Essay on Working Capital Management at TVS Sundaram Motor
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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.
Introduction
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’.
please read out too:
Cash and Accrual Method of Accounting
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.
This essay is an an
example of the work written by our professional essay writers.
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
Current Asset turnover ratio
Inventory turnover ratio
Debtor’s turnover ratio
Creditor’s turnover ratio
Liquidity Ratios
Current ratio
Liquidity ratio
Absolute liquid ratio
Solvency Ratios
Debt equity ratio
Proprietary ratio
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