Sei sulla pagina 1di 14

STUDY ON WORKING CAPITAL MANAGEMENT AND ITS IMPACT

ON PROFITABILITY AT TVS SUNDARAM BRAKE LININGS LIMITED

1.1 INTRODUCTION TO STUDY

CONCEPT OF WORKING CAPITAL MANAGEMENT


Every business has short term assets and short term liabilities and also known as the current
assets and current liabilities. There are two concepts of working capital viz. quantitative and
qualitative. Some people also define the two concepts as gross concept and net concept.
According to quantitative concept, the amount of working capital refers to 'total of current
assets'. What we call current assets? Smith called, 'circulating capital'. Current assets are
considered to be gross working capital in this concept. The qualitative concept gives an idea
regarding source of financing capital. According to qualitative concept the amount of working
capital refers to "excess of current assets over current liabilities. Working capital is an indicator
of the performance of the business and its current financial health.
DEFINITION OF WORKING CAPITAL
" L.J. Guthmann defined working capital as "the portion of a firm's current assets which are
financed from long-term funds."
STRUCTURE OF WORKING CAPITAL
The different elements or components of current assets and current liabilities constitute the
structure of working capital which can be illustrated in the shape of a chart as follows:

CURRENT ASSETS CURRENT LIABILITIES


Cash in hand capital
Cash at bank Bills payable
Bills receivable Sundry creditors
Sundry debtors Outstanding expenses
Accured income Bank overdraft
Inventories Provision for bad and doubtful debts
Table 1.1

TYPES OF WORKING CAPITAL

There are two types of working capital are as follows:

1. Permanent working capital


2. Variable working capital

PERMANENT WORKING CAPITAL

There is always a minimum level of the current assets which is required by the firm to carry
out its business operations.

VARIABLE WORKING CAPITAL

There is a relationship between the prevailing and temporary at the optimum level of
production and sales. In a year, there is no uniform production and sales.

IMPORTANCE OF WORKING CAPITAL

 The importance of working capital in any business concern can never be overstressed.
A adequate working capital to carry out day-to-day operations smoothly and
efficiently.
 Working capital management ensures that the company has enough monetary liquidity
to meet short term debts.
 There are two primary objectives of working capital
1. Ratio analysis
2. Management of individual component

COMPONENTS OF WORKING CAPITAL MANAGEMENT

There are four main components associated with working capital management

1. cash management
2. receivable management
3. accounts payable
4. inventory management

CASH MANAGEMENT

 Cash is an important components of the current assets. It is performing all the activities
of the business purposes.
 Acquisition of raw materials to finished goods. A business can maintain a sufficient
cash balance.
RECEIVABLES MANAGEMENT

 Receivables management are the management are dealing with the customers. The
customers have pay the dues on time.
 Receivable management can claim the money from the firm of the customers in the
normal course of the action.
 Receivable management can otherwise called as sundry debtors

ACCOUNTS PAYABLE

 Accounts payables is otherwise called as sundry creditors. It provides a sources of


financing of working capital.
 There is a good relationship between the suppliers and the creditors of the firm. A firm
has maintain a cash flow by delay in payments of working capital.

INVENTORY MANAGEMENT

Inventory management is the primary asset that it converts into sales revenues.
Inventory management has a efficient to maximisation of earnings to the shareholders.

1.2 INDUSTRY PROFILE

INTRODUCTION

Brake lining is a type of breaking system employed in passenger and commercial vehicles for
the purpose of safety, efficiency, and reliability. Brake linings are composed of a comparatively
soft but tough and heat-resistant materials, such as asbestos and ceramic, typically mounted on
a solid metal backing using high-temperature adhesives or rivets. Global Automotive Brake
Linings Market is projected to witness 7.8% CAGR by 2025.

Friction materials play an important role in the brake system since brakes use friction to brake.
Braking linings are used in the braking systems in machines, vehicles, appliances and elevators
and thus can range from large heavy-duty materials to lighter, softer linings.

HISTORY

Brake linings were invented by Bertha Benz (the wife of Karl Benz who invented the first
patented automobile) during her historic first long-distance car trip in the world in August 1888.
The first asbestos brake linings were developed in 1908 by Herbert Frood. Although Frood was
the first to implement the use of asbestos brake linings, the heat dissipation properties of the
fibres were tested by various scientists, including well known materials chemist Dr Gwilym
Price, who did most of his research and testing from Cambridge, United Kingdom and various
Cambridge-funded institutes.

GROWTH

MARKET SEGMENT

Based on geography, the brake lines market for automotive can be segmented into North
America, Europe, Asia Pacific, Middle East & Africa, and Latin America. Asia Pacific
accounts for a major share of the global brake lines market for automotive, owing to the high
rate of adoption of automotive brake lines and expansion of the automotive sector in the region.
This has led to an increase in production of vehicles with automotive brake lines, especially in
China, India, Japan, and South Korea. The brake lines market for automotive in Europe,
especially in Germany, France, Italy, and the U.3K., is also expected to expand in the near
future due to safety norms implemented by regulatory bodies in these countries. The brake lines
market for automotive in Latin America is likely to expand at a rapid pace during the forecast
period.

INDIAN MARKET

Geographically, the global automotive brake linings market has been segmented into four
major regions- North America, Europe, Asia-Pacific, and the rest of the world. Asia-Pacific is
estimated to hold the highest market share throughout the forecast period, owing to growing
production and sales of automobiles from China, Japan and India. Furthermore, Asia-Pacific is
also expected to witness the highest growth during the forecast period due to the growing
disposable income from countries such as China and India, increasing population, rapid
urbanization, and increasing focus on driver and vehicle safety.

GLOBAL MARKET

On the basis of region, the global market for automotive brake linings is segmented into North
America, Europe, Asia-Pacific, and the rest of the world. North America is expected to witness
a significant growth during the forecast period owing to growing production of commercial
vehicles in the US, Canada, and Mexico. Moreover, the growing demand for electric vehicles
is expected to further boost the demand for brake lining in this region. However, Asia-Pacific
is expected to hold the highest market share throughout the forecast period due to the growing
disposable income in countries such as China, and India, increasing automotive fleet, and rising
focus on vehicle safety. Additionally, the growing investments in the automotive sector and
the continuous improvement in brake system technology will further grow the market in Asia-
Pacific. In Europe, the presence of key manufacturers, such as Continental AG, SGL Group,
and Brembo S.p.A., are contributing to the growth of this market due to the increasing number
of collaborations with automotive OEMs, such as BMW and Audi.

Figure 1.1

KEY PLAYERS

IN GLOBAL MARKET

Key players operating in the global braking lines market for include Continental AG, Carlisle
Brake & Friction, FTE Automotive, Sumitomo Riko Co. Ltd., BrakeQuip, Continental AG,
Gates Corporation, Hutchinson SA, and Yokohama Rubber Co., Ltd.

IN INDIAN MARKET

ASK Automotive Pvt. Ltd., Rane Holdings Limited, Brakes India Private Limited, Bosch
Limited, Makino Auto Industries Pvt. Ltd., TRW Automotive, Brembo Brake India Pvt.
1.3 COMPANY PROFILE

INTRODUCTION

Sundaram Brake Linings (SBL) established in 1976 as a joint venture with a world famous
friction materials manufacturer Abex Corporation, a US company. Now it is fully Indian
owned company manufacturing automotive, non-automotive, railways and industrial friction
materials. SBL products are extensively used in commercial vehicles, passenger cars, tractors
(agricultural), railways and two wheelers. Sundaram Brake Linings (SBL) with its leading edge
technology is a pioneer in the manufacture of asbestosfree friction materials in India, and also
the first Indian friction material company to become 100% asbestosfree.

With 1500 employees and 5 manufacturing locations strategically located near major ports,
35% of SBL’ s total sales is exported to over 54 countries worldwide. SBL also has a strong
presence in the domestic OEM and Aftermarket.

manufacturing range includes products that have been successfully tested to meet European R-
90, American FMVSS 121, Australian ADR 35/38, South African SABS 1506/SANS 20090
and Indian IS 11852 requirements.

SBL services the Indian aftermarket through more than 140 TVS owned wholesaler outlets
spread across major towns

FOREIGN MARKET

SBL exports Brake Blocks worldwide, supported by a wide variety of part number references
for US and European commercial vehicles. SBL has a warehouse facility in North America to
service the US and Canadian markets instantly - a pre-requisite to establish brand presence. A
business representative in USA works closely with the US/Canadian brake re-builders and
distributors. SBL regularly participates in International Fairs in North Amercia, Europe, Africa,
Middle and Far East.

CERTIFICATION

a) SBL is certified for ISO / TS 16949


b) 2002 Quality Management Systems
c) ISO 14001: 2004 Environmental Management Systems
TVS GROUP

Ten decades ago (1912), TVS - T.V. Sundaram Iyengar started one of the earliest rural bus
services in India. Today, the TVS group has 50 companies with a combined turnover of US$
6.5 billion with 39,000 employees. All the companies are professionally run under the TVS
Board's guidelines. The core strength of TVS is manufacture of auto components for the
Automobile / Tractor Industry. TVS has diverse activities such as Commercial Vehicle &
Passenger Car Distribution / Servicing, Cargo Transportation & Logistics, Spare Parts
Distribution through more than 140 fully-owned outlets spread throughout India. TVS also
manufactures Motor Cycles, Sewing Needles and Computer peripherals.
TVS's philosophy of high ethics in business has been instrumental in building the group's brand
image in India and abroad.

RESEARCH AND DEVELOPMENT

SBL has an award-winning R &D facility at its headquarters in Chennai, which includes brake
/ dynamometers, scanning electron microscopes, gas chromatographs, vehicle testing facilities
for testing and development of friction materials for a wide range of automotive, non-
automotive and industrial applications.

State of the art in-house design facilities, provide the company with the necessary infrastructure
to carry out design and development work to meet growing needs of the friction material
industry. Nearly 2% of sales is spent on Research and Development activities. Continued
recognition of in-house R&D by Department of Scientific and Industrial Research,
Government of India.

R & D uses FMEA and deep analysis techniques. New materials are continuously researched
to add value to the products to enhance customer satisfaction.

MANUFACTURING

SBL has 5 manufacturing facilities strategically located near major town/ ports to minimize the
turnaround time servicing domestic & global customers. The manufacturing facilities, which
include Padi Plant in Chennai; TSK Plant 1 and TSK Plant 2 in Virudhunagar District, and
Plant 4 and Plant 5 in Chengalpet. The Company exports its products to over 50 countries
across the world. Its facility in Chennai includes brake or dynamometers, scanning electron
microscopes, gas chromatographs, vehicle testing facilities for testing and development of
friction materials for a range of automotive, nonautomotive and industrial applications. TQM,
TPM and Lean Manufacturing systems are practiced to achieve World Class standards
through their guiding philosophy below listed,

a) TOTAL QUALITY MANAGEMENT

Figure 1.2
b) TRANSACTION PROCESSING SYSTEMS

Figure 1.3
c) TOTAL PRODUCTIVE MAINTENANCE

Figure 1.4

MANAGEMENT

BOARD OF DIRECTORS

1. Mr T Kannan
2. Mr P S Raman
3. Mr Ashok V Chowgule
4. Mr K S Ranganathan
5. Mr K S D Sambasivam
6. Ms. Sandhya Subramanyam
7. Ms. Shobhana Ramachandran- (Appointed w.e.f 13th August 2019)
8. Mr. Krishna Mahesh- Managing Director

ECO-FRIENDLY

Over the years, SBL has reinforced its commitment to be a socially responsible corporate
citizen through the use of safe raw materials and environmental friendly practices.

RAIN WATER HARVESTING

As a step towards conservation of water, rain water harvesting is implemented and harvested
water is utilised for green belt development.
ENERGY CONSERVATION

SBL has conducted Energy audit through Confederation of Indian Industry (CII) and
implemented various energy saving projects.

RECYCLING OF SOLID WASTES

Process waste collected through the pollution control facility is recycled.

RE-USE OF TREATED SEWAGE WATER

The treated water from Sewage Treatment Plant is used for gardening purposes.

TREE PLANTATION

SBL has planted more than 30,000 trees in all its production facilities and has plans to plant
more trees

CONSERVATION OF MATERIAL

Through advanced technology such as modification of process from slab to DFM (Direct Fill
Mould), SBL ensures conservation of material.

AWARDS

SBL has the distinction of being the first friction material company worldwide to be awarded
the prestigious Deming Application Prize, by the Deming Prize Committee of JUSE (Union
of Japanese Scientists and Engineers) for practicing Total Quality Management (TQM)
utilising statistical concepts and methodology.
1.4 STATEMENT OF THE PROBLEM

 To study and analysis the profitability and liquidity position of the firm and also
measure the fluctuations in the working capital management.
 The firm can maintain a accounts receivable and inventory in the optimal balance
should maintain in the company.
 The working capital management have to determine the working capital in order to
find the research problem.

1.5 NEED FOR THE STUDY

 The purpose of the study is to understand the concept of the working capital
management of the company.
 To measure the financial soundness by analysing the ratios.

1.6 OBJECTIVE OF THE STUDY

 To understand the financial strength and weakness of the company.


 To assess the factors influencing working capital.
 To analysis the working capital management from different analysis on the basis of
historical data.
 To know the liquidity position of the company.
 Evaluating a company performance relating to financial statement analysis.

1.7 SCOPE OF THE STUDY

 Working capital of the firms holdings of current assets such as cash, receivables,
inventory, and marketable securities.
 Net working capital (current assets minus current liabilities) provides an accurate
liquidity position of the firm.
 The financial scheme of management to ensure that the ability of the firm to meet those
obligations.
 Management must always ensure the solvency and visibility of the firm.
 Working capital has to maintain balance having sufficient capital to ensure that the
business is liquid to meet its current requirements.
 Maintaining the sufficient balance in the business to find out the ways of cash payments
in order to keep the working capital stable.

1.8 LIMITATIONS OF THE STUDY

 Future plans of the company will not be disclosed to the trainees.


 The data were collected on the basis of secondary data, so the limitations of secondary
data are applicable.
 In this company due to work schedule, detailed discussions were not possible.
 Due to lack of time it is not possible to cover all the factors and details regarding the
subject of the study.
 The data were collected in historical in nature.

1.9 REVIEW OF LITERATURE

Working capital management plays an important role in financial management of the industry.
Numbers of researcher has been done the research on different components of working capital
and subjects on. Here, I have included the relevant articles as well research work on the same
topic and subject.

M. Lalitha, R. Guna and K. Vijayakumar(2016)

This report is based on the study of working capital management in exide batteries. An insight
view of the project will encompass what it is all about, what it aims to achieve, what is the
purpose and scope and the various methods used for collecting data and their sources in the last
inferences from the learning.

Smith Keith V. (1973)

Research has been given focused on the short term finance need to be given more attention for
the success of the individual firm. For that finance manager has to give more attention on
current assets and current liability. Many firms do investment of current assets in a basket while
current liability in many different request. This paper consist eight distinct approaches to
working capital management out of it first three gives common guidelines next three regarding
constrain set and cost balancing and last two about probability models and portfolio theory.

Rajeshwar (1985)
He has done the study on few selected public enterprises in India. He tried to check the working
capital policies adopted by the sample units. He made attempt to examine the working capita
components how efficiently managed. At the last no one company clearly defined working
capital polices and hence most of them could not achieve efficiency in working capital
management. In this study it is found that majority of investment was made in finished goods
inventory that was indicate that working capital was not managed in planned way. Thus, study
recommended for careful management of working capital in finance management.

Vijayakumar and Venkatachalam (1995)

This study was made on observed analysis in working capital and profitability. Study was
carried with 13 firms belonging sugar industry for the 10 years period from 1982-1983 to 1991-
92. The correlation and regression statistical method has been used to analyze the impact of
working capital ratios on profitability. In this study total four ratios has been taken in to
consideration; Liquidity ratio, inventory turnover ratio, receivable turnover ratio and cash
turnover ratio. The discovery of the study said that liquid ratio and cash turnover ratio have
harmful impact on profitability on the other hand inventory turnover ratio and receivables Have
positive impact on profitability.

Hyon – Han Shin an LUC Soemen (1998)

The study is on the efficiency of the working capital management and business profitability.
There are 58 companies are taken for the research and period for the study is 1975 to 1994,
study found that there is a strong negative relationship if firm having long Net Trade Cycle and
its profitability. In other side short Net Trading cycle created the risk. It has also found
measuring liquidity differently, need to be maintain appropriate current ratio having positive
relation with profitability

ViraniVarsha (2008)

It was a comparative study in CADILA COMPANY This study has been done with certain
objectives first is to examine financial performance and second one is to examine profitability
trend and at the last to find out assets operational model and evaluate liquidity position of the
company. To achieve these goals used two classy analytical tools i.e. ratio analysis and
correlation analysis. The study shows relationship between different ratios. That is also
observed that correlation and coefficient is near about so there is a high degree of negative and
positive correlation between various ratios.
Marc deloof(2003)

This analysis and study the working capital is to measure the trade credit policy and inventory
and cash conversion cycle on working capital management. The managers can increase the
profitability by reducing the number of days in the credit policy.

Eljelly(2004)

This report is based on the working capital management that the efficient liquidity and
profitability involves planning and controlling the current assets and current liabilities. The
relationship between profitability and liquidity as measured by current ratio and cash gap on a
joint stock company in Saudi arabia using correlation and regression analysis.

Loannis Lazaridis, dimitrios tryfonidis(2006)

In this article we can study the relationship of the corporate profitability and liquidity assets of
the working capital management. Many companies can create the profits of the company by
handling cash by keeping different component to reach an optimum level of working capital
management.

Abdul raheman, Mohamed nasr

Working capital management is the very important component of corporate finance it directly
affects the profitability and liquidity of the company. Working capital management mainly
deals with the current assets and current liabilities of the firm. Excessive levels of current assets
can easily result in a firms realizing a substandard return on investment.

Amarjit Gill, Nahum Biger, Neil Mathur(2010)

A sample of 88 american firms listed on the newyork stock exchange for a period of 3 years
from 2005 to 2007 was selected. The relationship between the cash conversion cycle and
profitability measured through gross operating profit.