STUDY

ON
WORKING CAPITAL
MANAGEMENT

CONDUCTED AT
HMT LIMITED, TRACTOR BUSSINESS GROUP, PINJORE

PRESENTED BY:
SAVITA SHARMA
MBA3rd
95082238877
 INTRODUCTION

Working capital is an integral part of overall management.

Working capital has always been a vital ingredient with
growth of the company. Till recently, financial
management was neglected in India by both the private
and public sector companies.
Working capital, in general practice, refers to the excess
of current assets over current liabilities. Management of
working capital therefore, is concerned with the problems
that arise in attempting to manage the current assets, the
current liabilities and the inter-relationship that exists
between them.
THE PROFILE OF HMT LTD
• In 1949, the idea of the major public sector tool
proved to be a corner stone for the country’s
industrial development plans. This lead to the birth
of HMT at Bangalore in 1953
• In 1975, HMT’s International Ltd. was set up to
handle the international marketing of HMT’s own
products and technical services. HMT Ltd. is a
public sector undertaking with its head office at
Bangalore and having units and subsidiaries in
various corners of India. HMT is organized in the
under mentioned business group of which Machine
Tools (MTP) AND Tractor Business Group (TRP)
are located at PINJORE.
 PRODUCT RANGE
HMT has on its production line, for six models in
the range of
• 25 H.P
• 35 H.P
• 45 H.P
• 59 H.P
• 75 H.P
Out of these, the 35 H.P, and 45 H.P models
were developed by HMT’s own efforts
 MAJOR PLAYERS
• Mahindra & Mahindra Ltd. (M&M)
• VST Industries Ltd
• Eicher, Escorts Ltd
• Punjab Tractors Ltd (PTL) (Taken over by M & M)
• International Tractors Ltd
• Bajaj Tempo Ltd
• ESCORTS Limited
• New Holland
• JOHN DEREE
• TAFE Group
 RESEARCH
METHODOLOGY
• Primary data: - personal interview
from various account officers in the
enterprise.
• Secondary data: - annual report,
website of HMT ltd. Company which
contains details which is helpful for
making my project report.
 OBJECTIVE OF THE
STUDY

• To study the inflow and outflow of

funds
• To locate weakness and suggest
various suggestion
• To study why the company incurred
losses
DATA ANALYSIS AND
INTERPRETATION
 BALANCE
BALANCE SHEET
SHEET OF
OF LAST
LAST THREE
THREE YEARS
YEARS
PARTICULARS 2008 2009 2010
EARNING
Inland sales(Less 16325.1 15512.4 18470.6
excise duty) 5 5 8
Export sales - -
-
Transfer to plant - - -
Job done for internal 82.35 116.61 147.89
use
Other income 1380.35 1234.10 903.40
Inter unit transfer 3.74 - -
Accretion to WIP & 2049.24 1220.39 1180.73
finished goods & scrap
TOTAL (A) 19840.8 15642.7 1834125
6 7
OUTGOINGS
Material 13871.87 10427. 11901.08
90
Personnel 5837.25 5741.2 6095.42
Depreciation 248.38 289.5 340.56
Other expenses 3077.95 4068. 2650.67
97
Interest 1753.09 23731 2674.13
VRS compensation 201.48 85.37 -
written off
TOTAL (B) 25427.57 23362 24030.85
.02
Profit and Loss -5586.71 7719.2 5689.60
Account before 5
PPA (A-B)
Less: -41.70 -2.28 5.07
Prior Period
Adjustment
NET PROFIT & -5628.41 7721.5 5694.67
LOSS(after 3
taxes)
RATIO ANALYSIS
 CURRENT RATIO OF HMT

Current ratio= Current assets

Current liabilities

LAST THREE YEARS COMPARISON OF CURRENT RATIOS OF HMT LTD.

2007-08 2008- 2009-

Year 09 2010
Current Asset 18432.84 13687. 9811.56
92
Current Liabilities 14715.23 13873. 8564.87
74
Current Ratio 1.25:1 .98:1 1.15
GRAPH SHOWIMG CURRENT ASSETS & CURRENT LABILITIES

20000
18000
16000
14000
12000
10000 Current Asset
Current Liabilities
8000
6000
4000
2000
0
2007-08 2008-09 2009-2010

GRAPH SHOWING CURRENT RATIO IN HMT

CURRENT RATIO

1.4

1.2

0.8
CURRENT RATIO
0.6
0.4

0.2
0
2007-08 2008-09 2009-2010
 INTERPRETATION
INTERPRETATION
Generally accepted current ratio is 2:1. As above
diagram and current ratio states that the
current ratio of HMT for the last three year is
less than 2:1 and it is constantly decreasing. So
current ratio of the company is not satisfactory
because the ratio is much below the accepted
standard of 2:1. So it indicates lack of liquidity
and shortage of funds. The current ratio was .
98:1 in 2008-09, which has increased to 1.15 in
2009-10.
 QUICK RATIO
Quick ratio = Liquid assets
Current liabilities

LAST THREE YAERS COMPARISON OF QUICK RATIOS

2007-08 2008-09 2009-

Year 2010

Liquid Assets 13296.97 9791.20 7009.46

Current 92590.86 8183.33 8564.87

Liabilities
Quick Ratio 1.44:1 1.20:1 0.82
GRAPH SHOWING LIQUID ASSET AND CURRENT LIABILITIES

100000
90000
80000
70000
60000
50000 Liquid Assets

40000 Current Liabilities

30000
20000
10000
0
2007-08 2008-09 2009-2010

GRAPH SHOWING QUICK RATIO

QUICK RATIO

1.6
1.4
1.2
1
0.8 QUICK RATIO
0.6
0.4
0.2
0
2007-08 2008-09 2009-2010
 INTERPRETATION
• An acid test or quick ratio of 1:1 is
considered satisfactory. As above
diagram and calculation shows that
quick ratio of HMT is more than 1:1.
So it is satisfactory. But it is
constantly decreasing. So it should
be considered that it shouldn’t
declines.
 ABSOLUTE LIQUIDITY RATIO
Absolute liquid ratio = absolute liquid assets
Current liabilities

LAST THREE YEARS COMPARISON OF ABSOLUTE LIQUID RATIO

Year 2007- 2008- 2009-

08 09 2010
Absolute liquid 709.91 141.43 231.71
assets
Current liabilities 9259.86 8133.33 8564.87

Absolute liquid 0.07:1 0.017:1 0.027

ratio
SHOWING ABSOLUTE LIQUID ASSETS AND CURRENT LIABILITIES

10000
9000
8000
7000
6000
5000 Absolute liquid assets

4000 Current liabilities

3000
2000
1000
0
2007-08 2008-09 2009-2010

GRAPH SHOWING ABSOLUTE LIQUID RATIO

ABSOLUTE QUICK RATIO

0.07
0.06
0.05

0.04 ABSOLUTE QUICK

0.03 RATIO

0.02
0.01
0
2007-08 2008-09 2009-2010
 INTERPRETATION
• As above calculation and diagram
stated that absolute liquidity ratio is
less than 0.5:1 and it is constantly
decreasing. So it shows that there is
inadequacy of cash and short-term
securities.
 STOCK TURNOVER RATIO
Inventory turnover ratio = Cost of goods sold
Average stock

LAST THREE YEARS COMPARISON OF STOCK TURNOVER RATIO

Year 2007- 2008- 2009-

08 09 2010

COGS 18497.0 19390.1 21491.2

Average Inventory 4157.76 451.75 3349.41

Inventory turnover 4.4:1 4.2:1 6.42:1

ratio
GRAPH SHOWING COST OF GOODS AND AVERAGE INVENTARY
25000

20000

15000
COGS
Average Inventory
10000

5000

0
2007-08 2008-09 2009-2010

GRAPH SHOWING STOCK TURNOVER RATIO

INVENTARY TURNOVER RATIO

4
INVENTARY TURNOVER
3 RATIO

0
2007-08 2008-09 2009-2010
 INTERPRETATION
• The conversion of stock into sales is
measured by inventory turnover ratio. As
above calculation and diagram shows that
inventory turnover ratio of HMT is not
satisfactory it is decreasing continuously
but last few years it is increasing. It
means we are able to effective utilization
of inventory.
 DEBTOR TURNOVER RATIO

Debtors Turnover Ratio = Net credit sales

Average debtors

LAST THREE YEARS COMPARISON OF DEBTORS TURNOVER RATIO

2007-08 2008-09 2009-

Year 2010
Net Credit 16325.15 19390.51 18470.6
sales 9
Average 18806.16 88209.8 7017.61
debtors 7
Debtor turnover 13:1 0.21:1 2.63
GRAPH SHOWING NET CREDIT SALES AND AVERAGE DEBTORS

90000
80000
70000
60000
50000 Net Credit sales
40000 Average debtors
30000
20000
10000
0
2007-08 2008-09 2009-2010

GRAPH SHOWING DEBTOR TURNOVER RATIO

14

12

10

8
Series1
6

0
2007-08 2008-09 2009-2010
 DEBTOR COLLECTION PERIOD

Average Collection Period = No. of days in a year

Debtor’s turnover ratio

LAST THREE YEAR COMPARISON OF DEBTOR COLLECTION

PERIOD OF HMT LTD.

Year 2007- 2008- 2009-

08 09 10
Debtor collection 281 173 139
period
 GRAPH SHOWING AVERAGE COLLECTION PERIOD

Debtor collection period

300

250

200

150 Debtor collection period

100

50

0
2007-08 2008-09 2009-10
 WORKING CAPITAL TURNOVER
RATIO
Working Capital Turnover Ratio =Cost of goods sold
working capital

LAST 3 YEARS COMPARISON OF WORKING CAPITAL TURNOVER RATIO .

2007-08 2008- 2009-

Year 09 10
COGS 18270 15335. 21491.
29 22
Working Capital 3717.62 15614 1246.6
9
Working capital 4.9:1 9.8:1 17.24
turnover ratio
GRAPH SHOWING COGS AND WORKING CAPITAL

25000

20000

15000
COGS
Working Capital
10000

5000

0
2007-08 2008-09 2009-10

GRAPH SHOWING WORKING TURNOVER RATIO

Working capital turnover ratio

18
16
14
12
10 Working capital turnover
8 ratio
6
4
2
0
2007-08 2008-09 2009-10
 INTERPRETATION
This ratio also indicate the weak
position of working capital but as
compare to 2007-08, present
position of working capital ratio in
HMT is much better. So this ratio
indicates the under utilization of
working capital.
 FIXED ASSETS TURNOVER
RATIO
Fixed Assets Turnover Ratio =Cost of Goods Sold
Net Fixed Assets
LAST THREE YEARS COMPARISON OF FIXED ASSET TURNOVER RATIOS

2007-08 2008- 2009-

Year 09 2010

COGS 18497.60 19390. 21491.2

51 2
Net fixed assets 2072.36 3041.13 3124.6
6
Fixed assets ratio 8.9:1 6.3:1 6.88
GRAPH SHOWING COGS AND NET FIXED
ASSETS
25000

20000

15000
COGS
Net fixed assets
10000

5000

0
2007-08 2008-09 2009-2010

GRAPH SHOWING FIXED ASSET

RATIO
FIXED ASSET RATIO

9
8
7
6
5
FIXED ASSET RATIO
4
3
2
1
0
2007-08 2008-09 2009-2010
 INTERPRETATION
This ratio is particular importance in
manufacturing concern where the investment in
fixed assets is quite high. This ratio reveals how
efficiently the fixed assets are being utilized.
Compared with the previous year, if there is
increase in this ratio, it will indicate that there is
better utilization of fixed assets. If there is fall
in this ratio, it will show that assets have not
been used as efficiently, as they had been used in
the previous year. If we see the fixed assets of
HMT ltd. in the current year, it is highest among
the last three year except 2007-08 year.
 REASONS FOR LOSS IN
HMT LTD
The company mainly deals with the Government
sectors like Defense and Automobile sectors.
The company manufacture the machines with the high
standard involving more costs.
First of all watches were also being manufactured by HMT
In early 80’s one of the director of HMT joined TATA

Group and suggested to manufacture watches

with the name of Titan. TATAS started manufacturing
Titan watches with lower prices similar to HMT watches.
The above resulted in fewer sales of HMT and
company started incurring losses.
 CONCLUSIONS
• After completing all the study of the project of working
capital management in HMT Ltd., the result, which I found
in this study are as follows:-
• HMT Tractors at present occupy 7th position in the tractor
industry which was 2nd in 1986-87. this was due to :
Increase in competition
Non-modernization of production methods
Entry of new private companies in the market

• The company is more dependent on outsider’s funds.

• A lower debt turnover ratio indicates that sales have been
made to customers who did not deserve much credit.
• Stock turnover ratio is decreasing constantly it shows that
capital is blocked into the inventory
 SUGGESTIONS
AND
RECOMMENDATIONS
• In HMT collection period is very high which may result in bad
debts for company. So it should be controlled.
• No purchases should be made till stock is disposed off.
• Optimum utilization of Man- Power
• Advertising budget of Rs.2crore in HMT is as follows
Press 40%
Outdoor 30%
Print 10%
Exhibition 20%
So above budget states that there is no place for electronic
media i.e. T.V, Radio, advertisement. So HMT Ltd. should plan for
electronic media because these days electronic media has major
place in advertisements