financing

Activities(92.11) (69.24) (78.31) (44.67) -40.19

Net Increase In Cash And Cash

Equivalents103.62 (56.47) (5.48) 12.30 13.53

Ratio Analysis

42

Particulars FY11 FY12 FY13 FY14 FY15

Profitability Ratios

Operating Profit Margin(%) 10.19 8.54 7.91 9.6 10.56

Profit Before Interest And Tax Margin(%) 6.61 5.78 5.53 6.84 7.52

Gross Profit Margin(%) 6.73 5.91 5.66 7.02 7.72

Cash Profit Margin(%) 9.35 8.27 7.71 9.23 10.15

Adjusted Cash Margin(%) 9.35 8.27 7.71 9.23 10.15

Net Profit Margin(%) 5.96 5.7 5.5 6.72 7.39

Adjusted Net Profit Margin(%) 5.96 5.7 5.5 6.72 7.39

Return On Capital Employed(%) 12.82 12.55 10.97 10.42 11.46

Return On Net Worth(%) 12.29 11.73 11.15 10.51 11.56

Adjusted Return on Net Worth(%) 12.29 11.73 11.15 10.51 11.56

Return on Long Term Funds(%) 13.46 13.21 11.94 10.88 11.97

Liquidity And Solvency Ratios

Current Ratio 1.46 1.43 1.11 0.89 0.98

Quick Ratio 1.19 1.12 1.03 0.63 0.69

Debt Equity Ratio 0.36 0.3 0.43 0.41 0.45

Long Term Debt Equity Ratio 0.29 0.24 0.32 0.35 0.39

Debt Coverage Ratios

Interest Cover 10.66 9.66 9.68 13.45 14.8

Total Debt to Owners Fund 0.36 0.3 0.43 0.41 0.45

Financial Charges Coverage Ratio 14.93 12.78 12.42 17.04 18.74

Financial Charges Coverage Ratio Post Tax12.79 11.04 10.6 14.18 15.6

Management Efficiency Ratios

Inventory Turnover Ratio 9.18 8.43 9.09 9 9.9

Debtors Turnover Ratio 18.4 23.78 34.61 42.95 47.25

Investments Turnover Ratio 9.18 8.43 9.09 9 9.9

Fixed Assets Turnover Ratio 2.1 2.24 2.36 1.93 2.12

Total Assets Turnover Ratio 1.68 1.74 1.54 1.22 1.34

Asset Turnover Ratio 1.5 1.57 1.51 1.12 1.23

43

Profit And Loss Account

Particulars FY11 FY12 FY13 FY14 FY15Total Revenue 706.96 402.35 449.8 780.02 858.02Total Expenses 493.26 345.77 395.7 717.85 789.64EBIDTA 213.7 56.58 54.1 62.17 68.39Finance Costs 41.89 32.56 27.64 29.23 32.15Depreciation 54.1 17.9 13.61 9.6 10.56Exceptional Items Before Tax -27.9 -0.03 16.63Profit Before Tax 89.81 6.09 29.48 23.34 25.67Total Tax Expense -13.98 -11.79 10.45 17.7 19.47Profit After Tax 103.79 17.88 19.03 5.64 6.2

44

QUESTIONNAIRE

Objective- To know the working capital policy and financial statements of tyres

industry

Name of Concerned Person ………………………………………………….

Designation …………………………………………………....

Contact No. ……………………………………………………

DEMOGRAPHIC PROFILE

GENDER : MALE FEMALE

AGE 25-30 30-35

I am working in Metro tyres ltd 2yrs 4 ys 6 yrs

Q.1. Does your Industry have an overall policy for the management of its working capital?

Yes No

Q.2. Who sets the management policy for working capital for Metro Tyres Ltd ?

Board of Management

President/Chairman

Finance committee

Q.3. How often the management policy for working capital reviewed?

Monthly

Quarterly

Annually

Q4.How net operations affect the business?

45

Strongly

Immensely

Badly

Q5.Is Working capital based on operating cycles?

Yes No

Q6.Does your demand vary per person ?

Yes No

Q7. How do you arrange additional working capital ?

Loan

Q8. How would you describe your policy for the management of working capital?

Cautious

Aggressive

Situational

Changes overtime

Q9.Does you get enough profit in last 5yrs?

Yes No

Q10.How financial statements affected your business?

Strongly Badly Worst Can’t Say

46