Financial Management & Corporate Finance Case Study

Case Title:

Bajaj Auto: Evaluating the Working Capital Requirements

Abstract:
The main objective of this case study is to understand the need and significance of investing in current assets and recognising the advantage of effective working capital management. Cash is the core component of a business and if the level of such resource is unsatisfactory, the company’s ability to fund operations, reinvest and meet working capital requirements may get affected. A good way to judge a firm’s cash flow prospects is to look at its working capital management. In other words, improving working capital performance increases a company’s competitiveness by increasing its return on capital employed. The case study attempts to explain the necessity of working capital management and discusses as to how the nature of industry impacts the working capital requirements of a company.

Considering the Indian auto industry, the case study gives a brief presentation of financial statements of Bajaj Auto and highlights the working capital trends of the company. As inventory management is a crucial part of working capital management, affective management of working capital results in better performance of working capital.

The case study focuses on the various approaches of estimating the working capital requirements.

Pedagogical Objectives:

• To understand the need and importance of investing in current assets and its implication on company’s long-term profitability
• To identify the necessity of Working Capital Management (WCM) and to understand the WCM of Bajaj Auto
• To evaluate and determine the working capital requirement of Bajaj Auto using different approaches.

Keywords : Cash, Working Capital, Current Assets, Current Liabilities, Working Capital Management, Bajaj Auto, Automobiles, Two Wheelers, Three Wheelers, Hero Honda, Current Assets Holding Period, Ratio to Sales, Ratio to fixed Insvestments, Creditors, Debtors