Wc-project Report [Simar]

SUBMITTED BY:

MANINDER KR. PANCHAL

MBA

AL-FAHLA SCHOOL OF MGT. & TECH.

DHAUJ (FARIDABAD)

ESCORTS

ACKNOWLEDGEMENT

At the outset I would like to thank the Management of ESCORTS AGRI

MACHINERY GROUP for the wholehearted co-operation and guidance extended by

them, which made my summer training project possible.

I am very grateful to my project guide Mr. Ashok Behl & Mr. Nitin Aggarwal

[Manager-Finance Department, Escorts Limited (AMG)] for his support and

suggestions, which led to the completion of this project.

I would also like to thank Mr. Ajay Wadhawan, Mr. Rajesh khanna, Mr. DK

Srivastava & Mr. Halder for their support and co-operation.

A Special thanks to Mr. Bharat Madan [Finance Head, AMG] for providing me this

opportunity to carry out the project.

MANINDER KR. PANCHAL

Date: _______

Place: Faridabad

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EXECUTIVE SUMMARY

If development capital is what establishes a business, working capital is what keeps it

going. One of the most common downfalls of business is unexpectedly high running cost.

What is important is not just the size of operating costs, but the cash flows – that is when

money has to be paid out in relation to the stream of income arriving in. Thus Working

Capital Management is of prime importance.

This project is a small attempt to study the working capital management in Escorts Agri

Machinery Group. The project can be divided into two sections. First is the analysis of the

working capital position of the company using ratio analysis and second is the study of

working capital management techniques.

Ratio analysis has been done on the basis of five years data. For calculating various ratios

300 days have been taken as number of working days after deducting Sundays and holidays

except for 2006-07, 2007-08 where 375 days have been taken. Reason being the company

has changed its financial year from 2006-07, therefore balance sheet figures for 2007-08

comprises of 15 months. Ratios have been discussed to compare working capital

performance over the years and to comment and not the absolute values. Therefore figures

have not been converted into 12 months in this report. To analyze the performance,

published balance sheets of Escorts Limited (not Escorts consolidated) have been used. This

project report is based on financial data up to 2007-08 only. Apart from liquidity and

activity ratios cash and loans & advances has been discussed separately as these two appears

to be crucial in Escorts working capital analysis.

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EXECUTIVE SUMMARY

Working Capital Management basically comprises of Receivables Management, payables

Management and Inventory Management. These three have been discussed separately along

with company’s policy on these areas.

Escorts is maintaining the following records which is indicative of its professional approach:

Maintaining proper sets of accounting records.

Maintaining an accurate cashbook reconciled with the bank statement.

Maintaining monthly statement showing profit performance and the working capital position.

Monitoring receivables daily.

Making a regular forecast of cash requirements based upon planned sales volume.

Ageing of debtors/creditors with comparisons to previous months.

At the end, observations/recommendations have been given.

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STUDENT DECLARATION

I, student of Masters in Business Administration AL-FAHLA SCHOOL OF MGT. &

TECH., hereby declare that the dissertation/thesis entitle ‘Study of Cash Flow

Management’ of the Escort Agri Machinery Group (AMG) submitted in fulfillment of the r

training; is my original work and is not submitted for the award for any other degree,

fellowship or similar title or prize.

MANINDER KR. PANCHAL (MBA)

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TABLE OF CONTENTS

THE ESCORTS SYMBOL

MISSION

QUALITY POLICY

ABOUT TRACTOR INDUSTRY

Introduction

Future of Tractor Industry

Market Share

Industry Performance

INTRODUCTION TO COMPANY

Background and Business

Financial Performance

Timeline

AGRI MACHINERY GROUP

Introduction

Company’s Future

Sales Trend

Products

MANAGERIAL USEFULNESS OF STUDY

OBJECTIVES OF TRAINING

WORKING CAPITAL

RATIO ANALYSIS

Liquidity Ratio

Activity Ratio

TABLE OF CONTENTS

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WORKING CAPITAL MANAGEMENT

Receivable Management

Inventory Management

Payable Management

SWOT ANALYSIS OF AGRI MACHINERY GROUP

RESEARCH METHODOLOGY

FINDINGS

RECOMMENDATIONS

LIMITATIONS

BIBLIOGRAPHY

ANNEXURE

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THE ESCORTS SYMBOL

The Escorts Symbol means more than a seen by the eye. It has been prepared with certain

objectives in mind and is symbolic 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 a nut. It symbolizes a craftsmanship, and

mending productivity. The sprains super imposed on the Hexagon represent the workers and the

people of the Escorts. This forms the letter “E” the first of Escorts a company even of the more

changing unveiling the future.

MISSION

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For an Enterprise business mission embodies of its endeavor, which acts as a guiding light for

continuous development & growth.

Mission of ESCORTS is:

Engineering Changes through core competency for greater synergy reinforcing bonds with

customers & establishing powerful symbiotic relationship with international allies, preparing

global market. The company wants to make a lasting difference to its shareholders, its customers,

business associates, its employee and country as a whole. Company also gives better quality and

better technology to customer and treats every customer as “special” to build respect for, and

loyalty to, Escorts.

QUALITY POLICY

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We shall strive to continuously improve to meet the ever-rising Expectations of our

customers at the lowest cost.

Each one of us must fulfill the need of our customer, both internal and external with the

highest degree of commitment thereby creating a quality organization geared to ensure total

customer satisfaction and the sustained health and prosperity of our business.

Customer Orientation: To fulfill the requirement of our internal and external customer.

Process Orientation: To optimize and harmonize interrelated process rather than individual

functions.

Preventive Behavior: To prevent the mistakes to happen.

Introduction

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About Tractor Industry

Introduction

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India’s long-term economic prospects, even today, depend to a large extend on the

agricultural sector, which contributes a quarter to the gross domestic project and

provides livelihood to 2/3 of the population. A gradual and perceptible shift from

subsistence farming to enterprise farming is harbinger of modernization of the

agriculture economy and this will increase the contribution sector to the overall GDP in

the time to come. The central government as well as several state governments is giving

due priority to agriculture and rural developments.

A tractor is a product, which has maximum utility in the agricultural sector. The tractor

industry is segmented on the basis of the power of the tractor engine measured in terms

of horsepower (HP). The maximum consumption is for 30-40 HP tractors. With the

increase in the availability of low cost finance for longer tenures & expected to go up.

The new trend observed in this sector is the shift in consumption from majority in the

northern states to other parts of the country, too. The soil in the northern states is alluvial

in nature and thus requires a low powered tractor for tilling it. However, states located in

the western and southern parts of the country where the soil being laterite or black etc. is

harder and needs high-powered tractors.

About Tractor Industry

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Tractors industry in India has passed through various phases before reaching where it is

today. During 1945 to 1960 demand was met entirely through imports. There were

37000 tractors by 1960. Production began in 1961 with five manufacturers producing a

total of 880 units per year. By 1965 it increased to over 5000 units per year and by 1970

annual production rose to more than 20,000 units. Six new manufacturers were

established during 1971-1980. In 1971 Escorts also started local manufacturing of Ford

Tractors in collaboration with Ford, UK. During 1990 annual production rose to

1,40,000 making India an exporter mainly to countries in Africa. After De-licensing of

industry, production exceeded 2,55,000 units in 1997.

The growth of the industry over the last three decades resulted in entry of several new

entrants including all the major multinational companies. The industry now consists of

14 manufacturers with an aggregate installed capacity of approx. 4.50 Lac tractors. In

the tractor industry, following are the key manufacturers: Mahindra and Mahindra Ltd.,

VST Industries Ltd., Eicher Ltd., Escorts Ltd., Punjab Tractors Ltd., International

Tractors Ltd., Gujarat Tractors Ltd., Tractors and Farm Equipment Ltd., Hindustan

Machine Tools Ltd., & Bajaj Tempo Ltd.

Future of Tractor Industry

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The tractor industry in India has been on a growth trajectory since the second half 2003-

04, after going through a trough for consecutive years. The key factors driving this

growth are increasing farm 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 to the agricultural sector,

with the expected increase in agricultural production. Also, the shift in trend for demand

towards higher HP tractors is expected to continue. This will be further strengthened by

the launch of several new models. In the next 2-3 year, demand for tractors is expected

to increase significantly in the eastern states, where traditionally, tractor usage has been

low. Exports are expected to increase significantly as several Indian players are targeting

the “hobby farming” segment in the U.S, which is considerably large. Also, tractors of

most Indian manufacturers comply with the emission standards accepted in the U.S.

Most exports are likely to be through overseas partnerships or joint ventures. McKinley

has also forecasted tractor population requirements of 75 lacs over the next 18 years vs.

current population of 26 lacs. The extension of the 150 per cent deduction on R&D

expenditure up to march 31, 2009, in the Budget 2008-09 will also benefit the industry

in terms of new product development besides increase in the area under irrigation under

the Bahrat Nirman Project and the micro irrigation scheme.

MARKET SHARE OF TRACTOR INDUSTRY

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For the year 2007-08

1

TRACTOR INDUSTRY PERFORMANCE

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COMPANY 2005-06 2006-07 2007-08

ESCORT

FARMTRAC

11138

18287

23200

32800

20950

26900

TOTAL(ESCORT + FARMTRAC) 29425 56000 47850

MAHINDRA & MAHINDRA

PTL

TAFE

EICHER

HMT

SONALIKA

BTL(FML)

L & T

FORD NEW HOLLAND

OTHERS

85028

31396

7900

32017

4464

19951

13214

8450

102500

30010

52400

27700

6500

36200

5050

19720

19400

7195

98700

28040

53400

25450

4770

30920

4820

28530

23250

4520

TOTAL INDUSTRY 302435 362675 350300

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ESCORTS LIMITED

Background And Business

The Escorts Group, with Escorts Limited as its flagship company, is among India’s

leading corporations operating in the diverse field of agri machinery, construction &

material handling equipment, automotive & railway ancillaries information technology

and financial services. The group has 15 modern manufacturing facilities & an extensive

marketing network spread across the country. The genesis of Escorts goes back to 1944

when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launched a small agency

house, Escorts Agents Ltd., in Lahore. The company’s principal activities were trading

and representing leading overseas manufacturers for the sale of their products in India.

One of its dealerships was for the “Massey Ferguson” brand of tractors.

In December 1959, EAPL was converted into a public limited company and was

renamed as Escorts Limited (EL). In January 1960, EL decided to set up manufacturing

facilities for making tractors in India under the “Escorts” brand name in the 25-40

Horsepower categories. EL promoted Escorts Tractors Limited in 1969 as joint venture

with Ford Motor Company of USA for the manufacturing of ‘Ford’ series of tractors.

The tractors manufactured were in

ESCORTS LIMITED

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the 45-50 HP range and ETL became the market leader in this segment with a share of

above 50%. Consequent to FMC’s disposal of tractors operations to Ford New Holland,

USA, FNH acquired the shares of FMC in ETL. Following an agreement in 1995 to end

the joint venture association, EL acquired the entire stake of NH in August 1995,

making ETL a subsidiary of EL.

Over the years, Escorts has sured ahead and evolved into one of India’s largest

conglomerates. Till 1993-94, all these activities were being carried out in various

divisions of EL. EL undertook a major restructuring exercise between 194-98 spinning

off the divisions into separate companies.

The restructuring exercise-comprised consolidation of the agir-machinery business by

merger of ETL with EL and having off various divisions into separate companies.

Biwheeler division was spun off to Escorts Yamaha Motors Ltd., construction

equipment division to Escorts construction equipment Ltd., telecommunication

equipment division to Escorts communication Ltd., EL booked gains of Rs. 2091 million

over the four year period 1994-95 to 1997-98 though the sale of these the sale of 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 material handling equipment.

ESCORTS TIMELINE

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Escorts journey started in 1944 as a small agency house, Escorts Agents Ltd., in Lahore. Its

principal business was trading and representing leading overseas manufacturers for the sale

of their products in India.

Escorts started its manufacturing operations in 1954, and since the following range of

products has been introduced in the country.

1954 Piston rings and cylinder liners

1960 Pistons

1961 Assembly of Tractors

1962 Motorcycles and Railway couplers

1965 Agricultural tractors under Escorts brand name

1969 Agricultural tractors under Ford brand name

1971 Industrial and construction equipment

1979 Excavator loaders

1980 100cc Motorbike

1985 Electronic PABXs

1991 Harvesters combine

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ESCORTS TIMELINE

1992 VSAT satellite communication system

1993 Mobile communication

1995 Forklift truck

1996 Disengagement of joint venture and launch of Farmtrac Tractor.

1997 Joint venture with CARRARO for manufacturing of transmission and axles.

1998 Powertrac series of tractors were launched

1999 Joint venture with POL MOT for manufacturing of Farm Machinery.

2004 Divested Escotel Mobile Telecommunications to idea cellular TS16949

Certification for Agri Machinery Group.

2005 Divested Escorts Heart Institute and Research center (EHIRC) to Fortis

Healthcare.

2006 Divested in Carraru India Ltd. Set up in new manufacturing facility in

Radurapur for manufacture of new range of railway equipments.

BOARD OF DIRECTORS OF ESCORTS LIMITED

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Managing Director &

Chairman Mr. Rajan Nanda

Joint Managing Directors Mr. Nikhil Nanda

Directors Dr. M.G.K. Menon

Dr. S.A. Dave

Dr. P.S. Pritam

Mr. S.C. Bhargava

Sr.Vice President-

Law & Company Secretary Mr. G.B. Mathur

Exec. Vice President &

Group Chief Financial Officer Mr. R.K.Budhiraja

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OUTLINE ORANISATION – ESCORTS GROUP

Chairman & Managing Director – Sh. Rajan Nanda

Secretariat

Flagship Operating Division

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, Faridabad

Administration and Law Export andSecurity Communication

Associates Companies Subsidiary Companies

Escorts Employees Welfare Trust Faridabad

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OUTLINE ORANISATION – ESCORTS LIMITED

Chairman & Managing Director – Sh. Rajan Nanda

Secretriat

Corporate Office Registered Office Corporate Center, Faridabad New Delhi

Personnel Finance

Project Law

Administration Export and and Security Communication

Agri Machinery Automotive AncillariesMarketing 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)

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BANKERS

1) IDBI BANK.

2) ABN AMRO BANK N.V.

3) BANK OF BARODA.

4) CITIBANK, N.A.

5) DEUTSCHE BANK AG.

6) HONGKONG & SHANGHAI BANKING CORPORAYION LIMITED.

7) HDFC BANK LIMITED.

8) PUNJAB NATIONAL BANK.

9) STATE BANK OF INDIA.

10) STATE BANK OF TRAVANCORE.

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\AGRI MACHINERY GROUP

Introduction

Having pioneered farm mechanization in the country, Escorts has played a pivotal role in the

agricultural growth of India for over five decades. One of the leading tractor manufacturers

of the country, Escorts produces tractors in the 27-75 HP range and has already sold over 6

tax tractors. Escorts Agri Machinery Group was set up in 1960 and they rolled out their

batch of tractors in 1965 under the brand name of Escorts, Powertrac and Farmtrac.

Escort brands of tractors is symbolic of reliability and trust and enjoy the confidence of the

farming community for the last 40 years.

Powertrac brand of tractors are the most fuel-efficient tractors in their respective categories

that offer excellent value for the money and have helped the farmer improve their quality of

life.

Framtrac brands are the most powerful premium range of tractors that give maximum

productivity to the farmers.

Spanning these three brands, they company has a full range of tractors to cater to the

domestic as well as overseas markets The company is developing state-

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of-the-art highly fuel efficient engines with the assistance of AVL of Austria and have also

entered into a joint venture with Carraro SPA of Italy for the manufacturing of transmission

and axies.

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 of its

manufacturing facilities bringing them to international standards, The company has one of

the most comprehensive distribution networks comprising of over 500 dealership / outlets

and 30 area offices spread across the country. It has a manufacturing capacity of 75000

tractors per annum. Escorts Agri Machinery Group is looking at forward and backward

integration through food processing, food processing, food chains and genetic engineering.

In line to their vision for becoming a major player in sub 100 HP segment by 2005 in the

global markets, they have increased their vision for becoming a major regional player to

major global markets, which stretch from North America to Australia covering all the

continents. Despite the strict competition by other

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major tractor manufacturers they have been able to gain constant volumes in the global

market. Their target for this year is to export 15% of the volumes of their total production

volumes.

To consolidate its presence in the overseas markets, the company has ventures in the USA

and Europe (Poland). It has recently acquires a majority stake in Long Agribusiness LLC, a

tractor distributing company in the USA and Pol-Mot Escorts Spolka Z.O.O., Poland.

Besides the USA and Poland, Escorts has strong presence in Turkey, Australia, Bangladesh,

Sri Lanka, Nepal, Kenya, Tanzania, South Africa etc. though its dealers network in these

countries. Escorts have very ambitious plans to expand the dealers network in other

potential countries in the coming year. By the end of the next year, the Company hopes to

be the largest exporter of the Indian Tractor Industry, Besides tractors, the RR6 riding type

paddy transplanter, in association with Yanmar of Japan, is the first offering of Escorts to

the rice planters of India.

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Modernization of Agri Machinery Group R&D Center

Escorts Agri Machinery Group (AMG) has invested over US $ 7.5 million in a state of the

art Research and Development Center, Virtual prototypes of components and aggregate

assemblies are made and assembled on computer workstations using 3D technology. The

performance is checked on computers using simulation techniques thus saving a lot of time

for the end-user as well as lowering development costs. The R&D Center uses advanced 3D

modeling, analysis and simulation software for engines, transmission and vehicles, Physical

prototypes are then extensively tested for performance, durability and reliability. Facilities

include a high-technology engine laboratory featuring fully computerized test-beds with

online control, data acquisition and analysis.

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PRODUCTS

Escorts FarmtracE-325 Josh F T –30

E-335 F T –35E-335P F T –45E-430 F T –45Live PTE-430XL F T –50DB

E-435 F T –50E-440(6+2 & 8+2)PT F T –60E-440(6+2 & 8+2)XL F T –60DB

E-450 F T –60DeluxeE-450(8+2)PT F T –60Live PTE-450(8+2)XL F T –70

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For a fresher like me, in a big organization like Escorts Ltd. gave me a feel of the real working

atmosphere. It enhanced my horizones about how the members of the organization work as a

team, co-ordinating with each other, their interdependence on each other. I became aware of the

synergy effect i.e., how different members in different profiles produce greater results with co-

ordination.

The usefulness of Study:

In-depth knowledge of Company’s workings.

Familiar atmosphere of Company motivates the researcher.

Awareness of difference between the bookish knowledge and the practical workings of the

company.

Knowledge of Company’s policies.

Motivates to work as a team member.

To get aware of Current Position of the Company.

The various designation in an organization, the respective work profiles and the

interdependence among them.

Synergy effect.

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It helps to understand how to tackle work pressure and meet dead lines.

Difference between budgeted and actual performance.

Time utilization.

Wealth maximization.

Data analysis and interpretation helps to increase capability of mind.

Knowledge of Company’s decisions to solve the problems.

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OBJECTIVE OF THE TRAINING

It is well known fact that we remember 20% of what we hear, we remember 40% of what

we see but we remember 75% of what we do.

There are two fold of the management of working capital

Maintenance of working capital at appropriate level.

Availability of ample funds as and when they are needed.

The present study in ESCORTS LIMITED (Agri Machinery Group) mainly focus on the

above objectives as well as some other objectives which I have taken into consideration

during the project training.

To access the requirement of working capital of the company.

To assess the changes in working capital needs over the years.

How management of working capital affects the financial position of the company?

Evaluate current assets and current liabilities to find out liquidity position of the

company.

To prepare the statement of working capital of the concern.

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WORKING CAPITAL

Definition

Working Capital refers to the cash a business requires for day-to-day, or, more

specifically, for financing the conversion of raw material into finished goods, which the

company sells for payment. In other words ‘Working Capital’ is the money the business

process consumes. The longer the process takes, the more money is consumed. Working

Capital is calculated by deducting current assets from current liabilities. Current assets

are resources, which are in cash or will soon be converted into cash (normally with in

one year). Whereas Current liabilities are commitments, which will soon require cash

settlement in the ordinary course of business.

Working Capital can also be defined with an approach that encompasses all the

processes surrounding accounts payable, accounts receivable and inventory and one

begins to understand the potential knock-on impacts of a change in working capital

practice or policy. When looking in detail at any of these three core areas, it soon

becomes clear that WCM can touch all the firm buys, makes and sells.

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WORKING CAPITAL

A ‘total’ approach to working capital covers all the company’s activities relating to

vendor, the customer and the product.

Concepts of Working Capital

1. Gross Working Capital Concepts

2. Net working Capital Concepts

Gross working capital concept

According to this concept, working capital means working capital which is total of the

current assets of a business.

Gross Working Capital = Total current assets

Net Working Capital Concept

According to this concept, working capital means net working capital which is the excess of

current assets over the current liabilities

Net Working Capital = Current Assets – Current liabilities

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WORKING CAPITAL

IMPORTANCE

The better a company manages its working capital, the less the company needs to borrow.

Without adequate working capital there can be no progress. A business must expand and

assert itself in a competitive world. If expansion takes place without the firm being able to

cover its commitments, then over trading will be the result. Available working capital is

stretched a capacity until, finally, bankruptcy or liquidation is forced upon the business.

Even companies with cash surpluses need to manage working capital to ensure that those

surpluses are invested in ways that will generate suitable returns for investors.

The lengths of production and sales cycle pay an important part in the over trading process.

If short, and the period of credit is not excessive, then money from sales will help to

replenish working capital. However the longer the total period from the buying of the raw

material to the receipt of the cash from sales, the more likely is overtrading.

Working capital management can be subject to compromise and best practice is often hard

to identify, pursue or benchmark. From a funding optimization perspective, however,

generating extra cash from internal sources has the advantage over bank and public debt of

greater opportunity and access, typically at lower cost.

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WORKING CAPITAL

In terms of the impact felt across the company in the business units and customer- facing

staff, it is not the financial but the operational benefits that are most keenly felt following a

reappraisal of working capital practices. The greater efficiencies in dealing with customers

and suppliers greater control of and information on the processes related to ordering/ paying

and delivering / getting paid- can ultimately feed into improve delivery of goods and

services at lower cost. Improve working capital leads to increase shareholder value because

it enables firms to generate more profit with less capital.

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RATIO ANALYSIS

Working Capital Management Performance using Ratio Analysis

A “ratio” is defined as the indicated quotient of two mathematical expressions and as the

relationship between two or more things. In financial analysis, a ratio is used as a

benchmark for evaluating the financial position and performance of a firm.

Ratio analysis involves comparison for a useful interpretation of the financial

statements. Single ratio in itself does not indicate favorable or unfavorable condition.

Therefore in this report it is compared with:

Past ratios, i.e. ratios calculated from the past financial statements of the same company.

Since liquidity ratios and activity ratios helps to measure the firm ability to meet current

obligations and firms efficiency in utilizing its assets respectively. Those two have been

used.

Limitations of Ratio Analysis

It is difficult to decide on the proper basis of comparison.

Price level changes make the interpretation of ratio invalid.

The differences in the definition of items in the balance sheet and profit & loss account

make the interpretation of ratios difficult.

The results are based on highly summarized information. Consequently situations, which

require control, might not be apparent or situations, which do not warrant significant effort,

might be unnecessarily highlighted.

LIQUIDITY RATIOS

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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 liquidity position in this report,

are:

Current Ratio

Quick Ratio

Activity Ratio

LIQUIDITY RATIOS

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CURRENT RATIO

Current ratio is calculated by dividing current assets by current liabilities:

Current ratio = Current Assets

Current Liabilities

2004-05 2005-06 2006-07 2007-08

Current Ratio 1.19 1.03 1.12 1.16

From the above table it can be interpreted that Escorts liquidity position is not constant.

As a conventional rule a current ratio of 2:1 or more is considered satisfactory because

in a worse situation, even if the value of current assets become half, the firm will be able

to meet its obligations. Current ratio refers to a margin of safety for creditors therefore

higher the current ratio, the greater the margin of safety.

LIQUIDITY RATIOS

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QUICK RATIO

Quick ratio establishes a relationship between quick or liquid assets and current

liabilities. An asset is liquid if it can be converted into cash immediately or reasonably

soon without a loss of value. Inventories are considered to be less liquid therefore

calculating quick ratio they are deducted from current assets.

Quick Ratio = Current Assets – inventory

Current liabilities

2004-05 2005-06 2006-07 2007-08

Quick Ratio 0.76 0.71 0.90 0.99

Escorts quick ratio in the current year has decreased in comparison to previous year, yet

it can be considered to be satisfactory, as it is 1:1 times of current liabilities. Although

quick ratio is more penetrating test of liquidity than current ratio. Yet it should be used

cautiously, as all debtors may not be liquid and cash may be immediately needed to pay

operating expenses.

The value of quick ratio is decreasing every year. The satisfactory level of 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

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Activity Ratios are used to evaluate the efficiency with which the firm manages and

utilizes its assets. The ratios are called Turnover Ratios as they indicate the speed with

which the firm manages and utilizes its assets.

Activity ratios, which are used to analyze Escorts effectiveness in Asset utilization, are

Inventory Turnover Ratio

Fixed Assets Turnover Ratio

Working Capital Turnover Ratio

Debtors Turnover Ratio

Creditors Turnover Ratio

ACTIVITY RATIOS

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INVENTORY TURNOVER RATIO

It indicates the efficiency of the firm in producing and selling its product. It is calculated

by dividing sales by avg. inventory. In a manufacturing company inventory of finished

goods is used to calculate inventory turnover.

Inventory Turnover = Cost of goods sold

Avg. Inventory

2004-05 2005-06 2006-07 2007-08

Inventory

turnover 10.36 13.07 14.42 15.10

If the company is comfortably meeting the customer needs with 9.73 days inventory of

finished goods, all India basis.

It is a good achievement for the Escorts Limited.

ACTIVITY RATIO

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FIXED ASSETS TURNOVER RATIO

A firm’s ability to produce a large volume of sales for a given amount of net assets is the

most important aspect of its operating performance. Unutilized or underutilized assets

increase the firm’s need for costly financing as well as expenses for maintenance and

upkeep. Fixed assets turnover is calculated by dividing net sale by net fixed assets.

Fixed Assets Turnover = Sales

Fixed Assets

2004-05 2005-06 2006-07 2007-08

F.A.T 1.98 2.24 2.29 2.35

Escorts fixed asset turnover have increased in 2003-04. The fixed asset turnover of 2.78

implies that it is producing Rs.2.78 of sales for one rupee of capital employed.

The higher the ratio, more it is satisfactory…

It should be interpreted very cautiously because the denominator of the ratio includes

fixed asset net of depreciation. Thus old assets with lower book value may create a

misleading impression of high turnover without any improvement in sales.

ACTIVITY RATIO

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DEBTORS TURNOVER RATIO

Debtor’s turnover indicates the number of times debtors’ turnover each year. Higher the

value of Debtors turnover, the more efficient is the management of credit. The liquidity

position of the firm depends on the quality of the debtors to a great extent.

Debtors Turnover = Credit Sales

Avg. Debtors

2004-05 2005-06 2006-07 2007-08

Debtors Turnover 7.62 6.12 4.44 4.29

Escorts debtors turnover is quite lower. The debtor’s turnover ratio is high at 2003-04 .

The ratio is decreasing. Also the debt collection period has its own importance. The debt

collection period of Escorts was 76 days in 2003-04 but in the year 2004-05, it is

increased to 95 days and it is maintained till today. This does not show the satisfactory

level. The shorter the collection period, the better the quality of debtors, since a short

collection period implies prompt payment by debtors.

A too low collection period is also not necessarily favorable as it may indicate a very

restrictive collection and credit policy. Because of the fear of bad debt loses the firm

may be selling to those only whose financial conditions are sound and who are very

prompt in making the payments.

ACTIVITY RATIO

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CREDITOR TURNOVER RATIO

Creditors Turnover = Total Purchases

Creditors

2004-05 2005-06 2006-07 2007-08

Creditors Turn. 5.70 3.67 3.55 3.45

Though the days are very high and apparently appears to substitute right collection, 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 2074-08, which is more reasonable

than previous years. This helps to make good quality product and also better relationship

with suppliers.

ACTIVITY RATIO

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WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio has its own significance in the business organizations. It

shows the efficiency of the firm. How much sale that the company get with the

utilization of the limited working capital.

Working Capital Turnover = Net Sales

Net Working Capital

2004-05 2005-06 2006-07 2007-08

Working.Cap.Turn. 23.02 113.45 28.30

In the case of working capital turnover ratio Escorts is significantly going very

downward. This is a very dangerous point of the firm. The company should try to

improve it earlier. It shows that the company requires more money to generate sales.

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Working Capital Management


The term receivable is defined as “debt owed to the firm by customers 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 that

there are no formal obligations through a financial instrument. However extension of credit

involves risks and cost. Management should weigh the benefits as well as the cost to

determine the goal of receivable management.

The benefits from receivables are the increased sales and profits anticipated because of more

liberal policy. When firm extend trade credit, i.e. invest in receivables, they intend on

increase the sales level. The motive of liberal credit policy can be either growth oriented or

sales retention. The extension of credit has a major impact on sales, costs and profitability.

Other things being equal, a relatively liberal policy and therefore higher investments in

receivables will produce larger sales. However the cost will be higher with liberal policies

then with more stringent measures. Therefore account receivable management should aim at

a trade- of between profit and risk.

The costs associated with the extension of credit and account receivables are collection cost,

capital cost, delinquency cost and default cost. Collection costs are administrative costs

incurred in collecting the receivables from the customers to whom credit sale has been

made.

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Capital Cost- The increased level of accounts receivable is an investment in assets. They

have to be financed thereby involving cost. The cost on the use of additional capital to

support credit sales, which alternatively could be profitably employed elsewhere, is

therefore a part of the cost of extending credit or receivables.

Delinquency cost- This cost arises out of the failure of the customers to meet their

obligations when payment on credit sales becomes due after the expiry of the period of

credit. Blocking up of funds for an extended period and cost associated with steps that have

to be initiated to collect the over dues are important components of such type of costs.

Default cost- When firms are unable to recover the over dues because of the inability of the

customers, the debts are treated as bad debts and have to be write off as they can’t be

realized. Such costs are known as default cost

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WORKING CAPITALMANAGEMENT

Receivable management

Decision areas

There are three crucial decision areas in receivable management:

Credit Policies

Credit terms

Collection Policies

Credit Policies

The credit policy of a firm provides the framework to determine whether or not to extend

credit to a customer and also how much credit to extend. It has two broad dimensions, the

first is credit standard and second is the credit analysis. Credit standards represent the basic

criteria for the extension of credit to customers. The trade- off with reference to credit

standards covers collection costs, average collection period, level of bad debts losses and

level of sales. With a relaxed credit standard the collection costs, bad debts expenses and

sales goes up and in reverse case vice-versa happens. The second aspect of credit policy is

credit analysis. It begins with obtaining credit information of the customers and ends up

with the analysis of the obtained credit information. Information can be collected either

internally or externally.

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Internal source of credit information is derived from the records of the firm. The analysis of

credit information should cover both qualitative as well as quantitative aspects. The

quantitative aspect is based on the available financial statements whereas qualitative aspects

cover the quality of management.

Credit terms

The second decision area in accounts receivable management is the credit terms. After the

credit standard have been establish and the credit worthiness of the customers is assessed,

the management of a firm must determine the terms and conditions on which trade credit

will be made available. Credit terms have three components : credit period, cash discount

and cash discount period. Credit period is the duration of time for which trade credit is

extended whereas cash discount is the amount by which the over the due amount will be

reduced thus benefiting the customer.

The credit terms like the credit standard affect the profitability as well as the cost of the

firm therefore a firm should determine the credit terms on the basis of cost-benefit trade-off.

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Collection policies

The collection policies refer to the procedures followed to collect account receivable when

after expiry of the credit period they become due. This policy covers two aspects : first is the

degree of effort to collect the over due and second is the type of collection efforts.


Escort Limited has a zero debt credit policy. However it is giving the following facilities to

its dealers to promote the sales, as liberal credit policy has a direct impact on sales.

Channel finance facilities

The company arranges these facilities with various bankers for the company dealers to

support their working capital needs. The goods are sold on credit against hundis. Hundis can

be drawn for 50 or 75 or 90 days subject to qualifying criteria of bank.

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Credit facilities

Escort provides thirty days interest free credit to the dealers. For this in respect of all hundis

the company bears 30 days interest and the remaining cost of interest, delayed payment

charges are borne by the dealers.

Penalty on bouncing of hundis / cheques

Bouncing of hundis/ cheques drawn in favor of the company 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 credit outstanding/ early payment incentives

Cash discount of 1% is payable on tractors dispatched against funds available in the form of

letter of credit or demand draft. Interest is charged/ paid at 12% per annum on outstanding/

credit balance early payment incentive.

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Inventories are stock of the product, a company is manufacturing for sale. Inventories can

exist in the form of raw material, work-in-progress, finished goods, components and

supplies, whereas motive for holding inventories can be transaction motive, precautionary

motive and speculative motive.

Inventories constitute the most significant part of Current assets. Because of the large size of

inventories maintained by firms, a considerable amount of funds is required to be committed

to them. It is therefore, absolutely imperative to manage inventory efficiently and effectively

in order to avoid unnecessary investment. Managing inventory is a juggling act. Excessive

stock can place a heavy burden on the cash resources of a business whereas insufficient

stocks can result in lost sales, delays for customers etc. The less time a company holds

inventory, the lower its working capital investment will be. There is a magic threshold,

beyond which the length of time the seller needs to acquire materials and make and ship a

product is less than the length of time between order placement and when the customer

expects to receive the product. If a business can cross that line, it can completely eliminate

inventory and acquire exactly the right materials after each sale has been made.

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But many companies can’t operate under this model. Those that sell time- sensitive items

have to have materials, if not finished products, on hand to satisfy the expectations of a

customer who needs and order right a way. Many large manufactures operate on a just-in-

time (JIT) basis thereby all the components to be assembled on particular day, arrive at the

factory early that morning, no earlier-no later. This helps to minimize manufacturing cost.

Objectives

The objective of inventory management is to: avoidance of over and under investment in

inventories, provide the right quantity of material to the production department at the right

time. Factors to be considered when determining optimum stock levels are:

The projected sales of each product.

Availability of raw materials, components etc.

Delivery time by the suppliers and finally.

Can one remove slow movers from one’s product range without compromising best

sellers?

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Inventory Management Techniques

Inventory Management techniques include the followings:

I. Effective and efficient purchasing, storage and issuing procedures.

II. Setting of various levels like max., min., reorder level.

III. Fixation of Economic Order Quantity.

IV. Establishment of inventory budgets.

V. Min-Max plan.

VI. Two-Bin system.

VII. ABC analysis.

VIII. VED analysis.

IX. XYZ analysis.

X. Use of inventory rations.

XI. Aging Schedule of inventories.

XII. Kardex system.

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Company policy doesn’t specify any period for keeping inventory but it is generally kept

for 30-90 days. However 3 days stock is considered as the minimum stock level for the item

which is purchased locally (Faridabad) and 7 days stock is considered as the minimum stock

level for the inventory item, which are purchased from outside. 15 days stock is considered

as maximum stock level of the inventory item which are purchase locally and one month

stock for the inventory item which are purchased from outside.

Inventory Valuation

I. Raw material and components, stores and machinery spares are stated at lower of cost

and net realizable value.

II. Tools, jigs and dies are stated at cost or under.

III. Work in progress, finished and trading goods are stated at lower of cost net realizable

value.

IV. To determine the cost of raw material and components, weighted average cost method is

used while in the case of trading FIFO method is used.

V. Work in progress and finished goods include cost of conversion and other incurred in

bringing the inventories to finished condition.

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For Inventory Management Escorts has taken the following steps:

1. Business Process Re-Engineering

All the manufacturing facilities are being modernized in accordance with global norms,

towards this substantial investment in R&D has been made to the tune of US $ 7.5

million to incorporate state of art technology in manufacture of new models and BPR for

product and process up gradation, which seeks to do away with purchasing, materials

receipts and accounts payable procedures and documents and substitute them with

annual contracts with few suppliers and payments for quantities received, inspected or

accepted.

2. Total Quality Management

Escorts Limited is following TQM. It aims at zero defect production, which has far

reaching implications on inventory levels.

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3. Just in Time Approach

Escorts Limited, like many large manufactures operate on a just – in - time (JIT) basis

whereby all the components to be assembled on a particular day, arrive at the factory on

same day. This help to minimize manufacturing costs as JIT stocks as discussed above

take up little space, minimize stock for a very short time, they are able to conserve

substantial cash, which is otherwise blocked up in inventories.

3. Vendor Reduction

The company today is following the policy of reducing the number of vendors. It is

trying to shrink the vendor base radically and then trying to use its clout to negotiate

longer terms with the vendor.

Among theses other steps taken by Escorts Management include Suggestion schemes

and Centralization of funds.

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Payable Management

Creditors are a vital part of effective cash management and should be managed carefully

to enhance the cash position. Purchasing initiates cash outflows and an over-zealous

purchasing function can create liquidity problems. Ironically, some companies looking

to take working capital off the balance sheet nurture slow, inefficient or even obstructive

A/P process. It’s one case where negligence can improve financial performance. But

squeezing the vendors is a shortsighted policy. A better strategy is to shrink the vendor

base radically, then use one’s clout to negotiable longer terms with the vendors. Vendor

rationalization is a process that can pay off in a big way. Apart from the question that

who should authorize purchasing in the company – 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.

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Maximum Level

It is the largest quantity of a particular material, which should be kept in the store at any

one time. The fixation of maximum level is necessary to avoid unnecessary blocking up

of capital in inventories.

Minimum level

The minimum level is the lowest quantitative balance of material in hand, which must be

maintained at all, times so that the assembly line may not be stopped on account of non

availability of materials.

Re-Ordering Level

It is the point at which if the material in store reaches, further supplies must be ordered.

The re-ordering level is fixed somewhere between maximum and minimum level each

such a way that the quantity of material represented by the difference between the re-

ordering level and minimum level will be sufficient to meet the demands of production

till the order materializes and supplies are received.

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Economic order quantity

It refers to the size of order, which gives maximum economy in purchasing any

materials. It is also referred to as optimum or standard ordering quantity. It is fixed after

taking into consideration ordering cost, stock out cost and inventory carrying cost the

EOQ is determined by formula method, tabular method or graphic method.

Ordering cost

It is the cost of placing an order and securing the supplies. The more frequently orders

are placed and fewer the quantities purchased on each order, the greater will be the

ordering cost and vice versa.

Stock out Cost

In includes the cost of expediting purchases, obtaining rush deliveries, keeping track of

back orders etc.

Inventories Carrying Cost

It is the cost of keeping item in stock. It includes interest on investment, obsolescence

loses, storekeeping cost, insurance premium etc.

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Perpetual Inventory System

It is also known as automatic inventory system. It is a method of recording store

balances after every receipt and issue, to facilitate regular checking and to obviate

closing down for stocktaking.

Min- Max Plan

This is one of the oldest techniques of inventory control. According to this technique for

each item of inventory the maximum and minimum levels are fixed. The maximum level

lays down the limit above which an inventory item will not be kept in the stores.

Two bin system

In case of this technique, for each item of inventory two bins are maintained. The first

bin contains such quantity of inventory, which is sufficient to meet the consumption

requirement till the next order is placed and the second contains the safety stock.

Order Cycling System

In case of this technique the stock of each item of inventory is reviewed periodically,

e.g., monthly, BI-monthly or quarterly. In case the review discloses that stock level of a

particular item of inventory will not be sufficient till the next schedule that of review on

the basis of probable rate of consumption, an order is placed to replenish its supply.

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ABC Analysis

ABC analysis is the technique of exercising selective control over inventory item the

technique is based on assumption that a firm should not exercise some degree of control

on all items of inventory. It should rather keep greater control over those items, which

are more costly, compared to those items, which are less costly. According to this

approach, the inventory items are divided into three categories: A, B and C.

VED Analysis

VED Analysis is of the nature of ABC analysis though it is generally used in case of

spare parts. The parts are classified into three categories – vital, Essential and desirable

the firm keeps spare parts in stock only for lead-time, as these are those items, which are

readily available in the market.

XYZ Analysis

XYZ analysis is based on value of inventory in stock. It is different from ABC analysis,

which is based on value of materials consumed and VED analysis, which is base on

relative importance of inventory in stock.

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Aging Schedule of Inventory

Under this inventories are classified according to age. It helps in identifying inventories,

which are moving slowly into production or sales.

Kardex System

Kardex System is an improvement of loose- leaf card system. In case of this technique a

card is maintained for each item of materials. The cards are arranged in a metallic tray

and kept in Kardex cabinets specially meant for that purpose.

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SWOT ANALYSIS OF ESCORTS LIMITED

STRENGTHS

Good image in market.

Ability to deliver in time.

Excellent distributorship network across the India.

Latest technology.

Good quality standards.

Better services.

WEAKNESS

High prices as compared to the market.

Physical distance between plant & marketing department.

OPPORTUNITIES AND THREATS

The growing domestic demand for food grains and agri products promises a very good

future for company’s core business. We believe that India can be a major exporter of grains

and other Agri products and increased demand both Domestic and Exports will call for

increased yields, which besides other key inputs will result in increased Farm

mechanization. Tractor density as well as the HP input per hectare is extremely low relative

to International standards, tractor population today is concentrated in 10% of villages and

even today 70% of our villages do not have a tractor. CRISIL INFA has estimated a growth

of 7.5%-8.5% CAGR for the next five years. All this shows great potential for the growth in

this industry.

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RESEARCH

METHODOLOGY

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Research methodology is a way to systematically solve the research problem. In it step

by step methods are followed to solve a particular problem. It refers to a search for

knowledge. It can also be defined as a scientific search for pertinent information on a

specific topic. In fact, research is an art of scientific investment.

Redman & mory defines research “systematized effort to gain new knowledge.”

RESEARCH DESIGN

Research Designs the way in which the research is carried out. It works as a blue print.

Research Design is the arrangement of the conditions for the collections and analysis of

data in a manner that to combine relevance to the research purpose with economy in

procedure.

TYPES OF RESEARCH DESIGN

Exploratory Research Design

Descriptive & Diagnostic Research Design

Experimental Research Design

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Exploratory Research Design

In it, a problem is formulated for precise investigation and working and hypothesis are

developed.

Descriptive & Diagnostic Research Design

In descriptive research design: those studies are taken which are concerned with

describing the characteristics of a particular individual or a group.

Experimental Research Design

In it casual relationships between the variables are tested. It is also known as Hypothesis

Testing Research Design

The present project is descriptive in nature. The major purpose of descriptive research is

the description of the state of affairs, as it exists in present. The main characteristic of

this method is that the researcher has no control over the variables. He can only report

what has happened or what is happening.

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SAMPLE DESIGN

It is not possible for any researcher to include each and every member of the universe in

his research process. So, he selects small portion of the universe, which is its true

representative. This group is known as sample and this process is called sampling.

Sampling Techniques can be categorized into two broad categories namely:

Non-probability Sample

Probability Sampling

Non-probability Sampling

In it, researcher selects sample deliberately, by using his own judgement, in it every item

of the universe does not have equal chances of inclusion in the sample.

It can be of following type:

Convenience Sampling

Judgement Sampling

Quota Sampling

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Probability Sampling

It is known as “Random Sampling” or “Chance Sampling”. In it, each population

element has equal chance of selection.

It can be of following types:

Simple Random Sampling

Stratified Sampling

Cluster Sampling

In the present project, non-probability sampling has been used because sample is

selected by researcher’s own view and every item of the universe has not equal chances of

being selected. Under non-probability sampling, convenient sampling has been used because

sample has been selected according to own convenience.

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DATA COLLECTION

The data can be of two types:

Primary Data

Secondary Data

Primary Data

Primary data are those data, which is originally collected afresh.

Secondary Data

Secondary data are those data which are already collected and stored and which has been

passed through statistical research.

In this project, Secondary data has been collected from following sources:-

Annual report

Books

M.I.S

Other material and report published by company

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FINDINGS

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FINDINGS

There has been a significant decline in volume over the years from 2001-02 to 2005-

06 as can be seen in the graph below:

The Net sales of Tractor has increased considerably from 2004-05 to 2007-08,

This can be mainly attributed to changes in Variable and material costs and in the price.

The Net sale of Tractor has increased considerably from 2004-05 to 2007-08,

that is an decrease of Rs.7216 per tractor. This can be mainly attributed to changes in

Variable and material costs and in the prices.

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RECOMMENDATION

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RECOMMENDATION

Loans & Advances

Special efforts should be made to analyze loans & advances, which are between 35% to 56% of

current assets. This can be classified between production / operation relation related and non-

production / operation related. No production related cases might be financed from other sources

like debenture etc. and treated separately.

Inventory

Inventory should be reviewed constantly to identify show / dead / obsolete item and then

disposed until 2000-01 level is again achieved.

Optimum level should be revised periodically, keeping in view, distance of suppliers, production

lead time of supplier, transport problem if any and reliability of suppliers. This will help to avoid

obsolesce and dead inventory.

Debtors

A study may be conducted if required by experts to pinpoint reason behind Escorts high

correction period of 95 days in 2007-08 against 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.

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RECOMMENDATIONS

Creditors

Though high payout days may be appartenly beneficial for the company. It has it very heavy

long term cost like high interest cost, bad credit ratings 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, are Current ratio, Quick ratio and Activity ratio.

These ratios show the actual position of the company. The Quick ratio is declining since 2001-02

till now. There is a drastic declining in the working capital turnover ratio. This ratio goes to –ve

position in current year compared to previous. The Debts collection period is 359 days for

Exporters. This shows the poor collection policy. The current ratio is 1.12 in 2006-07, which is

not upto the ideal ratio. This shows that the current assets are equal to the current liabilities. Not

satisfactory.

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LIMITATIONS

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LIMITATIONS

Although every effort has been in to collect the relevant information through the sources

available, still some relevant information could not be gathered.

Busy Schedule of Concerned Executives: The concerned executives were having very busy

schedule because of which they were reluctant to give appointment.

Time: The time duration could not provide ample opportunity to study every detail of

working capital management of the company.

Unawareness: Executives were unaware of many terms related to working capital study

while asking to them.

Confidential Information: As the company on account of confidential report has not

disclosed some figures. Moreover, in some cases separate accounts of division are not

separately maintained thereby, leading to restrictions in study.

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BIBLIOGRAPHY

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BIBLIOGRAPY

Books

Financial Management- S.K Gupta

Management Accountancy-D k Gole

Cost and Management Accountancy, S.N.Maheshwari

Financial Management And Policy, James C.Van Horne

World Wide Web

www.escortsagri.com

www.economictimes.com

www.planware.com

www.icraindia.com

Other than Web

M.I.S of the company

Annual Reports

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ANNEXURE & GLOSSARY

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ANNEXURE-1

1. GENERAL INFORMATION

NAME OF THE COMPANY: ESCORTS LIMITED, AGRI MACHINERY

GROUP.

REGISTERED OFFICE: 11, SCINDIA HOUSE, CONNAUGHT CIRCUS, NEW

DELHI.

WEBSITE: www.escortsagri.com

CHAIRMAN, CEO AND SENIOR EXECUTIVE: MR. RAJAN NANDA

CHIEF HUMAN RESOURSE MANAGER: MR. YASH YADAV

2. HISTORY AND CURRENT PROFILE

PROMOTERS: MR.H.P. NANDA

TOTAL NO. OF EMPLOYEES: APPROX. 5,000

BUSINESS TURNOVER: RS. 1,000 CRORE

CURRENT BUSINESS ACTIVITIES (NATIONAL & INTERNATIONAL) :

TRACTOR MANUFACTURING, TRACTOR EXPORTING ETC.

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http://www.escortsagri.com/

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3. MARKETING DATA

oPRODUCT : AGRICULTURAL MACHINERY

oCOMPETITORS : MAHINDRA & MAHINDRA( M& M)

EICHER

SONALIKA

PUNJAB TRACTOR LIMITED (PTL)

oMARKETING STRATEGY : CONFIDENTIAL

o I. T. APPLICATION : ORACLE- 11i

1. FINCIAL DATA PROVIDER

oFINANCIAL CONCERN : MR. M. M. HALDER

oJOB PROFILE : ASSISTANT FINANCE MANAGER

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ANNEXURE-2

Table 1

PROFIT & LOSS ACCOUNT

DESCRIPTRION 2006-07

(OCT 06 TO SEP

07)

2005-06

(OCT 05 TO SEP

06)

INCOME

SALES

SALES-INTER DIVISION

OTHER INCOME

INTER DIVISION RECEIPT

18,782,874,734.63

11,205,736.06

122,599,057.46

15,031,912.00

15,692,391,469.97

19,215,106.56

177,874,066.93

20,928,339.00

TOTAL INCOME 18,931,711,440.15 15,910,408,982.46

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EXPENDITURE

MATERIAL &MANUFACTURING

MATERIAL CONSUMED

PERSONNEL

SALES EXPENSES

INTEREST

BANK & FINANCE CHARGE

AMORTISATION EXPENSESE

PROVISION & WRITE OFF

EXCISE

INTER DIVISION SERVICES

TOTAL EXPENSES

PROFIT BEFORE DEPRECIATION

DEPRECIATION

TRANSFER FROM REVALUTION –

RESERVE

FRINGE BENEFIT TAX

14,529,371,114.89

398,075.00

1,591,586,402.78

1,627,772,755.06

165,814,609.56

15,305,698.84

41,905,702.98

10,078,938.32

61,023,664.00

9,888,491.17

18,189,145,452.60

742,565,987.55

398,799,618.31

-53,935,917.51

18,230,265.00

12,079,154,538.57

214,342.00

1,356,484,006.69

1,364,709,104.99

220,379,177.86

145,221,302.13

38,996,216.86

27,462,421.16

89,388,565.09

33,372,434.04

15,355,382,109.39

555,026,873.07

347,139,550.25

- 45,415,612.79

17,171,364.00

PROFIT/LOSS CARRIED TO

BALANCE SHEET

379,472,021.75 236,131,571.61

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ANNEXURE-3Table 2

INTER DIVISION SALES

DESCRIPTION 2006-07

(OCT 06 TO SEP 07)

2005-06

(OCT 05 TO SEP 07)

INTER SALE TO A.S.P.

INTER SALE TO R.E.D.

11,205,736.06

0.00

19,215,106.56

0.00

TOTAL 11,205,736.06 19,215,106.56

Table 3

INTER DIVISION PURCHASES

DESCRIPTION 2006-07

(OCT 06 TO SEP 07)

2005-06

(OCT 05 TO SEP 07)

A.S.P.

R.E.D.

0.00

398,075.00

0.00

214,342.00

TOTAL 398,075.00 214,342.00

ANNEXURE-4Table 4

INTER DIVISION RECEIPTS

85

ESCORTS

DESCRIPTION 2006-07

(OCT 06 TO SEP 07)

2005-06

(OCT 05 TO SEP 07)

CORPORATE

A.S.P.

R.E.D.

826,770.00

12,873,523.00

1,331,619.00

8841,891.00

11,436,774.00

649,674.00

TOTAL 15,031,912.00 20,928,339.00

Table 5

INTER DIVISION SERVICES

DESCRIPTION 2006-07

(OCT 06 TO SEP 07)

2005-06

(OCT 05 TO SEP 07)

CORPORATE

A.S.P.

R.E.D.

3,195302.17

1,330,896.00

5,362,293.00

25,473,731.04

1,330,896.00

6,567,807.00

TOTAL 9,888,491.17 33,372,434.04

ANNEXURE-5

Table 6

OTHER INCOME (AMG)

86

ESCORTS

DESCRIPTION 2006-07

(OCT 06 TO

SEP 07)

2005-06

(OCT 05 TO

SEP 07)

INTEREST OTHERS

MISC. INCOME

COMMISSION

ERECTION & SERVICING

SURPLUS SALE (ASSETS)

EXPORT INCENTIVE

SALE OF SCRAP

PROV. DOUDTFUL DEBTS

PROV. NOT REQ. WRITTEN

PROV. DOUBTFUL ADVANCES

UNCLAIMED BALANCES

OTHERS

SUB TOTAL MISC. INCOME

EXCHANGE VARIATION(NET)

TOTAL

0.00

0.00

1,083,593.00

141,199.40

383,224.10

10,026,328.11

29,332,859.35

1,845,381.95

19,540,782.16

0.00

3,100,758.91

57,144,930.48

122,599,057.46

0.00

122,599,057.46

0.00

0.00

3,500,000.00

153,000.00

970,338.40

56,452828.37

23,295,943.93

16,166,105.56

153,433.91

0.00

0.00

43,629,574.42

144,321,224.59

33,552,842.34

177,874,066.93

ANNEXURE-6

87

ESCORTS

Table 7

MATERIAL, MANUFACTURING & OPERATING EXPENSES

DESCRIPTION 2006-07

(OCT 06 TO

SEP 07)

2005-06

(OCT 05 TO

SEP 07)

RAW MATERIAL CONSUMED

OPENING STOCK

ADD: PURCHASES

LESS: CLOSING STOCK

863,340,753.22

13,269,344,609.85

783,817,238.18

736,593,624.50

11,195,201,510.14

863,340,753.22

FINISHED &TRDING GOODS

& WIP CONSUMED

OPENING STOCK:-

FINISHED& TRADING GOODS

WORK-IN-PROGRESS

ADD: PURCHASES

LESS: CLOSING STOCK

13,348,868,124.89

330,019,759.15

86,858,651.33

416,878,410.48

425,100,951.73

841,979,362.21

11,068,454,381.42

166,428,824.08

16,026,397.45

182,455,221.53

741,928,170.88

924,383,392.41

88

ESCORTS

FINISHED&TRADINGGOODS

WIP

MATERIAL CONSUMED

EXCISE DUTY

STORES, SPARES & TOOLS

LEASE CHARGES (PLANT

POWER & FUEL

REPAIRS (BUILDING)

REPAIRS (MACHINERY)

TOTAL OPERATING COST

GRAND TOTAL

146,232,198.77

84,049,204.68

611,697,958.76

13,960,566,083.65

11,265,635.00

186,622,382.42

0.00

251,377,328.64

20,431,627.93

99,108,057.25

557,539,396.24

14,529,371,114.89

330,019,759.15

86858,651.33

507,504,981.93

11,575,959,363.35

0.00

166,418,846.68

0.00

231,908,150.90

27,432,710.54

77,435,467.10

503,195,175.22

12,079,154,538.57

89

ESCORTS

90

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