Working Capital Project Report 1

1

A STUDY ON WORKING CAPITAL MANAGEMENT

IN

TI CYCLES OF INDIA

By

R. ASHOK

(Reg No: 35104043)

A PROJECT REPORT

Submitted to the Department of

MASTER OF BUSINESS ADMINISTRATION

In the FACULTY OF ENGINEERING & TECHNOLOGY

In partial fulfillment of the requirements

for the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

IN

SRM SCHOOL OF MANAGEMENT

S.R.M INSTITUTE OF SCIENCE AND TECHNOLOGY

(DEEMED UNIVERSITY)

JUNE – 2006

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S.R.M SCHOOL OF MANAGEMENT

S.R.M INSTITUTE OF SCIENCE & TECHNOLOGY (Deemed University)

S.R.M Nagar, Kattankulathur, Kancheepuram District – 603203. Phone: 044-27451317, 27453901, 27453804, 27453377, 27452270. E-mail: [email protected]

Internet: www.srmec.ac.in Dr.Jayashree Suresh Date: Professor & HOD

BONAFIDE CERTIFICATE

Certified that this project report titled “A study on working capital management in TI

Cycles of India” is the bonafide work of Mr. R. ASHOK carried out the research

under my supervision. Certified further, that to the best of my knowledge the work

reported herein does not form part of any other project or dissertation on the basis of

which a degree or award was confirmed on an easier occasion on this or any other

candidate.

Signature of the Guide Signature of HOD

Dr. A. Chandra Mohan MBA, PhD, HDSE

External In-charge

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Acknowledgement

I would like to thank our head of the department (HOD) Dr. Jayashree suresh

B.A.,M.B.A.,Ph.D., for giving necessary support during the course.

I would also express my sincere thanks to Dr. A. Chandra Mohan MBA, PhD,

HDSE, for his invaluable guidance and constant encouragement which enable me to

approach the project systematically.

I extend my sincere thanks to Thiru. Senthil Accounts Executive, Finance

dept. TI CYCLES OF INDIA For his continued support to carryout this project work.

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CONTENTS

SL.NO. TITLE PAGE NO.

1 INTRODUCTION

1.1 Meaning of working capital 1

1.2 Definition of working capital 2

1.3 Concept of working capital 3

2 RESEARCH METHODOLOGY

2.1 Objective of the study 5

2.2 Method of data collection 6

2.3 Statement of the problem 7

2.4 Review of literature 8

2.5 Limitations of the study 25

3 AN OVERVIEW OF THE COMPANY

3.1 Industry profile 26

3.2 Company profile 33

3.3 Product profile 40

3.4 Organization structure 42

4 DATA ANALYSIS AND INTREPRETATION

4.1 Balance sheet 44

4.2 Key working capital ratios 55

5 FINDINGS 61

6 SUGGESTIONS 62

BIBLIOGRAPHY 63

8 LIST OF TABLES

Working capital statement 2001-02 45





Current ratio 55

Quick ratio 57

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Turnover ratio 59

9 LIST OF CHARTS

Working capital chart 2001-02 46





Current ratio 56

Quick ratio 58

Turnover ratio 60

WORKING CAPITAL MANAGEMENT

1.1 Meaning

A business undertaking requires funds for two purposes: -

To create productive capacities through purchase of fixed assets, etc.

To finance current assets required for day to day running of the

business.

Working capital refers to the funds invested in current assets i.e., investment in stock,

sundry debtors, cash and current assets. Current assets are essential to use fixed assets

profitably. For example a machine cannot be used without providing necessary raw

materials.

It is obvious that a certain amount of funds is always tied up in raw material

inventories working progress, finished goods, consumable stores, sundry debtors and

day-to-day cash requirements. However, the business also enjoys credit facilities from

his suppliers who may give the raw materials on credit. Similarly a businessman may

not pay immediately for various expenses. But labours are paid periodically.

Therefore certain amount of funds is automatically available to finance the current

assets requirements. However, the requirements for current assets are usually greater

than the amount of funds available through current liabilities. In other words, the

current assets are to be kept at higher level than the current liabilities. This difference

is known as working capital.

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1.2 Definition

There is no universally accepted definition for working capital. The financiers,

accountants, businessmen and economist are giving different explanations for

working capital. The working capital is called as circulating capital or revolving

capital. In general working capital denotes the current assets. Following are some of

the definitions of working capital:

In the words of Shubin, “Working capital is the amount of funds necessary to cover

the cost of operating the enterprise”.

According to Genestenberg, “Circulating capital means current assets of a company

that are changed in the ordinary course of business from one form to another, as for

example, from cash to inventories, inventories to receivables, receivables into cash”.

According to J.S. Mill, “The sum of the current assets is the working capital of a

business”.

Normally working capital means current assets minus current liabilities. The working

capital may be positive or negative.

1.3 Concepts THERE ARE TWO CONCEPTS OF WORKING CAPITAL:

1. Gross working capital.

2. Net working capital.

The gross working capital is the capital invested in total current assets of the

enterprise. Current assets are those assets, which in the ordinary course of business

can be converted into cash within a short period of normally one accounting year.

Net working capital is the excess of current assets over current liabilities, or say:

Net working capital = Current assets – Current liabilities

Advantages of adequate working capital The firm will be able to proceed with uninterrupted flow of production.

The company can be able to make prompt payments which help in creating

and maintaining goodwill.

Loan facilities are easily available.

It avails cash discounts on the purchases and hence it reduces costs.

Regular supply of raw materials.

Regular payment of salaries, wages and other day-to-day commitments

Exploitation of favorable market conditions

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Ability to face crisis

Quick and regular return on investments

High morale

Disadvantages of adequate working capital

It results in unnecessary accumulation of inventories.

Excessive working capital implies excessive debtors and defective credit

policy which may cause higher incidence of bad debts.

It may result into overall inefficiency in the organization

The business cannot earn a proper rate of return on investments

Due to the lower rate of return on investments, the value of shares may also

fall

Disadvantages of inadequate working capital

A concern, which has inadequate working capital, cannot pay its short-term

liabilities in time.

It cannot buy its requirements in bulk and cannot avail of discounts

It becomes difficult for the firm to exploit favorable market conditions

The firm cannot pay day-to-day expenses of its operations and it creates

inefficiencies, increases costs and reduces the profits of the business

It becomes impossible to utilize efficiently the fixed assets due to non-

availability of liquid funds

2.1 OBJECTIVE OF THE STUDY

Since working capital management is one of the most important aspects of finance, it

enables to study in-depth the methods involved in it; so that as a student of finance it

gives me a chance to study the financial perspectives of the industry. It offers scope to

understand various aspects of finance and all these aspects are reflected in this report.

The estimation of required working capital differs from organization to organization.

So doing this project in an industry will help in knowing more about the working

capital, its preparation and execution.

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The study has the following objectives:-

To see whether the working capital in “TI CYCLES OF INDIA LIMITED” is

an effective one.

To find out the extent of the need and adequacy of the working capital of the

firm.

To evaluate or analyze the organizational financial discipline and fiscal

soundness.

To find out the variance attained in related to projected and actual figure.

To see the liquidity position of the company.

To see the changes in the working capital.

To see the components of working capital is properly maintained.

To determine the requirements of working capital.

2.2 METHOD OF DATA COLLECTION

The collection is the process of enumeration together with the proper recording

of results. The success of an enquiry is based up on the proper collection of data. The

data may be classified as primary and secondary.

Primary Data:

Primary data are those, which are collected for the first time, and they are original

in character. This study covers the enquiry regarding the inventory data. Under this

research the data collected personally.

Secondary Data:

Secondary data are those that are already collected by someone for some purpose

and are available for the present study. The covers various sources of secondary data

including published and unpublished sources like news papers, published books,

magazines etc…,

2.3 STATEMENT OF THE PROBLEM The need for the working capital cannot be over emphasized. Every business needs

some amount of working capital. The need for working capital arises due to the time

gap between production and realization of cash from sales. Thus, in general working

capital is needed for the following purposes:

1. For the purchase of raw materials, components and spares.

2. To pay wages and salaries.

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3. To incur day-to-day expenses and overhead costs such as fuel, power,

office expenses, etc.

4. To meet the selling costs as packing, advertising, etc.

5. To provide credit facilities to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores and

spares and finished stock.

2.4 REVIEW OF RELATED LITERATURE

Working Capital Cycle Cash flows in a cycle into, around and out of a business. It is the business life blood

and every manager's primary task is to help keep it flowing and to use the cash flow to

generate profits. If a business is operating profitably, then it should, in theory,

generate cash surpluses. If it doesn't generate surpluses, the business will eventually

run out of cash and expire.

The faster a business expands the more cash it will need for working capital and

investment. The cheapest and best sources of cash exist as working capital right

within business. Good management of working capital will generate cash will help

improve profits and reduce risks. Bear in mind that the cost of providing credit to

customers and holding stocks can represent a substantial proportion of a firm's total

profits.

There are two elements in the business cycle that absorb cash –

Inventory (stocks and work-in-progress)

Receivables (debtors owing you money).

The main sources of cash are Payables (your creditors) and Equity and Loans.

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Each component of working capital (namely inventory, receivables and payables) has

two dimensions ........ TIME ......... and ……..MONEY. When it comes to managing

working capital - TIME IS MONEY. If you can get money to move faster around the

cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of

money tied up (e.g. reduce inventory levels relative to sales), the business will

generate more cash or it will need to borrow less money to fund working capital. As a

consequence, you could reduce the cost of bank interest or you'll have additional free

money available to support additional sales growth or investment. Similarly, if you

can negotiate improved terms with suppliers e.g. get longer credit or an increased

credit limit; you effectively create free finance to help fund future sales.

If you ....... Then ...... • Collect receivables (debtors)

faster You release cash from the cycle

• Collect receivables (debtors) slower

Your receivables soak up cash

• Get better credit (in terms of duration or amount) from suppliers

You increase your cash resources

• Shift inventory (stocks) faster

You free up cash

• Move inventory (stocks) slower

You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant,

vehicles etc. If you do pay cash, remember that this is no longer available for working

capital. Therefore, if cash is tight, consider other ways of financing capital investment

- loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these

are cash outflows and, like water flowing downs a plug hole, they remove liquidity

from the business.

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More businesses fail for lack of cash than for want of profit.

Factors determining working capital

1. Production policies:

The production policies pursued by the management have a significant effect

on the requirement of working capital of the business. The decision about the

management regarding automation, etc. will also have its effect on working

capital. On case of labour intensive industries the working capital

requirements will be more. While in the case of highly automatic plant the

requirement of long term funds will be more.

2. Nature of the business:

Working capital also depends upon the nature of the business. Public utility

concerns like railway, electricity etc. have a very little need of working capital

since most of their transaction are on cash basis. On the other hand ordinary

manufacturing and trading concerns require sufficient working capital, since

they have to invest substantially in inventories and debtors.

3. Length of manufacturing process:

Longer the manufacturing process the higher will be the requirement of

working capital and vice versa.

4. Credit policy:

A company which allows liberal credit to its customers may have higher sales

but will need more working capital. A concern that purchases its requirements

on credit and sells its products/services on cash requires less amount of

working capital.

5. Rapidity of turnover:

A company having high rate of turnover will need lower amount of working

capital as compared to a company which has a lower turnover.

6. Seasonal fluctuations:

In case of seasonal industries like sugar and woolen textiles, their working

capital required during the particular season will be higher than other periods.

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7. Price level changes:

Changes in the price level also affect the working capital requirements.

Generally, the rising prices will require the firm to maintain larger amount of

working capital as more funds will be required to maintain the same current

assets. The effect of rising prices may be different for different firms. Some

firms may be affected much while some others may not be affected at all by

the rise in prices.

8. Other factors:

Certain other factors such as operating efficiency, management ability,

irregularities of supply, import policy, asset structure, importance of labour,

banking facilities, etc. also influences the requirements of working capital.

Management of working capital

Working capital management in general refers to the administration of all

aspect of current assets viz. cash, marketable securities, debtors and stock and

current liabilities. Working capital management policies have a great effect on

firms profitability, liquidity and its structural health.

In order to achieve this objective the financial manager has to perform

basically following two functions:

(a) Estimating the amount of working capital.

(b) Sources from which these funds have to be raised.

Estimating the amount of working capital:

Following are the various techniques for assessments of a firm’s working

capital requirement:

(i) Estimation of components of working capital method:

An assessment of working capital requirement can be made by

estimating the amount of different constituents of working capital e.g.,

Inventories, account receivables, cash and account payables.

(ii) Percent of sales method:

This is a traditional method of estimating the working capital

requirements. According to this method on the basis of past experience

between sales and working capital requirement, a ration can be

determined for estimating the working capital requirement in future.

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(iii) Operating cycle approach:

In the case of a manufacturing company the operating cycle is the

length of time necessary to complete the following cycle of events:

(I) Conversion of cash into raw materials

(II) Conversion of raw materials into work in process

(III) Conversion of work in process into finished goods

(IV) Conversion of finished goods into account receivable

(V) Conversion of account receivable into cash

Operating cycle of a manufacturing concern

(b) Sources from which these funds have to be raised.

Following are the various sources of working capital:

LONG TERM

SOURCES

SHORT TERM

SOURCES

SPONTANEOUS SOURCES

Shares

Debentures

Long term loans

Retained earnings

Trade credits

Outstanding

expenses

Bank loans

Commercial paper

Factoring public

Deposits

Sources of Additional Working Capital Sources of additional working capital include the following:

Debtors (Receivables)

Cash

Raw materials Work in process

Finished goods

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• Existing cash reserves.

• Profits (when you secure it as cash!).

• Payables (credit from suppliers).

• New equity or loans from shareholders.

• Bank overdrafts or lines of credit.

• Long-term loans.

If you have insufficient working capital and try to increase sales, you can easily over-

stretch the financial resources of the business. This is called overtrading.

Early warning signs include:

• Pressure on existing cash.

• Exceptional cash generating activities e.g. offering high discounts for early

cash payment.

• Bank overdraft exceeds authorized limit.

• Seeking greater overdrafts or lines of credit.

• Part-paying suppliers or other creditors.

• Paying bills in cash to secure additional supplies.

• Management pre-occupation with surviving rather than managing.

• Frequent short-term emergency requests to the bank (to help pay wages,

pending receipt of a cheque).

All these indicate that proper estimation of working capital requirement is a must for

running the business efficiently and profitability. Therefore the study on working

capital management in a company like “TI CYCLES OF INDIA LIMITED” has its

own importance. This project is mainly based on a study on working capital

management of “TI CYCLES OF INDIA LIMITED”.

Classification or kinds of working capital

Working capital may be classified in two ways:

(a) On the basis of concept

(b) On the basis of time

On the basis of concept, working capital is classified as gross working capital

and net working capital. This classification is important from the point of view

of the finance manager.

On the basis of time, working capital may be classified as:

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• Permanent or fixed working capital

• Temporary or variable working capital

Permanent or fixed working capital:

It is the minimum amount which is required to ensure effective utilization

of fixed facilities and for maintaining the circulation of current assets. For

example, every firm has to maintain a minimum level of raw materials, work-in-

process, finished goods and cash balance. As the business grows, the requirements

of permanent working capital also increase due to the increase in current assets.

The permanent working capital can be further classified into:

Regular working capital

Reserve working capital

• Temporary or variable working capital:

It is the amount of working capital which is required to meet the seasonal

demands and some special exigencies. It can be further classified into:

Seasonal working capital

Special working capital

Components of working capital

1. Handling Receivables (Debtors):

Cash flow can be significantly enhanced if the amounts owing to a business are

collected faster. Every business needs to know.... who owes the money.... how much

is owed.... how long it is owing.... for what it is owed.

Slow payment has a crippling effect on business; in particular on small businesses

who can least afford it. If you don't manage debtors, they will begin to manage

your business as you will gradually lose control due to reduced cash flow and, of

course, you could experience an increased incidence of bad debt.

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets

the priority it deserves.

2. Establish clear credit practices as a matter of company policy.

3. Make sure that these practices are clearly understood by staff, suppliers and

customers.

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4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit

agencies, bank references, industry sources etc.

6. Establish credit limits for each customer... and stick to them.

7. Continuously review these limits when you suspect tough times are coming or

if operating in a volatile sector.

8. Keep very close to your larger customers.

9. Invoice promptly and clearly.

10. Consider charging penalties on overdue accounts.

11. Consider accepting credit /debit cards as a payment option.

12. Monitor your debtor balances and ageing schedules, and don't let any debts get

too large or too old.

Recognize that the longer someone owes you, the greater the chance you will never

get paid. If the average age of your debtors is getting longer, or is already very long,

you may need to look for the following possible defects:

• Weak credit judgement.

• Poor collection procedures.

• Lax enforcement of credit terms.

• Slow issue of invoices or statements.

• Errors in invoices or statements.

• Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally

demand immediate attention. Look for the warning signs of a future bad debt. For

example.........

• Longer credit terms taken with approval, particularly for smaller orders.

• Use of post-dated checks by debtors who normally settle within agreed terms.

• Evidence of customers switching to additional suppliers for the same goods.

• New customers who are reluctant to give credit references.

• Receiving part payments from debtors.

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The act of collecting money is one which most people dislike for many reasons and

therefore put on the long finger because they convince themselves there is something

more urgent or important that demands their attention now.

There is nothing more important than getting paid for your product or service. A

customer who does not pay is not a customer. Here are a few ideas that may help

you in collecting money from debtors:

• Develop appropriate procedures for handling late payments.

• Track and pursue late payers.

• Get external help if your own efforts fail.

• Don't feel guilty asking for money.... its yours and you are entitled to it.

• Make that call now. And keep asking until you get some satisfaction.

• In difficult circumstances, take what you can now and agree terms for the

remainder. It lessens the problem.

• When asking for your money, be hard on the issue - but soft on the person.

Don't give the debtor any excuses for not paying.

• Make it your objective is to get the money - not to score points or get even.

2. Managing Payables (Creditors):

Creditors are a vital part of effective cash management and should be managed

carefully to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create

liquidity problems.

Consider the following:

• Who authorizes purchasing in your company - is it tightly managed or spread

among a number of (junior) people?

• Are purchase quantities geared to demand forecasts?

• Do you use order quantities which take account of stock-holding and

purchasing costs?

• Do you know the cost to the company of carrying stock?

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• Do you have alternative sources of supply? If not, get quotes from major

suppliers and shop around for the best discounts, credit terms, and reduce

dependence on a single supplier.

• How many of your suppliers have a returns policy?

• Are you in a position to pass on cost increases quickly through price increases

to your customers?

• If a supplier of goods or services lets you down can you charge back the cost

of the delay?

• Can you arrange (with confidence!) to have delivery of supplies staggered or

on a just-in-time basis?

There is an old adage in business that “if you can buy well then you can sell well.”

Management of your creditors and suppliers is just as important as the management of

your debtors. It is important to look after your creditors - slow payment by you may

create ill-feeling and can signal that your company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to enhance the

future viability and profitability of your company.

3. Inventory Management:

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on

the cash resources of a business. Insufficient stocks can result in lost sales, delays for

customers etc.

The key is to know how quickly your overall stock is moving or, put another way,

how long each item of stock sit on shelves before being sold. Obviously, average

stock-holding periods will be influenced by the nature of the business. For example, a

fresh vegetable shop might turn over its entire stock every few days while a motor

factor would be much slower as it may carry a wide range of rarely-used spare parts in

case somebody needs them.

Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby

all the components to be assembled on a particular today, arrive at the factory early

that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT

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stocks take up little space, minimize stock-holding and virtually eliminate the risks of

obsolete or damaged stock. Because JIT manufacturers hold stock for a very short

time, they are able to conserve substantial cash. JIT is a good model to strive for as it

embraces all the principles of prudent stock management.

The key issue for a business is to identify the fast and slow stock movers with the

objectives of establishing optimum stock levels for each category and, thereby,

minimize the cash tied up in stocks. Factors to be considered when determining

optimum stock levels include:

• What are the projected sales of each product?

• How widely available are raw materials, components etc.?

• How long does it take for delivery by suppliers?

• Can you remove slow movers from your product range without

compromising best sellers?

Remember that stock sitting on shelves for long periods of time ties up money which

is not working for you. For better stock control, try the following:

• Review the effectiveness of existing purchasing and inventory systems.

• Know the stock turn for all major items of inventory.

• Apply tight controls to the significant few items and simplify controls for the

trivial many.

• Sell off outdated or slow moving merchandise - it gets more difficult to sell

the longer you keep it.

• Consider having part of your product outsourced to another manufacturer

rather than make it yourself.

• Review your security procedures to ensure that no stock "is going out the back

door !"

Higher than necessary stock levels tie up cash and cost more in insurance,

accommodation costs and interest charges.

2.5 LIMITATIONS OF THE STUDY

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Working capital management is an effective tool for management control. The

following is the limitation which I observed in “TI CYCLES OF INDIA LIMITED”.

Since the report is exclusively made from secondary source of data, the direct

observation is literally impossible.

There was no scope for gathering sufficient financial information as it is

confidential.

During the time allotted for the project the internal audit is going on and they

could not spare much time for the detailed discussion on the subject.

They themselves have not maintained the data so accurately but seem to be

sufficient for the project.

These limitations were mainly due to the organizational setup of the company. The

company’s Corporate Office is located at Parrys, where all the data are available; but

it is accessible to me.

3.1 INDUSTRY PROFILE

ABOUT BICYCLE A bicycle, or bike, is a pedal-driven land vehicle with two wheels attached to

a frame, one behind the other. First introduced in 19th-century Europe, bicycles

evolved quickly into their familiar, current design. Numbering over 1,000,000,000 in

the world today, bicycles provide the principal means of transportation in many

regions and a popular form of recreational transport in others. To distinguish a bicycle

from a motorcycle, it is also called a push-bike.

The bicycle is one of the most notable of human inventions. The basic shape

and configuration of the frame, wheels, pedals, saddle and handlebars has hardly

changed since the first chain-driven model was developed around 1885, although

many important detail improvements have been made since, especially in recent years

using modern materials and computer-aided design.

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A remarkable aspect of the bicycle is its widespread adoption in many different

fields of human activity, e.g. as a Child's toy, in adult recreation and fitness, as a

means of everyday transport, in cyclo-touring, as a basis of cycle sport (branches:

track, off-road or MTB, downhill, cyclo-cross, time trialing, road racing, cycle

speedway, cycle polo, BMX), and as a basis for static gymnasium or home fitness

versions.

A human being traveling on a bicycle at low to medium speeds of around 10-

15 mph (16-24 kph), using only the energy required to walk, is the most energy-

efficient means of transport generally available. Air drag, which increases with the

square of speed, requires increasingly higher power outputs relative to speed. A

bicycle in which the rider lies in a prone position and which may be covered in an

aerodynamic fairing to achieve very low air drag is referred to as a Recumbent bicycle

or Human Powered Vehicle.

The bicycle has affected history considerably in both the cultural and industrial

realms. In its early years, bicycle construction drew on pre-existing technologies;

more recently, bicycle technology has contributed, in turn, to other, newer areas.

Beyond recreation and transportation, bicycles have been adapted for use in many

occupations, including the military, local policing, courier services, and sports. A

recurrent theme in bicycling has been the tension between bicyclists and drivers of

motor vehicles, each group arguing for its fair share of the world's roadways.

The History of Bicycle Industry

THE STORY No single time or person can be identified with the invention of the bicycle. Its

earliest known forebears were called velocipedes, and included many types of human-

powered vehicles. One of these, the scooter-like dandy horse of the French Comte de

Sivrac, dating to 1790, was long cited as the earliest bicycle. Most bicycle historians

now believe that these hobby-horses with no steering mechanism probably never

existed, but were made up by Louis Baudry de Saunier, a 19th-century French bicycle

historian.

The most likely originator of the bicycle is German Baron Karl von Drais, who

rode his 1817 machine while collecting taxes from his tenants. He patented his

draisine, a number of which still exist, including one at the Paleis het Loo museum in

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Apeldoorn, the Netherlands. These were pushbikes, powered by the action of the

rider's feet pushing against the ground.

Scottish blacksmith Kirkpatrick MacMillan shares creative credit with von Drais

for adding a treadle drive mechanism, in1840, that enabled the rider to lift his feet off

the ground while driving the rear wheel. However, some reports describe MacMillan's

vehicle as more of a "quadricycle".

In the 1850s and 1860s, Frenchman Ernest Michaux and his pupil Pierre Lallement

took bicycle design in a different direction, placing pedals on an enlarged front wheel.

Their creation, which came to be called the "Boneshaker", featured a heavy steel

frame on which they mounted wooden wheels with iron tires. Lallement emigrated to

America, where he recorded a patent on his bicycle in 1866 in New Haven,

Connecticut. The Boneshaker was further refined by James Starley in the 1870s.

He mounted the seat more squarely over the pedals, so that the rider could

push more firmly, and further enlarged the front wheel to increase the potential for

speed. With tires of solid rubber, his machine became known as the ordinary. British

cyclists likened the disparity in size of the two wheels to their coinage, nicknaming it

the penny-farthing. The primitive bicycles of this generation were difficult to ride, and

the high seat and poor weight distribution made for dangerous falls.

The subsequent dwarf ordinary addressed some of these faults, by adding

gearing, reducing the front wheel diameter, and setting the seat further back with no

loss of speed. Having to both pedal and steer via the front wheel remained a problem.

Starley's nephew, J. K. Starley, J. H. Lawson, and Shergold solved this problem by

introducing the chain and producing rear-wheel drive. These models were known as

dwarf safeties, or safety bicycles, for their lower seat height and better weight

distribution. Starley's 1885 Rover is usually described as the first recognizably

modern bicycle. Soon the seat tube was added, creating the double-triangle, diamond

frame of the modern bike.

While the Starley design was much safer, the return to smaller wheels made for

a bumpy ride. The next innovations increased comfort and ushered in the 1890s

Golden Age of Bicycles. In 1888 Scotsman John Boyd Dunlop introduced the

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pneumatic tire, which soon became universal. Shortly thereafter the rear freewheel

was developed, enabling the rider to coast without the pedals spinning out of control.

This refinement led to the 1898 invention of coaster brakes. Derailleur gears and

hand-operated, cable-pull brakes were also developed during these years, but were

only slowly adopted by casual riders. By the turn of the century, bicycling clubs

flourished on both sides of the Atlantic, and touring and racing were soon the rage.

Successful early bicycle manufacturers included Englishman Frank Bowden

and German builder Ignaz Schwinn. Bowden started the Raleigh Company in

Nottingham in the 1890s, and soon was producing some 30,000 bicycles a year.

Schwinn emigrated to the United States, where he founded his similarly successful

company in Chicago in 1895. Schwinn bicycles soon featured widened tires and

spring-cushioned, padded seats, sacrificing some efficiency for increased comfort.

Facilitated by connections between European nations and their overseas colonies,

European-style bicycles were soon available worldwide.

By the mid-20th century bicycles had become the primary means of

transportation for millions of people around the globe.In many western countries the

use of bicycles levelled off or declined, as motorized transportation became affordable

and car-centered policies led to an increasingly hostile road environment for bicycles.

In North America, bicycle sales declined markedly after 1905, to the point where by

the 1940s, they had largely been relegated to the role of children's toys. In other parts

of the world however, such as China, India, and European countries such as Germany,

Denmark, and the Netherlands, the traditional utility bicycle remained a mainstay of

transportation, its design only gradually changing to incorporate hand-operated brakes

and internal hub gears allowing up to seven speeds. In the Netherlands, such so-called

'granny bikes' have remained popular, and are again in production. Especially in

Amsterdam they are often colourfully painted and/or otherwise decorated.

In North America, increasing consciousness of physical fitness and

environmental preservation spawned a renaissance of bicycling in the late 1960s.

Bicycle sales in the United States boomed, largely in the form of the racing bicycles

long used in such events as the hugely popular Tour de France. Sales were also helped

by a number of technical innovations that were new to the US market, including

higher performance steel alloys and gear sets with an increasing number of gears.

While 10-speeds were the rage in the 1970s, 12-speed designs were introduced in the

24

1980s, and today most bikes feature 18 or more speeds. By the 1980s these newer

designs had driven the three-speed bicycle from the roads. In the late 1980s the

mountain bike became particularly popular, and in the 1990s something of a major

fad.

These task-specific designs led many American recreational cyclists to demand a

more comfortable and practical product. Manufacturers responded with the hybrid

bicycle, which restored many of the features long enjoyed by riders of the time-tested

European utility bikes.

BICYCLE INDUSTRY IN INDIA

INDUSTRY SCENARIO 4 major manufacturers – Hero, TICI, Atlas and Avon

Industry Capacity – 119 lacs Cycles p.a. (as on 2004)

Industry Capacity Utilization – 89 per cent (as on 2004)

Industry Penetration – 45 per cent (as on 2004)

Concentration of component suppliers at Ludhiana / Delhi

MAJOR PLAYERS (As on 2004) COMPANY VOLUME (LAC NOS.) MARKETSHARE

(%)

HERO 53.85 45%

TI 28.83 24%

ATLAS 28.30 24%

OTHERS 7.68 6%

India is the second largest maker of bicycles in the world. Around 9 million bicycles

(valued at Rs.1500 Crore) are produced each year. Ludiana has been the prime source

of components fir the cycle industry in India. Recently, Vendor bases have come up in

other parts of the country thereby diluting the geographical risk.

25

Cycles can be classified into two segments-standards and specials. There are four

major players-Hero Cycles, TI Cycles, Atlas Cycles and Avon Cycles. With changing

environment, the market for standards for standard bicycles has become highly price

sensitive allowing small players to take aggressive price postures. The special

category bicycles are more differentiated by design and finds markets in kids, students

and youth, for fitness and leisure.

The bicycle industry in India has witnessed a continuous downward trend in

demand over the last three years. In 2004-2005, there was 7 percent drop in volume

over the previous year. Increased urbanization, improved public transport systems,

increased affordability of motorized vehicles and limited road-space for bicycles

(there is complete absence of “Cycles only” lanes even in most congested and

polluted cities) are said to be some of the causes for the down turn. However, the

bicycle is still the first vehicle for most children and there is growing use of bicycles

as health and leisure products.

3.2 COMPANY PROFILE

MURUGAPPA GROUP

The Murugappa Group, headquartered in Chennai, India, is a $1.5-billion

conglomerate with interests in engineering, abrasives, sanitaryware, fertilisers,

finance, bio-products and plantations. It has 29 companies under its umbrella, of

which eight are listed and actively traded on the National Stock Exchange and the

Bombay Stock Exchange. Together, they have over 28,000 employees.

The business has its origins in 1900, when Dewan Bahadur A M Murugappa

Chettiar established a money-lending and banking business in Burma (now

Myanmar), which then spread to Malaysia, Sri Lanka, Indonesia and Vietnam. A

century down the line, it has withstood enormous vicissitudes (including strategically

moving its assets back to India and restarting from scratch in the '30s, before the

Japanese invasion in World War II) to become one of the country's biggest industrial

houses. The group turnover crossed the $ 1 billion mark in 2003-04, with an

impressive growth of 25% Rs 42,060 million in 2002-03. The group clocked a 40 per

cent jump in profit before tax over the previous year. Murugappa Group's

26

consolidated turnover for 2004-05 crossed $1.44 billion. The Group achieved a

growth of 20 per cent over the previous year.

The group is a market leader in India across a spectrum of products like

sanitaryware, fertilisers, abrasives, automotive chains, car door frames and steel tubes.

Neemazal, a neem-based organic pesticide, is the market leader in bio-pesticides.

Some of the country's best-known brands like BSA and Hercules in bicycles,

Parryware in sanitaryware, Parrys Spirulina and Parrys Beta Carotene in

nutraceuticals, Ballmaster and Ajax in abrasives, Gromor and Paramfos in fertilisers,

and many more come from the Murugappa Group.

The Murugappa Group has 29 companies active in the areas of engineering,

abrasives, sanitaryware, fertilisers, finance, bio-products and plantations. The major

companies of the group are:

Carborundum Universal Limited

Cholamandalam Investment and Finance Company Limited

Coromandel Fertilisers Limited

EID Parry India Limited

Godavari Fertilisers Limited

Parry Agro Industries Limited

Parry Nutraceuticals Limited

Tube Investments of India Limited

NAME OF THE COMPANY

% OF TURNOVER

TII 28% EIDP 34% CFL 16% CUMI 8%

OTHERS 14%

27

TUBE INVESTMENTS OF INDIA LIMITED

A Reputed Engineering Company in India, driving excellence in work and part of the

US $ 1.5 billion Indian conglomerate - The Murugappa Group.

CORPORATE CHRONICLE

Incorporated in 1949 – TI Cycles of India (TICI) in collaboration with TI, UK,

the world’s largest manufacturer of bicycles.

Tube Products of India (TPI) was established in 1955 with the objective of

providing backward integration to bicycles.

TPI merged with TICI in 1959. Name of the company changed to Tube

Investments of India Ltd.

TPI established a Cold Rolling Mill in 1962 for the production of Cold Rolled

close annealed steel strip.

TPI established EOU at Avadi in 1996.

Tube Plant commissioned in 1997 at Shirwal, Maharashtra.

Facilities to produce doorframes for Maruti 800 cc and Hyundai Santro in

1998.

Cycle plant at Nasik set up in 2001.

Tube Investments of India Limited is the flagship Company of Rs. 6250 cr.

Murugappa Group. It manufactures precision steel tubes and strips, car doorframes,

automotive and industrial chains and bicycles.

• TI is the market leader in precision tubes with 61 percent market share by

virtue of its quality and application engineering capabilities.

28

• TI is the market leader in roll formed car doorframes with 57 percent market

share by virtue of its cost efficiency, association with key auto majors and roll

forming capabilities.

• TI is a leading player in automotive chain with 35 percent market share by

virtue of its quality, cost and delivery and association with two wheeler

majors.

• TI is a leading player in bicycle segment with 30 percent market share by

virtue of its brand equity, product development capability and proximity to the

markets.

The Company also has an interest in the services sector through its investments in

Cholamandalam Investment and Finance Company Ltd. and Cholamandalam MS

General Insurance Co. Ltd.

Tube Investments of India Limited was one of the most important post-

Independence forays of the Murugappa Group into manufacturing. It was a niche the

group identified as a trump card for a nascent nation; making the poor man's vehicle,

the bicycle. It was originally founded as TI Cycles of India, in 1949. Group

companies Tube Products of India and TI Miller – which manufactured cycle lamps

and dynamo sets – were merged with the company in 1959 and 1984, respectively.

TII is the second-largest manufacturer of bicycles in India, marketing top

brands like Hercules, BSA and Philips, and had a market share of 31 per cent in 2003-

04. In the value-added special segment, TI is the leader, with a 50 per cent market

share. More recently, the company entered the promising health conscious 'exercise

bicycle' segment in 2002-03. TI Cycles of India, one of the leading bicycle

manufacturers in India, started in 1949, has been at the forefront of innovations and is

a pioneer in the market of cycles. TI cycles are the makers of country’s most famous

brands like Hercules, BSA and Philips cycles. The company’s vision is to be a

worldwide leader in cycling and cycling solutions by “instilling the pride of

ownership in the customers”.

29

Brands:

- The flag ship brand of TI cycles portfolio, this brand of ours is still

as young as ever. Hercules stands for a unique pride of possession - anchored in the

time-tested values of heroism and integrity, to which the brand’s customers subscribe

in their own lives.

- Another Flagship Brand of TI cycles, BSA stands for Birmingham Small

Arms. It signifies the joy of cycling; fun and comfort go hand in hand with BSA. BSA

today is an intrinsic part of the Indian family with cycles for everyone - kids, teens

and adults.

Certificates: Certified with ISO 9002 and ISO 14001.

Exports: TI Cycles is an exporter to many regions across the global - Europe, South

East Asia and Africa; being some of them.

Locations: Chennai (Corporate HO), Nashik, Noida, Durgapur, Bangalore, Kolkatta,

Patna and Ludhiana.

A subsidiary, Tube Products of India was set up in 1955 in collaboration with Tube

Products (Oldbury) Ltd, UK, to produce electric resistance welded (ERW), cold

drawn welded (CDW) tubes and drawn over mandrel (DOM) tubes. In 1957, Tube

Investments of India started production of cold-rolled close annealed steel strips, in

collaboration with TI, UK, primarily to meet in-house and group requirements.

Another subsidiary, TI Metal Forming, is a pioneer in cold roll forming. It

manufactures and supplies value-added metal formed components like car door

frames, sash / division channels, door guide rails, window frames, side impact beams,

rail and bar assembly. It has plants in in Chennai and Bawal (near Gurgaon). Both

plants are QS 9000 certified. The Chennai plant is ISO 14001 certified.

TIDC INDIA formerly known as TI Diamond Chain Ltd, was established in 1960 in

collaboration with the Diamond Chain Co, USA. Starting as a maker of bicycle

chains, it now makes over 1,000 varieties of chains — in Industrial chains TIDC

produces from tiller chains, leaf chains and conveyor chains to industrial power drive

30

chains, engineering class chains; in automotive TIDC produces motorcycle drive

chains and engine mechanism chains and fine blank parts . Annually production runs

to 45 million ESS feet, and commands 40 per cent of the domestic market share. The

company is known for developing high performance chains, for specific applications

and machinery. Some of TIDC's popular brands are Diamond and Xtron. TIDC

exports to over 50 countries worldwide.

Units

T.I.CYCLES OF INDIA

TUBE PRODUCTS OF INDIA

T.I.METAL METAL FORMING OF INDIA

Associate Company

T.I.DIAMOND CHAIN LTD

TII – Business Portfolio

BUSINESS (%) TURNOVER

Cycle 41%

Engineering 56%

Metal Forming 3%

3.3 PRODUCT PROFILE

TUBE INVESTMENT CYCLES OF INDIA, is one of the largest integrated cycle

manufacturers in Asia, manufactures high quality bicycles for both domestic and

international market.

TI cycles manufactures and market the HERCULES, PHILIPS and BSA brands.

31

BSA brand include:-

BSA Deluxe

BSA Mach

BSA Diana

BSA Fairy

BSA Crusader

BSA Cuberbibe

BSA Streetcat

BSA Mangoose

Rock “N” Roll

BSA Trialblazer

BSA Holiday

BSA Champtt

BSA Champ

BSA Champ SR,

BSA Ace

BSA Boost

BSA Dinosaur

BSA Basooka

BSA Zipcat

BSA Snowhite

BSA Scoobee

BSA Ladybird

BSA Sinderllam

BSA SLR Photon

BSA Perz.

HERCULES brand include:-

Hercules Popular

Hercules Captain

Hercules Commander

Hercules MTB Y Bike

Hercules Top Gear 5 SPD,

Hercules Top Fear Y Series

Hercules MTB DX,

32

Hercules Cannon Barrel

Hercules AXN.

The latest introductions from TI cycles are five to eighteen geared bicycles. They are:-

• Hercules Top Gear

• Hercules EZY

IN THE YEAR ’05, THE COMPANY HAS INTRODUCED 32 NEW MODELS

AND INCOME FROM NEW PRODUCTS ACCOUNTED FOR 36 PERCENT

OF TURNOVER.

Health segment

BSA Trimgym

BSA Trimgym Jogger & BSA Trimgym Stepper

3.4 ORGANISATION STRUCTURE

Head-Business

Exports

Operations Sales & Marketing

Design Shared Services

Sourcing

Regional Operations

Engg.

Quality

Sales

Brands

Health & Retail

Mktg. Services

Design Team

Support Team

HR

Finance & IT

33

FINANCE DEPARTMENT-STRUCTURE

DGM-FINANCE

MANAGER (Management a/c)

MANAGER

DEPUTY MANAGER-COSTING

DEPUTY MANAGER-MIS

EXECUTIVES PAYABLES

EXECUTIVES-RECEIVABLES

PLANT/REGIONAL ACCOUNTING

34

4.1 BALANCE SHEET ITEMS (Rs. in lakhs)

Past 4 years Description Last year Current

year(Proj.) 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

1. FIXED ASSETS 4931 4096 4259 5183 NET BLOCK (Opening) 5963 5912 501 691 1213 1385 (+) Additions 650 500

(867) (489) 0 0 (-) Deletions 0 0 (469) (425) (674) (605) (-) Depreciation (701) (753) 4096 3873 4798 5963 NET BLOCK (Closing) 5912 5659

2. NET WORKING CAPITAL A. Current Assets

2380 2112 3052 3086 - Inventories 2644 2411 9375 10723 10773 9707 - Receivables 10813 11393 5344 4164 4024 2571 - Other current assets 1959 2010 17099 16999 17849 15364 Total Current Assets 15416 15814 7031 6971 5889 7757 B. Current Liabilities 9618 9980 10068 11960 11960 7607 NET WORKING CAPITAL (A-B) 5798 5834 14164 13902 16758 13570 TOTAL CAPITAL EMPLOYED 11709 11492

Break up of Inventories 992 984 1592 1564 - Raw Materials 1333 1205 326 126 320 190 - Work In Progress 193 209 965 910 1047 1274 - Finished Goods 1059 947 95 93 93 58 - Stores & Spares 59 50

2380 2112 3052 3086 Total Inventory 2644 2411 Source : BUSINESS PLAN 2006 TI CYCLES OF INDIA

35

Changes in the working capital statement for the year ended

2001-2002 (Rs. In lakhs)

Particulars 2001 2002 Increase Decrease

Current

Assets:

- Inventories 2380 2112 268

- Receivables 9375 10723 1348

- Other current assets

5344 4164 1180

A Total 17099 16999 1348 1448

Current liabilities

7031 6971 60

B Total 7031 6971 60

A-B Working Capital

10068 10028 1408 1448

Decrease in the Working Capital

40 40

10068 10068 1448 1448

Working Capital chart 2001-2002:-

Changes in the Working Capital for the year ended 2001-2002

10068

10028

100001001010020100301004010050100601007010080

2001 2002

Working Capital

Inference:

36

The above chart clearly shows the decrease in the working capital for the year

2001 to 2002. All the Current assets except receivables have decreased in year

2002 as compared to year 2001.The end result of the statement of changes in

working capital after comparing all the increases and decreases is the net decrease

in the amount of working capital. The above chart focuses on the fact that the

decrease in working capital is Rs.40 lakhs.


2002-2003 (Rs. In lakhs)


Current

Assets:


- Receivables 10723 10773 50


4164 4024 140

A Total 16999 17849 990 140

Current liabilities

6971 5889 1082

B Total 6971 5889 1082

A-B Working Capital

10028 11960 2072 140

Increase in the Working Capital

1932 1932

11960 11960 2072 2072



10028

11960

9000

9500

10000

10500

11000

11500

12000

12500

2002 2003

Working Capital

37

Inference:

The above chart clearly shows the increase in the working capital for the year

2002 to 2003. All the Current assets except other current assets have increased in

year 2003 as compared to year 2002. The end result of the statement of changes in

working capital after comparing all the increases and decreases is the net increase


increase in working capital is Rs.1932 lakhs.


2003-2004 (Rs. In lakhs)


Current Assets:


- Receivables 10773 9707 1066


4024 2571 1453

A Total 17849 15364 34 2519

Current liabilities

5889 7757 1868

B Total 5889 7757 1868

A-B Working Capital

11960 7607 34 4387


4353 4353

11960 11960 4387 4387



11960

7607

0

2000

4000

6000

8000

10000

12000

14000

2003 2004

Working Capital

38

Inference:


2003 to 2004. All the Current assets except inventories have decreased in year

2004 as compared to year 2003. The end result of the statement of changes in

working capital after comparing all the increases and decreases is the net decrease


decrease in working capital is Rs.4353 lakhs.


2004-2005 (Rs. In lakhs)


Current Assets:


- Receivables 9707 10813 1106


2571 1959 612

A Total 15364 15416 1106 1054

Current liabilities

7757 9618 1861

B Total 7757 9618 1861

A-B Working Capital

7607 5798 1106 2915


1809 1809

7607 7607 2915 2915



7607

5798

010002000300040005000600070008000

2004 2005

Working Capital

39

Inference:


2004 to 2005. All the Current assets except receivables have decreased in 2005 as

compared to year 2004. The end result of the statement of changes in working

capital after comparing all the increases and decreases is the net decrease in the

amount of working capital. The above chart focuses on the fact that the decrease

in working capital is Rs.1809 lakhs.


2005-2006 (Rs. In lakhs)


Current Assets:


- Receivables 10813 11393 580


1959 2010 51

A Total 15416 15814 631 233

Current liabilities

9618 9980 362

B Total 9618 9980 362

A-B Working Capital

5798 5834 631 595


36 36

5834 5834 631 631



5798

5834

5780

5790

5800

5810

5820

5830

5840

2005 2006

Working Capital

Inference:

The above chart clearly shows the increase in the working capital for the year

2005 to 2006 All the Current assets except inventories have increased in 2006 as

40

compared to year 2005. The end result of the statement of changes in working

capital after comparing all the increases and decreases is the net decrease in the

amount of working capital. The above chart focuses on the fact that the decrease

in working capital is Rs.36 lakhs.

4.2 KEY WORKING CAPITAL RATIOS

1. Current Ratio:

Current Ratio = Total current assets / Total current liabilities

Current Assets are assets that can readily turn in to cash or will do so within 12

months in the course of business.

Current Liabilities are amount that are due to pay within the coming 12 months.

For example, 1.5 times means that you should be able to lay your hands on

Rs.1.50 for every Rs.1.00 you owe. Less than 1 times e.g. 0.75 means that you

could have liquidity problems and be under pressure to generate sufficient cash to

meet oncoming demands.

The following table shows the current ratio for the years 2001-2005:

Years Current Assets

(Rs. in lakhs)

Current Liabilities

(Rs. in lakhs)

Current Ratio

2001-2002 17099 7031 2.43 times

2002-2003 16999 6971 2.44 times

2003-2004 17849 5889 3.03 times

2004-2005 15364 7757 1.98 times

2005-2006 15416 9618 1.60 times

Current Ratio chart for the years 2001-05:

2.43 2.44

3.03

1.981.6

0

0.5

1

1.5

2

2.5

3

3.5

No. of times

2001-02 2002-03 2003-04 2004-05 2005-06

Years

Current Ratio

Series1

Inference:

The amount of liabilities is fluctuating for the entire 5 years, where as amount

of assets is not much fluctuating in these periods. The current ratio is high in the

41

year 2003, due to decreased amount in liability. So in that year alone the company

has reduced its borrowings. The ratio is maintained in the couple of first & last

years, which shows that the liquidity problem is avoided by the firm.

2. Quick Ratio:

Quick Ratio = (Total current assets – Inventory) / Total current

liabilities

It is similar to the Current Ratio, but takes into account of the fact that it may take

time to convert inventory into cash.

The following table shows the quick ratio for the years 2001-2005:

(Rs. In lakhs)

Years Current

Assets

Inventory Current

Liabilities

Quick Ratio

2001-2002 17099 2380 7031 2.09 times

2002-2003 16999 2112 6971 2.14 times

2003-2004 17849 3052 5889 2.51 times

2004-2005 15364 3086 7757 1.58 times

2005-2006 15416 2644 9618 1.33 times

Quick Ratio chart for the years 2001-05:

2.09 2.142.51

1.581.33

0

0.5

1

1.5

2

2.5

3

No. of times

2001-02 2002-03 2003-04 2004-05 2005-06

Years

Quick Ratio

Series1

Inference:

42

The chart clearly shows that the last two years stocks are quickly converted in

to cash, when compared to the first three years. This is mainly due to the

implementation of VMI method by the company. The year 2003 is the highest

time taken year to convert stock into cash. This is due to their clearance of the

stock to some extent.

3. Working Capital Turnover Ratio:

Working Capital ratio measures the effective utilization of Working Capital. The ratio

establishes relationship between cost of sales and Working Capital.

Working Capital Turnover Ratio = Sales / Net Working Capital

Where: Net Working Capital = Current Assets – Current Liabilities

The following table shows Working Capital Turnover Ratio for years 2001 to 2005:

Years Sales

(Rs. in

lakhs)

Net Working Capital

(Rs. in lakhs)

Working Capital Turnover

Ratio

2001-2002 45364 10068 4.50 times

2002-2003 45165 11960 3.80 times

2003-2004 48262 11960 4.04 times

2004-2005 55153 7607 7.25 times

2005-2006 48350 5798 8.33 times

Working capital turnover chart 2001-2005:

Inference:

0 1 2 3 4 5 6 7 8 9

No. of times

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

Years

Working Capital Turnover Ratio

Series1

43

In the current year 2005 the higher is the ratio i.e. 8.3 times. It indicates the

lower investment of Working Capital and the company plans to attain more

profits. But in the year 2001 it has a Working Capital of 4.5 times, which indicates

a higher investment of Working Capital. For the years 2002 and 2003 the sales is

comparatively lower than the rest of the years.

FINDINGS

From the past 5 year data, it is very clear that the working capital amount

is fluctuating.

In the company also, they are not taking much care in reducing the

working capital.

The working capital turnover ratio is quite good in the years 2004 and

2005.

The quick ratio is quite good in the last two years.

The sales figure is very much fluctuating due to incompetent marketing

department.

This turnover ratio should be maintained by the company by putting more

efforts in its sales volume.

Last but not the least, the different parts of finance department itself is not

having a very good contact with each other. This doesn’t make a way for

the improvement of the company in the future.

SUGGESTIONS

Inventories constitute a major part of current assets. Thus the company

should take stem action with reducing its inventory. Even though the

company is already equipped with the VMI method, they should try to

implement JIT method also for certain high cost products. This

implementation should be done immediately.

44

A sundry debtor is also a major constituent of current assets. But the

company should reduce the level of debtors, either by collecting money as

advance at in case of Government orders, receive cheques which could be

forfeited.

TI CYCLES OF INDIA LIMITED should take steps to increase the level

of current assets to current liabilities. If this procession could be increased,

TI CYCLES can get more credit from its suppliers, as suppliers look into

the ability of the firm to pay its cash.

The cash level maintained by TI CYCLES is quite weak. But personal

investigation with the staffs revealed that the bank facility will offer the

cushion and would be in a position to repay its contingencies. Additionally

TUBE INVESTMENTS OF INDIA LIMITED also helps them.

TI CYCLES should improve its corporate image for increasing the credit

grant given by the suppliers. This would facilitate TI CYCLES to reduce

the working capital.

BIBLIOGRAPHY

BOOK NAME AUTHOR

NAME

- FINANCIAL MANAGEMENT Shashi K. Gupta

&

R.K. Sharma

- FINANCIAL MANAGEMENT I.M. Pandey

- ACCOUNTING FOR MANAGEMENT T.

Ramachandran

- MANAGEMENT ACCOUNTING R.S.N. Pillai &

Bagavathi

WEBSITE : www.planware.org

Data are collected from Annual Reports of TI CYCLES INDIA LIMITED.

Documents

Working Capital Project Report 1