15-05-2013, 01:09 PM
WORKING CAPITAL MANAGEMENT AT TVS MOTORS
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ABSTRACT
The report objective is to understand the working capital management practices followed at TVS 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 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 motors. These conclusions are then used to come up with certain strategic recommendations which might help improving the working capital position at TVS motors. The methodology adopted was, first to understand the overall business model of TVS 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 TVS motors. The major activities and their relevance are observed. In the third part of our research we look at the financial numbers of TVS 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.
Introduction
TVS MOTOR COMPANY
TVS Motor Company Limited, part of the TVS Group, is one of India's leading two-wheeler manufacturers. With a turnover of over Rs.2700 crores, the Company manufactures a wide range of motorcycles, scooters, mopeds and scooterettes. Little wonder, it boasts of more than 7 million happy customers.
The chapter called two wheelers in India begins…..
The year was 1980. And it is a year to remember for the Indian two-wheeler industry. For it was this year that saw India's first two-seater moped, TVS 50, rolling out on the Indian roads. For some it was freedom to move. For some, shorter distances to span. For the Indian Automobile sector, a breakthrough to be etched in history.
With the joint venture with Suzuki Motor Corporation in 1983, TVS-Suzuki became the first Indian company to introduce 100 cc Indo-Japanese motorcycles in September 1984. Through an amicable agreement the two companies parted ways in September 2001.
MERGER OF LAKSHMI AUTO COMPONENTS WITH TVS MOTOR COMPANY
The Shareholders of TVS Motor Company and Lakshmi Auto Components (LAC) have on 19th January 2004 approved the merger of Engine Division of LAC with TVS Motor Company and transfer of Rubber and Plastics division of LAC to TVS Auto Components Limited, a wholly owned subsidiary of TVS Motor Company. The company expects to obtain the approval of High Court of Tamil Nadu and complete other statutory formalities in the next few months. This merger is expected to improve the overall profitability of TVS Motor Company.
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 TVS 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.
Fixed and Fluctuating working capital
Fixed working capital is the minimum level of working capital required by a company to carry out its operations effectively. The company cannot operate below this level irrespective of its level of production or sales. The production and sales volumes of a company 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 company’s current assets in circulation. It is also known as permanent working capital since this working capital is permanently locked up in business.
Results and Conclusions
Overall we can see that the company has managed to increases its sales significantly over the five year period. It has substantially increased its cash and bank balances while at the same time improving its financial ratios. It is seen that the company has lowered its risk and is in a better position to meet its obligations both short term and long term in time. This is clearly indicated by the rising trends in current and quick ratios as well as the falling D/E ratio and increase in interest coverage ratio. Where the firm seems to be lacking is in the area of inventory management, working capital turnover and accounts receivables. Hence we will be focusing our recommendations on these specific areas.