G. L.

BAJAJ
INSTITUTE OF MANAGEMENT & RESEARCH
Approved by A.I.C.T.E. & Affiliated to Uttar Pradesh Technical University, Lucknow
Plot No. 2, Knowledge Park III, Greater Noida Uttar Pradesh-201308
SUMMER TRAINING PROJECT REPORT
ON
ANALYSIS OF WORKING CAPITAL MANAGEMENT
OF
SHRI RAM PISTON & RINGS LTD
Submitted for
partial fulfillment of the award of degree of Master of Business Administration (MBA)
From
Uttar Pradesh Technical University, Lucknow

(2014 -2016)

Under the guidance of:

by:

Submitted
Industry Guide

Nisahnt Kumar Sharma

Mr. Sanjay Maheshwari

MBA

Roll No:1480170132
(2014-2016)

Candidates Declaration

I hereby certify that content presented in the Summer Internship Report entitled ANALYSIS OF
WORKING CAPITAL MANAGEMENT, in the partial fulfilment of the requirement for the award of the degree of
MASTERS OF BUSINESS ADMINISTRATION from G.L BAJAJ INSTITUTE OF MANAGEMENT &
RESEARCH GR. NOIDA is an authentic record of my own work, carried out under the kind guidance of project
guide----------------------------at G.L Bajaj Gr. noida.

Date :

Nishant Kumar Sharma

MBA

This is to certifying that the above statements made by the candidate are correct to the best of my
knowledge.

PREFACE

During Masters of Business Administration, Students comes in direct contact with the real
corporate world through the industrial training. A MBA program provides its students with
an in-depth study of various managerial activities that are performed in any organization.
A detailed research/analysis of managerial activities conducted in various departments like
finance, marketing, human resources, production department etc. gives the student the
conceptual idea of what they are expected to manage and how to manage and how to obtain
the maximum output through minimum inputs of resources available and how to minimize
the wastage of resources.
As a MBA student, I have taken my summer internship training in Finance Department of
SHRIRAM PISTONS AND RINGS LTD.

ACKNOWLEDGEMENT

I feel immense pleasure and privilege to express my sincere thanks to my Project Guide Mr.
SANJAY MAHESHWARI (Finance Manager) for his incessant invaluable and
indispensible guidance throughout. At the same time, I cannot forget the courtesy and
timely help provided by my Project Coordinator--------------------------I also express my sincere depth of gratitude to the Finance Department staff members in
providing me with all the necessary information in carrying out my project. I also extend
my appreciation towards my family who encouraged me and was by my side whenever I
needed them.

TABLE OF CONTENT

EXECUTIVE SYNOPSIS..7

INTRODUCTION ..8

OBJECTIVE OF STUDY20

COMPANY PROFILE21

MILESTONES.24

COLLABORATIONS.38

PRODUCTS.40

CUSTOMERS..42

RESEARCH METHODOLOGY46

ANALAYSIS OF WORKING CAPIATL MANAGEMENT...48

FINANCIAL RATIO ANALYSIS FOR WORKING CAPITAL MANAGEMENT...49

CONCLUSION.88

RECOMMENDATION89

LIMITATIONS..90

REFERENCES...91

EXECUTIVE SYNOPSIS

The management had to depend upon certain relevant information for taking various strategic decisions.
The information is made useful by its analysis and interpretation. My project is related to Analysis of
Working Capital Management
It was found that the operating cycle of the company is bit disturbed and is continuously increasing due to
which company is having the decreasing working capital position. By adopting various calculation and
analysis and then making interpretation with the solution of specific problem I put my efforts in giving
appropriate suggestion to the company. To this context I adopted various methods and techniques like
Trend analysis by using statistical tool, a work towards the optimal level of working capital, estimation of
working capital, analyzing of operating cycle and use of various ratio to put an exact picture of company.
The report also consists of qualitative and quantitative analysis of Working Capital Management of
SHRIRAM PISTONS AND RINGS LIMITED, Ghaziabad .In the course of study, I found that the
organization faces the problem of liquidity.

INTRODUCTION
Working Capital:
Working capital in simple terms means the amount of funds that a company requires for financing its day
-to- day operations. Working Capital includes the current assets and current liabilities areas of the balance
sheet.
Working Capital Management is concerned with the problems that arise in attempting to manage the
current assets, the current liabilities and the interrelationship that exists between them. Working Capital
Management is the process of planning and controlling the level and mix of current assets of the firm as
well as financing these assets. Analysis of working capital is of major importance to internal and external
analysis because it is closely related to the current day -to- day operations.

Concept of Working Capital:There are two concepts of working capitals: -

1.

Gross Working capital: - It means the current assets which represent the proportion of investment

that circulates from one form to another in the ordinary conduct of business.

2. Net Working Capital: - It is the difference between current assets and current liabilities or
alternatively the portion of current assets financed with long-term funds.

Constituents of Current Assets:1. Cash in hand and cash at bank.

2. Bill receivables.
3. Sundry debtors.
4. Short term loans and advances.
5. Inventories.
6. Prepaid Expenses.
7. Accrued Income.
8. Marketable Securities.

Constituents of Current Liabilities:1. Accrued and outstanding expenses.

2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation.
9

6. Sundry Creditors.
7. Bills payable.

The gross concept is sometimes preferred to the concept of working capital for the following reasons:
1. It enables the enterprise to correct amount of working capital at correct time.
2. Every management is more interested in total current assets with which it has to operate then the source
from where it is made available.
3. It take into consideration of the fact every increase in the funds of the enterprise would increase its
working capital. The net working capital concept, However, is also important for following reasons:

Its a qualitative concept, which indicates the firms ability to meet its operating expenses and short
term liabilities.

It indicates the margin of protection available to the short term creditors.

It is an indicator of the financial soundness of enterprise.

It suggests the need of financing a part of working capital requirement out of the permanent sources of
funds.

10

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in two ways :

On the basis of concept.

On the basis of time.

On the basis of concept working capital can be classified as :

Gross working capital

Net working capital.

On the basis of time, working capital may be classified as:

Permanent or Fixed working capital.

Temporary or variable working capital.

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of
fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum
level of raw material, work- in-process, finished goods and cash balance. This minimum level of current
assets is called permanent or fixed working capital as this part of working is permanently blocked in current
11

assets. As the business grow the requirements of working capital also increases due to increase in current
assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is necessary to meet the
seasonal demands and some special necessities. Variable working capital can further be categorized as
seasonal working capital and special working capital. The capital necessary to meet the seasonal need of
the enterprise is called seasonal working capital. Special working capital is that part of working
capital which is required to meet special demands.
Temporary working capital differs from permanent working capital in the sense that is required for short
periods and cannot be permanently employed profitably in the business.

IMPORTANCE OF ADEQUATE WORKING CAPIATAL

SOLVENCEY OF THE BUSINESS: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted
of production.

GOODWILL: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain
the goodwill.

12

ESAY LOANS: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and
other on easy and favorable terms.

CASH DISCOUNT:Adequate working capital also enables a concern to avail cash discounts on the purchases and hence
reduces cost.

REGULAR SUPPLY OF RAW MATERIAL: Sufficient working capital ensures regular supply of raw material and continuous production.

REGULAR PAYMENT OF SALARIES, WAGES AND OTHER DAY TO DAY

COMMITMENTS: It leads to the satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.

EXPLOITATION OF FAVORABLE MARKET CONDITIONS: If a firm is having adequate working capital then it can exploit the favorable market conditions such as
purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher
prices.

ABILITY TO FACE CRISES: -

13

A concern can face the situation during the depression.

QUICK AND REGULAR RETURN ON INVESTMENTS: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and
gains confidence of the investors and can raise more funds in future.

HIGH MORALE: Adequate working capital brings an environment of securities, confidence, high morale which results in
overall efficiency in a business.

DISADVANTAGES OF EXCESSIVE WORKING CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn
the required rate of return on its investments.
2. Redundant working capital leads to unnecessary purchasing and accumulation of inventories.
3. Excessive working capital implies excessive debtors and defective credit policy which causes higher
incidence of bad debts.
4. It may reduce the overall efficiency of the business.
5. If a firm is having excessive working capital then the relations with banks and other financial institution
may not be maintained.
14

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions.

WORKING CAPITAL IS NEEDED FOR THE FOLLOWING PURPOSES:

For the purpose of raw material, components and spares.

To pay wages and salaries.

To incur day-to-day expenses and overload costs such as office expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores and spares and finished stock.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: 15

The requirements of working is very limited in public utility undertakings such as electricity, water
supply and railways because they offer cash sale only and supply services not products, and no
funds are tied up in inventories and receivables. On the other hand the trading and financial firms
requires less investment in fixed assets but have to invest large amt. of working capital along with
fixed investments.
2. SIZE OF THE BUSINESS: - Greater the size of the business, greater is the requirement of
working capital.
3. PRODUCTION POLICY: - If the policy is to keep production steady by accumulating inventories
it will require higher working capital.
4. SEASONALS VARIATIONS: - Generally, during the busy season, a firm requires larger
working capital than in slack season.
5. WORKING CAPITAL CYCLE: - The speed with which the working cycle completes one
cycle determines the requirements of working capital. Longer the cycle larger is the requirement of
working capital.

6. LENGTH OF PRODUCTION CYCLE: - The longer the manufacturing time the raw material
and other supplies have to be carried for a longer in the process with progressive increment of labor and
service costs before the final product is obtained. So working capital is directly proportional to the
length of the manufacturing process.

16

DEBTORS

CASH

RAW MATERIAL

FINISHED GOODS

WORK IN PROGRESS

Figure 1 : Operating Cycle

7. RATE OF STOCK TURNOVER: - There is an inverse co-relationship between the question of

working capital and the velocity or speed with which the sales are affected. A firm having a high rate of
stock turnover will needs lower amt. of working capital as compared to a firm having a low rate of
turnover.
8. CREDIT POLICY: - A concern that purchases its requirements on credit and sales its product /
services on cash requires lesser amt. of working capital and vice-versa.
17

9. BUSINESS CYCLE: - In period of boom, when the business is prosperous, there is need for larger
amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the
contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from
debtor and the firm may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: - In faster growing concern, we shall require large amt. of
working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: - Some firms have more earning
capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate
cash profits from operations and contribute to their working capital. The dividend policy also affects the
requirement of working capital.
12. PRICE LEVEL CHANGES: - Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to manage the
current assets, current liabilities. The basic goal of working capital management is to manage the current
assets and current liabilities of a firm in such a way that a satisfactory level of working capital is
maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should
be no shortage of funds and also no working capital should be ideal.

18

WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its probability, liquidity and
structural health of the organization. So working capital management is three dimensional in nature as:
1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.
2. It is concerned with the decision about the composition and level of current assets.
3. It is concerned with the decision about the composition and level of current liabilities.

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OBJECTIVE OF STUDY
This project was undertaken to analyze the working capital policies, working capital management of the
company and to reduce down their problems and to find the solutions with respect to the working capital
management of the company.
The objective of the study is to provide the solutions for reducing down the duration of the operating cycle,
to analyze the working capital position of the company and the liquidity position, finding out the problems
that the company is facing in managing the working capital and showing trend of particular ratios in future
and at the same suggesting them to solve their problems. There are Two types of Objectives in this study:1. Primary Objective :- Primary Objectives is to do Analysis of Working Capital Management
2. Secondary Objective :- There are few secondary objectives :

To see whether the company is prepared with enough working capital to face any kind of contingencies.

To identify the financial strength and weakness of the company

To see how the day-to-day operations of the company takes place.

To compare the performance of working capital for a particular year with previous years.

Providing suggestions to solve the problems of the company.

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COMPANY PROFILE

History:
From a modest beginning in 1972, to one of the India's largest integrated manufacturers of Pistons, Pins,
Rings and Engine Valves, the history of SPR is a story of grit and determination. It is a story of placing
customer first, long-term partnerships with global technology leaders, continuous investment in modern
manufacturing practices, relentless pursuit of quality and investment in the development of people

Shriram Pistons and Rings Ltd. is one of the largest and the most sophisticated manufacturers of Precision
Automobile Components i.e. pistons, piston rings, pistons ,pins and engine valves in India, the products
are sold under brand name USHA/SPR IN THE markets.
SPRL manufacturing unit is located at Meerut Road in Ghaziabad (25 km from New Delhi). SPR employs
6000+ skilled employees, has an annual turnover of approx. US$176 million and has recently set up a
second, most modern new Plant at Pathredi, next to Bhiwadi Industrial Area (Rajasthan), about 60 kms
from Delhi, to expand capacity and to offer the latest technological products to all customers in India and
abroad.

21

The plant has been recognized as one of the most modern and sophisticated plants in North India in the
field of automobile the production capacity of plant is as under:

Piston :

15.14 million per year

Pin

13.0 million per year

Rings

70.5 million per year

Engine valves: 29.5 million per year

Board of directors:
Shri Pradeep Dinodia Chairman

Shri Hari S. Bhartia

Shri Horst Binnig

Shri Tokuo Washio

Shri O.P. Khaitan

Shri Ravinder Narain

Shri C.Y. Pal

Shri M. Sekimoto

Shri Luv D. Shriram

Shri Inderdeep Singh

Shri A.K. Taneja - Managing Director & CEO

Shri R. Srinivasan - Joint Managing Director

Smt. Meenakshi S. Dass - Wholetime Director

Dr. Peter Neu - Alternate Director to Shri Horst Binnig

22

Shri N. Okano - Alternate Director to Shri M. Sekimoto

VISION:

World Class Company, Preferred by World Class Customers

Motivated, Dedicated and System Oriented Employees

Safe and Healthy Work Place.

MISSION:

Sales & Profit Growth/Leadership

Strong Relationship with Collaborators

Preferred OE Supplier

Employee Development

Superior Returns to Stakeholders

Care for Environment and Society

23

Milestones:

1972

Year of Incorporation

Sales Turnover - Rs. 3 Million

Technical Collaboration with Kolbenschmidt, Germany

1978

Technical Collaboration with Riken Corporation, Japan

1989

Technical Collaboration with Honda Foundry, Japan

1993

Sales Turnover of Rs. 500 Million

Technical Collaboration with Fuji Oozx, Japan

Commencement of Engine Valves manufacturing

1994

Received ISO 9001 Certificate from TUV, Germany

1995

Start of manufacturing - Steel Rings

1996

Sales Turnover of Rs. 1000 Million

1999

Received QS 9000 Certificate from TUV, Germany

2001

Received ISO 14001 Certificate from DNV, Netherland

Achieved production of 2 Million Rings per month - Dec 2000

Sales Turnover of Rs. 2000 Million

2003

Received OHSAS 18001 Certificate from DNV, Netherland

24

Received ISO TS 16949 Certificate TUV, Germany

2004

Received TPM Excellence Award from JIPM, Japan

Sales Turnover of Rs. 3000 Million

2006

Established three new piston machining lines to meet the requirement from Global OEMs
(Ford, Renunlt etc.)

Achieved production of 1 Milloin Engine Valves - September 2005

2007

Received TPM Special Award from JIPM, Japan (First Indian Company in its category to achieve
both TPM awards)

Sales Turnover of Rs. 5000 Million

2008
Received Q1 Certification from Ford Motors

Recognition of In-house R&D Centre by DSIR (Dept. of Scientific & Industrial Research), Govt. of

India

Start of manufacturing - IP Rings (Ion Plated)

Achieved production of 1 Million Pistons per month - January 2008

Achieved production of 5 Million Rings per month - February 2008

2009

Start of manufacturing large dia Engine Valves for Railways and off-road vehicles
2010

Sales Turnover of Rs. 7500 Million

SPR becomes the largest manufacturer of Piston Rings in India

Start of manufacturing - CPC Rings (Composite Plating of Chrome)

25

Achieved production of 2 Million Engine Valves per month - July 2009

2011

Start of production at Pathredi Plant

Awards and achievements:

TPM Excellence Award in 2004

TPM Special Award in 2007

SPR supplies products to almost all the OEMs within India. The company has received many awards from
various OEMs for Technology, Quality, Best Vendor, Development support etc. (Awards received from
Ashok Leyland, Bajaj Auto, Cummins, Honda Motor Cycles & Scooters, Honda SIEL Cars, Kirloskar,
Maruti Suzuki, Tata Cummins, Tata Motors, WABCO etc.)
Recognition by DSIR (Dept. of Scientific & Industrial Research- Government of India) for "IN HOUSE R
& D".
"BEST FOUNDRY AWARD" from Institute of Indian Foundry Men & World Foundry Men
Organization.
Awards from Engineering Export Promotion Council of India - "Star Performer - Engine Parts".
SPR has received following awards from Automotive Component Manufacturers Association of India
(ACMA)

Excellence in Technology

Excellence in Exports

Manufacturing Excellence

Quality
26

Productivity

Total Customer Satisfaction Through Quality Management and Continuous Improvement.

QUALITY OBJECTIVES:
1. Organization which is sensitive and interactive to the needs of customer.

2. Continuous upgrading of quality and process to meet changing needs of customer.

3. Optimization of return on investment by:
Continuous improvement
Technology development
Organizational and personnel development
Cost reduction efforts
Effective use of all resources
Harmonious and safe working conditions
4.

Work to international norms of quality and management.

The company has successfully practiced the best work ethics and technology along with the
TPM & Kaizen approach and harmony through teamwork.

ACHIEVEMENTS (In Terms Of Quality):

27

The company received QS-9000 certificate from TUV, Germany in the year 1999.

The company received ISO-14001 certificate in the year 2001

SPRL has received the Best Vendor Awards from Maruti Suzuki for 4 consecutive
times, Best Supplier Performance awards from Tata Cummins ltd for3 consecutive years. And has

self-certified status with most of the OEMS.

Excellence Award in Export by government of India.
Excellence Award in Productivity by ACMA.
Excellence Award in Quality by Honda scooters and motors limited, Honda Seil and ACMA.
Received Diamond Award-Overall Best performance in QCDDM.

Received Silver Trophy-Technology from ACMA in 2009-10.

Best foundry awards from the Institute of Indian Foundry men in the year 2003
Green rating award by CII, UP. Pollution board & World Bank in 2004.
The company received the TPM excellence award in the year 2004
The company received TPM special award in march-2010

28

Quality Award "Bronze" presented to Shriram Pistons & Rings Ltd., Delhi

Quality Award "Bronze" presented to Shriram Pistons & Rings Ltd., Chakan

Awarded by Cummins at India ABO Supplier Conference 2013 for Best Initiative on
Sustainability to Shriram Pistons & Rings Ltd.

29

Award from Maruti-Suzuki for Overall Performance- Silver - 2013

Special Award for TPM Achievement

(JIPM, Japan)

Best Supplier- Technology

(Cummmins)

30

Outstanding QCLDM Performance in Engine Proprietary Category (Ashok Leyland)

Superior Performance in Technology Application

(Bajaj Auto)

Overall Performance (Maruti

Suzuki)

31

Gold Award for

Quality (HONDA)

Award for Star Performer (EEPC)

ACMA Award for Excellence in Technology

32

Vendor Performance Award from

Suzuki Motorcycle India Pvt. Ltd. January 2012

VE Commercial Vehicles
A Volvo Group and Eicher Motors Joint Venture
Supplier Conference 2012 Proprietary Award for Outstanding Contribution to Supply
Chain Management
Shriram Pistons & Rings Ltd. 02 March 2012

Good Quality Performance Award from Wabco India 2012

33

Performance Award from Honda Siel Power Products 2012

Award for Overall Contribution towards Supply for Global Operations from Renault
Nissan India 2011 2
012

Hero MotoCorp Limited acknowledge M/s Shriram Pistons & Rings Ltd. for
commendable performance in 2nd Consecutive Year 2011-12 in Green Vendor
Development Program

34

Human Resource Initiatives Award presented to Shriram Pistons & Rings Limited by
Maruti Suzuki at Maruti Suzuki Vendor Conference, May 2011

Award for Export Excellence (Northern Region) 2009-10 to Shriram Pistons & Rings
Ltd. from EEPC India for their outstanding contribution to Engineering Exports in
Product Group of Engines and Turbines and Parts

Award for Export Excellence (Northern Region) 2010-11 to Shriram Pistons & Rings
Ltd. from EEPC India for their outstanding contribution to Engineering Exports in
Product Group of Engines and Turbines and Parts
35

Suzuki Motorcycle India Pvt. Ltd. honors Shriram Pistons & Rings with Vendor
Performance Award in Quality in recognition of sincere efforts and superior
performance

Honda Motorcycle & Scooter India Pvt. Ltd. awards Shriram Pistons & Rings Ltd. for
Grand Award for QCDDM 2012-

36

FEATURES OF SPR FACTORY:

Total area covered by the factory is 27 acres.

The factory has manufacturing facilities for pistons, rings, pins and engine valves.
Classification of the premises:
P.T.E Production Technology and Engineering
C.A.A- Commercial Administration and Accounts.
R &D- Research and Development
Total strength of the company is 5723 nos. consisting of officers, staff, &workers.
The turnover/ sales for the year 2011-12 are Rs.900.0 crores.
The company is exporting to more than 35 countries.
Exports have risen up to Rs.152 crores the year 2010-2011.
Over 10% of the production is exported to sophisticated markets such as Europe, UK, and Latin

America etc.
SPR has been investing 30% of its retained earnings in quality up gradation and modernization.

Collaborations
37

On our path to great quality, we walk hand-in-hand with global technology leaders, who share our
commitment to product quality and performance.

We have unique distinction of having 4 collaborations with World leaders in their respective fields. We
have Technical Collaborations with Kolbenschmidt AG of Germany for Pistons, Riken Corporation of
Japan for Piston Rings and Fuji Oozx of Japan for Engine Valves. We also have a technical collaboration
with Honda Foundry of Japan for the manufacture of Pistons for engines produced by Honda and its joint
ventures in India.

KOLBENSCHMIDT AG, founded in 1910, is part of the Rhinemetal Group, Germany. It is one of the
world's largest manufacturers of pistons. They have production facilities around the world producing
Pistons with diameter range upto 620 mm. Their products are exported to over 120 countries around the
world.

38

HONDA Foundry, Japan, founded in 1963 is a wholly owned subsidiary of Honda Motors, Japan. It has a
fully automatic Piston casting plant and they also manufactures Intake Manifolds, Cylinder Heads and
intricate aluminum castings.

Riken Corporation, established in 1927, is the undisputed world leader in steel Piston Rings. It also holds
more than 50% market share of overall Piston Ring market within Japan. Piston Rings are produced within
diameter range of 20 mm to 3100 mm.
Besides Piston Rings, they also manufacture Cam Shafts, Knuckles, Valve Seats, Piston Inserts, Precombustion Chambers, Rocker Arms, Tappets etc.

Fuji Oozx is the largest Engine Valve manufacturer in Japan. They have multiple production facilities
including fully automatic state-of-the-art plant.
They have joint ventures in Thailand, South Korea, Taiwan and the Peoples' Republic of China.

PRODUCTS
Pistons
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Piston Nomenclature

Ring carrier
piston
Twin ring carrier
piston

40

Lites KS design
Cooling gallery piston

Piston rings:

Compression rings
Oil rings

Engine valves:

Mono-metallic

Bi-metallic

Forged Finished

Profile Hardened

Chip Welded

Tip Stellited

Seat Stellited

Seat Hardened

41

CUSTOMERS

Domestic customer
Global customer

Domestic customer:

Ford Motors

General Motors

Honda SIEL

Mahindra & Mahindra

Maruti Suzuki

Nissan Motor

Suzuki Powertrain

Tata Motors

Ashok Leyland

HMT Tractors

Mahindra & Mahindra

New Holland

Sonalika International
42

Mahindra Swaraj

Global customers:

Ford, UK

Ford, Germany

Husqvarna Motorcycles (BMW), Italy

Iveco, Italy

Renault, France

Renault, Spain

Honda, Peoples Republic of China

Honda, Thailand

Hyundai, Korea

Mega Motors, Iran

WABCO, Peoples Republic of China

R&D has an independent analysis lab for both metallurgical and meteorological analysis of tested samples.

43

Sales and services:

44

45

RESEARCH METHODOLOGY

Methodology:
A. Type of Study:
The study carried out here is basically analytical in nature. This type of study relies on data which is
already available.
B. Type of Data used:
The methodology involved for data collection was mainly through secondary data and was obtained
from the companys financial statements and the companys website. The Balance Sheets and the Profit
& Loss Accounts for the last 5 years was the source based on which forecasting was done which was from
the companys archives. Extreme care was taken in collecting the data from the financial statements
and only relevant data was taken for the analysis based on.
C. Sources of Data:
The source of data has been companys Balance Sheet and Profit and Loss Accounts over a period of past
5 years.
D. Tools used for Data Collection:
The data has been collected mainly from the companys Balance Sheet and Profit & Loss Account
for the past 5 years. Interview schedule was taken to understand how the Finance Department is working and
what are the various policies followed in the Organization.
E. Tools and techniques used for analysis:
Various tools and techniques have been used to fulfill the aforesaid objectives. A thorough study of
the organization has been along with in depth study of the functioning of Finance and Accounts
Department of SRPL. Further for the analysis of Working Capital Management, study of working
Capital cycle / Operating cycle has been made along with Operating cycle of SPRL. Thereafter,
46

analysis of working capital has been done by taking into consideration past 5 years Current Assets and current
Liabilities. After this component wise analysis has been done, to have in depth view of working capital
requirements and its trend. To find out the efficiency of Working Capital management, Ratio
analysis tool has been used for the evaluation of inventory, Cash Management and Receivables
Management at SRPL. Trend Projection of Working Capital Requirements has also been done to
assess the future requirements of Working Capital.

47

ANALYSIS OF WORKING CAPITAL MANAGEMENT

Methods adopted for Working Capital analysis:

The broad range of project management and financial advisory services include:

Working Capital policy

Financial Ratio analysis for Working Capital Management

Managing the components of Working Capital of SHRIRAM PISTONS AND RINGS LTD.

Determination of operating cycle of SHRIRAM PISTONS AND RINGS LTD.

Statement of change in Working Capital

Estimating Working Capital needs, Permanent & Variable Capital

Trend Analysis of Working Capital Management

48

FINANCIAL RATIO ANALYSIS FOR WORKING CAPITAL MANAGEMENT

Return on Working Capital:

Return on Working Capital (ROWC) =

PBIT / Working Capital * 100

Table1: Return on Working Capital

Return on Working Capital For Shriram Pistons
2010-11 1170.58/746.21*100

156.87

2011-12 1151.43/512.36*100

224.73

2012-13 698.85/1037.03*100

67.38

2013-14 1005.89/1588.24*100

63.33

2014-15 792.59/1774.3*100

44.67

Figure 2: Return on working capital

49

Analysis:
There has been a drastic decline in ROWC between the two years it reduces 70% during 2012-13. This
situation arises because of increase of current assets.

LIQUIDITY RATIOS:
Snapshot of Liquidity Ratios:
Table 2: Liquidity ratios
Basic Ratios

2010-11

2011-12

2012-13

2013-14

2014-15

Current ratio

1.31

1.15

1.34

1.55

1.56

Acid test ratio

0.76

0.57

0.77

0.93

0.87

Cash ratio

0.15

0.02

0.13

0.10

0.16

Current Ratio:
50

The current ratio is also known as the working capital ratio and is normally presented as a real ratio.
Table3: Current Ratio
2010-11 Current Asset : Current Liability 1.31:1
2011-12 Current Asset : Current Liability 1.15:1
2012-13 Current Asset : Current Liability 1.34:1
2013-14 Current Asset : Current Liability 1.55:1
2014-15 Current Asset : Current Liability 1.56:1
Figure 3: Current Ratio

AAnalysis:
The current ratio is the measure of whether a company has enough short-term assets to cover its short-term
debt and is index of strength of working capital. Anything below 1 indicates negative W/C (working
capital). While anything over 2 means that the company is not investing excess assets. A ratio of greater
than 1 means that the firm has more current assets then current claims. Current ratio of the company has
51

increased from 1.15 in Year 2011-12 to 1.56 in Year 2014-15. Current Ratio of the company depicts that for
every Re.1 worth of current liability there are assets worth Rs1.56.
Suggestions:

In order to increase current ratio current assets should be increased. If we look into the detailed
schedule of current assets then we can find out that major portion of current assets is due to debtors and
inventories.

Company should make market survey and should decide first that what should be the optimum amount
of finished goods so that major portion of it can be sold off in the market.

Acid Test Ratio:

Table 4: Acid Test Ratio for Shriram Pistons

2010-11 Current Assets - Stocks: Current Liabilities 0.76

2011-12 Current Assets - Stocks: Current Liabilities 0.57
2021-13 Current Assets - Stocks: Current Liabilities 0.77
2013-14 Current Assets - Stocks: Current Liabilities 0.93
2014-15 Current Assets - Stocks: Current Liabilities 0.87

52

Figure 4: Acid Test Ratio for Shriram Pistons

Analysis:
Acid test ratio is a more rigorous test of liquidity than the current ratio and when used in conjunction with
it, gives a better picture of the firms ability to meet its short-term debts out of short-term assets. This ratio
is used to determine risk that is not detected by the Working Capital ratio. A quick or liquid ratio of 1:1 is
considered as satisfactory as the firm can easily or readily meets all of its current liabilities. Here Shriram
Pistons have its last year ratings of which are constantly increasing or decreasing from last five years,
which indicates company is not having satisfactory financial position and not able to pay its current
liabilities and should be looked at with extreme care .

333

53

Comparison between Current Ratio & Acid Test Ratio:

Table 5: Comparison between current ratio and acid test ratio

Comparison

Current

Acid Test

2010-11

1.31

0.76

2011-12

1.15

0.57

2012-13

1.38

0.77

2013-14

1.55

0.93

2014-15

1.56

0.87

SHRIRAM PISTONS AND RINGS Current Ratio has increased from year 2010-11 to the year 2014-15
and on the other hand Acid Test Ratio has also increased in the same year which shows that the company
has the ability to pay its short term debts has improved.

Cash Ratio:
54

Table 6: Cash ratio for SHRIRAM PISTONS

Cash Ratio For Shriram Pistons

2010-11

Cash: Current

363.42/2346.07

0.15:1

79.95/3269.34

0.02:1

396.45/3038.97

0.13:1

290.24//2865.91

0.10:1

518.95/3139.79

0.16:1

Liabilities
2011-12

Cash: Current
Liabilities

2012-13

Cash: Current
Liabilities

2013-14

Cash: Current
Liabilities

2014-15

Cash: Current
Liabilities

Figure 5: Cash Ratio for Shriram Pistons

55

Analysis:
As cash is being the most liquid asset, quoted investment has been taken as marketable securities. In our
case the company is showing an decreasing trend so, it is not a favorable cash ratio. From the above
calculation it is clear that companys cash ratio had remained very low. It can create problems in the future
payments of current liabilities. Major portion of companys current assets goes to inventory and debtors,
which only increase the carrying cost. Company need to reduce these assets to their optimum level.

56

OTHER SNAPSHOT OF WORKING CAPITAL MANAGEMENT RATIOS

Table 7: Working capital management ratios

Shriram Pistons
Asset Usage
Fixed Asset Turnover

For five years

2010-11
1.69 times

2011-12

2012-13

2013-14

2014-15

1.57 times

1.40 times

1.62 times

1.85
times

Current Asset Turnover

2.69 times

2.62 times

2.58 times

2.62 times

2.53
times

Capital Employed Turnover

2.13 times

2.13 times

2.10 times

2.08 times

2.04
times

Working Capital Turnover

11.16 times

19.34 times

10.14 times

7.36 times

7.01
times

Stock/Debtors/Creditors
Debtors Turnover

7.22 times

6.86 times

6.72 times

6.47 times

5.75
times

Average Collection Period

50 days

52 days

54 days

56 days

63 days

Creditors Turnover

6.72 times

4.69 times

2.82 times

2.63 times

2.97
times

Average Payment Period

54 days

76 days

127 days

136 days

120 days

Conversion Period of W/C cycle 32 days

18 days

35 days

48 days

51 days

57

Working Capital Management I: Asset Usage

Current Asset Turnover:

Turnover
Current Assets
Table 8: Current asset turnover for Shriram Pistons
Current Asset Turnover =

Current Asset Turnover For Shriram Pistons

2010-11

= 2.69 times

2011-12

= 2.62 times

2012-13

= 2.58 times

2013-14

= 2.62 times

2014-15

= 2.53 times

58

Figure 6: Current Asset Turnover

Analysis:
Low current assets turnover ratio is not good and does not shows efficiency of management and proper
utilization of the assets. The graph shows that the company has managed to higher the ratio during the
previous year however this year due to change in current assets and turnover the ratio declines to 2.53

Working Capital Turnover: This ratio signifies how effectively working capital is being used in terms
of the turnover.

59

Working Capital Turnover =

Sales
Working Capital

Table 9: Working capital turnover for Shriram Pistons

Working Capital Turnover For Shriram Pistons

2010-11

= 11.16 times

2011-12

= 19.34 times

2012-13

= 10.14 times

2013-14

= 7.36 times

2014-15

= 7.01 times

60

Figure 7: Working Capital Turnover for Shriram Pistons

Analysis:
What this ratio tries to highlight is how effectively working capital is being used in terms of the turnover it
can help to generate. The declining working capital turnover ratio in SHRIRAM PISTONS indicates that
working capital is not being utilized properly over the period of time. Therefore, Management should think
of some plan to increase the ratio.

61

Working Capital Management II: Stock/Debtors/Creditors

Debtors Turnover:
Debtors Turnover =

Cr. Sales
Cl. Debtors

Table 10: Debtors turnover ratio for Shriram Pistons

Debtors Turnover Ratio for the Shriram Pistons

2010-11

= 7.22 times

2011-12

= 6.86 times

Figure

2012-13

= 6.72 times

Debtors

2013-14

= 6.47 times

2014-15

= 5.75 times
Turnover Ratio for the Shriram Pistons

62

8:

Analysis:
Firstly, the ratio seems to have change by going from 7.22 to 5.75 times in the three years; and it means
that, on an average, the companys debtors are not taking much days to pay their accounts. Soundness of
this ratio is more dependent on the business policy and the terms with the clients.

Average Collection Period:

Avg. Collection Period =

63

360
Debtor Turnover

Table 11: Average collection period for Shriram Pistons

Average Collection Period for the Shriram Pistons

2010-11

= 50 days

2011-12

= 52 days

2012-13

= 54 days

2013-14

= 56 days

2014-15

= 63 days

Figure 9: Average Collection Period for the Shriram Pistons

Analysis:

64

The average collection period measures the quality of debtors since it indicates the speed of their
collection. The shorter the average collection period, the better the quality of debtors, as a short collection
period implies the prompt payment by debtors. The trend of SHRIRAM PISTON is showing that the
company was not a success in decreasing the average collection period, which does not represent sound
collection policy of the company. The increased in average collection period is not a good sign for the
company.

Creditors Turnover:

Creditors Turnover

Purchases
Creditors

Table 12: Creditors turnover ratio for Shriram Pistons

Creditors Turnover Ratio for the Shriram Pistons
Figure

13:
2010-11

= 6.72 times

2011-12

= 4.69 times

2012-13

= 2.82 times

2013-14

= 2.63 times

20114-15

= 2.97 times
Creditors Turnover Ratio for the Shriram Pistons

65

Analysis:
In 2010, creditors turnover ratio decreased from 6.72 to 2.63 times that shows company hasnt improved
much credit paying ability , which implies terms of credit allowed by the suppliers are liberal and creditors
are not paid promptly. This shows company keeps its obligation for long time.

Average Payment Period:

Average Payment Period =

66

360
Creditor turnover ratio

Table 13: Average payment period for Shriram Pistons

Average Payment Period for the Shriram Pistons

2010-11

= 54 days

2011-12

= 76 days

2012-13

= 127 days

2013-14

= 136 days

2014-15

= 120 days

Figure : Average Payment Period for the Shriram Pistons

Analysis:
67

Since in 2010 , the average payment period of the company was less as compared to 2011 which implies
that 2011 company was less prompt in making payment to suppliers compared to other years.

INTERPRETATION (RATIO ANALYSIS):

The utilization rate of net working capital as depicted by working capital turnover ratio is fluctuating
during the period. It shows that working capital has not been effectively used over the period of years
except in the year 2010.

As shown by current assets turnover ratio, the current assets in terms of sales has shown an decreasing
trend which shows that current assets have not been effectively used to achieve sales.

As we look at the extent of liquidity of working capital, we notice that the ratio shows a decreasing
trend. This indicates, problem on the liquidity front.

MANAGING THE COMPONENTS OF WORKING CAPITAL OF SHRIRAM

PISTONS

Four main components:

68

Cash

Account Payables

Inventory

Accounts Receivables

Cash Management in SHRIRAM PISTONS:

Cash management system adopted by Finance Department in SHRIRAM PISTONS is very reliable and
transparent. As cash is a very important activity for a good operation of company here in SHRIRAM
PISTONS cash is monitored every day and intimated to Finance Department. The daily cash report
includes all the details of cash inflows and outflows. Monthly cash budgets are maintained for the
estimated of monthly cash inflows and outflows. Finally the annual cash budget is made by the Finance
Department in the corporate head office.
The corporate office allocates different amount of each to different manufacturing units as per their
requirement. Corporate office acts as a linkage between the manufacturing unit and creditors. Corporate
office has determined the credit facility for every units of the company and this keeps on changing from
year to year depending up on companys position transactions, profitability and inventory position.
The corporate office provides cash to manufacturing units but there most function is controlled in unit
itself. All the need related to inventory is met through corporate office as well as individual efforts of unit.

Evaluation of cash management performances:

To assess the cash management performance this phase is divided as follows:
69

a) Size of Cash
b) Liquidity and Adequacy of cash:
This is depicted by the current ratio and acid test ratio, as calculated in part ratio analysis for working
capital management and respective position is shown in graph.
c) Control of cash
One of the major objectives of cash management from the stand point of increasing return on investment is
to economize on the cash holding without impairing the overall liquidity requirements of the firms. This is
possible by effecting tighter controls over cash flows. The following ratios have been applied to assess the
efficiency of cash control:

Cash to Current Assets ratio

Cash to current liabilities ratio

Table 25: Table showing different cash ratios

SHRIRAM PISTONS
Efficiency of cash control

For the year ended Mn/Rs.

2010-11

2011-12

2012-13

2013-14

2014-15

Cash to Current Asset Ratio

0.11

0.02

0.09

0.06

0.10

Cash to Current Liabilities

0.15

0.02

0.13

0.10

0.16

Ratio
Average: 0.076
Average: 0.112

Payable Management in SHRIRAM PISTONS:

70

Mostly the creditor comprises of the bank that is financing the working capital needs and the suppliers to
whom payments are to be given. This is basically done as per terms and condition with the respective
parties.

Evaluation of Payables Management:

The evaluation for payable management is done with the help of ratios:

Creditors turnover ratio

Average Payment Period

Table 26: Table showing payables management

SHRIRAM PISTONS
Payables Management
Creditors ratio
Average Payment period

For the year ended Mn/Rs.

2010-11

2011-12

2012-13

2013-14

2014-15

6.72 times

4.69 times

2.82 times

2.63 times

2.97 times

54 days

76 days

127 days

136 days

120 days

Average: 102.6 days

Inventory Management:

Here the inventory is categorized in to:

(1) A B C analysis
(2) X Y Z analysis
71

1) ABC Analysis: - Items which constitutes to 70% of total consumption (of stores and spares) value when
arranged in descending order of consumption value will be termed as A class items. Next 20% of total
consumption value will be termed as B class items and the rest 10% as the C class items.

2) XYZ Analysis: - Items which constitute top 70% of total stock of stores and spares holding value when
arranged in descending order of stock holding will be termed a X class items next 20% of total stock
holding value is Y class items and the rest 10% as the Z class.
Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and
interest charges.
Four basic levels will need to be established for each line/category of stock. There are the:
a) Maximum level achieved at the point a new order of stock is physically received;
b) Minimum level the level at point just prior to delivery of a new order (sometimes called buffer
stocks those held for short term emergencies);
c) Reorder level point at which a new order should be placed so that stocks will not fall below the
minimum level before delivery is received; and the
d) Reorder quantity or economic order quantity the quantity of stock, which must be reordered to
replenish the amount held at the point delivery, arrives up to the maximum level.
Once these controls are implemented an efficient system of recording receipts and issues is vital to exercise
full control of inventories.

Inventory Management at SHRIRAM PISTONS:

Inventory is stock of a company, which is manufacturing the components that make up the products, for
sale. In managing inventories the objective of the company is to determine and maintain optimum level of
inventory investment. The optimum level of inventory lies between two danger points of excess and
inadequate inventories.
Inventory is monitored differently for raw material, work in progress, finished goods and spares. Monthly
inventory report is sent to the finance department in the corporate office. Obviously the inventory report is
72

prepared at plant level. Procurement Department gives the date of closing stock of raw materials, finished
goods as well as the work in progress.

Receivable Management:

At a plant level mostly the finished goods are sold on credit to increase upon the market share and retain
the customers but the major portion of debtors are dealt by Marketing Unit of the Commercial Department
and the Finance Department. It is consideration as an essential marketing tool.
Control of the debtors element (the amount owed the business in the short term) involves a fundamental
trade-off between the cost of providing credit to customers (which includes financing bad debts and
administration), and the additional net revenue that can be earned by doing so. The former can be kept to a
minimum with effective credit control policies, which will require:

Setting and enforcing credit terms;

Setting and reviewing individual credit limits;

Efficient invoicing and statement generation;

Prompt query resolution;

Continuous review of debtors position (generating aged debtors report);

Effective chasing and collection procedures; and

Limits beyond which legal action will be pursued.

Before allowing credit to a new customer trade and bank references should be sought. Accounts can be
asked for and analyzed and a report including any county court judgments
Against the business and a credit score asked for from a credit rating business. Salesmens views can also
be canvassed and the premises of the potential customer visited.

73

The extent to which all means are called upon will depend on the amount of the credit sought, the period,
past experiences with this customer or trade sector, and the importance of the business that is involved. But
this is not a one-off requirement. One classic fraud is to start off with small amounts of credit, with
invoices being settled promptly, eventually building up to a huge order and a disappearing customer.
Receivables Management in SHRIRAM PISTONS:
Corporate office and the commercial department in coordination do the management of receivables. The
management of receivable is dealt on major part by corporate office and minor part by commercial
department of the company.
Evaluation of Receivables Management:
The evaluation for Receivable management is done with the help of ratios:

Debtors turnover ratio

Average Collection Period

Table 26: Table showing Receivables management

SHRIRAM PISTONS
Receivables Management

For the year ended Mn/Rs.

2010-11

2011-12
74

2012-13

2013-14

2014-15

Debtors ratio
Average Collection period

7.22 times

6.86 times

6.72 times

6.47 times

5.75 times

50 days

52 days

54 days

56 days

63 days

DETERMINATION OF OPERATING CYCLE OF SHRIRAM PISTONS:

The determination of length of the operating cycle of a manufacturing firm is the sum of:
The broad range of project management and financial advisory services include:

inventory conversion period (ICP), &

debtors conversion period (DCP)

A) Inventory conversion period:

It is the total time needed for producing and selling the product. Typically, it includes:
a) raw material conversion period (RMCP)
b) work-in-process conversion period (WIPCP), and
c) Finished goods conversion period (FGCP).
Inventory Conversion period = RMPC + WIPCP + FGCP
The raw material conversion period is depends on:
1) raw material consumption per day, &
2) raw material inventory
Raw Material Consumption per day = Total Raw Material Consumption/Number of days in the
year
Raw Material Conversion period = Raw Material Inventory/Raw Material
75

Consumption per day

Similar calculations can be made for other inventories, debtors and creditors.

B) Debtors conversion period:

It is the time required to collect the outstanding amount from the customers. The total of inventory
conversion period and debtors conversion period is referred to as gross operating cycle (GOC).
Gross Operating Cycle = ICP + DCP
C) Payable Deferral period:
This is very common to get gross operating cycle but in practice, a firm may acquire resources (such as raw
materials) on credit and temporarily postpone payment of certain expenses. Payables, which the firm can
defer, are spontaneous sources of capital to finance investment in current assets. The payables deferral
period (PDP) is the length of time the firm is able to defer payments on various resource purchases.
Net Operating Cycle = Gross Operating Cycle Payable Deferral period
If depreciation is excluded from expenses in the computation of operating cycle, the net operating cycle
also represents the cash conversion cycle. It is net time interval between cash collections from sale of the
product and cash payments for resources acquired by the
firm. It also represents the time interval over which additional funds, called working capital, should be
obtained in order to carry out the firms operations.

76

A) Inventory conversion period:

a) Raw Material Conversion Period:
Years

2010-11

2011-12

2012-13

2013-14

2014-15
b)

Raw
material

2689.04

3373.01

3435.26

3543.05

4228.61

331.96

409.41

412.53

446.55

=35.46 times

= 42.91 times

= 41.92 times

= 38.03 times

consumed
Avg. Raw
material

___

inventory
RMCP

___

Work-In-Progress Conversion Period:

77

Years

2010-11

2011-12

2012-13

2013-14

2014-15

Cost of

__

3210.48

3542.68

3496.46

4177.81

___

450.16

477.72

447.30

496.00

___

51.21 times

49.24 times

46.69 times

43.31 times

c)

Production
Avg.Work in
progress
WIPCP

Finished Goods Conversion Period:

Years

2010-11

Sales

6038

Closing stock

2011-12

2012-13

6400

7739

325.66

346.22

321.33

6038/325.66

6400/346.22

7739/321.33

=18.54 times

=18.48 times

=24.08 times

2013-14

2014-15

B)

Debtors Conversion:

Years
Sales
Avg. acc.

2010-11

2011-12

2012-13

2013-14

2014-15

8330.24

9910.17

10524.66

11697.12

12443.77

___

1297.66

1503.49

1684.60

1984.62

___

47.79 times

78
52.00 times

52.58 times

58.35 times

Receivable
DCP

C) Payables Conversion:

Years
Purchases
Avg. acc.

2010-

2011-12

2013-14

2012-13

11
2689.04 3373.01

2014-15

3435.26

3543.05

4228.61

___

559.26

966.90

1279.58

1382.02

___

60.52 times

102.75 times

131.91 times

119.34 times

Payable
PCP

Operating Cycle:
Gross Operating Cycle (GOC):
Years

2009-10

RCMP+WIPCP+FGCP+DCP

2010-11

2011-12

299.48

282.36

301.40

days

days

days

Net

Operating Cycle (NOC):

Years

2009-10

2010-11

2011-12

282.36299.48-108.10

135.80

301.40-107.14

GOC-PCP
=191.38 days

=194.26 days
=146.56 days

Analysis:
The operating cycle of the firm is disturbed, as it is continuously increasing which is not good for the
company.
79

The company policy had a significant change for the year with regard to inventory as it had increased
continuously but this policy has a cost to the company in the presence of a significant decrease in
payables deferral period, will have to negotiate higher working capital funds.

Company has tighten its steps towards the credit policy which signifies that in the current year
company is proving itself more efficient but other side it as well shows a decline in the market share of
the company.

The company had reduced down its payables deferral period significantly which strengthens its
creditworthiness in the market and helps the company in getting the loans on liberal terms. This
represents the efficiency of the management.

One can have a vastly different working capital outlay while performing the same activity. Having a large
amount invested in stocks and debtors does not necessarily mean large profits, but it can mean a drop in the
prime calculation that every businessman is interested in the return on investment. The object of working
capital management is to trim down on stocks and debtors and get the cash coming faster within the
comfort zone of the business. In the normal periods of business activity, cash that had completed the
working capital cycle would be reinvested in stock and the whole process would begin again.

Analysis of Asset Percentage:

Table 28: Table showing analysis of asset percentage

SHRIRAM PISTONS
Particulars

Years
2010-11

2011-12
80

2012-13

2013-14

2014-15

Current asset

3092.28

3781.70

4076.00

Total asset

8169.98

10448.11

11794.07

60.20

54.39

1.15:1

1.34:1

Percentage of current assets over fixed 62.92

4454.15
11935.96
61.70

4914.09
11889.46
73.26

assets
Current ratios

1.31:1

1.55:1

1.56:1

Figure 24: Percentage of Current Asset to Fixed Asset

Analysis: From the above calculation it can be analyzed that company is following an adequate policy of
working capital from last 3 years. When we give a thought to the current ratio of last three years we can
very easily depict that its current ratio is less than the standard one i.e. of 2:1.
Analysis of Change in Working Capital:

81

Table 29: Table showing analysis of working capital

SHRIRAM PISTONS

For the year ended Mn/Rs.

Particulars

2010-11

2011-12

Current asset

3092.28

3781.70

Current Liabilities

2346.07

3269.34

Net Working Capital

746.21

512.36

2012-13

2013-14

2014-15

4454.15

4914.09

3038.97

2865.91

3139.79

1037.03

1588.24

1774.3

4076.00

Figure 25: Net working Capital

82

Analysis:

As we can see from the above table and graph that companys Net Working Capital has been showing
variation in its trend as from last three years working capital is showing positive trend in increasing
order.

The above situation shows that company management is efficient in management of working capital.

Analysis of Current Assets:

Table 30: Table showing analysis of current assets

SHRIRAM PISTONS
Particulars

For the year ended Mn/Rs.

2010-11

2011-12

2012-13

2013-14

2014-15

Debtors

1152.27

1443.05

1563.93

1805.27

2163.98

Inventory

1307.00

1842.18

1705.78

1777.03

2156.07

83

Cash & Bank balance

363.42

79.95

396.45

290.24

518.95

Loans & Advances

182.03

317.40

252.41

266.13

184.44

Total

3004.72

3682.58

3918.57

4138.67

5023.44

Analysis:

Composition of all parts seems to be distributing but almost each component is showing increasing
trend which has both kind of influence for the financial performance of the company so company need
to manage these components very carefully.

Inventory is showing an increasing trend that is the signal of danger for companys profitability and
these are not giving any return by locking up working capital.

Analysis of Current Liabilities:

Table 26: Table showing analysis of current liabilities

Particulars

2010-11

2011-12

2012-13

2013-14

2014-15

Sundry Creditors

400.08

718.44

1215.36

1343.80

1420.24

Advances from customers 32.37

40.47

35.83

40.65

54.00

Other provisions

322.44

399.59

326.01

337.68

425.08

Other Current liabilities

1581.64

1711.52

1241.85

1201.61

1394.03

Total

2336.53

2870.02

2819.05

2923.74

3293.35

Analysis:

As we can see from the graph and table that major portion of current liabilities are with sundry creditors
and every year it keeps on increasing.

84

As the company obligations are increased so company need to put certain measure to control current
liabilities.

STATEMENT OF CHANGE IN WORKING CAPITAL

Table 33: Table showing statement of change in working capital

SHRIRAM PISTONS

Years

Particulars

2010-11

2011-12

2012-13

2013-14

2014-15

Total Current assets (A)

3004.72

3682.58

3918.57

4138.67

5023.44

Total Current Liabilities (B)

2336.53

2870.02

2819.05

2923.74

3293.35

Working Capital Shortfall (A-B)

668.19

812.56

1099.52

1214.93

1730.09

Analysis:
A statement of changes in working capital helps us in locating where these changes took place. Since
working capital is measured by subtracting current liabilities from current assets. Any increase in current
asset and any decrease in current liabilities show an increase in working capital similarly, a decrease in
current assets and an increase in current liabilities represent a decrease in working capital.
This table shows the changes in net working capital of SHRIRAM PISTONS. A wise financial policy of a
firm requires that long-term funds be used to finance Fixed Assets and short term funds are used to finance
Current Assets. The statement of changes in working capital shows that there was a tremendous continuous
increase in current liabilities.
Estimating Optimal Need of Working Capital ( For year 2013-14)
a) Raw material consumed per month:
= 3545.47/12 = 295.45 Mn/Rs.
b) Work in progress:
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= Raw material per month + (Cost of Production /2) / 12

= 295.45 + (3596.27 /2) / 12
= 174.46 Mn/Rs.
c) Finished Goods:
Total cost per month = 3543.05/12 = 295.25 Mn/Rs.
d) Total Inventory Needs:
= 295.45+174.46+295.25= 765.16 Mn/Rs.

e) Debtors:
Sales per month= 11697.12 /12 = 974.76 Mn/Rs.
f) Operating Cash:
Total cost per month = 1796.59/12 = 149.71 Mn/Rs.
Therefore, Total Working Capital Required = Total inventory needs+ Debtors
+ Operating Cash = 765.16+974.76+149.71= 1889.63 Mn/Rs.

The first method gives details of the working capital items. This approach is subject to error if markets are
seasonal.
A number of factors will govern the choice of methods of estimating working capital. Factors such as
seasonal variations in operations, accuracy of sales forecasts, investment cost and variability in sales price
would generally be considered. The production cycle and credit and collection policy of the firm would
have an impact on working capital requirements. Therefore, they should be given due weightage in
projecting working capital requirements.

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CONCLUSION AND RECOMMENDATION

Conclusion:
The study conducted on working capital management of SHRIRAM PISTONS AND RINGS LTD shows
the evaluation of management performance in this context. Major conclusions and recocomendations
thereon are narrated as under:
1. As current ratio is showing an increasing trend , which implies that current asset, are more compared
to current liabilities.
2. Low current assets turnover ratio is not preferable and does not shows efficiency of management
and proper utilization of the assets.
3. SHRIRAM PISTONS AND RINGS LTD has a sufficient amount of working capital during the past
three years. As company is showing increasing trend of working capital, which shows that company,
does not kept its obligation for long time.
4. Current ratio and quick ratio of the year are little less than that of the ideal figures i.e. ideal current
ratio is 2:1 while quick ratio is 1:1.
5. Debtors Turnover ratio reveals an decreasing trend during the period of study.
6.

The optimum need for working capital on an average basis company roughly will
more than 1889.63 Mn/Rs. as its working capital.
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require

Recommendations:
Keeping in view of detailed analysis for the 5 years of study and findings mentioned in above paragraphs,
the following suggestions shall be helpful in increasing the efficiency in working capital management.
1. In case of inventory management ABC analysis, FSN technique, VED technique should be adopted
to increase the efficiency of inventory management. Further a inventory monitoring system should
be introduced to avoid holding of excess inventory.
2. It is suggested to maintain a favorable current and quick ratios which shows a lesser than ideal
figures. It can be done either through increasing current assets or decreasing liabilities.
3. With the help of proper inventory management systems, like demand-based management, etc. the
company can reduce the need for working capital and inventories can be financed through accounts
payable.
4. The company should try and maintain an optimum level of working capital in order to improve
upon the workings of the company.

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LIMITATIONS
1. Availability of the financial data was very limited which is not disclosed due to sensitive nature for
the company.
2. The main component of working capital is cost of capital, which is not described in the project
because of confidential nature.
3. External environment influence was not considered while doing the theoretical standard rather than
the industrial standard because of unavailability of any such specific standard.
4. The scope of the study was limited to SHRIRAM PISTONS AND RINGS LTD

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REFERENCES

Annual reports of Shriram Pistons and Rings Ltd.

Khan M.Y, Financial Management

www.spr.gzb@shrirampistons.com

www.google.com

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