TAFE Ag Nit OVR
TAFE Ag Nit OVR
TAFE Ag Nit OVR
OF
TAFE TRACTORS
INTRODUCTION
INTRODUCTION
Working capital is the money and assets that business uses to finance the day to
day operations that produce the goods or services supplied to customers”.
The capital required for running the day to day business activities of a firm is
known as “Working Capital”. It refers to that part of total capital employed
which has been invested for financing of current assets and payment of day to
day expenses.
“Working Capital is the amount of fund necessary to cover the cost of operating
the enterprises.”
b) Net concept: - Net working capital is difference between current assets and
current liabilities. The net concept of working capital is an accounting
concept that deals with management of net value of current assets in long
run. Net concept of working capital
i) Indicates liquidity position of the firm.
ii) Suggests the extent to which working capital needs may be financed
by permanent source of funds.
OBJECTIVE OF STUDY
Aims and objective act as the limiting boundaries and keep the researcher on
track and help to avoid any mistakes and errors during the project work.
1) To learn more about working capital management and it’s financing from
banks.
2) To know the importance of working capital from the company’s point of
view.
3) To study the impact of working capital on liquidity position of the firm.
4) To study the impact of working capital on the balance sheet of the
company.
LIMITATION OF STUDY
1) Inter firm comparison is not possible because it is a multi product firm with
varying Competitors having multi product profile.
2) Working Capital Management is a vast subject covering many domains of
current assets and current liabilities management. It is not possible to cover all
the aspects in such a short tenure of the project.
RESEARCH METHODOLOGY
Research is essentially a logical and an organized enquiry seeking facts
through objective methods in order to discover the relationship among them
and to refer from the broad principles or laws. It is really a method of critical
thinking.
PRIMARY SOURCES:-
The primary data will be collected from various books of financial management
and various other reference materials.
SECONDARY SOURCES:-
The data required for the study will be collected from annual reports of the
company of the respective years. The company provided the annual reports. The
analysis has been completed with the help of various tools and techniques of
ratio analysis to evaluate company performance.
Company’s Website and other Internet sources.
The project mainly depends upon the secondary data.
COMPANY PROFILE
TAFE is a US$750 million tractor major incorporated in 1960 at Chennai in India, in
collaboration with Massey Ferguson (now owned by AGCO corporation, USA). TAFE
acquired the Eicher tractors business, its engine plant at Alwar and transmissions plant at
Parwanoo through a wholly owned subsidiary “TAFE Motors and Tractors Limited.
A member of the Amalgamations Group of Chennai, this company has four plants
involved in tractor manufacturing at Mandidheep (Bhopal), Kallidaipatti (Madurai),
Doddabalbur (Bangalore) and in Chennai.
Apart from being among the top five tractor manufacturers in the world, TAFE is also
involved in making diesel engines, gears, panel instruments, engineering plastics, hydraulic
pumps, plantations and passenger car distribution through other divisions and wholly owned
subsidiaries.
TAFE Motors and Tractors Limited has, apart from the tractor manufacturing plant at
Mandideep mentioned above, a Diesel Engine plant at Alwar, Rajasthan producing a range of
air cooled and water cooled diesel engines up to 80 HP with plans are on to increase the
product range up to 125 KVA. The Transmissions Division located at Parwanoo in Himachal
Pradesh produces a range of transmission components both for captive use as well as for sale
to OE manufacturers.
TAFE Access Limited is a wholly owned subsidiary of TAFE involved in the
manufacture and marketing of farm implements, trailers and accessories, distribution of
passenger cars, manufacture of hydraulic pumps and panel instruments to discerning
customers both in India and overseas.
TAFE’s Power Source Division produces a range of automotive batteries for both 2-
wheeler and 4-wheeler applications for sale through AMCO Batteries Ltd. As well as for sale
directly through a dedicated distribution channel under the brand name of “Speed”.
TAFE, first tractor company to be recognized for strong commitment to excel at CII
-EXIM Bank Award for Excellence.
The commendation to Tractors and Farm Equipment Limited (TAFE), for “Strong
commitment to excel on the journey towards excellence”, was announced at the 15th Quality
Summit conducted by the Confederation of Indian Industry (CII) held at the NIMHANS
auditorium in Bangalore recently. The commendation is based on an independent assessment
of the organization on the basis of specified criteria which include Leadership, Policy &
Strategies, Partnership & resources, Processes, Key results, People Results, Customer results
and Society results.
VISION –
“To achieve the distinction of the First Choice among the farming community of
India and a Growing Presence in International Markets through setting Leadership
standards of Performance and Customer Care in the Agricultural Machinery
Business.”
CORE VALUES -
Customer satisfaction: We may not be able to wipe the sweat from the customer's brow but
we can certainly put a smile on their face.
Quality in products and services: An uncompromising focus on quality not just in products
but in all that we do.
Human resources: We are not just individuals doing our respective jobs. We are partners in
progress. Our people matter.
Environment and society: While serving our company, we don't forget our commitment to
serve our society for everything that it has given us.
Trust & long term relationships with stake holders: We value relationships and we live it,
with our business associates.
Business ethics: Our strong foundation has been ethical practices and open and transparent
operations.
C H E N N A I
K A L L A D I P A T T I
D O D D A B A L P U R
A L W A R
P A R W A N O O
TAFE, Tractors And Farm Equipment, is a Chennai, India based tractor manufacturer, is a
unit of the Amalgamation Group. TAFE was established in 1961 to market and manufacturer
tractors under the license of Massey Ferguson. TAFE manufactures Simpson engines from
designs under license from the Perkins Company.
TAFE is one of the largest tractor manufacturers in India over 500 dealers and outlet in India
alone. TAFE is 24% owned by the AGCO Corporation of Duluth, Georgia, the owner of the
Massey Ferguson brand, and manufacturers’ tractors and components for AGCO for
exportation. TAFE is also active in exporting their own TAFE branded tractors.
TAFE has agreements with other companies to brand and market tractors under the TAFE
name to the USA. TAFE USA imports tractors from TAFE in India, as well as tractors
manufactured by LS Tractors in South Korea, (formerly LG Tractors), which are branded as
TAFE.
In June 2004, TAFE purchased Eicher motors Tractors and Engines business, along with the
Eicher brand name for tractors. This put them in the #2 position for market share of tractors
in India.
BUSINESS AREA
TAFE Limited is also involved in the following areas, apart from its core business of
manufacturing and marketing tractors.
These are marketed through TAFE’s dealer network by a totally owned subsidiary, TAFE
access Limited (TAL).
TAFE through TAL is also involved in the marketing and distribution of lubricants and
greases for tractors through its dealer network.
TAFE is also involved in the packaged power industry through its Power Source Division.
TAFE has in-house facilities for the manufacture of Hydraulic pumps and Gears for tractors.
A related facility for the manufacture of panel instruments, not only for captive use but also
for the growing automobile industry in India is an integral part of the company.
TAFE has also diversified into Engineering plastics and Production of tools and dies for this
industry.
MARKETING NETWORK
TAFE has a network of more than 500 dealers, branches, service outlets as well as its own
sales officers and depots covering the entire width and breadth of India, TAFE is committed
to providing complete farming solutions to its customers and empowering them to work
towards increase farm productivity, prosperity and profits.
COMMUNITY SERVICE
TAFE’s factory at HYDEARBAD, stands in perfect harmony with nature. The Simpson
Industrial Estate, where the factory is located, also houses a serene bird sanctuary.
At Paddur Village, where TAFE’s Product Training Centre and “J” Farm are located , TAFE
has an ongoing Village Development Program which provides primary health services,
drinking water, Education and Vocational Training to the villagers from in and around
Paddur.
RESEARCH
METHODOLOGY
RESEARCH METHODOLOGY:
NEED FOR STUDY
Every company needs working capital to run its day to day business
activities smoothly and uninterruptedly. We hardly find a business firm which does not
require any amount of working capital. TAFE has a dilemma regarding to the liquidity, cash
and accounts receivables management. So in this direction I have undergone a study on
working capital management.
The data required for the study is mainly based on the secondary data.
The required information is collected from the annual reports of the TAFE comprising
of balance sheets and profit & loss accounts.
The related data is obtained from the printed and published financial statements of
TAFE.
Tools of analysis:
Period of study:
Data for a period of 6 years has been taken for the study i.e., starting from 2004-05
TO 2009-10
Working capital management
Introduction:
Working capital is probably the most often used financial management concept verbally and
misused practically .literally, no organization can exist with out the existence of working
capital. Independent of nature of an organization, its constitutions and activity requires
working capital.
“Working capital refers to a firm’s investment in shorter currents, cash, short term
securities, accounts receivables and inventory.”
- Weston and Beigham
Introduction:
“The interaction between current assets and current liabilities is therefore the
main theme of the theory of working capital.”
Managing the current assets is similar to that of fixed assets in the sense that in
both cases a firm analyses their effects on its returns and risks. The management of fixed
assets however differs in three different ways:
The need for working capital is to run day to day business activities smoothly and
uninterruptedly and cannot be over emphasized earning a
Steady amount of profit requires successful sales activities. We hardly find a business firm
which does not require any amount of working capital. Indeed, firms differ in their
requirements. The firm has to invest enough funds in current assets for generating sales.
Currents assets are needed because sales do not convert into cash instantaneously. There is an
operating cycle involved for conversion of sales to cash.
It refers to firm’s investments in current assets. Current assets are the assets
which can be converted into cash with in the accounting period and that include cash, short
term securities, debtors, bills receivables and stock.
The changes in the level of working capital occur because of the following basic
reasons:
1. Policy changes
2. Technological changes
3. Sales growth
4. Price level changes
5. Growth and expansion of business
6. Availability of credit
Policy changes:
Sales growth:
Availability of credit:
Nature of business:
Manufacturing cycle:
Production policy:
Sales growth:
The working capital needs of the firm increase as its sales grow. It
is difficult to precisely determine that the relation between volume of sales and
working capital needs. Current assets will have to be employed before growth
takes place. It is necessary to make advance planning of working capital for a
growing firm on continuous basis.
Availability of credit:
The requirements of working capital differ from industry, within the same
industry from company and within the company from time to time. A wide variety of factors
influence the volume of investment in working capital which may be external and internal
and management must be familiar with these.
Nature of business:
The amount of working capital is related to the nature and volume of the
business. In concerns, where the cost of the raw materials is to be used in the manufacture of
product in very large in production to its total cost of its manufacturing the requirements of
the working capital will be very large.
Size of the business unit is also determining factor in estimating the total amount
of working capital.
Depreciation policy:
In every manufacturing business, depreciation is the most important element
of the working capital structure. The management should try its best of the maintain the
structure in a health start of earning satisfactory profits.
Profit Level:
The net profit level earned by the business firms the most important element
of the working capital structure. The management should try its best of the structure a healthy
start of earning satisfactory profits
Taxes:
Credit policy:
Credit policy of a firm has a direct bearing in the level working capital
liberal credit policy demands a higher level of working capital. If there is a lack in collection
efforts, the problem would be further intensified necessity higher levels of working capital.
Dividend policy:
Attitude risk
The level of working capital is also influenced by the attitude of the
management towards the risk. If the management is more concern with the liquidity then
there is need of higher level of working capital.
Interpretation:
The working capital for the years 2004-05 and 2005-06 are both negative. The net
working capital has increased in 2005-06 when compared with the previous year 2004-05.
This is due to the increase in current assets (inventories and loans & advances) when
compared with the previous year 2004-05.
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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEARS 2006 AND
2007:
Inventories
Liabilities
Interpretation:
The net working capital for the years 2005-06 and 2006-07 are both negative. The net
working capital has decreased in 2006-07 when compared with the previous year 2005-06.
This is due to the decrease in current assets (inventories, debtors and loans & advances) when
compared with the previous year 2005-06.
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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEARS 2007 AND
2008:
Liabilities
Interpretation:
The net working capital for the year 2006-07 is negative and for the year 2003-04 is
positive. The net working capital has increased drastically in 2007-08 when compared
with the previous year 2006-07. This is due to the increase in total current assets (Sundry
debtors, cash & bank balances and loans & advances) when compared with the previous
year 2006-07 and also due to the decrease in liabilities.
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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEARS 2008 AND
2009:
(Rs.000’s)
Liabilities
Interpretation:
The net working capital has increased drastically in 2008-09 when compared with
the previous year 2008-09. This is due to the increase in total current assets (Sundry debtors,
cash & bank balances and loans & advances) when compared with the previous year 2008-09
and also due to the decrease in liabilities.
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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEARS 2009 AND
20010:
(Rs.000’s) (Rs.000’s)
Inventories
Liabilities
Interpretation:
The net working capital for the year 2008-09 and for the year 2009-10 are both positive.
The net working capital has slightly increased in 2005-06 when compared with the
previous year 2008-09. This is due to the increase in total current assets (Accrued interest,
cash & bank balances and loans & advances) when compared with the previous year
2008-09.
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TREND ANALYSIS
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
intepretation:
The sales of the company are growing but the current assets are increasing at a higher
proportion. This is due to the piling-up of book debts and large amount of cash balances.
RATIO ANALYSIS
LIQUIDITY RATIOS:
1) CURRENT RATIO:
Current Ratio= (Current assets- Current liabilities)
Interpretation:
The current ratio well below the standard ratio 2:1 during the years 2009-2010, indicates
low liquidity position of the TAFE. Liquidity has improved during the later part of study
period with current ratio above 1.5:1
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
QUICK RATIO OR LIQUID RATIO:
Current liabilities
Interpretation:
The Quick ratio of the company should be 1:1 to represent a satisfactory financial
condition. The quick ratio has been unsatisfactory upto the year 2006-2007. From the
year 2007-2008 the quick ratio is too high for TAFE indicating excess liquidity.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
SUPER QUICK (CASH) RATIO:
Current liabilities
(Rs.000’s)
Interpretation:
This ratio is still more stringent test of liquidity. Generally cash ratio of 0.5:1 will be
taken as a standard one. The cash ratio from the year 2007-08 to the year 2009-10 is in
increasing order. TAFE is holding enormous cash balances which are a drag on its
profitability.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
LIQUIDITY RATIOS:
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
INVENYORY MANAGEMENT
1) INVENTORY TURNOVER RATIO:
Interpretation:
For the TAFE this ratio has been increased during the years 2007-08 to 2008-09 and
then it decreases in the year 2008-09. This shows the less effort or laziness on the part of
management to provide connections on demand.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
3) DAYS OF INVENTORY HOLDING:
Interpretation:
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
RECEIVABLES MANAGEMENT
Interpretation:
The liquidity position of the firm depends on the quality of debtors. Generally the higher
the value of debtor’s turnover, the more efficient is the management of credit. For TAFE
it has increased from 2008-09 to 2006-07 and decreases in the year 2007-08, later it
increases slightly in the next years 2008-09 and 2009-10.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
AVERAGE COLLECTION PERIOD:
Interpretation:
The target of debtors collection period for TAFE is 40 to 45 days. But only in 2006-07
the target has been achieved. In the other years the collection period is not upto the
expectations.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
TURNOVERRATIOS:
Current Assets
Interpretation:
Current assets turnover ratio is a measure of the efficiency of the firm in utilizing the
current assets for sales generation. The current assets turnover ratio in the year 2008-09 is
0.825, 2009-10 is 1.419, 2006-07 is 1.556, 2007-08 is 1.191, 2008-09 is 0.869 and 2009-
2010 is 0.729. Decrease in current asset ratio after the year 2006-03 shows the decrease in
sales and under utilization of current assets
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
WORKING CAPITAL TURNOVER RATIO:
Interpretation:
Working capital turnover ratio indicates whether or not working capital has been
efficiently utilized in making sales. This ratio measures the relationship between
working capital and sales. This ratio shows the number of times the working capital
results in sales. Working capital turnover ratio is negative for the company from the
year 2008-04 to 2006-2007 because of negative working capital. Afterwards in the
next year 2007-08 it has drastically increased to 5. It is due to the increase in current
assets of the company. In 2008-09 working capital turnover ratio decreases again due
to decrease in working capital (due to increase in the provisions i.e., current
liabilities). In the next year 2009-10 also the working capital turnover ratio decreases
due to the decrease in sundry debtors (current asset) due to the inefficient
management of accounts receivables.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PROFITABILITYRATIOS:
1)GrossProfiRatio:
GrossProfitRatio=GrossProfit
Sales
Interpretation:
The gross profit ratio of the company in 2008-05 is 35.31%, 2009-06 is 34.15%,
2006-07 is 23.89%, 2007-08 is 36.42%, 2008-09 is 36.26% and 2009-10 is 43.77%. The
gross profit of the company decreases in 2009-06 and 2006-07, increases in 2007-08, then
partially decreases in 2008-09 and again increases in2009-10.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
NET PROFIT RATIO:
Sales
Interpretation:
The net profit ratio in 2008-05 is 6.44%, 2009-02 is 25.97%, 2006-07 is 5.71%,
2007-08 is 19.03%, 2008-09 is 30.44% and 2009-10 is 24.73%. The net working capital
is fluctuating. It increases in 2009-08 and decreases in 2006-07, then increases in 2007-08
and 2008-09. In 2009-10 it again decreases. This ratio indicates the management’s
efficiency in sales. This ratio indicates the firms capacity to withstand adverse economic
conditions.
16
14
12
10
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
FINDINGS
FINDINGS:
The gross profit ratio has been increased over the years, but the net profit
ratio has not increased as fast as gross profit ratio. It implies that operating
expenses are increasing with increase in sales.
The current ratio in the year 2010-2008 is 0.739, 2008-2009 is 0.849, 2008-
2009 is 0.784, 2010-2008 is 1.312, 2008-2008 is 1.748 and 2009-2010 is
1.981 which is below the standard ratio 2:1, indicates low liquidity position
of the TAFE company.
Quick ratio of the company in the year 2010-2008 is 0.6, 2008-2008 is 0.66,
2008-2009is 0.63, 2009-2008 is 1.20, 2008-2009 is 1.64 and 2009-2010 is
1.86. The quick ratio of the company should be 1:1 to represent a
satisfactory financial condition. The quick ratio has been unsatisfactory upto
the year 2009-2010. From the year 2010-2009 the quick ratio of the
company is satisfactory. This ratio is a measure of judging the ability of the
company to pay off its current obligations.
The cash ratio is still more stringent test of liquidity. Generally an absolute
liquid ratio or cash ratio of 0.5:1 will be taken as a standard one. The super
quick ratio from the year 2010-09 to the year 2009-10 is in increasing order.
For the TAFE Company the inventory turnover ratio has been increased
during the years 2010-09 to 2008-2009and then it decreases in the year
2009-10. This shows the less effort or laziness on the part of management to
dispose the inventory at the earliest (i.e., provide connections on demand).
The current assets turnover ratio in the year 2010-08 is 0.825, 2008-08 is
1.419, 2008-09 is 1.556, 2010-09 is 1.191, 2008-08 is 0.869 and 2008-2009
is 0.729. Decrease in current asset ratio after the year 2008-09 shows the
decrease in sales and under utilization of current assets.
Working capital turnover ratio is negative for the company from the year
2010-09to 2008-2009 because of negative working capital. Afterwards in
the next year 2010-09 it has drastically increased to 5. It is due to the
increase in current assets of the company. In 2008-09 working capital
turnover ratio decreases again due to decrease in working capital (due to
increase in the provisions i.e., current liabilities). In the next year 2008-09
also the working capital turnover ratio decreases due to the decrease in
sundry debtors (current asset) due to the inefficient management of accounts
receivables.
The profits of the company are declining although the current assets are increasing.
This is due to the bad debts for the company. The management is not efficient in
collecting the bills receivables. The company should develop an optimum credit
policy.
TAFE Company has to forecast the working capital requirements and optimize the
working capital for increasing profitability. They should invest cash in short term
investments. The company is maintaining more cash ratio. This reflects that they are
keeping cash with them. This will affect the profitability of the company. So the
company should invest in short term securities so as to earn more profits.
The working capital of the TAFE Company is fluctuating. This will create a doubt in
the minds of shareholders and creditors. So the company should educate its
employees that working capital management does produce profits.
BIBLIOGRAPHY
BIBLIOGRAPHY
BOOKS