Introduction

Motherson Sumi Systems Limited is an Indian automobile component manufacturer and global
supplier. Motherson Sumi Systems, a joint venture between India's Samvardhana Motherson
International Ltd and Japan's Sumitomo Wiring Systems Ltd. (SWS), was founded in 1986 and is part
of the Motherson Group.

Motherson Sumi Systems was founded in 1986 as a wiring harness producer after a partnership with
Tokai Electric Co. (now SWS) in 1983. In 1993, the company was listed on the Bombay Stock
Exchange (BSE), and afterwards on the National Stock Exchange (NSE). Motherson Sumi Systems is
one of the world's leading makers of commercial vehicle wire harnesses and passenger car rear view
mirrors, as well as India's largest manufacturer of automotive wiring harnesses and mirrors.
Motherson Sumi Systems is India's largest auto components manufacturer, and Forbes named it one
of India's Fab 50 firms.  Fortune India 500 has placed it No. 1 auto auxiliary in India for the past seven
years.  Automotive News ranks the Motherson Group 21st among worldwide automotive suppliers.
The corporation, along with its subsidiaries, had a consolidated revenue of US$9.1 billion in March
2018–2019.

Important events

Business portfolio
The present product range of MSSL comprises wiring harnesses (electrical distribution systems),
rear view mirrors, moulded plastic parts including car interior and exterior parts, bumpers,
dashboards and door trims, complete polymer modules, rubber components for automotive and
industrial applications, high precision machined metal parts and injection moulding tools

Working capital
Working capital (WC) is a financial term that measures the amount of operating cash accessible to a
company, organisation, or other body, including government bodies. Working capital, like fixed
assets like plant and equipment, is considered part of operational capital. Current assets are equal to
gross working capital. Current assets less current liabilities equals working capital. A working capital
deficiency, also known as a working capital deficit or negative working capital, occurs when current
assets are fewer than current obligations.

Calculations
Working Capital = Current Assets – Current Liabilities
The basic calculation of working capital is based on the entity's gross current assets.
If you have current assets of $1 million and current liabilities of $500,000, your working capital
ratio is 2:1. That would generally be considered a healthy ratio, but in some industries or kinds of
businesses, a ratio as low as 1.2:1 may be adequate

Changes in working capital

The difference in net working capital from one accounting period to the next is referred to as a
change in working capital. The purpose of management is to keep any upward increases in working
capital to a minimum, reducing the need for further finance. Current assets minus current liabilities
equals net working capital. So, if net working capital was $150,000 at the end of February and was
$200,000 at the end of March, the change in working capital was $50,000. The company would have
to come up with a strategy to fund the growth in working capital asset, which might include selling
stock, growing profits, selling assets, or taking on new debt.

Positive working capital is when a company has more current assets than current liabilities,
meaning that the company can fully cover its short-term liabilities as they come due in the next 12
months. Positive working capital is a sign of financial strength. However, having an excessive
amount of working capital for a long time might indicate that the company is not managing its
assets effectively.

Negative working capital is when the current liabilities exceed the current assets, and the working
capital is negative. Working capital could be temporarily negative if the company had a large cash
outlay as a result of a large purchase of products and services from its vendor.

How working capital impacts cash flow

A company's cash flow statement reflects changes in working capital. Here are some examples of
how working capital and cash can be influenced.

There will be no change in working capital if a transaction increases current assets and current
liabilities by the same amount. The cash flow statement would show an increase if a company got
cash from a short-term debt that was due in 60 days. However, because the loan proceeds would
be a current asset or cash, and the note payable would be a current liability because it's a short-
term loan, there would be no rise in working capital.
• A company's cash flow would be reduced if it purchased a fixed asset, such as a building. Because
the cash element of current assets would be reduced, the company's working capital would
similarly fall, but current liabilities would remain same because it would be long-term debt. Selling
a fixed asset, on the other hand, would increase cash flow and working capital.

• If a corporation acquired inventory with cash, working capital would remain unchanged because
inventory and cash are both current assets. Inventory purchases, on the other hand, would reduce
cash flow.

How to alter working capital

 Policy on Credit

A corporation tightens its credit policy, reducing the number of outstanding accounts receivable and
therefore freeing up cash. However, there could be a negative impact on net sales. A more lenient
credit policy has the opposite impact.

 Policy on Collections

A more aggressive collection strategy should result in faster collections, reducing the total quantity
of accounts receivable. This is a way to get money. A more lenient collecting policy has the opposite
impact.

 Inventory Management

In order to improve order fulfilment rates, a corporation may decide to increase inventory levels. As
a result, the inventory investment will increase, and cash will be used. Inventory reduction has the

 Purchasing Methodologies

By purchasing in larger quantities, the purchasing department may be able to lower its unit prices.
The higher the volume, the more money is spent on inventory, which is a monetary expenditure.
Purchasing in smaller amounts has the opposite impact.

 Payment Period for Accounts Payable

A business negotiates with its vendors to extend payment terms. This is a cash source, yet suppliers
may respond by raising prices. Reducing the payment terms for accounts payable has the opposite
impact.

 Rate of Increase

If a business is growing quickly, it will require big fluctuations in working capital from month to
month as it invests in additional accounts receivable and inventory. opposite impact.

 Hedging techniques
If a company actively uses hedging techniques to generate offsetting cash flow, there are
less likely to be unexpected changes in working capital, though there will be a transactional
cost associated with the hedging transactions themselves

Reasons why business need an additional working capital

 Seasonal differences in cash flow are typical of many businesses, which may need extra
capital to gear up for a busy season or to keep the business operating when there’s less
money coming in.
 Almost all businesses will have times when additional working capital is needed to fund
obligations to suppliers, employees and the government while waiting for payments from
customers.
 Extra working capital can help improve your business in other ways, for example: enabling
you to take advantage of supplier discounts by purchasing in bulk.
 Working capital can also be used to pay temporary employees or to cover other project-
related expenses.