Working Capital Management at TVS Sundaram Motors

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The report objective is to understand the working capital management practices followed at TVS Sundaram motors. Working capital management is a crucial aspect of business for any organization. The report carries the details of working capital management processes followed by financial analysis of TVS Sundaram motors. The financial analysis includes various tools such as ratio analysis in order to understand and arrive at conclusions regarding the financial position of TVS Sundaram motors. These conclusions are then used to come up with certain strategic recommendations which might help improving the working capital position at TVS Sundaram motors.

The methodology adopted was, first to understand the overall business model of TVS Sundaram motors - the major organizational functions are used as a base upon which we try to fit the existing departments so as to obtain a clear picture at the macro level. Next, we go a level deeper and take a look at the processes used by each of these departments; the finance department in particular is our area of interest. Here we try to see how the accounting function supports the sales and service functions of TVS Sundaram motors. The major activities and their relevance are observed. In the third part of our research we look at the financial numbers of TVS Sundaram motors and do a ratio analysis based on which we arrive at certain conclusions. These conclusions lead to recommendations which would improve upon the working capital management practices followed.

The major findings are related to the various procedures followed and working capital position of the company. We go one step further and try to identify the reasons behind such issues noticed and come up with certain recommendations which would address them. Ratio analysis is the core tool used in order to understand the financials of the company.

ACKNOWLEDGEMENT

 

I am heartily thankful to my manager, Mr.V.Rajaraman, whose encouragement, guidance and support from the initial to the final level enabled me to develop an understanding of the project and its requirements.

Lastly, I offer my regards to all of those who supported me in any respect during the completion of the project.

Balaji S R

Table of Contents

Introduction 12

Product 13

Report Requisites 15

Existing Process 16

Methodology Adopted 18

Observations 22

Demographics 28

Recommendations 49

References 51

List of Figures

Figure 1 16

Figure 2 18

Figure 3 19

Figure 4 19

Figure 5 20

Figure 6 20

Figure 7 20

Figure 8 21

Figure 9 25

Figure 10 28

Figure 11 30

Figure 12 33

Figure 13 37

Figure 14 41

Figure 15 45

Figure 16 48

List of Tables

Table 1 21

Table 2 22

Table 3 30

Table 4 34

Table 5 37

Table 6 39

Table 7 41

Table 8 45

Table9 48

List of Pictures

Picture 1 26

Picture 2 27

Picture 3 27

Picture 4 29

Picture 5 33

Picture 6 36

Picture 7 38

Picture 8 40

Picture 9 43

Picture 10 44

Picture 11 46

Introduction

About the Company

The TVS Group was established in 1911 by Shri. TV Sundaram Iyengar. As one of India's largest industrial entities it epitomizes Trust, Value and Service.

Today, there are over thirty companies in the TVS Group, employing more than 40, 000 people worldwide and with a turnover in excess of USD 2.2 billion.

With steady growth, expansion and diversification, TVS commands a strong presence in manufacturing of two-wheelers, auto components and computer peripherals. It also has vibrant business in the distribution of heavy commercial vehicles passenger cars, finance and insurance.

Products and Services

Being the trading and distribution arm of the group, the business activities of TVS & Sons include Dealerships for Automobile vehicles, Distribution of spares for after - market, Sales & Service support for Garage Equipment, Sales & Service of products for special applications like construction & Material handling and providing customer centric services for car customers under brand 'My TVS'. The Logistics Services of the company has since been hived off as a subsidiary company called 'TVS Logistics Services Limited'.

The global business operations of the company include managing joint- ventures / alliances in Srilanka, Thailand, UK & Europe for automobile distribution / dealership business, Sourcing and supply chain related activities.

Automobile Dealership

TVS & Sons distributes commercial vehicles, Utility & Sports Utility vehicles, Passenger Cars representing various leading automobile vehicle manufacturers such as Ashok Leyland, Daimier Chrysler, General Motors, Honda and Mahindra & Mahindra. The company has more than 100 outlets and sells over 30,000 vehicles and services more than 3,00,000 vehicles per annum being the leading automobile distribution company in India.

Parts distribution

The company is the largest distributors of automobile spare parts in the country, handling more than 80 suppliers and 35, 000 part numbers of franchised parts, agency lines TVS branded parts and so on. It has operation in Tamil Nadu, Kerala, MP & UP and reaches over 3000 retail outlets spread all over these territories. It has modern warehouse supported with state of the art IT infrastructure.

Tools and Garage equipments division

The company also undertakes Sales & Service of Garage Equipments and specializes in installing commissioning and providing complete after sales - service support for critical imported state - of - the art automobile service equipment. All these are imported from various countries from suppliers who are reputed brands abroad.

Special products division

The company has also diversified into Marketing (Sales & Service) products for special application such as Construction & Material handling Equipment, Man lifts, Air Compressors, Bus Air Conditioners etc., representing leading names from India & Overseas in this field and has earned a niche for itself in this category of business. The company has also launched a new avenue of service providing Fork Lift Trucks with trained operators on a monthly lease basis under its unique Own & Operate scheme.

Customer centric business - MyTVS

My TVS is the newest initiative of TVS & Sons to offer customers a branded alternative chain of service network for all brands of cars. Thus, TVS has given birth to a true multi brand independent aftermarket integrated solution for car customers.

Rationale for Study

The purpose of this study is to get a grip on the actual accounting practices followed in organizations, to observe in practice what has been studied in theory. By going through the processes of working capital management at TVS Sundaram motors it is hoped to gain an insight into the workings of the company from the context of its accounting function. The scope of the project has been limited to the finance department and specifically within it to areas concerning the management of working capital - i.e. cash, inventory and receivables and their utilization. Financial statement analysis forms the core part of the study.

Analysis and interpretation of financial statement refers to such a treatment of information containing in the balance sheet and income statement so as to afford full diagnosis of the financial position and profitability of the business enterprises. Financial statement analysis largely depends upon the relationship between various financial factors in a business.

The objective is not only to understand the concepts alone, but rather to observe the processes involved and look for potential areas of improvement. A comparison with ideal case scenarios would help us identify such areas which can then be improved upon. Recommendations would be made keeping in mind these specific areas. Specifically the objectives for this study are:

Problem Statement

1. To analyze working capital management in TVS Sundaram motors limited.

2. To assess the relative significance of various source of working capital.

3. To observe the relationship between working capital and liquidity position of the

company.

4. To find out the impact of working capital on profitability and to suggest potential

areas of improvement.

Literature survey

Working Capital

The accounting principles board of the America Institute of certified public accountants, USA, has defined working capital as follows:

"Working capital, sometimes called net working capital, is represented by the excess of current assets over current liabilities and identifies the relatively liquid portion of total enterprises capital which constitutes a margin or buffer for maturing obligation within the ordinary operating cycle of the business.

The Need

Working capital is required by a firm to sustain its operations in the time gap between sales of goods to receipt of cash. This time gap always arises because sales do not translate into cash instantaneously. There are two major considerations which affect the way working capital is managed. Firstly, the fixed assets of the firm can be put to optimum use only when there is sufficient level of working capital. Secondly, proper management of working capital ensures that it does not cause blockage of scarce resources of the firm. Lack of sufficient working capital can cause hindrances in smooth operation of the firm.

Fixed and Fluctuating working capital

Fixed working capital is the minimum level of working capital required by a firm to carry out its operations effectively. The firm cannot operate below this level irrespective of its level of production or sales. The production and sales volumes of a firm fluctuate with time sometimes increasing and sometimes decreasing, however fixed working capital does not change with these fluctuations. It is the minimum irreducible amount of working capital required to keep the firms current assets in circulation. It is also known as permanent working capital since this working capital is permanently locked up in business.

Fluctuating working capital is the level of working capital that is needed by a firm over and above its permanent working capital. The need for fluctuating working capital arises because of changes in the level of production and sales due to seasonal changes, abnormal conditions or unanticipated demand. Excess working capital is required to support such changes in demand. For example, some additional capital might be required in order to finance a special advertising campaign designed to boost sales in a lean season. This extra working capital needed to support changing business activities is called fluctuating working capital.

Components of Working Capital

The Research Design

Methodology of Study

Data collection was resorted to through secondary sources of data, financial statements of the company, company process documents and general observation.

Data Analysis

Activity Ratios

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize its assets. These ratios are called turnover ratio because they indicate the speed with which assets are being converted or turnover into sales. Activity ratio is thus a relationship between sales and assets.

Working Capital turnover ratio

working_capital_turnover.jpg

Year

Sales

Working Capital

WCTR (times)

2004-05

2005-06

2006-07

2007-08

2008-09

16836.54

21296.81

28344.90

27387.51

33923.12

2797.99

3795.33

9554.71

12192.03

14980.42

6.017

5.611

2.966

2.246

2.264

<Some text here>

Current Asset turnover ratio

Inventory turnover ratio

inventory_turnover.jpg

Year

Cost of goods sold

Average Inventory

ITR (times)

2004-05

2005-06

2006-07

2007-08

2008-09

18891.23

21550.27

22434.67

26574.01

29766.04

3744.37

3081.44

4220.69

6210.06

6651.47

5.045

6.993

5.315

4.279

4.475

<Some text here>

Debtor's turnover ratio

debtors_turnover.jpg

Year

Sales

Sundry Debtors

DTR (times)

2004-05

2005-06

2006-07

2007-08

2008-09

16836.54

21296.81

28344.90

27387.51

33923.12

1660.09

1549.96

1908.45

1881.73

2314.75

10.142

13.74

14.852

14.793

14.655

<Some text here>

Creditor's turnover ratio

creditors_turnover.jpg

Year

Credit purchase

Creditors

CTR (times)

2004-05

2005-06

2006-07

2007-08

2008-09

6234.12

6904.52

9358.75

12391.38

13328.25

1677.55

1781.63

2208.56

2427.52

2545.12

3.717

3.876

4.238

5.105

5.236

<Some text here>

Liquidity Ratios

Current ratio

Liquidity ratio

Absolute liquid ratio

Solvency Ratios

Debt equity ratio

Proprietary ratio

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