Bajaj Auto: Evaluating the Working Capital Requirements

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However, since past 5 years, current liabilities of the company exceeded current assets resulting in a negative working capital . Nevertheless, Bajaj Auto is taking necessary measures to improve its working capital. But the company is not considering this as negative remark as the other players in the industry are also experiencing negative working capital. Experts viewed that the top Indian companies with high return on capital have operated on negative working capital.¹⁶ Interestingly, companies belonging to FMCG and auto industry are known for good returns to their shareholders (both in terms of dividends and capital gains) though they showed a negative working capital. In addition to Bajaj Auto, Hero Honda which is the market leader and TVS, the third largest in this segment are also operating on negative working capital but are giving high returns to their shareholders. Due to the improved inventory turnover ratio and better working capital management cycles, these companies are enjoying the wide gap between the days of cash receipts from their debtors to payment days to their creditors. In short, they are enjoying the time period between number of days the payment to creditors and their receivables.