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A STUDY ON

THE WORKING CAPITAL MANAGEMENT

IN

VARUN MOTORS PVT. LTD.

(VISAKHAPATNAM)

PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF

DEGREE OF

BACHELOR OF BUSINESS MANAGEMENT

SUBMITTED BY

DIVYA ARDIN

1234110136

UNDER THE ESTEEMED GUIDANCE OF

Dr. K. MANJUSREE NAIDU

GITAM INSTITUTE OF MANAGEMENT

DEPARTMENT OF BACHELORS OF BUSINESS MANAGEMENT

GITAM INSTITUTE OF MANAGEMENT

GITAM UNIVERSITY, VISAKHAPATNAM

(2007-2010)

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ACKNOWLEDGEMENT

I express my deep sense of gratitude to the management of VARUN MOTORS PVT.LTD for

giving me this opportunity to study THE WORKING CAPITAL MANAGMENT in their

esteemed organization.

I extend my heartfelt thanks to Dr. K. MANJUSREE NAIDU, MANAGER, FINANCE

DEPT., VARUN MOTORS PVT. LTD for kindly obliging to my proposal to do my internship

in their prestigious organization.

I take this opportunity to acknowledge my sincere thanks toMr. M.V.K. MURTHY who was

my Project Guide and has been a staunch pillar of support to my data analysis and to all the

employees whose cooperation and valuable guidance helped me to enhance my knowledge in

the subject ofBACKGROUND VERIFICATIONS.

I also would like to express my profound gratitude to PROF .K. SIVARAMAKRISHNA,

principal GITAM INSTITUTE OF MANAGEMENT, GITAM UNIVERSITY for necessary

cooperation extended to me in doing my project work.

With my immense pleasure I would like to express my sincere thanks to my project guide Dr. K.

MANJUSREE NAIDU for giving me this opportunity to successfully complete my project

work.

I would humbly thank the representatives and employees of VARUN MOTORS PVT.LTD and

all those individuals who made this study A GRAND success, giving their support directly and

indirectly.

DIVYA ARDIN

(1234110136)

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EMPLOYEE BACKGROUND VERIFICATION.

CONTENTS

CHAPTER I: CONCEPTUAL FRAMEWORK

CHAPTER II: METHODOLOGY

Need for study of background verification Objectives of background verification

CHAPTER III: KENEXA PROFILE

Industrial profile

Topics profile in kenexa

CHAPTER IV: WORKING CAPITAL MANAGEMENT

CHAPTER V: DETAILED ANLYSIS

CHAPTER V: FINDINGS, SUGGESTIONS & CONCLUSIONS.

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Conceptual

Framework

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Main Subject

The fundamental principle of Working Capital Management is to have the right

amount of money available when needed. The project work is done in regard to the

Working Capital Management of Varun Motors Pvt Ltd (VMPL), Visakhapatnam, an

authorized dealer of Maruti Suziki India Ltd. The company was incorporated in 1996,

under the dynamic leadership of Shri V.Prabhu Kishore. Finance management is

concerned with the planning and controlling of the resources of a business organization.

The purpose of financial management is not only to provide an understanding as to how

funds are raised and how they should be utilized but also to motivate practicing managers

to develop an interest in the corporate activities.

Varun Motors Pvt Ltd enjoys the supremacy on the road in terms of sales,

but more importantly in the realms of customer care. The company has captured

more than 50% of the market share in the four wheeler passenger car

segment. As of current day the organization stands at No.7position at the all India

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level among the 185 dealers in India. The organization being a trading concern, its

success largely lies on the efficient management of its working capital, which is the

life blood of any organization.

Working Capital Management is the management of firm's Current Assets

and Liabilities in such a way that a satisfactory level of working capital is maintained to

run its day to day operations. Investment is one of the prime functions of Finance

Management, investment not only in capital assets, but also in working capital of the

organization. Working capital management's goal is to manage the firm's current assets

and current liabilities in such a way that a satisfactory level of working capital is

maintained. This is so because if the firm cannot maintain a satisfactory level of

working capital, it is likely to become insolvent and may even be forced into

bankruptcy.

The Working Capital Management plays a significant role in the success of the

company, the project study has been carried out on Financial Management of Varun

Motors Pvt Ltd keeping more emphasis on its Working Capital Management.

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Topic Related Concept

U.S.A, U.K, France, Germany, Belgium, Italy and Canada are the pioneers of

automobile industry in the world till middle of last century and the Asian countries use

to import all type of cars from them "Henry Ford" of United States of America is said

to the be the father of Automobile Industry in the world and even now the Ford

company enjoys the privilege of being leader in the Industry with its modern and

improved technologies. The passenger car in India has always been considered a

luxury item. In the past five decades there were just three major players namely

Hindustan Motors, Premier Automobiles and Standard Motors in the field and these

have enjoyed a protected market.

Maruti Suzuki India Ltd (MSIL) made entry into the passenger car market in

February 1981 as a government venture to meet the growing demand of a personal

mode of transport. The Indian Automobile Industry, which had never faced competition

due to policy, protected and closed economy was still slumbering and was slow to react.

The scenario changed after 1991 due to the Government's policy of liberalization of

economic policy and India opened its gates to foreign investors who were seriously

looking for newer markets to prop up the sagging global passenger car market and

within no time the world's leading automobile giants were busy setting up shops in

India. The economy saw a rising contribution from the automobile industry ever since

Maruti began its operations.

The first MNC's to enter Indian market was South Korea's major Daewoo. Its

Ceilo in competition with Maruti Esteem was followed by Peugeot 309, manufactured

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by Premium Automobiles in collaboration with Peugeot of France. Thereafter

Premier had a tie up with Fiat of Italy to launch Fiat-Uno in competition with Maruti

Zen. Mercedes tied up with Telco. General Motors tied up with Hindustan Motors to

bring out Opel Astra; Ford with Mahindra & Mahindra; Mitsubishi with Hindustan

Motors to produce Mitsubishi Lancer. Honda tied up with Hero Motors to make

Honda City. Hyundai entered India through 100% owned subsidy of manufacture.

Hyundai Santro was followed by Telco's own indigenous car Tata Indica. Finally

loyota with its version of Qualis was all set to prop up the sagging global passenger

car market.

This has led to introduction of 30 new model cars in less than 10 years. The

industry has increased its production capacity manifold and the car sales too have

tended to increase since deregulation.

Not only the joint venture with Suzuki of Japan bring about greater mobility

for Indians but ushered in new systems of automated assembly line manufacturing,

just -in-time supply systems, vendor development, new levels of customer services

and the like. It was never realized earlier that the country had so much potential as

may be seen from the fact that Indians are now buying around 7 lakh cars a year .

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Need of the

Study

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The Working Capital Management is an integral part of the overall

financial management. It focuses on the administration of all aspects of Current

Assets, namely cash, marketable securities, Debtors and Stock (Inventories) and

Current Liabilities which have substantial importance in the growth of a business

concern. Working Capital requirements of a firm are influenced by the nature of the

business, size of the business, business fluctuations, production cycle, operating

efficiency, credit policy etc. Trading and financial firms have a very less investment in

fixed assets, but require a large sum of money to be invested in working capital.

Hence this concept has great significance for the trading and financial firms as it is

directly related to the sales growth.

Since Varun is a trading firm, it requires a large sum of money to be invested

in working capital. Being a dealer for Maruti cars, it must carry large stocks of a

variety of cars to satisfy varied and continues demand of their customers. As the firm

deals with both cash and credit sales, there should be an effective management of

cash, accounts receivables which have direct effect on organisation's growth.

Earning a steady amount of profits requires successful sales activity. The firm has to

invest enough funds in current assets for success of sales.

Hence this theme has been chosen for study to find out the scenario of

its Financial Management with particular reference to the "Working Capital

Management" of the company, as it is generally a key factor for the success of the

organization.

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The study is oriented with the following objectives:

(i) To describe the profile of Varun Motors Pvt Ltd ;

(ii) To know the importance of the Working Capital Management, in a dealernetwork, with special reference to Varun Motors Pvt Ltd ;

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Research

Methodology

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The project is proposed to be on the "WORKING CAPITAL

MANAGEMENT" with reference to VARUN MOTORS PVT LTD. The information will be

collected by both primary and secondary data.

Primary Data was collected by interacting with the officials in the primary

department.

Secondary Data information was collected through the automobile magazines &

journals like 'Gateway', Auto India', 'Auto Monitor' etc, websites like

www.marutisuzuki.com and through the company's Annual reports and Financial

reports of Varun Motors.

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Industry

Profile

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MARUTI SUZIKI INDIA LTD.

Maruti Udyog Limited was established in February 1981 as a government

to meet the growing demand of a personal mode of transport caused by the lack of

an efficient public transport system.

Suzuki Motor Company was chosen from seven prospective partners

worldwide. This was not only to due to their undisputed leadership in small cars but

also due to their commitment to actively bring to MUL contemporary technology and

japanese management practices.

A license and joint venture agreement signed between Government of India

and Suzuki Motor Company (now Suzuki Motor Corporation of Japan) in October

1982.

Car market leader Maruti Udyog Limited now has a new name "Maruti Suzuki

India Limited". The company's new name was approved by the Registrar of

Companies yesterday and comes into effect from 17th September 2007.

The company's Board of Directors had approved "Maruti Suzuki India Limited" as the

new name, in July, 2007.

In the new name, "Maruti" continues to have the predominant position.

"Maruti" is one of the strongest corporate brand names in the country, in terms of

awareness, recall, trust and customer care.

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MARUTI SUZUKI INDIA LTD

YEAR SALES

MARKET

SHARE

2005-06 472122 55.7

2006-07 536301 55.1

2007-08 561822 55.6

2008-09 674924 54.8

2009-10 764842 54.6

MARUTI - PRODUCTS:

MSIL manufactures varied range of cars suiting to the budget requirements of

different income groups. These are categorized into three segments as shown in

Table 2.1.Basing on the cost; these categories are treated as economy, semi-luxury &

luxury class of vehicles. The products in Segment - A ranges between Rs. 2.00 2.40

lacks. The products of Segment -B ranges between Rs.2.35 - 3.80 lacs and the

products of Segment C ranges from Rs.4.00 - 6.80 lacs.

MARUTTS SHARE IN INDIAN CAR INDUSTRY :

MUL stands at No.l position despite heavy market competition of other brands

cars which have come on to the Indian roads in recent past due to the generalisation

of government policies. A clear picture of market share of Indian car industry is shown

through Graph.

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55%

17%

11%

2%5%

3%

7% MARUTI

HYUNDAI

TELCO

HONDA

FIAT

FORD

HM

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VARUN MOTORS PVT LTD

The VARUN MOTORS group was founded by Shri V.Prabhu Kishorein 1992 in

Visakhapatnam by establishing Bajaj Auto dealership. The group has entered into

cars business when Varun Motors Pvt. Ltd was appointed as Maruti Udyog Ltds

dealer in 1996. The company which is one of the Top 10 leading dealers of Maruti

Udyog Ltd, manufacturer of Maruti branded vehicles and spares in

collaboration with Suzuki Motors Ltd, Japan was inaugurated on 24th

August 1996 by

the then Finance Minister of Andhra Pradesh Shri.Ashok Gajapathi Raju. The person

behind this success is Mr.V.Prabhu Kishore who has dynamic leadership qualities

with over two decades of rich experience in automobile business, coupled with hard

work, discipline and dedication. The Management of the organization is very

effective, very efficient and unique in its style.

The company has its own unique identity with excellent infrastructure. The

organization has Asia's largest, finest and most modern automobile showrooms,

measuring 18000 sq.ft and world class workshops equipped with all the latest and

modern technologies. On account of good work and excellent performance at Vizag,

Maruti Udyog Ltd awarded another outlet for Sales and Service at Hyderabad. The

organization is one of the leading dealer for Maruti Suzuki Pvt. Ltd (MSIL) in South

selling about 2000 - 2200 Maruti brand vehicles per month at Visakhapatnam,Vijayawada and Hyderabad and is the highest seller for MSIL in Andhra Pradesh.

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Varun Motors enjoys the supremacy on the road in terms of sales, but more

importantly in the realms of customer care. The company has captured more than

50% of the market share in the four wheeler passenger car segment. The company's

turnover is about Rs.440 crores. The company has been honored with many

prestigious awards in recognition of its efforts to set a trail blazing record of rewards,

fostering the equity cult on ethical lines among the 185 Maruti Dealerships in India.

As of current day the organization stands at No.3 position and is honored

Platinum Dealer at the all India level among the 164 dealers nationwide. The

organizations clear and transparent policies, objectives, infrastructure, supreme and

dynamic management with strong, dedicated and disciplined workforce pave path

for the success of the organization.

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Working Capital

Management in Varun

Motors Pvt. Ltd.

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The financial requirements of any business must be tailored to suit its

own needs. This is where the Working Capital Management plays an important role.

The fundamental principle of Working Capital Management is to have the right

amount of money available when needed. The goal of Working Capital Management is

therefore to manage the firm's current assets and current liabilities in such a way

that a satisfactory level of working capital is maintained.

There are two concepts of Working Capital:

Gross Working Capital- It refers to firm's investment in Current Assets

which can be converted into cash within an accounting year and include cash - short

term securities, debtors, bills receivables, stock, prepaid expenses, cash at bank, cash

on hand etc.

Net Working Capital It refers to the difference between current assets

and current liabilities. Net working capital can be positive or negative.

The positive net working capital will arise when current assets exceed current

liabilities. The negative working occurs when current liabilities are in excess of

current assets.

The consideration of the level of investment in current assets should avoid

two danger points excessive and inadequate investment in current assets. The

investment in current assets should be just adequate, "not more not less", to theneeds of the business firm. Excessive investment in current assets should be

avoided because it impairs firm's profitability, as idle investment earns nothing. On

the other hand, inadequate amount of working capital can threaten the solvency of

the firm and it fails to meet its current obligations.

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The net working capital, being the difference between current assets and

current liabilities, is a qualitative concept. It indicates (a) the liquidity position of the

firm and (b) suggests the extent to which working capital needs may be financed by

permanent sources of funds.

In order to protect their interests, the short-term creditors always like a

company to maintain current assets at a higher level than current liabilities. It is

conventional rule to maintain the level of current assets twice of the level of current

liabilities.

A weak liquidity position poses a threat to the solvency of the company and

makes it unsafe and unsound. Excessive liquidity is also bad. It may be due to

mismanagement of current assets. Therefore, prompt and timely actions should be

taken by management to improve and correct the imbalance in the liquidity position of

the firm.

Good working capital management therefore revolves around the time it takes

for the money invested in the business to return in cash with a little more value

attached to it. The longer this process takes, there is more potential for losses. Further,

working capital management is not an end in itself. It is an integral part of departments

overall management.

Earning profits requires successful sales activity. The firm has to invest

enough funds in the current assets for the access of sales activity. Current

assets are needed because sales do not convert into cash instantaneously.

There is an operating cycle always involved in the conversion of sales into cash.

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Analysis

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The working capital needs of a firm are mostly related to its sales. . The

efficiency with which the working capital is being used by the management can be

analyzed in terms of overall working capital and its constituent parts viz., cash,

inventory & receivables. The credit policy of the firm affects the working capital by

influencing the level of debtors. The credit terms to be granted to customers may

depend upon the norms of the industry. Depending upon the individual case,

different terms may be given to different customers.

CASH MANAGEMENT OF VARUN MOTORS PVT LTD

In order to analyze the Cash Management of Varun Motors Pvt. Ltd the

following ratios are calculated.

Cash is a highly liquid asset and to ascertain the cash position or liquidity of

the firm, the cash ratio is calculated. A high cash ratio implies too much cash is

involved in current liabilities where as a low ratio would imply vice versa.

Cash and Bank Balance

Cash ratio = ____________________

Current Liabilities

The cash liquidity of the company is presently extremely good. In the initial

stages the Cash Ratio is very low but thereafter it is showing an increasing trend. This

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means the firm is maintaining high ratio of cash and bank balance except during the

year 2008-09 where the ratio has fallen down to 0.115 and again increased to 0.256

during the year 2009-10.

YEAR

CASH AND

BANK BALANCE

CURRENT

LIABILITIES

CASH RATIO

2005-2006

99,55,732 11,98,63,1230.083 :1

2006-2007

1,56,32,623 10,93,44,7760.142 :1

2007-2008

2,36,49,038 11,90,10,7090.198 :1

2008-2009

3,05,86,880 26,50,79,7580.115 :1

2009-2010

6,50,02,888 25,38,91,6370.256 :1

0

1

2

3

4

5

6

Category 1 Category 2 Category 3 Category 4

Series 1

Series 2

Series 3

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RECEIVABLES MANAGEMENT OF VARUN MOTORS PVT LTD

In order to analyze the Receivables Management at Varun Motors Pvt Ltd , the

following ratios are calculated :

Debtors Turnover Ratio :

The Debtors Turnover Ratio indicates the number of times on an average Debtors

turnover each year. The ratio measures how rapidly the debts are collected. It is

indicated with the following formula.

sales

Debtors Turnover Ratio = ----------------------

Average Debtors

the credit policy followed by organization is very good. Even though there is

decrease in the ratios it makes as clear that the sales (cash as well as credit) of the

organization are good and also the efforts in collection of receivables.

OPENING

DEBTORS

CLOSING

DEBTORS

AVERAGE

DEBTORS

SALES DTR

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2005-2006

76507835 77981578 77244707 185,36,10,669 23.99

2006-2007

77981578 184154674 131068126 221,27,23,506 16.88

2007-2008

184154674 121899421 153027048 267,85,33,700 17.50

2008-2009

121899421 186191828 154045625 363,76,12,087 23.61

2009-2010

186191828 263636455 224914142 441,60,13,207 19.63

AVERAGE COLLECTION PERIOD :

0

2

4

6

8

10

12

14


Series 3

Series 2

Series 1

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The higher the turnover ratio and the average collection period, the better the

trade credit management and the better the liquidity of debtors, as short collection

period and high turnover ratio imply prompt payment on the past of debtors.

365

Average Collection Period = _____________

Debtors Turnover Ratio

According to company policy the collection period ranges from 20-25 days.

During 2005-06 & 2008-09 the firm is able to collect its receivables within the period

of 15 days. This is extremely good position. The increasing trend thereafter shows

that the debtors turnover ratio of the company is decreasing year after year.

Although this is within the company's credit policy of 20-25 days it is desirable that

the company ensures minimum collection period in the best interest of the

organization.

YEAR No of days

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2005-2006

15 days

2006-2007

22 days

2007-2008

20 days

2008-2009

15 days

2009-2010

19 days

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5


Series 1

Series 2

Series 3

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INVENTORY MANAGEMENT OF VARUN MOTORS PVT LTD

The term "Inventory" refers to assets which will be sold in future in the normal

course of business operations.

In order to analysis the Inventory Management at Varun Motors Pvt Ltd, the

following ratios are calculated.

Inventory Turnover Ratio ;-

Cost of Sales

Inventory Turnover Ratio =

Average Inventory

If the ratio is low it indicates inefficiency of the organization.

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OPENING

STOCK

CLOSING

STOCK

AVERAGE

STOCK

COST OF

SALES

Stock

Turnover

Ratio

2005-2006 97834997 107278677 102556837 1646546865 16.05:1

2006-2007

107278677 121470507 114374592 1959298419 17.13:1

2007-2008

121470507 218065230 169767869 2382466915 14.03:1

2008-2009

218065230 344476667 281270949 3190195699 11.34:1

2009-2010

344476667 352616675 348546671 3839842548 11.02:1

0

1

2

3

4

5

6


Series 1

Series 2

Series 3

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CURRENT RATIO ;

The Current Ratio is the ratio of total current assets to total current liabilities.

It is calculated by dividing current assets by current liabilities.

Current Assets

Current Ratio =

Current Liabilities

The current ratio of a firm measures the short term solvency. It indicates the

current assets available for each of current liabilities. Conventionally, a current ratio

of 2 : 1 is considered satisfactory, but this may differ from industry to industry.

During the first two years the company the ratios is very low. The steady

maintenance of ratio of more than 2 : 1 shows that the firm's liquidity position is very

good. As a convention the current ratio of 2 : 1 or more is considered satisfactory.

CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT

RATIO

2005-2006 223304616 119863123 1.86:1

2006-2007 159552466 109344776 1.46:1

2007-2008 311218474 119010709 2.62:1

2008-2009 462080450 265079758 1.74:1

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2009-2010 681097797 253891637 2.68:1

QUICK RATIO:

Quick Ratio is the ratio which expresses the relationship between quick or

liquidity assets and quick or liquidity liabilities.

Quick Assets refers to those which can be converted into cash quickly ie.,

within a very short period without loss. They include all Current assets except

inventories or stock and prepaid expenses.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Series 3

Series 2

Series 1

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Quick liabilities generally known as current liabilities refers to those which

should necessarily prepaid within a short period. They include all Current liabilities

except Bank over draft and cash credit.

Quick Assets

Quick Ratio = ----------------------

Quick Liabilities

YEAR QUICK

ASSETS

QUICK

LIABILITIES

QUICK

RATIO

2005-2006 194007535 119863123 1.62:1

2006-2007 222236633 109344776 2.03:1

2007-2008 215052665 119010709 1.81:1

2008-2009 303795611 265079758 1.15:1

2009-2010 592117577 253891637 2.33:1

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The company is able to maintain the standard ratio of 1 : 1 all through. This

indicates that the organization is successful in meeting out all its payments. There is

however gradual increase in the current liabilities from 2007-08. The current assets

position is however fluctuating .

CURRENT ASSETS TURNOVER RATIO:

This ratio is based on the relationship between cost of sales and the current

assets of a firm. It measures the efficiency of a firm in managing and utilizing its

assets.

The higher the turnover ratio, the more efficient the management and

utilization of the assets while low turnover ratios are indicative of under utilization of

available resources.

0

2

4

6

8

10

12

14


Series 3

Series 2

Series 1

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Cost of Sales

Current Assets Turnover Ratio = -----------------------

Current Assets

CURRENT

ASSETS

COST OF

SALES

CURRENT

ASSETS

TURNOVER

RATIO

2005-2006 223304616 1646546865 7.37

2006-2007 159552466 1959298419 12.28

2007-2008 311218474 2382466915 7.66

2008-2009 462080450 3190195699 6.90

2009-2010 681097797 3839842547 5.64

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There is a continuous and steep rise in the ratio from the beginning which

shows that the company is more efficient in the management and utilization of

assets. A slight fall in the ratio during 200-10 does not mean necessarily an under

utilization of available resources compared to the performance of the company. It

would however mean that the organization is engaged in investing a large portion of

their funds in inventory.

0

1

2

3

4

5

6


Series 1

Series 2

Series 3

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Findings andSuggestions

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The cash liquidity of the company is presently extremely good. The

company should maintain this position in future also which will help to maintain the

cash liquidity to meet the current liabilities.

The credit policy followed by organization is very good. Considering the fact

that the total sales have also gone up in the same trend, this low ratio need not be

taken as an issue of concern.

The collection periods are within the company policy. Although this is within

the company's credit policy it is desirable that the company ensures minimum

collection period in the best interest of the organization.

The inventory ration has been too high but this has been corrected later on by

taking necessary steps in increasing the sales and maintaining the inventory as per

requirements.

During the first two years of formation of the company the current ratios is

very low.As a convention the current ratio of 2 : 1 or more is considered satisfactory.

The company is able to maintain the standard ratio of 1 : 1 all through.

Even though there are fluctuations in the current assets, the liquidity position of theorganization is still high because the quick ratio of 1 : 1.

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There is a continuous and steep rise in the Current Assets Turnover

ratio from the beginning and the organization should be engaged in investing a large

portion of their funds in inventory.

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Conclusion

The minor project pursued at the company helped me to get

exposures to appraisal system in the company. The project work carried out made

me exposed to some findings which have already been reported.

Finally, I would like to conclude my report thanking all my esteemed

guides both in and outside the organization who have helped me learn financial

concepts. It has been a great pleasure for me pursuing my project work at this

company with well experienced personnel.

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Bibliography:

www.marutisuzuki.com

www.google.com

Gatway magazine

Auto India and Auto Monitor magazine

Annual and Financial reports of VarunMotors Pvt. Ltd.
http://www.marutisuzuki.com/http://www.marutisuzuki.com/http://www.google.com/http://www.google.com/http://www.google.com/http://www.marutisuzuki.com/

Documents

Finalised