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Profitability of Mahindra & Mahindra Ltd

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
A STUDY ON EFFECT OF WORKING CAPITAL AND
PROFITABILITY OF MAHINDRA & MAHINDRA LTD
T. Singaravelu* & Dr. A. Balagurusamy**
* Final Year B.Com, Sri Ramakrishna Mission Vidyalaya College of Arts and
Science, Coimbatore, Tamilnadu
** Assistant Professor and Head, Department of Commerce, Sri Ramakrishna Mission Vidyalaya College of
Arts and Science, Coimbatore, Tamilnadu
Cite This Article: T. Singaravelu & Dr. A. Balagurusamy, “A Study on Effect of Working Capital and
Profitability of Mahindra & Mahindra Ltd”, International Journal of Interdisciplinary Research in Arts and
Humanities, Volume 3, Issue 1, Page Number 52-58, 2018.
Abstract:
An accepted financial axiom is that the role of managers is to maximize the wealth by the efficient
utilization of resources available to them. The management of Working Capital is one of the most dominant and
challenging aspect of the overall financial management. Working Capital has acquired a great significance and
sound position for the twin objects of “profitability and liquidity.” The efficient working capital management is
the most crucial factor in maintain survival, liquidity and profitability of the concerned business enterprise. In
this paper an effort has been made to make a case study of Mahindra and Mahindra Limited for assessing the
trend of working capital management and also to suggest an appropriate audit program to facilitate proper
working capital management in the Automobile Industry. It consumes a great deal of time to increase
profitability as well as to maintain proper liquidity at minimum risk. There are many aspects of working capital
management which make it an important function of the finance manager. In fact we need to know when to look
for working capital funds, how to use them and how measure, plan and control them.
Key Words: Net Working Capital, Current Ratio, Profitability, Liquidity & Risk and Return on Capital
Employed
Introduction:
Working capital is a common measure of a company's liquidity, efficiency, and overall health. Because
it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and
other short-term accounts, a company's working capital reflects the results of a host of company activities,
including inventory management, debt management, revenue collection, and payments to suppliers.
Working capital is a financial metric which represents operating liquidity available to a business,
organization or other entity, including governmental entity. Along with fixed assets such as plant and
equipment, working capital is considered a part of operating capital. Gross working capital equals to current
assets. Net working capital (NWC) is calculated as current assets minus current liabilities. If current assets are
less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
A company can be endowed with assets and profitability but short of liquidity if its assets cannot
readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its
operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational
expenses.
Working Capital Management:
The management of current assets, current liabilities and inter-relationship between them is termed as
working capital management. “Working capital management is concerned with problems that arise in attempting
to manage the current assets, the current liabilities and the inter-relationship that exist between them.” In
practice, “There is usually a distinction made between the investment decisions concerning current assets and
the financing of working capital.”
A study of working capital management is very important for internal and external experts. Sales
expansion, dividend declaration, plants expansion, new product line, increase in salaries and wages, rising price
level, etc., put added strain on working capital maintenance. Failure of any enterprise is undoubtedly due to poor
management and absence of management skill.
Justification on the Topic:
Proper management of working capital is required to ensure that the firm is able to continue its day-to-
day operations and it has the sufficient ability to satisfy it‟s present and upcoming short term expenses. The
working capital position helps the investors, creditors, bankers, suppliers, financial institutions, government etc.
judge the stability of the enterprise. Working capital is the life blood and nerve centre of business. Just as
circulation of blood is essential in the human body for maintaining life, working capital is very essential to
maintain the smooth running of the business. No business can run successfully without an adequate amount of
working capital. It plays a vital role in the impact of the business. So there exist a number of implication and
gaps for enquiry into working capital management of companies; against this background a study was conducted
on the working capital position of Mahindra and Mahindra Ltd.

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
Research Design and Methodology:
In this study the sample company named Mahindra and Mahindra ltd has been taken for analysis of
working capital position. Present study is based on secondary data i.e. published annual reports of the company.
These financial data‟s are edited, classified and tabulated as per the requirements of the study. This study has
covered seven years data‟s from 2011 to 2017 for analyzing the working capital position of Mahindra and
Mahindra Ltd.
The profitability and liquidity position have been measured to analyze the working capital position of
Mahindra and Mahindra Ltd. The collected data have been analyzed by the various ratios for finding
profitability and liquidity. For assessing the behavior of above ratios, Standard deviation (STDEV), Average
Annual Growth rate (AAGR), Regression Analysis, Spearman‟s Rank Correlation Co-efficient and student t-test
has been used.
Objectives of the Study:
The main objectives of the study are mentioned below:
 To analyze the working capital position of the firm.
 To analyze the effect of liquidity on profitability
 T o analyze the effect of risk on profitability
 To offer suitable suggestions on the basis of findings of the study.
Hypothesis of the Study:
This study is based on the following null hypothesis (H0):
 There is no significant difference between liquidity and profitability of Mahindra and Mahindra Ltd.
during the study period.
 There is no significant difference between risk and profitability of Mahindra and Mahindra Ltd. during
the study period.
Company Profile:
Mahindra & Mahindra Ltd. was set up as a steel trading company in 1945 in Ludhiana as Mahindra &
Mohammed by brothers K.C. Mahindra and J.C. Mahindra and Malik Ghulam Mohammed. After India
gained independence and Pakistan was formed, Mohammed immigrated to Pakistan where he became that
country's first Finance Minister. The company changed its name to Mahindra & Mahindra in 1948. It eventually
saw a business opportunity in expanding into manufacturing and selling larger MUVs, starting with the
assembly under license of the Willys Jeep in India. Soon established as the Jeep manufacturers of India, the
company later commenced manufacturing Light Commercial Vehicles (LCVs) and agricultural tractors.
Over the past few years, the company has taken interest in new industries and in foreign markets. They
entered the two-wheeler industry by taking over Kinetic Motors in India. M&M also has a controlling stake in
the REVA Electric Car Company and acquired South Korea's Sang Yong Motor Company in 2011. In 2010-11
M&M entered in micro drip irrigation with the takeover of EPC Industries Ltd in Nasik. In October
2014, Mahindra and Mahindra acquired a 51% controlling stake in the Peugeot motorcycle.
Review of Literature:
The first literature work in Working Capital Management was pioneered by John Bauer (1916). He
examined the Pattern of Operating Revenue for a year and found that the average time taken by consumers for
paying for service was two months. The operating revenue for this period was $200,000 and the expenses
incurred were $120,000. This contributed to the necessity of Working Capital. If the company is a new one with
its actual fixed capital and volume of business, it would practically have to provide this amount in its initial
investment. Thus, the company actually has to tie up this sum in the business, which intern earns a return on the
amount.
Saravanan (2001) examined working capital management in ten Non Banking Financial Companies
using working ratios to evaluate the effectiveness of Working Capital Management. He concluded that the
sample companies had given more importance to the liquidity aspect in comparison to the profitability.
Parasuraman, N.R (2004) examined Working Capital practices in leading Pharmaceutical Companies in
relation to the credit policy and profitability and correlated the relationship. The study found that the companies
have employed larger Working Capital for enhancing profitability.
Abdul Raheman (2007) studied the link between Working Capital Management and Profitability of a
sample of 94 Pakistani firms listed on Karachi Stock Exchange for a period of 6 years, that is from 1999-2004.
The result shows that there is a strong negative relationship between variables of the Working Capital and
profitability of the firm. As the cash conversion cycle increases it leads to the decrease in the profitability of the
firm.
Analysis of Working Capital Management of Mahindra and Mahindra Ltd:
Net Working Capital Position:
The two concept of working capital are gross working capital and net working capital. The former
means the firm‟s investment in current assets and later the excess of current ratio over the current liabilities. The

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
excess of current assets over the current liabilities provides measures of safety margin available against
uncertainty in realization of current assets and flow of funds.
Table 1: Statement Showing Net Working Capital Position (Rs. in Crore)
Year/Ratio Current Assets Current Liabilities Net Working Capital
March 2011 5442.68 5951.43 -508.75
March 2012 7978.14 7360.17 617.97
March 2013 8943.43 8150.39 793.04
March 2014 11288.92 8766.79 2522.13
March 2015 10128.21 8974.27 1153.94
March 2016 11633.20 10693.67 939.53
March 2017 12455.99 9458.95 2997.04
Mean 9695.80 8479.38 1216.41
STDEV 2439.35 1524.33 1188.11
AAGR 12.89 5.89 -68.91
The above table shows the working capital position of the concern. During the study period working
capital showed a fluctuating tendency. The highest value of working capital Rs.2997.04 crore in the year 2017
and least of Rs.-508.75 crore in the year 2011. The net working capital had an average value of Rs.1216.41
crore and also negative average annual growth rate of -68.91% and standard deviation is Rs.1188.11.
Current Ratio:
It is defined as the ratio of current assets to current liabilities. It is an index of technical solvency and
an index of the strength of the working capital. A high current ratio is an assurance that a firm will have
adequate funds to pay current liabilities and other current payments. The ideal ratio is 2:1 times.
Table 2: Statement Showing Current Ratio (Rs. in Crore)
Year/Ratio Current Assets Current Liabilities Current Ratio
March 2011 5442.68 5951.43 0.91
March 2012 7978.14 7360.17 1.08
March 2013 8943.43 8150.39 1.10
March 2014 11288.92 8766.79 1.29
March 2015 10128.21 8974.27 1.13
March 2016 11633.20 10693.67 1.09
March 2017 12455.99 9458.95 1.37
Mean 9695.80 8479.38 1.14
STDEV 2439.35 1524.33 0.15
AAGR 12.89 5.89 5.05
The above table shows the current ratio as a measure of liquidity position. During the study period it
was observed that current ratio is the highest ratio 1.37 times in the year 2017 and least of 0.91 times in the year
2011. The current assets and current liabilities showed a fluctuating trend throughout the study. The average
annual growth rate of current assets and current liabilities was 12.89 and 5.89 respectively. The current ratio
showed a varying trend with an average ratio of 1.14 times with an average annual growth rate of 5.05%. The
standard deviation of the ratio was low with a value of 0.15.
Liquid Ratio or Quick Ratio:
It shows the relationship between liquid assets and current liabilities. It is the firm‟s capacity to pay its
obligation at time of emergency situation. The ideal ratio is 1:1 times.
Table 3: Statement Showing Liquid Ratio (Rs. in Crore)
Year/Ratio Liquid Assets Current Liabilities Liquid Ratio
March 2011 3748.47 5951.43 0.63
March 2012 5619.75 7360.17 0.76
March 2013 6523.66 8150.39 0.80
March 2014 8485.29 8766.79 0.97
March 2015 7690.64 8974.27 0.86
March 2016 8945.27 10693.67 0.84
March 2017 9740.39 9458.95 1.03
Mean 7250.50 8479.38 0.84
STDEV 2091.33 1524.33 0.13
AAGR 15.98 5.89 6.35
The above table shows the liquid ratio of the firm. The ratio had the highest ratio 1.03 times in the year
2017 and least of 0.63 times in the year 2011. The liquid assets of the firm had an average value of Rs.7250.50
crore with an average annual growth rate of 15.98. The liquid ratio showed a varying trend with an average ratio

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
of 0.84 times with an average annual growth rate of 6.35%. The standard deviation of the ratio was low with a
value of 0.13.
Cash Position Ratio (CPR):
It shows how much of total assets is kept in the form of cash is revealed through this ratio. How much
per rupee of total assets is kept in the form of cash. Higher the ratio shows less risk, but the lower rate of return
as cash by itself does not earn profit.
Table 4: Statement of Cash to Total Assets (Rs. in Crore)
Year/Ratio Cash Total Assets CPR (Times)
March 2011 614.64 19539.78 0.03
March 2012 1188.43 23911.98 0.05
March 2013 1781.41 27453.59 0.06
March 2014 2950.39 31288.65 0.09
March 2015 2064.77 32944.87 0.06
March 2016 2297.03 36412.34 0.06
March 2017 1687.00 39338.31 0.04
Mean 1797.67 30127.07 0.06
STDEV 756.39 6970.25 0.02
AAGR 17.45 10.13 3.38
The above table shows the cash generating capacity of the total assets of the firm. Cash position ratio
also showed similar fluctuating tendency like the above ratios. It had a mean value of 0.06 times with an average
annual growth rate of 3.38%. The ratio had the highest ratio 0.09 times in the year 2014 and least of 0.03 times
in the year 2011. The standard deviation of the ratio was low with a value of 0.02.
Working Capital Turnover Ratio (WCTR):
It reveals the overall picture of the operational capital necessary for maintaining a level of its sales.
Higher ratio indicates quick conversion of working capital into sales. Also greater the ratio, shorter is the
working capital cycle and better is working capital management.
Table 5: Statement of Annual Sales to Working Capital (Rs. in Crore)
Year/Ratio Annual Sales Working Capital WCTR (Times)
March 2011 23493.72 534.01 43.99
March 2012 31392.03 569.93 55.08
March 2013 39903.12 495.54 80.52
March 2014 39963.36 394.86 101.20
March 2015 38391.61 755.67 50.80
March 2016 40875.07 234.90 174.01
March 2017 43785.36 409.45 106.93
Mean 36829.18 484.91 87.50
STDEV 6998.43 162.98 45.44
AAGR 8.64 -2.33 14.31
The above table shows the sales generated per amount of working capital of the firm. This ratio also
showed a fluctuating tendency during the study period. The ratio had an average value of 87.50 times with an
average annual growth rate of 14.31%. Net working capital turnover ratio observed the highest value of 174.01
times in the year 2016 and least of 43.99 times in the year 2011. The ratio had a high standard deviation of
45.44.
Analysis of Liquidity, Profitability and Risk Using Spearman’s Rank Correlation and Student t-Test:
Spearman‟s Rank Correlation is the relationship between different rankings of the same set of items. A
rank correlation measures the degree of similarity between two rankings and can be used to assess its
significance.
Student t-distribution is a small test used for testing of hypothesis of the sample size less than 30. If the
calculated value of t is less than the table value. The null hypothesis will be accepted and vice versa; for a given
significance level.
Liquidity and Profitability Analysis Using Student t-test:
Profitability:
It indicates the percentage of return in the business. A high return on investment shows the company is
having a higher rate of profit as percentage of capital employed.
Table 6: Statement showing Profitability (Rs. in Crore)
Current Capital Operating
Year/Ratio Total Assets ROCE (%)
Liabilities Employed Profit
March 2011 19539.78 5951.43 13588.35 23460.26 172.65
March 2012 23911.98 7360.17 16551.81 31852.52 192.45

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
March 2013 27453.59 8150.39 19303.2 40441.16 209.50
March 2014 31288.65 8766.79 22521.89 40508.50 179.86
March 2015 32944.87 8974.27 23970.6 38945.42 162.47
March 2016 36412.34 10693.67 25718.67 40884.98 158.97
March 2017 39338.31 9458.95 29879.36 43785.36 146.54
Mean 30127.07 8479.38 21647.69 37125.60 174.63
STDEV 6970.25 1524.33 5581.38 7056.56 21.40
AAGR 10.13 5.89 11.99 8.66 -1.51
The above table shows during the period the operating profit ratio a fluctuating trend. The operating
profit had the highest value of 209.50 in the year 2013 and the least of 146.54 in the year 2017. The operating
profit had a mean value of 174.63 with an average annual growth rate of -1.51%. The standard deviation was
moderate with a value of 21.40. The capital employed of the firm had a mean value of Rs. 21647.69 crore with
an average annual growth rate of 11.99.
Relationship between Liquidity and Profitability:
Testing of 1st Null Hypothesis:
Table 7: Statement for Calculation of Correlation
Year/Ratio Current Ratio R1 ROCE (%) R2 D = (R2-R1) D2
March 2011 0.91 7 172.65 4 -3 9
March 2012 1.08 6 192.45 2 -4 16
March 2013 1.10 4 209.50 1 -3 9
March 2014 1.29 2 179.86 3 1 1
March 2015 1.13 3 162.47 5 2 4
March 2016 1.09 5 158.97 6 1 1
March 2017 1.37 1 146.54 7 6 36
76
The above table shows the current ratio is used as an indicator of liquidity and ROCE as for measuring
profitability. The Spearman‟s rank coefficient of Correlation(r) between current ratio and ROCE has been
shown for which the relevant formula has been used. The test used for determining significance of r is t-test. The
Spearman‟s rank coefficient of Correlation(r) between ROCE and liquidity has been calculated. The t-test is
applied for determining significance of r. The computed value of “t” has been compared with the tabulated value
of “t”.
In the above table r = -0.36 and value of t = 0.87. The table value of “t” at 5% level of significance for
5 degrees of freedom (where n=7) is equal to 2.57. Since the computed value of t is less than the table value the
null hypothesis (H0) is accepted.
Profitability and Risk Analysis:
The risk associated with the concern can be calculated. In the aggressive approach the current assets are
financed to be short term sources and in case of conservative approach the current assets are financed by both
long term and short term sources. The risk faced by the firm can be measured.
Table 8: Statement Showing Risk (Rs. in Crore)
Equity + Long Term Fixed Current
Year/Ratio Risk
Reserves Loans Assets Assets
March 2011 10313.37 1868.13 3906.59 5442.68 8274.91
March 2012 12171.09 1476.68 5080.75 7978.14 8567.02
March 2013 14658.92 2087.47 5821.34 8943.43 10925.05
March 2014 16791.19 3018.12 7105.39 11288.92 12703.92
March 2015 19255.09 3232.26 8108.22 10128.21 14379.13
March 2016 21707.19 4057.44 9518.38 11633.20 16246.25
March 2017 25669.56 768.21 9672.58 12455.99 16765.19
Mean 17223.77 2358.33 7030.46 9695.80 12551.64
STDEV 5409.98 1133.25 2212.07 2439.35 3453.99
AAGR 14.89 -5.89 14.76 12.89 10.26
The above table shows the measure of liquidity. During the study period concerns highest risk of
16765.19% generated a return of 71.71% and least risk of 8274.91% generated a return of 1354.85. The risk
taken by the company showed variation in its value with deviation of 3453.99. The average risk taken by the
company was 12551.64 with an average annual growth rate of 10.26.
Testing of 2nd Null Hypothesis:
Table 9: Statement for Calculation of Correlation
Year/Ratio Risk R3 ROCE (%) R4 D = (R4-R3) D2

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
March 2011 8274.91 7 172.65 4 -3 9
March 2012 8567.02 6 192.45 2 -4 16
March 2013 10925.05 5 209.50 1 -4 16
March 2014 12703.92 4 179.86 3 -1 1
March 2015 14379.13 3 162.47 5 2 4
March 2016 16246.25 2 158.97 6 4 16
March 2017 16765.19 1 146.54 7 6 36
98
The above table shows the Spearman‟s rank coefficient of Correlation(r) between ROCE and risk
factor calculated. The t-test is applied for determining significance of r. The computed value of “t” has been
compared with the tabulated value of “t”.
In the above table r = -0.75 and value of t = 2.54. The table value of “t” at 5% level of significance for
5 degrees of freedom (where n=7) is equal to 2.57. Since the computed value of t is less than the table value the
null hypothesis (H0) is accepted.
Recommendations:
This study is strongly recommended to adopt the following measures immediately for its revival and
overcoming working capital crisis. Followings are recommendations which I have observed are as follows:
 Effort reducing working capital is a continuous exercise and it is an opportunity for improvement.
 The company has idle cash in bank it should be utilized in purchase of short term marketable securities
to boost the financial health of the company.
 Lack of proper debt management hence a proper credit policy required so company need to adopt an
effective credit and collection policy.
 To make SWOT analysis for determining appropriate revival business strategy for the company.
 The company is finally advised to follow the principles to manage liquidity, profitability, survival and
growth of the business.
Conclusion:
 The Spearman‟s rank coefficient of correlation(r) between ROCE and liquidity has been calculated.
The “t” test is applied for determining significance of r. Then computed value of„t‟ has been compared
with the tabulated value of„t‟. Since the computed value of t is less than the table value the null
hypothesis (Ho) is accepted. So there is no significant difference between liquidity and profitability of
the firm during the period of study.
 The Spearman‟s rank coefficient of correlation(r) between ROCE and Risk factor has been calculated.
The “t” test is applied for determining significance of r. Then computed value of„t‟ has been compared
with the tabulated value of„t‟. Since the computed value of t is less than the table value the null
hypothesis (Ho) is accepted. So there is no significant difference between risk and profitability of the
firm during the period of study.
While analyzing the company‟s performance it is clear that, the firm give little importance to the issues
related with working capital. It may be of the reason that the amount and risk involved in capital investment
decision are very high. But from the above study we can say that Mahindra and Mahindra Ltd. should give due
consideration to improve the working capital management policies irrespective of the economic slowdown. The
company must improve its present liquidity position to remain stable at the time of discrepancies or recession. It
should also try to generate higher returns from its assets. The company must keep an optimum balance between
liquidity and profitability for efficient use of its working capital. At the same time it should not stop formulating
certain policies to keep a well-monitored working capital for better profitability, stability, reliability, growth and
consistency.
References:
1. Annual Reports of Mahindra and Mahindra Ltd.
2. Gupta, S.P (2000), “Statistical Methods” Sultan Chand and Sons, New Delhi.
3. Murthy, A and Gurusamy, S. (2013), “Management Accounting Theory & Practice”, Vijay Nicole
Imprints Private Ltd., Chennai.
4. Abdul Raheman and Mohammed Nasr, (2007) “WCM and Profitability-case of Pakistani Firms,”
International Review of business research papers, Vol.3, No.1, PP 279-300.
5. John Bauer, (1916) “The Allowance for WC in a Rate Case, “Political Science (Q) Vol.3, No.3, Sep,
4123-429.
6. Parasuraman. N. R, (2004) “WC practices in Leading in Pharmaceuticals Companies”- A View of the
credit Policy and Profitability, The Management Accountant, Dec, Vol.39, No.12, 998=1005.
7. Saravanan. P. (2001) “A Study of WCM in Non-Banking Companies,” Finance India, Vol. XV, No.3,
September 93-101.

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 International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)
Impact Factor: 5.225, ISSN (Online): 2456 - 3145
(www.dvpublication.com) Volume 3, Issue 1, 2018
8. K. Veerakumar, “A Study on People Impact on Demonetization”, International Journal of
Interdisciplinary Research in Arts and Humanities, Volume 2, Issue 1, Page Number 9-12, 2017.
9. www.mahindra and mahindra.com
10. www.moneycontrol.com

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