Return and Risk Analysis of Investment Avenues for Corporate Funds / Retained Earnings

Abstract

The purpose of this project is to know about multinational company TOTO Ltd’s India counterpart TOTO India Pvt. Ltd., the current sanitaryware market in India, and how TOTO India Pvt Ltd wants to try to increase its Income from Other Sources so as to try to compensate at least a little for the amount it’s not able to recover from its Revenue from Operations by selling sanitaryware domestically. TOTO’s owners and Board members have had the mentality to take it easy and not to pressure their employees too much, this seems to work as TOTO is a company more than a century old and is a leading manufacturer of sanitaryware worldwide. But at the same time, they are not into taking too many high financial risks, as is the case with their management of earnings from TOTO India. The members of the Board prefer to park their free reserves and retained earnings in highest safety, lowest risk investment avenues like bank deposits and other government fixed deposits like depositing in MGVCL. They are not willing to park amounts more than ₹2 crores for a period of more than a year. The Indian management decided to present to the Board members (who are mostly Japanese) the other investment options available in India which are safe and secure with relatively low risk but give higher returns than the avenues they have currently parked their funds in. The finance department, therefore, decided on presenting more bank fixed deposits, and company fixed deposits which have high CRISIL and ICRA ratings, and also want to introduce to them the option of mutual funds which have a mix of debt and equity instruments that may have high/higher risk than these safe options, but have the capacity to provide the higher returns they need to give a boost to their Income Statement by way of increase in Income from Other Sources, and also to grow the company’s Retained Earnings so that they would have more funds for whenever they need to use internal funding for any future projects, all while gradually increasing their period of investment to more than 1 year and their funds for investment to at least ₹5 crores.