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SUMMER TRAINING

SUMMER TRAINING

REPOR

REPOR

T

T

ON

ON

“CASH MANAGEMENT”

“CASH MANAGEMENT”

IN

IN

SUBMITTED TO

SUBMITTED TO

SUBMITTED BY

SUBMITTED BY

DEPT. OF BUSINESS

DEPT. OF BUSINESS

SHALU VERMA

SHALU VERMA

ADMINISTRATION

ADMINISTRATION

M.B.A –3

M.B.A –3

RDRD

Sem.

Sem.

ROLL

ROLL

NO.

NO.

46

46

CH.

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ACKNOWLEDGEMENT

ACKNOWLEDGEMENT

At the outset I would like to thank the Management of 

At the outset I would like to thank the Management of  ESCORTSESCORTS AGRI

AGRI MACHINERY GROUPMACHINERY GROUP for the wholehearted co-operation andfor the wholehearted co-operation and guidance extende

guidance extended by d by them, which made them, which made my summer training my summer training projectproject  possible.

 possible.

I would like to thank 

I would like to thank  Mr. Bharat MadanMr. Bharat Madan (Chief Financial Officer),(Chief Financial Officer), Mr

Mr. S.K Aggarwa. S.K Aggarwal (l (HeadHead EmployeesEmployees RelationsRelations),), and Mrs.and Mrs. KiranKiran Chopra (

Chopra ( Chief Secretary & System Manager) for providing me thisChief Secretary & System Manager) for providing me this opportunity to carry out the project.

opportunity to carry out the project. I am very grateful

I am very grateful to my project guideto my project guide MrMr..pulak sinhapulak sinha (finance(finance Manager; Finance Department) Escorts

Manager; Finance Department) Escorts Limited (AMG PLANTLimited (AMG PLANT-1) for -1) for hishis support and suggestions, which led to the completion of this project.

support and suggestions, which led to the completion of this project. I would also like to thank Mr. B.B khanna , Mr. M.M. Halder , Mr. I would also like to thank Mr. B.B khanna , Mr. M.M. Halder , Mr.  Nitin Aggarwal , Mr. Vijay Nehra , Mr. Rajeev Khandelwal , Mr. Sunil  Nitin Aggarwal , Mr. Vijay Nehra , Mr. Rajeev Khandelwal , Mr. Sunil

Bhatia, Mr. R.N katyal, Mr

Bhatia, Mr. R.N katyal, Mr.Ajay W.Ajay Wadhawan adhawan , Mrs Saroj and Mr, Mrs Saroj and Mr. R.K.. R.K. Kukreja

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STUDENT DECLARATION

STUDENT DECLARATION

I, student of

I, student of “Masters in Business Administration“Masters in Business Administration”” CH. DEVI LALCH. DEVI LAL UNIVERSITY

UNIVERSITY,, SIRSASIRSAhereby declare that the disshereby declare that the dissertation/thesis entitleertation/thesis entitle ‘Study of Cash

‘Study of Cash Management’ Management’ of the Escort Agri Machinery Groupof the Escort Agri Machinery Group (AMG) submitted in fulfillment of the training; is

(AMG) submitted in fulfillment of the training; is my original work andmy original work and is not submitted for the award

is not submitted for the award for any other degree, fellowship or sifor any other degree, fellowship or similar milar  title or prize.

title or prize.

SHALU VERMA

SHALU VERMA

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EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

If the development capital is what establishes a

If the development capital is what establishes a business, cash flow isbusiness, cash flow is what keeps it going. One of the most

what keeps it going. One of the most common downfalls of business iscommon downfalls of business is unexpectedly high running cost. What is important is not just the size of  unexpectedly high running cost. What is important is not just the size of  operating costs, but the cash flow-that is when

operating costs, but the cash flow-that is when money has to be paid outmoney has to be paid out in relation to the stream of

in relation to the stream of income arriving in. Thus cash flowincome arriving in. Thus cash flow management is of prime importance.

management is of prime importance.

Escorts Ltd. is the holding company of

Escorts Ltd. is the holding company of the Escorts Group. Postthe Escorts Group. Post

restructuring, agri - machinery or tractors have become the focus area of  restructuring, agri - machinery or tractors have become the focus area of  operations. Other business

operations. Other business i.e. two- wheelers, i.e. two- wheelers, ITIT, T, Telecom, constructionelecom, construction equipment, are controlled through subsidiaries and joint venture. Post equipment, are controlled through subsidiaries and joint venture. Post hive off of its pistons business to

hive off of its pistons business to a joint venture with a foreigna joint venture with a foreign collaborator

collaborator, Escorts is , Escorts is focusing on its ‘core focusing on its ‘core competence’ competence’ of tractors.of tractors. Escorts have strong hands in house engineering skills, a

Escorts have strong hands in house engineering skills, a widewide distribution/service network and brand franchise.

distribution/service network and brand franchise. The project is small attempt to study the

The project is small attempt to study the cash management incash management in Escorts Agri - Machinery group. Added to this fact

Escorts Agri - Machinery group. Added to this fact that mechanizationthat mechanization level in India is currently very low

level in India is currently very low as compared to the world standards.as compared to the world standards. T

To analyze the perforo analyze the performance, published balance sheets of mance, published balance sheets of EscortsEscorts Limited, CASH FLOW STATEMENTS are been used. This project Limited, CASH FLOW STATEMENTS are been used. This project report is based

report is based on financial data up on financial data up to 2007-08 onlyto 2007-08 only. The financial year . The financial year  for escorts is from 01/1

for escorts is from 01/10/20XX to 0/20XX to 31/09/20XX. 31/09/20XX. Escorts is maintainEscorts is maintaininging the following records which is indicative of its professional approach: the following records which is indicative of its professional approach:

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 Maintaining proper set of accounting records.Maintaining proper set of accounting records.

 Maintaining an accurate cash book with bank statementMaintaining an accurate cash book with bank statement

 Daily cash inflow & cash outflowDaily cash inflow & cash outflow..

 Marking regular forecast of cash Marking regular forecast of cash requirement based upon planedrequirement based upon planed sales volume.

sales volume.

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TABLE OF CONTENTS

TABLE OF CONTENTS

 OBJECTIVE OF THE TRAININGOBJECTIVE OF THE TRAINING

 ABOUT TRACTOR INDUSTRYABOUT TRACTOR INDUSTRY

• INTRODUCTIONINTRODUCTION •

• FUTURE OF TRACTOR FUTURE OF TRACTOR INDUSTRINDUSTRYY •

• MARKET SHARE OF MARKET SHARE OF THE TRACTOR INDUSTRYTHE TRACTOR INDUSTRY •

• TRACTOR INDUSTRY PERFORMANCETRACTOR INDUSTRY PERFORMANCE

 COMPANY’S PROFILECOMPANY’S PROFILE

• ESCORTS SYMBOLESCORTS SYMBOL •

• MISSIONMISSION •

• QUALITY POLICYQUALITY POLICY •

• BACKGROUND OF THE BUSINESSBACKGROUND OF THE BUSINESS •

• BOARD OF DIRECTORSBOARD OF DIRECTORS •

• OUTLINE OF OUTLINE OF ESCORTSESCORTS •

• SUBSIDERIESSUBSIDERIES •

• BANKERSBANKERS

 AGRI MACHINERY GROUPAGRI MACHINERY GROUP

• INTRODUCTIONINTRODUCTION •

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• MODERNIZATION OF AGRI- MACHINERY GROUPMODERNIZATION OF AGRI- MACHINERY GROUP •

• PRODUCTSPRODUCTS •

• COMPANY’S FUTURECOMPANY’S FUTURE

 CASH MANAGEMENTCASH MANAGEMENT

• INTRODUCTIONINTRODUCTION •

• CASH FLOW MANAGEMENTCASH FLOW MANAGEMENT •

• CASH MANAGEMENT SYSTEMCASH MANAGEMENT SYSTEM •

• IMPORTANCE OF CASH MANAGEMENTIMPORTANCE OF CASH MANAGEMENT •

• CASH MANAGEMENT STRATEGIESCASH MANAGEMENT STRATEGIES •

• CASH OUTFLOWCASH OUTFLOW •

• CASH INFLOWCASH INFLOW

 CASH FLOW STATEMENTCASH FLOW STATEMENT

• IMPORTANCEIMPORTANCE •

• DAILY CASH FLOW REPORTDAILY CASH FLOW REPORT

 CASH BUDGETCASH BUDGET

 BANK RECONCILIATIONBANK RECONCILIATION

 CASH RATIOSCASH RATIOS

 RECEIVABLES MANAGEMENTRECEIVABLES MANAGEMENT

 PAYABLE MANAGEMENTPAYABLE MANAGEMENT

 RECOMMENDATIONSRECOMMENDATIONS

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 BIBLIOGRAPHYBIBLIOGRAPHY

 ANNEXURESANNEXURES

OBJECTIVES OF THE TRAINING

OBJECTIVES OF THE TRAINING

It is well known fact that we

It is well known fact that we remember 20% of what we remember 20% of what we hear, wehear, we remember 40% of what we see but we remember 75% of what we do. remember 40% of what we see but we remember 75% of what we do. Undergoing M.B.A

Undergoing M.B.A is the first step to is the first step to prepare myself as a prepare myself as a manager andmanager and visualize the ever-dynamic business world and my main objective while visualize the ever-dynamic business world and my main objective while taking up the training was to familiarize myself

taking up the training was to familiarize myself with the working of thewith the working of the finance department of

finance department of Escort Agri Machinery Group (AMG)Escort Agri Machinery Group (AMG) T

To present study in o present study in Escort Agri machinery group mainly focus Escort Agri machinery group mainly focus on theon the following :

following :

 Resources of cash Resources of cash inflow of the inflow of the companycompany..

 Cash flow factors Cash flow factors which have effect of which have effect of cash inflowcash inflow..

 Cash flow statement in the company.Cash flow statement in the company.

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ABOUT

ABOUT

THE

THE

TRACTOR 

TRACTOR 

INDUSTRY

INDUSTRY

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INTRODUCTION

INTRODUCTION

India’

India’s long-term s long-term economic prospects, even economic prospects, even todaytoday, depend to , depend to a largea large extend on the agricultural sector, which contributes a quarter to the gross extend on the agricultural sector, which contributes a quarter to the gross domestic project and provides

domestic project and provides livelihood to 2/3 of the livelihood to 2/3 of the population. population. AA gradual and perceptible shift from subsistence farm

gradual and perceptible shift from subsistence farming to enterpriseing to enterprise farming is harbinger of

farming is harbinger of modernization of the agriculture economy andmodernization of the agriculture economy and this will increase the contribution of the sector to

this will increase the contribution of the sector to the overall GDP in thethe overall GDP in the time to come. The central government as well as

time to come. The central government as well as several stateseveral state

governments is giving due priority to agriculture and rural developments. governments is giving due priority to agriculture and rural developments.

A t

A tractor is a ractor is a product, which has maximum utility in the agriculturalproduct, which has maximum utility in the agricultural sector

sector. The tractor industry is segmented on the . The tractor industry is segmented on the basis of the power of basis of the power of thethe tractor engine measured in terms of

tractor engine measured in terms of horsepower (HP). The maximumhorsepower (HP). The maximum consumption is for

consumption is for 30-40 HP tractors. Wit30-40 HP tractors. With the increase h the increase in the availabilityin the availability of low cost finance for longer tenures, the sale of the tractors is expected of low cost finance for longer tenures, the sale of the tractors is expected to go up. The new trend observed in this

to go up. The new trend observed in this sector is the shift insector is the shift in consumption from majority in the northern states

consumption from majority in the northern states to other parts of theto other parts of the country

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requires a low powered tractor for tilling it.

requires a low powered tractor for tilling it. HoweverHowever, states located in the, states located in the western and southern parts of the

western and southern parts of the country where the soil being laterite or country where the soil being laterite or   black etc. is harder and needs

 black etc. is harder and needs high-powered tractors.high-powered tractors. Tracto

Tractor industry in India has r industry in India has passed through various hazes beforepassed through various hazes before reaching where it is today. During 1945 to 1960 demand was met entirely reaching where it is today. During 1945 to 1960 demand was met entirely through import. There were 37,000 tractors by 1960. Production began in through import. There were 37,000 tractors by 1960. Production began in 1861 with five manufactu

1861 with five manufactures producing a total ores producing a total of f 880 units per year880 units per year. By. By 1965 it increased to over 5,000 units per

1965 it increased to over 5,000 units per year and by 1970 annualyear and by 1970 annual  production rose to more than 20,000 units. Six new

 production rose to more than 20,000 units. Six new manufacturing weremanufacturing were established during 1971-1980. In 1971 Escorts also started local

established during 1971-1980. In 1971 Escorts also started local manufacturing of Ford Tractors in collaboration with F

manufacturing of Ford Tractors in collaboration with Ford, UK. During,ord, UK. During, 1990 annual production rose to 1, 40,000 units making India an exporter  1990 annual production rose to 1, 40,000 units making India an exporter  to countries, mainly

to countries, mainly to Africa. After De-licensing of tractor to Africa. After De-licensing of tractor industryindustry,,  production exceeded 2, 55,000 units in

 production exceeded 2, 55,000 units in 1997.1997. The growth of the industry over the last

The growth of the industry over the last three decades resulted inthree decades resulted in the entry of several new

the entry of several new entrants including all the major multinationalentrants including all the major multinational companies. The industry now consists of 14 manufactures with an companies. The industry now consists of 14 manufactures with an aggregate installed capacity of approximately 4.50 lack tractors. In the aggregate installed capacity of approximately 4.50 lack tractors. In the tractor industry

tractor industry, following are the , following are the key manufacturers:key manufacturers:

 Mahindra& Mahindra Limited (M&M),Mahindra& Mahindra Limited (M&M),

 Gujarat Tractors Limited,Gujarat Tractors Limited,

 Tractors and Farm Equipment Limited,Tractors and Farm Equipment Limited,

 Hindustan Machine Tools Limited,Hindustan Machine Tools Limited,

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In 1999-2000. Since then, however the industry declined to In 1999-2000. Since then, however the industry declined to a level of 1.72 lack tractors

a level of 1.72 lack tractors in the year 2002-2003, a decline of in the year 2002-2003, a decline of 33.3%33.3% over three years.

over three years.

Despite the step

Despite the step decline in the industry, Escorts consciouslydecline in the industry, Escorts consciously decided to aggressively reduce channel inventory further by

decided to aggressively reduce channel inventory further by approximately 3,500 units reduces in

approximately 3,500 units reduces in the previous year. This has not onlythe previous year. This has not only impacted their revenue and profit adversely but has

impacted their revenue and profit adversely but has also enabled thealso enabled the company to balance the ca

company to balance the cash flow of sh flow of company effectivelycompany effectively.. Tractors form an integral part of far

Tractors form an integral part of farm mechanization and have am mechanization and have a crucial role to play

crucial role to play in increasing agriculture productivityin increasing agriculture productivity. In India, . In India, 90%90% of the tractors are

of the tractors are financed by banks- credit at concessional rates.financed by banks- credit at concessional rates. A

Availability of credit therefore vailability of credit therefore is the most is the most crucial factor, impactingcrucial factor, impacting tractor demand. Increased use of

tractor demand. Increased use of irrigation facilities, shift towards multi-irrigation facilities, shift towards multi-cropping, consolidation of lands holdings, promotion of

cropping, consolidation of lands holdings, promotion of cooperatives andcooperatives and higher investment in agriculture also contributes to higher tractor 

higher investment in agriculture also contributes to higher tractor  demand.

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Future of Tractor industry

Future of Tractor industry

The tractor industry in India has

The tractor industry in India has been on a growth trajectory sincebeen on a growth trajectory since the second

the second half half of of 2003-04, 2003-04, after going after going through a through a minimum variatiominimum variation for n for  consecutive years. The key factors driving this growth are increasing

consecutive years. The key factors driving this growth are increasing farm incomes, aggressive financing resulting in easy availability of farm incomes, aggressive financing resulting in easy availability of low-cost credit, sharp inventory correction and strong export growth.

cost credit, sharp inventory correction and strong export growth. The demand in tractor industry is expected to

The demand in tractor industry is expected to grow mainly due togrow mainly due to the agricultural sector, with the expected increase

the agricultural sector, with the expected increase in agriculturalin agricultural  production.

 production. Also, the shift Also, the shift in trend for in trend for demand towards higher HP tractorsdemand towards higher HP tractors is expected to continue. This will be further strengthened by the launch of  is expected to continue. This will be further strengthened by the launch of  several new models. In the next 2-3

several new models. In the next 2-3 year, demand for tractors is expectedyear, demand for tractors is expected to increase significantly in the

to increase significantly in the eastern states, where eastern states, where traditionallytraditionally, tractor , tractor  usage has been

usage has been lowlow. Exports are . Exports are expected to increase significantly asexpected to increase significantly as several Indian players are targeting the “hobby farming” segment in the several Indian players are targeting the “hobby farming” segment in the U.S, which is

U.S, which is considerably large. Aconsiderably large. Also, tractors of lso, tractors of most Indianmost Indian manufacturers comply with the emission standards accepted in the manufacturers comply with the emission standards accepted in the U.S.U.S.

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Most exports are likely to be through overseas

Most exports are likely to be through overseas partnerships or jointpartnerships or joint ventures. McKinley has also forecasted tractor population requirements ventures. McKinley has also forecasted tractor population requirements of 75 lacs over the

of 75 lacs over the next 18 years vs. current population of 26 next 18 years vs. current population of 26 lacs. Thelacs. The extension of the 150 per cent deduction on R&D

extension of the 150 per cent deduction on R&D expenditure up to marchexpenditure up to march 31, 2009, in the Budget 2008-09 will also benefit the industry in ter

31, 2009, in the Budget 2008-09 will also benefit the industry in ter ms of ms of  new product development besides increase in the area under irrigation new product development besides increase in the area under irrigation under the Bahrat Nirman Project and

under the Bahrat Nirman Project and the micro irrigation scheme.the micro irrigation scheme.

MARKET SHARE

MARKET SHARE

OF TRACT

OF TRACT

OR 

OR 

INDUSTRY

INDUSTRY

For the year 2007-08 For the year 2007-08

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13.65% 13.65% 28.17% 28.17% 8.00% 8.00% 15.20% 15.20% 1.36% 1.36% 8.82% 8.82% 1.37% 1.37% 8.14% 8.14% 6.63% 6.63% 1.30% 1.30% 7.26% 7.26%

ESCORTS

ESCORTS

MAHINDRA

MAHINDRA

&

&

MAHINDRA

MAHINDRA

PTL

PTL

TAFE

TAFE

HMT

HMT

SONALIKA

SONALIKA

FML

FML

TRACTOR INDUSTRY PERFORMANCE

TRACTOR INDUSTRY PERFORMANCE

C COOMMPPAANNYY 22000055--0066 22000066--0077 22000077--0088 ESCORT ESCORT FARMTRAC FARMTRAC 11138 11138 18287 18287 23200 23200 32800 32800 20950 20950 26900 26900 T TOOTTAALL((EESSCCOORRT T + + 2299442255 5566000000 4477885500

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FARMTRAC) FARMTRAC) MAHINDRA & MAHINDRA & MAHINDRA MAHINDRA PTL PTL TAFE TAFE EICHER  EICHER  HMT HMT SONALIKA SONALIKA BTL(FML) BTL(FML) L & T L & T

FORD NEW HOLLAND FORD NEW HOLLAND

85028 85028 31396 31396 7900 7900 32017 32017 4464 4464 19951 19951 13214 13214 8450 8450 102500 102500 30010 30010 52400 52400 27700 27700 6500 6500 36200 36200 5050 5050 19720 19720 19400 19400 7195 7195 98700 98700 28040 28040 53400 53400 25450 25450 4770 4770 30920 30920 4820 4820 28530 28530 23250 23250 4520 4520 T TOOTTAAL L IINNDDUUSSTTRRYY 330022443355 336622667755 335500330000

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COMPANY’S 

COMPANY’S 

 PROFILE 

 PROFILE 

ESCOR

ESCOR

TS

TS

SYMBOL

SYMBOL

The Escorts symbol means more than a seen by eye. It has been prepared The Escorts symbol means more than a seen by eye. It has been prepared with certain objective in mind and is symbol in

with certain objective in mind and is symbol in more than one way.more than one way. The philosophy behind Escorts and the ‘

The philosophy behind Escorts and the ‘ e’e’ in the Escorts is “enterprise”.in the Escorts is “enterprise”. The hexagon is a symbol of

The hexagon is a symbol of productivityproductivity. Precision when interposed as a. Precision when interposed as a nut. It symbolizes

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super imposed on the hexagon represent the workers

super imposed on the hexagon represent the workers and the people of and the people of  Escorts. This forms the letter ‘E’ the first of Escorts

Escorts. This forms the letter ‘E’ the first of Escorts a company even of a company even of  more changing unveiling the future

more changing unveiling the future

MISSION

MISSION

For an Enterprise business mission

For an Enterprise business mission embodies of its endeavor, whichembodies of its endeavor, which acts as a guiding light for

acts as a guiding light for continuous development & growth.continuous development & growth. Mission of 

Mission of ESCORTSESCORTS is:is:

Engineering Changes through core competency for greater synergy Engineering Changes through core competency for greater synergy reinforcing bonds with customers & establishing powerful symbiotic reinforcing bonds with customers & establishing powerful symbiotic

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relationship with international allies, preparing global market. The relationship with international allies, preparing global market. The company wants to make a lasting difference to its

company wants to make a lasting difference to its shareholders, itsshareholders, its customers, its business associates, its employee and

customers, its business associates, its employee and the country as athe country as a whole. The company also gives better quality and better technology to whole. The company also gives better quality and better technology to customer and treats every customer as

customer and treats every customer as “special” to build respect for, and“special” to build respect for, and loyalty to, Escorts.

loyalty to, Escorts.

QUALITY POLICY

QUALITY POLICY

W

We shall strive to e shall strive to continuously improve to meet the continuously improve to meet the ever – risingever – rising expectation of our customers at the lower cost.

expectation of our customers at the lower cost. Each one of us Each one of us must fulfillmust fulfill the need of our customer, both internal and external with the highest

the need of our customer, both internal and external with the highest degree of commitment thereby creating a quality organization geared to degree of commitment thereby creating a quality organization geared to

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ensure total customer satisfaction and the sustained health and prosperity ensure total customer satisfaction and the sustained health and prosperity of our business.

of our business.

Customer Orientation:

Customer Orientation: TTo fulfill the o fulfill the requirement of our requirement of our internal andinternal and external customer.

external customer.

Process

Process OrientatioOrientation:n: TTo optimize o optimize and harmonize interrelated procesand harmonize interrelated processs rather than individual function.

rather than individual function.

Preventive Behavior:

Preventive Behavior: To prevent the mistake to happen.To prevent the mistake to happen.

BACKGROUND AND BUSINESS

BACKGROUND AND BUSINESS

The Escorts Group, with Escorts Limited as

The Escorts Group, with Escorts Limited as its flagship companyits flagship company, is, is among India’s leadin

among India’s leading corporations operating in the diverse field of g corporations operating in the diverse field of agriagri machinery

machinery, construction & , construction & material handling equipment, automotive material handling equipment, automotive && railway ancillaries information technology and financial services.

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group has 15 modern manufacturing facilities &

group has 15 modern manufacturing facilities & an extensive marketingan extensive marketing network spread across the country. The genesis of Escorts goes back to network spread across the country. The genesis of Escorts goes back to 1944 when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launched a 1944 when two brothers, Mr. H.P. Nanda and Mr. Yudi Nanda, launched a small agency house, Escorts Agents Ltd., in

small agency house, Escorts Agents Ltd., in Lahore. The company’sLahore. The company’s  principal activities were trading and representing leading overseas  principal activities were trading and representing leading overseas

manufacturers for the sale of their products in India. One of its manufacturers for the sale of their products in India. One of its dealerships was for the “Massey Ferguson” brand of

dealerships was for the “Massey Ferguson” brand of tractors.tractors. In December 1959, Escorts agents ltd. was

In December 1959, Escorts agents ltd. was converted into a publicconverted into a public limited company and was renamed as Escorts Limited (EL). In January limited company and was renamed as Escorts Limited (EL). In January 1960, EL decided to set up manufacturing facilities for making tractors in 1960, EL decided to set up manufacturing facilities for making tractors in India under the “Escorts” brand name

India under the “Escorts” brand name in the 25-40 Horsepower in the 25-40 Horsepower  categories. EL promoted Escorts Tractors Limited in 1969

categories. EL promoted Escorts Tractors Limited in 1969 as jointas joint venture with Ford Motor Company of USA for the manufacturing of  venture with Ford Motor Company of USA for the manufacturing of  ‘Ford’ series of tractors. The tractors manufactured were in the 45-50 HP ‘Ford’ series of tractors. The tractors manufactured were in the 45-50 HP range and ETL became the market leader in this s

range and ETL became the market leader in this segment with a share of egment with a share of  above 50%. Consequent to FMC’s disposal of tractors operations to Ford above 50%. Consequent to FMC’s disposal of tractors operations to Ford  New Holland, USA, Ford new holland acquired the shares of

 New Holland, USA, Ford new holland acquired the shares of FMC inFMC in ETL. Following an agreement in 1995 to end

ETL. Following an agreement in 1995 to end the joint venturethe joint venture association, EL

association, EL acquired the entire stacquired the entire stake of ake of ford new holland in ford new holland in AugustAugust 1995, making escorts tractors ltd. a subsidiary of

1995, making escorts tractors ltd. a subsidiary of Escorts Ltd.Escorts Ltd. Over the years, Escorts has

Over the years, Escorts has sured ahead and evolved into one of sured ahead and evolved into one of  India’

India’s largest conglomerates. Till 1993-94, all s largest conglomerates. Till 1993-94, all these activities were these activities were beingbeing carried out in various divisions of EL.

carried out in various divisions of EL. EL undertook a major restructuringEL undertook a major restructuring exercise between 94-98 spinning off the divisions into separate

exercise between 94-98 spinning off the divisions into separate companies.

companies.

The restructuring exercise-comprised consolidation of the The restructuring exercise-comprised consolidation of the agri-machinery business by merger

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divisions into separate companies. Biwheeler division was spun off to divisions into separate companies. Biwheeler division was spun off to Escorts Y

Escorts Yamaha Motors amaha Motors Ltd., construction equipment division Ltd., construction equipment division to Escortsto Escorts construction equipment Ltd., telecommunication equipment division to construction equipment Ltd., telecommunication equipment division to Escorts communication Ltd., EL booked gains of Rs. 2091 million over  Escorts communication Ltd., EL booked gains of Rs. 2091 million over  the four year period 1994-95 to 1997-98 though the sale

the four year period 1994-95 to 1997-98 though the sale of these the saleof these the sale of these divisions.

of these divisions.

The main products of Escorts

The main products of Escorts group currently comprise of agri-group currently comprise of agri-machinery

machinery, information , information technologytechnology, health , health care, financial care, financial services,services, railway components, auto components, construction and material railway components, auto components, construction and material handling equipment.

handling equipment.

BOARD OF DIRECTORS

BOARD OF DIRECTORS

Managing Director &Chairman

Managing Director &Chairman Mr. Rajan NandaMr. Rajan Nanda

Joint Managing Directors

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Directors

Directors Dr. M.G.K. MenonDr. M.G.K. Menon

Dr. S.A. Dave Dr. S.A. Dave Dr. P Dr. P.S. P.S. Pritamritam Mr. S.C. Bhargava Mr. S.C. Bhargava Sr

Sr.Vice Pres.Vice President- ident-Law &

Law & Company SecretaryCompany Secretary Mr. G.B. Mathur Mr. G.B. Mathur 

Exec. Vice President & Exec. Vice President &

Group Chief Financial Officer

Group Chief Financial Officer Mr. R.K.BudhirajaMr. R.K.Budhiraja

OUTLINE ORANISATION – ESCORTS GROUP OUTLINE ORANISATION – ESCORTS GROUP

Chairman & Managing Director – Sh. Rajan Nanda Chairman & Managing Director – Sh. Rajan Nanda

Secretariat Secretariat

F

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Escorts Limited Faridabad Escorts Limited Faridabad

Agri

Agri Machinery Machinery Engineering Engineering InternationalInternational Business Business

Co

Corprpororatate e CeCentnter er FaFariridadababad d EEscscororts ts ReReseseararch ch IInsnstititutute te of of FaFarmrm C

Ceenntteerr, , FFaarriiddaabbaad d MMeecchhaanniizzaattiioonn,, Bangalore Bangalore

P

Peerrssoonnnneel l FFiinnaanncce e PPrroojjeecct t EEssccoorrtts s HHeeaarrt t RReesseeaarrcchh EEssccoorrttss Medical

Medical

Institute,

Institute, New New Delhi Delhi Center, Center, FaridabadFaridabad

Administrati

Administration on and and Law Law Export Export andand S

Seeccuurriittyy CCoommmmuunniiccaattiioonn

A

Assssoocciiaattees s CCoommppaanniiees s SuSubbssiiddiiaarry y CCoommppaanniieess

Escorts Employees Welfare Trust Escorts Employees Welfare Trust

Faridabad Faridabad

OUTLINE ORANISATION – ESCORTS LIMITED OUTLINE ORANISATION – ESCORTS LIMITED

Chairman & Managing Director – Sh. Rajan Nanda Chairman & Managing Director – Sh. Rajan Nanda

Secretriat Secretriat

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Personnel Finance Personnel Finance

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aannd d SSeeccuurriitty y CCoommmmuunniiccaattiioonn

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SUBSIDERIES

SUBSIDERIES

Escorts Asset Management Ltd. Escorts Asset Management Ltd. Escorts Automotive Ltd.

Escorts Automotive Ltd. Escorts Class Ltd.

Escorts Class Ltd.

Escorts Construction Equipment Ltd. Escorts Construction Equipment Ltd.

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Escorts Heart Institute and Research Centre Ltd Escorts Heart Institute and Research Centre Ltd Escorts Hospital and Research Centre Ltd.

Escorts Hospital and Research Centre Ltd. Escorts Securities Ltd.

Escorts Securities Ltd. Escorts

Escorts TTelecommunication Ltd.elecommunication Ltd. Esconet Services ltd.

Esconet Services ltd.

Cellnext Solutions Pvt. Ltd. Cellnext Solutions Pvt. Ltd. I Serv India Solutions Pvt. Ltd. I Serv India Solutions Pvt. Ltd. Escosoft Technologi

Escosoft Technologies es Ltd.Ltd. Escosoft Techn

Escosoft Technologies (USA) ologies (USA) Ltd.Ltd. Escosoft Te

Escosoft Technologies (UK) Pvt. chnologies (UK) Pvt. Ltd.Ltd. Escosoft Singapore Pvt. Ltd.

Escosoft Singapore Pvt. Ltd. E-Soft (Mauritius) Holdings Ltd. E-Soft (Mauritius) Holdings Ltd. Escotel Mobile Communication Ltd. Escotel Mobile Communication Ltd. Escotel Telecommunication Ltd. Escotel Telecommunication Ltd. Escorts Agrimachiner  Escorts Agrimachiner 

BANKERS

BANKERS

IDBI BANK. IDBI BANK. ABN AMRO

ABN AMRO BANK BANK N.VN.V.. BANK OF BARODA. BANK OF BARODA. CITIBANK, N.A. CITIBANK, N.A.

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DEUTSCHE BANK AG. DEUTSCHE BANK AG.

HONGKONG & SHANGHAI BANKING CORPORATION LIMITED. HONGKONG & SHANGHAI BANKING CORPORATION LIMITED. HDFC BANK LIMITED.

HDFC BANK LIMITED.

PUNJAB NATIONAL BANK. PUNJAB NATIONAL BANK. STA

STATE BANTE BANK OF K OF INDIA.INDIA. STA

STATE TE BANK BANK OF TOF TRARAVVANCOANCORE.RE.

AGRI

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MACHINERY

MACHINERY

GROUP

GROUP

INTRODUCTION

INTRODUCTION

Having pioneered farm mechanization in

Having pioneered farm mechanization in the countrythe country, Escorts has, Escorts has  played a pivotal role in the agricultural growth of

 played a pivotal role in the agricultural growth of India for over fiveIndia for over five decades. One of the leading tractor manufacturers of

decades. One of the leading tractor manufacturers of the countrythe country, Escorts, Escorts  produces tractors in the 27-75 HP range and has already sold over

 produces tractors in the 27-75 HP range and has already sold over 6 lakh6 lakh tractors. Escorts AGRI MACHINERY GROUP (AM

tractors. Escorts AGRI MACHINERY GROUP (AMG) was G) was set up set up inin 1960 and they rolled out their batch of

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name of Escorts. Tod

name of Escorts. Today its tractors are may its tractors are marketed under three brandarketed under three brand names, viz. Escort, Powertrac and Farmtrac.

names, viz. Escort, Powertrac and Farmtrac.

Escorts Brand

Escorts Brand of tractors is symbolic of of tractors is symbolic of reliability and enjoys thereliability and enjoys the confidence of the farming community for

confidence of the farming community for the last 40 years.the last 40 years. Powertrac Brand

Powertrac Brand of tractors is the most of tractors is the most fuel-efficient tractor in their fuel-efficient tractor in their  respective categories that offer excellent value for money and have respective categories that offer excellent value for money and have helped the farmer improve their

helped the farmer improve their quality of life.quality of life. Farmtrac Brand

Farmtrac Brand is the most powerful premium range of tractors thatis the most powerful premium range of tractors that give maximum productivity to the farmers.

give maximum productivity to the farmers.

Spanning these three brands, the company has a

Spanning these three brands, the company has a full range of full range of  tractors to cater to the do

tractors to cater to the domestic as well as overseas markets. Themestic as well as overseas markets. The company is dev

company is developing state-of-the-art eloping state-of-the-art highly highly fuel efficient efuel efficient engines withngines with the assistance of 

the assistance of AVL of AustraliaAVL of Australia and have also entered into a Jointand have also entered into a Joint venture with

venture with CARRARO CARRARO SPSPAA of Italyof Italy for the manufacturing of for the manufacturing of  transmission and axles.

transmission and axles. T

To sustain the present momentum and o sustain the present momentum and to realize the future goals,to realize the future goals, Escorts has invested Rs. 60

Escorts has invested Rs. 60 crore towards strengthening new product.crore towards strengthening new product. Development programs and enhancement of R&D capabilities.

Development programs and enhancement of R&D capabilities. Additionally

Additionally, Rs.400 crore , Rs.400 crore has been invested towards has been invested towards modernization of modernization of  its manufacturing facilities bringing them

its manufacturing facilities bringing them to international standards. Theto international standards. The company has one of the most

company has one of the most comprehensive distribution networkscomprehensive distribution networks comprising of over 500 dealership / outlets and

comprising of over 500 dealership / outlets and 30 area offices spread30 area offices spread across the country

across the country. It has a . It has a manufacturing capacity of 75000 tractors per manufacturing capacity of 75000 tractors per  annum. Escorts Agri Machinery Group is looking at

annum. Escorts Agri Machinery Group is looking at forward andforward and  backward integration through genetic engineering.

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In line to their vision for

In line to their vision for becoming a major player in sub 100 HPbecoming a major player in sub 100 HP segment by 2011 in the global markets, they have increased their reach segment by 2011 in the global markets, they have increased their reach from a major regional player to major global markets, which stretch from from a major regional player to major global markets, which stretch from  North America to

 North America to Australia covering all the continents. Australia covering all the continents. Despite the strictDespite the strict competition by other major tractor manufactures they have been

competition by other major tractor manufactures they have been able toable to gain constant volumes in the global market. Their target for this year gain constant volumes in the global market. Their target for this year is tois to export 25% volumes of their total production volumes.

export 25% volumes of their total production volumes. T

To consolidate its presence o consolidate its presence in the overseas in the overseas markets, the companymarkets, the company has ventures in the USA and Europe (Poland). It has recently acquired a has ventures in the USA and Europe (Poland). It has recently acquired a majority stake in Long Agribusiness LLC, a

majority stake in Long Agribusiness LLC, a tractor distributing companytractor distributing company in USA and Poland Escort Spolka Z.O.O.,

in USA and Poland Escort Spolka Z.O.O., Poland. Besides the USA andPoland. Besides the USA and Poland, Escorts ha

Poland, Escorts has strong s strong presence in Turkeypresence in Turkey, Australia, Bangladesh, Sri, Australia, Bangladesh, Sri Lanka, Nepal, Kenya, Tanzania and South Africa etc. though

Lanka, Nepal, Kenya, Tanzania and South Africa etc. though its dealersits dealers network in these countries. Escorts have very ambitious plans

network in these countries. Escorts have very ambitious plans to expandto expand the network in other potential countries in the coming year. By the end of  the network in other potential countries in the coming year. By the end of  next year, the company hopes to be largest exporter of tractors in the

next year, the company hopes to be largest exporter of tractors in the Indian tractor

Indian tractor industryindustry..

AGRI M

AGRI M

ACHINERY GROUP

ACHINERY GROUP

CONTRIBUTION

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AMG contribution is Almost Half of the Total Revenues of Escort Group. AMG contribution is Almost Half of the Total Revenues of Escort Group.

MODERNIZATION OF

MODERNIZATION OF

AGRI MACHINERY GROUP

AGRI MACHINERY GROUP

Escorts Agri Machinery Group (AMG) has

Escorts Agri Machinery Group (AMG) has invested over invested over USUS $7.5

$7.5 million in state omillion in state of the Art & Research f the Art & Research and Development Center.and Development Center.

56%

56%

9%

9%

12%

12%

23%

23%

AMG

AMG

Auto Ancilliary

Auto Ancilliary

Parts

Parts

Railway

Railway

Equipments

Equipments

Construction

Construction

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V

Virtual prototypes of components and irtual prototypes of components and aggregate assemblies are made aggregate assemblies are made andand assembled on

assembled on computer workstations using computer workstations using 3D technology3D technology. Their . Their 

 performance is checked on computers using simulation techniques thus  performance is checked on computers using simulation techniques thus

saving a lot of time

saving a lot of time for the end-user as well for the end-user as well as lowering developmentas lowering development costs. The R&D center uses advanced 3D modeling, analysis and costs. The R&D center uses advanced 3D modeling, analysis and simulation software for engines, transmission and vehicles. Physical simulation software for engines, transmission and vehicles. Physical  prototypes are then extensively tested for performance, durability and  prototypes are then extensively tested for performance, durability and

reliability

reliability. Facilities . Facilities include a high include a high –technology engine laboratory–technology engine laboratory featuring fully computerized test-beds with on line control, data featuring fully computerized test-beds with on line control, data collection, and analysis.

collection, and analysis.

PRODUCTS

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COMPANY’S FUTURE

COMPANY’S FUTURE

The growing domestic demand for food gains and

The growing domestic demand for food gains and agri productsagri products  promises a very

 promises a very good future for good future for company’company’s business. With exemption of s business. With exemption of  excise duty on tractors and growing importance of

excise duty on tractors and growing importance of agriculture sector inagriculture sector in the growth of Indian economy India can

the growth of Indian economy India can become a major exporter of agribecome a major exporter of agri  products and inc

 products and increased demand botreased demand both domestic and h domestic and export export will call for will call for  increased yields. Tractors population today is concentrated in 10% of  increased yields. Tractors population today is concentrated in 10% of  villages and even today 70% of the villages do not

villages and even today 70% of the villages do not have tractor .Crisilhave tractor .Crisil infa has estimated an

infa has estimated an annual demand 3.0 lacks to 3.20 annual demand 3.0 lacks to 3.20 lakhs of tractorslakhs of tractors by 2007-08 vs. 2.4 lakhs in 2006-07

by 2007-08 vs. 2.4 lakhs in 2006-07. All these show great potential for . All these show great potential for  growth in the industry and thus in the co

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CASH

CASH

MANAGEMENT

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INTRODUCTION

INTRODUCTION

Cash is the important current asset

Cash is the important current asset for the operation of the business.for the operation of the business. Cash is a medium

Cash is a medium of exchange to purchase the goods and services and of exchange to purchase the goods and services and toto discharge the liabilities. Cash is the basic input needed to keep the

discharge the liabilities. Cash is the basic input needed to keep the  business running on a continuous basis; it is also

 business running on a continuous basis; it is also the ultimate outputthe ultimate output expected to be realized by selling the service or

expected to be realized by selling the service or product manufactured byproduct manufactured by the firm. The firm s

the firm. The firm should keep sufficient cash, neither more nor less.hould keep sufficient cash, neither more nor less. Cash shortage will disrupt

Cash shortage will disrupt the firm’s manufacturing operations whilethe firm’s manufacturing operations while excessive cash will si

excessive cash will simply remain idle, without contributing anythingmply remain idle, without contributing anything towards the firm’s profitability

towards the firm’s profitability. Thus a . Thus a major function of major function of the financialthe financial manager is to maintain a

manager is to maintain a sound cash position.sound cash position. Cash is the money which a f

Cash is the money which a firm can disburse immediately withoutirm can disburse immediately without any restriction. The term cash includes coins, currency and cheques any restriction. The term cash includes coins, currency and cheques heldheld  by the firm, and balances in

 by the firm, and balances in its bank accounts. Sometimes near cashits bank accounts. Sometimes near cash terms, such as marketable securities or bank time deposits, are also terms, such as marketable securities or bank time deposits, are also included in cash. The basic characteristic of near cash

included in cash. The basic characteristic of near cash asset is that theyasset is that they can readily be converted into cash. Generally, when a firm has excess can readily be converted into cash. Generally, when a firm has excess

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cash, it invests it in marketable s

cash, it invests it in marketable securities. This kind of investmentecurities. This kind of investment contributes some profit to the firm.

contributes some profit to the firm.

CASH

CASH

FLOW

FLOW

MANAGEMENT

MANAGEMENT

Cash flow management is a process

Cash flow management is a process of monitoring, analyzing, andof monitoring, analyzing, and adjusting one’

adjusting one’s business cash flows. s business cash flows. The most important aspect of cashThe most important aspect of cash flow management is avoiding extended cash shortages, caused by having flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows

too great a gap between cash inflows and outflows. Therefore, oneand outflows. Therefore, one needs to perform a

needs to perform a cash flow analysiscash flow analysis on a regular basis, and use cashon a regular basis, and use cash flow forecasting so that one can take

flow forecasting so that one can take the steps necessary to head off cashthe steps necessary to head off cash flow problems.

flow problems.

Cash management involves the e

Cash management involves the efficient collection, disbursement andfficient collection, disbursement and temporary investment of cash. The treasurer department of

temporary investment of cash. The treasurer department of a company isa company is usually responsible for the

usually responsible for the firm’s cash management system. A firm’s cash management system. A cashcash  budget, instrumental i

 budget, instrumental in the process, tell us n the process, tell us how much cash we lihow much cash we likely tokely to have it, and for how long.

have it, and for how long.

In cash flow management I

In cash flow management I studied many statements like asstudied many statements like as follows:

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Cash flow Statement Cash flow Statement Cash Budget

Cash Budget

CASH MANAGEMENT SYSTEM

CASH MANAGEMENT SYSTEM

Wit

With timely information reporting a firh timely information reporting a firm can generate significantm can generate significant income by properly managing collections, disbursement cash balance and income by properly managing collections, disbursement cash balance and cash equivalents investment,

cash equivalents investment,

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Cash

Cash

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IMPORT

IMPORT

ANCE

ANCE

OF CASH

OF CASH

MANAGEMENT

MANAGEMENT

Cash management assumes more important than other current

Cash management assumes more important than other current assetsassets  because cash is the most

 because cash is the most significant and the least productive asset that asignificant and the least productive asset that a firm holds. It is

firm holds. It is significant because it is used to pay the firsignificant because it is used to pay the firms obligations.ms obligations. However cash is unproductive. Unlike fixed assets or inventories, it does However cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for sale. Therefore, the aim

not produce goods for sale. Therefore, the aim of cash management is toof cash management is to maintain adequate control over cash position to keep the firm

maintain adequate control over cash position to keep the firm sufficientlysufficiently liquid and to excess

liquid and to excess cash in some cash in some profitable wayprofitable way.. Cash management is also important because it is

Cash management is also important because it is difficult to predictdifficult to predict cash flow accurately

cash flow accurately, particularly the inflows and there is , particularly the inflows and there is no perfectno perfect coincidence between the inflows or outflows of cash. During some coincidence between the inflows or outflows of cash. During some  periods, cash outflows will exceed cash inflows, because payments for   periods, cash outflows will exceed cash inflows, because payments for 

taxes, dividends, or seasonal

taxes, dividends, or seasonal inventory build up. At other times, cashinventory build up. At other times, cash inflows will be more than cash

inflows will be more than cash payments because there will be large cashpayments because there will be large cash sales and debtors may be realized in

sales and debtors may be realized in large sums promptlylarge sums promptly..

Ca

Cash E

sh E u

uiiva

vale

lent

ntss

Control Through Information Report

Control Through Information Report

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Cash management is significant because cash constitutes the Cash management is significant because cash constitutes the smallest portion of

smallest portion of the total the total current assets, yet mancurrent assets, yet management’agement’ss considerable time is devoted in managing it.

considerable time is devoted in managing it.

CASH

CASH

MANAGEMENT STRA

MANAGEMENT STRA

TEGIES

TEGIES

The firm should develop appropriate strategies for

The firm should develop appropriate strategies for cash management.cash management. The firm should evolve strategies regarding the following four

The firm should evolve strategies regarding the following four facets of facets of  cash management:

cash management:

Cash planning

Cash planning cash inflow and outflow should be planned to projectcash inflow and outflow should be planned to project cash surplus or deficit for

cash surplus or deficit for each period for each period of the each period for each period of the planningplanning  period. Cash budget should be prepared for this

 period. Cash budget should be prepared for this purpose.purpose.

Managing the cash flows

Managing the cash flows the flow of cash should be the flow of cash should be properly managed.properly managed. The cash inflows should be accelerated while, as

The cash inflows should be accelerated while, as far as possible, the cashfar as possible, the cash outflows should be decelerated.

outflows should be decelerated.

Optimum cash level

Optimum cash level the firms should decide about the appropriatethe firms should decide about the appropriate level of cash balances. The cost of

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deficiency should be matched to determine the optimum level of deficiency should be matched to determine the optimum level of cashcash  balances.

 balances.

Investing surplus cash

Investing surplus cash the surplus cash balances should be properlythe surplus cash balances should be properly invested to earn profits. The firm s

invested to earn profits. The firm should decide about the division of suchhould decide about the division of such cash balance between short-term investment opportunities such as bank  cash balance between short-term investment opportunities such as bank  deposits, marketable securities, or

deposits, marketable securities, or inter- corporate lending.inter- corporate lending.

CASH OUTFLOW

CASH OUTFLOW

For cash management, the control of

For cash management, the control of cash outflows, which iscash outflows, which is directly related to organizational arrangements for

directly related to organizational arrangements for budget execution, canbudget execution, can  pose more difficulties than the control of cash

 pose more difficulties than the control of cash inflows. Howeverinflows. However, issues, issues related to cash management should not be confused with iss

related to cash management should not be confused with issues related toues related to the distribution of responsibilities for accounting control and

the distribution of responsibilities for accounting control and administration of the payment system. The major purpose of

administration of the payment system. The major purpose of controllingcontrolling cash outflows is to ensure that there

cash outflows is to ensure that there will be enough cash until the datewill be enough cash until the date  payments are due and to minimize

 payments are due and to minimize the costs of transactions, whilethe costs of transactions, while keeping cash outflows compatible with cash inflows and fiscal keeping cash outflows compatible with cash inflows and fiscal constraints. The first condition for ensuring that cash outflows fit

constraints. The first condition for ensuring that cash outflows fit fiscalfiscal constraints is good budget preparation and

constraints is good budget preparation and budget implementationbudget implementation covering both cash and

covering both cash and obligations. Howeverobligations. However, during budget, during budget

implementation, cash outflows must also be regulated through cash plans implementation, cash outflows must also be regulated through cash plans to smooth cash outflows.

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CASH INFLOW

CASH INFLOW

It is necessary to minimize

It is necessary to minimize the interval between the time when cashthe interval between the time when cash is received and the time it

is received and the time it is available for carrying out expenditureis available for carrying out expenditure  programs. Collected revenues need to be processed promptly and made  programs. Collected revenues need to be processed promptly and made available for use. When tax collection is done by the tax administration available for use. When tax collection is done by the tax administration offices (or by Treasury offices) the

offices (or by Treasury offices) the administrative organizatioadministrative organization of n of thesethese offices may have to be reviewed and their

offices may have to be reviewed and their equipment modernized.equipment modernized. Commercial banks by virtue of the

Commercial banks by virtue of the banking sector infrastructure are oftenbanking sector infrastructure are often able to collect revenues more efficiently than tax offices, which should able to collect revenues more efficiently than tax offices, which should therefore focus instead on tracking taxpayers. When revenues are

therefore focus instead on tracking taxpayers. When revenues are collected by commercial banks, arrangements must be defined to

collected by commercial banks, arrangements must be defined to foster foster  competition and ensure prompt transfer of collected revenues to

competition and ensure prompt transfer of collected revenues to government accounts. Systems of bank remuneration through float, government accounts. Systems of bank remuneration through float, which consists of authorizing the banks to keep the revenues

which consists of authorizing the banks to keep the revenues collected for collected for  a few days, present inconveniences. Stringent rules to ensure

a few days, present inconveniences. Stringent rules to ensure promptprompt transfers must be established. Moreover, bank remuneration through fees transfers must be established. Moreover, bank remuneration through fees

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is more transparent

is more transparent and promotes competitive bidding. An appropriateand promotes competitive bidding. An appropriate system of penalties for taxpayers

system of penalties for taxpayers is also an important element in avoidingis also an important element in avoiding delays in revenue collection.

delays in revenue collection.

CASH FLOW STATEMENT

CASH FLOW STATEMENT

Meaning: Meaning: IT IS a

IT IS a summary of firm’s cash receipts and cash payments duringsummary of firm’s cash receipts and cash payments during period of time

period of time..

The purpose of cash f

The purpose of cash flow statement is to report a flow statement is to report a firm’s cashirm’s cash inflow and outflows, during a period of time,

inflow and outflows, during a period of time, segregated in to threesegregated in to three categories:

categories: operating, investing andoperating, investing and financing activities.financing activities. The statement of cash f

The statement of cash flow explains changes in cash and cashlow explains changes in cash and cash equivalent such as treasure bill and the activities that increase

equivalent such as treasure bill and the activities that increase andand decrease cash. The cash flow statement may

decrease cash. The cash flow statement may be presented using either abe presented using either a “direct method” (Which is

“direct method” (Which is encouraged by financial accounting standardsencouraged by financial accounting standards  board) or an “Indirect Method” (which is

 board) or an “Indirect Method” (which is likely to be the methodlikely to be the method followed by good majority of firms). The

followed by good majority of firms). The only difference between theonly difference between the direct and indirect method of presentation concern the reporting of  direct and indirect method of presentation concern the reporting of  operating activities; the investing and financing activities

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 be identical under either method. Under the direct method, operating cash  be identical under either method. Under the direct method, operating cash

flow reported directly by major classes of operating cash receipts (from flow reported directly by major classes of operating cash receipts (from customers) and payment

customers) and payment (to suppliers and e(to suppliers and employees). A mployees). A separate indirectseparate indirect reconciliation of Net income to net cash flow

reconciliation of Net income to net cash flow from operating activitiesfrom operating activities must be provided. The reconciliation starts with reported net income and must be provided. The reconciliation starts with reported net income and adjusts this figure for non-cash income

adjusts this figure for non-cash income statement items and relatedstatement items and related changes in balance sheet items to determine cash

changes in balance sheet items to determine cash provides by operatingprovides by operating activities.

activities.

Cash flow statement has three activities like as

Cash flow statement has three activities like as follow:follow:

Operating Activities

Operating Activities:- Shows impact of transactions not defined :- Shows impact of transactions not defined asas investigation or financing activities. These cash flows are generally the investigation or financing activities. These cash flows are generally the cash effects or transaction that enter into the

cash effects or transaction that enter into the determination of net income.determination of net income. Thus, we see items that not all statement users might think of as

Thus, we see items that not all statement users might think of as ‘operating’

‘operating’ flows-items such as flows-items such as dividends and interest received, as dividends and interest received, as well aswell as interest paid.

interest paid.

Investing Activities

Investing Activities:- :- Shows impact Shows impact of buying of buying and selling and selling fixed assetsfixed assets or equity securities of other entities.

or equity securities of other entities.

Financing Activities

Financing Activities:- Shows impact of :- Shows impact of all cash transactions withall cash transactions with

shareholders and the borrowing and repaying transactions with lenders. shareholders and the borrowing and repaying transactions with lenders.

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IMPORTANCE

IMPORTANCE

 The effects of cash and The effects of cash and non-cash investing and financingnon-cash investing and financing transaction.

transaction.

 A manager can assess the reason for differences between netA manager can assess the reason for differences between net income and net cash flow fr

income and net cash flow from operating activities.om operating activities.

 It is also helpful for a company to generate future net cash inflowsIt is also helpful for a company to generate future net cash inflows from operations to pay debts, interest

from operations to pay debts, interest and dividends.and dividends.

 It gives indication to a It gives indication to a company’company’s need for s need for external financing.external financing.

 A cash flow statement is straightforward and easy toA cash flow statement is straightforward and easy to Understand.

Understand.

 It gives a strong indication of how viable the company will be over It gives a strong indication of how viable the company will be over  time.

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 The extent of success or The extent of success or failure of cash planning can be failure of cash planning can be known byknown by comparing the actual cash statement with the budgeted cash flow comparing the actual cash statement with the budgeted cash flow statement and remedial measures can be

statement and remedial measures can be taken.taken.

 It discloses the volume and the It discloses the volume and the speed at which cash flows inspeed at which cash flows in different segments of the business

different segments of the business

DAILY CASH FLOW REPORT

DAILY CASH FLOW REPORT

The Daily Cash Flow report is

The Daily Cash Flow report is prepared with an objective to keepprepared with an objective to keep incessant check on the cash flows of

incessant check on the cash flows of the firm, which includes both inflowthe firm, which includes both inflow and outflow cash. The cash flows are planned to project cash

and outflow cash. The cash flows are planned to project cash surplus or surplus or  deficit for each period i.e daily, monthly, quarterly, semi-annual & annual deficit for each period i.e daily, monthly, quarterly, semi-annual & annual  basis. The framework of report highlights all the effects, which lead

 basis. The framework of report highlights all the effects, which lead toto cash surplus or deficit. It

cash surplus or deficit. It is a measure, which calculates the details of is a measure, which calculates the details of  daily transaction in terms of sale

daily transaction in terms of sale and purchase, which further includes theand purchase, which further includes the means through which they take place.

means through which they take place.

At Escorts-AMG, the daily cash flow report is

At Escorts-AMG, the daily cash flow report is designed in a formatdesigned in a format suiting their requirements .The sales of tractors is their primary goal

suiting their requirements .The sales of tractors is their primary goal which includes exports as well. The bills are presented for

which includes exports as well. The bills are presented for desireddesired collection from various channels i.e dealers, stockiest, distributors collection from various channels i.e dealers, stockiest, distributors through which the tractors are supplied in the market.

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they also deal in engines, backend, implements which are included in the they also deal in engines, backend, implements which are included in the category of other receipts. The receipts are other than

category of other receipts. The receipts are other than collections as theycollections as they aren’t generated through sales. Next come the payments, which are made aren’t generated through sales. Next come the payments, which are made in discharge of financial obligation towards various suppliers, bank 

in discharge of financial obligation towards various suppliers, bank   payments, excise duty, salary & wages etc.

 payments, excise duty, salary & wages etc.

Through the various collections, receipts and payment, we are now Through the various collections, receipts and payment, we are now in a position to derive the surplus

in a position to derive the surplus or deficit which is the result of or deficit which is the result of aboveabove transactions. The surplus balance shows that the collections & receipts transactions. The surplus balance shows that the collections & receipts are more than payments and

are more than payments and vice-a-versa in case of deficit. Thoughvice-a-versa in case of deficit. Though surplus is an indicator of

surplus is an indicator of sound financial position and deficits the other sound financial position and deficits the other  way round, but excess surplus is

way round, but excess surplus is also not considered healthy which hasalso not considered healthy which has reasons to it like inventory pile up and

reasons to it like inventory pile up and so on.so on. The last component of the cash flow

The last component of the cash flow report is the outstandingreport is the outstanding debtors, which is calculated by subtracting billing & collection from debtors, which is calculated by subtracting billing & collection from opening o/s of debtors in domestic, export and other categories. This opening o/s of debtors in domestic, export and other categories. This wayway the day to day cash transactions are

the day to day cash transactions are maintained through the cash flowmaintained through the cash flow report which leads to

report which leads to proper functioning of proper functioning of an organization’an organization’s resourcess resources  both men & material.

 both men & material.

COMPONENTS

COMPONENTS

The annual cash flow statement at Es

The annual cash flow statement at Escort- AMcort- AMG is prepared for G is prepared for the fiscalthe fiscal  period commencing from 01/10/20XX to 31/09/20XX. They are also  period commencing from 01/10/20XX to 31/09/20XX. They are also

maintaining the daily cash flow report with a purpose o

References

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