Fundss help concerns in puting up themselves and besides aid them in their day-to-day operations. These financess can be either being short term or long term. The financess of long term term of office can ease buying of fixed assets like land, furniture, P & A ; m etc and therefore lend to creative activity of production installations. The money that gets spent in such creative activities gets blocked for good and therefore is referred to as fixed capital. On the other manus, the financess of short term term of office can ease buying of natural stuffs or assistance in concern ‘ day-to-day disbursal payments or rewards payment. These sort of financess are normally called WORKING CAPITAL.
Therefore, the capital which finances any house on a short term footing is known as working capital. This capital finances the undermentioned current assets:
These financess are non stable and have a circulative nature. The financess finance current plus and gets converted to hard currency and so once more this hard currency is used to buy more assets maintaining the flow of fund revolving. Therefore, working capital can be normally referred to CIRCULATING OR REVOLVING CAPITAL besides.
TWO WHEELER INDIAN MARKET ANALYSES
With the fabrication of Bajaj and Lambrettas by the Automobile Products of India ( API ) in 1950s, India reached up to figure two place in the universe ‘s market of two Wheeler makers.
This section contributes maximal volume amongst the others in the car sector with a section size of more than Rs. 100,000 million. In the last few old ages, the demand for bikes has increased manifold over the demand for scooters. Like in instance of rural audience, the demand is for sturdy motorcycles which can last for long and run swimmingly on the rugged roads of such countries.
In stead of the same, the market portion of scooters has fallen down from 33 to 25 % whereas the same for bikes has increased from 48 to 58 % .
With multiple participants come ining the section of bikes, the monetary values have been thrashed and many new theoretical accounts have come up into the market. Even the authorities is back uping the new demand hikings in bike by cut downing excise responsibilities on the same.
Motorcycle gross revenues grew at an one-year norm of 27 % in 1995 to 2002 and are about 66 % of the entire two-wheeled gross revenues in F2002, compared to merely 24 % in F1995. The mean monthly gross revenues of bikes have raised five times since F1995 about 250,000 units in the F2002. Now HERO HONDA is presently the market leader with a market portion of 49 % . It has been an early participant in the section of 4-stroke two-wheeler industry. With the right combination of titling merchandises and monetary values of the company helped garner a much larger market of the $ -stroke, compared with Bajaj Auto. A alteration in consumer penchant towards bikes besides allowed the rapid growing of the company in recent old ages.
Gross saless Hero Honda bikes rose 40.6 % in April to 135.961 units sold 96,672 units in the matching month last twelvemonth. The alteration in merchandise mix towards higher value merchandises has resulted in improved accomplishment for the company to the turning popularity of the theoretical account of passion seems to be the cardinal factor behind the betterment in the execution unit. Given the recent tendency in public presentation, the company seems good positioned to keep its leading place in the bike market, and besides maintain the growing rate of the yesteryear. Bajaj Auto Ltd. ranks 2nd in this section. The company late launched the pulsar 150/180 milliliter which has virtually taken the market portion of Hero Honda motorcycles like CBZ, Fiero Suzuki, etc. TVS ranks 2nd on the list. TVS master is the first domestically manufactured bike TVS Motor. Infact with a period of six hebdomads of waiting, even six months after its launch, TVS motors plans to duplicate its production capacity. The bike market can be segmented harmonizing to monetary value tickets that are in the economic system, executive and premium sections. Basically the top three companies have a presence in all these sectors. It is clear that the race to figure one in the bike section has been a nonreversible.
But nowadays the demand for bikes is so specific and part particular that every rival needs to work really hard to prolong their place in the bike section.
Aim OF THE RESEARCH
I have conducted this research on two Wheeler car section to accomplish the undermentioned two aims:
RESEARCH DESIGN AND METHODOLOGY
This research has been conducted by taking SECONDARY DATA from one-year studies of the companies under survey and their web sites and besides from Economic Times website.
The research is chiefly based on analysis of one-year studies of two popular two-wheeler car makers:
1. Hero Honda Motors ( ranks 1st in this sector )
2. TVS Motor Company Ltd. ( ranks 3rd in this sector )
Hero Honda Motors
“ Hero ” is the trade name name used by the Munjal brothers for its flagship company Hero Cycles Ltd. A joint venture between Hero Group and Honda Motor Company was established in 1984 as the company Hero Honda, a company referred Ashdeep India.This Singh ( Badal ) from CIIS university. During the decennary of 1980 the company introduced bikes that were popular in India for its fuel economic system and low cost.
The slogan “ Fill – Shut up – Forget ‘ , of Hero Honda became really popular and helped the compant in turning at a really fast gait.
Hero Honda has three installations fabricating based in Dharuhera and Gurgaon in Haryana and Haridwar in Uttarkhand. These workss together are capable of crushing 3,900,000 bikes per twelvemonth. Hero Honda has great gross revenues and service web with over 3,000 traders and service points throughout India. Hero Honda client trueness plan, the Hero Honda Passport Programme, aims to be one of the largest plans of its sort in the universe with more than 3 million members. Most Respected 200 Forbes 2006 list companies Hero Honda Motors has put in 108.
TVS Motor Company Ltd.
TVS Motor Company is the 3rd largest maker of two-wheelers in India and one among the top 10 in the universe, with an one-year turnover of over USD 1000 million in 2008-2009, and is the flagship company of the Group of USD TVS 4 billion. TVS Motor presently manufactures a broad scope of powered two-wheeled mopeds rushing divine bikes. TVS has ever stood for advanced, easy to pull off, environmentally friendly merchandises, backed by dependable client service. No admiration, so, that our 15 million clients in the manner of holding a ground to smile.
Comparative BALANCE SHEET ANALYSIS
Hero Honda Motors
Net current assets or working capital in 2008 and 2009 is negative. That is 10133.30 and 11837.60 crore. This shows that the current assets is less than the current liabilities by this sum. In other words, some short-run support has been used in the fixed assets after puting a entire sum of short-run financess on it. Reveals that the policy of working capital funding is aggressive.
Current assets are called runing assets because these assets are coming due to runing activities. Likewise, current liabilities are referred to as operating liabilities. Among all operating assets, hard currency has increased maximal sum. Ie 884.80 crores which is 67.50 % higher than the old twelvemonth.
But the sum of loans and progresss has increased from Rs 1963.70 million to Rs 3258.00 million which is 65.91 % higher. Shows the largest sum of hard currency has held in the manus instead than puting in short-run securities. That money can be ideal.
Current liabilities can be shown assorted creditors, disbursals and bills histories collectible. This has increased Rs 2233.60 million which is 15.35 % per centum last twelvemonth.
The commissariats shown may be proviso for bad debts, debitor and Taxation off intent. This sum has increased by 272.10 million rupees, which is 5.44 % .
The stock list degree has increased by 97.30 billion rupees, which is 3.07 per centum and assorted debitors has been reduced from Rs 1475.00 million which is 49.59 per centum old twelvemonth.
TVS Motor Company Ltd.
Net current assets or working capital in 2008 and 2009 is positive. That is 1297.00 and 531.40 billion rupees. This shows that the current assets is more than the current liabilities by this sum. In other words, a portion of long-run support beginnings has been used in current assets after puting the entire sum of short-run financess on it. Reveals that policy of working capital funding is conservative.
Current assets are called runing assets because these assets are coming due to runing activities. Likewise, current liabilities are referred to as operating liabilities. Among all operating assets, hard currency has increased maximal sum. Ie 383.20 crores is 1027.35 % from the old twelvemonth.
The stock list degree has decreased by 848.30 million rupees, which is 20.93 per cent and assorted debitors has increased by Rs 937.00 million which is 106.65 per centum old year.A
But the sum of loans and progresss has increased from Rs 3428.70 million to Rs 4271.10 million which is 24.57 % more. Shows the largest sum of hard currency has have invested in short-run securities.
Current liabilities can be shown assorted creditors, disbursals and bills histories collectible. This has increased by Rs 503.70 million which is 6.94 per centum in the past year.A
The commissariats shown may be proviso for bad debts, debitor and Taxation off intent. This sum has increased by 45.00 billion rupees, which is 7.38 % .
Hero Honda Motors
A comparative high liquidness ratio is an indicant that the company is liquid and has the ability to pay its current duties over clip as they come due. On the other manus this company have the followers as the normal ratio as 2:1. Means lower current ratio can be for the undermentioned grounds:
May non hold sufficient financess to pay liabilities.
The concern may be merchandising beyond its capacity.
Resources can non warrant the activities.
Hero Honda Company continues aggressive scheme. This company has fewer current assets over current liabilities.A
The liquid is really utile in mensurating the liquidness place of a company. Is measures the company ‘s ability to pay current duties and is a more immediate strict trial of liquidness at the current rate. The ideal ratio is 1:1, but the company has less than 1 as this company does non hold strong liquidness place to run into immediate duties. The house stands out chiefly for the purchase of fixed assets.
Absolute Ratio acceptable criterion for this ratio is.05:1 or 50 % or 1:2. Re Value entire liquid assets are considered sufficient to pay current liabilities of Rs 2, but the company has non up to standard to run into the liquidness of the company. In the twelvemonth 2008 is 0.17 and 2009 is 0.25, which is increasing somewhat, but non the care of liquidness place.
The debt equity ratio of 1:1 can normally be regarded as satisfactory and 0.04 and 0.02 ratio is considered satisfactory for stockholders as it indicates that the company has non been able to utilize financess out of low cost to increase income. This relationship shows the solvency place is really good.A
Inventory turnover shows that the company must keep a certain degree ofA finished goods stock list in order to run into the demand of the company.A But the stock list degree should non be excessively high nor excessively low.A It is harmful to celebrateA more stock lists for the undermentioned ground: In 2008 and 2009, has 9 to 10 timesA used, severally, and replaced.A Shows an addition in inventory turnover rate, whichA agencies good mark for the company.A Increased turnover indicates an efficient stock list due to more frequent stock depletion, the sum of money or lessA needed to finance the inventory.A Increase ( 9 to 10 hours ) in concern volume means that lessA stock list investing, merchandise quality, efficient houses, sharesA
accretion and high profitableness compared with the entire investing this type of turnoverA may be the consequence of really low degree of stock list ensuing in deficits of goodsA comparative to demand and stock out place or turnover may be high due toA conservative method of stock list rating at lower values aˆ‹aˆ‹or policy of the companyA frequently being to purchase in little tonss. The benefit may be reduced due to inordinate loadA incurred in the replacing of securities in little tonss, out stock state of affairss, the sale of stock lists atA low prices.A
The debitor ‘s turnover speed ratio indicates the figure of times become debtorsA once more for a year.A The debitor ‘s turnover ratio increased from 33 times to 55 timesA showing the high turnover of the company.A The higher the value of the turnover of the debtorA more efficient the direction of debitors / gross revenues or more liquids are the debtors.A IsA might go impossible due to miss of resources to sell on recognition, so the company, losingA gross revenues and profits.A This company has less recognition sales.A It besides depends on the liquidityA place this concern to pay its short term duties in time.A The high inventoryA shows the turnover of the company has good trade name name and clients are loyal.A
Turnover Ratio indicates the velocity of web utilizationA working capital.A Indicates the figure of times the on the job capital is turned over a twelvemonth. The negative on the job capital indicates that the company has less powerA assets over current liabilities during the period of time.A Indicates efficient working capital use and direction.
Gross net income rate measures the ratio of gross net income on net gross revenues. One per centum addition in gross net income rate of the old twelvemonth. The efficiency with a company builds its merchandises. The greater the proportion of their better consequence, but this concern of ratio is 0.13 and 0.14 in 2008 and 2009 severally, which shows no high net income, which means mean net income. Gross net income is low, as it may be overvalued shuting stock and opening undercutting valuesaˆ‹aˆ‹ . Costss can be high.
The operating border ratio provides a list of assorted net gross revenues. Is indicates the efficiency of direction in the fabrication, gross revenues, administrative and other activities of the company. This house is.08 and.09 ratio in 2008 and 2009 severally, but indicates an addition of 0.1 in footings of net net income. This relationship besides indicates the company ‘s ability to get by with inauspicious economic conditions, such as monetary value competition, it should be noted that the public presentation benefits should besides be seen in relation to investing or capital of the company, non merely in relation to gross revenues. This ratio is low, A mayA be an effectA ofA the recession.
TVS Motor Company Ltd.
The current ratio increased from 1.07 to 1.15 in 2008 to 2009, severally. A comparatively high current ratio is an indicant that the company is liquid and has the capacity pay their current duties over clip as they come due. On the other manus this company are below what a normal relationship, as 2:1. The current ratio of 1.07 and 1.15 agencies current assets are times of 1.07 and 1.15 of current liabilities. The TVS Motors Company Ltd is the conservative attack. The company has more current assets over current liabilities.
The liquid ratio is utile in mensurating the liquidness place of a company. Is measures the company ‘s ability to pay current duties and is a more immediate strict trial of liquidness at the current rate. The ideal ratio is 1:1, but the company has less than 1 as this company does non hold strong liquidness place to run into immediate duties. This company is liquid ratio increased from 0.55 to 0.77 in 2008 and 2009, severally. This shows that the duty of immediate signature is non good. The company stands out chiefly for the purchase of fixed assets.
Standard acceptable to the Absolute Reason this proportion is 50 % or 1:2. Re an absolute value liquid assets are considered sufficient to pay current liabilities of Rs 2, but the company run into the liquidness of the company. In 2008 and 2009 is 0.44 is 0.56 which is somewhat increase. The 0.44 is non satisfactory, but in 2009 is 0.57 is really satisfactory because is greater than the regulation.
The debt equity ratio of 1:1 can normally be regarded as satisfactory. In this companies from 0.81 in 2008 is rather satisfactory, but in 2009 is 1.11 is considered non satisfactory grounds for stockholders as it indicates that the company has non been able to the usage of financess out of low cost to amplify their net incomes. This relationship shows the solvency place is really good.
The stock list turnover ratio in 2008 and 2009 have 32 and 27 times severally use and replace. Shows an addition in inventory turnover rate agencies good mark for the company, but excessively high turnover of stock list may non needfully ever implies a favorable state of affairs. The high stock list turnover may ensue from a really low stock list degrees ensuing in deficits of goods comparative to demand and place of deficits or turnover can be high due to a conservative attack the rating of stock lists. Indicates that effectual stock list direction as more common portions are sold, the sum of money or less is required to fund stock list. Decreased ( 32 to 27 times ) in turnover means that the investing in less stock list, merchandise quality, concern efficiency, carrying and high benefits compared with the entire investing this type of stock list turnover non needfully intend higher net incomes. The benefit may be reduced due to inordinate burden incurred in the replacing of securities in little tonss, out stock state of affairss, the sale of stock lists at low monetary values.
The debitor ‘s turnover speed ratio indicates the figure of times become debitors once more for a twelvemonth. The debitor ‘s turnover addition ratio of 8 times to 10 times show a high turnover of the company. The higher the value of the debitor ‘s concern volume increased efficient the direction of debitors / gross revenues or more liquids are the debitors. You can affect the inability due to miss of resources to sell on recognition at the company, losing gross revenues and net incomes. This company has less recognition gross revenues. It besides depends on the liquidness place this concern to pay its short term duties in clip. The high stock list shows the turnover of the company has good trade name name and clients are loyal.
Turnover Ratio Working Capital indicates that the velocity of web use working capital. Indicates the figure of times the on the job capital turnover is the class of a twelvemonth. The on the job capital indicates that the company has current assets of more over current liabilities during the period of clip. Indicates the efficient usage of working capital direction.
Gross net income rate measures the ratio of gross net income on net gross revenues. One per centum addition in gross net income rate of the old twelvemonth. Reflects the efficiency with a company builds its merchandises. The greater the proportion of their better consequence, but this concern of ratio is 0.1 and 0.2 in 2008 and 2009, severally, showing that there is less gross net income compared with other companies on gross revenues, which means good addition in competitiveness pricing. Gross net income is low, as may be the shutting stock and the overestimate underestimate of the actions open. May be high, but care costs consistent net income.
The operating border ratio provides a list of assorted net gross revenues. Is indicates the efficiency of direction in the fabrication, gross revenues, administrative and other activities of the company. This company has 0 and 0.01 in relation to 2008 and 2009, severally, indicates that a per centum addition in the proportion of net net income. In 2008 The gross net income ratio is equal to zero, as it may be a recession or hapless gross revenues. This relationship besides indicates the company ‘s ability to get by with inauspicious economic conditions, such as monetary value competition, it should be noted that the public presentation benefits should besides be seen in relation to investing or capital of the company, non merely in relation to gross revenues, but the period of recession to maintain the benefit. This proportion is low, it can be recession consequence.
RATIO ANALYSIS OBSERVATION
By making the above analysis for both the companies, the ratios show that while Hero Honda uses aggressive policy, TVS Motors uses conservative policy. Beside this major observation, some other observations drawn out are:
TVS has been able to keep a good liquidness.
Both houses have been so far able to keep appreciable solvency ratios, stock list and debitor turnover ratios.
While TVS Motors is keeping good on the job capital, Hero Honda fails to make so.
The singular point to be noted is that while both companies had good profitableness, merely Hero Honda was able to keep back the degrees of profitableness during the RECESSION PERIOD unlike TVS Motors.
Hero Honda Motors
1. Liquidity ratios:
Liquid refers to the ability of a company to run into its current duties as these demands. The short-run duties are met in measures to recognize the current, drifting or go arounding aids. Current assets and must be liquid or close hard currency. Them to be exchangeable into hard currency to pay the duties of the short-run nature. The adequateness or deficient assets should be evaluated by comparing with short-run liabilities. If assets can pay current liabilities so the liquidness place satisfactory. On the other manus, if the liabilities can non run into current assets so the liquidness place is incorrect.
As we know that the current ratio ideal for any concern is 2:1. If we see that the current
company ‘s relationship in the past three old ages has decreased from 2007 to 2009. The liquidness ratio Company is less than the ideal ratio. This represents the liquidness place of the company that is non sound. Its current assets are lower than current liabilities.
A liquidness ratio is an indicant that the company is liquid and has the lowest
assurance to run into its current duties over clip. The ideal ratio is 1:1. Society
liquidness ratio is less than ideal proportions. The company demonstrates that its liquidness job.
2. Current Assets Ratio:
The financess are invested in assorted assets in concern to do gross revenues and net income. Efficiency with which assets are managed straight affects the gross revenues volume. The better the plus direction is the big sum of gross revenues and net incomes. Active current motion ratios measure the efficiency with which a company manages its resources. These relationships are turnover rates, since they indicate the velocity with which assets are converted or delivered in gross revenues. Depending on the intent, a series of rotary motion rates can be calculated.
Inventory Turnover Ratio
Cost OF GOODS SOLD/SALES
Inventory TURNOVER RATIO
This ratio shows how rapidly the stock list is going charge through gross revenues. In 2007 the company has a relationship with a high turnover of stock list, but in 2009 has been reduced to
20.62 hours. This shows that the engineering company ‘s stock list direction is less efficient
as compared to the last two old ages.
Inventory Conversion Period
Inventory TURNOVER RATIO
INVENTORY CONVERSION PERIOD ( IN DAYS )
Inventory transition period shows how many yearss the inventory-making the transition of natural stuffs to complete merchandises. In the company ‘s stock list transition period is turning. This demonstrates the inefficiency of the direction to turn stock list into hard currency.
Debtor Turnover Ratio
DEBTOR TURNOVER RATIO
This ratio indicates the rate at which borrowers are going or Employee turnover in gross revenues. The higher the value or gross revenues turnover. The higher the value turnover of debitors, the more efficient the direction of recognition. But in the company list of debitors turnover is increasing twelvemonth by twelvemonth. This shows that the company is utilizing its debitor efficiency. Now their recognition policy becomes more efficient compared to old old ages.
Average Collection Period
DEBTOR TURNOVER RATIO
Average COLLECTION PERIOD ( IN DAYS )
The mean aggregation period measures the quality of debitors and assist analyse the effectivity of aggregation attempts. It besides helps the analysis of recognition policy adopted by the company. The company mean aggregation period additions twelvemonth to twelvemonth, but in 2009 collapsed. This shows that the company has antecedently broad recognition policy, but now the recovery. These policy alterations are due to the recognition policy of competition.
Working Capital Turnover ratio
Net WORKING Capital
Working Capital TURNOVER RATIO
This relationship indicates that the net working capital required for high gross revenues. This company
have negative on the job capital because they have more current liabilities over current assets. This shows that short-run loans are non plenty and more money is invested inthe purchase of fixed assets. Therefore, this relationship is utile in foretelling the working capital demand on the footing of the sale.
CASH & A ; CASH BALANCE
Net WORKING Capital
From the above tabular array following observations can be made:
Inventory: Inventories are an of import portion of the assets. If any company want to pull off their work capital efficiency, which has to pull off its stock lists expeditiously. The graph shows the stock list in 2006-2007 is 30 % in the period 2007-2008 is 33 % and in 2008-2009 is 31 % of their existing assets. The company should seek to cut down stock list up to 10 % or 20 % of current assets.
Cash and Cash Balance: Cash is the basic input or constituent of working capital. Cash is needed to maintain the concern running continuously. So the organisation must hold sufficient hard currency to run into several demands. The chart above shows that in 2007 hard currency is 357.80 million, but in 2008 has increased to 1310.90. The consequence of this it is easy for companies fabricating operations. In 2009, increased to 2195.70 million hard currency balance. Therefore, in 2009, the company has no job to run into its demand that compared with 2008.
Current Assetss: Shows that there is 92 % addition in assets in 2009. This addition is emerging because there is approx. 50 % addition in stock lists. Current assets increased try the strength of the company ‘s liquidness.
Current Liabilitiess: Current liabilities Short-run debt shows the company pays to foreigners. In 2009, the current liabilities of the company increased. Not a good mark for the company.
Net WORKING Capital: Working capital is needed to fund the day-to-day operations of a company. There must be a optimum degree of working capital. There should be much lower or no extra excessively. In the company is non negative working capital. The negative on the job capital because the company purchase of fixed assets and debt many short is non sufficient to run into liabilities.
Therefore, in 2009, Hero Honda gets more benefits and addition concern, but the liquidness place is improved compared with the old two old ages.
After making this research and survey of Hero Honda Motors and TVS Motors, I found that on one manus TVS Motors have low net incomes but high liquidness and on the other manus, Hero Honda Motors have hapless liquidness.
Out of the two companies taken up for survey, Hero Honda Motors is following aggressive policy and is executing good at both domestic and international foreparts. It made more net income than TVS motors in 2009 and net income was Rs. 11681.80 million. The company is rather old and has been functioning the state in past and is believed to go on making so in hereafter besides. The lessening in net incomes of Hero Honda Motors can be contributes to grounds like recession ‘s consequence, improper working capital and fund direction. In the intra-firm analysis, Hero Honda Motors showed high profitableness in twelvemonth 2008 in comparing to the old two old ages. But still the company ‘s liquidness place could non go every bit strong as TVS motors.
Therefore, I would reason this survey on direction of working capital across different companies by citing that ‘borrowing for short-run periods proves deficient to do the daily demands and demands and more financess gets lied up in fixed assets. ‘ In instance of Hero Honda the net working capital for all old ages considered came negative proving that the house ‘s current liabilities are more than house ‘s current assets, i.e. , the house ‘s hard currency escape is more than its influx.
However, Hero Honda motors inspite of its negative net working capital, holds the largest figure of portions in two-wheeler car sector and withholds a really strong place in the market.
Net income AND LOSS STATEMENT- HERO HONDA MOTORS
( all figures in Million Rupees )
Net income AND LOSS STATEMENT- TVS MOTORS COMPANY LTD.
( all figures in Million Rupees )
BALANCE SHEET- HERO HONDA MOTORS
( all figures in Million Rupees )
BALANCE SHEET- TVS MOTORS COMPANY LTD.
( all figures in Million Rupees )