A SUMMER TRAINING REPORTON

WORKING CAPITAL MANAGEMENT

OFHERO CYCLES LTD.

INTRODUCTION TO HERO CYCLES LIMITED

Hero Group is a multi-unit, multi-product, geographically diversified

Group. The four Munjal brothers, hailing from a small town called Kamalia,

now in Pakistan, are the men who are behind the mission. Hero is established in 1956 as partnership firm, but in 1966 it is

incorporated as a private. Co. ltd. Now it is deemed public company. Hero Group ranks amongst the Top 10 Indian Business Houses. The

Group today comprises of 20 companies.

Position in Industry

Achievements:

The government of India honoured HERO CYCLES with the prestigious “Padma Bhushan” in march 2005 for its contribution to trade and industry.

Boston Consulting Group has ranked Hero Group as one of the top ten Business Houses on Economic value, in India.

Hero Group Management style has been acclaimed internationally by World Bank.

Hero Cycles Limited is a Guinness Book Record holder since 1986 as the world's largest manufacturer of bicycles

WORKING CAPITAL MANAGEMENT

OBJECTIVES OF STUDY:

The main purpose of our study is to render a better understanding of the concept “Working Capital Management”.

To understand the planning and management of working capital at HERO CYCLES Ltd.

To measure the financial soundness of the company by analyzing various ratios.

To suggest ways for better management and control of working capital at the concern.

Research methodology:

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In other words, research methodology is the specification of method of acquiring the information needed to structure or solve the problem at hand.

DATA COLLECTION: Both primary data and secondary data was collected.

TECHNIQUES USED: Working Capital Statements, Operating cycle and Ratio analysis.

 

MEANING OF WORKING CAPITAL

Working Capital is the capital used for the day-to-day operations in the organization. It denotes the money that circulates in the organization for smooth functioning of the organization.

Working Capital is the difference between resources in cash (current assets) and organizational commitments for which cash would be soon required (Current Liabilities).

Working capital, also called net current assets, is the excess of current assets over current liabilities.

CLASSIFICATON OR KINDS OF WORKING CAPITAL

Kinds of Working Capital

On the Basis of Concept

On the Basis of Time

Gross Working Capital

Net Working Capital

Permanent Working Capital

Temporary Working Capital

On The Basis Of Concept:Gross Working Capital: - It refers to all current assets. Thus the gross

working capital is the capital invested in total current assets of the company.

Net working capital:- Net working capital is the difference between the current assets and the current liabilities.

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABLITIES

Years 2008 2007 2006 2005

Current Assets 4,078,120,805 3,514,169,012 3,034,177,090 2,946,438,723

Current Liabilities

1,942,587,980 1,978,589,143 1,864,132,505 1,434,230,422

Net Working Capital

2,135,532,825 1,535,579,869 1,170,044,589 1,512,208,301

On The Basis Of Time:

Permanent:- Permanent working capital is the minimum amount which is required o ensures effective utilization of fixed facilities and or maintaining the circulation of current assets. Temporary:- Temporary working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as seasonal working capital and special working capital.

Temporary

Permanent

Amount of

Working Capital

Time

FACTORS DETERMINING THE WORKING CAPITAL

Nature and character of business. Size of business\scale of operation. Manufacturing process\length of production cycle. Working capital cycle Credit policy Rate of growth of business. Earning capacity and dividend policy.

OPERATING CYCLE OF HERO CYCLES LIMITED

Gross Operating cycle = Raw material + W.I.P + finished goods+

Debtors Period

     Particulars 2008(Days) 2007 (Days) 2006(Days) 2005(Days)

A) Raw Material Conversion Period 12 10 11 10

B) Work In Progress Conversion Period 8 9 6 6

C) Finished Goods Conversion Period 6 3 3 3

D) Debtors Conversion Period 60 56 59 58

Gross Operating Cycle Period (A+B+C+D)

86 Days 78 Days 79 Days 77 Days

Net Operating Cycle = Gross Operating Cycle – Payment Conversion Period

Particulars 2008 (Days) 2007 (Days) 2006 (Days) 2005 (Days)

A) Gross Operating Cycle 86 Days 78 Days 79 Days 77 Days

B) Payment Conversion Period 56 Days 58 Days 57 Days 52 Days

Net Operating Cycle ( A – B )

30 Days 20 Days 22 Days 25 Days

RATIO ANALYSIS

A ratio is assessment of the significant of one figure in relation to other. It measures the comparative significant of individual item of income and position statements. Thus it shows the mathematical relationship between two related items express in quantitative form.

OBJECTIVES OF RATIO ANALYSIS: - Ratio-Analysis can also be used as an instrument of managerial

control. These are the indicators of managerial efficiency. Inter-Firm comparisons can be made easily as ratios bring

uniformity in the financial data.

CURRENT RATIO:

Current Ratio = 2.06 1.63 1.61 1.93

Current Ratio = Current Assets Current Liabilities

LIQUID RATIO:

Liquid Ratio = Liquid Assets

Current Liabilities

Liquid Ratio 1.61 1.21 1.24 1.40

CASH RATIO:

Cash Ratio = Absolute Liquid Assets

Current Liabilities

Cash Ratio 0.05 0.037 0.0101 0.0716

DEBTORS TURNOVER RATIO:

Debtor turnover ratio = Total Net Sales

Average Debtors

Debtor Turnover Ratio (In Times):

6.28 6.16 6.51 6.12

WORKING CAPITAL TURNOVER RATIO:

Working Capital Turnover Ratio = Cost of sales/Sales

Net Working Capital

Working Capital Turnover Ratio:

6.67 9.61 9.93 6.55

INVENTORY TURNOVER RATIO:-

Inventory turnover ratio = Cost of Goods Sold

Average Inventory

Inv. Turnover Ratio: 17.47 16.05 16.93 13.44

Analysis of Sales & Profits

SWOT Analysis

Strengths:- Good brand equity High quality standards High production capacity Own research & development centre

Weaknesses:- The composition of current assets is not good Inventory control is not proper. Non up gradation of foreign technology Advertisement of the products are not done regularly.

 

Opportunity:- Exports of Cycles from India have high growth potential. Government is also helping in promoting their business as its R& D

center is being recognized by government. HCL has become a generic name for cycle. So, company has great

opportunities in such market. Company can secure more share in the International Market.

Threats:- Smaller players in the market are using Hero’s prices as a shield to

push their products at lower prices. Growing competition in the unorganized sector, which are able to

price their products cheaper because of low overheads. Increase in steel prices.

LIMITATIONS OF STUDY:

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

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

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

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

FINDINGS:

The company has a long working capital cycle which means that large amount of funds are tied up in the working capital cycle.

HERO CYCLES LIMITED they follow the moderate policies of working capital. They enjoy the benefits of both conservative and aggressive policy.

The acid test ratio would be 1:1 but they are achieving 1.40 The optimum current ratio would be 2:1 but co. is achieving 1.92 From the above finding it can conclude that they have an efficient

management of working capital. So they are achieving more than the projected ratio’s of working capital.

SUGGESTIONS AND RECOMMENDATIONS:

The company should keep more cash for the liquidity position of the company.

Inventory control is not proper. The company has not defined the minimum and the maximum stock level scientifically. Therefore there is blockage of funds.

The company is enjoying a good current position. It should take steps to further improve its position by repositioning the composition of current assets.

Large amounts of funds are blocked in debtors. Company should reduce its debtors so that the blocked amount is properly utilized.

The company should negotiate with bank on the interest rate issue. 70% of the total working capital need is filled from Canara Bank and IDBI, Punjab national bank.

THANKYOU