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Project Report On Working Capital Management in HCL
Project Report On Working Capital Management in HCL
ON
WORKING CAPITAL MANAGEMENT IN WORKING CAPITAL MANAGEMENT IN
HCL INFOSYSTEMS LIMITED HCL INFOSYSTEMS LIMITED
BY
(Submitted in partial fulfillment of the requirements of
MBA program at
!"A Business S#hool$ !handigarh%
1
ACKOWLEDGEMENT
A#hie&ement is finding out 'hat (ou 'ould be then doing$ 'hat (ou ha&e to do)
The higher the summit$ the harder is the #limb) The goal 'as fi*ed and 'e
began 'ith a determined resol&ed and put in #easeless sustained hard 'or+)
,reater #hallenge$ greater 'as our effort to o&er#ome it)
This pro-e#t 'or+$ 'hi#h is m( first step in the field of professionali.ation$ has
been su##essfull( a##omplished onl( be#ause of m( timel( support of 'ell/
'ishers) 'ould li+e to pa( m( sin#ere regards and than+s to those$ 'ho
dire#ted me at e&er( step in m( pro-e#t 'or+)
'ould also li+e to than+ the fa#ult( members and the staff members of HCL
Infosystems Ltd. for their +ind support and help during the pro-e#t)
2
TABLE OF CONTENTS
A#+no'ledgement
Abstra#t
0) ntrodu#tion
The problems
Purpose of stud(
Resear#h methodolog(
S#ope of the stud(
1ata sour#es
2imitations
3) 4industan !omputers 2imited
5) 4!2 nfos(stems 6 An O&er&ie'
!ompan(7s histor(
4!2 at a glan#e
Allian#es and partnerships
Management team
!orporate information
8) !on#eptual "rame'or+
ntrodu#tion to 9or+ing !apital Management
3
Signifi#an#e of 'or+ing #apital management
2iquidit( &s Profitabilit(: Ris+ 6 Return trade off
!lassifi#ation of 'or+ing #apital
T(pes of 'or+ing #apital needs
"inan#ing of 'or+ing #apital
"a#tors determining 'or+ing #apital requirements
9or+ing #apital #(#le
Sour#es of 'or+ing #apital
4!2 finan#ials
9or+ing #apital position
n&entor( management
!ash management
Re#ei&ables management
Managing pa(ables (!reditors%
"inan#ing #urrent assets
9or+ing #apital ; short/term finan#ing
<) Anal(sis
ndustr( anal(sis
"inan#ial graphs
4
!on#luding anal(sis
Suggestions and re#ommendations
Bibliograph(
=) Appendi#es
5
ABSTRACT
This pro-e#t is based on the stud( of 'or+ing #apital management in 4!2
nfo(stems) An insight &ie' of the pro-e#t 'ill en#ompass 6 'hat it is all about$
'hat it aims to a#hie&e$ 'hat is its purpose and s#ope$ the &arious methods used
for #olle#ting data and their sour#es$ in#luding literature sur&e( done$ further
spe#if(ing the limitations of our stud( and in the last$ dra'ing inferen#es from
the learning so far)
4!2 nfos(stems 2imited (4!2%$ is a leading domesti# #omputer hard'are
and hard'are ser&i#es #ompan() 4!2 is engaged in selling manufa#tured ( li+e
P!s$ ser&ers$ monitors and peripherals% and traded hard'are ( li+e noteboo+s$
peripherals% to institutional #lients as 'ell as in retail segment) t also offers
hard'are support ser&i#es to e*isting #lients through annual maintenan#e
#ontra#ts$ net'or+ #onsulting and fa#ilities management)
The 'or+ing #apital management refers to the management of 'or+ing #apital$
or pre#isel( to the management of #urrent assets) A firm7s 'or+ing #apital
#onsists of its in&estments in #urrent assets$ 'hi#h in#ludes short/term assets>
#ash and ban+ balan#e$ in&entories$ re#ei&able and mar+etable se#urities)
This pro-e#t tries to e&aluate ho' the management of 'or+ing #apital is done in
4!2 nfos(stems through in&entor( ratios$ 'or+ing #apital ratios$ trends$
#omputation of #ash$ in&entor( and 'or+ing #apital$ and short term finan#ing)
6
INTRODUCTION
7
8
The problems
Purpose of stud(
Resear#h methodolog(
S#ope of the stud(
1ata sour#es
2imitations
INTRODUCTION:
The pro-e#t underta+en is on ?9OR@N, !APTA2 MANA,EMENT N
4!2 N"OSYSTEMS 2MTE1A)
t des#ribes about ho' the #ompan( manages its 'or+ing #apital and the &arious
steps that are required in the management of 'or+ing #apital)
!ash is the lifeline of a #ompan() f this lifeline deteriorates$ so does the
#ompan(Bs abilit( to fund operations$ rein&est and meet #apital requirements and
pa(ments) Cnderstanding a #ompan(Bs #ash flo' health is essential to ma+ing
in&estment de#isions) A good 'a( to -udge a #ompan(Bs #ash flo' prospe#ts is
to loo+ at its 'or+ing #apital management (9!M%)
9or+ing #apital refers to the #ash a business requires for da(/to/da( operations
or$ more spe#ifi#all($ for finan#ing the #on&ersion of ra' materials into finished
goods$ 'hi#h the #ompan( sells for pa(ment) Among the most important items
of 'or+ing #apital are le&els of in&entor($ a##ounts re#ei&able$ and a##ounts
pa(able) Anal(sts loo+ at these items for signs of a #ompan(Bs effi#ien#( and
finan#ial strength)
The 'or+ing #apital is an important (ardsti#+ to measure the #ompan(7s
operational and finan#ial effi#ien#() An( #ompan( should ha&e a right amount
of #ash and lines of #redit for its business needs at all times)
This pro-e#t des#ribes ho' the management of 'or+ing #apital ta+es pla#e at
4!2 nfos(stems)
9
THE PROBLEMS
n the management of 'or+ing #apital$ the firm is fa#ed 'ith t'o +e( problems:
0) "irst$ gi&en the le&el of sales and the rele&ant #ost #onsiderations$ 'hat are the
optimal amounts of #ash$ a##ounts re#ei&able and in&entories that a firm should
#hoose to maintainD
3) Se#ond$ gi&en these optimal amounts$ 'hat is the most e#onomi#al 'a( to
finan#e these 'or+ing #apital in&estmentsD To produ#e the best possible
results$ firms should +eep no unprodu#ti&e assets and should finan#e 'ith the
#heapest a&ailable sour#es of funds) 9h(D n general$ it is quite ad&antageous
for the firm to in&est in short term assets and to finan#e short/term liabilities)
10
PURPOSE OF STUDY
The ob-e#ti&es of this pro-e#t 'ere mainl( to stud( the in&entor($ #ash and
re#ei&able at 4!2 nfos(stems 2td)$ but there are some more and the( are /
The main purpose of our stud( is to render a better understanding of
the #on#ept ?9or+ing !apital ManagementA)
To understand the planning and management of 'or+ing #apital at HCL
Infosystems Ltd.
To measure the finan#ial soundness of the #ompan( b( anal(.ing &arious
ratios)
To suggest 'a(s for better management and #ontrol of 'or+ing #apital at
the #on#ern)
11
RESEARCH METHODOLOGY
This project requires a detailed understanding of the concept
!or"ing #apital $anage%ent&' Therefore( firstl) *e need to ha+e
a clear idea of *hat is *or"ing capital( ho* it is %anaged in ,#-
.nfos)ste%s( *hat are the different *a)s in *hich the financing of
*or"ing capital is done in the co%pan)'
The management of 'or+ing #apital in&ol&es managing in&entories$
a##ounts re#ei&able and pa(able and #ash) Therefore one also needs to
ha&e a sound +no'ledge about #ash management$ in&entor( management
and re#ei&ables management)
Then #omes the finan#ing of 'or+ing #apital requirement$ i)e) ho' the
'or+ing #apital is finan#ed$ 'hat are the &arious sour#es through 'hi#h it
is done)
And$ in the end$ suggestions and re#ommendations on 'a(s for better
management and #ontrol of 'or+ing #apital are pro&ided)
12
SCOPE OF THE STUDY
This project is vital to me in a significant way. It does have some
importance for the company too. These are as follows -
This pro-e#t 'ill be a learning de&i#e for the finan#e student)
Through this pro-e#t 'ould stud( the &arious methods of the 'or+ing
#apital management)
The pro-e#t 'ill be a learning of planning and finan#ing 'or+ing #apital)
The pro-e#t 'ould also be an effe#ti&e tool for #redit poli#ies of the
#ompanies)
This 'ill sho' different methods of holding in&entor( and dealing 'ith
#ash and re#ei&ables)
This 'ill sho' the liquidit( position of the #ompan( and also ho' do the(
maintain a parti#ular liquidit( position)
13
DATA SOURCES:
The follo'ing sour#es ha&e been sought for the prep of this report:
Primar( sour#es su#h as business maga.ines$ #urrent annual reports$ boo+
on "inan#ial Management b( &arious authors and internet 'ebsites the
imp amongst them being : ''')h#l)#om$ ''')indiainfoline)#om$
''')stud(finan#e)#om )
Se#ondar( sour#es li+e pre&ious (ears annual reports$ reports on 'or+ing
#apital for resear#h$ anal(sis and #omparison of the data gathered)
9hile doing this pro-e#t$ the data relating to 'or+ing #apital$ #ash
management$ re#ei&ables management$ in&entor( management and short
term finan#ing 'as required)
This data 'as gathered through the #ompan(7s 'ebsites$ its #orporate
intranet$ 4!27s annual reports of the last fi&e (ears)
A detailed stud( on the a#tual 'or+ing pro#esses of the #ompan( is also
done through dire#t intera#tion 'ith the emplo(ees and b( timel(
stud(ing the happenings at the #ompan()
Also$ &arious te*t boo+s on finan#ial management li+e @han ; Eain$
Prasanna !handra and )M)Pande( 'ere #onsulted to equip oursel&es
'ith the topi#)
14
LIMITATIONS OF THE STUDY:
9e #annot do #omparisons 'ith other #ompanies unless and until
'e ha&e the data of other #ompanies on the same sub-e#t)
Onl( the printed data about the #ompan( 'ill be a&ailable and not
the ba#+6end details)
"uture plans of the #ompan( 'ill not be dis#losed to the trainees)
2astl($ due to shortage of time it is not possible to #o&er all the
fa#tors and details regarding the sub-e#t of stud()
The latest finan#ial data #ould not be reported as the #ompan(7s
'ebsites ha&e not been updated)
15
HINDUSTAN COMPUTERS LIMITED:
Type Public
(BSE: 500179,BSE: 532281)
Founded 00
th
August 0FG=
Headquarters Noida$ ndia
(1elhi metropolitan area%$ ndia
Key People Shi& Nadar$ "ounder$ !hairman ; !EO
San-a( @umar !houdhar( $ Hineet Na(ar
Industry nformation Te#hnolog( Ser&i#es
Revenue
I8)G billion CS1
Employees
J<5$KKK (as on 50st 1e# 3KKG%
Website ''')h#l)in
Hindustan Computers Limited$ also +no'n as HCL Enterprise$ is one of
ndiaBs largest ele#troni#s$ #omputing and information te#hnolog( #ompan()
Based in Noida$ near 1elhi$ the #ompan( #omprises t'o publi#l( listed ndian
#ompanies$ 4!2 Te#hnologies and 4!2 nfos(stems)
4!2 'as founded in 0FG= b( Shi& Nadar$ A-ai !ho'dhr( and four of their
#olleagues) 4!2 'as fo#used on addressing the T hard'are mar+et in ndia for
the first t'o de#ades of its e*isten#e 'ith some sporadi# a#ti&it( in the global
16
mar+et) n 0FL0$ 4!2 seeded a #ompan( fo#used on addressing the #omputer
training industr($ NT$ though it has #urrentl( di&ested its sta+e in the
#ompan() n 0FF0$ 4P too+ minorit( sta+e in the #ompan( (3=M% and the
#ompan( 'as +no'n as 4!2 4P for the fi&e (ears of the -oint &enture) On
termination of the -oint &enture in 0FF=$ 4!2 be#ame an enterprise 'hi#h
#omprises 4!2 Te#hnologies (to address the global T ser&i#es mar+et% and
4!2 nfos(stems (to address the ndian and APA! T hard'are mar+et%) 4!2
has sin#e then operated as a holding #ompan()
17
HCL INFOSYSTEMS - AN OVERVIEW
18
19
!ompan(7s histor(
4!2 at a glan#e
Allian#es and partnerships
Management team
!orporate information
HCL INFOSYSTEMS LIMITED
AN OVERVIEW ABOUT THE COMPANY
4!2 nfos(stems is no flash in the nformation Te#hnolog( pan) "ounded in
0FG=$ the firm has #limbed into pantheon of ndiaBs #orporate giants on the
strength of its T produ#ts and ser&i#es) 4!2 nfos(stems spe#iali.es in T
hard'are (P!Bs and ser&ers$ as 'ell as net'or+ing$ imaging and
#ommuni#ations produ#ts%$ and s(stem integration ser&i#es ser&ing the domesti#
ndian mar+et) n addition to its #onsumer produ#ts$ the #ompan( pro&ides
#ommer#ial T produ#ts$ fa#ilities management$ net'or+ ser&i#es$ and T
se#urit( ser&i#es for #lients in su#h industries as go&ernment$ finan#ial ser&i#es$
and edu#ation) 4!2 !orporation o'ns signifi#ant sta+es in 4!2 nfos(stems
(about 88M% and sister #ompan( 4!2 Te#hnologies)
4!2 nfos(stems 2td$ a listed subsidiar( of 4!2$ is an ndia/based hard'are
and s(stems integrator) t #laims a presen#e in 0GK lo#ations and 5KK ser&i#e
#entres) ts manufa#turing fa#ilities are based in !hennai$ Pondi#herr( and
Cttara+hand )ts headquarters is in Noida)
4!2 Peripherals (A Cnit of 4!2 nfos(stems 2imited% "ounded in the (ear
0FL5$ has established itself as a leading manufa#turer of #omputer peripherals in
ndia$ en#ompassing 1ispla( Produ#ts$ Thin !lient solutions$ nformation and
ntera#ti&e @ios+s) 4!2 Peripherals has t'o Manufa#turing fa#ilities$ one in
20
!ompan(7s histor(
4!2 at a glan#e
Allian#es and partnerships
Management team
!orporate information
Pondi#herr( (Ele#troni#s% and the other in !hennai (Me#hani#al% )The !ompan(
has been a##redited 'ith SO FKK0:3KKK$ SO 08KK0$ TS 0=F8F and SO 058L<)
HISTORY
4!2 nfos(stems 2td is one of the pioneers in the ndian T
mar+et$ 'ith its origins in 0FG=) "or o&er quarter of a #entur($
'e ha&e de&eloped and implemented solutions for multiple
mar+et segments$ a#ross a range of te#hnologies in ndia) 9e
ha&e been in the forefront in introdu#ing ne' te#hnologies and
solutions) The highlights of the 4!2 saga are summari.ed
belo':
Y E AR H I G H L I G H T S
1976
/ "oundation of the !ompan( laid
/ ntrodu#es mi#ro#omputer/based programmable #al#ulators 'ith 'ide
a##eptan#e in the s#ientifi# N edu#ation #ommunit(
1977
/ 2aun#h of the first mi#ro#omputer/based #ommer#ial #omputer 'ith a ROM
/based Basi# interpreter
/ Cna&ailabilit( of programming s+ills 'ith #ustomers results in 4!2 de&eloping
bespo+e appli#ations for their #ustomers
1980
/ "ormation of "ar East !omputers 2td)$ a pioneer in the Singapore T mar+et$ for
S (S(stem ntegration% solutions
1983
/ 4!2 laun#hes an aggressi&e ad&ertisement #ampaign 'ith the theme B e&en a
t(pist #an operateB to ma+e the usage of #omputers popular in the SME (Small ;
Medium Enterprises% segment) This proposition in&ol&ed menu/based
appli#ations for the first time$ to in#rease ease of operations) The response to the
ad&ertisement 'as phenomenal)
/4!2 de&elops spe#ial program generators to speed up the de&elopment of
appli#ations
1986
/ Oonal offi#es of ban+s and general insuran#e #ompanies adopt #omputeri.ation
/ Pur#hase spe#ifi#ations demand the a&ailabilit( of R1BMS produ#ts on the
21
supplied solution (Cnif($ Ora#le%) 4!2 arranges for su#h produ#ts to be ported to
its platform)
/ 4!2 assists #ustomers to migrate from flat/file based s(stems to R1BMS
1991
/ 4!2 enters into a -oint &enture 'ith 4e'lett Pa#+ard
/ 4P assists 4!2 to introdu#e ne' ser&i#es: S(stems ntegration$ T #onsulting$
pa#+aged support ser&i#es ( basi# line$ team line %
1994
/ 4!2 a#quires and e*e#utes the first offshore pro-e#t from BM Thailand
/ 4!2 sets up #ore group to define soft'are de&elopment methodologies
1995
/ Starts e*e#ution of nformation S(stem Planning pro-e#ts
/ E*e#ution pro-e#ts for ,erman( and Australia
/ Begins 4elp des+ ser&i#es
1996
/ Sets up the STP ( Soft'are Te#hnolog( Par+ % at !hennai to e*e#ute soft'are
pro-e#ts for international #ustomers
/ Be#omes national integration partner for SAP
1997
/ @ol+ata and Noida STPs set up
/ 4!2 bu(s ba#+ 4P sta+e in 4!2 4e'lett Pa#+ard
1998 / !hennai and !oimbatore de&elopment fa#ilities get SO FKK0 #ertifi#ation
1999
/ A#quires and sets up full( o'ned subsidiaries in CSA and C@
/ Sets up full( o'ned subsidiar( in Australia
/ 4!2 ties up 'ith Broad&ision as an integration partner
2000
/ Sets up full( o'ned subsidiar( in Australia
/ !hennai and !oimbatore de&elopment fa#ilities get SE 2e&el 8 #ertifi#ation
/ Bags A'ard for Top P! Hendor n ndia
/ Be#omes the 0st T !ompan( to be re#ommended for latest &ersion of SO FKK0
: 3KKK
/ Bags MATBs A'ard for Business E*#ellen#e
/ Rated as No) 0 T ,roup in ndia
2001
/2aun#hed Pentium H P!s at belo' Rs 8K$KKK
/1! rated 4!2 nfos(stems as No) 0 1es+top P! !ompan( of 3KK0
2002
/1e#lared as Top P! Hendor b( 1ataquest
/4!2 nfos(stems ; Sun Mi#ros(stems enters into a Enterprise 1istribution
Agreement
/ Realigns businesses$ in#reasing fo#us on domesti# T$ !ommuni#ations ;
maging produ#ts$ solutions ; related ser&i#es
2003
/ Be#ame the first &endor to register sales of <K$KKK P!s in a quarter
/ "irst ndian #ompan( to be numero uno in the #ommer#ial P! mar+et
/ Enters into partnership 'ith AM1
22
/ 2aun#hed 4ome P! for Rs 0F$FFF
2004
/ 0st to announ#e P! pri#e #ut in ndia$ post dut( redu#tion$ offers E.eebee at Rs)
0GFFK
/ Maintains No)0 position in the 1es+top P! segment for (ear 3KK5
/ Be#omes the 0st #ompan( to #ross 0 la# unit milestone in the ndian 1es+top P!
mar+et
/ Partners 'ith Cnion Ban+ to ma+e P!s more affordable$ introdu#es lo'est e&er
EM for P! in ndia
/ Registers a mar+et share of 05)GM to be#ome No)0 1es+top P! #ompan( for
(ear 3KK8
/ !rosses the landmar+ of P 0 billion in re&enue in -ust nine months
2005
/ 2aun#h of 4!2 P! for ndia$ a full( fun#tional P! pri#ed at Rs)F$FFKN/
/ Rated as the No)0 1es+top P! #ompan( b( 1! ndia /1ataquest
/ BBest Emplo(er 3KK<B 'ith fi&e star ratings b( 1! ndia /1ataquest)
/ BThe Most !ustomer Responsi&e !ompan( 3KK<B
/T 4ard'are !ategor( b( The E#onomi# Times /A&a(a ,lobal !onne#t)
/Top <K fastest gro'ing Te#hnolog( !ompanies in ndiaB ; BTop <KK fastest
,ro'ing Te#hnolog( !ompanies in Asia Pa#ifi#B b( B1eloitte ; Tou#heB) b(
B1eloitte ; Tou#heB
/BGth ETE /!orporate A'ard 3KK<B for performan#e e*#ellen#e in the field of
!omputers ; Tele#ommuni#ation S(stems b( ETE)
/ndia Bs BNo)0 &endorB for sales of A5 si.e Toshiba Multi "un#tional 1e&i#es for
the (ear BK8 /BK< b( 1!)
/Toshiba BSuper A'ard 3KK< to'ards business e*#ellen#e in distribution of
Toshiba Multifun#tional produ#ts$
/Strategi# Partners in E*#ellen#eB A'ard b( n fo#us !orporation for pro-e#tors)
/BMost &alued Business PartnerB A'ard for pro-e#tors b( n fo#us !orporation in
3KK<
2006
(till
1une)
/ G<$ KKKQ ma#hines produ#ed in a single month
/ 4!2 nfos(stems in partnership 'ith Toshiba e*pands its retail presen#e in
ndia b( un&eiling Bshop ToshibaB
/ 4!2 nfos(stems ; No+ia announ#e a long term distribution strateg(
/ 4!2 the leader in 1es+tops P!s un&eils ndiaBs first segment spe#ifi# range of
noteboo+s brand / B4!2 2aptopsB
/ 1B sele#ts 4!2 as S partner for 0KK bran#hes !T infrastru#ture rollout
/ 4!2 nfos(stems sho'#ases !omputer Solutions for the Rural Mar+ets in ndia
/ 4!2 Support 'ins the 1R !hannels/3KK= ,O21 A'ard for Best After Sales
Ser&i#e on a nation'ide #ustomer satisfa#tion sur&e( #ondu#ted b( 1!
/ 4!2 nfos(stems "irst in ndia to 2aun#h the Ne' ,eneration of 4igh
Performan#e Ser&er Platforms Po'ered b( ntel 1ual / !ore Seon <KKK
Pro#essor
23
/ 4!2 "orms a Strategi# Partnership 'ith APP2E to pro&ide Sales ; Ser&i#e
Support for iPods in ndia
VISION STATEMENT:
TTogether 'e #reate the Enterprises of Tomorro'T
MISSION STATEMENT:
TTo pro&ide 'orld/#lass nformation Te#hnolog( solutions and ser&i#es
in order to enable our #ustomers to ser&e their #ustomers betterT
CORE VALUES:
Nothing transforms life li+e edu#ation)
9e shall honor all #ommitments
9e shall be #ommitted to Rualit($ nno&ation and ,ro'th in e&er(
endea&or
9e shall be responsible #orporate #iti.ens
QUALITY POLICY:
24
T9e shall deli&er defe#t/free produ#ts$ ser&i#es and solutions to meet the
requirements of our e*ternal and internal #ustomers$ the first time$ e&er( time)T
OB1ECTIVES:
MANAGEMENT OB1ECTIVES 6
To fuel initiati&e and foster a#ti&it( b( allo'ing indi&iduals$ freedom
of a#tion and inno&ation in attaining defined ob-e#ti&es)
PEOPLE OB1ECTIVES 6
To help people in 4!2 nfos(stems 2td)$ share #ompan(7s su##ess$
'hi#h the( ma+e possibleU to pro&ide -ob se#urit( based on their
performan#eU to
re#ogni.e their indi&idual a#hie&ementsU and help them gain a sense of
satisfa#tion and a##omplishment from their 'or+)
ALLIANCES and PARTNERSHIPS:
25
To pro&ide 'orld/#lass solutions and ser&i#es to all our #ustomers$ 4!2
nfos(stems ha&e formed Allian#es and Partnerships 'ith leading T #ompanies
'orld'ide)
4!2 nfos(stems has allian#es 'ith global te#hnolog( leaders li+e Intel, AMD,
Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, nVIDIA,
SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer
Associates, RedHat, Infocus, Duplo, Samsung and Novell.
These allian#es on one hand gi&e us a##ess to best te#hnolog( ; produ#ts as
'ell as enhan#ing our understanding of the latest in te#hnolog() On the other
hand the( enhan#e our produ#t portfolio$ and enable us to be one stop shop for
our #ustomers)
26
MANAGEMENT TEAM:
Ajai Chowdhry
!o/"ounder 4!2$ !hairman and !EO / 4!2 nfos(stems)
An engineer b( training$ A-ai !ho'dhr( is one of the si* #o/
founder members of 4!2$ ndia Bs premier T #onglomerate)
1 V Ramamurthy
!hief Operating Offi#er 4!2 nfos(stems 2td)
E H Ramamurth( has an engineering degree in Ele#troni#s ;
!ommuni#ations$ from ,uind( Engineering !ollege$ and a MastersB
degree in Applied Ele#troni#s from the Madras nstitute of
Te#hnolog($ both in !hennai)
Rajendra Kumar
E*e#uti&e Hi#e President / "rontline 1i&ision 4!2 nfos(stems 2td)
Mr) Ra-endra @umar has been 'ith 4!2 for o&er 5K (ears and has
seen 4!2 gro' from a startup #ompan( to a giganti# #onglomerate
that it is toda()
27
CORPORATE INFORMATION:
BOARD OF DIRECTORS Chairman & Chief Executive Officer
A-ai !ho'dhr(
Whole-time Director
E)H) Ramamurth(
Directors
S) Bhatta#har(a
1)S) Puri
R)P) @hosla
E)A) @shirsagar
Anita Rama#handran
T)S) Purushothaman
Narasimhan Eegadeesh
H)N) @oura
COMPANY SECRETARY Sushil @umar Eain
AUDITORS Pri#e 9aterhouse$ Ne' 1elhi
28
BANKERS State Ban+ of ndia
!anara Ban+
41"! Ban+ 2td)
!! Ban+ 2td)
So#iete ,enerale
Standard !hartered Ban+
State Ban+ of Patiala
State Ban+ of Saurashtra
REGISTERED OFFICE LK=$ Siddharth$
F=$ Nehru Pla#e$ Ne' 1elhi / 00K K0F)
CORPORATE OFFICE E / 8$ <$ =$ Se#tor S$ Noida / 3K0 5K0 (C)P)%
WORKS V R)S) Nos: 58N8 to 58NG and part of 58N0$
Sedarapet$ Pudu#herr( / =K< 000)
V R)S) Nos: 0KGN<$ = ; G$ Main Road$
Sedarapet$ Pudu#herr( / =K< 000)
V Plot No GL$ South Phase$ Ambattur
ndustrial
Estate$!hennai / =KK K<L)
V Plot No SP2) A3$ Thattan#ha&adi$ ndustrial
Area$ Pudu#herr( / =K< KKF)
V Plot Nos) 0$ 3$ 3G ; 3L$ Se#tor <$ 00E$
Rudrapur$ 1istt) / Cdham Singh Nagar$
Cttara+hand / 3=5 08<)
29
30
WORKING CAPITAL MANAGEMENT
CONCEPTUAL FRAMEWORK
31
ntrodu#tion
Signifi#an#e of 'or+ing #apital management
2iquidit( Hs profitabilit(: Ris+ 6 Return trade off
!lassifi#ation of 'or+ing #apital
T(pes of 'or+ing #apital needs
"inan#ing of 'or+ing #apital
"a#tors determining 'or+ing #apital requirements
9or+ing #apital #(#le
Sour#es of 'or+ing #apital
4!2 finan#ials
9or+ing #apital position
n&entor( management
!ash management
Re#ei&ables management
Managing pa(ables (!reditors%
"inan#ing #urrent assets
9or+ing #apital ; short/term finan#ing
"inan#ing !urrent Assets
INTRODUCTION TO WORKING CAPITAL
Working Capital is the Life-Blood and Controlling Nerve Center of a
business
The working capital management precisely refers to management of
current assets. A firm`s working capital consists of its investment in
current assets, which include short-term assets such as:
!ash and ban+ balan#e$
n&entories$
Re#ei&ables (in#luding debtors and bills%$
Mar+etable se#urities)
9or+ing #apital is #ommonl( defined as the differen#e bet'een #urrent assets
and #urrent liabilities)
9OR@N, !APTA2 W !CRRENT ASSETS/!CRRENT 2AB2TES
There are t'o ma-or #on#epts of 'or+ing #apital:
,ross 'or+ing #apital
Net 'or+ing #apital
32
ntrodu#tion
Signifi#an#e of 'or+ing #apital management
2iquidit( Hs profitabilit(: Ris+ 6 Return trade off
!lassifi#ation of 'or+ing #apital
T(pes of 'or+ing #apital needs
"inan#ing of 'or+ing #apital
"a#tors determining 'or+ing #apital requirements
9or+ing #apital #(#le
Sour#es of 'or+ing #apital
4!2 finan#ials
9or+ing #apital position
n&entor( management
!ash management
Re#ei&ables management
Managing pa(ables (!reditors%
"inan#ing #urrent assets
9or+ing #apital ; short/term finan#ing
"inan#ing !urrent Assets
Gross working capital:
t refers to firmBs in&estment in #urrent assets) !urrent assets are the assets$
'hi#h #an be #on&erted into #ash 'ith in a finan#ial (ear) The gross 'or+ing
#apital points to the need of arranging funds to finan#e #urrent assets)
Net working capital:
t refers to the differen#e bet'een #urrent assets and #urrent liabilities) Net
'or+ing #apital #an be positi&e or negati&e) A positi&e net 'or+ing #apital
'ill arise 'hen #urrent assets e*#eed #urrent liabilities) And &i#e/&ersa for
negati&e net 'or+ing #apital) Net 'or+ing #apital is a qualitati&e #on#ept) t
indi#ates the liquidit( position of the firm and suggests the e*tent to 'hi#h
'or+ing #apital needs ma( be finan#ed b( permanent sour#es of funds) Net
'or+ing #apital also #o&ers the question of -udi#ious mi* of long/term and
short/term funds for finan#ing #urrent assets)
33
Significance Of Working Capital Management
The management of working capital is important for several reasons:
"or one thing$ the #urrent assets of a t(pi#al manufa#turing firm a##ount for
half of its total assets) "or a distribution #ompan($ the( a##ount for e&en
more)
9or+ing #apital requires #ontinuous da( to da( super&ision) 9or+ing
#apital has the effe#t on #ompan(Bs ris+$ return and share pri#es$
There is an ine&itable relationship bet'een sales gro'th and the le&el of
#urrent assets) The target sales le&el #an be a#hie&ed onl( if supported b(
adequate 'or+ing #apital neffi#ient 'or+ing #apital management ma( lead
to insol&en#( of the firm if it is not in a position to meet its liabilities and
#ommitments)
34
LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE
OFF
Another important aspe#t of a 'or+ing #apital poli#( is to maintain and
pro&ide suffi#ient liquidit( to the firm) 2i+e the most #orporate finan#ial
de#isions$ the de#ision on ho' mu#h 'or+ing #apital be maintained
in&ol&es a trade off/ ha&ing a large net 'or+ing #apital ma( redu#e the
liquidit( ris+ fa#ed b( a firm$ but it #an ha&e a negati&e effe#t on the
#ash flo's) Therefore$ the net effe#t on the &alue of the firm should be
used to determine the optimal amount of 'or+ing #apital)
Sound 'or+ing #apital in&ol&es t'o fundamental de#isions for the firm)
The( are the determination of:
The optimal le&el of in&estments in #urrent assets)
The appropriate mi* of short/term and long/term finan#ing used to
support this in&estment in #urrent assets$ a firm should de#ide
'hether or not it should use short/term finan#ing) f short/term
finan#ing has to be used$ the firm must determine its portion in total
finan#ing) Short/term finan#ing ma( be preferred o&er long/term
finan#ing for t'o reasons:
The #ost ad&antage
"le*ibilit(
But short/term finan#ing is more ris+( than long/term finan#ing)
"ollo'ing table 'ill summari.e our dis#ussion of short/term &ersus
long/term finan#ing)
35
Maintaining a poli#( of short term finan#ing for short term or temporar(
assets needs (Bo* 0% and long/ term finan#ing for long term or
permanent assets needs (Bo* 5% 'ould #omprise a set of moderate ris+ 6
profitabilit( strategies) But 'hat one gains b( follo'ing alternati&e
strategies (li+e b( bo* 3 or bo* 8% needs to 'eighed against 'hat (ou
gi&e up)
36
CLASSIFICATION OF WORKING CAPITAL
9or+ing #apital #an be #lassified as follo's:
On the basis of time
On the basis of #on#ept
37
TYPES OF WORKING CAPITAL NEEDS
Another important aspe#t of 'or+ing #apital management is to anal(.e
the total 'or+ing #apital needs of the firm in order to find out the
permanent and temporar( 'or+ing #apital) 9or+ing #apital is required
be#ause of e*isten#e of operating #(#le) The lengthier the operating
#(#le$ greater 'ould be the need for 'or+ing #apital) The operating
#(#le is a #ontinuous pro#ess and therefore$ the 'or+ing #apital is
needed #onstantl( and regularl() 4o'e&er$ the magnitude and quantum
of 'or+ing #apital required 'ill not be same all the times$ rather it 'ill
flu#tuate)
The need for #urrent assets tends to shift o&er time) Some of these
#hanges refle#t permanent #hanges in the firm as is the #ase 'hen the
in&entor( and re#ei&ables in#reases as the firm gro's and the sales
be#ome higher and higher) Other #hanges are seasonal$ as is the #ase
'ith in#reased in&entor( required for a parti#ular festi&al season) Still
others are random refle#ting the un#ertaint( asso#iated 'ith gro'th in
sales due to firmBs spe#ifi# or general e#onomi# fa#tors)
The working capital needs can be bifurcated as:
Permanent 'or+ing #apital
Temporar( 'or+ing #apital
38
Permanent working capital:
There is al'a(s a minimum le&el of 'or+ing #apital$ 'hi#h is
#ontinuousl( required b( a firm in order to maintain its a#ti&ities) E&er(
firm must ha&e a minimum of #ash$ sto#+ and other #urrent assets$ this
minimum le&el of #urrent assets$ 'hi#h must be maintained b( an( firm
all the times$ is +no'n as permanent 'or+ing #apital for that firm) This
amount of 'or+ing #apital is #onstantl( and regularl( required in the
same 'a( as fi*ed assets are required) So$ it ma( also be #alled fi*ed
'or+ing #apital)
Temporary working capital:
An( amount o&er and abo&e the permanent le&el of 'or+ing #apital is
temporar($ flu#tuating or &ariable 'or+ing #apital) The position of the
required 'or+ing #apital is needed to meet flu#tuations in demand
#onsequent upon #hanges in produ#tion and sales as a result of seasonal
#hanges)
39
The permanent le&el is #onstant 'hile the temporar( 'or+ing #apital is
flu#tuating in#reasing and de#reasing in a##ordan#e 'ith seasonal
demands as sho'n in the figure)
n the #ase of an e*panding firm$ the permanent 'or+ing #apital line
ma( not be hori.ontal) This is be#ause the demand for permanent
#urrent assets might be in#reasing (or de#reasing% to support a rising
le&el of a#ti&it() n that #ase line 'ould be rising)
40
FINANCING OF WORKING CAPITAL
There are t'o t(pes of 'or+ing #apital requirements as dis#ussed abo&e)
The( are:
Permanent or "i*ed 9or+ing !apital requirements
Temporar( or Hariable 9or+ing !apital requirements
Therefore$ to finan#e either of these t'o 'or+ing #apital requirements$
'e ha&e long/term as 'ell as short/term sour#es)
41
FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS
There are man( fa#tors that determine 'or+ing #apital needs of an
enterprise) Some of these fa#tors are e*plained belo':
Nature or Character of Business.
The 'or+ing #apital requirement of a firm is #losel( related to the
nature of its business) A ser&i#e firm$ li+e an ele#tri#it(
underta+ing or a transport #orporation$ 'hi#h has a short
operating #(#le and 'hi#h sells predominantl( on #ash basis$ has
a modest 'or+ing #apital requirement) Oh the other hand$ a
manufa#turing #on#ern li+e a ma#hine tools unit$ 'hi#h has a
long operating #(#le and 'hi#h sells largel( on #redit$ has a &er(
substantial 'or+ing #apital requirement)
Sinte#h is a manufa#turing #on#ern so this requires them to +eep a
&er( si.eable amount in 'or+ing #apital)
Size of Business/Scale of Operations.
/intech has a good position in its seg%ent and the) are also spending their
operations in the do%estic %ar"et as *ell as in foreign %ar"et' The scale of
operations and the si0e it holds in the %ar"et %a"es it a %ust for the% to hold their
in+entor) and current asset at a huge le+el'
42
Rate of Growth of Business.
The rate of gro'th of sales indi#ates a need for in#rease in the
'or+ing #apital requirements of the firm) As the firm is projected
to increase their sales b( =FM from 'hat it 'as in 3KKF$ it is
required to guard them against the in#reasing requirements of the
net #urrent asset b( 'a( of effi#ient 'or+ing #apital management)
The sales and pro-e#ted sales le&el determine the in&estment in
in&entories and re#ei&ables)
Price Level Changes.
!hanges in the pri#e le&el also affe#t the 'or+ing #apital
requirements) t 'as the redu#ed margins in the pri#e of the ra'
materials that had prompted them to go for bul+ pur#hases thus
ma+ing on additions to their net #urrent assets) The( might ha&e
gone for this large/s#ale pro#urement for a&ailing dis#ounts and
anti#ipating a rise in pri#es$ 'hi#h 'ould ha&e meant that more
funds are required to maintain the same #urrent assets)
WORKING CAPITAL CYCL
The upper portion of the diagram abo&e sho's in a simplified form the
#hain of e&ents in a manufa#turing firm) Ea#h of the bo*es in the upper
43
part of the diagram #an be seen as a tan+ through 'hi#h funds flo')
These tan+s$ 'hi#h are #on#erned 'ith da(/to/da( a#ti&ities$ ha&e funds
#onstantl( flo'ing into and out of them)
The #hain starts 'ith the firm bu(ing ra' materials on #redit)
n due #ourse this sto#+ 'ill be used in produ#tion$ 'or+ 'ill be
#arried out on the sto#+$ and it 'ill be#ome part of the firm7s 'or+/
in/progress)
9or+ 'ill #ontinue on the 9P until it e&entuall( emerges as the
finished produ#t)
As produ#tion progresses$ labor #osts and o&erheads need ha&e to
be met)
Of #ourse at some stage trade #reditors 'ill need to be paid)
9hen the finished goods are sold on #redit$ debtors are in#reased)
The( 'ill e&entuall( pa($ so that #ash 'ill be in-e#ted into the firm)
Ea#h of the areas/ Sto#+ (ra' materials$ 9P$ and finished goods%$ trade
debtors$ #ash (positi&e or negati&e% and trade #reditors 6 #an be &ie'ed as
tan+s into and from 'hi#h funds flo')
9or+ing #apital is #learl( not the onl( aspe#t of a business that affe#ts
the amount of #ash)
The business 'ill ha&e to ma+e pa(ments to go&ernment for
ta*ation)
"i*ed assets 'ill be pur#hased and sold
2essors of fi*ed assets 'ill be paid their rent
44
Shareholders (e*isting or ne'% ma( pro&ide ne' funds in the form
of #ash
Some shares ma( be redeemed for #ash
1i&idends ma( be paid
2ong/term loan #reditors (e*isting or ne'% ma( pro&ide loan
finan#e$ loans 'ill need to be repaid from time/to/time$ and
nterest obligations 'ill ha&e to be met b( the business
Cnli+e$ mo&ements in the 'or+ing #apital items$ most of these Xnon/
'or+ing #apital7 #ash transa#tions are not e&er( da( e&ents) Some of
them are annual e&ents (e)g) ta* pa(ments$ lease pa(ments$ di&idends$
interest and$ possibl($ fi*ed asset pur#hases and sales%) Others (e)g) ne'
equit( and loan finan#e and redemption of old equit( and loan finan#e%
'ould t(pi#all( be rarer e&ents)
45
SOURCES OF WORKING CAPITAL
4!2 nfos(stems has the follo'ing sour#es a&ailable for the fulfillment
of its 'or+ing #apital requirements in order to #arr( on its operations
smoothl(:
Banks:
These in#lude the follo'ing ban+s 6
State Ban+ of ndia
!anara Ban+
41"! Ban+ 2td)
!! Ban+ 2td)
So#iete ,enerale
Standard !hartered Ban+
State Ban+ of Patiala
State Ban+ of Saurashtra
Commercial Papers:
!ommer#ial Papers ha&e be#ome an important tool for
finan#ing 'or+ing #apital requirements of a #ompan()
!ommer#ial Paper is an unse#ured promissor( note issued
b( the #ompan( to raise short/term funds) The bu(ers of the
#ommer#ial paper in#lude ban+s$ insuran#e #ompanies$ unit
trusts$ and #ompanies 'ith surplus funds to in&est for a short
period 'ith minimum ris+)
4!2 issues !ommer#ial Papers and had 8KKK #ommer#ial
papers in the (ear 3KK=)
46
HCL FINANCIALS:
CONSOLIDATED FINANCIAL PERFORMANCE
47
WORKING CAPITAL POSITION :
!CRRENT ASSET 6 TOTA2 ASSET
PARTICULARS 2006 2005 2004 2003 2002
!CRRENT
ASSETS
0KKFGK L0<55 <8KF0 8<K83 <<FL<
NET B2O!@ GFGK <53F 8F3< 8F<8 <<<3
TOTA2 ASSETS 0338GF FF05F LGKG= G03L< G<3K<
!ANTA L3)88 L3)38 =3)03 =5)0L G8)85
The #urrent asset per#entage on total asset is the highest o&er the (ears)
This in#reasing per#entage of #urrent assets to the total assets at first
might indi#ate a preferen#e for liquidit( in pla#e of profitabilit($ but a
loo+ into the nature of the business #arried on b( 4!2 nfos(stems
re&eal the reason behind it) 4o' far their preferen#e to #urrent assets
has affe#ted the sales is sho'n belo')
NET !CRRENT ASSET 6 SA2ES
PARTICULARS 2006 2005 2004 2003 2002
NET !CRRENT
ASSETS
8K585 58G83 085K0 0LG<3 3GK=<
SA2ES 35L05= 0FFLL= 0<83F< 0===K8 03GKK5
9OR@N,
!APTA2 M
N!REASE
0=)03 083)F5 /35)G5= /5K)G /K)8=
SA2ES M
N!REASE
0F)08 3F)<8 /G)5L 50)0L L)G
48
The sales has in#reased and the profits risen despite the 0=)03M in#rease
in 'or+ing #apital) But 'hat is note'orth( here is that the firm has
managed to maintain the trend of an in#rease in net #urrent assets)
9hether the #hange has 'or+ed for the #ompan( has to be anal(sed in
the #onte*t of the gro'th in sales as #ompared to the pre&ious (ear)
There has been a 0F)08M rise in the sales or re&enue generated) This
'ould automati#all( suggest to'ards a &er( effi#ient 'or+ing #apital
management 'here the assets of the firm 'hi#h are short/term in nature
ha&e been utili.ed optimall( in #onne#tion to their fi*ed assets) The firm
has gone to'ards su#h a dramati# shift in their 'or+ing #apital position
might be be#ause of the tremendous gro'th 'itnessed in the domestic
IT market
!CRRENT ASSET 6 "SE1 ASSET
PARTICULARS 2006 2005 2004 2003 2002
NET !ANNET B2O!@ <)K=3:0 =)<0F:0 3)FK5:0 5)GL<:0 8)LG<:0
The ratio of the net #urrent asset to the fi*ed ones is an indi#ator as to the
liquidit( position of the firm) This ratio has de#lined for the firm
#ompared to the pre&ious (ear) There #ould be an argument as to 'hether
the in#reased ratio of 'or+ing #apital to net blo#+ is a #onser&ati&e poli#(
and 'hether it 'ould be detrimental to the interest of the #ompan() Or$
'hether it 'ould ha&e been proper if the #ompan( in&ested more into the
#apital e*penditure in the form of plant and ma#hiner( or in&ested in an(
other form that 'ould ha&e got them an internal rate of return) 9hat has
to be +ept in mind before #oming to a #on#lusion as to the poli#( of the
#ompan($ is the fa#t that the firm being primaril( into assembling$ its
in&estment in the fi*ed asset segment need not be high) A loo+ into the
#apa#it( utili.ation of the plant 'ould reaffirm this point) t 'ould be
49
ideal for the firm to #ontinue in the same line and not ha&e e*#essi&e
in&estment in the fi*ed asset as the( #an easil( add onto this part)
!OMPCTER and M!RO PRO!ESSOR BASE1 SYSTEMS
YEAR INSTALLED
CAPACITY
ACTUAL
PRODUCTION
CAPACITY
UTILIZATION
2006 00<KKKK <L0LK< <K)<F
2005 =KKKKK 88L030 G8)=F
2004 <3<KKK 3F<0F3 <=)35
1ATA ,RAP4!N1SP2AY MONTORNTERMNA2SN4CBS
YEAR INSTALLED
CAPACITY
ACTUAL
PRODUCTION
CAPACITY
UTILIZATION
2006 3<KKKK 3=G53= 0K=)F5
2005 3<KKKK 3<F=0G 0K5)L<
2004 5<KKKK 3FGFF0 L<)08
That the fi*ed assets of the firm are being put to effi#ient use and the firm
is tr(ing for optimum #apa#it( utili.ation is something that #an be easil(
dedu#ed) 9hether the #urrent assets or the 'or+ing #apital of the firm has
an(thing to do 'ith it is for us to see) An in#reased produ#tion in normal
#ir#umstan#es means better ra' material to finished goods #on&ersion
rate$ i)e) the firm is ta+ing less of time in the produ#tion pro#ess and this
happens 'hen the #urrent asset emplo(ed in relation 'ith the fi*ed ones
are at optimum) The other notable feature here is that though the firm has
added on to its installed #apa#it( in all three (ears$ the( 'ere still able to
in#rease the #apa#it( utili.ation) That the( ha&e been able to do it sho's
that the more #urrent assets$ espe#iall( in&entor( used in relation to the
fi*ed assets$ i)e)$ plant and ma#hiner( and their management has onl(
helped in in#reasing their utili.ation to the ma*imum)
50
!CRRENT ASSET 6 !CRRENT 2AB2TY
PARTICULARS 2006 2005 2004 2003 2002
!CRRENT ASSETS 0KKFGK L0<55 <8KF0 8<K83 <<FL<
!CRRENT 2AB2TES =K=3G 8=GF0 5FGFK 3=3FK 3LF3K
M !CRRENT ASSETS
N!REASE
35)L8 <K)G 3K)KF /0F)<8 L)F
M!CRRENT
2AB2TES N!REASE
3F)<G 0G)= <0)5< /F)0 0F)8<
The 0=)03M in#rease in Net !urrent assets despite of the fa#t that there
has been an in#rease in the !urrent Assets b( 35)L8M and in#rease in
!urrent 2iabilit( has been b( 3F)<GM o&er that of the pre&ious (ear has to
be attributed to the fa#t that in 3KK<$ the #ompan( sho'ed su#h a high
in#rease in !A$ that it is still being offset) This is an indi#ation as to the
e*panding operations of the firm) 4!2 has in#reased its #urrent assets in
order to meet the in#reasing sales) The firm7s le&el of liquidit( being
high$ 'e need a #he#+ on 'hether it affe#ts the return on assets)
51
INVENTORY MANAGEMENT
Inventories
n&entories #onstitute the most important part of the #urrent assets of
large ma-orit( of #ompanies) On an a&erage the in&entories are
appro*imatel( =KM of the #urrent assets in publi# limited #ompanies in
ndia) Be#ause of the large si.e of in&entories maintained b( the firms$ a
#onsiderable amount of funds is #ommitted to them) t is therefore$
imperati&e to manage the in&entories effi#ientl( and effe#ti&el( in order
to a&oid unne#essar( in&estment)
Nature of Inventories
n&entories are sto#+ of the produ#t of the #ompan( is manufa#turing for
sale and #omponents ma+e up of the produ#t) The &arious forms of the
in&entories in the manufa#turing #ompanies are:
Raw Material: t is the basi# input that is #on&erted into the
finished produ#t through the manufa#turing pro#ess) Ra' materials
are those units 'hi#h ha&e been pur#hased and stored for future
produ#tion)
Work-in-progress: n&entories are semi/manufa#tured produ#ts)
The( represent produ#t that need more 'or+ the( be#ome finished
produ#ts for sale)
Finished Goods: n&entories are those #ompletel( manufa#tured
produ#ts 'hi#h are read( for sale) Sto#+s of ra' materials and
'or+/in/progress fa#ilitate produ#tion$ 'hile sto#+ of finished
goods is required for smooth mar+eting operations) Thus$
52
in&entories ser&e as a lin+ bet'een the produ#tion and
#onsumption of goods)
53
Inventory Management Techniques
n managing in&entories$ the firm7s ob-e#ti&e should be to be in
#onsonan#e 'ith the shareholder 'ealth ma*imi.ation prin#iple) To
a#hie&e this$ the firm should determine the optimum le&el of in&entor()
Effi#ientl( #ontrolled in&entories ma+e the firm fle*ible) neffi#ient
in&entor( #ontrol results in unbalan#ed in&entor( and infle*ibilit(/the
firm ma( sometimes run out of sto#+ and sometimes pile up unne#essar(
sto#+s)
Economic Order Quantity (EOQ): The ma-or problem to be
resol&ed is ho' mu#h the in&entor( should be added 'hen
in&entor( is replenished) f the firm is bu(ing ra' materials$ it has
to de#ide lots in 'hi#h it has to pur#hase on replenishment) f the
firm is planning a produ#tion run$ the issue is ho' mu#h
produ#tion to s#hedule) These problems are #alled order quantit(
problems$ and the tas+ of the firm is to determine the optimum or
e#onomi# lot si.e) 1etermine an optimum le&el in&ol&es t'o t(pes
of #osts:/
Ordering Costs : This term is used in #ase of ra' material
and in#ludes all the #ost of a#quiring ra' material) The(
in#lude the #osts in#urred in the follo'ing a#ti&ities:
Requisition
Pur#hase Ordering
Transporting
Re#ei&ing
nspe#ting
Storing
Ordering #ost in#rease 'ith the number of orders pla#edU
thus the more frequentl( in&entor( is a#quired$ the higher the
firm7s ordering #osts) On the other hand$ if the firm
maintains large in&entor(7s le&el$ there 'ill be fe' orders
54
pla#ed and ordering #osts 'ill be relati&el( small) Thus$
ordering #osts de#rease 'ith the in#reasing si.e of in&entor()
Carrying Costs : !osts are in#urred for maintaining a gi&en
le&el of in&entor( are #alled #arr(ing #osts) These in#lude
the follo'ing a#ti&ities:
9arehousing !ost
4andling
Administrati&e #ost
nsuran#e
1eterioration and obsoles#en#e
!arr(ing #osts are &ar(ing 'ith in&entor( si.e) This
beha&ior is #ontrar( to that of ordering #osts 'hi#h de#line
'ith in#rease in in&entor( si.e) The e#onomi# si.e of
in&entor( 'ould thus depend on trade/off bet'een #arr(ing
#osts and ordering #ost)
Composition 2006 2005 2004
Ra' Material =58F GG8F =03G
Stores and Spares 5G05 3FLG 3=33
"inished ,oods 055G8 G38< =<K=
9or+/in/progress <F< GL8 LG0
The in#reasing #omponent of ra' materials in in&entor( is due to
the fa#t that the #ompan( has gone for bul+ pur#hases and has
in#reased #onsumption due to a fall in pri#es and redu#ed margins
for the (ear) Another reason might be the in#reasing sales$ 'hi#h
might ha&e indu#ed them to pur#hase more in anti#ipation of a
further in#rease in demand of the produ#t) And the lo'
#omposition of 'or+/in/progress is understandable as be#ause of
the nature of the business firm is in&ol&ed in)
55
To the question as to 'hether the in#reasing #osts in in&entor( are
-ustified b( the returns from it the ans'er #ould be found in the
4!2 retail e*pansion) 4!2 #aters to the need of the t'o separate
segments:
a% nstitutions for 'hi#h the( manufa#ture against orders and$
b% Retail segment of the mar+et)
The( are more into retail than earlier and at present more than =<K
retail outlets branded 'ith 4!2 sign ages and more are in the
pipeline
The #ompan( in order to meet its ra' materials requirements #ould
ha&e gone for frequent pur#hases$ 'hi#h 'ould ha&e resulted in
lesser #ash flo's for the firm rather than the high e*penditure
in&ol&ed 'hen pro#uring in at bul+) The reason 'h( the firm has
gone for these bul+ pur#hases be#ause of the lo'er margins and the
dis#ounts it a&ailed be#ause of pro#uring in bul+ quantities)
A negati&e gro'th in 9P #ould be be#ause:
a% The time ta+en to #on&ert ra' materials to finished goods is
&er( minimal
b% This is also due to #apa#it( being not utili.ed at the
optimum)
ABC System: AB! s(stem of in&entor( +eeping is follo'ed in the
fa#tories) Harious items are #ategori.ed into three different le&els
in the order of their importan#e) "or e)g) items su#h as memor($
high #apa#it( pro#essors and ro(alt( are pla#ed in the XA7
#ategor() 2arge number of firms has to maintain se&eral t(pes of
in&entories) t is not desirable the same degree of #ontrol all the
items) The firm should pa( ma*imum attention to those items
'hose &alue is highest) The firm should therefore$ #lassif(
in&entories to identif( 'hi#h items should re#ei&e the most effort
in #ontrolling) The firm should be sele#ti&e in approa#h to #ontrol
56
in&estment in &arious t(pes of in&entories) This anal(ti#al
approa#h is #alled ?AB! Anal(sisA) The high/&alue items are
#lassified as ?A itemsA and 'ould be under tightest #ontrol) ?!
itemsA represent relati&el( least &alue and 'ould require simple
#ontrol) ? B itemsA fall in bet'een the t'o #ategories and require
reasonable attention of management)
1IT: The rele&an#e of ET in 4!2 nfo s(stem #an be questioned)
This is be#ause the( pro#ure materials on the basis of pro-e#tions
made at least t'o or three months before) E&en at the time of
pro#urement the( ensure that the( pro#ure mu#h more than 'hat
a#tuall( is required b( the firm that is the( hold signifi#ant amount
of in&entor( as safet( sto#+) This is done to #ounter the threat
in&ol&ed in default and a##idental brea+do'ns) The le&els of
safet( sto#+ usuall( &ar( a##ording to the usage)
Conversion Periods Analysis
Raw Material
The ra' material #on&ersion period or the ra' material holding
#ost has in#reased from 8K to 0KK da(s$ be#ause in e an in#rease in its
#onsumption) This indi#ates that the firm is able to #on&ert the ra'
material at its disposal to the 'or+/in/progress at a lesser time as
57
Particulars 20079 2008 2009
Ra' Material !onsumption 00G=)G5 =L3)K< <F3)F3
Ra' Material !onsumptionNda( 5)53 0)L= 0)=3
Ra' Material n&entor( 03F)3F 0L8)<5 58K)KL
Ra' Material 4olding 1a(s 8K)0< FF)3K 3KF)F3
#ompared to the last (ear) t 'ould be to the benefit of the firm to redu#e
the produ#tion pro#ess and in#rease the #on&ersion rate still as the firm is
required to meet the in#reasing demand)
Work-in-progress
Particulars 2006 2005 2004
!ost of Produ#tion 0F0F00 0<F=<0)0F 005<KK)55
!ost of Produ#tionNda( <3<)GL 85G)8 50K)F<
9or+ in progress in&entor( =LF)< L3G)<3 =GF)8<<
9P 4olding da(s 0)50 0)LF 3)0F
The 'or+/in/progress holding time is important for a firm in the sense
that it determines the rate of time at 'hi#h the produ#tion pro#ess 'ill be
#omplete or the finished goods 'ill be read( for disposal b( the firm) The
firm as it is in the
pro#ess of assembling should ta+e the least possible time in #on&ersion to
finished goods unli+e a hard #ore manufa#turing firm$ as an( firm 'ould
li+e to ha&e its in&entor( in the 'or+/in/progress at the minimum) There
'ould also be less of sto#+ out #osts as due to better #on&ersion rates the
firm is able to meet the rise in demand situations) More the time it spends
lesser its effi#ien#( 'ould be in the mar+et) 4ere the firm has been able
to bring do'n its 9P #on&ersion periods)
Finished Goods
Particulars 2006 2005 20004
!ost of goods sold 33L0GG 0GL85L)L
<
038G=L)F3
!ost of goods soldNda( =3< 8LL)LG 580)L53
"inished goods in&entor( 0K50K =LG<)G3< <K3=)<K<
"inished goods in&entor( 4olding
da(s
0= 08)K= 08)L
58
The time ta+en for the firm to reali.e its finished goods as sales has
in#reased as #ompared to last (ear) This gro'th in sales #ould be tra#ed
ba#+ to the gro'ing domesti# T mar+et for the #ommer#ial as #onsumer
segment in ndia) 4!2 has around 0<M of the mar+et in des+top and it is
the mar+et leader in this segment) So it is onl( natural that the( are able
to better their #on&ersion rate of finished goods to sales)
Operating Cycle
Particulars 2006 2005 2004
n&entor( #on&ersion period 5L 83 8<
A&erage #olle#tion period GK =5 ==
,ross operating #(#le 0KL 0K< 000
A&erage pa(ment period 33 35 0G
Operating #(#le L= L3 F8
The operating #(#le of the firm re&eals the da(s 'ithin 'hi#h the
in&entor( pro#ured gets #on&erted to sales or re&enue for the firm) This
time period is of importan#e to the firm as a lag here #ould signifi#antl(
affe#t the profitabilit($ liquidit($ #redit terms$ and the poli#ies of the firm)
All the firms 'ould li+e to redu#e it to su#h e*tend that their #ash inflo's
are timel( enough to meet their obligations and support the operations)
That the firm has been able to redu#e the ratio is in itself an a#hie&ement
as the( 'ere ha&ing huge sto#+s of in&entor() But the redu#tion in the
#(#le #ould also be attributed to the boom in the mar+et and the gro'th it
is e*pe#ted to rea#h) This boom automati#all( ensures the demand for the
finished goods and thus helping in it to garner sales for the firm)
Raw Material Consumption
Particulars 2006 2005 2004
59
mported F3KKG GKGL8)3
G
8303F)=5
ndigenous 3FKGK 3G0LG)K
8
0<=8<)<0
M mports G<)FF G3)3< G3)F3
A ma-or #hun+ of the imports #ome from @orea and Tai'an and is
pur#hased in CSP) The &alue of imported and indigenous ra' material
#onsumed gi&e a #lear pi#ture that if there is a #hange in the ESM poli#(
of the go&ernment it is bound to affe#t the #ompan( ad&ersel( as more
than GKM of their #onsumption is from imports) But this is the s#enario
'itnessed in the industr( as a 'hole and though 4!2 is into e*panding
its operation to Cttaran#hal it in the present state is 'ould be affe#ted b(
a #hange in the import dut( stru#ture)
A ma-or #hun+ of their #urrent assets are in the form of in&entor( and the
#hange in te#hnolog( 'ill in&ariabl( be a threat fa#ed b( the firm) The
question of te#hnolog( appl(ing here li+e sa(s a #ertain de&i#e going sa(
out of fashion or outdated) "or e)g) T"T monitors being in demand more
than !RT)
CASH MANAGEMENT
SOURCES OF CASH:
Sources of additional working capital include the following:
E*isting #ash reser&es
Profits ('hen (ou se#ure it as #ashY%
Pa(ables (#redit from suppliers%
Ne' equit( or loans from shareholders
Ban+ o&erdrafts or lines of #redit)
60
2ong/term loans
f (ou ha&e insuffi#ient 'or+ing #apital and tr( to in#rease sales$ (ou
#an easil( o&er/stret#h the finan#ial resour#es of the business) This is
#alled overtrading.
Early warning signs include:
Pressure on e*isting #ash
E*#eptional #ash generating a#ti&ities e)g) offering high dis#ounts
for earl( #ash pa(ment
Ban+ o&erdraft e*#eeds authori.ed limit)
See+ing greater o&erdrafts or lines of #redit
Part/pa(ing suppliers or other #reditors
Pa(ing bills in #ash to se#ure additional supplies
Management pre/o##upation 'ith surviving rather than managing
"requent short/term emergen#( requests to the ban+ (to help pa(
'ages$ pending re#eipt of a #heque%)
CASH MANAGEMENT IN HCL INFOSYSTEMS:
The cash management system followed by the HCL Infosystems is
mainly lock box system.
!ash Management S(stem in&ol&es the follo'ing steps:
0) The bran#h offi#es of the #ompan( at &arious lo#ations hold the
#olle#tion of #heques of the #ustomers)
3) Those #heques are either handed o&er to the !MS agen#ies or ban+
of the parti#ular lo#ation ta+e #harge of 'hole #olle#tion)
61
5) These !MS agen#ies or ban+ send those #heques to the #learing
house to ma+e them reali.ed) These #heques #an be lo#al or
outstation)
8) The !MS agen#ies or ban+ send information to the #entral hub of
the #ompan( regarding reali.ationN#heque boun#ed)
<) The #entral hub passes on the reali.ed funds to the #ompan( as per
the agreed agreements)
=) The !MS agen#ies or #on#erned ban+ pro&ides the ne#essar( MS
to the #ompan( as per requirement)
n #ash management the #olle#t float ta+en for the #heques to be reali.ed
into #ash is irrele&ant and non/interfering be#ause ban+s su#h as Standard
!hartered$ 41"! and !itiBan+ 'ho gi&e #redit on the basis of these
#heques after #harging a &er( small amount) These #redits are gi&en to
immediatel( and the ma*imum time ta+en might be -ust a da() The
amount the( #harge is &er( lo' and this might #o&er the threat of the
#heque sent in b( t'o or three #ustomers boun#ing) E&en other'ise the
time ta+en for the #heques to be pro#essed is instantaneous) Their !ash
Management S(stem is quite effi#ient)
Cash-Current Liability
Particulars 3KK= 3KK< 3KK8
Absolute 2iquid Ratio K)38:0 K)50:0 K)00:0
The absolute liquid ratio is the best for three (ears and the #ash balan#es
as to the #urrent liabilit( has impro&ed for the firm) "irm has large
resour#es in #ash and ban+ balan#es) 9hile large resour#es in #ash and
ban+ balan#es ma( seem to affe#t the re&enue the firm #ould ha&e earned
b( in&esting it else'here as maintenan#e of #urrent assets as #ash and in
near #ash assets and mar+etable se#urities ma( in#rease the liquidit(
position but not the re&enue or profit earning #apa#it( of the firm)
62
Dividend Policy-Cash
Particulars 2004 2005 2006
1i&idend Poli#(M 30K 50K 8KK
Shift in Sales 0<83F< 0FFLL= 35L05=
!ash Balan#e 88=5)85 08<L3)=< 08<3F)3F
!ash in 4and 00L)55 03L)FG 03L)FG
63
The other notable feature in 4!2 statements has been the gro'ing
di&idend poli#( of the firm) The pa(ment of di&idend means a #ash
outflo') Thus #ash position is an important #riterion at the time of pa(ing
di&idends) There is a theor( that greater the #ash position and abilit( to
pa( di&idends) The firm has adopted a poli#( of disbursing the re&enue
64
earned as profits to the shareholders as di&idends as #ould be seen from
the in#reasing M of di&idends de#lared)
Particulars 2006 2005 2004
PB1T 083L8 0<=58 08<35
Equit( 1i&idendM 8KK 50K 30K
This #ould mean t'o things for the firm the amount of #ash retained in
the business for #apital e*penditure purposes are minimal or nil) But
rather than in&esting more in plant and ma#hine 'hi#h the( #an at an(
point in time b( adding on a additional line if need the( 'ould li+e to
optimi.e their utili.ation in fi*ed assets at present) This also means that
the per#entage of #ash in hand maintained b( the firm as a sour#e of
liquidit( #ould be redu#ed$ i)e) the amount of idle #ash in the business
#ould be made to a le&el 'hi#h the firm feels optimum)
The firm feels that the( should retain #ash and it 'ould be in the interest
of the firm as 'ell as the shareholders) This 'ould automati#all( mean as
de#rease in EarningNshare (EPS%(Basi# EPS de#lined from L in 3KK< to
=)G8 in 3KK=%) t 'ould prompt more of in&estors being interested in the
shares of the #ompan($ 'hi#h 'ould boost the pur#hase of the se#urities
and in#rease the mar+et pri#eNshare thus being benefi#ial for the firm)
Cash Flows
Cash Flows 2006 2005 2004
Net !ash from Operating a#ti&ities =F38 3=G<)<G 05GK=)58
Net !ash from n&esting a#ti&ities /5<0< 0<==0)3F /30=F)0=
Net !ash from "inan#ing a#ti&ities /5<03 /L30G)=L /00803)0
The firm has disposed of in&estments 'orth around =<< !rores to meet
its gro'ing needs) The other notable feature is de#line is the firm7s
inflo's from operations primaril( due to the reason that the #ash
generated from the operations is the lo'est in three (ears) And the firm7s
65
gro'ing di&idend poli#( has #ontributed to the outflo's in finan#ing
a#ti&ities)
Cash Flow in Operating Activities
Working Capital Changes
Working Capital Changes 2006 2005 2004
Trade and other re#ei&ables /080== /08<0K)=F /G0K=)=L
n&entories /<330 /3=L5)F3 /G330)00
Trade Pa(ables and other 2iabilities 05K3= =80F)05 08500)<
The #ash from the operation has been sub-e#t to #onsiderable #hange due
to the #hanges that #ould be ad-usted to'ards trade re#ei&ables and trade
pa(ables) The outflo's in in&entor( ha&e be#ome as lo' as 5GM of 'hat
it 'as last (ear despite an in#rease in the in&entor( #onsumption b(
0=)=8M) The resulting redu#tion in the #ash outflo's might be be#ause of
the in&entories being pro#ured more on #redit) That the #ash from
operations has de#lined has affe#ted the #urrent liabilit( inde* of the firm)
Cash Flow in Investing Activities
Investments in Mutual Funds 2006 2005 2004
n&estments ((ear end% 05<5F 033GG)88 3LK<F)LL
Pur#hase of n&estment /=<FF3 /<5KG<)FF /<F38F)L0
1isposalNRedemption of
n&estment
=<503 =<8LF)L8 <3KLG)5=
The in&estments ha&e redu#ed from the last (ear due to the redemption of
in&estments ta+en pla#e to meet &arious needs su#h as in#reasing demand
in sto#+ or in&entor( and to ensure better #redit and re#ei&ables poli#()
9e #an see that the firm has in these three (ears in#reased their #ash
66
inflo' from the in&esting a#ti&ities b( 'a( of disposal of in&estments
'hen in need) That is the firm has redeemed to reali.e #ash as to meet its
e*panding operations$ fund the in&entor( pro#urement and meet the
obligations)
The in&estments in mutual funds are benefi#ial to the firm in the #onte*t
that the( #ontain interest bearing se#urities 'hi#h add up as a sour#e of
re&enue for the firm unli+e #ash 'hi#h remains idle and unprodu#ti&e
'hen not in use) This redu#tion of di&idend #ould be attributed to
disposal of in&estments in mutual funds and subsidiar() This disposal
#reates a fund$ 'hi#h #an be used b( the #ompan( as and 'hen the need
arises)
Cash vs. Marketable Securities
The in&estment in mar+etable se#urities rather than ha&ing large #ash
balan#es in something that has been gi&en thought for b( the firm) This is
be#ause 'hile a firm gets re&enue in the form of interests b( in&estments$
it a#tuall( has to pa(s #ertain amount mone( to the ban+s for maintaining
#urrent a##ounts and fi*ed deposits usuall( ha&e a longer maturit( period)
That is$ the problem 'ith high in&estments is that the opportunit( to earn
is lost$ thus a firm has to maintain an optimal #ash balan#e) But the
in&estment in mutual funds or other mar+etable se#urities might #reate a
problem of in&estment$ as the( might not be readil( reali.able as sa(
liquid #ash or the amount deposited in the #urrent a##ount) The
in&estments in sa( fi*ed assets sa( ma( earn a fi*ed rate of interest but
the( ha&e a maturit( period atta#hed to them)
n 4!2$ Standard !hartered is the #on#entration ban+ in 'hi#h all the
inflo's from the deposit ban+s are #on#entrated and passed on to the
disbursement ban+s for further disbursement)
Liquid Cash Balance
67
The liquid #ash maintained in the business is onl( that mu#h as is
required to satisf( the dail( requirements of the firm and not more) The
rest of the #ash is in&ested into mutual funds and also held in fi*ed
deposits and #urrent a##ounts)
Instruments Used
The instrument used here are primaril( #heques #omprising of around
FGM of 'hat is used in) The rest 3/5M #omprise of the letters of #redit)
Thus 'or+ing #apital is the lifeline for e&er( business) The main
ad&antages of suffi#ient 'or+ing #apital are:
t helps in prompt pa(ment
Ensures high sol&en#( in the #ompan( and good #redit
standing)
Regular suppl( of material and #ontinuous produ#tion)
Ensures regular pa(ment of salaries and 'ages and da( to
da( #ommitments)
RECEIVABLES MANAGEMENT
!ash flo' #an be signifi#antl( enhan#ed if the amounts o'ing to a
business are #olle#ted faster) E&er( business needs to +no')))) 'ho o'es
them mone()))) ho' mu#h is o'ed)))) ho' long it is o'ing)))) for 'hat it
is o'ed)
Late payments erode profits and can lead to bad debts.
68
Slo' pa(ment has a #rippling effe#t on businessU in parti#ular on small
businesses 'hom #an least afford it) f (ou donBt manage debtors$ the(
'ill begin to manage (our business as (ou 'ill graduall( lose #ontrol
due to redu#ed #ash flo' and$ of #ourse$ (ou #ould e*perien#e an
in#reased in#iden#e of bad debt)
The following measures will help manage your debtors:
0)4a&e the right mental attitude to the #ontrol of #redit and ma+e sure
that it gets the priorit( it deser&es)
3)Establish #lear #redit pra#ti#es as a matter of #ompan( poli#()
5)Ma+e sure that these pra#ti#es are #learl( understood b( staff$
suppliers and #ustomers)
8)Be professional 'hen a##epting ne' a##ounts$ and espe#iall(
largerones)
<)!he#+ out ea#h #ustomer thoroughl( before (ou offer #redit) Cse
#redit agen#ies$ ban+ referen#es$ industr( sour#es et#)
=)Establish #redit limits for ea#h #ustomer and sti#+ to them)
G)!ontinuousl( re&ie' these limits 'hen (ou suspe#t tough times are
#oming or if operating in a &olatile se#tor)
L)@eep &er( #lose to (our larger #ustomers)
F)n&oi#e promptl( and #learl()
0K)!onsider #harging penalties on o&erdue a##ounts)
00)!onsider a##epting #redit Ndebit #ards as a pa(ment option)
03)Monitor (our debtor balan#es and aging s#hedules$ and donBt let an(
debts get too old)
69
Re#ogni.e that the longer someone o'es (ou$ the greater the #han#e (ou
'ill ne&er get paid) f the a&erage age of (our debtors is getting longer$
or is alread( &er( long$ (ou ma( need to loo+ for the follo'ing possible
defe#ts)
Poor #olle#tion pro#edures)
2a* enfor#ement of #redit terms)
Slo' issue of in&oi#es or statements)
Errors in in&oi#es or statements)
!ustomer dissatisfa#tion)
9ea+ #redit -udgement)
70
1ebtors due o&er FK da(s (unless 'ithin agreed #redit terms% should generall(
demand immediate attention) 2oo+ for the 'arning signs of a future bad debt)
"or e*ampleZ))
0) 2onger #redit terms ta+en 'ith appro&al$ parti#ularl( for smaller orders)
3) Cse of post/dated #he#+s b( debtors 'ho normall( settle 'ithin agreed
terms)
5) E&iden#e of #ustomers s'it#hing to additional suppliers for the same
goods)
8) Ne' #ustomers 'ho are relu#tant to gi&e #redit referen#es)
<) Re#ei&ing part pa(ments from debtors)
Profits only come from paid sales.
The a#t of #olle#ting mone( is one$ 'hi#h most people disli+e for man(
reasons and therefore put on the long finger be#ause the( #on&in#e themsel&es
that there is something more urgent or important that demand their attention
no') There is nothing more important than getting paid for (our produ#t or
ser&i#e) A #ustomer 'ho does not pa( is not a #ustomer)
HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -
1e&elop appropriate pro#edures for handling late pa(ments)
Tra#+ and pursue late pa(ers
,et e*ternal help if (ou o'n efforts fail)
1on7t feel guilt( as+ing for mone( )) its (ours and (ou are entitled to it)
Ma+e that #all no') And +eep as+ing until (ou get some satisfa#tion)
n diffi#ult #ir#umstan#es$ ta+e 'hat (ou #an no' and agree terms for the
remainder$ it lessens the problem)
9hen as+ing for (our mone($ be hard on the issue 6 but soft on the person)
1on7t gi&e the debtor an( e*#uses for not pa(ing)
Ma+e that (our ob-e#ti&e is to get the mone($ not to s#ore points or get
e&en)
RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:
PART!C2ARS 3KK= 3KK< 3KK8 3KK5
1EBTORS TCRNOHER RATO <)30 <)LK <)<5 =)=3
AHERA,E !O22E!TON PERO1 GK =5 == <<
A better turno&er ratio implies for the firm$ more effi#ien#( in #on&erting the
a##ounts re#ei&able to #ash) A firm 'ith &er( high turno&er ratio #an ta+e the
freedom of holding &er( little balan#es in #ash$ as their debtors are easil(
reali.able) n #ase of 4!2$ the #olle#tion period for the firm is GK da(s)
PARTICULARS 2006 2005 2004
PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) 5 8F)L< 3<
DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) 8G 058)KF =F)L
The debts doubtful ha&e doubled but their per#entage on the debts has almost
be#ome half) This implies a sales and #olle#tion poli#( that get along 'ith the
re#ei&ables management of the firm)
COLLECTION POLICIES:
t refers to the #olle#tion pro#edures su#h as letters$ phone #alls and other follo'
up me#hanism to re#o&er the amount due from the #ustomers) t is ob&ious that
#osts are in#urred to'ards the #olle#tion efforts$ but bad debts as 'ell as
a&erage #olle#tion period 'ould de#rease) "urther$ a stri#t #olle#tion poli#( of
the firm is e*pensi&e for the firm be#ause of the high #ost is required to be
in#urred b( the firm and it ma( also result in loss of good'ill) But at the same
time it minimi.es the loss on a##ount of bad debts) Therefore$ a firm has to
stri+e a balan#e bet'een the #ost and benefits asso#iated 'ith #olle#tion
poli#ies)
The steps usuall( follo'ed in #olle#tion efforts are:
Sending repeated letters and reminders to the #ustomers
Personal &isits
Csing agen#ies in&ol&ed in #olle#tion pro#ess
Ma+ing telephoni# reminders
nitiating legal a#tions
Real Time ,ross Settlement (RT,S%
Real Time ,ross Settlement as su#h is a #on#ept ne' in nature and though the
firm uses the s(stem 'ith all the members of the #onsortium$ it is still in its
primal stage and 'ill ta+e time before all of the #lients of the firm are 'illing to
a##ept it) The firm has made a proposal to the #onsortium of the ban+s during
appraisal for faster implementation of internet based ban+ing fa#ilit( b( all the
ban+s and adoption of RT,S pa(ment s(stem through net)
The debtor7s turno&er ratio is #ompletel( dependent upon the #redit poli#(
follo'ed b( the firm) The #redit poli#( follo'ed b( the firm should be su#h that
the threat of bad debts and the default rate in&ol&ed should be terminated)
PART!C2ARS 3KK= 3KK< 3KK8 3KK5
!RE1TORS TCRNOHER RATO 16.44 15.68 21.29 21.14
PAYMENT PERO1 22 23 17 16
That the #reditors turno&er ratio has de#lined and pa(ment period has in#reased
indi#ate that the #ompan( has got a lee'a( in ma+ing the pa(ment to the
#reditors b( 'a( of in#reased time)
9ith #reditors the( are ha&ing pre/agreements and ha&e underta+en
arrangements 'ith them$ 'hi#h the( belie&e to be the best in the business and
these are fi*ed)
(NOTE: A##eptan#es are not in#luded in the #omputation of #reditors turno&er%
MANAGING PAYABLES (Creditors)
Creditors are a vital part of effective cash management and should be
managed carefully to enhance the cash position.
Pur#hasing initiates #ash outflo's and an o&er/.ealous pur#hasing fun#tion
#an #reate liquidit( problems)
Consider the following: -
9ho authori.es pur#hasing in (our #ompan( / is it tightl( managed or
spread among a number of (-unior% peopleD
Are pur#hase quantities geared to demand fore#astsD
1o (ou use order quantities$ 'hi#h ta+e a##ount of sto#+ holding and
pur#hasing #ostsD
1o (ou +no' the #ost to the #ompan( of #arr(ing sto#+D
1o (ou ha&e alternati&e sour#es of suppl(D f not$ get quotes from ma-or
suppliers and shop around for the best dis#ounts$ #redit terms as it redu#es
dependen#e on a single supplier)
4o' man( of (our suppliers ha&e a return poli#(D
Are (ou in a position to pass on #ost in#reases qui#+l( through pri#e
in#reases to (our #ustomersD
f a supplier of goods or ser&i#es lets (ou do'n #an (ou #harge ba#+ the
#ost of the dela(D
!an (ou arrange ('ith #onfiden#eY% to ha&e deli&er( of supplies staggered
or on a -ust/in/time basisD
There is an old adage in business that if you can buy !ell then you can sell
!ell. Management of (our #reditors and suppliers is -ust as important as the
management of (our debtors) t is important to loo+ after (our #reditors/ slo'
pa(ment b( (ou ma( #reate ill feeling and #an signal that (our #ompan( is
ineffi#ient (or in troubleY%)
1e%e%2er that a good supplier is so%eone *ho *ill *or" *ith )ou to enhance the future +ia2ilit) and
profita2ilit) of )our co%pan)'
Financing Current Assets
The firm has to de#ide about the sour#es of funds$ 'hi#h #an be a&ailed to
ma+e in&estment in #urrent assets)
Long term financing:
t in#ludes ordinar( share #apital$ preferen#e share #apital$ debentures$ long
term borro'ings from finan#ial institutions and reser&es and surplus)
Short term financing:
t is for a period less than one (ear and in#ludes 'or+ing #apital funds from
ban+s$ publi# deposits$ #ommer#ial paper et#)
Spontaneous financing:
t refers to automati# sour#es of short/term funds arising in normal #ourse of
business) There is no e*pli#it #ost asso#iated 'ith it) "or e*ample$ Trade
!redit and Outstanding E*penses et#)
Depending on the mix of short and long term financing, the company can
follow any of the following approaches.
Matching Approach
n this$ the firm follo's a finan#ial plan$ 'hi#h mat#hes the e*pe#ted life of
assets 'ith the e*pe#ted life of sour#e of funds raised to finan#e assets) 9hen
the firm
follo's this approa#h$ long term finan#ing 'ill be used to finan#e fi*ed assets
and permanent #urrent assets and short term finan#ing to finan#e temporar( or
&ariable #urrent assets)
Conservative Approach
n this$ the firm finan#es its permanent assets and also a part of temporar(
#urrent assets 'ith long term finan#ing) n the periods 'hen the firm has no
need for temporar( #urrent assets$ the long/term funds #an be in&ested in
tradable se#urities to #onser&e liquidit() n this the firm has less ris+ of fa#ing
the problem of shortage of funds)
Aggressive Approach
n this$ the firm uses more short term finan#ing than 'arranted b( the
mat#hing plan) Cnder an aggressi&e plan$ the firm finan#es a part of its #urrent
assets 'ith short term finan#ing)
Relati&el( more use of short term finan#ing ma+es the firm more ris+()
Current asset to fixed asset ratio:
The finan#ial manager should determine the optimum le&el of #urrent assets so
that the 'ealth of shareholders is ma*imi.ed) A firm needs fi*ed and #urrent
assets to support a parti#ular le&el of output
The le&el of #urrent assets #an be measured b( relating #urrent assets) 1i&iding
#urrent assets b( fi*ed assets gi&es !AN"A ratio) 3ssu%ing a constant le+el of fi4ed
assets( a higher #3563 ratio indicates a conser+ati+e current assets polic) and a lo*er #3563 ratio
%eans an aggressi+e current assets polic) assu%ing other factors to 2e constant' 3 conser+ati+e
polic) i'e' higher #3563 ratio i%plies greater liquidit) and lo*er ris"7 *hile an aggressi+e polic) i'e'
lo*er #3563 ratio indicates higher ris" and poor liquidit)' The #urrent assets poli#( of the
most firms ma( fall bet'een these t'o e*treme poli#ies) The alternati&e
#urrent assets poli#ies ma( be sho'n 'ith the help of the follo'ing figure)
n this figure the most #onser&ati&e poli#( is indi#ated b( alternati&e A$ 'here
as !AN"A ratio is greatest at e&er( le&el of output) Alternati&e ! is the most
aggressi&e poli#($ as !AN"A ratio is lo'est at all le&els of output) Alternati&e B
lies bet'een the #onser&ati&e and aggressi&e poli#ies and is an a&erage poli#()
WORKING CAPITAL & SHORT-TERM FINANCING
CONSORTIUM BASED FINANCING
Current Working Capital Limits
NAME OF THE BANK FUND BASED NON-FUND BASED
N1AN BAN@
5KK 3<K
SYN1!ATE BAN@
3KK 0KK
TOTAL
500 350
n order to finan#e the 'or+ing #apital needs of the firm in the form of 9or+ing
!apital 1emand 2oan$ there is a #onsortium of nine ban+s) The #onsortium if
ban+s pro&ide a fund based limit of 03< !rores 'hi#h #omprises of #ash #redit
and 'or+ing #apital demand loans and non/fund based limits 'hi#h has ban+
gurantee and letter of #redit sub-e#t to a limit of 05G< !rores) The Lead Bank
in this #onsortium of ban+s is State Bank of India and the second lead bank is
ICICI) t is SB$ 'hi#h fi*es the limit on the basis of #onsortium) The($ in
#onsultation of the #ompan( de#ide the allo#ation of limit to &arious member
ban+s) The allo#ation #annot be higher than the limits fi*ed b( it) SBI is the
biggest contributor in the #onsortium for both fund and non/fund based limits
'ith about
31.30 in funds and 34.02 in non-fund limits) The ratio of both limits for the
(ear 2006 is 0.23:0.77
t is on the basis of the a##ounts re#ei&able that the ban+s #ome to an agreement
'ith regards to the limits imposed) Though it is the fund based limits that
finan#e the 'or+ing #apital requirements$ the non/fund based limits are
important for the management of the 'or+ing #apital as there might be #lients
'ho are not 'illing to sell on open #redit and might be demanding letters of
#redit before an( ad&an#es)
RENEWAL OF LIMITS
LIMITS 2006 2005 2004
"CN1 BASE1 00<KK 00<KK 00<KK
NON "CN1 BASE1 8L<KK 5L<KK 3L<KK
TOTAL 60000 50000 40000
All ban+s san#tion the limits for a period of one (ear) Thereafter it is to be
rene'ed e&er( (ear) SB appraises the limit on the basis of #onsortium) The
indi&idual ban+s appraise for their o'n indi&idual limit) The non fund based
limits of the firm in #onsortium finan#ing has been sub-e#ted to #hange for the
past t'o (ears as per the requirements of the firm and the #onsent of the lead
ban+ to its proposal) t 'as around 5L< !rores in 3KK< and had been risen to
around 8L< !rores in 3KK=)
A proposal has been made b( the firm to further appraise the limits by 100
Crores to 585 Crores in &ie' of the gro'ing operations of the firm 'ith full
inter#hangeabilit( bet'een letter of #redit and ban+ guarantee limits for
operational fle*ibilit() Allo#ation of the fund based and non based limits among
the ban+s based on operational #on&enien#e rather than allo#ating the fund
based and non fund based on the same ratio is also among the proposals made
b( the firm)
The #ompan( needs to pro&ide the follo'ing information to ban+ for appraisals:
!redit Monitoring Appraisal
9rite Cp on #ompan(
Share holding pattern
2ist of the dire#tors
CONSORTIUM MEETING :
All the members of the #onsortium are required to meet to dis#uss &arious
issues relating to the 'or+ing fa#ilities) As per RB guidelines$ the lead ban+$
i)e)$ SB should ensure that one #onsortium meeting is held e&er( quarter snd
this meeting has to be arranged b( 4!2)
DOCUMENTATION and 1OINT DOCUMENTATION:
There are &arious do#uments that need to be signed at the time of rene'al or
indu#ting an( ban+ to the #onsortium) The &arious do#uments are as follo's:
2oan agreement
4(pothe#ation agreement for mo&able ma#hiner(
4(pothe#ation agreement for mo&ables and boo+ debts
!ounter ndemnit(
The abo&e are the standard agreements as+ed for b( the ban+s) The #ommon
seal has to be 'itnessed b( the #ompan( se#retar( and one of the dire#tors of
the #ompan()
As of 3KK<$ no additions or deletions 'ere made to the #onsortium of the ban+s)
But o&er the (ears the number of ban+s in the #onsortium ha&e been redu#ed)
ndian Ban+s and State Ban+ of 4(derabad are the t'o ban+s 'hi#h 'ere
earlier a part of the #onsortium)
Eoint 1o#umentation is e*e#uted bet'een the #ompan( and the #onsortium of
ban+s for the 'or+ing #apital fa#ilities e*tended b( the #onsortium to the
#ompan() The -oint do#umentation is &alid for three (ears) The do#uments
#omprising -oint do#umentation are:
9or+ing !apital #onsortium agreement
Eoint deed of do#umentation
nter se agreement bet'een ban+ers
2etter of authorit( to lead ban+ b( other #onsortium ban+s
2etter of authorit( to se#ond lead ban+ b( other #onsortium ban+s
Cnderta+ing to #reate #harge on the assets of the #ompan()
ALLOCATION OF LIMIT BY LEAD BANK
SB appraises the limit on behalf of the #onsortium) t in #onsultation 'ith the
#ompan( de#ided the allo#ation of the limit to &arious member ban+s) The
allo#ation of an( member ban+ #annot be higher than the limit san#tioned b( it)
The dra'ing po'er for it fund based limits out of the #onsortium are
determined on the basis of the sto#+ statement submitted b( the #ompan() 4!2
is required to submit the sto#+ statement to all member ban+s in #onsortium for
e&er( month)
FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):
E&er( quarterl( and half quarterl( inter&als$ the firm submits "inan#ial "ollo'
Cp Reports and ) ""R is an e*tra#t of the balan#e sheet) n this report$ the
#ompan( is required to submit the details of sales$ #urrent assets and #urrent
liabilities for the quarter and the estimates for the #urrent (ear) ""R 6 the
#ompan( is required to prepare P;2$ BNS and !ash "lo' in a different format)
The information is to be pro&ided for the last (ear (a#tual%$ #urrent (ear half
(earl( results (a#tual% and the estimates for the ne*t (ear)
SHORT TERM FINANCING
Other than the in&estment in #urrent assets$ the firm also has to be #on#erned
'ith short/term to long/term debt as this pla(s a &er( important role in
determining the amount of ris+ underta+en b( the firm) That is $ the firm not
onl( has to be #on#erned about #urrent assets but also the sour#es through
'hi#h the( are finan#ed) A firm before finan#ing in either of the t'o$ has to
ta+e into #onsideration &arious aspe#ts) 9hile short term might seem the ideal
'a( to finan#e (our assets than the long term due to shorter maturit( period and
also less of #osts are in&ol&ed$ there is an inherent ris+ in short term finan#ing
due to flu#tuating interest rates and due to the reason that the firm might be
unable to rea( the amount in a shorter span of time)
SECURED LOANS 2006 2005 2004 2003
SHORT TERM 5L8F 8FF0)3L =FK5)G 8FLG)<3
LONG TERM K <5K)KG K 58=0)5=
TOTAL 5L8F <<30)5< =FK5)G L88L)LL
SHORT TERM 0KK FK)8 0KK <F)K5
Cnder se#ured loan #ash #redit$ along 'ith non fund based fa#ilities$ foreign
#urren#( term loan from ban+s are se#ured b( 'a( of h(pothe#ation of sto#+/in/
trade$ boo+ debts as first #harge and b( 'a( of se#ond #hanrge on all the
immo&able and mo&able assets of the parent #ompan() Term loan in ndian
rupees from a ban+ is sub-e#t to a prior #harge in fa&our of #ompan(7s ban+ers
on boo+ debts and sto#+ in trade for 'or+ing #apital fa#ilities)
UNSECURED LOANS 2006 2005 2004 2003
SHORT TERM 0<0K8 3<F5)5F =5)F8 G=)L8
LONG TERM 00 0G 0=F)<0 53=0)83
TOTAL 0<00< 3=0K)5F 355)8< 555L)3=
SHORT TERM FF)F5 FF)58L 3G)5L 3)5
4ere 4!2 has a ma-or portion of their finan#ing done through short term
finan#ing than long term finan#ing) The preferen#e of short term finan#ing to
long term as su#h is not the part of an( poli#( emplo(ed b( the firm but it 'as
due to the reason that the interest rates in short term 'ere more in&estor friendl(
and the #ost in&ol&ed in them 'ere also lo') At present$ 'e #an see that the
firm is mo&ing more to'ards long term finan#ing as the interest terms in the
long term has redu#ed #ompared to the short term)
YEAR- END COMMERCIAL PAPERS
PARTICULARS 2006 2005 2004 2003
COMMERCIAL
PAPERS
8KKK 3<KK /// 5KKK
The #redit rating b( !RA #ontinued at XA1+7indi#ating highest safet( to
#ompan(7s #ommer#ial paper program of Rs) G< !rores) t a#ts as an effe#ti&e
tool in redu#ing the interst #ost and is used for finan#ing in&entories and other
re#ei&ables) As and 'hen the firm issues #ommer#ial papers$ it sends a letter to
the leader of the #onsortium$ i)e)$ SB to redu#e from the fund based limits the
amount it has issued in the form of the #ommer#ial papers) Suppose the firm
issues 5K !rores as #ommer#ial papers and the fund based limits are sa( 00<
!rores) Then firm sends a letter to SB to redu#e the e*isting fund based limits
from 00< to L< !rores)
n terms of desirabilit($ the #ommer#ial papers are #heaper and ad&antageous to
the firm #ompared to the #onsortium finan#ing) The main ad&antage being the
interest rate 'hi#h is lo'er than the ban+ rates e*isting under #onsortium
finan#ing) But the firm depends on both and for 'or+ing #apital finan#ing$ it is
dependent on the ban+s for funds si#h as 'or+ing #apital demand loans and
#ash #redits) There is no point in the firm not ma+ing use of the fund based
limits in the #onsortium ban+ing as their commercial papers are restricted to
75 Crores)
MERITS OF COMMERCIAL PAPERS:
t is an alternati&e sour#e of raising short/term finan#e$ and pro&es to be
hand( during periods of tight ban+ #redit)
t is a #heaper sour#e of finan#e in #omparison to the ban+ #redit)
DEMERITS OF COMMERCIAL PAPERS:
t is an impersonal method of finan#ing)
t is al'a(s a&ailable to the finan#iall( sound and highest rated
#ompanies)
The amount of lonable funds a&ailable in the #ommer#ial paper mar+et is
limited to the amount of e*#ess liquidit( of the &arious pur#hasers of
#ommer#ial paper)
ANALYSIS
ndustr( anal(sis
"inan#ial graphs
!on#luding anal(sis
Suggestions and re#ommendations
Bibliograph(
INDUSTRY ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENTS
O&er the past de#ade$ the nformation Te#hnolog( (T% industr( has be#ome one
of the fastest gro'ing industries in ndia$ propelled b( e*ports (the industr(
a##ounted for more than a quarter of ndia7s ser&i#es e*ports in 3KK8/K<%) The
+e( segments that ha&e #ontributed signifi#antl( (F= per#ent of total% to the
industr(7s e*ports in#lude 6 Soft'are and ser&i#es (T ser&i#es% and T enabled
ser&i#es (TES% i)e) business ser&i#es) O&er a period of time$ ndia has
established itself
as a preferred global sour#ing base in these segments and the( are e*pe#ted to
#ontinue to fuel gro'th in the future)
ndustr( anal(sis
"inan#ial graphs
!on#luding anal(sis
Suggestions and re#ommendations
Bibliograph(
FINANCIAL GRAPHS
Gross Business Income:
!onsolidated Re&enue for the (ear gre' to Rs) 00L<< #rores) Ser&i#es
re&enue gre' b( 50M$ from Rs) 3G8 #rores to Rs) 5=K #rores in the
#urrent (ear) The !ompounded Annual ,ro'th Rate (!A,R% for the
pre#eding fi&e (ears is 8<M)
Profit before Tax:
PBT gre' b( 00M from$ Rs) 5L< #rores in the pre&ious (ear to Rs) 83F
#rores in the #urrent (ear) The !ompounded Annual ,ro'th Rate
(!A,R% for the pre#eding fi&e (ears is <5M)
Profit after Tax:
Profit after ta* gre' b( 05M$ from Rs) 3LK #rores in the pre&ious (ear to
Rs) 50= #rores) The !ompounded Annual ,ro'th Rate (!A,R% for the
pre#eding fi&e (ears is 5=M) Profits for the #urrent (ear are after a
pro&ision for Rs) 0K= #rores for #urrent ta* e*pense$ Rs) 5 #rores for
deferred ta* e*pense and Rs) 8 #rores for "ringe Benefit Ta*)
Earnings Per Share:
Basi# EPS gre' from Rs) 0=)G in the pre&ious (ear to Rs) 0L)G in the
#urrent (ear) 1iluted EPS gre' from Rs) 0=)< in the pre&ious (ear to Rs)
0L)= in the #urrent (ear)
Dividend:
The !ompan( distributed di&idends [ 0KKM per share in ea#h of the first
three quarters of the #urrent (ear) The #ompan( proposes to pa( a final
di&idend of 0KKM per full( paid up equit( share of Rs) 3N/ ea#h) The
interim di&idends paid together 'ith proposed final di&idend total to
8KKM for the #urrent (ear$ entailing an outflo' of Rs) 0<= #rores$
in#luding distribution ta*)
Net worth/ Shareholders Fund:
Net 9orth gre' from Rs) =FL #rores as at pre&ious (ear/end to Rs) L=K
#rores as on Eune 5K$ 3KKG) Share #apital as at (ear/end is Rs) 58 #rores
di&ided into 0=)F #rores shares of Rs) 3N/ ea#h) Reser&es ; surplus as at
(ear/end are Rs) L3= #rores after appropriating Rs 0<= #rores for
di&idends) Boo+ &alue per share gre' from Rs) 80)5 as at Eune 5K$ 3KK=
to Rs)<K)L as at Eune 5K$ 3KKG)
1uring the (ear$ the !ompan( allotted 8)3 la+h shares under Emplo(ee
Sto#+ Option S#heme reali.ing Rs) 8)8 #rores)
Borrowings: Year/end loan balan#es in#reased from Rs) L< #rores as on
Eune 5K$ 3KK= to Rs) 35= #rores as on Eune 5K$ 3KKG) The in#rease in loan
balan#es 'as mainl( to fund gro'th in !omputing Business in#luding
S(stem ntegration) 1ebt/Equit( ratio \1ebtN(1ebtQEquit(%] is 33M)
CURRENT ASSET RATIO:
CONCLUDING ANAYSIS
The 'or+ing #apital position of the #ompan( is sound and the &arious
sour#es through 'hi#h it is funded are optimal)
The #ompan( has used its di&idend poli#($ pur#hasing$ finan#ing and
in&estment de#isions to good effe#t #an be seen from the inferen#es made
earlier in the pro-e#t)
The debts doubtful ha&e been doubled o&er the (ears but their per#entage
on the debts has almost be#ome half) This implies a sales and #olle#tion
poli#( that get along 'ith the re#ei&ables management of the firm)
The returns ha&e been affe#ted b( a mar+ed gro'th in 'or+ing #apital
and though a 3F)G<M in 3KK= return on in&estment is good$ but it got
redu#ed as #ompared to 5F)K0M return in 3KK<)
The &arious ratios #al#ulated are an indi#ator as to the fa#t that the
profitabilit( of the firm and sales are on a rise and also the deletion of the
ineffi#ien#ies in the 'or+ing #apital management)
The firm has not #ompromised on profitabilit( despite the high liquidit(
is #ommendable)
4!2 nfos(stems has rea#hed a position 'here the default #osts are as
lo' as negligible and 'here the( #an readil( fa#tor their a##ounts
re#ei&ables for a&ailing finan#e is note'orth()
SUGGESTIONS AND RECOMMENDATIONS
The management of 'or+ing #apital pla(s a &ital role in running of a
su##essful business) So$ things should go 'ith a proper understanding for
managing #ash$ re#ei&ables and in&entor()
4!2 nfos(stems is managing its 'or+ing #apital in a good manner$ but still
there is some s#ope for impro&ement in its management) This #an help the
#ompan( in raising its profit le&el b( ma+ing less in&estment in a##ounts
re#ei&ables and sto#+s et#) This 'ill ultimatel( impro&e the effi#ien#( of its
operations) "ollo'ing are fe' re#ommendations gi&en to the #ompan( in
a#hie&ing its desired ob-e#ti&es:
The business runs su##essfull( 'ith adequate amount of the 'or+ing
#apital but the #ompan( should see to it that the #ash should not be tied
up in e*#essi&e amount of 'or+ing #apital)
Though the present #olle#tion s(stem is near perfe#t$ the #ompan( as
due to the in#reasing sales should adopt more effe#ti&e measures so as
to #ounter the threat of bad debts)
The o&er pur#hasing fun#tion should be a&oided as it #ould lead to
liquidit( problems)
The in&estment of #ash in mar+etable se#urities should be in#reased$ as
it is &er( profitable for the #ompan()
4olding of e*#essi&e and insuffi#ient sto#+ must be a&oided as it #reates
a burden on the #ash resour#es of a business and results in lost sales$
dela(s for #ustomers$ et# respe#ti&el()
BIBLIOGRAPHY
"ollo'ing sour#es ha&e been sought for the preparation of this report:
#orporate .ntranet
6inancial /tate%ents 83nnual 1eports9
:irect interaction *ith the e%plo)ees of the co%pan)
.nternet ;;;;***'hclinfos)ste%s'in
Te4t2oo"s on financial %anage%ent ;
.'$'<ande)
=han and >ain
<rasanna #handra
APPENDICES
FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.
L ast 4 year Balance Sheet:
Although debt as a per#ent of total #apital in#reased at 4!2 nfos(stems 2td)
o&er the last fis#al (ear to 30)<5M$ it is still in/line 'ith the T Ser&i#es
industr(Bs norm) Additionall($ e&en though there are not enough liquid assets to
satisf( #urrent obligations$ Operating Profits are more than adequate to ser&i#e
the debt) A##ounts Re#ei&able are among the industr(Bs 'orst 'ith 3L)88 da(s
'orth of sales outstanding) This implies that re&enues are not being #olle#ted in
an effi#ient manner) 2ast$ in&entories seem to be 'ell managed as the n&entor(
Pro#essing Period is t(pi#al for the industr($ at 30)3F da(s)
Currency in
Millions of Indian Rupees
As of: Jun 30
2004
Restated
Jun 30
2005
Restated
Jun 30
2006
Reclassified
Jun 30
2007
Assets
Cash and Equivalents 1,452! 2,512" 2,14#2 1,#"$5
%hort&'er( Invest(ents 114) 1,5"!$ !,1!"" 2,#!##
'*'A+ CA%, A-. %,*R' 'ERM I-/E%'ME-'% 1,5$"1 4,0)$! 5,2)$# 4,#1$4
Accounts Receiva1le 4,!#04 $,10!1 ",$#14 10,5200
*ther Receiva1les 22)2 4005 4$)1 5#!4
'*'A+ RECEI/A2+E% 4,$1)" $,50!$ ),15#5 11,11!4
Inventory 2,)042 !,4#!# 4,$#$1 ",#1))
3repaid E4penses 10"0 1$!0 14$0 2)")
*ther Current Assets 2!) 5$4 )$) )4)
'*'A+ C5RRE-' A%%E'% #,120) 14,!0!2 1),!"5! 24,!212
6ross 3roperty 3lant and Equip(ent 1,40$1 1,404" 1,"!1# 2,4!10
Accu(ulated .epreciation &"4#1 &"44# &)524 &#$$5
-E' 3R*3ER'7 3+A-' A-. E85I3ME-' $5"0 $5#) )"#5 1,4$45
6ood9ill && && 02 0)
+on:&'er( Invest(ents 2,1#0# && && &&
.eferred 'a4 Assets, +on: 'er( 5#1 && && &&
*ther Intan:i1les && #5! !24 !0#
*ther +on:&'er( Assets && 51 "1) 1$0
TOTAL ASSETS 12,027.9 15,063.4 19,359.2 25,33.4
L!A"!L!T!ES # E$%!T&
Accounts 3aya1le !,!#0$ 4,100# 5,#$4) ),2#)5
Accrued E4penses 1004 1010 1404 20#)
%hort&'er( 2orro9in:s && !0"# ")4# 1,1)24
Current 3ortion of +on:&'er( .e1t;Capital +ease $#04 4##$ 04 )#25
Current Inco(e 'a4es 3aya1le !01 )0# ""4 252)
*ther Current +ia1ilities, 'otal 2,#14$ !,!""! 4,$)"# 5,21$$
5nearned Revenue, Current 5!$4 #$5) 55"# ""52
TOTAL '%RRE(T L!A"!L!T!ES 7,662.6 9,433.4 12,213.7 16,27.
+on:&'er( .e1t 15) "2 $01 2)40
.eferred 'a4 +ia1ility -on&Current 10#0 "!5 10"$ 124)
*ther -on&Current +ia1ilities 1!# !) 10 &&
'*'A+ +IA2I+I'IE% ",)01! #,51"# 12,!)24 1",2!$$
Co((on %toc< !2)# !!44 !!"5 !!)!
Additional 3aid in Capital $"!# ))!" 1,0445 1,0)"#
Retained Earnin:s !,1#!2 4,2#"! 5,5$52 ",1414
Co(prehensive Inco(e and *ther !0$ !01 2#$ 2#2
TOTAL 'O))O( E$%!T& 4,226.6 5,545.5 6,976. ,596.
TOTAL E$%!T& 4,226.6 5,545.5 6,976. ,596.
TOTAL L!A"!L!T!ES A(* E$%!T& 12,027.9 15,063.4 19,359.2 25,33.4
FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.
L ast 4 year Cash Flow Statement:
n 3KKG$ #ash reser&es at 4!2 nfos(stems 2td) fell b( 0G3)GM) 4o'e&er$ as a
per#ent of re&enues$ this #hange 'as similar to the T Ser&i#es industr( median)
B( loo+ing at the !ash "lo' Statement$ anal(sts #an easil( see the sour#es and
use of #ash generated throughout the (ear)
Currency in
Millions of Indian Rupees
As of: Jun 30
2004
Restated
Jun 30
2005
Restated
Jun 30
2006
Reclassified
Jun 30
2007
-E' I-C*ME 1,"511 2,2""0 2,)0!$ !,15#5
.epreciation = A(orti>ation 1)01 1524 124! 1440
A(orti>ation of 6ood9ill and Intan:i1le Assets && && && 41
.E3RECIA'I*- = AM*R'I?A'I*-, '*'A+ 1)01 1524 124! 14)1
@6ainA +oss fro( %ale of Asset &04 &1$ 05 0$
@6ainA +oss on %ale of Invest(ent &"#$ &)4# &$15 &552
Asset Britedo9n = Restructurin: Costs 00 05 && &&
*ther *peratin: Activities 2#2) !12 "#$ 2"1)
3rovision = Brite&off of 2ad .e1ts 14) 144 "2 #2
Chan:e in Accounts Receiva1le &1,5#!4 &1,##!4 &1,"24" &!,15))
Chan:e in Inventories &42!! &$)#" &1,2022 &!,222"
Chan:e in Accounts 3aya1le 1,4"1) 1,5$1$ 2,"5#5 !,1122
CA%, CR*M *3ERA'I*-% 1,$140 1,2$"5 2,")$! 2$4"
Capital E4penditure &1)0" &2$") &424! &$"45
%ale of 3roperty, 3lant, and Equip(ent !5 10" )0! 1$
Invest(ents in Mar<eta1le = Equity %ecurities "!" )414 &1,45!$ 2)#0
CA%, CR*M I-/E%'I-6 !0) $224 &1,$)!! &2!1#
%hort&'er( .e1t Issued 411 1$#5 && &&
+on:&'er( .e1t Issued 200) 2!1! 2005 1,)!"2
TOTAL *E"T !SS%E* 241.9 400. 200.5 1,37.2
%hort 'er( .e1t Repaid && && &1"2! &"4"
+on: 'er( .e1t Repaid &"0"# &!02" && &2500
TOTAL *E"T RE+A!* ,707.9 ,302.7 ,172.3 ,324.7
Issuance of Co((on %toc< 2)!! 2152 1$!# 442
Co((on .ividends 3aid &)$$2 &1,04"4 &1,52$$ &1,54$1
TOTAL *!-!*E(* +A!* ,66.2 ,1,047.4 ,1,526.6 ,1,546.1
*ther Cinancin: Activities &#)# 6 &1!20 &21$1
'AS. /RO) /!(A('!(0 ,1,147. ,29.5 ,1,466.5 ,205.5
(ET '.A(0E !( 'AS. 497.1 1,060.4 ,363.5 ,172.7
FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.
Last 4 year Income Statement:
Year o&er (ear$ 4!2 nfos(stems 2td) has seen re&enues remain relati&el( flat
(005)GB to 00=)FB%$ though the #ompan( 'as able to gro' net in#ome from
3)LB to 5)3B) A redu#tion in the per#entage of sales de&oted to #ost of goods
sold from F5)30M to F3)<5M 'as a +e( #omponent in the bottom line gro'th in
the fa#e of flat re&enues)
Currency in
Millions of Indian Rupees
As of: Dun !0
2004
Restated
Dun !0
2005
Restated
Dun !0
200$
Reclassified
Dun !0
200"
Re1enues 43,064.4 77,47.9 113,63.1 116,53.0
*ther Revenues && &!5" $1$ $!)
'*'A+ RE/E-5E% 4!,0$44 "",44!2 11!,"44" 11$,#1$)
Cost of 6oods %old !),"01! "1,4#$1 105,#$44 10),1214
0ROSS +RO/!T 4,363.1 5,947.1 7,70.3 ,795.4
%ellin: 6eneral = Ad(in E4penses, 'otal 2,2$)) !,!05# !,"$4! 4,52"1
.epreciation = A(orti>ation, 'otal 1)0$ 1524 124! 14)1
*ther *peratin: E4penses && &)40 )4) #12
*',ER *3ERA'I-6 EE3E-%E%, '*'A+ 2,44#4 !,!"4! !,#"!4 4,"$$4
O+ERAT!(0 !('O)E 1,913.7 2,572. 3,06.9 4,029.0
Interest E4pense &)2) &""$ &1!2$ &214$
Interest and Invest(ent Inco(e 1!21 14$1 20)0
22!)
-E' I-'ERE%' EE3E-%E 4#4 $)5 "54 #2
Currency E4chan:e 6ains @+ossA !"# 1450 &1444 1)#$
*ther -on&*peratin: Inco(e @E4pensesA !20 && && &&
E2', EEC+5.I-6 5-5%5A+ I'EM% 2,0!!0 2,")$! !,"!"# 4,22")
6ain @+ossA on %ale of Invest(ents "#$ )50 $15 552
6ain @+ossA on %ale of Assets 04 1$ &05 &0$
*ther 5nusual Ite(s, 'otal 2! )"2 40 4"
Insurance %ettle(ents 2! !" 40 4"
*ther 5nusual Ite(s && )40 && &&
E2', I-C+5.I-6 5-5%5A+ I'EM% 2,1151 2,#$01 !,)02# 4,2)"1
Inco(e 'a4 E4pense !$40 $)!1 ###! 1,12"$
Earnin:s fro( Continuin: *perations 1,"511 2,2""0 2,)0!$ !,15#5
(ET !('O)E 1,751.1 2,277.0 2,03.6 3,159.5
(ET !('O)E TO 'O))O( !('L%*!(0 E2TRA
!TE)S
1,751.1 2,277.0 2,03.6 3,159.5
(ET !('O)E TO 'O))O( E2'L%*!(0 E2TRA
!TE)S
1,751.1 2,277.0 2,03.6 3,159.5