Working Capital Management at Bajaj Auto Ltd.
Table of Contents
Topic Page no.
ï¶ Analysis of Working Capital issues at Bajaj Auto Ltd. 2
ï¶ Annexure: Fund Flow Statement 5
ï¶ References 6
 
Analysis of Operating Ratios:
Raw material conversion period (RMCP):
As we can see from the graph* the RMCP of Bajaj Auto Ltd. is decreasing year by year. But in 2008 it has risen due to high raw material cost (Steel prices, paint etc.).It is very good for any firm to keep it RMCP low, because it means that it is taking very less time to convert the raw material into Work-in-Process. We can also infer from RMCP that it operations are more efficient. In 2008 RMCP of Hero Honda was 10.19, while Of TVS was 28.84. Therefore, In comparison to its competitors the RMCP of Bajaj auto is quite less.
Work-in-progress conversion period (WIPCP):
The WIPCP of Bajaj Auto Ltd. is higher than Hero Honda. This can be due to the Expertise of Hero Honda in managing the work in progress, as it is leader in two-wheeler segment since a long time. But it is good for Bajaj that its WIPCP is less than TVS and Yamaha.
Finished goods conversion period (FGCP):
Since Hero Honda is in this business since a long time, so it has developed a huge distribution network and also it has very rightly positioned its product in the mind of the customers. Due to this, whenever Hero Honda produces new Range of Bikes it sells as it is introduced, that is why its FGCP is as low as 1.39 days. But Bajaj is also continuously improving it distribution network and its brand image so as to keep it FGCP low.
Debtor’s Conversion Period (DCP):
The analysis of “Debtors Conversion period†shows though it is almost linear through the last 6 years, there is an upward trend for the last two years. Among the major competitors, Hero Honda and TVS shows a slightly better performance in this parameter. The recent upward trend can, however, be explained by an easy credit policy on
Topic Page no.
ï¶ Analysis of Working Capital issues at Bajaj Auto Ltd. 2
ï¶ Annexure: Fund Flow Statement 5
ï¶ References 6
 
Analysis of Operating Ratios:
Raw material conversion period (RMCP):
As we can see from the graph* the RMCP of Bajaj Auto Ltd. is decreasing year by year. But in 2008 it has risen due to high raw material cost (Steel prices, paint etc.).It is very good for any firm to keep it RMCP low, because it means that it is taking very less time to convert the raw material into Work-in-Process. We can also infer from RMCP that it operations are more efficient. In 2008 RMCP of Hero Honda was 10.19, while Of TVS was 28.84. Therefore, In comparison to its competitors the RMCP of Bajaj auto is quite less.
Work-in-progress conversion period (WIPCP):
The WIPCP of Bajaj Auto Ltd. is higher than Hero Honda. This can be due to the Expertise of Hero Honda in managing the work in progress, as it is leader in two-wheeler segment since a long time. But it is good for Bajaj that its WIPCP is less than TVS and Yamaha.
Finished goods conversion period (FGCP):
Since Hero Honda is in this business since a long time, so it has developed a huge distribution network and also it has very rightly positioned its product in the mind of the customers. Due to this, whenever Hero Honda produces new Range of Bikes it sells as it is introduced, that is why its FGCP is as low as 1.39 days. But Bajaj is also continuously improving it distribution network and its brand image so as to keep it FGCP low.
Debtor’s Conversion Period (DCP):
The analysis of “Debtors Conversion period†shows though it is almost linear through the last 6 years, there is an upward trend for the last two years. Among the major competitors, Hero Honda and TVS shows a slightly better performance in this parameter. The recent upward trend can, however, be explained by an easy credit policy on
References: • Prowess® online database (CMIE) • Bajaj Auto Annual Reports • www.bajajauto.com • Principles of Corporate Finance- 8th Edition: Brealey, Myers et al [Tata McGraw Hill]