CORPORATE FINANCIAL MANAGEMENT

Submitted By Group No. 4

SYBBA

Anshuman Dandriyal – A016

Archit Sinha – A017

Ayushi Mehta – A018

Archit Puri – A019

Daksh Gupta – A020

UNDER THE GUIDANCE OF

PROF. KUSHAGRA GOEL

NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

ANIL SURENDRA MODI SCHOOL OF COMMERCE

2013-16

2  

Acknowledgement

In performing our assignment, we had to take the help and guideline of some

respected persons, who deserve our greatest gratitude. We would like to show our

gratitude Prof. Kushagra Goel, Corporate Financial Management, NMIMS for

giving us a good guideline for assignment throughout numerous consultations. We

would also like to expand our deepest gratitude to all those who have directly and

indirectly guided us in writing this assignment.

Many people, especially our classmates and team members itself, have made

valuable comment suggestions on this proposal, which gave us an inspiration to

improve our assignment. We thank all the people for their help directly and

indirectly to complete our assignment.

The Authors.

3  

Motherson Sumi Systems

Motherson Sumi Systems, established in 1986 is the flagship company of

the Samvardhana Motherson Group. Motherson Sumi Systems is a joint venture

between Samvardhana Motherson Group and Sumitomo Wiring Systems of Japan.

Motherson Sumi Systems is a leading automotive mirror and wiring harness

manufacturer for passenger cars. It also supplies plastic components and modules

to the automotive industry. Motherson Sumi Systems has offices and

manufacturing units in 24 international & 11 Indian locations.

History

First group company "Motherson" was established in 1976. However,

Motherson Sumi Systems did not come into existence till 1986 when Joint Venture

with Sumitomo Wiring Systems (of Japan) was formulated. Following are the key

timelines.

Stoneridge Acquisition

Auto component manufacturer Motherson Sumi Systems Ltd (MSSL) has

entered into an agreement to acquire Stoneridge Inc’s wiring harness business for

$65.7 million. The acquisition is expected to close in the third quarter of 2014 and

the acquired company has a turnover of nearly $300 million.

This acquisition will further strengthen the company's presence in North

America where it has in the recent past, established wiring harness operations. This

is by far the largest acquisition for the core business of wiring harnesses.

Previous Acquisitions

Before this, MSSL has done 10 acquisitions, the first being in wiring harness

in 2002, and other noticeable being acquisition of mirror business from Visiocorp

4  

(now renamed as Samvardhana Motherson Reflectec) in 2009 and Peguform (now

named Samvardhana Motherson Peguform) in 2011, which established Motherson

as a global Tier-1 supplier to the major OEMs of the automotive industry.

Company Timeline

Year Events 1975 Motherson founded 1977 First Cable factory started

1983 Technical agreement with Sumitomo Wiring Systems, Japan for Wiring Harness

1986 JV with Sumitomo Wiring Systems, Japan 1989 Injection Moulding commencement 1992 Cutting Tool Manufacturing 1999 First Overseas office established (Austria) 2000 Representative Office at Singapore

2002 Established wiring harness manufacturing at Sharjah and design centre at Ireland

2003 Offices in USA & UK established 2004 European Headquarters established in Germany 2005 Established fabrication units in Germany 2006 Established fabrication units in UK 2007 Established fabrication units in Australia 2009 Takeover of Visiocorp 2011 Takeover of Peguform 2014 Takeover of Stoneridge Wiring Division 2014 New Plant Start in Noida of Injection Moulding (MAE_ NOIDA)

5  

Motherson Sumi Systems Limited Company Profile

Type Public BSE: 517334 NSE: MOTHERSUMI

Industry Automotive

Founded January 1, 1986

Founder Mrs. S. L. Sehgal

Headquarters Noida, India

Number of locations 35

Key people Vivek Chaand Sehgal(Chairman) Vaaman Sehgal (Vice-Chairman) Pankaj Mital (COO)

Products Electrical Distribution Systems & Polymer Processing

Revenue 32000 crore(US$5.0 billion)

Net income 391 crore(US$61 million)

Total assets

2236 crore(US$350 million) (Net fixed assets)

Number of employees 28,000

Parent

Samvardhana Motherson Group

6  

Capital Structure

Capital structure is that part of financial structure which represents long-

term sources. Capital structure includes only long-term debt and total stockholder’s

investment. It is the mix of long-term sources of funds, such as equity shares,

reserves and surpluses, debentures, long- term debt from outside sources and

preference share capital .The firm’s mixture of debt and equity is known as capital

structure. Capital structure refers to composition of capitalization i.e. to the

proportion between debt and equity, which makes up capitalization. The term

structure has been associated with the term capita. The term capita may be defined

as the long-term funds of the firm. Capital is the aggregation of items appearing on

the left hand side of the balance sheet minus current liabilities.

o Capital=Total Assets-Current Liabilities.

Capital of a company can be broadly categorized into equity and debt

• Equity = Equity Share Capital+ preference share capital + share premium +

free reserves + surplus profits + provision for contingency + development

rebate reserve.

• Debt = All borrowings from government, semi-government, statutory

financial corporations and other agencies + term loans from banks ,financial

institutions etc + Debentures + All deferred payment liabilities

7  

Consolidated Balance Sheet of Motherson Sumi Systems Ltd. for 2009-2014

The company has low equity capital due to the practice of ploughing back of

profits in the last 29 years of operations. The shareholders funds are roughly 3/5th

 

8  

of the total debt. The debt of 4839 Cr. is due the credit sales that are transacted in

large volumes.

COST OF DEBT It is the effective rate that a company pays on its current debt. This can be

measured in either before- or after-tax returns; however, because interest expense

is deductible, the after-tax cost is seen most often. This is one part of the

company's capital structure, which also includes the cost of equity.

A company will use various bonds, loans and other forms of debt, so this

measure is useful for giving an idea as to the overall rate being paid by the

company to use debt financing. The measure can also give investors an idea as to

the riskiness of the company compared to others, because riskier companies

generally have a higher cost of debt as it takes upon a bigger amount of debt than

other companies.

The following formula was used to calculate the Cost of Debt for Motherson

Sumi Systems Ltd.

Cost of Debt = Interest Paid ( 1-tax rate) Average of debt of 2 years

We used information from the annual report of 2013-2014. Shown below is the Balance Sheet and Cash Flow Statement of Motherson Sumi Systems ltd from their Annual Report 2013-2014

9  

10  

Calculation of Cost of Debt (all figures are in million)

Year 2013 => Short Term Borrowings = 3,263

+ = 8,358

Long Term Borrowings = 5,095

Year 2014 => Short Term Borrowings = 1,957

+ = 6,178

Long Term Borrowings = 4,221

Average Debt of 2 years = 8,359 + 6,178 = 7,268 2

Cost of Debt = 417(1-0.30) = 0.040162 => 4.0162% 7,268 (Where tax rate is assumed to be 30%)

Comparisons

• With previous year’s data

Cost of Debt for Financial Year 2012-2013 is = 4.398%

• With Competitor- Minda Industries Ltd ( Subsidary- Minda Auto

Components )

11  

Current Price of Minda ltd is 574.95 and its Market Cap is 912.1. Whereas

Current Price of MSSL is 509.50 and Market Cap is 44933.79

Cost of Debt for Minda Ltd for the financial year 2013-2014 = 3.409%

Analysis

Cost of Debt shows the riskiness of a company compared to others.

A higher Cost of Debt indicates that the company is more risky to invest in. Wgere

as a lower cost of debt indicates that the company has a lower risk and thus

investors should invest in them.

MSSL’s Cost of Debt has decreased marginally by 0.3% approximately from

Financial year 2012-2013 to 2013-2014. The risk factor has barely changed.

However compared to its competitors, MSSL is a more risky company than Mind

ltd. Minda ltd has a lower cost of debt thus the risk factor to invest in that firm is

less than that of MSSL.

PREFERENCE SHARES

• Preference shares are those shares which carry certain special or priority

rights. Dividend at a fixed rate is payable on these shares before any

dividend is paid on equity shares.

• At the time of winding up of the company, capital is repaid to preference

shareholders prior to the return of equity capital. Preference shares do not

carry voting rights.

12  

• However, holders of preference shares may claim voting rights if the

dividends are not paid for two years or more on cumulative preference

shares and three years or more on non-cumulative preference shares.

• Preference shares have the characteristics of both equity shares and

debentures. Like equity shares, dividend on preference shares is payable

only when there are profits and at the discretion of the Board of Directors.

• Preference shares are similar to debentures in the sense that the rate of

dividend is fixed and preference shareholders do not generally enjoy voting

rights. Therefore, preference shares are a hybrid form of financing.

Preference Shares of MSSL

The company issued Redeemable Preference Share in the financial years 2009-

2010 and 2010-2011. They issued total shares of 10 Crs each during both the years.

However they did not issue any preference shares after financial year 2010-2010

Cost of Preference Shares:

Cost of Preference Capital (Kp) = Amount of Preference Shares Dividend Preference Shares Capital

13  

Cost of preference Shares = 0.93/10 = 9.3%

14  

COST OF EQUITY In financial theory, the return that stockholders require for a company is the

cost of equity.

CAPM

It is a model that describes the relationship between risk and expected return

and that is used in the pricing of risky securities.

Cost of Equity = Risk-free rate of return + Beta of asset * (Expected return of the

market – Risk free rate of return)

Where beta is the measure of the volatility, or systematic risk, of a security or a

portfolio in comparison to the market as a whole.

The general idea behind CAPM is that investors need to be compensated in

two ways: time value of money and risk. The time value of money is represented

by the risk-free (rf) rate in the formula and compensates the investors for placing

money in any investment over a period of time. The other half of the formula

represents risk and calculates the amount of compensation the investor needs for

taking on additional risk. This is calculated by taking a risk measure (beta) that

compares the returns of the asset to the market over a period of time and to the

market premium (Rm-rf).

15  

For Motherson Sumi

Cost of Equity = Risk-free rate of return + Beta of asset * (Expected return of the

market – Risk free rate of return)

= 7.78% + 0.97 x (15.2%-7.78%)

= 14.977%

For Comparison:-

The cost of equity of JBM Auto = 7.78% + 0.90 x (15.2%-7.78%)

=14.458%

This comparison shows that Motherson Sumi Systems Ltd. is a better company to

invest in.

16  

CASH BUDGET

It is an estimation of the cash inflows and outflows for a business or

individual for a specific period of time. Cash budgets are often used to assess

whether the entity has sufficient cash to fulfil regular operations and/or whether

too much cash is being left in unproductive capacities.

A cash budget is extremely important, especially for small businesses,

because it allows a company to determine how much credit it can extend to

customers before it begins to have liquidity problems.

For individuals, creating a cash budget is a good method for determining

where their cash is regularly being spent. This awareness can be beneficial because

knowing the value of certain expenditures can yield opportunities for additional

savings by cutting unnecessary costs.

For example, without setting a cash budget, spending a dollar a day on a cup

of coffee seems fairly unimpressive. However, upon setting a cash budget to

account for regular annual cash expenditures, this seemingly small daily

expenditure comes out to an annual total of $365, which may be better spent on

other things. If you frequently visit specialty coffee shops, your annual expenditure

will be substantially more.

17  

Analysis of Cash Flow Statement 2014:

Ø In the current period the company’s Cash & Cash equivalents have decreased almost 74.33% from 64.3 crores in 2013 to 16.5 crores in 2014, this hints that the spending have increased in the current year.

Ø Cash Flow from Operating activities increased by 11.55% from 600 crores in 2013 to 669.3 crores in 2014. This was due to a 121.5 crores increase in Cash inflow, however there was a 52.2 crores increase in Net Direct tax paid as compared to 2013.

Ø Cash used in Investing activities decreased by 13.96 % from 354.4 crores in 2013 to 304.9 crores in 2014. The company purchased fixed assets worth 152.6 crores in 2014, a decrease of 165.6 crores from 2013.

Ø Cash used in Financing activities increased by 105.68% from 200.4 crores in 2013 to 412.2 crores used in 2014. The major reason for this was the company’s proceeds from other long term borrowings and short term borrowings was 130.7 crores and 180 crores respectively in 2013 and nil for both in 2014. There was also increase in outflow due to repayment of Long Term Borrowings by 24.3 crores and payment of dividend by 28.6 crores.

Factors affecting Cash Budget

Sales and Purchase:

18  

Purchase of material and sale of goods are the base of any production business. The flow of these materials and the methodology that goes into acquiring and selling them affects the necessicity and of cash in the business and must thus be in a manner to ensure smooth operations. Credit period allowded to customers: If we allow our customers to buy goods on credit, they become our debtors and thus owe us the payment for said goods. If we have a high level of debtors and provide a flexible credit period, our Cash Budget should ensure surplus of cash available to help counter the delayed payments by our customers. Credit period alloweded by suppliers: If we are supplied with flexible credit periods from our suppliers, we have the option to structure the Cash Budget to ensure only availability of funds when payments are to be made, which is far from the date of procurement of supplies. Capex:

Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assests such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building, to purchasing a piece of a equipment, or building a brand new factory.

In case we plan on undertaking any such investment plans, we must ensure a steady cash flow to ensure smooth operations and must thus be included in the Cash Budget.

19  

Debtors Period

• Debtors are organizations or people that owe the business money.

• Debtor’s collection period is the average amount of days it takes, for the

business to receive the money it is owed from its customers.

• A short debtor’s collection period is good because the sooner debtors pay the

business the better as it helps cash flow and reduces the risk of customers

not paying the money they owe.

Example

• For example, suppose that a company, XYZ Corp, has total credit sales of

Rs.200000 during a year (assume 365 days) and has an average amount of

accounts receivables is Rs.75000.

• It’s average collection period is 136.875 days.

Motherson Sumi Systems Ltd’s Debtors Period

• Debtor’s Collection Period = Debtors x 365 Sales Turnover

• (3,238.4/30,997.4) x 365 = 38.132

• 38 days (approx.)

20  

Factors affecting Debtor Period:

Economy: The ecomony plays an overall role in the functioning of all businesses that are a part of the country. Thus if the economy is booming or in recession, it plays an adverse effect on the status of the business and it’s operations. Cash Liquidity of the Debtor: Availablility of cash with the debtor is vital as it dictates how and when the debtor will be able to repay what he owes. In this industry, most trasactions are processed on a credit basis initially, thus the cash liquidity of the debtor matters to a large extent as the debtor will only be able to pay us when they have the right amount of luquidity to do so. Discounts: As we know, since we are dealing with parts and materials on a large scale, we have the opportunity of avail of certain discounts due to bulk buying. Cash discounts can be given and this will also shorten the debtor collection period as we receive the cash in exchange for the discount. The luzury of receiveing the cash at the time of sale comes at the price of the discount offered to the buyer. Customer Satisfaction:

Not all customers who are slow to pay do so because of financial issues. They might have received the wrong product, the shipment might have been damaged in shipment or the invoice might be incorrect. Your customer service department should be handling such issues in a timely manner.

Thus, any stall of payment due to this kind of a reason also leads to a rise in the debtor collection period.

21  

INVENTORY POLICY

Inventory Consists Of: -

• Raw materials

• Work in progress

• Finished goods

• Inventory in transit

Objectives of inventory management: -

• To provide adequate inventory for the firm’s requirement in the process of

work.

• To minimize firm’s investment in inventory

• To ensure smooth flow of materials in production & sales operations

Costs & Benefits of Inventory

22  

Economic Order Quantity

Assumptions in EOQ Method

• The firm can forecast accurately its annual requirement

• Usage of inventory is steady

• There is no time gap between ordering & the supply of inventory

• Only two types of costs are considered: ordering cost & inventory carrying

cost

• Both costs are constant for the given inventory level

Calculation of EOQ

Economic Order Quantity = √(2*D*O)/H

Total Cost = P*D + (D*O)/Q + (H*Q)/2

23  

Where,

TC = total cost

P = purchase cost per unit

D = annual demand of the raw material

O = fixed cost per order

H = annual holding cost

Limitations

a) Accurate forecast of annual requirement difficult.

b) No time gap between ordering & supplying of raw materials assumed, which

may not be the case.

c) Demand for a product may not be uniform throughout the year.

d) EOQ of manufacturing firm may not be economical for the supplier.

e) Better discounts may be offered by the supplier for placing orders higher than

EOQ.

Other Methods of Inventory Management

• Just In Time (JIT)

• ABC analysis

• High, Medium, Low (HML) classifications

• Vital, Essential, Desirable (VED) Classifications

• Scarce, Difficulty, Easy (SDE) Classifications

24  

• Fast moving, Slow moving, Non-moving (FSN) Analysis

• Seasonal &Off Seasonal (SOS) Analysis

• XYZ Analysis

• Government, Open market, Local &Foreign source (GOLF) Analysis

Motherson Sumi Inventory Policy

(a) The inventory excluding stocks with third parties are physically verified by the

Management during the year.

(b) The procedures of physical verification of inventory followed by the

Management are reasonable and adequate in relation to the size of the Company

and the nature of its business.

(c) According to their opinion, the Company is maintaining proper records of

inventory there is an adequate internal control system commensurate with the size

of the Company and the nature of its business for the purchase of inventory and

current assets.

(d) Inventories are stated at lower of cost and net realisable value. Cost is

determined using the first-in, first-out (FIFO) method. The cost of finished goods

and work in progress comprises raw materials, components, direct labour, other

direct costs and related production overheads.

Net realizable value = Estimated selling price – (Estimated costs of completion +

estimated costs necessary to make the sale)

25  

26  

WORKING CAPITAL

For increasing shareholder's wealth a firm has to analyze the effect of fixed assets and current assets on its return and risk. Working capital management is related with the management of current assets.

Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business.

It is nothing but the difference between current assets and current liabilities. i.e.

Working Capital = Current Assets – Current Liabilities

Meaning Working capital means the funds (i.e.; capital) available and used for day to

day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.

Definition

Roland Berger Strategy Consultants study on working capital management: Optimizing current assets helps tap into cash potential and build buffers against insolvency Every business needs some amount of working capital. It is needed for following purposes-

• For the purchase of raw materials, components and spares. • To pay wages and salaries. • To incur day to day expenses and overhead costs such as fuel, power, and

office expenses etc. • To provide credit facilities to customers etc

27  

Components of the Working Capital There are two components of the working capital Current Assets: They are those assets which can be converted into cash in the normal course of business within a short period. They are also called floating or circulating assets because they cannot be put to constant use. The list of current assets is:

• Cash in hand & Bank balances. • Bills Receivables. • Sundry Debtors. • Short term loans and advances. • Inventories of stocks. • Prepaid expenses. • Accrued income.

Current Liabilities: Current Liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business. Example of current liabilities is:

• Bills Payable. • Sundry creditors or Accounts payable. • Accrued or outstanding Expenses. • Short term loans and advances and deposits. • Bank overdraft

Working Capital Cycle and Profitability Cash flows in a cycle into, around and out of a business. It is the business's

life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits.

If a business is operating profitably, then it should, in theory, generate cash

surpluses. If it doesn’t generate surpluses, the business will eventually run out of cash and expire.

28  

The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business.

Good management of working capital will generate cash will help to improve

profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a company’s total profits.

There are two elements in the business cycle that absorb cash – Inventory

(stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans DETERMINANTS OF WORKING CAPITAL:

• General nature of business The working capital requirements of an enterprise are basically related to the conduct of the business. The public utilities have certain features which have a bearing on their working capital needs. The two relevant features are:

1. The cash nature of the business that is cash sales. 2. Sale of services rather than commodities.

• Production Cycle

The term production cycle or manufacturing cycle refers to time involved in the manufacture of goods. It covers the time span between the procurement of raw materials and the completion of the manufacturing process leading to the production of finished goods. Funds have to be necessarily tied up during the process manufacturing necessitating enhanced working capital. In other words, there is some time gap before raw material converts to finished goods. To sustain such activities the need for working capital is obvious. The longer the times span(i.e. the production cycle), the larger will be the tied up funds and, therefore, the larger is the working capital needed and vice versa

29  

• Business Cycle The working capital requirements are also determined by the nature of the business cycle. Business fluctuations leading to cyclical and seasonal changes that, in turn, cause a shift in the working capital position, particularly for temporary working capital requirements.

• Credit Policy

The credit policy influences the requirement of working capital in two ways:

1. Through credit terms granted by the company to its customers/ buyers of goods. 2. Credit terms available to the company from its creditors.

• Vagaries in the Availability of Raw Material There may be some materials, which cannot be procured easily either because of their sources, are few or they are irregular. To sustain smooth production, therefore, the company might be compelled to purchase and stock them far in excess of genuine production needs. This will result in an excessive inventory of such materials.

• Profit Level

The level of profits earned differs from enterprise to enterprise. The nature of the product, hold on the market, quality of management and monopoly power would by and large determine the profit earned by a company. Higher profit margin would improve the prospects of generating more internal funds thereby contributing to the working capital pool. The net profit is a source of working capital to the extent that it has been earned in cash. The availability of internal funds for working capital requirements is determined not merely by the profit margin but also by the manner of appropriating profits.

30  

• Dividend Policy The payment of dividend consumes cash resources and thereby, affects working capital to that extent. If the company does not pay dividend but retains the profits, working capital increases. A company should retain profits to preserve cash resources and, at the same time, it must pay dividends to satisfy the expectations of investors. When profits are relatively small, the choice is between retention and payment. There are wide variations in industry practices as regards the interrelationship between working capital requirements and dividend payment

Working Capital Analysis

The basic goal of Working Capital Management is to manage the current assets and current liabilities of a firm in such a way that the level of Working Capital is neither inadequate nor excessive as both the situations are bad for any firm. -There should be no shortage of funds and -Also no working capital should be idle. Working Capital Management policies have a great impact on the profitability, liquidity and structural health of the firm.

Working Capital of MSSL Working Capital of MSSL is largely influenced by Trade Receivables, Inventories

& Trade Payables.

Analysis on each of these element are described below :

• Trade Receivables

Trade Receivable represents the amount to be received from customers for

which goods have already been sold and delivered to the customers or title

of the property in goods have been transferred to customers. Trade

31  

receivable are recognized initially at fair value and carried at amortized cost.

These are net of impairment due to delay or defaults which become likely in

specific cases. As at December 31, 2014, company had Trade Receivables

for € 398.1 million which represents 43 days on hand as compared to €

415.5 million as at September 30, 2014 representing 46 days on hand. This

reduction is primarily result of lower sales in the month of December 2014

due to winter holidays.

As at March 31, 2014, company had Trade Receivables of € 406.1 million

which represents 49 days on hand.

• Inventories

Inventories represents the amount of raw material, work-in-progress and

finished goods held by the company in normal course of business.

Inventories are carried at the lower of the cost or net realisable value at the

reporting date. These are net of impairment due to reduced market visibility

or obsolescence. As at December 31, 2014, company had Inventory for €

157.9 million representing 17 days on hand which is lower than inventory as

at September 30, 2014 for € 164.3 million representing 18 days on hand.

This decrease is primarily due to lower procurement in the month of

December 2014 die to winter holidays.

Inventory as at March 31, 2014 was € 146.8 million representing 18 days on

hand.

• Trade Payables

Trade Payables represents obligations to pay for goods or services that have

been acquired in the ordinary course of business from the suppliers. Trade

payables are carried at fair value. As at December 31, 2014, company had

32  

Trade Payables for € 393.3 million representing 44 days on hand. These are

lower as compared to € 393.8 million representing 44 days on hand as at

September 30, 2014.

As at March 31, 2014, company had Trade Payables of € 399.6 million

which represents 48 days on hand.

Calculation of Working Capital: Mar-14 Mar-13

Current Assets

Current Investments 0 0

Inventories 5628 5420

Trade Receivables 5754 5464

Cash and Bank Balances 191 658

Short Term Loans and Advances 1785 1765

Other current assets 119 97

13477 13404

Current Liablities

Short Term Borrowings 1957 3263

Trade Payables 4364 4778

Other Current Liabilities 3155 2341

Short Term Provisions 3487 2211

12963 12593

Working Capital ( Current Assets – Current Liabilities ) 514 811

33  

Analysis

The Working Capital of MSSL is Positive. A positive working capital

position occurs when the current assets exceed the current liabilities. There is

plenty of liquidity to cover obligations.

It is not necessarily the most beneficial. The difference between the two is the

working capital position of the company and needs to be funded and increased in

line with revenue growth if the working capital structure remains the same.

A positive working capital position means a company has to continuously invest

into a net positive position with after tax.