Improving Hero Moto Corp.'s Working Capital Management to Increase Liquidity, Efficiency, and Profitability

Abstract

Ensuring the financial stability, efficiency, and economic sustainability of manufacturing firms, especially within the competitive automotive sector, necessitates effective management of working capital. This study focuses on Hero Moto Corp Ltd., the leading two-wheeler manufacturer in India, with the aim of evaluating and proposing improvements to its working capital management practices to boost overall financial performance. Despite its strong market position and brand reputation, Hero Moto Corp. has faced challenges in enhancing its financial aspects, particularly in inventory management, accounts receivable collections, and dues strategies, which directly impact its financial health and operational productivity.

Using financial ratios and key performance indicators such as the current ratio, quick ratio, inventory turnover, and accounts payable turnover, this study aims to analyze the current working capital structure of Hero Moto Corp. The results indicate that although the company has a positive working capital situation, a considerable portion of its capital is locked in inventory and receivables, suggesting potential for enhanced cash flow management. Delays in collecting receivables, combined with prolonged inventory holding periods, extend the cash conversion cycle, which affects liquidity and raises financing costs. Conversely, the company adopts cautious credit policies with its suppliers, which, while minimizing risk, limits its ability to leverage cash more effectively.

To tackle these issues, the research suggests a number of recommendations: adopting Just-in-Time (JIT) inventory methods to minimize holding expenses, enhancing credit collection strategies by using automated systems for tracking receivables, and negotiating improved credit arrangements with suppliers to extend payable durations. Furthermore, integrating digital solutions throughout the supply chain and utilizing advanced analytics can lead to more precise demand forecasting, decrease inventory wastage, and optimize procurement processes.