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ISSN: 0374-8588
Volume 21 Issue 11, November 2019
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Case Study on Tata Motors and Maruti Suzuki
Pratiksha Sharma, Ayush Jain
MBA Tech in Computers B Tech in Mechanical Engineering
MPSTME, NMIMS University MPSTME, NMIMS University
Abstract
One of the major issues of managing an organization is the management of working capital. This article is
about examining the issues like the large investment in the working capital and whether the working capital
and its parts are used efficiently in various sectors of industry in India. Efforts have been taken to do a deep
study on Working Capital Management in India. Working Capital is the money which is available to the
companies to fund daily operations mainly which they have to work with. We will investigate if negative
working capital is healthy for an organization. We will also take a look at the profitability of various
operations and how it whether negative working capital has an effect on profitability. Also by analyzing their
financial statements, we will determine the market position of the organizations and what changes they
should incorporate in their strategies to increase profitability. DuPont Analysis is done and reason for
possible loss is extracted. The comparison will be done between two automobile organizations, TATA
Motors and Maruti Suzuki India Limited.
Keywords: Working capital, current assets, current liabilities, current ratio, quick ratio, DuPont Analysis
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1. INTRODUCTION
1.1. Working Capital
Working capital is the difference between current assets i.e. the short term assets that are equivalent to cash
in hand and cash in bank and current liabilities i.e. the debt which the organization has to pay back within
the year. The assets in detail can be the amount of cash you have in the bank, momentary investment, raw
materials inventory and the inventory of materials which are in process and finished material inventory. The
dealing of all these current assets is of greater importance because the total sum of investment in current
assets makes over half of the company‟s total assets. The working capital policies affect the profitability,
liquidity and structural health of the organization. Except for profitability and liquidity, the two desired goals
of financial management are directly afflicted by the working capital management performance. As the size
of working capital decreases, both the organization‟s risk and return would increase and vice-versa.
Profitability is the degree to which an organization uses its available assets or business process to earn a
profit.
One of the major agendas of managing working capital is to make sure that there is a balance between
current assets and liabilities. Also, so that the organization can continue it‟s basic operations to earn profits
by using these assets. But the main issues that occur are how to maintain a threshold of current assets and
how much finance must be invested to maintain them. But the main issues that occur are how to maintain a
threshold of current assets and how much finance must be invested to maintain them.
Working capital can be positive and negative. Positive working capital denotes to a higher number of current
assets than current liabilities. Having a positive working capital can show the organization‟s capability to
pay off its short-term debts. But having a positive working capital is not favourable all the time. Having
excessive working capital can denote to funds that are not used to earn any profits, thus there will be no
return of investment. This may also lead to accumulation of debtors which has a high chance of turning into
bad debts. Positive working capital is a sign of inefficiency of the organization. Due to positive working
capital, there is depreciation in the value of shares of the organization.
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Negative working capital means that the current assets left with the company are less than their current
liabilities. Now, this has disadvantages like it is not feasible to use fixed assets because of the lack of
availability of liquid funds. Maybe, investors would also consider this fact before investing in such an
organization. But having a negative working capital is not always having a negative impact. First of all,
having negative working capital shows the managerial efficiency of the organization. Also, organizations
with negative working capital have the ability to bargain with their suppliers because of their reputation.
Most organizations with large muscle power operate on negative working capital. Also, trade credit provided
by suppliers has flexible payment time. Concept and management of negative working capital depend from
organization to organization. Some companies bargain with their suppliers for credits and demand fast
money from their consumers, thereby earning profits from both places and paying their short term dues and
credits received from suppliers. Companies with dedicated management for working capital also invest the
earned income. So, even a negative working capital cannot harm the organization if the management base is
strong.
The approach of calculation of working capital:
Net Working Capital = Current Assets- Current Liabilities
Gross and Net working capital have their own understanding. Gross working capital includes the total
current assets i.e. it is the total amount available for the funding of current assets. Net working capital is the
sum of all the company‟s current assets i.e. cash present, stock, short-term investments and subtracting all of
its financial liabilities i.e. customer deposits, accounts payable, loans, taxes. Due to this, a relationship is
established between the current assets and financial liabilities (current liabilities) or their liquidity is
resolved.
1.2. DuPont Analysis
DuPont analysis was created by the US based DuPont Company. Return on Equity is the profit earned on the
shareholder‟s equity. Investors look at this value before investing in the organization. But this value can be
misleading. DuPont analysis is done so that the investors know the strengths and weaknesses of the
organization. There is a deep look into the factors that are involved in in improvement or decline in ROE.
The scope is this paper cover the three-factor DuPont Analysis i.e. Net Profit Margin, Asset Turnover and
Financial Leverage.
Return on Equity (ROE) = Net Profit Margin * Asset Turnover * Financial Leverage
Here Net Profit Margin signifies the margin play i.e. the profit earned. Asset Turnover signifies the volume
play i.e. whether the organization is selling in bulk or customizing the products. And finally the Financial
Leverage signifies the level to which the organization runs on the leveraged resources. Increase in this
quantity means that organization has to pay interest at a higher rate.
Thus, higher asset turnover and net profit margin is a good sign from investment scenario but higher
financial leverage is an indication higher debts for the organization.
1.3. History of the Indian Automobile industry
The automobile industry in India is one of the biggest in the world, both in production as well as sales. The
first car which came on roads in India was in 1897 and the first Indian who bought a car was in 1901. During
its initial days, most of the Indian car manufacturers were dependent on foreign technologies. But all this
changed with the passage of time the Indian car manufacturers are using their own technologies. By the year
2020, India‟s share in the global passenger vehicle market is expected to touch 8% from 2.4% recorded in
2015. The vast growth in the Indian economy has resulted in all the leading international car manufacturers
to set up their manufacturing plants in India and entering into the Indian market like Ford, Toyota, Honda,
and Hyundai. Rolls Royce, Mercedes-Maybach and Bentley are some of the high-quality end manufactures
which came to India in recent years. India‟s largest car manufacturing company saw slight growth of 1.1
percent in domestic sales at 142,150 units in January month 2019 as against 140,600 units in the month of
January 2018. The sales of passenger vehicles also grew by 20.32%. The market of the two-wheeler was also
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expanded by 7.67% during the same time with a total sale of 838,150 units. The market of the two-wheeler
is leading in the Indian Automobile market because of the growing young population and middle-class
people. India has a strong export growth chances for the upcoming future. The global demand for
automobiles grew up by 18% in markets of India whereas the exports demand went up by 26%. According to
the latest Society of Indian Automobile Manufacturers (SIAM), there was a total export of 167,161 units
compared to 118,420 units April-June period of FY 2017-18. Also, the government of India and major
automobile leaders are expected to make India a leader in the world of two wheelers and four wheelers
market by 2020.
2. Introduction to the company-
2.1. Maruti Suzuki India Ltd. (MSIL)
It was formerly known as Maruti Udyog Ltd. On September 17th, 2007, it became Maruti Suzuki India Ltd.
It is a subsidiary of Suzuki which is Japanese automobile and motorcycle manufacturer. It was formed as a
government organization, with Suzuki being the minor companion, to make cars for middle-class people in
India. Today it‟s the largest passenger car brand and it accounts for more than 50% of the domestic car
market. It started its journey on 24th February in the year 1981. In 1983 they started their production
launched their most popular vehicle Maruti 800. It became the first car manufacturing company to
manufacture one million cars in 1994. It has a production capacity of annually about 1,700,000 units. Mr.
R.C. Bhargava is the chairman is this company and the CEO and Managing Director of this company is Mr.
Kenichi Ayukawa. Major brands of Maruti Suzuki Omni, Wagon R, Alto, Swift, Swift Dzire, Celerio,
Baleno, Baleno RS, Eeco and Ignis. The organization is deeply considered about the environment and thus
launched it‟s advanced K-series. They also received „Car of the Year‟ award for Alto 800.
Data Analysis and Interpretation
The table mentioned below is a record of five fiscal years of Maruti Suzuki India Limited. This table shows
current asset and current liabilities of the organization. All the values are in Crores. The values are extracted
from the annual reports published by the organization.
Table 1: Working Capital of Maruti Suzuki
Particulars 2018-19 2017-18 2016-17 2015-16 2014-15
Inventories 3325.7 3160.8 3262.2 3132.1 2615
Cash and Bank Balance 178.9 71.1 13.1 39.1 18.3
Trade Receivable 2310.4 1461.8 1199.2 1298.6 1069.8
Other Current Assets 561.3 1311.9 2.5 250.2 325.6
Loans and Advances 16 3 1538.8 1556.5 1172.8
Total Current Assets (A) 6392.3 6008.6 6015.8 6276.5 5201.5
Other Current Liabilities 1630.4 2086.4 1825.1 2364.8 1865.8
Provision 624.4 560 449 1834.5 1360.4
Trade Payable 9633 10497 8420.9 7013.3 5561.4
Total Current Liabilities (B) 11887.8 13143.4 10695 11212.6 8787.6
Net Working Capital (A-B) -5495.5 -7134.8 -4679.2 -4936.1 -3586.1
We observed that Maruti Suzuki had a negative working capital throughout the five year period. Thus
conclusions can be derived that the organization uses a lot of borrowed money which they owe to their
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shareholders. Another point that can be noted is that their is effective utilization of all the assets that are
present in the organization.
Based on their reputation thus, the organization gets a lot of funding and is functioning as one of the most
successful automobile manufacturers.
2.2. TATA Motors
TATA motors stepped in the market in 1945. TATA motors are ranked on 17th position in the world and are
Asia‟s largest automobile industry. Headquarters of TATA Motors is in Mumbai. They are known for their
production of public transport like trucks and buses and private vehicles like four-wheeler and scooters.
Through their subsidiary supply, TATA motors have expanded their business in the USA, South Korea, and
Thailand. Some of the major brands of TATA motors are TATA Nano, TATA Ace, TATA Indica, TATA
Bolt and TATA LSV.
Data Analysis and Interpretation
The table mentioned below is a record of five fiscal years of TATA Motors. This table shows current asset
and current liabilities of the organization. All the values are in Crores. The values are extracted from the
annual reports published by the organization.
Table 2: Working Capital of TATA Motors
Particulars 2018-19 2017-18 2016-17 2015-16 2014-15
Inventories 39,013.73 5,670.13 5504.42 4902.2 29,272.34
Cash and Bank Balance 32,648.82 795.42 286.06 452.08 32,115.76
Trade Receivable 18,996.17 3479.81 2128 1568.46 12,579.20
Other Current Assets 6,862.22 1439.73 1807.06 252.85 2,948.42
Loans and Advances 1,268.70 140.27 100.76 1794.32 10,746.44
Total Current Assets (A) 98,789.64 11,525.36 9826.3 8969.91 87,662.16
Other Current Liabilities 9,546.46 1917.6 1864.02 4267.23 23,688.58
Provision 10,196.75 862.92 467.98 1215.49 6,036.00
Trade Payable 68513.53 9,411.05 7015.21 8916.6 57,407.28
Total Current Liabilities (B) 88,256.74 12191.57 9347.21 14399.32 87,131.86
Net Working Capital (A-B) 10,532.90 -666.21 479.09 -5429.41 530.30
This data shows that TATA Motors has a negative working capital indicating that its company‟s current
liabilities are greater than their current assets. This means that because of the reputation of the organization,
it gets a lot of funding from external sources and the assets are utilized properly as well.
3. Working Capital Ratios
3.1. Current Ratio: Current ratio helps in understanding how rich a company is.It helps us to estimate
the short-term financial strength of the company. Higher the ratio the more balanced will be the
company and Lower the ratio then greater will be the risk of debt paying ability related to the
company. The current ratio gives a point of company‟s functioning cycle.It gives an idea about how
well organized the company is in selling their products i.e how quickly the company is converting
their inventory or we can say current assets into cash. By knowing this company can get the most
out of their production.
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Table 3: Current Ratios of Maruti Suzuki and TATA Motors
Companies/ Year 2018-19 2017-18 2016-17 2015-16 2014-15
Maruti Suzuki India Limited 0.874:1 1:1 1:1 1:1 1:1
Tata Motors 0.577:1 0.618:1 0.581:1 1.658:1 2.376:1
Chart 1: Comparison of Current Ratios of Maruti Suzuki India Limited andTATA Motors
The trend here for Maruti suzuki was stable from 2014-18 but the current ratio decreased recently.
The ratio declined but it is still stable. There was an increase in the provision for employee benefits
and provision for litigation and provision for warranty that lead to a decrease in the ratio.
In the case of TATA Motors, there has been a constant decrease in the current ratio. The drop in
2016-17 is due to absence of investments. The increase in the subsequent year was due to
investments and cash balance increase. In the year 2018-19, there was a drastic increase in the trade
payables due to which the current ratio recorded was the least in the five year period.
3.2. Quick Ratio: Current ratio includes inventory in the calculation, which may lead to overestimation
of the liquidity position in many situations. In organizations, where a lot of inventory exists due to
less sales or outdated nature of the product; taking inventory under calculation may lead to
displaying incorrect liquidity health of the company. Current Ratio may be affected due to changes
in inventory valuation methodology by the company. Such will not be the case while using the
quick ratio since it does not consider inventory and bank overdraft at all. The acid test ratio
removes the inventory from the calculation, which may not always be considered liquid, thereby
giving a more proper picture of the company‟s liquidity position. Since inventory is eliminated from
current assets; bank overdraft and cash credit are removed from current liabilities as they are usually
secured by inventory thereby making the ratio more relevant in showing at the liquidity position of
the company. Inventory can be very seasonal in nature and may vary in quantity over a yearly
period. If considered, it may deflate or inflate liquidity position. By avoiding inventory from the
calculation, the acid test ratio does away with this problem.
Table 4: Quick Ratios of Maruti Suzuki and TATA Motors
Companies/ Year 2018-19 2017-18 2016-17 2015-16 2014-15
Maruti Suzuki India Limited 0.633:1 0.601:1 0.621:1 0.562:1 0.681:1
Tata Motors 0.369:1 0.380:1 0.322:1 1.200:1 1.816:1
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Chart 1: Comparison of Quick Ratios of Maruti Suzuki India Limited andTATA Motors
Quick ratio for TATA Motors has been declining at a great rate. The ratio is less than the standard quick
ratio which is not a good sign for the company. The investments have been declining over the year and trade
payable is increasing at a great rate which results in declining of the quick ratio.
On the other hand, Maruti Suzuki has a constant Quick ratio over the five year period. There has been an
increase in the current assets and also the trades payable have been reduced meaning the company is able to
pay the credit dues.
4. ROE (Return On Equity) (in percentage): For ROE, at least a 10% return is considered good.
Table 5: ROE of Maruti Suzuki and TATA Motors
Companies/ Year 2018-19 2017-18 2016-17 2015-16 2014-15
Maruti Suzuki India Limited 16.256 18.492 20.286 16.927 15.656
Tata Motors 3.809 -4.916 -11.459 1.047 24.859
Chart 2: Comparison of Return on Equity of Maruti Suzuki India Limited andTATA Motors
This is a visualization representing the ROE of Maruti Suzuki and TATA Motors. As per the trend line, the
ROE of TATA Motors has been declining, whereas the trend for the ROE of Maruti Suzuki has been more
or less constant. If we performed DuPont analysis on the ROE‟s of organizations, we can find the possible
reason behind this trend.
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4.1. TATA MOTORS DUPONT ANALYSIS
Table 6: Three factor DuPont Analysis of TATA Motors
2018-19 2017-18 2016-17 2015-16 2014-15
Asset Turnover 1.178 1.033 0.856 0.849 1.105
Financial Leverage 1.162 2.936 2.813 2.344 4.242
Net Profit Margin 2.783 -1.621 -5.187 0.526 5.304
Organization is having the highest in the year 2014-15. After performing DuPont Analysis, it is clear that
there is significant high financial leverage ratio. This simply means that organization has high debts for
regular operation of business. In 2016-17, due to negative net profit margin, ROE of TATA Motors was
negative. There was a loss before tax due to reduction in sales of small and heavy commercial vehicles.
Losses could also be possibly incurred due to 63% reduction in the sale of TATA Nano. In 2017-18, the
reason behind loss is because of the “one-time changes” made for the future of the company. The
performance has increased as per the performance of 2016-17. The trend line is declining due to poor
performance in consecutively two years (2016-17, 2017-18).
4.2. MARUTI SUZUKI INDIA LIMITED DUPONT ANALYSIS
Table 7: Three factor DuPont Analysis of Maruti Suzuki
2018-19 2017-18 2016-17 2015-16 2014-15
Asset Turnover 1.408 1.416 1.560 1.485 1.514
Financial Leverage 1.364 1.422 1.410 1.451 1.415
NPAT Margin 8.467 9.188 9.224 7.854 7.305
Maruti Suzuki‟s overall performance has been more than satisfactory. They have been playing there mass
production game in the market with their sales rising every year.
5. Findings
One of our first finding is that TATA Motors and Maruti Suzuki both work in negative working capital as
per the period of research. This means that their current assets are less than their current liabilities. We can
conclude that the companies might not have any issues in paying their short term debts. Also, their negative
working capital can also signify their efficient management.
Secondly, as the working capital ratio analysis, we can see that Maruti Suzuki is growing exceptionally well
in the period of research. They are slowly but in a firm manner expanding their reign. As in the case of
TATA Motors we see a steady graph of growth. This is a result of efficient management.
There has been a decline in trades and numbers of TATA Motors. On the other hand, slowly and swiftly
Maruti Suzuki is taking over the market by their mass production and constant innovation.
TATA Nano production has been a loss making venture for the company. In the year 2019, there was only
one unit produced and a total shutdown is done for TATA Nano‟s production. The organization has to bear
pretty heavy impairment losses.
With the current economic trend which is visible for automobile sector in India, there has been a downside
for this sector. Dispatched vehicles have stayed up as inventory in the showroom for a large time. Maruti
Suzuki has taken the decision of stopping the manufacturing of cars that 1.3 Litre of diesel engine because of
new compliance costs. Reasons such as hike in the rates of insurance are one of the many reasons of loss of
sales for this sector. Other reason could be the rise in retail chain of second-hand car sellers which support
the middle class dreams of car with an affordable price and usable conditions.
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6. Suggestions
As for the negative working capital of the firms, maybe the following suggestions might help:
1. Technological innovations and after sale services must be prioritized to accumulate growth and gain
consumers trust.
2. Cost-cutting measures should be taken into consideration to earn profitability in the organization.
Also, regular monitoring of operational expenses is to be conducted.
3. A separate and dedicated department should be present in each firm to plan, build and establish these
monitoring and cost-cutting techniques. But it is not bad to have negative working capital.
4. As for the market trends, possible tie ups with these second-hand car sellers like Droom.in etc.
would help in rise of business for this sector and also increase awareness.
7. Conclusion
After doing a study of working capital management in automobile company (four wheelers) it is found that
TATA Motors and Maruti Suzuki India Limited are both working on negative working capital. The
organization is unable to pay their short term liability in time, the production slows down due to lack of raw
materials due to negative working capital. But after this study, it has been found that negative working
capital is not always so bad. According to this study, it has been suggested that the companies should
regularly check it inventories, cash payable and free cash flow from time to time for better interpretation.
The overall working capital management and profitability of the company are good but not highly
satisfactorily. But being big automobile players, they can take advantage of their market position to take
loans from the market, which can be later paid by the revenue received.
Also, financial analysis of TATA Motors and Maruti Suzuki show that Maruti Suzuki is winning the
competition by a large margin. This might be because of the old architecture of TATA Motors. Also Maruti
Suzuki has been able to complete its mission “Developing cars fast and selling them for less” very efficiently
by playing in mass production. Therefore, this helps in reduction of their product rates. It is suggested that
TATA motors should apply new strategies in their organization to increase the income ratio. Profitability of
Maruti Suzuki is high in the market. This is because of the consumer base they have and their market
reputation. Maruti Suzuki‟s consumers are loyal to them because the services which are provided to them.
TATA motors should also generate customer-oriented plans to increase their market reputation and
consumer base. Conclusions that can be drawn from this analysis are that having a negative working capital
is not as bad as it looks but it should be avoided.
References
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in International Journal of Commerce and Management Research, Punjab, India, Volume 4; Issue 5;
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[2] Amit Kumar Arora, “Negative Working Capital and its impact on profitability.” in The
Management Accounting 48(3), Gurgaon, India, March 2013, Page No. 303-313
[3] S. Christina Sheela, K. Karthikeyan, “Financial Performance of Pharmaceutical Industry in India
using DuPont Analysis” in European Journal of Business and Management, Tiruchipali, Tamil
Nadu, India, Volume 4, No.14, 2012, Page No. 84-91
[4] Thomas J. Liesz, Steven J. Maranville, “Ratio Analysis featuring the DuPont Method: An
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[7] Annual Reports for TATA Motors from 2014-19; URL: https://www.tatamotors.com/investors/
(Access Date: 27th September 2019)
[8] Annual Reports for Maruti Suzuki 2014-19; URL: https://beta.nseindia.com/companies-
listing/corporate-filings-annual-reports (Access Date: 27th September 2019)
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