Successfully reported this slideshow.

Scote projt bunty


Published on

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

Scote projt bunty

  2. 2. CH. DEVI LAL UNIVERSITY,SIRSA ACKNOWLEDGEMENT At the outset I would like to thank the Management of ESCORTSAGRI MACHINERY GROUP for the wholehearted co-operation andguidance extended by them, which made my summer training projectpossible. I would like to thank Mr. Bharat Madan (Chief Financial Officer),Mr. S.K Aggarwal (Head Employees Relations), and Mrs. KiranChopra ( Chief Secretary & System Manager) for providing me thisopportunity to carry out the project. I am very grateful to my project guide Mr.pulak sinha (financeManager; Finance Department) Escorts Limited (AMG PLANT-1) for hissupport and suggestions, which led to the completion of this project. I would also like to thank Mr. B.B khanna , Mr. M.M. Halder , Mr.Nitin Aggarwal , Mr. Vijay Nehra , Mr. Rajeev Khandelwal , Mr. SunilBhatia, Mr. R.N katyal, Mr.Ajay Wadhawan , Mrs Saroj and Mr. R.K.Kukreja and other staff members for their support and cooperation. 2
  3. 3. STUDENT DECLARATIONI, student of “Masters in Business Administration” CH. DEVI LALUNIVERSITY, SIRSA hereby declare that the dissertation/thesis entitle‘Study of Cash Management’ of the Escort Agri Machinery Group(AMG) submitted in fulfillment of the training; is my original work andis not submitted for the award for any other degree, fellowship or similartitle or prize. SHALU VERMA 3
  4. 4. EXECUTIVE SUMMARY If the development capital is what establishes a business, cash flow iswhat keeps it going. One of the most common downfalls of business isunexpectedly high running cost. What is important is not just the size ofoperating costs, but the cash flow-that is when money has to be paid outin relation to the stream of income arriving in. Thus cash flowmanagement is of prime importance. Escorts Ltd. is the holding company of the Escorts Group. Postrestructuring, agri - machinery or tractors have become the focus area ofoperations. Other business i.e. two- wheelers, IT, Telecom, constructionequipment, are controlled through subsidiaries and joint venture. Posthive off of its pistons business to a joint venture with a foreigncollaborator, Escorts is focusing on its ‘core competence’ of tractors.Escorts have strong hands in house engineering skills, a widedistribution/service network and brand franchise. The project is small attempt to study the cash management inEscorts Agri - Machinery group. Added to this fact that mechanizationlevel in India is currently very low as compared to the world standards. To analyze the performance, published balance sheets of EscortsLimited, CASH FLOW STATEMENTS are been used. This projectreport is based on financial data up to 2007-08 only. The financial yearfor escorts is from 01/10/20XX to 31/09/20XX. Escorts is maintainingthe following records which is indicative of its professional approach: 4
  5. 5.  Maintaining proper set of accounting records. Maintaining an accurate cash book with bank statement Daily cash inflow & cash outflow. Marking regular forecast of cash requirement based upon planed sales volume. Ageing of debts/credits with comparisons to previous month 5
  8. 8.  LIMITATIONS BIBLIOGRAPHY ANNEXURES OBJECTIVES OF THE TRAININGIt is well known fact that we remember 20% of what we hear, weremember 40% of what we see but we remember 75% of what we do.Undergoing M.B.A is the first step to prepare myself as a manager andvisualize the ever-dynamic business world and my main objective whiletaking up the training was to familiarize myself with the working of thefinance department of Escort Agri Machinery Group (AMG)To present study in Escort Agri machinery group mainly focus on thefollowing : Resources of cash inflow of the company. Cash flow factors which have effect of cash inflow. Cash flow statement in the company. Cash flow management in the company 8
  10. 10. INTRODUCTIONIndia’s long-term economic prospects, even today, depend to a largeextend on the agricultural sector, which contributes a quarter to the grossdomestic project and provides livelihood to 2/3 of the population. Agradual and perceptible shift from subsistence farming to enterprisefarming is harbinger of modernization of the agriculture economy andthis will increase the contribution of the sector to the overall GDP in thetime to come. The central government as well as several stategovernments is giving due priority to agriculture and rural developments. A tractor is a product, which has maximum utility in theagricultural sector. The tractor industry is segmented on the basis of thepower of the tractor engine measured in terms of horsepower (HP). Themaximum consumption is for 30-40 HP tractors. With the increase in theavailability of low cost finance for longer tenures, the sale of the tractorsis expected to go up. The new trend observed in this sector is the shift inconsumption from majority in the northern states to other parts of thecountry, too. The soil in the northern states is alluvial in nature and thus 10
  11. 11. requires a low powered tractor for tilling it. However, states located inthe western and southern parts of the country where the soil being lateriteor black etc. is harder and needs high-powered tractors. Tractor industry in India has passed through various hazes beforereaching where it is today. During 1945 to 1960 demand was met entirelythrough import. There were 37,000 tractors by 1960. Production began in1861 with five manufactures producing a total of 880 units per year. By1965 it increased to over 5,000 units per year and by 1970 annualproduction rose to more than 20,000 units. Six new manufacturing wereestablished during 1971-1980. In 1971 Escorts also started localmanufacturing of Ford Tractors in collaboration with Ford, UK. During,1990 annual production rose to 1, 40,000 units making India an exporterto countries, mainly to Africa. After De-licensing of tractor industry,production exceeded 2, 55,000 units in 1997. The growth of the industry over the last three decades resulted inthe entry of several new entrants including all the major multinationalcompanies. The industry now consists of 14 manufactures with anaggregate installed capacity of approximately 4.50 lack tractors. In thetractor industry, following are the key manufacturers:  Mahindra& Mahindra Limited (M&M),  Gujarat Tractors Limited,  Tractors and Farm Equipment Limited,  Hindustan Machine Tools Limited,  Bajaj Tempo Limited 11
  12. 12. In 1999-2000. Since then, however the industry declined toa level of 1.72 lack tractors in the year 2002-2003, a decline of 33.3%over three years. Despite the step decline in the industry, Escorts consciouslydecided to aggressively reduce channel inventory further byapproximately 3,500 units reduces in the previous year. This has not onlyimpacted their revenue and profit adversely but has also enabled thecompany to balance the cash flow of company effectively. Tractors form an integral part of farm mechanization and have acrucial role to play in increasing agriculture productivity. In India, 90%of the tractors are financed by banks- credit at concessional rates.Availability of credit therefore is the most crucial factor, impactingtractor demand. Increased use of irrigation facilities, shift towards multi-cropping, consolidation of lands holdings, promotion of cooperatives andhigher investment in agriculture also contributes to higher tractordemand. 12
  13. 13. Future of Tractor industry The tractor industry in India has been on a growth trajectory sincethe second half of 2003-04, after going through a minimum variation forconsecutive years. The key factors driving this growth are increasingfarm incomes, aggressive financing resulting in easy availability of low-cost credit, sharp inventory correction and strong export growth. The demand in tractor industry is expected to grow mainly due tothe agricultural sector, with the expected increase in agriculturalproduction. Also, the shift in trend for demand towards higher HPtractors is expected to continue. This will be further strengthened by thelaunch of several new models. In the next 2-3 year, demand for tractors isexpected to increase significantly in the eastern states, wheretraditionally, tractor usage has been low. Exports are expected to increasesignificantly as several Indian players are targeting the “hobby farming”segment in the U.S, which is considerably large. Also, tractors of mostIndian manufacturers comply with the emission standards accepted in the 13
  14. 14. U.S. Most exports are likely to be through overseas partnerships or jointventures. McKinley has also forecasted tractor population requirementsof 75 lacs over the next 18 years vs. current population of 26 lacs. Theextension of the 150 per cent deduction on R&D expenditure up to march31, 2009, in the Budget 2008-09 will also benefit the industry in terms ofnew product development besides increase in the area under irrigationunder the Bahrat Nirman Project and the micro irrigation scheme. MARKET SHARE OF TRACTOR INDUSTRYFor the year 2007-08 14
  15. 15. ESCORTS 7.26% 13.65% 1.30% 6.63% MAHINDRA & MAHINDRA 8.14% PTL 1.37% TAFE 28.17% 8.82% HMT 1.36% 15.20% SONALIKA 8.00% FML L&TTRACTOR INDUSTRY PERFORMANCE FORD NEW HOLLANDCOMPANY 2005-06 2006-07 2007-08ESCORT 11138 23200 OTHERS 20950 EICHERFARMTRAC 18287 32800 26900TOTAL(ESCORT + 29425 56000 47850 15
  16. 16. FARMTRAC)MAHINDRA & 85028 102500 98700MAHINDRA 31396 30010 28040PTL 52400 53400TAFE 27700 25450EICHER 7900 6500 4770HMT 32017 36200 30920SONALIKA 4464 5050 4820BTL(FML) 19951 19720 28530L&T 13214 19400 23250FORD NEW HOLLAND 8450 7195 4520TOTAL INDUSTRY 302435 362675 350300 16
  17. 17. COMPANY’S PROFILE ESCORTS SYMBOLThe Escorts symbol means more than a seen by eye. It has been preparedwith certain objective in mind and is symbol in more than one way.The philosophy behind Escorts and the ‘e’ in the Escorts is “enterprise”.The hexagon is a symbol of productivity. Precision when interposed as anut. It symbolizes a craft man ship and mending productivity. The sprains 17
  18. 18. super imposed on the hexagon represent the workers and the people ofEscorts. This forms the letter ‘E’ the first of Escorts a company even ofmore changing unveiling the future MISSION For an Enterprise business mission embodies of its endeavor, whichacts as a guiding light for continuous development & growth.Mission of ESCORTS is: Engineering Changes through core competency for greater synergyreinforcing bonds with customers & establishing powerful symbiotic 18
  19. 19. relationship with international allies, preparing global market. Thecompany wants to make a lasting difference to its shareholders, itscustomers, its business associates, its employee and the country as awhole. The company also gives better quality and better technology tocustomer and treats every customer as “special” to build respect for, andloyalty to, Escorts. QUALITY POLICY We shall strive to continuously improve to meet the ever – risingexpectation of our customers at the lower cost. Each one of us must fulfillthe need of our customer, both internal and external with the highestdegree of commitment thereby creating a quality organization geared to 19
  20. 20. ensure total customer satisfaction and the sustained health and prosperityof our business.Customer Orientation: To fulfill the requirement of our internal andexternal customer.Process Orientation: To optimize and harmonize interrelated processrather than individual function.Preventive Behavior: To prevent the mistake to happen. BACKGROUND AND BUSINESSThe Escorts Group, with Escorts Limited as its flagship company, isamong India’s leading corporations operating in the diverse field of agrimachinery, construction & material handling equipment, automotive &railway ancillaries information technology and financial services. The 20
  21. 21. group has 15 modern manufacturing facilities & an extensive marketingnetwork spread across the country. The genesis of Escorts goes back to1944 when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launcheda small agency house, Escorts Agents Ltd., in Lahore. The company’sprincipal activities were trading and representing leading overseasmanufacturers for the sale of their products in India. One of itsdealerships was for the “Massey Ferguson” brand of tractors. In December 1959, Escorts agents ltd. was converted into a publiclimited company and was renamed as Escorts Limited (EL). In January1960, EL decided to set up manufacturing facilities for making tractors inIndia under the “Escorts” brand name in the 25-40 Horsepowercategories. EL promoted Escorts Tractors Limited in 1969 as jointventure with Ford Motor Company of USA for the manufacturing of‘Ford’ series of tractors. The tractors manufactured were in the 45-50 HPrange and ETL became the market leader in this segment with a share ofabove 50%. Consequent to FMC’s disposal of tractors operations to FordNew Holland, USA, Ford new holland acquired the shares of FMC inETL. Following an agreement in 1995 to end the joint ventureassociation, EL acquired the entire stake of ford new holland in August1995, making escorts tractors ltd. a subsidiary of Escorts Ltd. Over the years, Escorts has sured ahead and evolved into one ofIndia’s largest conglomerates. Till 1993-94, all these activities werebeing carried out in various divisions of EL. EL undertook a majorrestructuring exercise between 94-98 spinning off the divisions intoseparate companies. The restructuring exercise-comprised consolidation of the agri-machinery business by merger of ETL with EL and having off various 21
  22. 22. divisions into separate companies. Biwheeler division was spun off toEscorts Yamaha Motors Ltd., construction equipment division to Escortsconstruction equipment Ltd., telecommunication equipment division toEscorts communication Ltd., EL booked gains of Rs. 2091 million overthe four year period 1994-95 to 1997-98 though the sale of these the saleof these divisions. The main products of Escorts group currently comprise of agri-machinery, information technology, health care, financial services,railway components, auto components, construction and materialhandling equipment. BOARD OF DIRECTORSManaging Director &Chairman Mr. Rajan NandaJoint Managing Directors Mr. Nikhil Nanda 22
  23. 23. Directors Dr. M.G.K. Menon Dr. S.A. Dave Dr. P.S. Pritam Mr. S.C. BhargavaSr.Vice President-Law & Company Secretary Mr. G.B. MathurExec. Vice President &Group Chief Financial Officer Mr. R.K.Budhiraja OUTLINE ORANISATION – ESCORTS GROUP Chairman & Managing Director – Sh. Rajan Nanda Secretariat Flagship Operating Division 23
  24. 24. Escorts Limited Faridabad Agri Machinery Engineering International Business Corporate Center Faridabad Escorts Research Institute of Farm Center, Faridabad Mechanization, Bangalore Personnel Finance Project Escorts Heart Research Escorts Medical Institute, New Delhi Center, FaridabadAdministration and Law Export and Security Communication Associates Companies Subsidiary Companies Escorts Employees Welfare Trust Faridabad OUTLINE ORANISATION – ESCORTS LIMITED Chairman & Managing Director – Sh. Rajan Nanda Secretriat Corporate Office Registered Office Corporate Center, Faridabad New Delhi 24
  25. 25. Personnel Finance Project LawAdministration Export andand Security Communication Agri Machinery Automotive Ancillaries Marketing Division and Railway Equipment Division Farmtrac Division Escorts Tractor Division Corporate Office Functional Units Corporate Office Functional Units (Line Duties) (Production & Operation) (Line Duties) Production & Operation) SUBSIDERIES Escorts Asset Management Ltd. Escorts Automotive Ltd. Escorts Class Ltd. Escorts Construction Equipment Ltd. 25
  26. 26. Escorts Heart Institute and Research Centre LtdEscorts Hospital and Research Centre Ltd.Escorts Securities Ltd.Escorts Telecommunication Ltd.Esconet Services ltd.Cellnext Solutions Pvt. Ltd.I Serv India Solutions Pvt. Ltd.Escosoft Technologies Ltd.Escosoft Technologies (USA) Ltd.Escosoft Technologies (UK) Pvt. Ltd.Escosoft Singapore Pvt. Ltd.E-Soft (Mauritius) Holdings Ltd.Escotel Mobile Communication Ltd.Escotel Telecommunication Ltd.Escorts Agrimachiner BANKERSIDBI BANK.ABN AMRO BANK N.V.BANK OF BARODA.CITIBANK, N.A. 26
  28. 28. MACHINERY GROUP INTRODUCTION Having pioneered farm mechanization in the country, Escorts hasplayed a pivotal role in the agricultural growth of India for over fivedecades. One of the leading tractor manufacturers of the country, Escortsproduces tractors in the 27-75 HP range and has already sold over 6 lakhtractors. Escorts AGRI MACHINERY GROUP (AMG) was set up in1960 and they rolled out their batch of tractors in 1965 under the brand 28
  29. 29. name of Escorts. Today its tractors are marketed under three brandnames, viz. Escort, Powertrac and Farmtrac.Escorts Brand of tractors is symbolic of reliability and enjoys theconfidence of the farming community for the last 40 years.Powertrac Brand of tractors is the most fuel-efficient tractor in theirrespective categories that offer excellent value for money and havehelped the farmer improve their quality of life.Farmtrac Brand is the most powerful premium range of tractors thatgive maximum productivity to the farmers. Spanning these three brands, the company has a full range oftractors to cater to the domestic as well as overseas markets. Thecompany is developing state-of-the-art highly fuel efficient engines withthe assistance of AVL of Australia and have also entered into a Jointventure with CARRARO SPA of Italy for the manufacturing oftransmission and axles. To sustain the present momentum and to realize the future goals,Escorts has invested Rs. 60 crore towards strengthening new product.Development programs and enhancement of R&D capabilities.Additionally, Rs.400 crore has been invested towards modernization ofits manufacturing facilities bringing them to international standards. Thecompany has one of the most comprehensive distribution networkscomprising of over 500 dealership / outlets and 30 area offices spreadacross the country. It has a manufacturing capacity of 75000 tractors perannum. Escorts Agri Machinery Group is looking at forward andbackward integration through genetic engineering. 29
  30. 30. In line to their vision for becoming a major player in sub 100 HPsegment by 2011 in the global markets, they have increased their reachfrom a major regional player to major global markets, which stretch fromNorth America to Australia covering all the continents. Despite the strictcompetition by other major tractor manufactures they have been able togain constant volumes in the global market. Their target for this year is toexport 25% volumes of their total production volumes. To consolidate its presence in the overseas markets, the companyhas ventures in the USA and Europe (Poland). It has recently acquired amajority stake in Long Agribusiness LLC, a tractor distributing companyin USA and Poland Escort Spolka Z.O.O., Poland. Besides the USA andPoland, Escorts has strong presence in Turkey, Australia, Bangladesh, SriLanka, Nepal, Kenya, Tanzania and South Africa etc. though its dealersnetwork in these countries. Escorts have very ambitious plans to expandthe network in other potential countries in the coming year. By the end ofnext year, the company hopes to be largest exporter of tractors in theIndian tractor industry. AGRI MACHINERY GROUP CONTRIBUTION 30
  31. 31. AMG contribution is Almost Half of the Total Revenues of EscortGroup. AMG 23% Auto Ancilliary Parts 56% Railway 12% Equipments 9% Construction MODERNIZATION OF AGRI MACHINERY GROUP 31
  32. 32. Escorts Agri Machinery Group (AMG) has invested over US$7.5 million in state of the Art & Research and Development Center.Virtual prototypes of components and aggregate assemblies are made andassembled on computer workstations using 3D technology. Theirperformance is checked on computers using simulation techniques thussaving a lot of time for the end-user as well as lowering developmentcosts. The R&D center uses advanced 3D modeling, analysis andsimulation software for engines, transmission and vehicles. Physicalprototypes are then extensively tested for performance, durability andreliability. Facilities include a high –technology engine laboratoryfeaturing fully computerized test-beds with on line control, datacollection, and analysis. PRODUCTS 32
  33. 33. Escorts FarmtracE-325 Josh F T –30E-335 F T –35E-335P F T –45E-430 F T –45Live PTE-430XL F T –50DBE-435 F T –50E-440(6+2 & 8+2)PT F T –60E-440(6+2 & 8+2)XL F T –60DBE-450 F T –60DeluxeE-450(8+2)PT F T –60Live PTE-450(8+2)XL F T –70 33
  34. 34. COMPANY’S FUTURE The growing domestic demand for food gains and agri productspromises a very good future for company’s business. With exemption ofexcise duty on tractors and growing importance of agriculture sector inthe growth of Indian economy India can become a major exporter of agriproducts and increased demand both domestic and export will call forincreased yields. Tractors population today is concentrated in 10% ofvillages and even today 70% of the villages do not have tractor .Crisilinfa has estimated an annual demand 3.0 lacks to 3.20 lakhs of tractorsby 2007-08 vs. 2.4 lakhs in 2006-07. All these show great potential forgrowth in the industry and thus in the company 34
  36. 36. INTRODUCTION Cash is the important current asset for the operation of the business.Cash is a medium of exchange to purchase the goods and services and todischarge the liabilities. Cash is the basic input needed to keep thebusiness running on a continuous basis; it is also the ultimate outputexpected to be realized by selling the service or product manufactured bythe firm. The firm should keep sufficient cash, neither more nor less.Cash shortage will disrupt the firm’s manufacturing operations whileexcessive cash will simply remain idle, without contributing anythingtowards the firm’s profitability. Thus a major function of the financialmanager is to maintain a sound cash position. Cash is the money which a firm can disburse immediately withoutany restriction. The term cash includes coins, currency and cheques heldby the firm, and balances in its bank accounts. Sometimes near cashterms, such as marketable securities or bank time deposits, are alsoincluded in cash. The basic characteristic of near cash asset is that theycan readily be converted into cash. Generally, when a firm has excess 36
  37. 37. cash, it invests it in marketable securities. This kind of investmentcontributes some profit to the firm. CASH FLOW MANAGEMENT Cash flow management is a process of monitoring, analyzing, andadjusting one’s business cash flows. The most important aspect of cashflow management is avoiding extended cash shortages, caused by havingtoo great a gap between cash inflows and outflows. Therefore, oneneeds to perform a cash flow analysis on a regular basis, and use cashflow forecasting so that one can take the steps necessary to head off cashflow problems. Cash management involves the efficient collection, disbursement andtemporary investment of cash. The treasurer department of a company isusually responsible for the firm’s cash management system. A cashbudget, instrumental in the process, tell us how much cash we likely tohave it, and for how long. In cash flow management I studied many statements like asfollows: 37
  38. 38. Cash flow Statement Cash Budget CASH MANAGEMENT SYSTEM With timely information reporting a firm can generate significant income by properly managing collections, disbursement cash balance and cash equivalents investment,Collection Disbursement Cash 38
  39. 39. Cash Equivalents Control Through Information Report IMPORTANCE OF CASH MANAGEMENT Cash management assumes more important than other current assetsbecause cash is the most significant and the least productive asset that afirm holds. It is significant because it is used to pay the firms obligations.However cash is unproductive. Unlike fixed assets or inventories, it doesnot produce goods for sale. Therefore, the aim of cash management is tomaintain adequate control over cash position to keep the firm sufficientlyliquid and to excess cash in some profitable way. Cash management is also important because it is difficult to predictcash flow accurately, particularly the inflows and there is no perfectcoincidence between the inflows or outflows of cash. During someperiods, cash outflows will exceed cash inflows, because payments fortaxes, dividends, or seasonal inventory build up. At other times, cashinflows will be more than cash payments because there will be large cashsales and debtors may be realized in large sums promptly. 39
  40. 40. Cash management is significant because cash constitutes thesmallest portion of the total current assets, yet management’sconsiderable time is devoted in managing it. CASH MANAGEMENT STRATEGIES The firm should develop appropriate strategies for cash management.The firm should evolve strategies regarding the following four facets ofcash management:Cash planning cash inflow and outflow should be planned to projectcash surplus or deficit for each period for each period of the planningperiod. Cash budget should be prepared for this purpose.Managing the cash flows the flow of cash should be properly managed.The cash inflows should be accelerated while, as far as possible, the cashoutflows should be decelerated.Optimum cash level the firms should decide about the appropriatelevel of cash balances. The cost of excess cash and danger of cash 40
  41. 41. deficiency should be matched to determine the optimum level of cashbalances.Investing surplus cash the surplus cash balances should be properlyinvested to earn profits. The firm should decide about the division ofsuch cash balance between short-term investment opportunities such asbank deposits, marketable securities, or inter- corporate lending. CASH OUTFLOW For cash management, the control of cash outflows, which isdirectly related to organizational arrangements for budget execution, canpose more difficulties than the control of cash inflows. However, issuesrelated to cash management should not be confused with issues related tothe distribution of responsibilities for accounting control andadministration of the payment system. The major purpose of controllingcash outflows is to ensure that there will be enough cash until the datepayments are due and to minimize the costs of transactions, whilekeeping cash outflows compatible with cash inflows and fiscalconstraints. The first condition for ensuring that cash outflows fit fiscalconstraints is good budget preparation and budget implementationcovering both cash and obligations. However, during budgetimplementation, cash outflows must also be regulated through cash plansto smooth cash outflows. 41
  42. 42. CASH INFLOW It is necessary to minimize the interval between the time when cashis received and the time it is available for carrying out expenditureprograms. Collected revenues need to be processed promptly and madeavailable for use. When tax collection is done by the tax administrationoffices (or by Treasury offices) the administrative organization of theseoffices may have to be reviewed and their equipment modernized.Commercial banks by virtue of the banking sector infrastructure are oftenable to collect revenues more efficiently than tax offices, which shouldtherefore focus instead on tracking taxpayers. When revenues arecollected by commercial banks, arrangements must be defined to fostercompetition and ensure prompt transfer of collected revenues togovernment accounts. Systems of bank remuneration through float,which consists of authorizing the banks to keep the revenues collected fora few days, present inconveniences. Stringent rules to ensure prompttransfers must be established. Moreover, bank remuneration through fees 42
  43. 43. is more transparent and promotes competitive bidding. An appropriatesystem of penalties for taxpayers is also an important element in avoidingdelays in revenue collection. CASH FLOW STATEMENTMeaning:IT IS a summary of firm’s cash receipts and cash payments duringperiod of time. The purpose of cash flow statement is to report a firm’s cash inflowand outflows, during a period of time, segregated in to three categories:operating, investing and financing activities. The statement of cash flow explains changes in cash and cashequivalent such as treasure bill and the activities that increase anddecrease cash. The cash flow statement may be presented using either a“direct method” (Which is encouraged by financial accounting standardsboard) or an “Indirect Method” (which is likely to be the methodfollowed by good majority of firms). The only difference between thedirect and indirect method of presentation concern the reporting ofoperating activities; the investing and financing activities section would 43
  44. 44. be identical under either method. Under the direct method, operating cashflow reported directly by major classes of operating cash receipts (fromcustomers) and payment (to suppliers and employees). A separateindirect reconciliation of Net income to net cash flow from operatingactivities must be provided. The reconciliation starts with reported netincome and adjusts this figure for non-cash income statement items andrelated changes in balance sheet items to determine cash provides byoperating activities.Cash flow statement has three activities like as follow:Operating Activities:- Shows impact of transactions not defined asinvestigation or financing activities. These cash flows are generally thecash effects or transaction that enter into the determination of net income.Thus, we see items that not all statement users might think of as‘operating’ flows-items such as dividends and interest received, as wellas interest paid.Investing Activities:- Shows impact of buying and selling fixed assetsor equity securities of other entities.Financing Activities:- Shows impact of all cash transactions withshareholders and the borrowing and repaying transactions with lenders. 44
  45. 45. IMPORTANCE The effects of cash and non-cash investing and financing transaction. A manager can assess the reason for differences between net income and net cash flow from operating activities. It is also helpful for a company to generate future net cash inflows from operations to pay debts, interest and dividends. It gives indication to a company’s need for external financing. A cash flow statement is straightforward and easy to Understand. It gives a strong indication of how viable the company will be over time. 45
  46. 46.  The extent of success or failure of cash planning can be known by comparing the actual cash statement with the budgeted cash flow statement and remedial measures can be taken.  It discloses the volume and the speed at which cash flows in different segments of the business DAILY CASH FLOW REPORT The Daily Cash Flow report is prepared with an objective to keepincessant check on the cash flows of the firm, which includes both inflowand outflow cash. The cash flows are planned to project cash surplus ordeficit for each period i.e daily, monthly, quarterly, semi-annual &annual basis. The framework of report highlights all the effects, whichlead to cash surplus or deficit. It is a measure, which calculates the detailsof daily transaction in terms of sale and purchase, which further includesthe means through which they take place. At Escorts-AMG, the daily cash flow report is designed in a formatsuiting their requirements .The sales of tractors is their primary goalwhich includes exports as well. The bills are presented for desiredcollection from various channels i.e dealers, stockiest, distributorsthrough which the tractors are supplied in the market. Besides tractors 46
  47. 47. they also deal in engines, backend, implements which are included in thecategory of other receipts. The receipts are other than collections as theyaren’t generated through sales. Next come the payments, which are madein discharge of financial obligation towards various suppliers, bankpayments, excise duty, salary & wages etc. Through the various collections, receipts and payment, we are nowin a position to derive the surplus or deficit which is the result of abovetransactions. The surplus balance shows that the collections & receiptsare more than payments and vice-a-versa in case of deficit. Thoughsurplus is an indicator of sound financial position and deficits the otherway round, but excess surplus is also not considered healthy which hasreasons to it like inventory pile up and so on. The last component of the cash flow report is the outstandingdebtors, which is calculated by subtracting billing & collection fromopening o/s of debtors in domestic, export and other categories. This waythe day to day cash transactions are maintained through the cash flowreport which leads to proper functioning of an organization’s resourcesboth men & material.COMPONENTSThe annual cash flow statement at Escort- AMG is prepared for the fiscalperiod commencing from 01/10/20XX to 31/09/20XX. They are alsomaintaining the daily cash flow report with a purpose of keeping constant 47
  48. 48. check on the daily flow of cash i.e cash inflow and cash outflow, fordifferent products categories, their parts and other miscellaneous.The main products at ESCORTS – AMG are “ TRACTORS “ which areavailable in three major categories:FarmtracPowertracEscortsThese products are sold into the market through intermediaries likedealers, stockists and distributors , these parties charge a commission forthe services provided by them.Among these parties dealers are given priority over the stockists &distributors for the delivering the product to the end customer and thecommission also varies in the same manner.The following are the transactions that take place in the daily cash flowreport under the following main heads:  Particulars,  Year to date i.e the very first day of the financial year till the previuos months end (in which the daily report is being made),  The previous month,  Plan for the ongoing month,  The particular day for which the report is being made, 48
  49. 49.  Month to date (from the beginning of the current month till the day for which report is being made).SALES – This includes the number of tractors sold in the domesticboundaries as well as overseas.BILLING – It is the process of sending accounts to customers for goodsor services. The document used is called an invoice, the invoice may beattached to the goods or forwarded separately. The average sale value ofeach tractor is calculated as a follows : Total sales of tractors Number of tractors soldCOLLECTION – The collections is recovered from all those parties towhom the products is being sold. The parties involved are :Tractors ( Direct ) – This includes the sale made through dealers to theend customer, for which a predetermined amount is given as commissionto the opposite party. If the dealer fails to make the sale till the due datethan he has to pay interest on it thereon.Tractors ( Stockists ) – This includes the sale made through stockists,who doesn’t sell the product by themselves but sells them throughdealers. The credit period allowed to stockists by the company is less in 49
  50. 50. comparison than that of dealers, which yields to faster generation ofincome .Tractors ( Channel financing ) – This system is adopted to improve theworking capital of the company by avoiding inventory pile up andearning speedy collections. Furthermore, Channel Financing is aninnovative option for extending working capital finance to dealers whohave business relationships with large companies. Channel Financing isthe mechanism through which a Bank / Financial Institution meets thevarious Channel Financing could cover : -Discounting of trade bills drawn by a company & accepted by itsdealers/ distributors/ channel partners.Providing overdraft facility to the dealers/ distributors who havebusiness dealings with large corporate.OTHER RECEIPTS : An acknowledgment (usually tangible) thatpayment has been made. The below mentioned are the transactionsincluded in it :Bill discounting : it is a major activity with some of the smaller banks.Under this type of lending, bank takes the bill drawn by borrower or his(borrower’s) customer and pay him immediately deducting some amountas discount / commission. The bank then present the bill to the 50
  51. 51. borrower’s customer on the due date of the bill and collect the totalamount. If the bill is delayed, the borrower or his customer pays the banka predetermined interest depending upon the terms of the transaction. The following entries could be passed in the co.’s books: Sales bill discounting : Following entries are passed during thesales Made by the company:Party a/c dr. ..........To sales a/c ........... (Being sale made on credit)Bank a/c dr. ..........Bank charges a/c dr. ……. To party a/c …….. ( being payment recived) Purchase bill discounting : Following entries are passed in the books purchases made by the company :- 51
  52. 52. Purchase a/c dr. …… To party a/c …… ( being purchases made)Party a/c dr. …… To bill discounting supplier a/c …… ( being paid to party through bank )Bill discounting supplier a/c dr. ……. To bank a/c …… ( being payment made to bank)Letter of credit : The LC can also be the source of payment for atransaction, meaning that redeeming the letter of credit will pay anexporter. Letters of credit are used primarily in international tradetransactions of significant value, for deals between a supplier in onecountry and a customer in another. The parties to a letter of credit areusually a beneficiary who is to receive the money, the issuing bank ofwhom the applicant is a client, and the advising bank of whom thebeneficiary is a client. Almost all letters of credit are irrevocable, i.e.,cannot be amended or canceled without prior agreement of the 52
  53. 53. beneficiary, the issuing bank and the confirming bank. In this 100 %payment is not given to the supplier by the bank due to loss intransition , rejection & shortage . in if loss doesn’t occur than 100 % isgiven to the supplier on the due date.Packing credit : when we receive an export order from countries , thanwe can avail loan from bank at nominal interest as packing credit loan. Itprovides the exporters with working capital between the time of thereceipt of order and the time of shipment to arrange for production orprocurement of goods. Pre-shipment finance is of particular importanceto small scale manufacturers and exporters who do not possess sufficientfinancial resources to meet the expenditure involved in the production ofgoods for export. Pre shipment finance is normally provided by the commercialbanks. As in the case of many other advances the bank takes intoconsideration a number of factors before making the necessary otheradvances to exporters viz., (1) honesty, integrity and capital of theborrower, (2) exporter’s experience in the line, (3) security offered, (4)the margin of interest (5) the bank’s experience about the exporter toensure that his name does not appear on the caution list of the ReserveBank.Pre- shipment : when the company receives orderPost shipment : when assignment is dispatched from the company.The following entries to be passed in the books for packing credit loan : 53
  54. 54. Party a/c dr. …… To export a/c …… ( being export order received)Bank a/c dr. ……Bank charges a/c dr. ……. To packing credit loan …… ( being loan granted by bank )Bank a/c dr. …… To party a/c ……. ( being payment made to bank)Pcl a/c dr. …… To bank a/c …… ( being payment of loan made to bank)Credit note : This note is presented to the other party for the payment tobe made by the opposite party. Whereas debit note is given to thecompany by the other party in case of payment is to be made by thecompany. 54
  55. 55. PAYMENTS : It is the transfer of wealth from one party (such as aperson or company) to another. A payment is usually made in exchangefor the provision of goods, services or both, or to fulfill a legal obligation.The payments at Escorts – AMG includes – Direct (hundis, LC ), bankpayment , excise duty which is lieved on the parts of the tractors, ladt( local area development tax), sales tax , salary and wages, vrs, spareparts, implements, electricity, overhead, finance charges, capex is thecapital expenditure made to purchase the fixed assets or adding value tothe existing fixed asset, credit note, corporate loan, loan rapyments,interest, wcdl payment, packing credit & bill discounting.OUTSTANDING : Outstanding debtors are calculated by the followingformula – Closing O/S = Opening O/S + Billing - Collection In this, values are calculated for debtors outstanding in differentpoint of time in domestic and overseas sales of tractors & its part. 55
  56. 56. CASH BUDGETMEANING A forecast of estimated cash receipts and disbursements for aspecified period of time. A cash budget is arrived at through a projection of future cashreceipts and cash disbursements of the firm over interval of time, itreveals the timing and amount of expected cash inflows and outflowsover the period. With this, the firm will be able to determine its futurecash needs, and exercise control over the cash and liquidity of the firm.Though the cash budget may be prepared almost any interval of time, itsmonthly projection are most common. In short, we can say that cash budget is a forecast of a firms futurecash flows arising from collection and disbursement, usually on amonthly basis.. The key to the accuracy of most cash budgets is the sales forecast.This forecast can be either internal or external analysis, in internal 56
  57. 57. approach, sales representatives are asked to project sales for theforthcoming period, We can then consolidate these sales estimates for theproduct line. The estimates for the various product lines are thencombined in to an overall sales estimate for the firm. The basic problemwith an internal approach is that it can be too myopic, often significanttrends in the economy and in the industry are overlooked. Many companies use an external analysis as well, in externalapproach economic analysts make forecast of the economy and ofindustry sales for several years to come. They may use regressionanalysis to estimate the association between industry sales and theeconomy in general. After these basic predictions of business conditionsand the industry are made. The next step is to estimate the market shareby individual products, price that are likely to prevail and the expectedreception of new product. By this way we can prepare an externalforecast. For Effective Cash Budget  A firm may be able to delay its capital expenditure or its payment for purchase,  Purpose of cash budget should be to determine the timing and magnitude of prospecting financing needs so that the most appropriate method of financing can be arranged,  A decision to obtain long term financing should be based on long- range funds requirement. 57
  58. 58.  On the basis of cash budget the manager should be able to plan to invest excess funds in cash equivalents. BANK RECONCILIATION Bank reconciliation involves comparing the company’s record oftransactions and balances to the bank’s record of transactions andbalances. The company should go through every transaction in theiraccount and make sure the company and the bank agree on thetransaction.It’s important to go through the process of bank reconciliation. If thecompany doesn’t, than it is taking few risks. Without bank reconciliation,the company may not have a clear idea of how much cash is available intheir accounts. They might bounce Cheques and incur overdraft charges. Without bank reconciliation, the company also expose yourself torisk. People may be stealing from the company’s account. If they neverlook through each transaction, they’ll never know about it. If they don’tnotify the bank quickly enough, they may be out of luck. The same goesfor bank mistakes. With regular bank reconciliation the company can findproblems quickly and make them go away. 58
  59. 59. Bank reconciliation can be done manually, in excel & there’selectronic bank reconciliation as well. Though the manual way for handling company’s large bankaccounts is not appropiate, it is helpful when there are less transactions.But still it important for any manager to learn it as it is the basic form ofdoing it. For reconciling the company’s record of transaction with the bankbalances , there are three essential requirements :  Bank book  Bank statement  Bank reconciliation statement of preceding monthThan the above transactions needs to be tally & unmatched have to bereconciled accordingly. Below is an example of how is it donemanually:- 59
  60. 60. BANK RECOCILIATION STATEMENT AS ON 31.05.09A/C NO 000381400000156 GL CODEDESCRIPTIONBal as per bank book AS ON 31.05.09Opening bal 83382.91 DR.LESS: MAY2009 BALANCE 2726955 CR. -2643572 CR.ADD : Amount cr. By us but not dr. by bank 3634103 DR. 3634103LESS : Amount dr. by us but not cr. by bank 3722549 CR. 3722549ADD : Amount cr. By bank but not dr. by us 2832114 DR. 2832114LESS : Amount dr. by bank but not cr. By us 41989.68 41989.68Balance as per bank statement 58106.87 60
  61. 61. DETAILS OF CHEQUE ISSUED BUT NOT PRESENTED FOR PAYMENTS.NO VCH. DT. VCH. NO. CHQ.NO. CHQ.AMT. 7770 22/5/2009 86410 pcl loan LIQ. 3565791.98 7771 22/5/2009 86400 SA/SP/34 941 7774 31/5/2009 86301 B/C&INTT ON 59369.98 7766 12/5/2009 85683 BANK CHARGE 4000 2/4/2009 BANK CHARGE 4000 3634102.96DETAILS OF AMOUNT DEPOSITED BUT NOT CREDITED BY BANKS.NO VCH. DT. VCH. NO. CHQ.NO. CHQ.AMT. 7754 22/5/2009 155 Sa/35 3704227.2 7749 1/5/2009 371 33796(bank ch.) 7667 7752 11/5/2009 372 33913(bank ch.) 5466 7755 22/5/2009 156 sa/sp/34 2927.15 7757 26/5/2009 157 tanj/37 2261.15 3722548.5DETAILS OF AMT. CREDITED BY BANKS.NO VCH. DT. VCH. NO. CHQ.NO. CHQ.AMT. 19/5/2009 1390022 2832113.94 2832113.94DETAILS OF AMOUNT DEBITED BY BANKS.NO VCH. DT. VCH. NO. DESCRIPTION CHQ.AMT. 1/5/2009 1210003 2206 4/5/2009 1240001 5515 4/5/2009 1240011 607.15 5/5/2009 1250005 2206 5/5/2009 1250001 2758 8/5/2009 1280029 607.15 9/5/2009 1290007 2206 11/5/2009 1180001 1103 12/5/2009 132000 1103 14/5/2009 1340024 607.15 19/5/2009 1320001 1103 19/5/2009 1390022 607.15 22/5/2009 560001 20753.93 26/5/2009 1460014 607.15 41989.68 CASH RATIOS 61
  62. 62. MEANING Cash ratios are also important tool of cash control. There are various ratios which explain the efficiency of cash management or vice- versa. They are the acids test ratio, cash ratio, receivables turnover ratio, inventory turnover ratio, cash turnover ratio etc. These are calculated as – LIQUIDITY RATIOS – Liquidity ratio measures the ability of the firm to meet its current obligations. It is necessary to strike a proper balance between high liquidity and lack of liquidity. A high degree of liquidity means that a firm’s fund will be unnecessarily tied up in current assets. Whereas lack of liquidity, implies failure of a company to meet its obligations due to lack of sufficient liquidity. The ratios, which are used for the analysis of Escorts liquidityposition in this report, are:  Current Ratio  Quick Ratio CURRENT RATIO Current ratio is calculated by dividing current assets by current liabilities: 62
  63. 63. Current ratio = Current Assets Current Liabilities 2006-07 2007-08Current Ratio 1.12 1.16From the above table it can be interpreted that Escorts liquidity positionis not constant. As a conventional rule a current ratio of 2:1 or more isconsidered satisfactory because in a worse situation, even if the value ofcurrent assets become half, the firm will be able to meet its obligations.Current ratio refers to a margin of safety for creditors therefore higher thecurrent ratio, the greater the margin of safety.QUICK RATIOQuick ratio establishes a relationship between quick or liquid assets andcurrent liabilities. An asset is liquid if it can be converted into cashimmediately or reasonably soon without a loss of value. Inventories areconsidered to be less liquid therefore calculating quick ratio they arededucted from current assets.Quick Ratio = Current Assets – inventory 63
  64. 64. Current liabilities 2006-07 2007-08Quick Ratio 0.90 0.99Escorts quick ratio in the current year has decreased in comparison toprevious year, yet it can be considered to be satisfactory, as it is 1:1 timesof current liabilities. Although quick ratio is more penetrating test ofliquidity than current ratio. Yet it should be used cautiously, as alldebtors may not be liquid and cash may be immediately needed to payoperating expenses.The value of quick ratio is decreasing every year. The satisfactory levelof the quick ratio is 1:1. This shows the worse situation of the company.The current liabilities are more than the quick assets.ACTIVITY RATIOS –Activity Ratios are used to evaluate the efficiency with which the firmmanages and utilizes its assets. The ratios are called Turnover Ratios asthey indicate the speed with which the firm manages and utilizes itsassets.Activity ratios, which are used to analyze Escorts effectiveness in Assetutilization, are 64
  65. 65.  Inventory Turnover Ratio  Fixed Assets Turnover Ratio  Working Capital Turnover Ratio  Debtors Turnover Ratio  Creditors Turnover RatioINVENTORY TURNOVER RATIOIt indicates the efficiency of the firm in producing and selling its product.It is calculated by dividing sales by avg. inventory. In a manufacturingcompany inventory of finished goods is used to calculate inventoryturnover.Inventory Turnover = Cost of goods sold Avg. Inventory 2006-07 2007-08Inventory turnover 14.42 15.10If the company is comfortably meeting the customer needs with 9.73days inventory of finished goods, all India basis.It is a good achievement for the Escorts Limited. 65
  66. 66. FIXED ASSETS TURNOVER RATIOA firm’s ability to produce a large volume of sales for a given amount ofnet assets is the most important aspect of its operating performance.Unutilized or underutilized assets increase the firm’s need for costlyfinancing as well as expenses for maintenance and upkeep. Fixed assetsturnover is calculated by dividing net sale by net fixed assets.Fixed Assets Turnover = Sales Fixed Assets 2006-07 2007-08F.A.T 2.29 2.35Escorts fixed asset turnover have increased in 2003-04. The fixed assetturnover of 2.78 implies that it is producing Rs.2.78 of sales for onerupee of capital employed.The higher the ratio, more it is satisfactory…It should be interpreted very cautiously because the denominator of theratio includes fixed asset net of depreciation. Thus old assets with lowerbook value may create a misleading impression of high turnover withoutany improvement in sales 66
  67. 67. DEBTORS TURNOVER RATIODebtor’s turnover indicates the number of times debtors’ turnover eachyear. Higher the value of Debtors turnover, the more efficient is themanagement of credit. The liquidity position of the firm depends on thequality of the debtors to a great extent.Debtors Turnover = Credit Sales Avg. Debtors 2006-07 2007-08Debtors Turnover 4.44 4.29Escorts debtors turnover is quite lower. The debtor’s turnover ratio ishigh at 2003-04 . The ratio is decreasing. Also the debt collection periodhas its own importance. The debt collection period of Escorts was 76days in 2003-04 but it has increased to 95 days . This does not show thesatisfactory level. The shorter the collection period, the better the qualityof debtors, since a short collection period implies prompt payment bydebtors.A too low collection period is also not necessarily favorable as it mayindicate a very restrictive collection and credit policy. Because of the fear 67
  68. 68. of bad debt loses the firm may be selling to those only whose financialconditions are sound and who are very prompt in making the payments.CREDITOR TURNOVER RATIOCreditors Turnover = Total Purchases Creditors 2006-07 2007-08Creditors Turnover 3.55 3.45Though the days are very high and apparently appears to substitute rightcollection, this extended credit has its own drawback like:  High interest inbuilt in cost system.  Sub-quality creditors may be accepted.  Quality of material may be accepted.The payment period of Escorts Limited is 90 days in 2007-08, which ismore reasonable than previous years. This helps to make good qualityproduct and also better relationship with suppliers. 68
  69. 69. WORKING CAPITAL TURNOVER RATIOWorking capital turnover ratio has its own significance in the businessorganizations. It shows the efficiency of the firm. How much sale that thecompany get with the utilization of the limited working capital.Working Capital Turnover = Net Sales Net Working Capital 2006-07 2007-08Working.Cap.Turn. 113.45 28.30In the case of working capital turnover ratio Escorts is significantly goingvery downward. This is a very dangerous point of the firm. The companyshould try to improve it earlier. It shows that the company requires moremoney to generate sales. RECEIVABLE MANAGEMENT 69
  70. 70. The term receivable is defined as “debt owed to the firm bycustomers arising from sales of goods in the ordinary course of business”.The sale of goods on credit is an essential part of modern day business.The credit sales are generally made on open account in the sense thatthere are no formal obligations through a financial instrument. Howeverextension of credit involves risks and cost. Management should weighthe benefits as well as the cost to determine the goal of receivablemanagement. The benefits from receivables are the increased sales andprofits anticipated because of more liberal policy. When firm extendtrade credit, i.e. invest in receivables, they intend on increase the saleslevel. The motive of liberal credit policy can be either growth oriented orsales retention. The extension of credit has a major impact on sales, costsand profitability. Other things being equal, a relatively liberal policy andtherefore higher investments in receivables will produce larger sales.However the cost will be higher with liberal policies then with morestringent measures. Therefore account receivable management shouldaim at a trade- of between profit and risk.The costs associated with the extension of credit and account receivablesare  collection cost  capital cost  delinquency cost  default cost DECISION AREAS 70
  71. 71. CREDIT POLICIES The credit policy of a firm provides the framework todetermine whether or not to extend credit to a customer and also howmuch credit to extend. It has two broad dimensions, the first is creditstandard and second is the credit analysis. Credit standards represent thebasic criteria for the extension of credit to customers. The trade- off withreference to credit standards covers collection costs, average collectionperiod, level of bad debts losses and level of sales. With a relaxed creditstandard the collection costs, bad debts expenses and sales goes up and inreverse case vice-versa happens. The second aspect of credit policy iscredit analysis. It begins with obtaining credit information of thecustomers and ends up with the analysis of the obtained creditinformation. Information can be collected either internally or externally.Internal source of credit information is derived from the records of thefirm. The analysis of credit information should cover both qualitative aswell as quantitative aspects. The quantitative aspect is based on theavailable financial statements whereas qualitative aspects cover thequality of management.CREDIT TERMS The second decision area in accounts receivable management isthe credit terms. After the credit standard have been establish and thecredit worthiness of the customers is assessed, the management of a firmmust determine the terms and conditions on which trade credit will bemade available. Credit terms have three components : credit period, cashdiscount and cash discount period. Credit period is the duration of time 71
  72. 72. for which trade credit is extended whereas cash discount is the amount bywhich the over the due amount will be reduced thus benefiting thecustomer. The credit terms like the credit standard affect the profitabilityas well as the cost of the firm therefore a firm should determine thecredit terms on the basis of cost-benefit trade-off.COLLECTION POLICIES The collection policies refer to the procedures followed tocollect account receivable when after expiry of the credit period theybecome due. This policy covers two aspects : first is the degree of effortto collect the over due and second is the type of collection efforts.Escort Limited has a zero debt credit policy. However it is giving thefollowing facilities to its dealers to promote the sales, as liberal creditpolicy has a direct impact on sales.CHANNEL FINANCE FACILITIES The company arranges these facilities with variousbankers for the company dealers to support their cash needs. The goodsare sold on credit against hundis. Hundis can be drawn for 50 or 75 or 90days subject to qualifying criteria of bank.CREDIT FACILITIES 72
  73. 73. Escort provides thirty days interest free credit to the dealers. For this inrespect of all hundis the company bears 30 days interest and theremaining cost of interest, delayed payment charges are borne by thedealers.PENALTY ON BOUNCING OF HUNDIES / CHEQUES Bouncing of hundis/ cheques drawn in favor of thecompany is viewed very strongly and usually following actions are taken.  Tractor supplies are suspended and restored only after all dues are cleared.  All charges debited by the bank such as collection charges, penal interest are debited to the dealer.  The bank extending channel financing policy have clearly stated that if a dealer has two or more bouncing he will be black listed and his limit will be withdrawn with immediate effect. Company also makes sales to such dealers only against letter of credit or demand draft.CASH DISCOUNT ON EARLY PAYMENT Cash discount of 1% is payable on tractors dispatched againstfunds available in the form of letter of credit or demand draft. Interest ischarged/ paid at 12% per annum on outstanding/ credit balance earlypayment incentive. PAYABLE MANAGEMENT 73
  74. 74. Creditors are a vital part of effective cash management and shouldbe managed carefully to enhance the cash position. Purchasing initiatescash outflows and an over-zealous purchasing function can createliquidity problems. A better strategy is to shrink the vendor baseradically, then use one’s clout to negotiable longer terms with thevendors. Vendor rationalization is a process that can pay off in a big way.Apart from the question that who should authorize purchasing in thecompany – should it be tightly managed or spea among a number of(junior) people? The following comes under good payable management.  Purchase quantities should be geared to demand forecasts.  Order quantities should be used which takes account of stock holding and purchasing costs.  The cost to the company of carrying stock should be clearly defined.  A Company should have alternative sources of supply. It should get quotes from Major suppliers and shop around for the best discounts, credit terms and reduce dependence on a single supplier. 74
  76. 76. LOANS AND ADVANCES Special efforts should be made to analyze loans & advances, whichare between 35% to 56% of current assets. This can be classified betweenproduction / operation relation related and non-production / operationrelated. No production related cases might be financed from othersources like debenture etc. and treated separately.INVENTORY Inventory should be reviewed constantly to identify show / dead /obsolete item and then disposed . Optimum level should be revisedperiodically, keeping in view, distance of suppliers, production lead timeof supplier, transport problem if any and reliability of suppliers. This willhelp to avoid obsolesce and dead inventory.DEBTORS A study may be conducted if required by experts to pinpointreason behind Escorts high correction period of 95 days in 2007-08against 50 days of Mahindra & Mahindra. It is due to quality of products,quality of customer, the segment of customers marketing effort,distribution pattern or other reasons.CREDITORS 76
  77. 77. Though high payout days may be appartenly beneficial for the company.It has it very heavy long term cost like high interest cost, bad creditratings and shyness of good quality / standard suppliers.RATIOS The company should try to improve its current situation. The ratios,which are taken in this research to evaluate the company’s position, areCurrent ratio, Quick ratio and Activity ratio. These ratios show the actualposition of the company. The Quick ratio is declining since 2001-02 tillnow. There is a drastic declining in the working capital turnover ratio.This ratio goes to –ve position in current year compared to previous. TheDebts collection period is 359 days for Exporters. This shows the poorcollection policy. The current ratio is 1.12 in 2006-07, which is not uptothe ideal ratio. This shows that the current assets are equal to the currentliabilities. Not satisfactory. OTHERS –  More attention must be given to market forecasts can be made and the surplus of inventory is reduced to minimum  Company should not follow the competitors only. New products should be produced for the farmers having low income and small holdings.  Proper market survey should be carried out. The company should explore the export market to study the present and prospective demand. 77
  78. 78.  Proper inventory plans should be made in order to reduce the carrying cost. New market strategies should be devised from time to time. This is because, even if the tractor is of good quality, the competitors may produce the same product with additional features and at lower prices. Marketing network should be enhanced. Company should also produce more tractors of higher H.P. But new developments should be made continuously in order to survive in this competitive world. 78
  79. 79. LIMITATIONS 79
  80. 80. Although every effort has been in to collect the relevantinformation through the sources available, still some relevant informationcould not be gathered.Busy Schedule of Concerned Executives: The concerned executiveswere having very busy schedule because of which they were reluctant togive appointment.Time: The time duration could not provide ample opportunity to studyevery detail of working capital management of the company.Unawareness: Executives were unaware of many terms related toworking capital study while asking to them.Confidential Information: As the company on account of confidentialreport has not disclosed some figures. Moreover, in some cases separateaccounts of division are not separately maintained thereby, leading torestrictions in study. 80
  81. 81. BIBLIOGRAPHYBOOKSFinancial Management- S.K GuptaManagement Accountancy-D k GoleCost and Management Accountancy, S.N.MaheshwariFinancial Management And Policy, James C.Van HorneWORLD WIDE WEBwww.escortsagri.comwww.economictimes.comwww.planware.comwww.icraindia.comOther than WebM.I.S of the companyAnnual Reports 81
  82. 82. ANNEXURES 82
  83. 83. PROFIT AND LOSS ACCOUNT 1SToct 2007- 30th September 2008 1st oct 2006 – 30th sept 2007Operating income 2,012.00 2,092.04Material consumed 1,470.66 1,540.01Manufacturing expenses 47.68 50.79Personnel expenses 202.63 204.02Selling expenses 114.57 118.63Adminstrative expenses 69.12 57.45Expenses capitalised - -Cost of sales 1,904.66 1,970.90Operating profit 107.34 121.14Other recurring income 0.04 20.85Adjusted PBDIT 107.38 141.99Financial expenses 55.93 89.78Depreciation 42.87 44.97Other write offs - 3.32Adjusted PBT 8.58 3.92Tax charges 47.13 -10.89Adjusted PAT -38.55 14.81Non recurring items 17.56 -21.25Other non cash adjustments 32.86 -Reported net profit 11.87 -6.44Earnigs before appropriation -133.59 -145.46Equity dividend - -Preference dividend - -Dividend tax - -Retained earnings -133.59 -145.46 BALANCE SHEET AS ON….. 83
  84. 84. 1ST OCT 2007- 30th SEPT 2008 1st OCT 2006 – 30TH SEPT 2007Equity share capital 90.71 83.69Share application money - -Preference share capital - -Reserves & surplus 645.49 563.38Secured loans 422.63 414.04Unsecured loans 14.44 31.10Total 1,173.27 1,092.21Gross block 1,415.93 1,436.96Less : revaluation reserve 466.46 471.90Less : accumulated depreciation 593.41 583.24Net block 356.06 381.82Capital work-in-progress 14.43 13.40Investments 425.79 425.13Current assets, loans & advances 1,131.98 1,325.61Less : current liabilities & provisions 776.14 1,069.68Total net current assets 355.84 255.93Miscellaneous expenses not written 11.00 15.93Total 1,163.12 1,092.21Book value of unquoted investments 494.53 493.87Market value of quoted investments 1.98 3.31Contingent liabilities 168.40 318.74Number of equity sharesoutstanding 907.09 836.94(Lacs) CASH FLOW STATEMENT 84
  85. 85. PARTICULAR MARCH MARCH (2008) (2007) CASH FLOW FROM OPERATING ACTIVITIES N.P BEFORE TAX 26.14 -17.33 Adjustment for: provision for doubtful debts , obsolescence inventory & 16.36 1.89 advances Gain on sale of long term investment -1.22 Gain on sale of asset -4.8 -0.13 Depreciation 42.87 44..97 Assets w/off 11.64 8.08 Interest expense 62.2 72.22 Dividend income 0.04 -0.02 Interest income 12.93 -20.82 Operating profit before change in 141.52 87.64 Adjustment for: Trade & receivable -65.36 -168.61 Money in escrow account 20.09 Inventory -43.68 13.79 Trade payable 58.02 67.05 Misc.expenditure -3.21 -7.5 Op.profit after change in -34.14 -95.27 Cash generated from operating activities 107.38 -7.63 Less-Direct taxes/refunds -6.25 -17.85NET CASH FLOW FROM OPERATING ACTIVITIES 101.13 -25.48 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets -7.5 0.86 Proceeds from sale of fixed. Assets 14.26 -30.95 Loss on sale of investment -30.64 Movement in loan & advances -3.9 -16.27 Sale of investment -0.66 32.33 Short term deposits with schedule banks 8.58 -2.31 Interest received 3.21 20.7 Dividend received -0.04 0.02NET CASH FLOW FROM INVESTING ACTIVITIES 16.69 4.38 CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share capital & securities premium 40.32 114.44 Proceeds/repayment from long- term borrowings 234.09 80.6 Less:repayment of long term borrowing -41.68 -0.54 Proceed/repayment from short-term borrowing -46.83 -146.82 Interest paid -66.27 -77.4 85
  86. 86. NET CASH USED IN FINANCING ACTIVITIES -114.46 -23.72Net increase / decrease in cash & cash equivalents (30.03 -44.82 OPENING CASH BALANCE 60.83 105.65 CLOSING CASH BALANCE 30.8 60.83 86