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In 1948, when independent India was one year old, Ashok Leyland was born. We were Ashok Motors then, assembling Austin cars at the first plant, at Ennore near Chennai. In 1950 started assembly of Leyland commercial vehicles and soon local manufacturing under license from British Leyland. With British Leyland participation in the equity capital, in 1954, the Company was rechristened Ashok Leyland. Since then Ashok Leyland has been a major presence in India's commercial vehicle industry. These years have been punctuated by a number of technological innovations which went on to become industry standards. This tradition of technological leadership was achieved through tieups with international technology leaders and through vigorous in-house R&D. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 375,000 vehicles we have put on the roads have shared the additional pressure placed on road transportation in independent India. The share of goods movement by road rose from 12% in 1950 to 60% in 1995. In passenger transportation, the jump is equally dramatic: from 25% to 80%. At 60 million passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network. In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like double decker and vestibuled buses are unique models from Ashok Leyland, tailor-made for high density routes. In 1987, the overseas holding by LRLIH (Land Rover Leyland International Holdings Limited) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO Fiat SPA, part of the Fiat Group and Europe's leading truck manufacturer. Global Standards, Global Markets The blue-print prepared for the future reflected the

global ambitions of the Company, captured in four words: Global Standards, Global Markets (Liberalisation and globalisation were not yet in the air). Buoyed by the backing of the two international giants, Ashok Leyland embarked on a major product and process technology Up gradation to world-class standards of technology. In the journey towards global standards of quality, Ashok Leyland reached a milestone in 1993 when it became the first in India's automobile industry to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994. 1994 was also the year, when international technology changed the way India perceived trucks. The year when a new breed of world class trucks- technologically Page | 2

superior and eco-friendly - rolled out on Indian roads. From our state-of the-art manufacturing Plant at Hosur, near Bangalore. They carried the name Cargo. Cargo brought with it, a new set of values and an unmatched basket of benefits, ushering in a change.

Achieving leadership in the medium/heavy duty segments of the domestic commercial vehicle market and a significant presence in the world market through transport solution that best anticipate customer needs, with the highest value-to-cost ratio

Identifying with the customer Being the lowest cost manufacturer Global benchmarking our products, processes and people

The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the assembly of Austin Cars. The Company's destiny and name changed soon with equity participation by British Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955.

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Since then Ashok Leyland has been a major presence in India's commercial vehicle industry with a tradition of technological leadership, achieved through tie-ups with international technology leaders and through vigorous in-house R&D.

Access to international technology enabled the Company to set a tradition to be first with technology. Be it full air brakes, power steering or rear engine busses, Ashok Leyland pioneered all these concepts. Responding to the operating conditions and practices in the country, the Company made its vehicles strong, over-engineering them with extra metallic muscles. "Designing durable products that make economic sense to the consumer, using appropriate technology, became the design philosophy of the Company, which in turn has moulded consumer attitudes and the brand personality.

Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The placed on road transportation in independent

5, India.

00,000 vehicles we have put on the roads have considerably eased the additional pressure

In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models from Ashok Leyland, tailor-made for high-density routes . In 1987, the overseas holding by Land Rover Leyland International Holdings Limited Page | 4

(LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO. (Since July 2006, the Hinduja Group is 100% holder ofLRLIH). The blueprint prepared for the future reflected the global ambitions of the company, captured in four words: Global Standards, Global Markets. This was at a time when liberalisation and globalisation were not yet in the air. Ashok Leyland embarked on a major product and process up gradation to match world-class standards of technology.

In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it became the first in India's automobile history to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing units in 2002. It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is specific to the auto industry. This is part of a series of articles peeking into clean car industries and car manufacturers of China, India, South Korea and Germany. Among many other goals, Ashok Leyland aims to expand its operations to penetrate into overseas markets. Included in the companys plans is to acquire smaller car manufacturers in China and in other developing countries. In October 2006, Ashok Leyland bought a majority stake in the Czech based- Avia. Called Avia Ashok Leyland Motors s. r. o., this will give Ashok Leyland a channel into the competitive European market. According to the company, in 2008 the joint venture sold 518 LCVs in Europe despite tough economic conditions. Furthermore, the company will expand its product offers into construction equipment, following a joint venture with John Deere. Newly formed in June 2009, the John Deere partnership is a 50/50 split between the companies. The company says negotiation is progressing on land acquisition, and the production plans are in place. The venture is scheduled to start rolling out wheel loaders and backhoe loaders in October 2010. Aside from the full expansion planned for the company, Ashok Leyland is also paying close attention to the environment. In fact, they are one of the companies showing the strongest commitment to environmental protection, utilizing ecofriendly processes in their various plants. Even as they thrust into different directions, Ashok Leyland maintains an R&D group that aims to uncover ways to make their vehicles more fuel efficient and reduce emissions.

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In fact, even before laws were placed on car emissions, Ashok Leyland was already producing low-emission vehicles. Back in 1997, they have already released buses with quiet engines and low pollutant emission based on the CNG technology. In 2002 it developed the first hybrid electric vehicle. Ashok Leyland has also launched a mobile emission clinic that operates on highways and at entry points to New Delhi. The clinic checks vehicles for emission levels, recommends remedies and offers tips on maintenance and care. This work will help generate valuable data and garner insight that will guide further development.

When it comes to the development of environmentally friendly technologies, Ashok Leyland has developed Hythane engines. In association with the Australian company EDEN ENERGY, Ashok Leyland successfully developed a 6-cylinder, 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG,) which is a blend of natural gas and around 20% of hydrogen. Hydrogen helps improve the efficiency of the engine but the CNG aspect makes sure that emissions are at a controlled level. A 4-cylinder 4-litre 63 KW engine is also being developed for H-CNG blend in a joint R&D program with MNRE (Ministry of New and Renewable Energy) and Indian Oil Corporation.

The H-CNG concept is now in full swing, with more than 5,500 of the technologys vehicles running around Delhi. The company is also already discussing the wide-scale use of Hythane engines with the Indian government. Hythane engines may be expected in the near future, but these may not be brought to the United States as yet. Ashok Leylands partnership with Nissan is also focusing on vehicle, power train, and technology development listed under three joint ventures. With impressive investment, the joint ventures will focus on producing trucks with diesel engines that meet Euro 3 and Euro 4 emission standards. In the coming years, Ashok Leyland also has some hybrid trucks and buses in store for its market. The buses and trucks are set to feature a new electronic shift-by-wire transmission technology as well as electronic-controlled engine management for greater fuel efficiency. Ashok Leyland focuses on improving fuel efficiency without affecting automotive power, and the vehicles will have a 5% improvement on fuel efficiency. Ashok Leyland is also developing electric batteries and bio-fuel modes.

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Ashok Leyland Ltds March quarter results were expected to be impressive, as its monthly vehicle output reports had indicated a 138% jump in volumes. But what impressed was its net profit growth of 317%, to Rs223 crore, over the year-ago period, even as sales rose by 139%. Ashok Leylands operating profit margin rose to 13% compared with 10.5%. Higher volume growth, a better product mix due to higher sales of multi-axle vehicles and tractor trailers, and cost reduction were key reasons for margin expansion. its estimate for volume growth in 2011 is conservative, at 15% compared with over 30% in FY2010. Around 1,200 buses under the Jawaharlal Nehru National Urban Renewal Mission scheme are yet to be delivered of the 5,098 ordered. Besides, it has orders on hand from state transport undertakings for another 2,000 buses. The firm is investing to increase its capacity, with Rs1,200 crore proposed for expansion plans over the next two years; mainly to increase output of engines and new generation cabs. Besides, it plans to invest Rs800 crore in joint ventures. Analysts believe that its Uttarakhand plant is expected to deliver 22,000-25,000 vehicles in fiscal 2011, in its first full year of operation. The company has also steadily gained market share, from 21-22% in the first quarter of 2010 to 28-29% in the fourth quarter. One concern is that it is not yet a strong player in the eastern market. Besides, the southern market, traditionally its stronghold, has grown by only 15% in volume terms in 2010. The rest of India (mainly north and west) grew by 40% during the year.

Ashok Leyland has seven manufacturing plants - the mother plant at Ennore near Chennai, three plants at Hosur (called Hosur I and Hosur II, along with a Press shop), the assembly plants at Alwar, Bhandara and state-of-the-art facility at Pantnagar. The total covered space at these seven plants exceeds 650,000 sq m and together employs over 11,500 personnel.

Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mother Plant accounting for over 40% ALL production. The plant manufactures a wide range of vehicles and house production facilities for important aggregates such as Engines, Gear Box, Axles and other key in-house components.


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Established in 1980, Hosur-I is the engine-manufacturing center within the Ashok Leyland production system. Apart from producing various types of diesel engines (including the engines manufactured under license from Hino of Japan) and CNG engines, the plant also manufactures and assembles heavy duty and special vehicles, Axles, AGBs, Marine Gear Box,etc. The facility is spread over 103 acres and is innovatively laid out, optimising the use of all resources.

Ashok Leyland established this state-of-the-art production facility in 1994 at Hosur. Spread over 236 acres, Hosur II houses finishing and assembly facilities including sophisticated painting facilities. The complex also houses one of the largest press facilities in India for pressing frame side members. Laid out with an eye for the future, Hosur II has won acclaim from several automotive experts who have visited the facility.

Ashok Leylands brand new Cab Panel Press Shop is an imposing addition to the industrial skyline of Hosur. At 800 m above sea level, it is also the tallest in the Hosur industrial belt. This state-of-the-art facility is housed in a 99-acre expanse with a built up area of over 15,000 sq.m. The Shop is equipped to stamp select panels for Cargo cab, G-45 and C-45 FES - totally, 55 panels and their variants. Right now it houses eight presses and has the provision to accommodate four more. The versatility of the presses can be utilised for making panels of complex shapes and profiles with appropriate tooling and dies. In addition to catering to our present needs, the Press Shop can take up additional panels of new / current models. Right at the design stage, a rainwater harvesting facility was integrated into the Shop. A 60,000-sqm lawn and the 2,500 saplings planted recently in the premises will give the Shop a cool, green cover. Built with an investment of Rs 1350 million, the Shop is designed and developed to be a state-of-the-art facility. The 210m long Press Shop consists of two bays with a 36m span in each bay. The 24m high Press bay has an underground tunnel, 7.1m deep and 90m long, to handle the end bits generated during the process of panel pressing. The other bay is 17m high

Established in 1982, the Alwar Unit in Rajasthan is an assembly plant for a wide range of vehicles with an emphasis on passenger chassis, including CNG buses, situated close to the northern market.

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Set over 190 scenic acres, the Pantnagar plant of Ashok Leyland is also its largest and one of the most integrated manufacturing facilities in Indian commercial vehicle industry. On 200,000 of built up area, it houses best in class industrial architecture combined with the latest manufacturing technologies that is also ecology sensitive as reflected in the selection of machinery and processes. Highly energy efficient, the plant is designed to be remarkably operator friendly. The shop floors receive the maximum natural light and ventilation while the insulated high roof reduces the inside temperature by up to 8oC in the summer months

Ashok Leyland's Bhandara Unit houses manufacturing and assembly facilities for sophisticated synchromesh transmission and also has facilities for assembly of vehicles. Designed on lean manufacture principles, process control for high quality of output and flexibility to manage variety with quick changeovers are built into the machine and process selection. The factory boasts of latest generation equipment sourced from global leaders in Japan, USA, Europe and India. The facilities have been so designed as to accommodate further expansion in terms of capacity and future models. At full capacity utilization, 75,000 vehicles will roll out of the Pantnagar plant.


To offer world-class technology that is relevant and affordable to the Indian customer is the philosophy that drives R&D at Ashok Leyland. Over the years, this philosophy has been translated time and again into products that seamlessly integrate international technology with local needs. "The role of R&D is central in fulfilling the company-wide commitment to total customer satisfaction" states Mr. R. Seshasayee, Managing Director, and adds that the increased

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infrastructural and financial support expresses the company's determination to become selfreliant in R&D.

The immediate R&D priorities are to pro-actively address safety and environmental issues, harness and adopt technologies that provide value to the customer in an atmosphere enabling creativity and innovation. Powering those who "engineer tomorrows" with an enabling infrastructure has been top priority for the company.


Our R&D is not confined within walls. It extends to the test tracks as well.

Rigorous tests are carried out under stringent simulated conditions that replicate the mosttreacherouslandscapes. Vehicle ruggedness and longevity are a prime customer concern, as they directly impact earnings. Ever conscious of this, Ashok Leyland makes extensive use of a modern CAD set-up, a comprehensive test track facility (where cobble-stones are calibrated and reset periodically), accelerated fatigue testing rigs and rigorous durability testing facilities. Together they ensure that there is a constant improvement in the life and on-road performance of every make of Ashok Leyland vehicle to hit the roads. Safety, durability, through our R&D efforts.

Ashok Leyland product development successes have come from a keen sense of anticipation and attentiveness. The company initiated research into alternative fuels well before legislative debate had even begun in the country. The result was the implementation of CNG technology ahead of the rest promising a breath of fresh air for polluted cities.

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Automotive Coaches & Components Ltd (ACCL) Lanka Ashok Leyland Hinduja Foundries IRIZAR-TVS Ashok Leyland Project Services Limited Albonair GmbH

Nissan Motor Company John Deere & Company Automotive Infotronics Ashley Alteams India Pvt Ltd Optare

Pandit Jawaharlal Nehru persuaded Raghunandan Saran, an industrialist, to enter automotive manufacture In 1948, Ashok Motors was set up for the assembly of Austin cars. With equity participation by British Leyland, Ashok Leyland commenced manufacture of commercial vehicles in 1955

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Access to international technology enabled the Company to introduce a host of trendsetting product innovations in the country, supported by product development and marketing capabilities Multi-axle vehicles, tractor trailers, double decker and

vestibuled buses, power steering

Units at Ennore, Hosur, Bhandara and Alwar became part of a pan-India growth plan of the Indian leadership Tie-ups with international technology majors for engine and gearbox technology Battled formidable competition, gaining and sustaining a 25% plus market share Withstood the unprecedented business depression of the early 80s, proved its resilience a quality that has stood the Company in good stead in subsequent trying times too Made a habit of earning profits and declaring dividends


Transnational Hinduja Group took over the principal overseas shareholding of the Company in 1987, infusing vital capital and technology. Emboldened, Ashok Leylands long-term plan to become a global player by benchmarking global standards of technology and quality was soon firmed up A state-of-the-art manufacturing base set up at Hosur to roll out international class products Anticipated growing market demand and pioneered CNG technology Production capacity up from 23,000 units in 1987 to 50,000 units in 1998. International Quality Certifications: first automotive manufacturer in India to receive the ISO 9002 Certification ISO 9001(1994) and QS 9000 (1998)


Expansion of in-house R&D infrastructure including some first in India facilities, in tandem with continuous strengthening of talent pool Took in its stride the accelerated emission norms, utilising in-house engine R&D capabilities Company-wide IT initiatives bring in speed of operations as well as connectivity Internal supply chain initiative - Project OSCARS - creates a pull environment (rather than push) aiding in Just-in-Time culture

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Various shop floor initiatives, aimed at employee participation and efficiency improvements, create a flexible manufacturing/assembly network tuned in to customer needs Model proliferation products that fit customers unique needs Enlarged and deepened market coverage, reaching new customer groups within and outside India Set up a state-of-the-art Driver Training Centre at Namakkal. Also introduced innovative customer support products that engage the customer more comprehensively (AMC, 24x7 Helpline) Management Development Centre set up at Hosur EVA positive since 2002-2003: created shareholder value by registering returns higher than cost of capital


Having made the manufacturing technology and the innards of its vehicles contemporary, catching the winds of globalisation, Ashok Leyland is on a global quest: Acquired the Truck Business Unit of AVIA as., based in Prague Bus assembly unit in UAE Assembly unit in South Africa in the offing

A whole new range of modern, fully built, high performance vehicles in line with emerging market requirements Plans for rapid expansion of capacity beyond one lakh vehicles per annum Entry into new areas that go beyond the core business of commercial vehicles. Ashley Design and Engineering Services (ADES) in the area of engineering services (developing, testing and validating vehicular designs and components) ACG Ashok Leyland (Auto Components Group) targets USD 100 million in three years

MANAGEMENT DETAILS: Board of Directors

: : : : Dheeraj G Hinduja, Chairman (Alternate: Y M Kale) R Seshasayee, Executive Vice Chairman Anil Harish D J Balaji Rao Page | 13

: : : : : : : :

A K Das Jean Brunol (from 20.10.2010) Jorma Antero Halonen (from 19.05.2011) S anjay K Asher (from 21.12.2010) F Sahami Shardul S Shroff Dr V Sumantran Vinod K Dasari, Managing Director K Sridharan

Chief Financial Officer Executive Director And Company Secretary Executive Directors

: : : : : : : : :

A R Chandrasekharan Anup Bhat A K Jain Jayendra Parikh R R G Menon P G Nilsson Nitin Seth Rajive Saharia Shekhar Arora M S Krishnaswami & Rajan D eloitte Haskins & Sells Geeyes & Co. Automobiles-Trucks/Lcv


: :

Cost Auditors
Business Operation

: :

The origin of Ashok Leyland, a Hinduja group company can be traced to the urge for selfreliance, felt by independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948,

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Ashok Motors was set up in what was then Madras, for the assembly of Austin Cars. The Company's destiny and name changed soon with equity par


Total Income - Rs. 114065.872 Million ( year ending Mar 2011) Net Profit - Rs. 6312.993 Million ( year ending Mar 2011)

Market Share:
Name Last Price Market Cap.
(Rs. Cr.)

Sales Turnover Net Profit Total Assets

Tata Motors 193.45 61,399.84


1,811.82 35,912.05

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Ashok Leyland 26.20 6,970.97

11,117.71 631.30 6,621.14 Eicher Motors

1,688.00 4,555.00 442.67 75.44 474.14 Tata Motors (D)

102.95 3,303.44

SML Isuzu 388.45 562.15 893.01 36.56 297.79

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We value of customers and will constantly endeavour to fulfil their needs by proactively offering them products and service appropriate to their diverse application.

We consider our employee as our most valuable asset and are committed to provide full encouragement and support to them to enhance their potential and contribution to companys business.

Our vendors are our valued partners in our business development and we will work with them in a spirit of mutual co-operation to meet our business objectives.

Our distributors are the vital between the company and the customers and we are committed to advice and support our distributors to continuously upgrade their infrastructure, skills and capability to serve our customers better.

We value the trust reposed in us by our shareholders and strive unstintingly to ensure a fair and reasonable return on their investment.

We are committed to add to the wealth and well-being of our society by enhancing the quality of life and contributing to this economic development while maintaining the highest level of environment and safety standards.


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Speedy Value creator Innovative Ethical


Ashok Leyland is committed to achieve customer satisfaction, by anticipating and delivering superior value to the customers in relation to their own business, through the product and services offered by the company and comply with statutory requirement. Towards this, the quality policy of Ashok Leyland is to make continual improvement in the process that constitutes the quality management system, to make them more robust and to enhance their effectiveness and efficiency in achieving stated objectives leading to: Superior product manufactured as also service offered by the company. Max use of employee potential to contribute to quality and environment by progressive up gradation of their knowledge and skills as appropriate to their functions. Seamless involvement from vendors and dealers in the mission of the company to address customers changing needs and protection of the environment.

We at Ashok Leyland committed personal environment measures. We follow all legal reasons. Adopt pollution prevent technology in design and manufacturing projects. Conserve all resources such as power, water, oil, gas, compressed air etc.. and optimise their usage through scientific methods. Provide clean working environment to employees. Set and review objectives and targets for continually improving environment.


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Buses Trucks Engines Defence & Special Vehicles


1966 - Introduced full air brakes 1967 - Launched double-decker bus 1968 - Offered power steering in commercial vehicles 1979 - Introduced multi-axle trucks 1980 - Introduced the international concept of integral bus with air suspension 1982 - Introduced vestibule bus 1992 - Won self-certification status for defence supplies 1993 - Received ISO 9002 1997 - India's first CNG powered bus joined the BEST fleet 2001 - Received ISO 14001 certification for all manufacturing units 2002 - Launched hybrid electric vehicle

In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it became the first in India's automobile history to win the ISO 9002 certification.

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The more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing units in 2002.

It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is specific to the auto industry.

Ashok Leyland buses carry 60 million passengers a day, more people than the entire Indian rail network

Ashok Leyland has a near 85% market share in the Marine Diesel engines markets in India

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified for their Environmental Management System, making it the first Indian commercial vehicle manufacture to do so.

In 2005, received the BS7799 Certification for its Information Security Management System (ISMS), making it the first auto manufacturer in India to do so.

In 2006, received the ISO/TS 16949 Corporate Certification, making it the first auto manufacturer in India to do so.

It is one of the leading suppliers of defence vehicles in the world and also the leading supplier of logistics vehicles to the Indian Army.

It is the largest manufacturer of CNG buses in the world.

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Working capital management is concerned with the problems arise in attempting to manage the current assets, the current liabilities and the inter Relationship that exist between them. The term current assets refers to those Assets which in ordinary course of business can be, or, will be, turned in to cash within one year without undergoing a diminution in value and without Disrupting the operation of the firm. The major current assets are cash marketable securities, account receivable and inventory. Current liabilities ware those liabilities which intended at their inception to be paid in ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses. The goal of working capital management is to manage firm current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety. Capital required for a business can be classified under two main categories via,

1) 2)

Fixed Capital Working Capital

Every business needs funds for two purposes for its establishment and to carry out its dayto-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.


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Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow. Working capital represents the total of all current assets. In other words it is the Gross working capital, it is also known as Circulating capital or Current capital for current assets are rotating in their nature.

Working capital is defined as the excess of current assets over current liabilities provisions. In other words it is the Net Current Assets or Net Working Capital



The need for working capital gross or current assets cannot be over emphasized. As really observed, the objective of financial decision making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally depend upon the magnitude of the sales among other things but sales cannot convert into cash. There is a need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity. Technically this is refers to opening or cash cycle. If the company has certain amount of cash, it will be required for purchasing the raw material may be available on credit basis. Then the company has to spend some amount for labour and factory overhead to convert the raw material in working in progress, and ultimately finished goods. These finished goods convert in to sales on credit basis in the form of sundry debtors. Sundry debtors are converting into cash after expiry of credit period. Thus some amount of cash is blocked in raw material, WIP, finished goods, and sundry debtors and day to day cash requirements. However some part of current assets may be financed by the current liabilities also. The amount required to be invested in this current assets is always higher than the funds available from current liabilities. This is the precise reason why the needs for working capital arise


1. 2. Cash in hand and cash at bank Bills receivables Page | 23

3. 4. 5.

Sundry debtors Short term loans and advances. Inventories of stock as: Raw material Work in process Stores and spares Finished goods

6. Temporary investment of surplus funds. 7. Prepaid expenses 8. Accrued incomes. 9. Marketable securities. In a narrow sense, the term working capital refers to the net working. Net working capital is the excess of current assets over current liability, or, say:



Accrued or outstanding expenses. Short term loans, advances and deposits. Dividends payable. Bank overdraft. Provision for taxation, if it does not amt. to app. of profit. Bills payable. Sundry creditors.

2. 3. 4. 5. 6. 7.

The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.

The Gross Concept Is Sometimes Preferred To The Concept Of Working Capital For The Following Reasons:
It enables the enterprise to provide correct amount of working capital at correct time. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. Page | 24

It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital.

This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities. It indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out the permanent sources of funds. of



1. On the basis of concept. 2. On the basis of time.


a) Gross Working Capital b) Net Working Capital

a) Gross Working Capital: Gross working capital refers to the firms investment I current assets. Current assets are the assets which can be convert in to cash within year includes cash, short term securities, debtors, bills receivable and inventory. b) Net Working Capital: Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative. NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES. Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assts or the income business. 2. ON THE BASIS OF TIME: Permanent or fixed working capital. Temporary or variable working capital

Permanent or Fixed Working Capital:

Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets.

Temporary or Variable Working Capital:

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Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.


SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production. GOODWILL: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill. EASY LOANS: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms. CASH DISCOUNTS: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost. REGULAR SUPPLY OF RAW MATERIAL: Sufficient working capital ensures regular supply of raw material and continuous production. REGULAR PAYMENT OF SALARIES, WAGES AND OTHER DAY TO DAY COMMITMENTS: It leads to the satisfaction of the employees and raises the morale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits. EXPLOITATION OF FAVORABLE MARKET CONDITIONS: If a firm is having adequate working capital then it can exploit the favourable market conditions such as Page | 27

purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices. ABILITY TO FACE CRISES: A concern can face the situation during the depression. QUICK AND REGULAR RETURN ON INVESTMENTS: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future. HIGH MORALE: Adequate working capital brings an environment of securities, confidence, high morale which results in overall efficiency in a business.


Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital. Both excess as well as short working capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm.


Excessive working capital means ideal funds which earn no profit for the

firm and business cannot earn the required rate of return on its investments.
Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.
Excessive working capital implies excessive debtors and defective credit

policy which causes higher incidence of bad debts.

It may reduce the overall efficiency of the business. If a firm is having excessive working capital then the relations with banks

and other financial institution may not be maintained.

Due to lower rate of return n investments, the values of shares may also

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The redundant working capital gives rise to speculative transactions


Every business needs some amounts of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares. To pay wages and salaries. To incur day-to-day expenses and overload costs such as office expenses. To meet the selling costs as packing, advertising, etc. To provide credit facilities to the customer. To maintain the inventories of the raw material, work-in-progress, stores and spares and finished stock. For studying the need of working capital in a business, one has to study the business under varying circumstances such as a new concern requires a lot of funds to meet its initial requirements such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and ambitions of its promoters. Greater the size of the business unit, generally larger will be the requirements of the working capital. The requirement of the working capital goes on increasing with the growth and expensing of the business till it gains maturity. At maturity the amount of working capital required is called normal working capital. There are others factors also influence the need of working capital in a business.

Working Capital Operating Cycle:

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1. NATURE OF BUSINESS: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. of working capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement
of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating

inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw
material and other supplies have to be carried for a longer in the process with progressive increment of labour and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires

larger working capital than in slack season.

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6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes
one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital. DEBTORS CASH FINISHED GOODS



7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the

question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will needs lower amt. of working capital as compared to a firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its
product / services on cash requires lesser amt. of working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need
for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require

large amt. of working capital.

earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital. Page | 31

Operating efficiency. Management ability. Irregularities of supply. Import policy. Asset structure. Importance of labour. Banking facilities, etc.


Funds Requirements of company

Fixed Capital

Working Capital

Preliminary Expenses Purchase of Fixed Assets Establishment work exp. Fixed working capital

Raw materials Inventories Goods in Progress Others

Every company requires funds for investing in two types of capital i.e. fixed capital, which requires long-term funds, and working capital, which requires short-term funds. Sources of Working Capital

Long-term source (Fixed working capital) capital) a) Loan from financial institution

Short-term source (Temporary working

a) Factoring

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b) Floating of Debentures discounting c) Accepting public deposits overdraft d) Issue of shares e) Cash credit f) Commercial paper

b) Bill

c) Bank

d) Trade credit

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Estimation of working capital requirement Evaluation of working capital management Evaluation of Liquidity position & working capital utilization Analysis of relationship between working capital and profitability Analysis & sources of working capital Analyzing the level of current assets with relation to current liabilities.

Data has been collected from various sources like: Annual reports of last three years Manual of concerned departments Internet sites like,


Calculation of net working capital requirements. Ratio analysis Operating cycle & cash cycle Cash flow analysis Determining the Financing mix Statistical tools like graphical presentation Page | 34

The data is mostly secondary in nature Data has been recalculated & regrouped wherever necessary In the absence of sufficient data personnel judgment have been taken on reasonable assumption. In the absence of sufficient data in-depth study of cash, Receivables and inventory management was not possible.

Number of days in a year is 365 days. All purchases have been taken as credit purchases. All sales have been taken as credit sales.

In the absence of relevant data the data from internet site is taken as the relevant informations.

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Turnover Ratio:
Net Working Capital Ratio Working Capital Turnover Ratio Current Asset Turnover Ratio Fixed Asset Turnover Ratio

Liquidity Ratio:
Current Ratio Acid Test Ratio Absolute Ratio Profitability Ratio: Gross Profit Ratio Net Profit Ratio Operating Profit Ratio


Inventory Turnover Ratio Inventory Holding Period Inventory Proportion


Debtors Turnover Ratio Debtors Collection Ratio


Creditors Turnover Ratio Creditors Collection Period Page | 36


Cash Ratio Cash Turnover Ratio


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FOR THE YEAR 2006-2007 (Rs in Lakhs)

CURRENT ASSETS Inventories Sundry debtors Cash and bank balances Loans and advances TOTAL (A) CURRENT LIABILITIES Liabilities Provisions TOTAL (B) Working Capital (AB) Increase in working capital TOTAL

90,256.1 0 42,433.7 0 60,287.6 0 30,263.9 0

1,07,032. 10 52,287.5 0 43,493.9 0 66,957.9 0

16,776.00 9,853.80 16,793.7 0 36,694.00

2,23,241 2,69,771 .30 .40

1,14,689. 50 26,162.1 0

1,65,162. 50 10,423.0 0

50,473.0 0 15,739.10

1,40,851 1,75,585 .60 .50 82,389.7 94,185.9 0 0 11,796.2 0 94,185.9 94,185.9 0 0 79062.90 11,796.2 0 79062.9 0

This schedule of working capital is result in increasing in need for working capital to the extent of 11,796.20 from the year 2006 to 2007. Page | 38

All the current assets and in current liabilities is increased in other liabilities and decreased in cash and bank balance.

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FOR THE YEAR 2007-2008 (Rs in Lakhs)





Inventories Sundry debtors Cash and bank balances Loans and advances

1,07,032.1 0 52,287.50 43,493.90 66,957.90 2,69,771. 40

1,22,391.4 0 15,359.30 37,583.50 45,137.00 1,643.10 82,413.70 15,455.80 2,87,525. 60



Liabilities Provisions

1,65,162.5 0 10,423.00 1,75,585. 50

1,92,670.9 0 34,523.10 2,27,194. 00

27,508.40 24,100.10

TOTAL (B) Working Capital (A-B) Decrease in Working Capital

94,185.90 60,331.60


33854.30 66312.5 0 66312.50


94,185.90 94,185.90

This schedule of working capital is result in decreasing in need for working capital to the extent of 33,854.30 from the year 2007 to 2008 All the current liabilities like liabilities, provisions and in sundry debtors decreased. Rest of the current assets are increased Page | 40

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FOR THE YEAR 2008-2009 (Rs in Lakhs)


1,22,391. 44 37,583.5 1 45,137.0 1 82,413.8 5 2,87,525 .81

1,33,001. 44 95,797.4 2 8,808.36 78,954.3 5 3,16,56 1.57

Inventories Sundry debtors Cash and bank balances Loans and advances

10,610.00 58,213.91 36,328.6 5 3,459.50


Liabilities Provisions

1,92,670. 84 34,523.0 9 2,27,193. 93 60,331.8 8 42,535.1 1 1,02,866 .99

1,86,886. 41 26,808.1 7 2,13,694. 58 1,02,866. 99

5,784.43 7,714.92


Working Capital (A-B) Increase In Working Capital

42,535.1 1 1,02,86 6.99 82323.26 82323.2 6


This schedule of working capital is result in increasing in need for working capital to the extent of 42,535.11 from the year 2008 to 2009

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All the current assets like inventory, debtors and in liabilities, provisions increased. Rest of current assets are decreased.

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FOR THE YEAR 2009-2010 (Rs in Lakhs)


1,33,001. 44 95,797.4 2 8,808.36 78,954.3 5 3,16,561 .57

1,63,824. 00 1,02,206. 15 51,892.0 5 96,046.2 3 4,13,96 8.43

Inventories Sundry debtors Cash and bank balances Loans and advances

30,822.56 6,408.73 43,083.69 17,091.88


Liabilities Provisions

1,86,886. 41 26,808.1 7 2,13,694 .58 1,02,866 .99

2,59,206. 57 36,869.1 5 2,96,07 5.72 1,17,89 2.71

72,320.1 6 10,060.9 8

TOTAL (B) Working Capital (AB) Increase Working Capital

15025.72 1,17,892 .71 1,17,89 2.71 97406.86

15025.72 97406.8 6


This schedule of working capital is result in increasing in need for working capital to the extent of 15,025.72 from the year 2009 to 20010

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All the current assets are increased and in liabilities are decreased. .

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FOR THE YEAR 2010-2011


1,63,824. 00 1,02,206. 15 51,892.0 5 96,046.2 3

2,20,890. 34 1,18,521. 33 17,952.7 2 79,360.1 4

Inventories Sundry debtors Cash and bank balances Loans and advances

57,066.34 16,315.18 33,939.3 3 16,686.0 9


4,13,968 4,36,724 .43 .53

Liabilities Provisions

2,59,206. 57 36,869.1 5

3,03,794. 77 49,032.6 3

44,588.2 0 12,163.4 8

TOTAL (B) Working Capital (AB) Decrease in working capital

2,96,075 3,52,827 .72 .40 1,17,892. 71 83,897.1 3

33995.58 1,17,892 1,17,892 .71 .71

33995.58 107377.1 0 107377. 10



This schedule of working capital is result in decreasing in need for working capital to the extent of 33,995.58 from the year 20010 to 20011

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All the current liabilities and in cash and bank, loan and advance are decreased. Rest of current assets are increased.


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YEAR S 2007 2008 2009 2010 2011 CURRENT ASSETS (Rs in Lakhs) 269771.40 287525.60 316561.57 413968.43 436724.53 CURRENT LIABILITIES (Rs in Lakhs) 175585.50 227194.00 213694.58 296075.72 352827.40 NET WORKING CAPITAL (Rs in Lakhs) 94185.90 60331.60 102866.99 117892.71 83897.13

Net working capital of Ashok Leyland Ltd is maintained balanced in all years. Except in 2007-08. In this year the net working capital is very low. In 2009-10 net working capital is high.

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COST OF GOODS SOLD (Rs in Lakhs) 672474.90 711328.30 524883.71 595605.14 929253.54 NET WORKING CAPITAL (Rs in Lakhs) 94185.90 60331.60 102866.99 117892.71 83897.13 WORKING CAPITAL TURNOVER RATIO (In Times) 7.14 11.79 5.10 5.05 11.08

YEARS 2007 2008 2009 2010 2011

The working capital turnover ratio of Ashok Leyland Ltd is peak position in 200708 and 2010-11. But suddenly there is a dip in 2008-09 and 2009-10 In the year 2008 to 2010 Indian automobile. Industry was slowed down due to market slowdown.

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TOTAL SALES (Rs in Lakhs) 847542.10 912832.30 676147.21 799943.81 1231884.87 CURRENT ASSET (Rs in Lakhs) 269771.40 287525.60 316561.57 413968.43 436724.53

YEARS 2007 2008 2009 2010 2011

CURRENT ASSET TURNOVER RATIO (In Times) 3.14 3.17 2.14 1.93 2.82

The current assets turnover ratio of Ashok Leyland Ltd in 2008 to 2010 sales of the company is decreased when compare to 2006-07 and 2007-08. So the current asset turnover ratio is decreased in 2008 to 2010 In 2011 current asset turnover ratio is increased from 1.93 to 2.82 times.

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YEARS 2007 2008 2009 2010 2011 SALES (Rs in Lakhs) 847542.10 912832.30 676147.21 799943.81 1231884.87 FIXED ASSET (Rs in Lakhs) 154452.40 205479.50 439740.57 481102.89 499175.79 FIXED ASSET TURNOVER RATIO (In Times) 5.49 4.44 1.54 1.66 2.47

In Ashok Leyland Ltd, fixed asset turnover ratio is peak in 2007 as 5.49 times It has been decreased in following year 2008 and 2009. In 2011, fixed asset turnover ratio is increased when compare to previous year 2010.


YEARS 2007 2008 2009 2010 CURRENT ASSET (Rs in Lakhs) 269771.4 287525.6 316561.57 413968.43 CURRENT LIABILITIES (Rs in Lakhs) 175585.50 227194.00 213694.58 296075.72 CURRENT RATIO ( In Times) 1.53 1.26 1.48 1.39 Page | 51





The current ratio of Ashok Leyland ltd is slightly changing in all the years. In 2007 and 2009 the ratio is high. In 2011 it decreased from 1.39 to 1.23 times.

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YEARS 2007 2008 2009 2010 2011 LIQUID ASSET (Rs in Lakhs) 162739.30 165134.20 183560.13 250144.43 215834.19 CURRENT LIABILITIES (Rs in Lakhs) 175585.50 227194.00 213694.58 296075.72 352827.40 ACID TEST RATIO (In Times) 0.93 0.73 0.86 0.84 0.61

The ideal acid test ratio is 1:1. In 2007, 2009 and 2010 are near to the ideal acid test ratio. In 2011 it was decreased from 0.84 to 0.61 times.

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YEAR S 2007 2008 2009 2010 2011 ABSOLUTE LIQUID ASSET (Rs in Times) 43493.90 45137.00 8808.36 51892.05 17952.72 CURRENT ASSET (Rs in Lakhs) 269771.40 287525.60 316561.57 413968.43 436724.53 ABSOLUTE LIQUID RATIO (In Times) 0.16 0.15 0.02 0.12 0.04

The Absolute liquid ratio Ashok Leyland Ltd is good position in 2007 and 2008. But 2009, it was fall down to 0.02 from 0.15 times. In 2011, it was decreased from 0.12 to .04 times.

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GROSS PROFIT (Rs in Lakhs) 157996.80 182040.70 141780.30 191654.60 280107.14 NET SALES (Rs in Lakhs) 8,30,471.70 8,93,369.00 6,66,664.01 7,87,259.74 12,09,360.68 GROSS PROFIT RATIO (In %) 19.02 20.38 21.27 24.34 23.16

YEARS 2007 2008 2009 2010 2011

From the table show above gross profit of the firm is satisfactory in all the years But it was recovered very soon by next year and it is still doing well The current gross profit ratio is 23.16 %

YEARS 2007 2008 2009 SALES (Rs in Lakhs) 8,30,471.70 8,93,369.00 6,66,664.01 NET PROFIT (Rs in Lakhs) 44,128.60 46,931.00 18999.63 NET PROFIT RATIO (In %) 5.31 5.25 2.85 Page | 55

2010 2011

7,87,259.74 12,09,360.68

42367.48 63129.93

5.38 5.22

From the data given in the above table it is clear that the net profit of the company is almost maintained constant except in the year 2008-09. Due to market slow down the net profit of the company effected. But in 2009-10 it shot up as the company recovered very fast.

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5.3 Inventory Management:

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc. The key is to know how quickly your overall stock is moving or, put another way, how long each item of stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them. Nowadays, many large manufacturers operate on a Just-In-Time (JIT) basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock holding and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the principles of prudent stock management.

The key issue for a business is to identify the fast and slow stock movers with the objectives of establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks. Inventory management is the active control program which allows the management of sales, purchases and payments. Inventory management software helps create invoices, purchase orders, receiving lists, payment receipts and can print bar coded labels. An inventory management software system configured to your warehouse, retail or product line will help to create revenue for your company. The Inventory Management will control operating costs and provide better understanding. We are your source for inventory management information, inventory management software and tools A complete Inventory Management Control system contains the following components:

Inventory Management Definition Inventory Management Terms Inventory Management Purposes

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Definition and Objectives for Inventory Management Organizational Hierarchy of Inventory Management Inventory Management Planning Inventory Management Controls for Inventory

Inventory Management must tie together the following objectives, to ensure that there is continuity between functions: Companys Strategic Goals Sales Forecasting Sales & Operations Planning Production & Materials Requirement Planning. Inventory Management must be designed to meet the dictates of market place and support the companys Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control. Factors to be considered when determining optimum stock levels include: What are the projected sales of each product? How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers? Remember that stock sitting on shelves for long periods of time ties up money, which is not working for you. For better stock control, try the following: Review the effectiveness of existing purchasing and inventory systems. Know the stock turn for all major items of inventory. Apply tight controls to the significant few items and simplify controls for the trivial many. Sell off outdated or slow moving merchandise - it gets more difficult to sell the longer you keep it. Page | 59

Consider having part of your product outsourced to another manufacturer rather than make it yourself.

Review your security procedures to ensure that no stock "is going out the back door!" Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and interest charges.

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YEARS 2007 2008 2009 2010 2011 COST OF GOOD SOLD (Rs in Lakhs) 672474.90 711328.30 524883.71 595605.14 929253.54 AVG. INVENTORY (Rs in Lakhs) 98644.10 114711.75 127696.42 148412.72 192357.17 INVENTORY TURNOVER RATIO (In Times) 6.82 6.20 4.11 4.01 4.83


During the 2007-08 the company has very high inventory ratio of 6.82 which means more capital is being locked up in the inventory. But from the year 2008 to 2010 the ratio was decreased from 6.20 to 4.01 In 2011 it was increased from 4.01 to 4.83 times

YEAR S 2007 2008 2009 2010 2011 INVENTORY TURNOVER RATIO (In Times) 6.77 6.15 4.07 3.98 4.79 INVENTORY HOLDING PERIOD (In Days) 54 59 90 92 76

DAYS 365 365 365 365 365

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Inventory holding period was good from 2007-08 to 2008-09 But in 2009 to 2010 it was peak position In 2011 it was slowly decreased from 92 to 76 days

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RAW MATERIA L 38533.90 42292.90 53257.43 58606.54 94841.45 WORKING IN PROGRES S 10950.70 11404.70 9408.24 34656.26 26282.03 FINISHE D GOODS 53257.00 62550.50 64651.64 64588.12 90515.95 OTHER S 4290.5 6143.30 5684.1 5973.08 9250.91 INVENTOR Y 107032.10 122391.40 133001.41 163824.00 220890.34

YEARS 2007 2008 2009 2010 2011


Raw materials consumed are increasing from year by year. There is a rapid change in the year 2010-11. WIP increased in first 2 years and then started decreasing but there is a rapid change in the year 2009-10 Total inventory is increasing from year to year. There is rapid change in the year 201010


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The term debtors are defined, as debts owed to the firm by the customers arising from sales of goods or service in the ordering course of business. Debtors or receivables are assets accounts representing amount owed to the firm by customers from sale of goods or service. It has to be mentioned that the credit that is open account in the sense that no formal acknowledgement of debts obligation is required. In fact, a credit sale, which leads to debtors, is treated as one of the marketing tools. Great majority of firm does not demand immediate cash payment when goods or service are sold to their regular and credit worthy customers. Because of this practical, most sales require the firm to maintain debtors account for customer or a group of them for some period. Accordingly debtors or receivables occupy a significant role in firms current assets structure usually next to inventories

Objectives of Maintaining Receivables:

Achieving growth in sales and profits. If a firm allows sales, it will usually be able to sell more goods or service then if it insists on immediate cash payment. Similarly, an addition sale normally results in higher profits for the firm. This proportion will hold goods only when the margin contribution or gross margin greater than the addition cost associate with the administering the credit policy.

Meeting competition To survive in the competitive market, firm have to establish credit policies similar to competitors. Thus, by adopting its term of trade to the industry norms, a firm will avoid of sale form customers who would by elsewhere if they did not receive the expected credit. The above 2 objective have a single purpose, that is generate larger flow of operating revenue and hence profit, than would e achieved in the absence of a commitment of the funds to debtors. Extension of credit involves cost and risk management should weigh benefit against cost. The optimum point may be considered as the point where the return on investment in further funding of receivables is less than cost of funds raised that addition credit (i.e. cost of capital)

Cost of Maintaining Receivables:

Credit sales, and hence maintaining of debtors, involve certain costs. They are: Cost of financing debtors. Collection costs Delinquency costs Default costs Facts affecting size off receivables: The size of a firm is determined by is: Level of sales Credit terms Collection Policies Page | 64

Credit Policy:
The credit policy relating to sales and purchase also affects the working capita The credit policy influences requirement of working capital in 2 ways. Through credit term granted by the firm to its customers/ buyer of goods Credit term available to the firm its creditors The credit term granted to customers bearing on magnitude of working capital by determining the level of level of book debts. The credit sales results in higher book debts. Higher book debts mean more working capital. On the other need for working capital is less. The working requirements of a business are, thus affected by the term of purchase and sale, and the role given to credit by a company in its dealing with creditors and debtors. Similarly, collection procedure will differ from customer. With the permanent but temporary defeating customers, the firm may not be very strict in following the collection procedures. The credit evaluation procedure involves the following step. 1. Credit information 2. Credit investigation 3. Credit limits and 4. Collection procedure For effective management of credit, a firm should lay down clear-cut guidelines and procedures for granting credit to individual customers and collection individual accounts.

Size of Receivables:
An analysis of the percentage of receivables in relation assets indicates the recovery efficiency of the company of the company. Moreover, the % receivable in relation to sales indicates the firm credit sales requirement. However, this kind of analysis reveals the overall operational efficiency of the company in relation to credit sales and their recovery.

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YEARS 2007 2008 2009 2010 2011 SALES (Rs in Lakhs) 847542.10 912832.30 676147.21 799943.81 1231884.87 AVG. DEBTOR'S (Rs in Lakhs) 47360.60 44935.50 66690.46 99001.785 110363.74 DEBTOR TURNOVER RATIO (In Times) 17.90 20.31 10.14 8.08 11.16


The debtors of Ashok Leyland Ltd as compared to the net sales of the last 5 years. The debtors of our company are continuously changing as a % of sales. The debtor turnover ratio is highest in 2007-08. The debtor turnover ratio is lowest in 2009-10.

SALES (Rs in Lakhs) 847542.10 912832.30 676147.21 799943.81 1231884.9 DEBTOR'S (Rs in Lakhs) 52287.50 37583.50 95797.42 102206.15 118521.33

YEARS 2007 2008 2009 2010 2011

Debtor Collection Period (In Days) 23 15 52 47 35

Receivables management in Ashok Leyland is very efficient from 2009-10 to 2010-11 debtors collection period was decreasing.

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There is an increase in both debtors and sales, so avg. Collection period is decreasing year by year.


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Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following: Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts? Do you use order quantities, which take account of stock holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier . How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay? Can you arrange (with confidence!) to have delivery of supplies staggered or on a justin-time basis?

There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill feeling and can signal that your company is inefficient (or in trouble!).

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CREDIT PURCHASES (Rs in Lakhs) 549378.30 586109.10 448108.38 546349.09 828867.55 AVG. CREDITOR'S (Rs in Lakhs) 85284.650 115313.50 120130.00 133629.70 184547.09 CREDTOR TURNOVER RATIO (In Times) 6.44 5.08 3.73 4.09 4.49

YEARS 2007 2008 2009 2010 2011

The creditors as a percentage of sales show the sales we are generating are from credit purchases up to what extent. 2007-08 year has highest creditor turnover ratio. 2009-10 year has lowest creditor turnover ratio. Notes: In the figures of creditors only the creditors relating to purchases are taken Other payments relating to tax, outstanding expenses or any other liability are not taken under it.

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CREDITOR'S (Rs in Lakhs) 101371.20 129255.80 111004.20 156255.20 212838.98 CREDIT PURCHASES (Rs in Lakhs) 549378.30 586109.10 448108.38 546349.09 828867.55 CREDITOR COLLECTION RATIO (In Days) 67 80 90 104 94

YEARS 2007 2008 2009 2010 2011

If the average payment period will be longer the working capital required will be low. In the year 2006-07 creditors collection period is low 67. In the year 2009-10 creditors collection period is very high 104.

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Cash the most liquid assets, is of vital important of the daily operations business firms. While the proportion of corporate assets in the form of cash is very small, often between 1 & 3 % its efficient management is crucial to the solvency of business in a very important sense. Cash is the focal point of fund flows in business. In view of its important, it is generally referred to as the life blood of a business enterprise. Need For Holding Cash: 1. Transaction Motive: Firms need cash to meet their transaction needs. The collection of cash (from sale of goods services and additional financing) is not perfectly synchronized with the disbursement of cash (for purchases of goods and service acquisition of capital assets and meeting other obligations) 2. Precautionary Motive: There may be some uncertainty about magnitude and timing of cash inflows from sale of good and service, sale of assets and insurance of purchases. Like flow on account of purchases and other obligation, to protect it against such uncertainties, a firm may require some cash balances. 3. Speculative Motive: Firms would like to tap profit-making opportunities arising from fluctuations in commodity prices, security prices, interest rates and foreign exchange rates cash-rich firm is prepared to exploit such speculative earning, may require additional liquidity, however for most firms there reserve borrowing capacity and marketable securities would suffice to meet their speculative needs. 4. Compensating Motive: Yet another motive to hold cash balance is to compensate banks for providing certain service and loans. Banks provide a variety of service to business firms, such as clearance of cheques, supply of credit information, transfer of funds, and so on. While for some of these service bank charges a commission or free, for others they seek indirect compensation usually, client are required to maintain balances of cash at the bank. Since, clients this balance cannot be utilized by the firm for transaction purposes. The banks themselves can use the amount to earn a return. Such balances are compensatory balances.


Precisely speaking, the primary goals of cash management in firm to trade off between liquidity and profitability in order to maximize long-term profit, this is possible only when the firm aims at optimizing the use of funds in the working capital pool. This overall objective can be translated in the following operational goals To specify day to day business requirements. To provide for schedule major payment. To face unexpected cash drains. To seize potential opportunities for profitable long-term investments. To meet requirement of bank relationships. To build image of credit worthiness. To earn on cash balances. To minimize the operating cost by cash management.


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Cash management is one of the critical areas of working capital management and greater significance because it is most liquid asset used to specify the firms obligations but it is sterile assets, as it does not yield anything. Therefore, financial manager maintain its liquidity position without jeopardizing. The profitability. Problem of prognosticating cash flows accurately and absence of prefect coincidence between the inflows of cash added to the significance of cash management. In view of above, at one time affirm may experience dearth of cash because payment of taxes, dividends, seasonal inventory etc, build up while other times, it may have surfeit of cash stemming out of large out of cash sales and quick collection of receivables. It is interesting to observe that in real life management spends his considerable time in managing cash, which constitute relatively small portion of firms current assets.

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CASH & BANK (Rs in Lakhs) 2007 2008 2009 2010 2011 43493.90 45137.00 8808.36 51892.05 17952.72 CURRENT LIABILITIE S (Rs in Lakhs) 175585.50 227194.00 213694.58 296075.72 352827.40


CASH RATIO (In Times) 0.25 0.20 0.04 0.18 0.05

From the above table it is clear that cash ratio that is cash availability is decreasing from year by year. In the year 2008-09 it is just 0.04. So that cash position of the company should concern to take more important for the company.

CASH TURNOVER RATIO (In Times) 16.33 20.60 25.07 26.36 35.27

YEARS 2007 2008 2009 2010 2011

SALES (Rs in Lakhs) 847542.10 912832.30 676147.21 799943.81 1231884.87

AVG. CASH (Rs in Lakhs) 51890.75 44315.45 26972.68 30350.205 34922.385

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Cash turnover ratio is kept on increasing from the year 2006-07 to 2010-11 There is a constant growth in increase Cash management in Ashok Leyland is very efficient. From 2006-07 to 2010-11 debtors collection period was increasing.

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This graph shows the last five years income, profit before depreciations and taxes and

profit after tax.

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There has been decrease in the working capital for the year 2007-08. There has been decrease in the working capital for the year 2010-11.


Ashok Leyland Ltd is maintained balanced in all years efficiently and effectively. Sales decreased in 2009 and gradually increased in 2011

Liquidity Ratio:
In 2007, 2009 and 2010 are near to the ideal acid test ratio that is 1:1. From the table given above, it is clear that receivable to current asset ratio is low in 2007-08. That means receivables management is very efficient in that year. But in the year 2008-09 it is the highest. Profitability Ratio: Net profit for the year 2009 is decreased when compared to other years. From the table shown gross profit of the firm is satisfactory in all the years. .


Raw materials consumed are increasing from year by year.


Receivables turnover ratio is highest in 2007-08. Receivables turnover ratio is lowest in 2009-10.


In the year 2006-07 creditors collection period are low 67days. In the year 2009-10 the creditors collection period are very high 104 days.


Cash is not properly managed in the year 2009 and 2011.

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From the above table it is clear that percentage of cash in current assets is very less and decreasing from year by year. 7. General: Inside the factory near the petrol tank, employees are smoking there. Please take this consideration as to save valuable of life of employees. Some of the workers in factory have leg problem. So I request you to utilize medical check-up properly. Overall performance of the company is very effective.

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Recommendations can be use by the firm for the betterment increased of the firm after study and analysis of project report on study and analysis of working capital.

I would like to recommend.

Company should raise funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds. Company should take control on debtor s collection period which is major part of current assets. Company has to take control on cash balance because cash is non earning assets and increasing cost of funds. Company should reduce the inventory holding period with use of zero inventory concepts. Company should make a policy in respect of investment of excess cash, if any; in marketable securities and overall cash policy should be introduced. Management should develop a credit policy and proper self realization system from customers so that efficient and effective management of accounts receivable can be ensured. This will significantly improve the profitability and liquidity of the company. Over all company has good liquidity position and sufficient funds to repayment of liabilities. Company is increasing sales volume per year which supported to company to increase the market share year by year

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Working capital management is important aspect of financial management. The study of working capital management in Ashok Leyland ltd has revealed that the current ration was as per the standard industrial practice but the liquidity position of the company showed an increasing trend. The study has been conducted on working capital ratio analysis, working capital leverage, working capital components which helped the company to manage its working capital efficiency and affectively. Working capital of the company was increasing and showing positive working capital per year. It shows good liquidity position. Positive working capital indicates that company has the ability of payments of short terms liabilities. Working capital increased because of increment in the current assets is more than increase in the current liabilities. Companys current assets were always more than requirement it affect on profitability of the company. Current assets are more than current liabilities indicate that company used long term funds for short term requirement, where long term funds are most costly then short term funds. Current assets components shows sundry debtors were the major part in Current assets it shows that the inefficient receivables collection management. The company has a good operating cycle, liquidity position, and has sufficient funds to repay its liabilities. It is being found that components of working capital like inventory management, receivables management and cash management was managing effectively. It is being found that the production target of the company has been achieved in time; thereby the profit percentage of company is good. The company is matured one and it has contributed towards the countries growth and development and will also continue to perform and contribute to the whole nation. To conclude

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company has sound and effective management of working capital, which helps them to control the cost and increase the profit.


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