1. INTRODUCTION

WORKING CAPITAL:

Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for two purposes.

Long term funds Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, buildings & etc

Short term fundsShort term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses. . It is otherwise known as revolving or circulating capital.It is nothing but the difference between current assets and current liabilities. i.e. Working Capital = Current Asset – Current Liability. Businesses use capital for construction, renovation, furniture, software, equipment, or machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is also used often by businesses to put a down payment down on a piece of commercial real estate. Working capital is essential for any business to succeed. It is becoming increasingly important to have access to more working capital when we need it.

1.1 STATEMENT OF THE PROBLEM

To study the working capital management to analyze and evaluate the financial and working capital position of Ashok Leyland Limited with special reference to the working capital ratios.

1.2 OBJECTIVE OF THE STUDY

� To examine the combined effect of the ratios relating to working capital management point with the assistance of correlation co-efficient.� Management practices of the company� To analyses the impact of profitability on working capital.� To determine the working capital leverage for examining the sensitivity of ROI to changes in the level of gross working capital of the company.

1.3 HYPOTHESIS OF THE STUDY

Having identified the object of the study the following hypothesis have been formulated and tested during the period of study:� There is no significant difference between the five years average Current Ratio of this company to the standard.� Correlation between ROI and Liquidity Ratio of does not differ significantly.� Correlation between ROI and Working Capital Turnover Ratio of does not differ significantly.� Correlation between ROI and Cash Position Ratio of does not differ significantly.� Correlation between ROI and Inventory Turnover Ratio of does not differ significantly.� Correlation between ROI and Debtors Turnover Ratio of does not differ significantly.� Correlation between ROI and Cash Turnover Ratio of does not differ significantly.� Correlation between ROI and Working Capital to Total Assets Ratio of does not differ significantly.� Correlation between ROI and Current Assets Turnover Ratio of does not differ significantly.

1.4 SCOPE OF THE STUDY

The study is conducted at Ashok Leyland Limited. The topic selected is “A study on the Working Capital Management of Ashok Leyland Limited from the financial year 2002-2003 to 2006-2007. So the project work is confined to finance department only. Tools of financial analyze like working capital ratio have been used. Based on analyze some findings and recommendation are given.

1.5 LIMITATIONS OF THE STUDY

� The study is restricted for the five years from 2002-2003 to 2006-2007.

� The analyses are based on secondary data taken from annual reports of the company.

� Time has been a limited factor and it has been difficult to analysis the various aspect of finance within the prescribed time.

� The figures from the working capital statement for analysis were historical in natures.

� Working capital ratios will not completely show the company’s good or bad financial position.

1.6 CHAPTERISATION

CHAPTER -1The first chapter deals with introduction, statement of the problem, sco

pe of the study, objectives of the study & the study, objectives of the study & Limitations of the study.

CHAPTER -2The Second Chapter is related to the industry profile cum company profil

e.

CHAPTER -3The Third Chapter deals with the review of literature of the study.

CHAPTER -4The fourth Chapter deals with overview of the Theoretical Perspective of

the study.

CHAPTER -5The fifth chapter deals with Research Methology, research design, sampli

ng design, data collection, analytical tool applied and statistical tools.

CHAPTER -6The sixth chapter deals with data analysis and interpretation.

CHAPTER -7The seventh chapter deals with findings, suggestion and conclusion.

CHAPTER -8 The eight chapter deals with bibliography.

2. INDUSTRY CUM COMPANY PROFILE

INDUSTRIAL PROFILEThe industry encompasses commercial vehicles, multi-utility vehicles, pa

ssenger cars, two wheelers, three wheelers, tractors and auto components. There are in place 15 manufacturers of and multi utility vehicles, 9 of commercial vehicles, 14 of Two/Three wheelers, and 10 of Tractors besides 5 of engines. With an investment of Rs.50, 000 Cores, the turnover was Rs.50, 9000 Cores in Automotive Sector during 1999 – 2000. It employs 4, 50, 00 people directly and 100, 00,000 people indirectly and is now inhabited by global majors in keen contention. India manufactures about 38, 00,000 2-wheelers, 5, 70,000 passenger cars, 1, 25.000 Multi utility Vehicles, 1, 70.000 Commercial Vehicles and 2, 60,000 tractors annually. India ranks seconds in the production of two wheelers and fifth in commercial vehicles.

India’s automatic component industries manufacture the entire range of parts required by the domestic automobile industry and currently employ about 250,000 persons. Auto component manufacturers supply to two kinds of two kinds of buyers – original equipment manufacturers (OEM) and the replacement market. The replacement market is characterized by the presence of several small-scale suppliers who lower overheads. The demand from the OEM market, on the other hand, is dependent on the demand for new vehicles. There has been a slowdown in the automob8le sector in the past two years. However, the component industry maintained a low but positive growth rate mainly due to its export performance. Over the years, the component industry has maintained a 10% - 12% share of exports in the total production. Roads occupy an eminent position in transportation as they, as per the present estimate, carry nearly 65% of freight and 87% of passenger traffic. Although, India has 3.3 million kilometers of road network, which is the second largest in the world, the Indian highways are getting overpopulated. Traffic m

anagement and road sense also need attention.

COMPANY PROFILE

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

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

Access to international technology enabled the Company to set a tradition to be first with technology. Be it full air brakes, power steering or rear engine busses, Ashok Leyland pioneered all these concepts. Responding to the operating conditions and practices in the country, the Company made its vehicles strong, over-engineering them with extra metallic muscles. “Designing durable products that make economic sense to the consumer, using appropriate technology”, became the design philosophy of the Company, which in turn has mould consumer attitudes and the brand personality. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 5, 00,000 vehicles we have put on the roads have considerably eased the additional pressure placed on road transportation in independent India.

In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models from Ashok Leyland, tailor-made for high-density routes.

In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO. (Since July 2006, the Hinduja Group is 100% holder of LRLIH).

The blueprint prepared for the future reflected the global ambitions of the company, captured in four words: Global Standards, Global Markets. This was at a time when liberalization and globalization were not yet in the air. Ashok Leyland embarked on a major product and process up gradation to match world-class standards of technology.

In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it became the first in India’s automobile history to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994, QS and ISO 14001 certification for all vehicle manufacturing units in 2002. It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (I n July 2006) which is specific to the auto industry.

Ashok Leyland has six manufacturing plants – the mother plant at Ennore near Chennai, two plants at Hosur (called Hosur I and Hosur II, along with a Press shop), the assembly plants at Alwar and Bhandara. The total covered the space at these six plants exceeds 450,000 sq m and together employ over 11,500 personnel.

Ennore:Spread over 135 acres, Ashok Leyland Ennore is a highly integrated Mothe

r Plant accounting for over 40% All production. The plant manufactures a wide range of vehicles and house production facilities for important aggregates such a

s Engines, Gear Box, Axles and other key in-house components.

Hosur-Unit-I:Established in 1980, Hosur-I is the engine-manufacturing center within t

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

Hosur-Unit-Ii:Ashok Leyland established this state-of-the art production facility in 1

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

Bhanadra:Ashok Leyland’s Bhandara Unit houses manufacturing and assembly faciliti

es for sophisticated synchromesh transmission and also has facilities for assembly of vehicles.

Alwar Unit:Established in 1982, the Alwar Unit in Rajasthan is an assembly plant fo

r a wide range of vehicles with an emphasis on passenger chassis, including CNG buses, situated close to the northern market.

ORGANIZATION CHART SMP - Side Member Press FA - Frame Assembly

CW - Cab WeldCP - Cab Paint

CT - Cab TrimCA - Chassis Assembly

From the above chart, the budget is prepared to the corporate office of AL in Ennore (Chennai). The Finance Department is Head mainly assists it. The budget is approved by the Chairman and MD (R.Seshaeyee). The Units are individually informed to their approved budget status. In the finance dept., Totally 5 executives and 5 divisions are there such as treasury 7 payables Excise, time office, costing and financial account. All the records are submitted to the Head Divisional Manager (N.V. Ramachandran). Milestone Growth of Hosur1966- Full air brakes introduced1967- Double ducker buses introduced1968- Power steering offered in commercial vehicles1979- Multilane tricks introduced1980- Integral bus with air suspension1992- Self – certification status for defense supplies & restituted buses.1993- ISO 9000 certification1994- ISO 9001 certification1997- India’s first CNG powered bus1998- QS 9000 certification1999- CNG (Compressed Natural Gas) introduced2000- Euro-I, Engines/vehicles introduced2001- ISO14000 - Environment – Management System

2002- Exclusive machine line – 2 for Hino cylinder block and Cylinder heat established at stop 52002 – IRAQ order2003 – E-COMET launched2004 – 50,000 mark vehicle produced

Product ProfileAt offer a comprehensive product range with trucks from 7.5 tons GVW to

125 tons GVW. From 19 to 80 seats a host of special application vehicles and diesel engines from industrial genset & marine application.

RESEARCH AND DEVELOPMENT:

World-Class TechnologyTo offer world-class technology that is relevant and affordable to the I

ndian customer is the philosophy that drives R&D at Ashok Leyland. Over the years, this philosophy has been translated time and again into products that seamlessly integrate international technology with local needs. “The role of R&D is central in fulfilling the company-wide commitment to total customer satisfaction” states Mr.R.Seshasayee, Managing Director, and adds that the increased infrastructural and financial support expresses the company’s determination to become self-reliant in R&D.

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

Test TracksBut our R&D is not confined within walls. It extends to the test tracks

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

InnovationsAshok Leyland product development successes have come from a keen sense

of anticipation and attentiveness. The company initiated research into alternative fuels well before legislative debate had even begun in the country. The result was the implementation of CNG technology ahead of the rest promising a breath of fresh air for polluted cities.

Hosur – Unit IIAshok Leyland’s brand new Cab Panel Press Shop is an imposing addition to the industrial skyline of Hosur. At 800 m above sea level, it is also the tallest in the Hosur industrial belt. This state-of-the-art facility is housed in a 99-acres expanse with a built up area of over 15,000 sq.m. The Shop is equipped to stamp select panels for Cargo cab, G-45 and C-45 FES – totally, 55 panels and their variants. Right now it houses eight presses of the presses can be utilized for making panels of complex shapes and profiles with appropriate tooling and dies

. In addition to catering to our present needs, the Press Shop can take up additional panels of new/current models. Right at the design stage, a rainwater harvesting facility was integrated into the Shop. A 60,000 sq.m lawn and the 2,500 sapling saplings planted recently in the premise will give the Shop a cool green cover. Built with an investment of Rs 1350 million, the Shop is designs and developed to be a state-of-the art facility. The 210m long Press Shop consists of two bays with a 36m span in each bay. The 24m high Press bay has an underground tunnel, 7.1m deep and 90m long, to handle the end bits generated during the process of panel pressing. The other bay is 17m high.Green Mission

We are concerned about the earth our children will inherit. That is why we make sure our vehicles consume less, pollute less. This concern is reflected in the manufacturing systems, the various processes, energy conservation measures and conscious greening initiatives of the Company”.

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified with Environmental Management System. We are concerned about the earth our children will inherit. That is why we make sure our vehicles consume less, pollute less. This concern is reflected in the manufacturing systems, the various processes, energy conservation measures and conscious greening initiatives of the company. In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified with Environmental Management System.

Environment PolicyWe are committed to preserving the environment through a comprehensive E

nvironmental Policy and a proactive approach in planning and executing our manufacturing and service activities. The objective of Ashok Leyland’s Environmental Policy is to adhere to all applicable environmental legislations and regulations, adopt pollution preventive techniques in design and manufacture, conserve all resources such as power, water etc;, and optimize its usage, through scientific means, minimize waste generation by all possible ways and Reduce, Reuse and Recycle the same through a time bound action plan as well as provide a clean working environment to our employees, contractors and neighbors. Towards this, we propagate our environmental policy and our commitment to continuous improvement to all employees, suppliers, customers and neighbors.Our People

“We consider our employees as our most valuable asset and are committed to provide full encouragement and support to them, to enhance their potential and contribution to the Company’s business” – From Ashok Leyland’s value statement.

We are close to 12,000 people, molding and managing technology and reaching the benefits of technology to our customers. Offering is transport solutions and after-market support wherever our products operate – which is almost everywhere.

We are spread throughout India, and even outside India. Our tasks very, so do our skills. But we are bound together by a healthy chain of interdependence, to deliver value to the customer. Functional Distribution of ExecutivesWe are committed to maintaining our technological leadership. We manage this through continuous learning. So that we can master ever-evolving technologies. And meet changing customer needs.Understandably, a career with Ashok Leyland offers a lifetime of learning

Structured training programmers address the needs of workers, apprentices, graduate engineering trainees, executives in the managerial levels for knowledge and skills up gradation, computerization, attitudinal changes, self-development, and supervisory and managerial skills orientation to new technologies as also requirements specific to various functional areas. The breadth is reflected in the comprehensive annual training calendar. Annually Five Executive Days Are Invested In Terminal

Besides nominations to external training programmers in IIMs, ASCI Hyder

abad and other Indian and international institutions of repute, Ashok Leyland also has arrangements for ongoing distant learning and residential programmers with management institutes. An instance is the modular programmer for marketing executives developed in collaboration with TA Pai Management Institute, Mani pal.3. REVIEW OF LITERATURE

Many researchers have studied working capital from different views and in different environments. The following ones were very interesting and useful for our research:(Carole Howorthand Paul West head) Working capital management routines of a large random sample of small companies in the UK are examined. Considerable variability in the take-up of 11 working capital management routines was detected. Principal components analysis and cluster analysis confirm the identification of four distinct ‘types’ of companies with regard to patterns of working capital management. The first three ‘types’ of companies focused upon cash management, stock or debtors routines respectively, whilst the fourth ‘type’ were less likely to take-up any working capital management routines. Influences on the amount and focuses of working capital management are discussed. Multinomial logistic regression analysis suggests that the selected independent variables successfully discriminated between the four ‘types’ of companies. The results suggest that small companies focus only on areas of working capital management where they expect to improve marginal returns. (Eljelly, 2004)1 elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability. The size variable was found to have significant effect on profitability at the industry level. The results were stable and had important implications for liquidity management in various Saudi companies. First, it was clear that there was a negative relationship between profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample examined. Second, the study also Raheman & Nasr 282 revealed that there was great variation among industries with respect to the significant measure of liquidity.

(Deloof, 2003)2 discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days’ accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms wait longer to pay their bills.

(Ghosh and Maji, 2003)3 In this paper made an attempt to examine the efficiency of working capital management of the Indian cement companies during 1992 – 1993 to 2001 – 2002. For measuring the efficiency of working capital management, performance, utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios. Setting industry norms as target-efficiency levels of the individual firms, this paper also tested the speed of achieving that target level of efficiency by an individual firm during the period of study. Findings of the study indicated that the Indian Cement Industry as a whole did not perform remarkably well during this period.

(Gitman, 1998) 4 Moses and White reveal that Lockboxes were widely used to accel

erate the collection process. Virtually all large firms use lockbox systems as do a large percentage of smaller firms. This somewhat lower use by smaller firms is a reflection of the costs versus the gains from lockbox systems. The survey farther reveals that to bring collected funds together for use, over one-half of all large firms use concentration banking, with wire transfers and depository transfer checks being the primary means of moving funds from one bank to another. The survey was also extended to management of disbursement. The survey says the primary tools for the management of cash outflows are zero-balance accounts and centrally controlled disbursing. Central control of disbursements is the major tool for about 70 percent of large firms. The vast majority of larger firms use zero-balance accounts, although smaller firms use them less frequently.

(Gitman, 1976) 5 & others survey was that almost all-large firms prepare cash forecast. Similar finding can also be obtained from Rappaport and others survey (1984, pp.45-64). In particular the survey indicates that a substantial number of firms keep a stock of short-term investments for precautionary reasons. Another conclusion of the report was that many firms also borrow to address unanticipated cash needs, either directly from banks or through the commercial paper market. The survey also indicates that in general, quantitative and statistical models are in wide use in working capital management. The models are in use by less than 10 percent against of large firms. Further, smaller firms do not use them all.

(Greg Filbeck and Thomas M. Krueger, 2005) 6 Firms are able to reduce financing costs and/or increase the funds available for expansion by minimizing the amount of funds tied up in current assets. We provide insights into the performance of surveyed firms across key components of working capital management by using the CFO magazine’s annual Working Capital Management Survey. We discover that significant differences exist between industries in working capital measures across time. In addition, we discover that these measures for working capital change significantly within industries across time.

( R. Kamath, S. Khaksari, H.Meier, and J. Winklepleck, 1985 )7 Reveals that almost all large firms invest surplus cash in money market instruments. The most popular investment is commercial paper, certificates of deposit, repurchase agreements, treasury securities, and bankers’ acceptances.

(Shin and Soenen, 1998)8 Highlighted that efficient Working Capital Management (WCM) was very important for creating value for the shareholders. The way working capital was managed had a significant impact on both profitability and liquidity. The relationship between the length of Net Trading Cycle, corporate profitability and risk adjusted stock return was examined using correlation and regression analysis, by industry and capital intensity. They found a strong negative relationship between lengths of the firm’s net trading Cycle and its profitability. In addition, shorter net trade cycles were associated with higher risk adjusted stock returns.

(Smith and Begemann 1997)9 It Emphasized that those who promoted working capital theory shared that profitability and liquidity comprised the salient goals of working capital management. The problem arose because the maximization of the firm�s returns could seriously threaten its liquidity, and the pursuit of liquidity

had a tendency to dilute returns. This article evaluated the association between traditional and alternative working capital measures and return on investment (ROI), specifically in industrial firms listed on the Johannesburg Stock Exchange (JSE). The problem under investigation was to establish whether the more recently developed alternative working capital concepts showed improved association with return on investment to that of traditional working capital ratios or not. Results indicated that there were no significant differences amongst the years with respect to the independent variables. The results of their stepwise regression corroborated that total current liabilities divided by funds flow accounted fo

r most of the variability in Return on Investment (ROI). The statistical test results showed that a traditional working capital leverage ratio, current liabilities divided by funds flow, displayed the greatest associations with return on investment.

REFERENCE:

1. Eljelly, A. 2004. “Liquidity-Profitability Tradeoff: An empirical Investigation in an Emerging Market”, International Journal of Commerce & Management, Vol 14 No 2 pp. 48 – 612. Deloof, M. 2003. “Does Working Capital Management Affects Profitability of Belgian Firms?”, Journal of Business Finance & Accounting, Vol 30 No 3 & 4 pp. 573 – 587

3. Ghosh, S. K. and Maji, S. G. 2003. “Working Capital Management Efficiency: A study on the Indian Cement Industry”, The Institute of Cost and Works Accountants of India.

4. Gitman, Managerial Financial Management, 8th Edition, Thomson, 1998, pp. 350-390.

5. Lawrence Gitman, D. Keith Forrester, and John R. Forrester, “Maximizing Cash Disbursement Float,” Financial Management (summer 1976), p 15-24.6. Greg Filbeck and Thomas M. Krueger, “An Analysis of Working Capital Management Results Across Industries”, American Journal of Business, 2005, vol. 20, issue 2, pages 11-18 7. Kamath R., S. Khaksari, H Meier, and J. Winklepleck, “Management of Excess Cash: Practices and Development,” Financial Management (Autumn 1985), pp. 70-77.

8. Shin, H.H and Soenen, L. 1998. “Efficiency of Working Capital Management and Corporate Profitability”, Financial Practice and Education, Vol 8 No 2, pp 37-45

9. Smith, M. Beaumont, Begemann, E. 1997 “Measuring Association between Working Capital and Return on Investment”, South African Journal of Business Management, Vol 28 No 1.

4. THEORETICAL PERSPECTIVE

Ashok Leyland Ltd., is one of the leading Automobile Manufacturers in India, manufactures world-class commercial vehicles of different models in their manufacturing plants located at various places throughout India. Finance Department is responsible for the following Working Capital Management Activities.4.1 WORKING CAPITAL MANAGEMENT

Working capital management refers to all management decisions and actions that ordinarily influence the size and effectiveness of the working capital. It is concerned with the most effective choice of working capital sources and the determination of the appropriate levels of the current assets and their use. It focuses attention to the managing of the current assets, current liability and their relationships that exist between them. In other words, working capital management may be defined as the management of a firm’s liquid assets viz-cash, marketable securities, accounts receivable and inventories.

In the present day context of rising capital cost and scarce funds, the importance of working capital needs special emphasis. It has been widely accepted that the profitability of a business concern likely depends upon the manner in which its working capital is managed. The inefficient management of working capital not only reduces profitability but ultimately may also lead a concern to financial crisis. On the other hand, proper management of working capital leads to a material savings and ensures financial returns at the optimum level even on the minimum level of capital employed. We also know that both excessive and inadequate working capital is harmful for a firm. Excessive working capital leads to un-remunerative use of scarce funds. On the other hand inadequate working capital usually interrupts the normal operations of a business and impairs profitability. There are many instances of business failure for inadequate working capital.

Definition of working capital The net working capital of a business is its current assets less its current liabilities.Current Assets Current Liabilities• Stocks of raw materials• Work-in-progress• Finished goods• Trade debtors• Prepayment • Trade creditors• Accruals• Taxation payable• Dividends payable• Short term loans

Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its Importance of Adequate Working Capital A business firm must maintain an adequate level of working capital in order to run its business smoothly. It is worthy to note that both excessive and inadequate working capital positions are harmful. Working capital is just like the heart of business. If it becomes weak, the business can hardly prosper and survive. No business can run successfully without an adequate amount of working capital. Danger of inadequate working capital When working capital is inadequate, a firm faces the following problems.

Fixed Assets cannot efficiently and effectively be utilized on account of lack of sufficient working capital. Low liquidity position may lead to liquidation of firm. When a firm is unable to meets its debts at maturity, there is an unsound position. Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it will lose its reputation. There by, a firm may not be able to get credit facilities. It may not be able to take advantages of cash discount. 4.2 WORKING CAPITAL ANALYSIS

FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTSThe working capital needs of a firm are influenced by numerous factors.

The important ones are:� Nature of business� Seasonality of operations � Production policy� Market conditions� Conditions of supply

Sources of Working Capital1. Long Term Sources o Issue of shareso Issue of debentures o Retained profitso Sale of fixed assetso Security from employees

2. Short Term SourcesInternal Source External Sources� Depreciation funds� Provision for taxation � Accrued expenses

1. Trade Credit2. Credit paper3. Bank credit4. Customers Credit5. Public Deposit6. Managing Director or Directory7. Government Assistance

Working Capital CycleThe working capital cycle can be defined as:

The period of time which elapses between the point at which cash begins to be expended on the production of a product and the collection of cash from a customer. The diagram below illustrates the working capital cycle for a manufacturing firm.

CURRENT ASSETS MANAGEMENTLiquidity Analysis:

The liquidity position of the firm has been influenced by short term financial management. The ability of paying the financial debts in a timely manner is called the liquidity if the firm.

Liquidity management deals with current assets and current liabilities of leveled in the balance sheet. These current assets and current liabilities have a life of one year of less. For example a marketable security is considered short-term asset because it would be easily converted into cash.

The current asset and current liabilities are short term because they are collected within a month of two they are labeled on the balance sheet. However the combination is always changing because existing payable are being paid and new receivable and payable are continuous by being created.

Even through current assets and current liabilities short term. They always appear on the balance sheet. However the composition is always changing because exist payable are being paid and new receivable and payable are continuously being created

Managing Current Assets.The following show the normal situation over time the firm has growing b

ase of fixed assets and a growing base of permanent working capital permanent working capital consist of a base or minimization level of case. Receivable and the inventory that the corporation will always have corporation are rarely if ever void of either receivable or inventory and therefore will always have some base level of working capital. In addition to this base of permanent working capital is the varying level of temporary current assets which is a function of the seasonable nature of the firm’s sales.

4.3 FORMAT OF WORKING CAPITAL IN ASHOK LEYLAND LIMITEDFormat of working capital means the study of elements of current assets

and current liabilities. The main element of current assets in Ashok Leyland Limited is Current Assets� Inventories� Sundry debtors� Cash and bank balance� Loans and advancesCurrent Liabilities� Liabilities� Provisions

Funds Flow StatementFunds flow statement is a widely used tool in the hands of financial exe

cutives for analyzing the financial performance of a concern. This statement shows how the activities of a business have been financed or how the available financial resources have been used during a particular period. Simply presenting finance statement will not be useful unless otherwise the data given in the financial statements are analyses.

For analyzing this thing different tools are utilized. One among the tool is funds flow statement. Funds flow analysis is an effective management tool to study how funds have been processes for the business and how have been components between two dates. The comparison of current assets and current liabilities as shown in the balance sheet at the beginning and end of specified period shows a change in type of current assets as well as sources from which working cap

ital have been obtained.

Objectives of Funds Flow Statement� Analysis of financial position� Evaluation of the firm financing � An instrument for allocation of reserves� Future guide� Control device

4.4 NET WORKING CAPITAL

It can be defined in two different ways.� It is excess of Current Assets (C.A.) over Current Liability (C.L.) in other words the difference between Current Assets and Current Liabilities. The constituents of current liabilities are sundry creditors, Trade advance, borrowing, provisions.

� It is that portion of firm’s current assets which is financed by long term funs because a part of current assets can be & financed by the firm through purchasing on credit or postponing certain payments in other works by creation of current liabilities rest will have to be financed from long term source of fund.

Current Assets Net Working Capital = --------------------------- Current Liabilities

TABLE - 1SCHEDULE OF CHAGNGES IN WORKING CAPITDAL OF ASHOK LEYLAND LTD.FOR THE PEIROD OF 2003 to 2007PARTICULARS200320042005

2006

2007

CURRENT ASSETS

Inventories4104.565069.415680.819025.6110703.21Sundry Debtors 5181.50 4056.19 4587.66 4243.37 5228.75Cash And Bank Balances 1899.41 3249.74 7966.82 6028.76 4349.89Loans And Advances 2219.23 2261.53 3337.34 3026.39 6695.79

Total Current Assets (A)13404.7014636.6721572.63223244.1326977.14

CURRENT LIABILITES

Liabilities 4931.56 6821.01 9611.87 11468.95 16516.25Provisions 995.12 1504.36 2044.80 2616.21 1042.30 Total Current Liabilities (B)

5926.68 8325.37 11656.67 14085.16 17558.55 NET WORKING CAPITAL (A) - (B)

7477.82 6311.3 9915.96 8238.98 9418.59

4.5 WORKING CAPITAL RATIOWorking capital ratios indicate the ability of a business concern in mee

ting its current obligations as well as it are efficiently in managing the current asset for generation of sales. These ratios are applied to evaluate the efficiency with which the fire manages and utilizes its current assets.

The following three categories of ratios are used for efficient management of working capital. 1. Efficiency ratio2. Liquidity ratio3. Structural health ratio

1. EFFICIENCY RATIOWorking capital is to sales ratio. This ratio is computed by dividing s

ales by working capital. This ratio helps to measure the efficiency of the utilization of net working capital. It signifies that for an amount of sales a relative amount of working capital is needed. If any increase in sales is contempt, working capital should be adequate and this ratio helps management to maintain the adequate level of working capital. This ratio is measures and efficiency with which the working is being used by a firm. High ratio indicates efficiently utilization of working capital. But a very high ratio is not a good indication for firm which may be due to over trading Sales Efficiency Ratio = --------------------------- Working Capital

� Inventory Turnover RatioThe ratio establishes relationship between the sales with average stock.

It measures the velocity of converting stock into sales. This ratio indicates the effective and efficiency of the inventory management. The ratio shows how speedily the inventory is turned into accounts receivable through sales, the higher the ratio, the more efficiently the inventory is said to be managed and vice versa. A high ratio indicates inefficient management of inventory because more frequently the stocks at sold the lesser amount of money is required to finance the inventory. Allow ratio indicates an inefficient inventory, over investment in inventory. Sluggish business, poor quality of goods and lower profit as compared total investment. Sales

Inventory Turnover Ratio = ----------------------- Inventory

Inventory Turnover PeriodInventory turnover ratio can be related to time. The ratio can be expre

ssed in term of days/month. The general objective is to increase the stock velocity as much as possible or in effect decrease the days for which items remain in stock. Days in a Year Inventory Turnover Period = -------------------------------- Inventory Turnover Ratio

� Current Assets Turnover RatioThis ratio indicates the efficiency with which current turn into sales.

A higher ratio implies by and large a more efficient use of funds. These a high turnover rate indicates reduced look-up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm. Sales Current Assets Turnover Ratio = ------------------------- Current Assets

2. LIQUIDITY RATIO

Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations of short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short term (current) liabilities. If current assets can pay off current liabilities then liquidity position will be satisfactory. On the other hand, if current liabilities may not be easel met out of current assets then liquidity position will be bad. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations. To measure the liquidity of a firm the following ratios can be calculated.

� Current Ratio� Quick or Acid test or Liquid Ratio� Cash Position Ratio

� Current RatioThe current ratios find the liquidity position of the firm. The standar

d form of the current ratio is 2:1(i.e.) the amount of the 2 rupees of current assets is to meet the 1 rupee of the current liability of the firm.

Current ratio expresses relationship between current assets and (cash, marketable securities, accounts receivable and inventory) and current liabilities (sundry creditors, bills payable, bank overdraft and inventory). When a contingent liability for fill discounted also appears by way of foot note in the balan

ce sheet then. This item is to be included in both current assets and current liabilities when calculating the current ratio. The reason is that this will also affect the current ratio position. This ratio is computed by dividing current assets by current liabilities Current Assets Current Ratio = -------------------------- Current Liabilities

o Current Asset = [Inventories + Sundry Debtors + Cash And Bank Balance + Loan and Advances]o Current Liabilities = Liabilities + Provisions

A highest current ratio explains that the company will be able to pay its debts maturing within a year. On the other hand a low current ration points to the possibility that the company may not be able to pay its short-term debts. However from management points of view highest current ratio is indicative of poor planning since excessive amount of funds lie idle. On the contrary a low ratio would mean indecency of working capital which may hinder the smooth functioning of the enterprise.

� Quick RatioThe quick ratio indicates the immediate liquid position of the firm. Wh

ere all the liquid assets are excepting stock taken in to consideration. The standard norm of this ratio was 1:1.

The current ratio does not show the real position of the weakness of the soundness of the liquidity of the firm. It fails to serve as a realistic guide to the solvency of the concern. Some time management misguided with current ratio when there is an increase in the current assets due to stock or debtors in such cash enough funds will not be generated by the circular flow to meet the needs of immediate commitments. The quick or liquid ratio shows the ability of a business to meet its immediate commitments. It is calculated by dividing the liquid assets by the current liabilities. The liquid assets will include all the current assets excluding closing stock. Liquid Assets (Current Assets- Closing Stock) Quick Ratio = --------------------------------------------------------------- Current Liabilities � Cash Position Ratio

Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, some authorities are of the opinion that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivable from the current assets and find out the absolute liquid assets. Cash & Bank +short-term Securities Cash Position Ratio = ------------------------------------------------------ Current Liabilities

3. STRUCTURAL HEALTH RATIO

� Current Assets To Total Net AssetsThis ratio explains the relationship between Current Assets and total investment

in assets. A business enterprise should use its Current Assets effectively and economically because it’s out of the management of their assets that profits accrue. A business will end-up in losses if there is any lacuna in managing the assets to the advantage of business.

Total Net Assets Current Assets to Total Net Assets = ---------------------------- Current Assets

� Debtors Turnover RatioA concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. But the effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. Hence, the liquidity position of a concern to pay its short-term obligations in time depends upon the quality of its trade debtors. Two kinds of ratios can be computed to evaluate the quality of debtors.

Total Sales Debtors Turnover Ratio =--------------------------

Debtors

� Debtors Collection Period

This ratio measure how long it takes to collect amount from debtors. The ratio represents the average number of days for which a firm has to wait before there receivable are converted into cash. It measures the quality of debtors. The shorter average collection period is considered the high quality debtors. The shorter average collection period B considers the high quality debtors. A higher collection period implies inefficiency in collection of debtors which in term adversely affects the liquidity or short-term paying capacity of the firm. The longer the average collection period is higher the chances for turning into bad debts. The actual collection period can be compared with the stated credit terms of the company.

Days in a Year Debtors Collection Period =---------------------------------- Debtors Turnover Ratio

RETURN ON INVESTMENT (ROI)

Return on capital employed. ROI is used to measure the operational and managerial efficiency. It indicates the percentage of return on capital employed in the business. ROI is used to measure the operational and managerial efficiency. It is calculated on the basis of the following formula.

Operating ProfitROI= -------------------------------

Capital Employed

The term ‘operating profit’ mean profit before interest and tax non-trading incomes such as interest on government securities etc. Non-trading loan is such as account of time etc. Will also be excluded. The term capital employed has been given different meaning by different accountant or authors. Some of the popular meaning as an follows.1. Total assets (Fixed & Current Assets)2. Total of Fixed Assets3. Total of long term funds employed in the business.

5. RESEARCH METHODOLOGY

Research refers to the search for knowledge; it is a scientific investigation for the search for relevant information. The purpose of methodology is to describe the research procedure. It describes the overall research design and data collection methods.

5.1 RESEARCH DESIGN A research design is purely a framework for a study that guides the collection and analysis of the data exploratory type of research design is used in this study. Research is a careful investigation leading to the discovery and interpretation of information. There are many different types of research that discover or reinterpret information collected by experimentation or observation and suggest practical applications or theoretical implications of that information.

“A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.”

Analytical research is used in this study because it will ensure the minimization of bias and maximization of reliability of data collected. The researcher had to use fact and information already available through financial statement of earlier ear and analysis these to make critical evaluations of the available material. Hence by making the type of the research conducted in analytical. From the study a type of data to be collected and the procedure to be used for this purpose were decided.

5.2 SAMPLING DESIGN

� Sampling Unit:The Sampling Unit is a Financial Year.

� Sampling Size:

The sample size of the study is FIVE year from 2002-2003 to 2006-2007.

� Sampling Method:Convenience sampling is a method under non probability sampling selected

at the convenience of the researcher who is to select a sample. This type of sampling is also called accidental sampling as the respondents in the sample are included in it merely on account of the being available, where the survey is progress. Convenience sampling method was adapted to selected 5 years from the life time of the company since its inception.

5.3 DATA COLLECTIONData is defined as a raw fact. It becomes information when it is proces

sed and analyzed, when which analyzed, which helps in decision making. There are two sources for data collection they are primary source and secondary source. To collect primary data, separate questionnaire were set up for both agents and customers.

Primary data also involved personal interviews, based on which assumptions and conclusions were made. Secondary data about the company, organization set up, sales figures etc., was collected from the organization records and leaflets. Secondary data includes both internal and external data. The internal data includes the annual report of the firm sales results. While the external data is includes commercial sources, industrial sources and various journals.5.4 ANALYTICAL TOOL APPLIED

Working Capital RatioUnder this (a) Efficiency Ratio

(b) Liquidity Ratio (c) Structural Health Ratio

5.5 STATISTICAL TOOLSThe statistical tool is correlation; I have been used normal correlation

. In statistical analysis we come across the study of two variables where in the change in the value of one variable produces changes are correlated or there is a correlation between two variables may have a positive correlation, a negative correlation or they maybe uncorrelated.If r > 0 the variables are positively correlationIf r < 0 the variables are negatively correlationIf r = 0 the variables are independent6 DATA ANALYSIS AND INTERPRETATION

By the time you get to the analysis of your data, most of the really difficult work has been done. It’s much more difficult to define the research problem; develop and implement a sampling plan; conceptualize, operationalise and test your measures; and develop a design structure. If you have done this work well, the analysis of the data is usually a fairly straightforward affair. In most social research the data analysis involves three major steps, done in roughly this order;

Descriptive statistics are used to describe the basic features of the data in a study. They provide simple summaries about the sample and the measures. Together with simple graphics analysis, they form the basis of virtually every quantitative analysis of data. With descriptive statistics you are simply describing what is, what the data shows.

Inferential statistics investigate questions, models and hypotheses. In many cases, the conclusions from inferential statistics extend beyond the immediate data alone. For instance, we use inferential statistics to try to infer from the sample data what the population thinks. Or, we use inferential statistics to make judgments of the probability that an observed difference between groups is a dependable one or one that might have happened by chance in this study. Thus, we use inferential statistics to make inferences from our data to more general condition; we use descriptive statistics simply to describe what’s going on in our data.

Secondary analysis involves the utilization of existing data, collected for the purposes of a prior study, in order to pursue a research interest which is distinct from that of the original work.

TABLE - 2 COMPUTATION OF CURRENT RATIO

YEAR CURRENT ASSETS CURRENT LIABILITY CURRENT RATIO2002-03 13404.70 5926.12 2.262003-04 14636.67 8325.67 1.862004-05 21572.63 11656.67 1.852005-06 22324.13 14085.16 1.582006-07 26977.44 17558.55 1.54MEAN 1.80STANDARD DEVIATION 0.29CORRELATION 0.98Source: Annual Report

CHART-1CURRENT RATIO

Inference:

As it could be observed in table 2 Current Ratio indicates the availability of Current Assets in rupees for every one rupee of Current Liability. The accepted norms of Current ratio 2:1 but last 5 years from 2003 to 2007 The Ratio was reduced from 2.26 to 1.54 which was due to the disproportionate increase in current liability than the current assets. The Current Ratio position of the firm is less than the satisfactory level, the correlation of this table was +VE between Current Assets and Current Liability

TABLE - 3COMPUTATION OF LIQUIDITY RATIO

YEAR LIQUIDITY ASSETS CURRENT LIABILITY LIQUIDITY RATIO

2002-03 9300.15 5926.12 1.572003-04 9567.26 8325.67 1.152004-05 15891.82 11656.67 1.362005-06 13298.52 14085.16 0.942006-07 16273.93 17558.55 0.93MEAN 1.19STANDARD DEVIATION 0.28CORRELATION 0.86Source: Annual Report

CHART-2

LIQUIDITY RATIO

Inference:As it could be observed in table 3 Liquidity Ratio was decreased

in the years 2004, 2006 and 2007. 2004-2005 this year only liquidity ratio is increased. It was increased the standard norms of liquidity ratio 1.1 but the ratio was less than the standard norms due increasing current liability. The correlation of this table was positive between the liquidity assets and current liability. Mean value is 1.19 and Standard Deviation is 0.28

TABLE - 4COMPUTATION OF WORKING CAPITAL TURNOVER RATIO

YEAR COST OF SALE NET WORKING CAPITAL WTR2002-03 30739.95 7477.82 4.112003-04 39272.73 6311.3 6.222004-05 48108.01 9915.96 4.852005-06 60531.08 8238.98 7.352006-07 83047.17 9418.59 8.82MEAN 6.27STANDARD DEVIATION 1.89CORRELATION 0.59Source: Annual Report

CHART-3

WORKING TURNOVER RATIO

Inference:

As it could be observed in table 4 Working Capital Turnover Ratio was increased 4.11 to 8.82 in 2003 to 2007. But 2004-2005 it was decreased 4.85. The ratio measures the efficiency with which the working capital is being used by firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. The mean value is 6.27, the standard deviation value is 1.89 and the correlation coefficient is positive between cost of sales and net working capital.

TABLE - 5COMPUTATION OF CASH POSITION RATIO

YEAR CASH & BANK CURRENT LIABILITY CPR2002-2003 2,219.23 5926.12 0.372003-2004 3,249.74 8325.67 0.392004-2005 7,966.82 11656.67 0.682005-2006 6,028.76 14085.16 0.432006-2007 4,349.39 17558.55 0.25MEAN 0.42STANDARD DEVIATION 0.16CORRELATION 0.48Source: Annual Report

CHART - 4CASH POSITION RATIO

Inference:

As it could be observed in table 5 Cash Position Ratio was increased the value of 0.68 on 2004-2005 than it was decreased 0.25 for last three years because the current liability value was increased past five years. The mean value is 0.42, the standard deviation is 0.16 and the correlation coefficient is positive between cash & bank balance and current liability.

TABLE - 6COMPUTATION OF INVENTORY TURNOVER RATIOYEAR SALES INVENTORY ITR2002-2003 30,739.95 4,104.56 7.492003-2004 39,272.73 5,069.41 7.75

2004-2005 48,108.01 5,680.81 8.472005-2006 60,531.08 10,703.21 5.662006-2007 83,047.17 10,703.21 7.76MEAN 7.42STANDARD DEVIATION 1.05CORRELATION 0.91Source: Annual Report

CHART -5

INVENTORY TURNOVER RATIO

Inference:

As it could be observed in table 6 The Inventory Turnover Ratio indicates the number of times the inventory replaced in the year. This inventory turnover was higher (8.47) in 2004-2005 then previous years. The higher ratio indicates efficient use of stocks. In the year 2006 the ratio was low it indicate ineffective use of stock and poor inventory management. Last year 2007 the ratio was increased 7.76 then previous years. The mean value is 7.42, the standard deviation value is 1.05 and the correlation coefficient is positive between sales and inventory.

TABLE – 7COMPUTATION OF DEBTORS TURNOVER RATIO

YEAR CREDIT SALES DEBTORS DTR2002-2003 30,739.95 5,181.50 5.932003-2004 39,272.73 4,056.19 9.682004-2005 48,108.01 4,587.66 10.492005-2006 60,531.08 4,243.37 14.262006-2007 83,047.17 5,228.75 15.88MEAN 11.25STANDARD DEVIATION 3.93CORRELATION 0.25Source: Annual Report

CHART -6DEBTORS TURNOVER RATIO

Inference:

As it could be observed in table 7 The Debtor Turnover Ratio was increased from 5.93 to 15.88 for last five year 2003 - 2007. This ratio shows how rapidly debts are collected. The higher the DTO, the better it is for the organization. The mean value is 11.25, the standard deviation is 3.93 and the correlation coefficient value is positive (0.25) between credit sales and debtors.

TABLE - 8COMPUTATION OF DEBTORS COLLECTION PERIOD

YEAR DAYS DTR DEBTORS COLLECTION PERIOD2002-2003 360 5.93 60.682003-2004 360 9.68 37.182004-2005 360 10.49 34.332005-2006 360 14.26 25.242006-2007 360 15.88 22.67MEAN 36.02STANDARD DEVIATION 15.06Source: Annual Report

CHART -7DEBTROS COLLECTION PERIOD

Inference: As it could be observed in table 8 The Debtor Collection Period was decreased from 60.68 to 22.67. Actually the mean value is 36.02 but first two years it was increased then mean value of 36 days it means that the collection is slow and last three years it was decreased then mean value of 36 days it means that the collection is prompt. The standard deviation is 15.06.

TABLE - 9COMPUTATION OF CASH TURNOVER RATIO

YEAR SALES CASH CTR2002-2003 30,739.95 2,219.23 13.852003-2004 39,272.73 3,249.74 12.082004-2005 48,108.01 7,966.82 6.042005-2006 60,531.08 6,028.76 10.042006-2007 83,047.17 4,349.39 19.09MEAN 12.22STANDARD DEVIATION 4.82CORRELATION 0.32Source: Annual Report

CHART -8CASH TURNOVER RATIO

Inference:As it could be observed in table 9 The Cash Turnover Ratio was decreased from 13.85 to 6.04 for 2003 to 2005. The mean value is 12.22, the standard deviation is 4.28 and the correlation coefficient is positive (0.32) between the sales and cash.

TABLE -10COMPUTATION OF WORKING CAPITAL TO TOTAL ASSETS RATIO

YEAR NET WORKING CAPITAL TOTAL ASSETS WCTR2002-2003 7477.82 24378.83 0.312003-2004 6311.30 25637.11 0.252004-2005 9915.96 33847.95 0.292005-2006 8238.98 36925.86 0.222006-2007 9418.59 44877.50 0.21MEAN 0.26STANDARD DEVIATION 0.04CORRELATION 0.73Source: Annual Report

CHART -9WORKING CAPITAL TO TOTAL ASSETS RATIO

Inference: As it could be observed in table10 Working Capital to Total Assets Ratio was decreased from 0.31 to 0.21 for 2003 to 2007. A low or decreasing ratio indicates the company may have too many total current liabilities, reducing the amount of working capital available. The mean value is 0.26, the standard deviation is 0.04 and correlation coefficient is positive (0.73) between net working capital and total assets.

TABLE -11COMPUTATION OF CURRENT ASSETS TURNOVER RATIO

YEAR SALES CURRENT ASSETS CATR2002-2003 30,739.95 13,404.70 2.292003-2004 39,272.73 14,636.67 2.682004-2005 48,108.01 21,572.63 2.23

2005-2006 60,531.08 22,324.13 2.712006-2007 83,047.17 26,977.44 3.08MEAN 2.60STANDARD DEVIATION 0.35CORRELATION 0.95Source: Annual Report

CHART -10CURRENT ASSETS TURNOVER RATIO

Inference:

As it could be observed in table 11 The Current Assets Turnover Ratio was decreased from 2.29 to 2.23 for 2003 to 2005 after two years were increased from 2.71 to 3.08 and the mean value is 2.60. When the rate of increase in current assets is higher than the rate of increase in turnover, the ratio will fall. The standard deviation is 0.35 and the correlation coefficient is positive (0.95) between sales and current assets.

TABLE -12COMPUTATION OF PROFIT BEFORE TAX TO TOTAL ASSETS

YEAR PBT TOTAL ASSETS PBTTA2002-2003 1,701.02 24378.83 0.072003-2004 2,864.60 25637.11 0.112004-2005 3,550.10 33847.95 0.102005-2006 4,523.00 36925.86 0.122006-2007 6,045.06 44877.5 0.13MEAN 0.11STANDARD DEVIATION 0.02CORRELATION 0.97Source: Annual Report

CHART -11PROFIT BEFORE TAX TO TOTAL ASSETS

Inference: As it could be observed in table12 Profit before Tax to Total Assets was increased from 0.07 to 0.13 for 2003 to 2007. The mean value is 0.11, the standard deviation is 0.02 and the correlation coefficient is positive (0.97) between PBT to total assets.

TABLE -13COMPUTATION OF RETURN ON INVESTMENTYEARS EBIT CAPITAL EMPLOYED ROI(%)2003 1787.71 18452.16 9.692004 2959.79 17311.56 17.102005 3645.93 22191.19 16.432006 4305.85 22840.70 18.852007 6175.82 27318.95 22.61

CHART -12RETURN ON INVESTMENT Inference: As it could be observed in table12 Return on Investment was increased for last five years. So it is going to well position of The Ashok Leyland Limited.

TABLE - 14ALL RATIOS

YEAR CR LR WTR CPR ITR DTR CTR WCTAR CATRPBTTA ROI%2003 2.26 1.57 4.11 0.37 7.49 5.93 13.85 0.31 2.290.07 9.692004 1.86 1.15 6.22 0.39 7.75 9.68 12.08 0.25 2.680.11 17.102005 1.85 1.36 4.85 0.68 8.47 10.49 6.04 0.29 2.230.1 16.432006 1.58 0.94 7.35 0.43 5.66 14.26 10.04 0.22 2.710.12 18.852007 1.54 0.93 8.82 0.25 7.76 15.88 19.09 0.21 3.080.13 22.61Correlation Co-efficient (r) 0.98 0.86 0.59 0.48 0.91 0.25 0.320.73 0.95 0.97

CHART -13ALL RATIOS

Testing of Hypotheses

H0: There is no significant difference between the five years average current ratio of this company to the standard.H1: There is significant difference between ROI and Liquidity Ratio of this company to the standard.

H2: There is significant difference between ROI and Working Capital Turnover Ratio of this company to the standard.H3: There is significant difference between ROI and Cash Position Ratio of this company to the standard.H4: There is significant difference between ROI and Inventory Turnover Ratio of this company to the standard.H5: There is significant difference between ROI and Debtors Turnover Ratio of this company to the standard.H6: There is significant difference between ROI and Cash Turnover Ratio of this company to the standard.H7: There is significant difference between ROI and Working Capital to Total Assets Ratio of this company to the standard.H8: There is significant difference between ROI and Current Assets Turnover Ratio of this company to the standard.H9: There is significant difference between ROI and Profit before tax to total assets of this company to the standard.

7. FINDING, SUGGESTION & CONCLUSION

4.5 FINDINGS

� This company’s liquidity position is good and current assets and current liabilities have positive correlation, it indicated that when current ratio increases profitability increased.� In during the study period, this ratio has fluctuating every year, but it was always in a conventional norm. Though this company has been maintaining a satisfactory liquidity ratio. � The company is not able to find a consistent improvement in the cash position ratio, but they maintaining the satisfactory level.� Working capital turnover ratio has a higher ratio. It indicates efficient utilization of working capital. � During the study period, The Company is maintained efficient inventory management and efficiency of business operation. Higher ratio indicates efficient use of stocks for last year� The co-efficient of correlation between ROI and DTR shows positive association of (+) 0.005. It was significant difference between Debtor’s turnover ratio and profitability moved in same direction.� The company is maintaining to satisfactory level in case of cash turnover ratio.

4.6 SUGGESTIONS

As this company is a profit seeking one, it has to direct all of its resources to achieve this goal. This company is trying to enhance the value of its own and thereby to its shareholders. While searching for profitability, the liquidity and solvency positions are crucial elements to be watched carefully. On the basis of the analysis and observations an attempt is made to offer some suggestions as bellow.

� The current ratio has been increased by increasing the current assets like cash and by decreasing current liabilities.

� Working capital need of the firm should be met out by fixed deposits.

� By decreasing inventory, inventory-carrying cost has to be decreased.

� The company should reduce the materials handling cost like transport etc., which may reduce the cost of production.

4.7 CONCLUSIONFrom the study of working capital management of the company we can conclude that the company is any change in the working capital will have an effect on a business

�s cash flows. A positive change in working capital indicates that the busine

ss has paid out cash, for example in purchasing or converting inventory, paying creditors etc. Hence, an increase in working capital will have a negative effect on the business

�s cash holding. However, a negative change in working capital i

ndicates lower funds to pay off short term liabilities (current liabilities), which may have bad repercussions to the future of the company.

5 BIBILOGRAPHY

� I.M. PANDEY - FINANCIAL MANAGEMENT, Ninth Edition, Vikas Publishing House Pvt., L

td. � R. S.N. MAHESHWARI - PRINCIPLES OF MANAGEMENT ACCOUNTS

Sultan Chand & Sons� R.K. SHARMA & SHASHI K. GUPTA - MANAGEMENT ACCOUNTING, 8TH Edition, Kalyani Publishers

� C.R.KOTHARI - RESEARCH METHODOLOGY, New Age International (P) Limi

ted, Publishers

� ARORA P.N. & ARORA S., - STATISTICS FOR MANAGEMENT S. Chand & Company Ltd., New Delhi,

2003

� ASHOK LEYLAND LIMITED - ANNUAL REPORTS