Working Capital

A Comprehensive study of Working Capital Management in MICO BOSCH
Adugodi, Bangalore-560030
Submitted in partial fulfillment of the requirements of for the award of the degree of MASTERS OF BUSINESS ADMINISTRATION Of BANGALORE UNIVERSITY
Submitted By Miss. Daphne Paul Reg. No. 05JJCM6014 Under the guidance of Dr. Justin Nelson Michael
KRISTU JAYANTI COLLEGE OF MANAGEMENT AND TECHNOLOGY BANGALORE 2007
STUDENTS DECLARATION
I, Daphne Paul, hereby declared that this project titled A comprehensive study on Working Capital Management in MICO-BOSCH submitted by me to the department of Management of Bangalore University in partial fulfillment of requirement of MBA programme is a bonafide work carried by me under the guidance of Dr. Justin Nelson Michael. This has not been submitted earlier to any other university or institution for the award of any degree diploma / certificate or published any time before.
DAPHNE PAUL
CERTIFICATE FROM GUIDE & HEAD OF THE INSTITUTION

Certified that this declaration entitled A comprehensive study on Working Capital Management in MICO-BOSCH submitted in partial fulfillment for the award of MBA Degree of Bangalore University was carried out by Miss Daphne Paul under the guidance of Dr. Justin Nelson Michael.
This has not been submitted to any other university or institution for the award of any degree/ diploma/ certificate.
GUIDE
DEAN MBA DEPARTMENT
PRINCIPAL
ACKNOWLEDGEMENT
At the successful completion of my project I would like to extend my gratitude to all those without whose valuable guidance and support it would have not been possible.
With all sincerity and respect, I would like to express my gratitude to Fr Josekutty (principal, Kristu Jayanti College) for giving an opportunity to have corporate exposure and learning at MICO-BOSCH. I thank Prof. K.S Arun Kumar (Dean, MBA Dept, Kristu Jayanti College) and Prof A M Tatti (C0-0rdinator, MBA Dept, Kristu Jayanti College) for giving me an opportunity to carry out this study.
I express my heartfelt gratitude to Mr.Murali (Manager, CTG 2, MICO) who with his rich experience helped me carry out my project effectively and also all the members of CTG for their warm attitude throughout my project period.
I also owe my gratitude to my internal guide Dr. Justin Nelson Michael (Professor, KJC) for giving me an opportunity to carry out this study.
In no less way I thank my family members. It is their blessings and motivation that prompted me to undertake this venture. With my prayerful thanks to the all mighty, I affirm my renewed thanks to everyone who in one-way or the other helped me to complete this project. I deeply acknowledge every service with great gratitude.
Daphne Paul
It has always been an
unbearable thought to me that someone could inspect one of my products and find it inferior in any way.
For that reason, I have constantly tried to deliver only products which withstand the closest scrutiny products which prove themselves superior in every respect
I have always acted according to the principle that I would rather lose money than trust. The integrity of my promises, the belief in my value of my products and of my word of honour have always had a higher priority to me than a transitory profit
ROBERT BOSCH (1861-1942) Founder: Robert Bosch GmbH, Germany
CONTENTS
Chapter 1 INTRODUCTION 1.1. Overview of Industry 1.2. Working Capital Management
1-7
Chapter 2
RESEARCH DESIGN 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Introduction Statement of the problem Objectives of the study Scope of the study Need for the study Reference period Limitations of the study Methodology of the study Source of data
8-9
Chapter 3 COMPANY PROFILE 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 About MICO About BOSCH Objectives of MICO MICO competitors Milestones of MICO Product Profile MICO in India Company vision
10-25
3.9 3.10
Organization structure Life and History
Chapter 4
ANALYSIS AND INTERPRETATION 4.1 4.2 4.3 Ratio Analysis Cash Flow Statement Funds Flow Statement
26-84 26-56 57-70 71-84 85-88
Chapter 5 FINDINGS, SUGGESTIONS AND CONCLUSIONS 5.1 Findings 5.2 5.3 Suggestions Conclusions
BIBLIOGRAPHY
LIST OF TABLES Table No 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Current Ratio Quick Ratio Absolute Liquid Ratio Inventory Turnover Ratio Receivables Turnover Ratio Payable Turnover Ratio Working Capital Turnover Ratio Current Assets Turnover Ratio Inventories to Net Working Capital Inventories to Current Assets Receivables to Net Working Capital 51 TITLE Page No 33 35 38 40 42 43 45 47 49 50
4.12
Cash and Bank to Current Assets
53
4.13
Cash Turnover Ratio
55
4.14
Cash Flow Statement- 2002
59
4.15
62
4.16
65
4.17
68
4.18
Working Capital Position- 2002
73
4.19
Funds from Operations- 2002
74
4.20
Fund Flow- 2002
75
4.21
76
4.22
77
4.23
Fund Flow- 2003
78
4.24
79
4.25
80
4.26
Fund Flow- 2004
81
4.27
82
4.28 4.29
Funds from Operations- 2005 Fund Flow- 2005
83 84
LIST OF FIGURES
No 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11
Current Ratio
TITLE
Page No 33 36 38 40 42 44 46 47 49 51 52
Quick Ratio Absolute Liquid Ratio Inventory Turnover Ratio Receivables Turnover Ratio Payable Turnover Ratio Working Capital Turnover Ratio Current Assets Turnover Ratio Inventories to Net Working Capital Inventories to Current Assets Receivables to Net Working Capital
4.12
Cash and Bank to Current Assets
54
4.13
Cash Turnover Ratio
56
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1.1 OVERVIEW OF THE INDUSTRY

Introduction Automotive industry in India is still in its infancy but growing in a rapid pace. The opportunities in automotive industry in India are attracting big names with big purse and they are investing vigorously in infrastructure, design and development and marketing. Automotive industry in India today poised for big leap. It contributes 17% of the total indirect taxes collected by the exchequer and is a driver of product and process technologies, and has become a excellent manufacturing base for global players because of its1. High machine tool capacities 2. Extremely capable component industry. 3. Most of the raw materials locally produced. 4. Low cost manufacturing base. 5. Highly skilled manpower. 6. Special capability in supplying a large volume of automotive products.
Indian automobile sector 1. India is the second largest two-wheeler manufacturer in the world. 2. Second largest tractor manufacturer in the world. 3. Fifth largest commercial manufacturer in the world. 4. Third largest car market in Asia, surpassing china in the process.
Indian automobile industry performance 1. Key players in the industry- 402 2. Investments- US $ 2.3 billion 3. Output- US $ 4 billion 4. Exports- US $ 417 million
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Market structure of the industry Auto component manufacturers supply to two kinds of buyers i.e., Original Equipment Manufacturers (OEM) and the Replacement Market. At present replacement market forms around 65% of demand. OEMs account for approximately 25% of the demand and exports accounts for the balance 10%. The replacement market structure on the basis of the product life and contribution of replacement sales to total sales. The replacement market in India is serviced by 5000 odd small-scale industry (SSI), auto component manufacturers and to a small extent organized by sector players. The replacement market is also serviced by reconditions, which buy worn out parts, recondition them and then sell at a very low price compared to new product. Sales of auto components are carried out through dealer network of components, authorized vehicles dealers and retailers.
1.2 WORKING CAPITAL MANAGEMENT

Introduction A study of working capital is of major importance of internal and external analysis because of its relationship with the current day to day operations of business. Funds, collected from different sources are invested in the business for the acquisition of assets. These assets are employed for earning revenue. The basic problem facing the finance manager of an enterprise is to trade off between conflicting but equally important goals of liquidity and profitability. The greater the liquid resources of the firm, the lesser will be its profitability and vice versa. The firm has to maintain the working capital at such level as may ensure satisfying earnings to the enterprise without jeopardizing its liquid position. Thus, WCM is concerned with the problems that arise in attempting to discuss in details various tools and techniques, which can be gainfully employed to solve the problem of determining optimum level of Working Capital. Definition of Working Capital Working Capital is defined as the excess of current assets over current liabilities and provisions. In the words of Shubin Working Capital is the amount of funds to cover the cost of operating the enterprise.
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According to Genestemberg, circulating capital means current assets of a company that are changed in the order in the ordinary course of business from one form to another as for example, from cash to inventories, inventories to receivables and receivable to cash.
Objectives The following are some of the objectives of working capital to serve the need of working capital 1. For the purpose of raw materials, components and spares. 2. To pay wages and salaries. 3. To incur day to day expenses and overhead costs such as fuel, power and office expenses etc., 4. To meet the selling costs as packing, advertising, etc., 5. To provide credit facilities to the customers. 6. To maintain the inventories of raw material, work in progress, stores and spares and finished stock.
Importance of Working Capital Working capital plays the same role in a business concern as the role of the blood in a human body. Proper management of working capital is very essential for the smooth functioning of the business. Working capital policy is concerned with two important factors viz the level of current assets to beheld and the method by which these assets are financed. A companys profitability is in one way determined by the management of its working capital. The advantages of maintaining adequate amount of working capital are as follows. Easy loan Regular supply of raw materials Good will Cash discounts Ability to face crisis Quick and regular return on investment Solvency of the business Regular payments made
In the recent year Working Capital management gained importance for a number of reasons like those listed below.
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1. The volume resource employed in current assets are huge in most of the traders and industries and the cost of the capitals required to finance the working capital is high compared to other type of fund. 2. The current assets are easily manageable in the sense that funds are committed comparatively for shorter periods and a wrong step can more easily be retrieved without causing much damage. They are easily manageable with a slight change in the policy would yield greater results. 3. By offering cash discount the firm can induce the customers to pay the bills immediately; the sale is made in the shortest possible time, thus reducing and in some cases eliminating the intermediary stage of account receivables. By offering quantity discount, the sales volume could be increased considerable, which in turn would reduce the expenses more than proportionately. 4. By changing the duration of business cycle, firm can reduce its financial and administrative cost. Reduction in the investment of Working capital does not necessarily mean improvement in the profitability of the firm. However, when all other things remain the same, reduction in the volume of working capital increases profitability.
Components of Working Capital The two components of Working Capital are Current Assets And Current Liabilities. They have a bearing on the cash operating cycle. In order to calculate the Working Capital needs, what are required are the holding period of various types of inventories, the credit collection period and the credit payment period. Working Capital also depends on the budgeted level of activity in terms of production & sales. The calculation of working capital is based on the assumption that the production or sale is carried on evenly throughout the year and all costs accrue similarly. As the working capital requirements are related to the cost of excluding depreciation and not the sale price, Working capital is computed with reference to cash cost. The cash cost approach is comprehensive and superior to the operating cycle approach based on holding period of debtors and inventories and payment period of creditors.
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The most important components of Working Capital are: 1. Cash 2. Receivables 3. Inventory
Factors influencing Working Capital
1. Production Policy: In certain industries the demand is subject to wide fluctuations to seasonal variation. The requirements of working capital, in such cases depend upon the production policy. 2. Nature or Character of Business: The working capital requirements of a firm basically depend upon the nature of the business. Public utility undertakings like electricity, water supply and railways need very limited working capital because they offer cash sales only and supply services not products, and as such no funds are tied up in inventories and receivables. On the other hand, trading and financials firms require less investment on fixed assets but have to invest large amounts in current assets like inventories, receivables and cash. As such they need large amount of working capital. The manufacturing undertakings also require sizeable working capital along with fixed investments because they have also to build inventories. 3. Size of Business or Scale of Operations: The WC requirements of a concern are directly influenced by the size of its business, which may be measured in terms of scale of operations. 4. Seasonal Variations: In certain industries, raw material is not available throughout the year. They have to buy raw materials in bulk during the seasons to ensure an uninterrupted flow and process them during the entire year. 5. Manufacturing Process or Length of production cycle: Manufacturing business, the requirements of WC increase in direct proportion to length of manufacturing process. 6. Working Capital Cycle: In a manufacturing concern, the WC cycle starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products. This cycle involves purchase of raw materials and stores, its conversion into stocks of finished goods through work in progress with increment of finished stock into sales, debtors and
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receivable and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on. 7. Credit Policy: The credit policy of a concern in its dealings with debtors and creditors influences considerably the requirements of WC.A concern that purchases its requirements on credit and sells its products or services on cash requires lesser amount of WC. 8. Rate of stock turnover: There is a high degree of inverse correlation between the quantum of WC and velocity or speed with which the sales are affected. 9. Rate of growth of Business: The WC requirements of a concern increase with the growth and expansion of its business activities. 10. Business Cycles: Business Cycle refers to alternate expansion and contraction in general business activity. In a period of boom i.e., when business is prosperous there is a need for larger amount of WC due to increase in sales, rise in prices, optimistic expansion of business, etc., on the contrary in the times of depression, the business contracts, sales decline, difficulties are faced in collections from debtors and firms may have a large amount of WC lying idle. 11. Earning capacity and dividend policy: Some firms have more earning capacity than others due to quality of their products, monopoly conditions etc., and such firms with high earning capacity may generate cash profits from operations and contribute to their WC. 12. Price level Changes: Changes in the price level also affect the WC requirements. 13. Other factors: Certain other factors such as operating efficiency, management ability, irregularity of supply, import policy, asset structure, importance of labour, banking facilities, etc., also influence the requirements of WC 14. Receivable Turnover: It is necessary to have an effective control of receivables. A prompt collection of receivables and good facilities for settling payables result into low WC requirements. 15. Volume of sales: This is the most important factor affecting the size and components of WC. A firm maintains current assets because they are needed to support the operational activities, which result in sales. The volume of sales and size of the WC are directly related to each other. As the volume of sales increases, there is an increase in the investment of WC I n the cost of operations, in inventories and in receivables.
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16. Terms of Purchase and Sales: If the credit terms of purchases are more favorable and those of sales less liberal, less cash will be invested in inventory. With more favorable credit terms, WC requirements can be reduced. A firm gets more time for payment to creditors or suppliers. A firm, which enjoys greater credit with banks, needs less WC. 17. Activities of the Firm: A firms stocking on heavy inventory or selling on easy credit terms calls for a higher level of WC than for selling services or making cash sales. 18. Value of Current Assets: A decrease in the real value of current assets as compared to their book value reduces the size of the WC. If the real value of current assets increases, there is an increase in the WC.
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RESEARCH DESIGN
2.1 Introduction Motor Industries Company Ltd. (MICO) is a subsidiary of Robert Bosch GmbH, Germany, and Founded in 1951. MICO has been a pioneer and a leader in the Indian automotive segment for the last 54 years, and is the largest manufacturer of diesel fuel injection equipment in the country and among the worlds largest. It is the largest indoGerman company and a household name in India today. MICO has recently been awarded the auto component manufacturer of the year 2005 by leading industry bodies and auto publications in the country.
2.2 Statement of the problem The performance of the company is based vitally on the Working Capital Management. Since MICO is a manufacturing organization and the prime component in total cast is materials, so the ccompany should manage the current assets & current liabilities efficiently. Excessive filing of inventory, idle cash, crunch in liquidity, receivables recovery and so on are very important in the organization. These are the components of working capital also. Therefore a proper management of these is very important. Hence an attempt is made to see whether there is a good management of these components in MICO ltd and hence this study.
2.3Objectives of the study 1. To study the Working Capital Management in MICO 2. To study the liquidity position of the company 3. To study the judicious use of source and application of funds in the company
2.4 Scope of the study This study tries to cover all aspects of Working Capital Management in MICO ltd. It studies the important areas to establish a better control over all the components of Working Capital in an industry.This study tries to identify optimum Working Capital requirements for MICO and various sources available for financing the Working Capital in general.
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2.5 Need for the study 1. To know the components of Working Capital 2. To know the importance of working Capital in day to day activities of the business 3. To know the factors that affects Working Capital 4. To find out the sources available for financing Working Capital 2.6 Reference period Reference Period is from the year 2001 to 2005
2.7 Limitations of the study 1. Te data was collected only for a period of 5 years. 2. The limitation of Ratio Analysis
2.8 Methodology of the study The study aims at analysing Working Capital Management using various parameters of Management Accounting. The parameters adopted to analyse working capital of MICO are Ratio Analysis, Cash Flow Analysis and Fund Flow Analysis.
2.9 Source of data The study is based on secondary data, which is available in the Annual Reports of MICO. The main data used for analysis is audited Balance Sheets and Profit and Loss Account.
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COMPANY-PROFILE
3.1 About MICO
Motor Industries Company Ltd. (MICO) is a subsidiary of Robert Bosch GmbH, Germany, and Founded in 1951. MICO has been a pioneer and a leader in the Indian automotive segment for the last 54 years, and is the largest manufacturer of diesel fuel injection equipment in the country and among the worlds largest. It is the largest indoGerman company and a household name in India today. MICO has recently been awarded the auto component manufacturer of the year 2005 by leading industry bodies and auto publications in the country.
With access to the international technology of Bosch, conscious commitment to quality, and over 10,000 employees, MICO currently has 4 plants in the country, including two in Bangalore and one each in Jaipur and Nashik. All four plants are TS 16949 and ISO 14001 certified.
MICO business includes industrial equipment, auto-electrical equipment, gear pumps for tractor applications, electro power tools, packaging machines, security technology products and Blaupunkt car multimedia systems. MICO has developed excellent R&D and manufacturing capabilities, a strong customer base and its market leadership is testimony to the high quality of its technology and products.
MICO also has a strong presence in the Indian automotive service sector. The service network of MICO spans 1,000 towns and cities with over 4,000 authorised representatives who ensure widespread availability of both, products and after-sales service.
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3.2 About Bosch
Robert Bosch GmbH is closely associated with the automotive industry across the world. The name Bosch is not just famous for automotive technology products like gasoline, diesel and chassis systems and car electronics alone; it also supplies products relating to automation technology, metals technology, packaging technology as well as power tools, heating technology, household appliances and security systems. In the year 2004 alone, Bosch has filed 2800 patent applications. This makes Bosch the second largest patent applicant in Germany, and the third largest at the European patent office. Founded in 1886 in Germany, as workshop for precision mechanics and electrical engineering by Robert Bosch, Bosch today is the largest automotive technology supplier in the world with a global group turnover of Euro 40 billion.
Bosch is active in every continent with 260 subsidiaries and associated companies in more than 50 countries. Bosch operates 249 manufacturing locations worldwide, of which 185 are located outside Germany in Europe, North & South America, Africa, Asia and Australia. It currently employs 242,400 people worldwide.
The power of we philosophy
Bosch Brand Building, popularly know as B3 aims at building the vision of Bosch in India in all spheres of its activities. What happens when two hands come together? There is a round of applause. That is The power of We bringing together the strengths of Bosch and Mico for the benefit of the industry. This partnership has manifested itself right from R&D and application, quality benchmarking, manufacturing to the final delivery. It is also strongly displayed in all our
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product packaging, internal and external communications and media Endeavors. It is also found in every facet of our work spectrum in our earnest effort to Better the best. The power of We is our business philosophy and envisions an exciting future that beholds Mico with Bosch. Bosch will be an active partner towards globalization and larger product portfolios at Mico. The synergy between BOSCH and MICO brands will only be strengthened with the spirit of The power of We and will play a bigger role in the international automotive market.
3.3 Objectives of MICO 1. To develop all facts of corporate communications functions at motor industries co. ltd. 2. To build, nurture & sustain the Bosch brand in India. 3. Play the role of custodians of Bosch corporate design & branding guidelines. 4. Implement Bosch corporate design guidelines in MICO involving all divisions and plants. 3.4 MICO competitors Denso Delphi. Zexel. Doowon. Lucas TVS. Champion. NGK. Nippon
Major MICO customers Ashok Leyland. Bajaj Tempo. Eicher tractors. Escorts. Hindustan motors. HMT. Kirloskar Oil Engines. Mahindra & Mahindra. Maruti Udyog.
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Premier automobiles. Simpson. Swaraj Mazda. Telco. Ford. Tata motors. Bajaj auto ltd. Southern railways.
Greaves auto ltd. TVS (Auto electrical). Lobordini. LML. Kinetic Honda ltd. Comp co. All tractor-manufacturing companies in India. Hero Honda motors.
3.5 Milestones of MICO
1951 Establishment of the company 1953 Construction of the first factory building at Bangalore. 1954 Manufacture of spark plugs, single cylinder diesel fuel injection pumps and nozzle holders. 1955 Manufacture of elements and delivery valves. 1956 Manufacture of multi-cylinder diesel fuel injection pumps 1972 Manufacture of nozzles and nozzleholders at Nashik plant.
1974 Production begins at Nashik plant. 1981 Manufacture of special purpose machines and tools. 1986 Manufacture of VE distributor pumps. 1989 Manufacture of hydraulic products. Manufacture pf auto electricals. 1990 Inauguration of Naganathapura plant. 1991 MICO becomes the Bosch global development centre for single-cylinder diesel fuel injection pumps. MICO represents Bosch for imported automotive aftermarket products,
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automotive workshop test equipment and hydraulics and pneumatics. MICO establishes purchase office for Bosch. 1992 Marketing of automotive accessories. ISO 9001 certification for all the three plants. 1993 Manufacture of Bosch electric power tools. 1994 Manufacturing of packaging machines. 1995 MICO becomes the Bosch global development centre for a range of multicylinder diesel fuel injection pumps. 1996 Launch of Blaupunkt car audio systems. 1997 QS 9000 certification for Bangalore, Nashik and Naganathapura plants. 1998 Production of 20-millionth single cylinder pump. 1999 Inauguration of Jaipur plant. Manufacture of Blaupunkt car audio systems in India.
2000 Inauguration of MICO application centre (MVC) Bangalore plant adjudged all-India best establishment for the 25th time. QS 9000 certification for Jaipur plant. 2001 Launch of terra-25 packaging machine 2002 Production of 25- millionth single cylinder pump. Launch of first Bosch car service outlet. ISO 9001:2000 certification for industrial equipment, packaging technology and power tools division. ISO 14001 (environmental management system) certification for Bangalore plant. 2003 Production of 10-millionth inline A pump. Launch of Bosch security systems. TS16949 certification for all MICO plant. ISO 9001:2000 certification for car multimedia division.
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2004 Bosch announces an investment of Rs. 1,000 crores in India over the next 4 years. Launch of BVK2000A worlds fastest candy wrapping machine. Launch of Terra 40 packaging machine. Bosch car service network expands to 50 centres. Launch of plena voice alarm system by Bosch security systems for application in emergency evacuation.
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3.6 Products profile Auto spares Special purpose machines Bosch power tools Bosch products Auto spares Auto electricals Automotive lighting Automotive relays Automotive batteries Clutch plates Fuel injection pipes Automotive belts Filters & Shock Absorbers Spark plugs Horns Glow equipment Aral lubricants Packaging machines Blaupunkt car audio system Fuel injection equipment Export oriented unit
Bosch power tool CONSTRUCTION TOOLS METAL WORKING TOOLS Impact tools Rotary hammers Demolition hammer Diamond drills Bosch products Silver batteries Automotive relays Spark plugs Horns Screwdriver Routers Service air tools Angel grinders Straight grinders Shear, nibbler WOOD WORKING TOOLS Jigsaw Circular saw Planer Production air tools High frequency Production cordless AIR TOOLS
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Fuel injection equipments Multi cylinder pumps Distributors pumps Single cylinder pumps Injectors
3.7 MICO in India

Infrastructure Their infrastructure is one of the best in the country. Individual workplaces designed as per international standards provide an environment that one can be proud of. Facilities, such as health care, canteen, sports, are also offered.
PLANTS
Corporate office of Mico at Bangalore, India.
BANGALORE Being the Bosch global center of competence the plant reached another milestone by manufacturing the 30 millionth PF pump. The manufacture of Elements and Delivery valves was consolidated at Bangalore to cater to the requirements of the products in India and globally within the Bosch group. The plant also successfully achieved the transfer of
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the manufacture of certain type of elements for the aftermarket and distributor pump components from the Venissieux plant of Bosch in France. NASHIK The plant crossed the 10 million DSLA Nozzle productions and achieved a record volume of Nozzle Holder assembly Production and a new height in exports. It also successfully commenced the Common Rail Injector components production. NAGANATHAPURA The Energy and Body systems division registered an impressive volume growth in the manufacture of auto electrical products. The spark plug business division further improved their efficiency through capacity downsizing; cost reduction and higher market share in the OE segment. JAIPUR The plant manufactured over 340000 VE pumps, more than double the quantity produced in the previous year. It was tough but a rewarding year with ramp-up in capacity and steep increase in production volumes.
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It has always been an unbearable thought to me that someone could inspect one of my products and find it inferior in any way. For that reason, I have constantly tried to deliver only products which withstand the closest scrutiny products which prove themselves superior in every respect I have always acted according to the principle that I would rather lose money than trust. The integrity of my promises, the belief in my value of my products and of my word of honour have always had a higher priority to me than a transitory profit
ROBERT BOSCH (1861-1942) Founder: Robert Bosch GmbH, Germany.
3.8 Company Vision We the employees of MICO are motivated, informed, creative and open minded, our aim is to delight our customers through world-class products, services and solutions, continuous improvement is my way of life and I will work professionally to succeed. Values The company as a constitute of Bosch group has always been a value driven company. Many of these values go back to Robert Bosch, the founder. Other values has changed or arisen over time. These values have now been confined in order to ensure uniform and common understanding and systematic implementation across all locations and units. Employees who know the values of the company, who have internalized and who live according to them gain additional strength and orientation for their daily work. This helps the employees to take better and faster decisions, to develop greater initiative and to take on greater accountability for their own actions. In the end this makes the company better.
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These values areFuture and result focus: In order to ensure dynamic development of our company and to guarantee long-term corporate success, we participate in shaping the changes in markets and technologies. By doing so, we provide our customers with innovative solutions and our associates with attractive jobs. Our actions are result focused in order to secure growth and financial independence. Responsibility: we accept that our actions must accord with the interests of the interests of the safety of people, the economic use of resources, and environmental sustainability. Initiative and development: we act on our initiative, with an entrepreneurial but accountable spirit, and demonstrate determination in pursuing our goals. Openness and trust: we inform our associates, partners and investors in a timely and open fashion, of important developments within our company. By this we establish a relationship based on trust. Fairness: we view mutual fairness as a condition of our corporate success when dealing with each other and with our business partners. Reliability, credibility and legality: we promise only what we can deliver, accept agreements as binding, and respect and observe the law in all our business transactions. Cultural diversity: we recognize regional and cultural diversity as an asset, as a precondition of our success.
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3.9 Organization structure:
Supervisory board
Zimmrar, Irani, Bohr, Parakh, Steinrueoke, Hieronimous, Lakshminarayan, Vishwanathan
MICO/GL
MICO/P:Heronimous MICO/NE MICO/EM: Lakshminarayan MICO/QMM MICO/EC: Vishwanathan BanP/PT BanP/PC MICO/LEG
MICO/BA
BanP/QMM
NaP/PT
NaP/PC
MICO/HR
MICO/PA, EB
MICO/PJM
JaP/PT
JaP/PC
MICO/FIN
MICO/BO
NaP/QMM
MICO/PA-PT
MICO/CTG
MICO/PA, PA
NhP/QMM
MICO/AUD
MICO/PA, PT
JaP/QMM
MICO/ISY
MICO/PA, GS
MICO/AT- QMM
MICO/TXI
MICO/PA, ST
MICO/PT-QMM
MICO/TXD
MICO/COM
MICO/PJ-SAP
MICO/DSO
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Code descriptions of the organization
Unit Code MICO/P
Description Managing Director with the responsibility for Engineering application and sales General Manager, Engineering and Application General Manager, Sales Automotive Aftermarket General Manager, Product Area Energy and Body System General Manager, Original Equipment Sales India and Export General Manager, Product Area Packaging Technology General Manager, Production Area- Power Tools Deputy General Manager, Product Area- Security System Deputy General Manager, Product Area-Gasoline System Joint Managing Director, Manufacturing with responsibility for Investment and Quality management
MICO/NE MICO/SA MICO/PA-EB MICO/SO MICO/PA-PA MICO/PA-PT MICO/PA-ST MICO/PA-GS MICO/EM
MICO/QMM Ban P/QMM MICO/PJM
General Manager, Quality Management and Methods Quality Managements and Methods, Ban P Deputy General Manager, Product Management- Engineering and Buildings
Na P/QMM Nh P/QMM Ja P/QMM MICO/AT-QMM
Deputy General Manager, Quality Management and Methods, Na P Deputy General Manager, Quality Management and Methods, Nh p Division Manager, (Quality Management and Methods, Ja P) Senior Manager, Quality Management and Methods-Automation, Special Purpose Machines, Tools and Prototypes
MICO/PT-QMM Ban P/PC Na P/PT Na P/PC Ja P/PT
Senior Manager, Quality Management and Methods- Power Tools General Manager (Commercial Plant Management-Ban P) General Manager (Technical Plant Management-Na P) Deputy General Manager, Commercial Plant Management-NaP General Manager (Technical Plant Management Ja P)
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Ja P/PC MICO/PA-AT
General Manager (Commercial Plant Management- Ja P) General Manger, Product Area- Automation, Special Purpose Machines, Tools and Prototypes
MICO/EC
Joint Managing Director, Finance and Administration, IT coordination
MICO/LEG MICO/HR MICO/FIN MICO/CTG MICO/AUD MICO/TXD MICO/TXI MICO/PJ-SAP MICO/DSO MICO/ISY MICO/COM
General Manager, Legal Counsel and Company Secretary General Manager, Human Resource Deputy General Manager, Finances and Treasury Management Divisional Manager (Controlling, Accounts, Budgeting and MIS) Deputy General Manager, Auditing - Internal Deputy General Manager, Taxes - Direct Deputy General Manager, Taxes -Indirect Deputy General Manager, Project SAP Data Security Officer Deputy General Manager (Information Systems) Senior Manager, Corporate Communications
3.10 ROBERT BOSCH: - Life and Works Robert Bosch was born on September 23, 1861, in Albeck, a village to the north of Ulm in southern Germany. Eleventh of twelve children, his parents came from a class of well-situated farmers from the region. His father, a freemason, was unusually well educated for someone of his class, and placed special importance on good education for his children. From 1869 to 1876, Robert Bosch attended the Realschule (secondarytechnical school) in Ulm, and then took an apprenticeship as a precision mechanic. After his school and practical education, Bosch spent a further seven years working at diverse companies in Germany, the U.S. (for Thomas Edison in New York), and the UK (for Siemens). On November 15, 1886, he opened his own "Workshop for Precision Mechanics and Electrical Engineering" in Stuttgart. A year later, he made a decisive
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improvement to an unpatented magneto ignition device made by the engine manufacturer Deutz. This gave him his first business success. The purpose of the device was to generate the electric spark needed to cause the air/fuel mixture in a (stationary) combustion engine to explode. And in 1897, Bosch was the first to adapt such a magneto ignition device to a vehicle engine. In doing so, he solved one of the greatest technical problems faced by the automotive industry still in its infancy.
Even before the 19th century came to an end, Bosch expanded his operations beyond Germanys borders. The company established a sales office in the UK in 1898, and other European countries soon followed. The first sales office and the first factory in the U.S. were opened in 1906 and 1910 respectively. By 1913, the company had branch operations in the Americas, Asia, Africa, and Australia, generating 88% of its sales outside Germany. In rapid succession in the years following the First World War, Bosch launched innovations for the motor vehicle, including diesel fuel injection in 1927. In the 1920s, moreover, the global economic crisis caused Bosch to begin a rigorous program of modernization and diversification in his company. In a few years time, he succeeded in turning his company from a small automotive supplier founded on the skilled trades into a multinational electronics group.
From the very beginning, Bosch was greatly concerned to promote occupational training. Prompted by his keen awareness of the entrepreneur's social responsibility, he was one of the first industrialists in Germany to introduce the eight-hour working day. It was followed by other exemplary social benefits for his associates. Robert Bosch did not wish to make any money from the armaments contracts awarded to his company during the First World War. Instead, he donated several million German marks to charitable causes. A hospital that he gave to the city of Stuttgart was officially opened in 1940. In the 1920's and 1930's, Robert Bosch was also politically active. As a liberal entrepreneur, he was part of numerous economic committees. He devoted a great deal of energy and money to the cause of bringing about reconciliation between Germany
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and France. He hoped this reconciliation would bring about lasting peace in Europe and lead to the creation of a European economic area without customs barriers. But the National-Socialist regime in Germany brought Bosch's peacemaking efforts to an abrupt end. The company soon accepted armaments contracts, and employed forced labourers during the war. At the same time, however, Robert Bosch supported the resistance against Adolf Hitler. Together with his closest associates, he saved people of Jewish descent and other victims of Nazi persecution from deportation. In 1937, Robert Bosch had restructured his company as a private limited company. He had also written up his last will and testament, in which he stipulated that the earnings of the company should be allocated to charitable causes. At the same time, his will sketch the outlines of the corporate constitution, which was formulated by his successors in 1964 and is still valid today.
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ANALYSIS AND INTERPRETATION OF DATA

The term financial analysis and interpretation refers to the process of determining financial strengths and weakness of the firm by establishing a strategic relationship between the components of financial statements and other operating data.
The purpose of financial analysis is to diagnose the information contained in financial statements so ass to judge the profitability and soundness of the firm.
FINANCIAL ANALYSIS means simplification of financial data by methodical classification of data given in financial statements. INTERPRETATION means explaining the meaning of and significance of data so simplified. The analysis and interpretation of financial statements is used to determine the financial position and result of operations as well.
Following are the management techniques used to study the relationship between different parameters. 1. Ratio Analysis 2. Cash Flow Analysis 3. Fund Flow Analysis
4.1 RATIO ANALYSIS
Meaning of Ratio Analysis Ratio Analysis is the technique of the calculation of a number of accounting ratios from the data found in the financial statements, the comparison of the accounting ratios with those of the previous years or with those of other concerns engaged in similar line of activity or with those of standard ratios and the interpretation of the comparison.
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Significance of Ratio Analysis The ratio analysis is one of the most powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. A ratio is known as a symptom like blood pressure, the pulse rate or the temperature of an individual. It is with the help of ratios that the financial statement can be analyzed more clearly and decisions made from such analysis. With the use of ratio analysis one can measure the financial condition of a firm and can point out whether the condition is strong, good, questionable or poor. The conclusions can also be drawn as to whether the performance of the firm is improving or deteriorating. Thus, ratio analyses have wide applications and are of immense use today. Managerial uses of Ratio analysis
1.
Helps in decision making: Financial statements are prepared primarily for decision-making. But the information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn from these financial statements alone.
2.
Helps in financial forecasting and planning: Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for the future. Meaningful conclusions can be drawn for future from these ratios.
3.
Helps in Co-ordination: Ratios even help in co-ordination, which is of utmost importance in effective business management. Better communication of efficiency and weakness of an enterprise results in better co-ordination in the enterprise.
4.
Utility to shareholders / investors: An investor in the company will like to assess the financial position of the concern where he is going to invest. His first interest will be the security of his investment and then a return in the form of dividend or interest. The investor will feel satisfied only if the concern has sufficient amount of assets. Long-term solvency ratios will help him in assessing financial position of the concern. Profitability ratios, on the other hand, will be
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useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.
5.
Helps in communicating: The financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios. The information contained in the financial statements is conveyed in a meaningful manner to the one for whom it is meant.
6.
Helps in control: Ratio analysis even helps in making effective control of the business. Standard ratios can be based upon proforrma of financial statements and variances or deviations, if any, can be found by comparing the actual with the standard so as to take a corrective action at the right time. The weaknesses or otherwise, if any, come to the knowledge of the management which helps in effective control of the business.
7.
Other Uses: It is an essential part of the budgetary control and standard costing. Ratios are of immense importance in the analysis and interpretation of financial statements as they bring the strength or weakness of a firm.
8.
Utility to Employees: The employees are also interested in the financial position of the concern especially profitability. Their wage increases and amount of fringe benefits are related to the volume of profits earned by the concern. The employees make use of information available in financial statements. Various profitability ratios relating to gross profit, net profit, etc. enable employees to put forward their viewpoint for the increase of wages and other benefits.
9.
Utility to Creditors: The creditors or suppliers extend short-term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The concern pays short-term credit out of its current assets. If the current assets are quite sufficient to meet current liabilities then the creditors will not hesitate in extending credit facilities. Current and acid test ratios will give an idea about the current financial position of the concern.
10.
Utility to Government: Government is interested to know the overall strength of the industry. Various financial statements published by industrial units are used to calculate ratios for determining short-term, long-term and overall financial
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position of the concerns. Profitability indexes can be prepared with the help of ratios. Government may base its future policies on the basis of industrial information available from various units. The ratios may be used as indicators of overall financial strength of public as well as private sector. In the absence of the reliable economic information, governmental plans and policies may not prove successful.
11.
Tax audit requirements: Section 44AB was inserted in the Income Tax Act by the Finance Act 1984, under this section every assesses engaged in any business and having turnover or gross receipts exceeding Rs.40 lakh is required to get the accounts audited by a chartered accountant and submit the tax audit report before the due date for filing the return of income under section 139(1). In case of a professional, a similar report is required if the gross receipts exceed Rs.10 lakhs. Clause 32 of the Income Tax Act requires that the following accounting ratios should be given:

Gross Profit / turnover Net Profit / Turnover Stock-in-trade / Turnover Material Consumed / Finished Goods Produced.
Limitations of Ratio analysis The Ratio analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations: 1. Limited use of a single ratio: A single ratio usually does not convey much of sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion. 2. Lack of adequate standards: Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessarily true indicators of the future.
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3. Change of Accounting Procedure: Change in accounting procedure by a firm often makes ratio analysis misleading, example, a change in the valuation of methods of inventories, from FIFO to LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and an unfavourable gross profit ratio. 4. Window Dressing: Financial statements can easily be window dressed to present a better picture of its financial profitability position to outsiders. Hence, one has to be very careful in making a decision from ratios calculated from such financial statements. But it may be very difficult for an outsider to know about the window dressing made by a firm. 5. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways. 6. Inherent limitations of accounting: Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessarily true indicators of the future. 7. Un comparable: Not only industries differ in their nature but also the firms of the similar business widely differ in their size and accounting procedures, etc. It makes comparison of ratios difficult and misleading. Moreover, comparisons are made difficult due to differences in definitions of various financial terms used in the ratio analysis. 8. Absolute figures distortive: Ratios devoid of absolute figures may prove distortive, as ratio analysis is primarily a quantitative analysis and not a qualitative analysis. 9. Price level changes: While making ratio analysis, no consideration is made to the changes in price levels and this makes the interpretation of ratios invalid. 10. Ratios no substitutes. Ratio analysis is merely a tool of financial statements. Hence, ratios become useless if separated from the statements from which they are computed.
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Parameters used to evaluate the performance 1. Current Ratio or Working Capital Ratio 2. Quick Ratio or Liquid Ratio 3. Absolute Liquid Ratio or Cash Ratio 4. Inventory Turnover Ratio 5. Receivables Turnover Ratio 6. Payables Turnover Ratio 7. Working Capital Turnover Ratio 8. Current Assets Turnover Ratio 9. Inventories to Net Working Capital 10. Inventories to Current Assets 11. Receivables to Net Working Capital 12. Cash and Bank to Current Assets 13. Cash Turnover Ratio 1. Current ratio or working capital ratio Current ratio may be defined as the relationship between current assets and current liabilities. It is a measure of general liquidity and is most widely used to make the analysis of short-term financial position or liquidity of the firm. It is calculated by dividing the total of current assets by the total of current liabilities. Components of Current Ratio Current Assets 1. Cash in Hand 2. Cash at Bank 3. Marketable Securities (short term) 4. Short term investments 5. Bills Receivable 6. Sundry Debtors 7. Inventories (Stocks) 8. Work in progress 9. Prepaid Expenses
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Current Liabilities 1. Outstanding Expenses or Accrued Expenses 2. Bills Payable 3. Sundry Creditors 4. Short-term advances 5. Income-tax Payable 6. Dividends Payable 7. Bank Overdraft (if not a permanent arrangement)
Expression of Current Ratio
Current Ratio = Current Assets Current Liabilities
Significance of Current Ratio
Current Ratio serves the following purposes: 1. Current Ratio indicates the liquidity or the short-term solvency i.e., the short-term financial position of the concern. In other words, it indicates the ability of a concern to meet its current liabilities I.e., short-term obligations. 2. It is also a measure of the Working Capital available in a concern at any time. It is for this reason that this ratio is also known as Working Capital Ratio.
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Table No. 4.1

Table showing current assets, current liabilities and current ratio (Rs. Millions) YEAR 2001 2002 2003 2004 2005 CURRENT ASSETS 5965 6046 7734 9986 11935 CURRENT LIABILITIES 3915 4216 5464 6327 7745 CURRENT RATIO 1.52 1.43 1.42 1.58 1.54
Source: Annual Report of MICO Graph No. 4.1 Graph showing current assets and current liabilities
14000 12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 YEAR CURRENT ASSETS CURRENT LIABILITIES
The standard Current Ratio is 2:1
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Analysis: It is observed from the table that the current ratio was 1.53:1 during the year 2001. It marginally increased to 1.54:1 by 2005. Therefore the company is able to meet its current liabilities and short-term obligations.
2. Quick ratio or liquid ratio

Quick Ratio is the ratio, which expresses the relationship between quick or liquid assets, and quick or liquid liabilities.
Components of Quick assets and quick liabilities
Quick assets 1. Cash in Hand 2. Cash at Bank 3. Marketable securities (short term) 4. Short-term investment 5. Bills Receivable 6. Sundry Debtors 7. Work in Progress
Quick Liabilities 1. Outstanding Expenses 2. Bills payable 3. Sundry Creditors 4. Short-term Advances 5. Income Tax Payable 6. Dividends Payable
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Expression of Quick Ratio
Quick Ratio = Quick Assets Quick Liabilities
Significance of Quick Ratio Quick Ratio is the real index of the liquidity or the short-term solvency of a concern i.e., the ability of a concern to meet its short- term obligations out of its quickly realizable assets.
Table No. 4.2

Table showing liquid assets, liquid liabilities and quick ratio (Rs. Millions) YEAR LIQUID ASSETS LIQUID LIABILITIES 3915 4216 5464 6327 7745 QUICK RATIO
2001 2002 2003 2004 2005
3487 4386 6214 7773 9094
0.89 1.04 1.14 1.23 1.17
Source: Annual Report of MICO
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Graph No. 4.2 Graph showing liquid assets and liquid liabilities
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1 2 3 4 5 YEAR LIQUID ASSETS LIQUID LIABILITIES
The ideal Quick Ratio is 1:1 Analysis It is observed from the table that the liquid ratio was 0.89:1 during the year 2001. It increased to 1.17:1 by 2005. This shows that the company is highly liquid and has the ability to provide a cover to its current liabilities. This shows that the company is highly liquid and has the ability to provide a cover to its current liabilities.
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3. Absolute liquid ratio or position ratio or cash ratio Absolute liquid ratio is the ratio, which expresses the relationship between Absolute Liquid Assets and Quick Liabilities. Components of Absolute Liquid Assets Absolute Liquid assets 1. Cash in Hand 2. Cash at Bank
3. Readily Marketable Securities
Quick Liabilities 1. Outstanding Expenses 2. Bills Payable 3. Sundry Creditors 4. Short- term Advances 5. Income Tax payable 6. Dividends Payable
Expression of Absolute liquid ratio
Absolute Liquid Ratio = Absolute Liquid assets Quick Liabilities
Significance of Absolute liquid ratio The ratio shows very clearly whether a concern is liquid or not. In other words, it is the real measure of the liquidity or short-term solvency of a concern
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Table No. 4.3 Table showing absolute liquid assets, liquid liabilities and absolute liquid ratio (Rs. Millions) YEAR 2001 2002 2003 2004 2005 ABSOLUTE LIQUID ASSETS 636 1400 3351 4892 4958 LIQUID LIABILITIES 3915 4216 5464 6327 7745 ABSOLUTE LIQUID RATIO 0.16 0.33 0.61 0.77 0.64
Source: Annual Report of MICO Graph No. 4.3 Graph showing liquid assets and liquid liabilities
9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1 2 3 4 5 YEAR ABSOLUTE LIQUID ASSETS LIQUID LIABILITIES
The standard absolute liquid ratio is 0.5:1
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Analysis It is observed that the absolute liquid ratio was 0.16:1 during the year 2001. It increased to 0.64:1 by 2005. This shows that the company has improved.
4. Inventory turnover ratio/ stock turnover ratio
Inventory turnover ratio is the ratio, which indicates the number of times the stock is turned over i.e., sold during a year. In other words, it is the ratio between stock and the cost of goods sold.
Stock for this purpose is the average stock and not the closing stock, which may be quite high or quite low. Average stock here means the average of opening stock of finished goods and closing stock of finished goods.
Expression:
STOCK TURNOVER RATIO=Cost of Goods sold Average Stock Significance
1. This ratio indicates the velocity with which goods move out of the business. In other words, it indicates the number of times the average stock of finished goods is turned over or sold during a year. 2. It also indicates whether there is over stocking or under stocking of finished goods 3. It indicates the rate at which the inventory or stock is converted into sales and then into cash
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Table No. 4.4

Table showing cost of goods sold, average inventory and inventory turnover ratio (Rs. Millions) YEAR COST OF GOODS 6641 5655 6318 8001 10417 AVERAGE INVENTORY 2478 2069 1590 1867 2527 INVENTORY TURNOVER RATIO 2.68 2.37 3.97 4.29 4.12
2001 2002 2003 2004 2005
Source: Annual Report of MICO Graph No. 4.4 Graph showing cost of goods sold and average inventory
12000 10000 8000 YEAR 6000 4000 2000 0 1 2 3 4 5 COST OF GOODS AVERAGE INVENTORY
The standard stock turnover ratio is 8:1
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Analysis It is observed from that the inventory turnover ratio was 2.68 during the year 2001 and it increased to 4.12 by 2005 5. Receivables turnover ratio
Debtors turnover ratio is the ratio, which indicates the relationship between debtors and sales. It is the ratio, which indicates the number of times the debts are collected in a year.
Expression of Debtors Turnover Ratio
DEBTORS TURNOVER RATIO = Net Annual credit Sales Average debtors Significance 1. This ratio indicates the rate at which amounts are collected from debtors. 2. It also indicates even the liquidity of the concern, as the rate at which debts are collected influences the liquidity of the concern 3. A high debtors turnover ratio reflects short collection period and indicates that debtors are prompt in their payment.
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Table No. 4.5

Table showing net annual credit sales, average trade debtors and debtors turnover ratio (Rs. Millions) YEAR NET ANNUAL CREDIT SALES 16523 16063 15507 18979 23279 AVERAGE TRADE DEBTORS 1955 2095 2016 1899 2073 DEBTORS TURNOVER RATIO 8.45 7.69 7.69 9.99 11.23
2001 2002 2003 2004 2005
Source: Annual Report of MICO Graph No. 4.5 Graph showing net annual credit sales and average trade debtors
25000
20000 YEAR 15000 NET ANNUAL CREDIT SALES 10000 AVERAGE TRADE DEBTORS
5000
0 1 2 3 4 5
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Analysis: It is observed that the Debtors turnover ratio was 8.45 during the year 2001 and it increased to 11.23 by 2005.
6. Creditors turnover ratio Creditors Turnover Ratio is the ratio between creditors and purchases. It is the ratio, which indicates the number of times the creditors are paid in a year.
Expression: Creditors Turnover Ratio = Net Annual Credit Purchases Average Creditors Significance: 1. This ratio indicates the rate at which payments are made to creditors i.e., the number of times payments are made to creditors. 2. The shorter the creditors turnover ratio, the longer would be the average payment period and vice versa.
Table No. 4.6

Table showing net annual credit purchases, average creditors and creditors turnover ratio. YEAR NET ANNUAL AVERAGE CREDIT CREDITORS PURCHASES 6825 1609 5432 6306 8452 10915 1533 1767 2316 2543 CREDITORS TURNOVER RATIO 4.24 3.54 3.57 3.65 4.29
2001 2002 2003 2004 2005
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Graph No.4.6 Graph showing net credit purchases and average creditors
12000 10000 YEAR 8000 6000 4000 2000 0 1 2 3 4 5 NET ANNUAL CREDIT PURCHASES AVERAGE CREDITORS
Analysis: It is observed that the Creditors Turnover Ratio was 4.24 during the year 2001 and increased marginally to 4.29 by 2005.
7. Working capital turnover ratio or sales to working capital ratio
Working Capital Turnover Ratio is the ratio between working capital and Turnover. Working Capital is the excess of Current Assets and Current Liabilities. Turnover means Net Sales i.e. Total Sales less Sales Returns.
Expression: WORKING CAPITAL TURNOVER RATIO = Net Sales Working Capital
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Significance: This ratio indicates the efficient or inefficient utilization of the Working Capital of an enterprise.
Table No. 4.7

Table showing net sales, working capital and WC turnover ratio (Rs. Millions) YEAR 2001 2002 2003 2004 2005 NET SALES 16523 16063 15507 18979 23279 WORKING CAPITAL 2015 1830 2270 3660 4191 WC TURNOVER RATIO 8.06 8.78 6.83 5.19 5.55
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Graph No. 4.7 Graph showing net sales to working capital
25000
20000
15000
YEAR NET SALES WORKING CAPITAL
10000
5000
0 1 2 3 4 5
Analysis- it is observed that the WCT ratio was 8.06:1 during the year 2001. IT decreased to 5.55:1 by 2005. 8. Current assets turnover ratio Current Assets Turnover Ratio is the ratio between Current Assets and Turnover or Sales (i.e., Net Sales)
Expression: Current Assets Turnover Ratio = Net Sales Current Assets Significance: This ratio indicates the contribution of Current Assets to Sales
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Table No. 4.8

Table showing net sales, current assets and current assets turnover ratio (Rs. Millions) YEAR NET SALES CURRENT ASSETS 5965 6046 7734 9986 11935 CURRENT ASSETS TURNOVER RATIO 2.77 2.66 2.01 1.90 1.95
2001 2002 2003 2004 2005
16523 16063 15507 18979 23279
Source: Annual Report of MICO Graph No. 4.8 Graph showing net sales to current assets
25000
20000
15000 10000
YEAR NET SALES CURRENT ASSETS
5000
0 1 2 3 4 5
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Analysis It is observed from that the Current Assets turnover ratio was 2.77:1 during 2001. It decreased to 1.95:1 by 2005 this shows that the current assets of the company has not been utilized effectively.
9. Inventories to working capital ratio Inventory to Working Capital Ratio is the ratio of inventory to Working Capital.
Components of inventories to Working Capital Ratio Inventory or stock refers to closing stocks of raw materials, work in progress and finished goods. Working Capital is the excess of Current Assets over Current Liabilities.
Expression: Inventory to Working Capital Ratio = Inventory Working Capital X 100
Significance: Inventory to Working Capital Ratio serves two purposes: 1. This ratio indicates the proportion of Working Capital tied up in inventories or stock and thereby throws some light on the liquidity of a concern. 2. It also indicates whether there is overstocking or under stocking. 3. A high inventory turnover ratio indicates efficient management of inventory and vice versa.
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Table No. 4.9 Table showing inventories, working capital and inventories to working capital ratio (Rs. Millions) YEAR INVENTORIES WORKING CAPITAL INVENTORIES TO WORKING CAPITAL RATIO 2001 2002 2003 2004 2005 2478 1660 1520 2213 2841 2051 1830 2270 3660 4191 1.21 0.91 0.67 0.61 0.68
Source: Annual Report of MICO Graph No. 4.9 Graph showing inventories and working capital
4500 4000 3500 3000 2500 2000 1500 1000 500 0 1 2 3 4 5 YEAR INVENTORIES WORKING CAPITAL
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Analysis: It has been observed that inventories to Working Capital ratio were 1.21:1 during 2001. It decreased to 0.68:1 by 2005.
10. Inventories to current assets ratio
Table No. 4.10 Table showing inventories, current assets and inventories to current assets ratio (Rs. Millions) YEAR INVENTORIES CURRENT ASSETS 2001 2002 2003 2004 2005 2478 1660 1520 2213 2841 5965 6046 7734 9986 11935 INVENTORIES TO CURRENT ASSETS RATIO 0.42 0.27 0.20 0.22 0.24
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Graph No.4.10 Graph showing inventories to current assets
14000 12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 YEAR INVENTORIES CURRENT ASSETS
Analysis: It has been observed that inventories to current assets ratio were 0.42:1 during 2001. It decreased to 0.24:1 by 2005.
11. Receivables to net working capital ratio
Table No. 4.11 Table showing receivables, net working capital ratio and receivables to net working capital ratio (Rs. Millions) RECEIVABLES TO NET WORKING CAPITAL RATIO 0.95 1.22 0.79 0.55 0.51
YEAR
RECEIVABLES
NET WORKING CAPITAL 2051 1830 2270 3660 4191
2001 2002 2003 2004 2005
1955 2236 1795 2004 2142
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Graph No. 4.11 Graph showing receivables and net working capital
4500 4000 3500 3000 2500 2000 1500 1000 500 0 1 2 3 4 5 NET WORKING CAPITAL YEAR RECEIVABLES
Analysis: It has been observed that receivables to net working capital ratio were 0.95:1 during 2001. It slightly decreased to 0.5:1 by 2005.
12. Cash to current assets ratio
Introduction: One of the major objectives of cash management from the point of view of increasing return on investment is to economize on cash holding without impairing the overall liquidity requirements of the concern. This is only possible if tight control is exercised over cash flows.
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Expression: Cash to Current Assets Ratio = Cash & Bank Balances Current Assets
Significance: Cash to Current Assets Ratio indicates the extent to which the Current Assets are represented by Cash and Bank Balances. The lower this ratio the greater is the profitability of the concern. Table No. 4.12 Table showing cash & bank balances, current assets & cash & bank to current assets ratio (Rs. Millions) YEAR CASH & BANK 2001 2002 2003 2004 2005 636 1400 3351 4892 4958 CURRENT ASSETS 5965 6046 7734 9986 11935 CASH & BANK TO CURRENT ASSETS RATIO 0.11 0.23 0.43 0.49 0.42
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Graph No. 4.12 Graph showing cash & bank balances, current assets
14000 12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 YEAR CASH & BANK CURRENT ASSETS
Analysis: It has been observed that cash to current assets ratio were 0.11:1 during 2001. It increased marginally to 0.42:1 by 2005.
13. Cash turn over ratio

Cash turnover ratio is the ratio between cash and turnover or sales. Cash for this purpose, means cash in hand, cash at bank and readily realizable securities or investments. Turnover refers to total annual sales (i.e., Cash Sales plus Credit Sales) effected during the year. However, Sales means Net Annual Sales i.e., total annual sales minus sales returns.
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Expression: This ratio is expressed as a proportion i.e., as Net Annual Sales Cash Significance: This ratio indicates the extent to which cash resources are efficiently utilized by the enterprise. It is also helpful in determining the liquidity of a concern. A cash turnover ratio of 10:1 or more indicates the effective utilization of the cash resources of the enterprise. On the other hand, a cash turnover ratio of less than 10:1 suggests that the cash resources of the enterprise are not effectively utilized.
Table No. 4.13 Table showing net annual sales, cash and cash turnover ratio (Rs. Millions) YEAR NET ANNUAL SALES 2001 2002 2003 2004 2005 16523 16063 15507 18979 23279 636 1400 3351 4892 4958 CASH CASH TURNOVER RATIO 25.98 11.47 4.63 3.88 4.69
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Graph No.4.13 Graph showing net annual sales & cash
25000
20000
15000
YEAR NET ANNUAL SALES CASH
10000
5000
0 1 2 3 4 5
Analysis: It is observed that the cash turnover ratios were 25.98 times during the year 2001 and it decreased to 4.69 times by 2005.
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4.2 CASH FLOW STATEMENT

Introduction A cash flow statement is a statement, which indicates the cash flows or movements during a financial period. Cash flow statements may be prepared on the basis actual or estimated data.
Sources and application of cash Sources of cash Sources of cash can be Internal as well as External.
Internal sources: Cash from operation is the main internal source. The net profit shown by profit and loss account will have to be adjusted for non-cash items to find out cash from operations. Some of these items are as follows. 1. Depreciation 2. Amortization of intangible assets 3. Loss on sale of fixed assets 4. Creation of reserves 5. Gain from sale of fixed assets
External sources: 1. Cash received from non-operating income such as dividend received, interest received, rent received, compensation received etc. 2. Cash rose through issue of shares and debentures. 3. Cash rose from long term, medium term & short-term loans from banks and other financial institutions. 4. Cash received from long term, medium term and short term deposits. 5. Cash rose from sale of investments and fixed assets.
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Applications of Cash 1. Cash lost in operations. 2. Cash used for payment of non operating or non business expenses, such as compensation, fines and penalties paid etc 3. Cash used for payment of income tax, dividends etc 4. Cash used for redemption of debentures, preference shares. 5. Cash used for payment of term loans. 6. Cash used for acquisition of fixed assets, investments etc
Utilities of Cash Flow Statement 1. It reveals the causes of changes in the cash position of an enterprise between two balance sheet periods. 2. It is very helpful to a concern in understanding the current cash position. 3. It helps the management in determining the policies regarding dividend payment, repayment of long-term loans and replacement of plant and machinery. 4. It helps the management to understand the past behaviour of the cash cycle and to control the uses of cash in future. 5. It helps the management in determining the extent to which cash planning has been successful.
Limitations of cash flow statement 1. A cash flow statement may not represent the real liquidity position of a business. 2. A cash flow statement cannot replace an income statement and a fund flow statement. 3. It is difficult to define the term cash precisely. There is a controversy over the inclusion of items like cheques, postal orders, stamps etc in term cash.
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Table No. 4.14 Cash Flow Statement for the year ended 31st December 2002
Particulars A. Cash flow from operating activities Profit before tax Adjustment for: Depreciation Exchange difference Unserviceable fixed assets written off (Profit)/ Loss on sale of fixed assets Profit on sale of business of trading Activity in Bosch Hydraulics Products Revaluation of opening stocks Dividend received Interest received Interest paid Operating profit before working Capital changes Adjusted for: (Increase)/decrease in inventories (Increase)/decrease in sundry debtors (Increase)/decrease in loans and Advances (Increase)/decrease in current Liabilities 12,90,071 13,33,848 (37,673) 10,160 (8,660) (2,600) (26,083) (85,240) 34,359 24,61,013 14,34,439 15,28,549 (25,206) 4,659 (5,191) 4,75,200 (55,764) (53,400) 99,495 31,55,171 (Rs. In thousands) 2002 2001
8,05,377 (3,05,470) 1,43,440 (24,555)
12,57,225 (79,403) (82,617) 3,82,798
Cash generated from operations Interest received Interest paid Direct taxes paid (net of refunds) Net cash from operating activities
30,79,805 77,802 (34,359) (2,57,161) 28,66,087
21,18,724 39,630 (99,495) (8,48,164) 12,10,695
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B. Cash flow from investing activities Additions to fixed assets Sale of business of trading activity in Bosch Hydraulics Products Sale of fixed assets Sale of investments Purchase of investments Dividend received Interest received Net cash from/ (used in) investing Activities C. Cash flow financing activities Buy back of shares Proceeds from borrowings Repayment from borrowings Dividend paid Exchange difference Net cash from / (used in) financing Activities Net cash flows during the year (A+B+C) Cash & cash equivalents (Opening Balance) Cash & cash equivalents (Closing Balance) (7,60,000) (2,15,210) (1,05,559) 37,673 (10,43,096) (8,40,000) 5,80,787 (2,71,002) (93,734) 25,206 (5,98,743) (8,95,161) 36,345 45,236 4,09,591 (6,91,580) 26,083 10,416 (10,59,070) (12,17,705) 13,824 5,90,630 (9,990) 55,764 11,581 (5,55,896)
7,63,921
56,056
6,35,988 13,99,909
5,79,932 6,35,988
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The Cash Flow Statement for the year 2002 indicates that the cash balance with the company, as at the beginning of the year was Rs. 6,35,988 thousand. The various business transactions that took place during the year lead to constant inflow and outflow of cash and at the end of the financial year the closing balance of cash was Rs. 13,99,909 thousand. This reveals that the cash balance has increased by Rs.7, 63,921 thousand.
This increase by Rs.7, 63,921 thousand in cash balance is mainly due to sale of fixed assets and investments, sale of trading of business activity in Bosch Hydraulic Products, increase in sundry debtors & decrease in current liabilities, purchase of investments, additions to fixed assets etc.
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Particulars A. Cash flow from operating activities Profit before tax Adjustment for: Depreciation Exchange difference Unserviceable fixed assets written off (Profit)/ Loss on sale of fixed assets Profit on sale/ redemption of Investments Profit on sale of business of trading Activity in Bosch Hydraulics Products Dividend received Interest received Interest paid Operating profit before working Capital changes Adjusted for: (Increase)/decrease in inventories (Increase)/decrease in sundry debtors (Increase)/decrease in loans and Advances (Increase)/decrease in current Liabilities 20,04,619 10,72,383 839 33,896 (11,167) (31,683) (22,520) (2,16,117) 68,895 28,99,145 12,90,071 13,33,848 (37,673) 10,160 (8,660) (47,169) (2,600) (26,083) (85,240) 34,359 24,61,013 (Rs. In thousands) 2003 2002
1,40,073 4,41,427 (77,428) 13,23,899
8,05,377 (3,05,470) 1,43,440 1,04,343
47,27,116 2,08,668 (68,895) (10,05,217) 38,61,672
32,08,703 77,802 (34,359) (2,57,161) 29,94,985
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B. Cash flow from investing activities Additions to fixed assets Sale of business of trading activity in Bosch Hydraulics Products Sale of fixed assets Sale of investments Advance paid towards purchase of Security systems business from Philips India Ltd. Purchase of investments Dividend received Interest received Net cash from/ (used in) investing Activities C. Cash flow financing activities Buy back of shares Proceeds from borrowings Repayment from borrowings Inter corporate loan Dividend paid Exchange difference Net cash from / (used in) financing activities Net cash flows during the year (A+B+C) Cash & cash equivalents (Opening balance) Cash & cash equivalents (Closing balance) (5,00,000) 2,51,518 (1,08,794) (839) (5,58,295) (7,60,000) (2,15,210) (1,05,559) 37,673 (10,43,096) (7,41,245) 17,490 3,32,287 (39,000) (9,50,398) 22,520 6,489 (13,51,857) (10,24,059) 36,345 45,236 4,09,591 (6,91,580) 26,083 10,416 (11,87,968)
19,51,520
7,63,921
13,99,909 33,51,429
6,35,988 13,99,909
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The Cash Flow Statement for the year 2003 indicates that the cash balance with the company, as at the beginning of the year was Rs. 13,99,909 thousand. The various business transactions that took place during the year lead to constant inflow and outflow of cash and at the end of the financial year the closing balance of cash was Rs. 33,51,429 thousand. This reveals that the cash balance has increased by Rs.19, 51,520 thousand.
This increase in cash balance by Rs.19, 51,520 thousand is mainly due to sale of fixed assets and investments, proceeds from borrowings & inter corporate loan and also towards addition to fixed assets and purchase investments.
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Particulars A. Cash flow from operating activities Profit before tax Adjustment for: Depreciation Exchange difference Premium paid on investments written off Unserviceable fixed assets written off Cost of Technical Designs, Drawings etc.and Manufacturing know how purchased from Philips India Ltd written off Surplus distributed by subsidiary (Profit)/ Loss on sale of fixed assets (Profit)/ Loss on sale/ redemption of Investments Dividend received Interest received Interest paid Operating profit before working Capital changes Adjusted for: (Increase)/decrease in inventories (Increase)/decrease in sundry debtors (Increase)/decrease in loans and Advances (Increase)/decrease in current Liabilities 12,71,547 38,35,936 10,16,034 4,075 1,628 20,130 20,04,619 10,72,383 839 33,896 (Rs. In thousands) 2004 2003
13,840 (4,028) (11,309) 1,725 (22,571) (2,74,719) 49,917 46,30,658
(7,590) (11,167) (31,683) (22,520) (2,16,117) 68,895 28,91,555
(6,82,328) (1,75,158) 5,260
1,40,073 4,41,427 (73,312)
6,90,154
44,68,586 2,59,676 (5,960) (17,68,730) 29,53,572
46,71,290 2,04,552 (16,543) (10,05,217) 38,54,082
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B. Cash flow from investing activities Additions to fixed assets Sale of fixed assets Sale of investments Repayment of capital by Subsidiary Surplus distributed by Subsidiary Advance paid towards purchase of Security systems business from Philips India Ltd. Balance consideration for purchase of Business from Philips India Ltd. Investment in M/s Mivin Engineering Technologies Pvt Ltd (Joint Venture) Purchase of investments Dividend received Interest received Net cash from/ (used in) investing Activities C. Cash flow financing activities Buy back of shares Foreign Currency Loan borrowed Foreign Currency Loan repaid Proceeds from borrowings Inter corporate loan (given)/ repayment received Dividend paid (including Dividend tax) Exchange difference Net cash from / (used in) financing Activities Net cash flows during the year (A+B+C) Cash & cash equivalents (Opening Balance) 13,99,909 Cash & cash equivalents (Closing Balance) 33,51,429 2,26,575 (2,26,725) 2,26,759 1,50,000 (1,44,632) (3,925) 2,28,052 (5,00,000) 2,51,518 (2,00,000) (1,08,974) (839) (5,58,295) (4,43,759) 18,100 95,813 1,000 4,028 (1,000) (7,41,245) 17,490 3,32,287 7,590 (39,000) -
(3,900) (13,43,527) 22,571 9,806 (16,41,498)
(9,50,398) 22,520 6,489 (13,44,267)
15,40,126
19,51,520
33,51,429
48,91,555
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The Cash Flow Statement for the year 2004 indicates that the cash balance with the company, as at the beginning of the year was Rs. 33,51,429 thousand. The various business transactions that took place during the year lead to constant inflow and outflow of cash and at the end of the financial year the closing balance of cash was Rs. 48,91,555 thousand. This reveals that the cash balance has increased by Rs.15,40,126 thousand.
This increase in cash balance by Rs.15,40,126 thousand is mainly due to sale of fixed assets and investments, proceeds from borrowings & inter corporate loan, repayment of capital by subsidiary & surplus distributed by Subsidiary and also towards addition to fixed assets and purchase investments.
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Particulars A. Cash flow from operating activities Profit before tax Adjustment for: Depreciation Exchange difference Premium paid on investments written off Unserviceable fixed assets written off Cost of Technical Designs, Drawings etc.and Manufacturing know how purchased from Philips India Ltd written off Surplus distributed by subsidiary (Profit)/ Loss on sale of fixed assets (Profit)/ Loss on sale/ redemption of Investments Dividend received Interest received Interest paid Operating profit before working Capital changes Adjusted for: (Increase)/decrease in inventories (Increase)/decrease in sundry debtors (Increase)/decrease in loans and Advances (Increase)/decrease in current Liabilities 56,35,335 9,88,764 ( 10,235) 18,923 5,484 38,35,936 10,16,034 4,075 1,628 20,130 (Rs. In thousands) 2005 2004
(16,699) (2,87,806) (52,543) (3,67,654) 42,240 5,95,58,809
13,840 (4,028) (11,309) 1,725 (22,571) (2,74,719) 49,917 46,30,658
(6,27,949) (1,38,252) (8,74,660) 12,00,682
(6,82,328) (1,75,158) 5,260 6,90,154
55,15,630 2,54,390 (84,280) (20,90,393) 35,95,347
44,68,586 2,59,676 (5,960) (17,68,730) 29,53,572
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B. Cash flow from investing activities Additions to fixed assets Sale of fixed assets Sale of investments Repayment of capital by Subsidiary Surplus distributed by Subsidiary Balance consideration for purchase of Business from Philips India Ltd. Investment in M/s Mivin Engineering Technologies Pvt Ltd (Joint Venture) Purchase of investments Dividend received Interest received Net cash from/ (used in) investing Activities C. Cash flow financing activities Foreign Currency Loan borrowed Foreign Currency Loan repaid Proceeds from borrowings Repayment of borrowings Inter corporate loan(given)/ repayment received Dividend paid (including dividend tax) (1,44,632) Exchange difference Net cash from / (used in) financing Activities Net cash flows during the year (A+B+C) Cash & cash equivalents (Opening Balance) Cash & cash equivalents (Closing Balance) 5,04,530 (361) (1,50,000) (2,35,027) 10,235 1,29,377 2,26575 (2,26,725) 2,27,120 (361) 1,50,000 (13,96,983) 21,452 13,73,444 (36,90,779) 12,603 22,211 (36,58,052) (4,43,759) 18,100 95,813 1,000 4,028 (1,000) (3,900) (13,31,838) 10,882 9,806 (16,41,498)
(3,925) 2,28,052
66,672
15,40,126
48,91,555 49,58,227
33,51,429 48,91,555
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The Cash Flow Statement for the year 2005 indicates that the cash balance with the company, as at the beginning of the year was Rs. 48,91,555 thousand. The various business transactions that took place during the year lead to constant inflow and outflow of cash and at the end of the financial year the closing balance of cash was Rs. 49,58,227 thousand. This reveals that the cash balance has increased by Rs.66,672 thousand.
This increase in cash balance by Rs. 66,672 thousand is mainly due to sale of fixed assets and investments, proceeds from borrowings and also towards addition to fixed assets and purchase investments & inter corporate loan.
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4.3 FUNDS FLOW STATEMENT
Meaning It is a technical device designed to highlight the changes in the financial condition of a business enterprise between two Balance Sheet dates.
Objectives of Fund Flow Statement To indicate the specific sources from which funds are raised and the specific uses to which funds are applied between two Balance Sheet dates To indicate the increase or decrease in the funds or working capital during a specific period. To indicate the funds from operations. To explain the reasons for the change in the working capital during a certain period. To assess the effectiveness of financial management in raising and in utilizing funds during a specific period.
Significance of Fund Flow Statement
It is useful in assessing the efficiency of the management in the utilization of funds. It suggests the way in which the working capital position can be improved. It can be used in planning a sound dividend policy. It is helpful in planning the temporary investment of idle funds. It reveals the causes for the financial difficulties faced by a concern. For example, the improper mix of short-term funds and long-term funds, unnecessary accumulation of fixed assets, etc.
It is useful in forecasting the flow of funds and in projecting the working capital required.
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Limitations of Fund Flow Statement It ignores the non-fund items; as a result, it becomes a crude device. The fund flow statement is not original in nature. It is just a systematic
rearrangement of the data found in the financial statements. In case of fund flow analysis; there is a danger of the management manipulating
the net working capital and the fund from operations by changing the methods of valuation of inventories. The fund flow statement shows only the overall change in working capital. It does
not show the change in individual items of working capital.
Sources and uses of funds Transactions, which result in an increase in the amount of fund or working capital, are called sources of fund.
Fund from operations: It is the net profit for the year before adjusting non-fund and non-operating expenses and losses, and non-fund and non-operating incomes and gains. It is the only internal sources of fund.
Non-operating incomes: like dividend received on investment, gifts received, and damages received under legal suits, etc. Refund of income tax received. Issue of shares or debentures for cash or any other current asset. Sale of fixed assets or investments for cash or for any other current asset.
Uses of Funds: Transactions, which result in a decrease in the amount of fund or net working capital, are called uses of funds. Funds lost in operations: It is the net loss for the year before adjusting the nonfund or non-operating expenses and losses, and non-fund and or non-operating incomes and gains. Non-operating expenses: like dividend paid on shares, income tax paid, and damages paid in legal suits, fines paid, etc.
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Redemption of redeemable preference shares or debentures in cash or in any other current asset. Purchase of fixed assets or investments for cash or for any other current asset.
Table No. 4.18 STATEMENT SHOWING CHANGES IN WORKING CAPITAL POSITION FOR THE YEAR 2002 (Rs. In thousands) Decrease in Particulars 2001 2002 Increase in WC WC Current Assets Inventory Sundry Debtors Cash and Bank balance Interest accrued on investments Loans and advances Total Current Assets Current Liabilities Sundry Creditors Subsidiary Companies Advance from Customers Unclaimed Dividends Other Liabilities Provisions Total Current Liabilities Working Capital Net Decrease in W.C Total
24,78,176 16,60,139 19,54,568 22,36,168 2,81,600 6,35,988 13,99,909 7,63,921 6,032 3,054 8,90,362 7,46,922 59,65,126 60,46,192
8,18,037
2,978 1,43,440
16,08,886 14,56,357 1,52,529 5,660 5,596 9,499 6,536 1,414 1,729 8,21,637 8,89,725 14,67,542 18,55,823 39,14,638 20,50,488 20,50,488 42,15,766 18,30,426 2,20,062 20,50,488
64 2,963 315 68,088 3,88,281
2,20,062 20,50,488
20,50,488
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Table No.4.19 CALCULATION OF FUNDS FROM OPERATION FOR THE YEAR 2002 (Rs. In thousands) Particulars Closing balance of Profit and Loss Account Add: Non-operating and Non-cash items which have already been debited to P & L Account Depreciation Transfer to general reserve Capital Reserve Capital Redemption Reserve Interest Paid 13,33,848 6,85,066 2,600 20,000 34,359 20,75,873 Amount Amount
Less: Non-operating and Non-cash items which have already been credited to P & L Account Profit on sale of investments Profit on sale of Fixed Assets Dividend Received Interest Received Excise, warranty and other provision written back Dividend from Non Trade Investments Rent Opening Balance of P & L Account 47,169 8,660 26,083 7,438 5,098 26,083 78,841 (1,99,372) Funds From Operations 18,76,501
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Table No.4.20 FUND FLOW STATEMENT as on 31st December 2002 (Rs. In thousands) Sources of Funds Amount Application of Funds Amount
Funds from operations Sale of Fixed Assets Sale of investments Dividend received Net decrease in WC
18,76,501
Purchase of investments
6,91,580 9,61,564 7,60,000 2,15,210 34,359
45,236 Purchase of Fixed Assets 4,09,591 Buy back of shares
26,083 Repayment of Borrowings 2,20,062 Interest Paid
Total
26,62,713
Total
26,62,713
The working capital has shown a decrease from Rs 20,50,488 thousands to Rs 18,30,426 thousand. There has been a net decrease of 2,20,062 thousand as the current assets have shown a marginal increase from Rs 59,65,126 thousand to Rs 60,46,192 thousand. When compared to the increase in current liabilities from Rs 39,14, 638 thousand to Rs 42,15,766 thousand.
The analysis of the fund flow statement shows that the sources of funds include funds from operations, sales, receipt of dividend and interest and decrease of current assets and increase in current liabilities. This is applied for making investments in fixed assets; buy back of shares band repayment of borrowings.
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Table No.4.21 STATEMENT SHOWING CHANGES IN WORKING CAPITAL POSITION FOR THE YEAR 2003 (Rs. In thousands) Particulars 2002 2003 Increase in WC Decrease in WC Current Assets Inventory Sundry Debtors Cash and Bank balance Interest accrued on investments Loans and advances Total Current Assets Current Liabilities Sundry Creditors Subsidiary Companies Advance from Customers Unclaimed Dividends Other Liabilities Provisions Total Current Liabilities Working Capital Net increase in W.C Total
16,60,139 15,20,066 22,36,168 17,94,741 13,99,909 33,51,429 19,51,520 3,054 4,014 7,46,922 10,63,350 3,16,428 60,46,192 77,33,600
1,40,073 4,41,427 960
14,56,357 20,76,895 5,596 797 6,536 3,501 1,729 2,165 8,89,725 13,23,360 18,55,823 20,57,009 42,15,766 18,30,426 4,39,447 22,69,873 54,63,727 22,69,873 22,69,873 22,76,742
6,20,538 4,799 3,035 436 4,33,635 2,01,186
4,39,447 22,76,742
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Table No.4.22 CALCULATION OF FUNDS FROM OPERATION FOR THE YEAR 2003 (Rs. In thousands) Particulars Amount Amount Closing balance of Profit and Loss Account Add: Non-operating and Non-cash items Which have already been debited to P & L Account Depreciation Transfer to general reserve Capital Redemption Reserve Interim dividend Interest Paid 10,72,383 9,00,000 20,000 9,615 68,895 20,70,893 23,63,779 Less: Non-operating and Non-cash items which have already been credited to P & L Account Profit on sale of investments Profit on sale of Fixed Assets Dividend Received Interest Received Funds From Operations 31,683 11,167 22,520 2,16,117 (2,81,487) 20,82,292 2,92,886
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Table No.4.23 FUND FLOW STATEMENT as on 31st December 2003 (Rs. In thousands) Sources of Funds Funds from operations Sale of Fixed Assets Sale of investments Dividend received Amount Application of Funds Amount 7,41,245 9,50,398 5,00,000 2,00,000
Interest Received Proceeds from borrowings
20,82,292 Purchase of Fixed Assets 17,490 Purchase of investments 3,32,287 Buy back of shares 22,520 Inter corporate loan Advance paid towards purchase of security systems business 2,16,117 from Philips India ltd 2,77,894 Interest Paid Interim dividend paid Net Increase in WC 29,48,600 Total
39,000 68,895 9,615 4,39,447 29,48,600
Total
The working capital has shown an increase from Rs 18,30,426 thousands to Rs 22,69,873 thousand. There has been a net increase of 4,39,447 thousand as the current assets have shown a considerable increase from Rs 60,46,192 thousand to Rs 77,33,600 thousand. When compared to the increase in current liabilities from Rs 42,15,766 thousand to Rs 54,63,727 thousand.
The analysis of the fund flow statement shows that the sources of funds include funds from operations, sales, receipt of dividend and proceeds from borrowings. This is applied for making investment, purchase of fixed assets and meeting Working Capital needs.
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Table No.4.24 STATEMENT SHOWING CHANGES IN WORKING CAPITAL POSITION FOR THE YEAR 2004 (Rs. In thousands) Increase in 2004 WC Decrease in WC
Particulars Current Assets Inventory Sundry Debtors Cash and Bank balance Interest accrued on investments Loans and advances Total Current Assets Current Liabilities Sundry Creditors Subsidiary Companies Advance from Customers Unclaimed Dividends Other Liabilities Provisions Total Current Liabilities Working Capital Net increase in W.C Total
2003
15,20,066 22,13,051 6,92,985 17,94,741 20,03,529 2,08,788 33,51,429 48,91,555 15,40,126 4,014 702 10,63,350 8,77,639 77,33,600 99,86,476
3,312 1,85,771
20,76,895 25,55,000 797 3,501 24,516 2,165 2,042 13,23,360 13,92,512 20,57,009 23,52,554 54,63,727 22,69,873 13,89,979 36,59,852 63,26,624 36,59,852 36,59,852 24,42,819
4,78,105 797 21,015 123 69,152 2,95,545
13,89,979 24,42,819
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Table No.4.25 CALCULATION OF FUNDS FROM OPERATION FOR THE YEAR 2004 (Rs. In thousands) Particulars Amount Amount Closing balance of Profit and Loss Account Add: Non-operating and Non-cash items which have already been debited to P & L Account Depreciation Transfer to general reserve Interest Paid Loss on sale of investment 10,16,034 17,00,000 49,917 1,725 27,67,676 31,66,654 Less: Non-operating and Non-cash items which have already been credited to P & L Account Profit on sale of Fixed Assets Dividend Received Interest Received Opening balance of Profit and Loss account Funds From Operations 11,309 22,571 2,74,719 2,92,886 (6,01,485) 25,65,169 3,98,978
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Table No.4.26 FUND FLOW STATEMENT as on 31st December 2004 (Rs. In thousands) Sources of Funds Funds from operations Sale of Fixed Assets Sale of investments Foreign Currency loan borrowed Dividend received Interest Received Proceeds from borrowings Inter corporate loan Total Amount Application of Funds Amount
25,65,169 Purchase of investments 13,43,527 18,100 Purchase of Fixed Assets 5,68,928 95,183 Foreign Currency loan repaid 2,26,725 2,26,575 Interest Paid 22,571 Net Increase in WC 2,74,719 2,26,759 1,50,000 35,79,076 Total 35,79,076 49,917 13,89,979
The working capital has shown an increase from Rs 22,69,873 thousands to Rs 36,59,852 thousand. There has been a net increase of 13,89,979 thousand as the current assets have shown a considerable increase from Rs 77,33,600 thousand to Rs 99,86,476 thousand. When compared to the increase in current liabilities from Rs 54,63,727 thousand to Rs 63,26,624 thousand.
The analysis of the fund flow statement shows that the sources of funds include funds from operations, sales, receipt of dividend and interest and proceeds from borrowings and this source is used in making investments, purchase of fixed assets, repayment of borrowings, payment of interest, inter corporate loan given and meeting Working Capital needs.
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Table No.4.27 STATEMENT SHOWING CHANGES IN WORKING CAPITAL POSITION FOR THE YEAR 2005 (Rs. In thousands) Particulars Current Assets Inventory Sundry Debtors Cash and Bank balance Interest accrued on investments Loans and advances Total Current Assets Current Liabilities Sundry Creditors Advance from Customers Unclaimed Dividends Other Liabilities Provisions Total Current Liabilities Working Capital Net increase in W.C Total 2004 2005 Increase in WC Decrease in WC
22,13,051 20,03,529 48,91,555
28,41,000 6,27,949 21,41,781 1,38,252 49,58,227 66,672 702 21,387 20,685 8,77,639 19,72,880 10,95,241 99,86,476 1,19,35,275
25,55,000 29,39,913 24,516 43,665 2,042 2,506 13,92,512 19,75,733 23,52,554 27,82,802 63,26,624 36,59,852 5,30,804 41,90,656 77,44,619 41,90,656 41,90,656 19,48,799
3,84,913 19,149 464 5,83,221 4,30,248
5,30,804 19,48,799
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Table No. 4.28 CALCULATION OF FUNDS FROM OPERATION FOR THE YEAR 2005 (Rs. In thousands) Particulars Amount Amount Closing balance of Profit and Loss Account Add: Non-operating and Non-cash items which have already been debited to P & L Account Depreciation Transfer to general reserve Interest Paid 9,88,764 27,00,000 42,240 37,31,004 51,08,140 Less: Non-operating and Non-cash items which have already been credited to P & L Account Profit on sale of Fixed Assets Profit on sale of Investments Dividend Received Interest Received Opening balance of Profit and Loss account Funds From Operations 16,699 2,87,806 52,543 3,67,654 6,91,864 14,16,566 36,91,574 13,77,136
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Table No.4.29 FUND FLOW STATEMENT as on 31st December 2005 (Rs. In thousands) Sources of Funds Funds from operations Sale of Fixed Assets Sale of investments Dividend received Interest Received Proceeds from borrowings Total Amount Application of Funds Amount
36,91,574 Purchase of investments 38,48,569 21,452 Purchase of Fixed Assets 13,96,983 13,73,444 361 Repayment of borrowings 52,543 Interest paid 42,240 3,25,414 Inter corporate loan 1,50,000 5,04,530 Net Increase in WC 5,30,804 59,68,957 Total 59,68,957
The working capital has shown an increase from Rs 36,59,852 thousands to Rs 41,90,656 thousand. There has been a net increase of Rs 5,30,804 thousand as the current assets have shown a considerable increase from Rs 99,86,476 thousand to Rs 1,19,35,275 thousand. When compared to the increase in current liabilities from Rs 63,26,624 thousand to Rs 77,44,619 thousand.
The analysis of the fund flow statement shows that the sources of funds include funds from operations, sales, receipt of dividend and interest and proceeds from borrowings and this source is used in making investments, purchase of fixed assets, repayment of borrowings, payment of interest, inter corporate loan given and meeting Working Capital needs.
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5.1 FINDINGS
1.
The current ratio was 1.53:1 during the year 2001. It marginally increased to 1.54:1 by 2005.
2. The liquidity ratio was 0.89:1 during the year 2001. It increased to 1.17:1 by 2005. This shows that the company is highly liquid and has the ability to provide a cover to its current liabilities. 3. The absolute Liquidity Ratio was 0.16:1 during the year 2001. It is increased to 0.64:1 by 2005.this shows that the company has improved. 4. The inventory turnover ratio was 2.68 during the year 2001 and it increased to 4.12 by 2005. 5. The debtors turnover ratio was 8.45 during the year 2001 and it increased to 11.23 by 2005. 6. The WCT ratio was 8.06:1 during the year 2001 it decreased to 5.55:1 by 2005. 7. The creditors turnover ratio was 4.24 during the year 2001 and it increased marginally to 4.29 by 2005. 8. The current assets turnover ratio was 2.77:1 during 2001. It decreased to 1.95:1 by 2005. This shows that the current assets of the company have not been utilized effectively. 9. Inventories to working capital ratio were 1.21:1 during 2001. It decreased to 0.68:1 by 2005. 10. Inventories to current assets ratio were 0.42:1 during 2001. It decreased to 0.24:1 by 2005. 11. Receivables to net working capital ratio were 0.95:1 during 2001. It slightly decreased to 0.51:1 by 2005. 12. Cash to current assets ratio was 0.11:1 during 2001. It increased marginally to 0.42:1 by 2005. 13. The cash turnover ratio was 0.11:1 during 2001. It decreased to 4.69 times by 2005.
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14. Cash flow statement shows that the change in the cash balances for the years 2001, 2002, 2003, 2004 & 2005 is favourable. At MICO inflows exceed outflow, which is a sign of profitability. 15. Following is the trend shown by working capital at MICO. In 2002, the WC has shown a decrease from Rs.20, 50,488 thousand to Rs.18,30,426 thousand. In 2003, the WC has shown an increase from RS.18,30,426 thousand to Rs.22,69,873 thousand. In 2004, the WC has shown an increase from Rs.22,69,873 thousand to Rs.36,59,852 thousand. In 2005, the WC has shown an increase from Rs.36, 59,852 thousands to Rs.41,90,656 thousand. 16. Sources and application of funds: The funds have been raised from several sources like fund from operation, proceeds and from borrowings, sale of investments and fixed assets, receipts of dividend and interest. The sources have been employed towards purchases of fixed assets, investments, repayment of borrowings, inter corporate loan given and interest paid, etc.
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5.2 SUGGESTIONS
1. The company should increase the investment in current asset and there by decrease the current liabilities so as to meet the standard required. 2. Even though the inventory turnover ratio has in creased from 2.68 times to 4.12 times it is less than the ideal inventory turnover ratio of 8 times. Therefore it is suggested to adopt inventory management techniques like just in time and also see to that the inventories will not exceed 75% of working capital. 3. It is suggested to finance permanent working capital through long term liabilities. 4. Considering various aspects such as production schedule, labour cost and sales the requirement of working capital should be properly assisted. 5. The company is suggested to have a continuous check of all cash and bank balance. It is also suggested that the proportionate increase in sales must also result in a proportionate increase in cash and bank balance through which working capital can be maintained.
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5.3 CONCLUSION
Identifying certain parameters in the ratio analysis technique has made the performance evaluation of the company; cash flow and fund flow statement are also prepared. The company is fulfilling most of the standards of the ratio selected for the study. The company is competing in the market with full efficiency and with good management tools. The company has to improve upon inventory turnover maintaining sufficient cash and bank balances to fulfill working capital needs by increasing investments in current assets.
We are of the opinion that the company is doing very well and meeting the competition effectively.
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BIBLIOGRAPHY
BOOKS REFERRED 1. M Y KHAN, P K JAIN Financial Management, Tata McGraw-Hill Publishing Company Ltd Third Edition
2. I M PANDEY Financial Management Tata McGraw-Hill Publishing Company Ltd (2001)
3. Dr. P. PERIASAMY Working Capital Management theory and practice Himalaya Publishing House.
4. Annual Reports of MICO Bosch for the years a. 2001 b. 2002 c. 2003 d. 2004 e. 2005
5. MICO Bosch Journals 6. MICO Bosch BanP- Intranet
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A Comprehensive study of Working Capital Management in MICO BOSCH

KRISTU JAYANTI COLLEGE OF MANAGEMENT AND TECHNOLOGY BANGALORE 2007

CERTIFICATE FROM GUIDE & HEAD OF THE INSTITUTION

DEAN MBA DEPARTMENT

It has always been an

ROBERT BOSCH (1861-1942) Founder: Robert Bosch GmbH, Germany

Chapter 1 INTRODUCTION 1.1. Overview of Industry 1.2. Working Capital Management

Organization structure Life and History

26-84 26-56 57-70 71-84 85-88

Cash and Bank to Current Assets

Cash Turnover Ratio

Cash Flow Statement- 2002

Cash Flow Statement- 2003

Cash Flow Statement- 2004

Cash Flow Statement- 2005

Working Capital Position- 2002

Funds from Operations- 2002

Fund Flow- 2002

Working Capital Position- 2003

Funds from Operations- 2003

Fund Flow- 2003

Working Capital Position- 2004

Funds from Operations- 2004

Fund Flow- 2004

Working Capital Position- 2005

Funds from Operations- 2005 Fund Flow- 2005

Cash and Bank to Current Assets

Cash Turnover Ratio

1.1 OVERVIEW OF THE INDUSTRY

1.2 WORKING CAPITAL MANAGEMENT

Factors influencing Working Capital

3.2 About Bosch

The power of we philosophy

3.5 Milestones of MICO

3.7 MICO in India

Corporate office of Mico at Bangalore, India.

ROBERT BOSCH (1861-1942) Founder: Robert Bosch GmbH, Germany.

3.9 Organization structure:

Code descriptions of the organization

Unit Code MICO/P

MICO/NE MICO/SA MICO/PA-EB MICO/SO MICO/PA-PA MICO/PA-PT MICO/PA-ST MICO/PA-GS MICO/EM

MICO/QMM Ban P/QMM MICO/PJM

Na P/QMM Nh P/QMM Ja P/QMM MICO/AT-QMM

MICO/PT-QMM Ban P/PC Na P/PT Na P/PC Ja P/PT

Joint Managing Director, Finance and Administration, IT coordination

ANALYSIS AND INTERPRETATION OF DATA

4.1 RATIO ANALYSIS

Expression of Current Ratio

Current Ratio = Current Assets Current Liabilities

Significance of Current Ratio

Table No. 4.1

The standard Current Ratio is 2:1

2. Quick ratio or liquid ratio

Components of Quick assets and quick liabilities

Expression of Quick Ratio

Quick Ratio = Quick Assets Quick Liabilities

Table No. 4.2

2001 2002 2003 2004 2005

3487 4386 6214 7773 9094

0.89 1.04 1.14 1.23 1.17

Source: Annual Report of MICO

3. Readily Marketable Securities

Expression of Absolute liquid ratio