COMPARATIVE FINANCIAL RATIO ANALYSIS

WITH SPECIAL REFERENCE TO BHEL

Submitted ByGAURAV AGRAHARI

B.Com (Hons.) 3rd Year, Vth Semester
A7004611075
FINANCE
Under the guidance ofMr. Akhilesh Agrawal

Dr. Sachin Srivastava

Sr. Accounts Officer (FINANCE)

Sr. Lecturer

BHEL, JAGDISHPUR

ABS, Lucknow

SUMMER INTERNSHIP REPORT IN PARTIAL FULFILMENT OF THE AWARD OF FULL TIME

BACHELORS OF COMMERCE (2011-2014)

AMITY BUSINESS SCHOOL

AMITY UNIVERSITY UTTAR PRADESH
Page | 1

STUDENT CERTIFICATE

Certified that this report is prepared based on the summer internship project undertaken by
me in BHEL, JAGDISHPUR from 16 th MAY 2013 to 30th JUNE 2013, under the able
guidance of Dr. SACHIN SRIVASTAVA in partial fulfillment of the requirement for award
of degree of Bachelor of Commerce ( B.com(Hons.) ) from Amity University, Uttar Pradesh.

Date:

Signature

Signature

Signature

Gaurav Agrahari
Student

Dr. Sachin Srivastava

Faculty Guide

Prof. V.P. Shahi

Director (ABS)

FACULTY CERTIFICATE
Page | 2

Forwarded here with a summer internship report on COMPARATIVE FINANCIAL RATIO

ANALYSIS WITH SPECIAL REFERENCE TO BHEL submitted by GAURAV
AGRAHARI Enrollment No. A7004611075 student of B.Com (Hons.) 3rd Yr. (2011-14)
This project work is partial fulfillment of the requirement for the degree of B.com (H) from
Amity University Lucknow Campus, Uttar Pradesh.

Dr. Sachin Srivastava

Sr. Lecturer (ABS)
AMITY UNIVERSITY
LUCKNOW CAMPUS
UTTAR PRADESH

ACKNOWLEDGEMENT
Page | 3

Any task that is under taken reaches successful completion not only by an
Individual effort but also by the guidance and support of many others. Here I
acknowledge my heartiest gratitude to

a few of them who have helped me

to carry out this project work successfully.

I express my deep thoughts and regards to Mr. Akhilesh Agrawal, Sr. Accounts Officer, BHEL,
JAGDISHPUR, for giving me this opportunity to undertake this project in this prestigious
organization and providing a good environment to my work.
I would also like to thank to project Guide Dr. Sachin Srivastava and entire staff for the
invaluable help and support they extended during the project work. Last but not the least my
endless appreciation goes to my family who have always supported me whenever I was low and
have always boosted my willpower.

TABLE OF CONTENTS
Page | 4

PAGE NO.
1. SYNOPSIS OF THE REPORT

2. OBJECTIVE OF THE STUDY

3. CHAPTER 1- INTRODUCTION

8-18

4. CHAPTER 2- ORGANISATIONAL PROFILE OF THE COMPANY

19-44

5. CHAPTER 3- PRESENTATION OF DATA ANALYSIS

45-55

6. CHAPTER 4- FINDINGS AND CONCLUSION

7. BIBLIOGRAPHY

56-61
62

Page | 5

SYNOPSIS OF THE REPORT

The ratio analysis is one of the most useful and common method of
analyzing financial statements. As compared to other tools of financial
analysis, the ratio analysis provides very useful conclusions about
various aspects of the working like financial position, solvency, liquidity
and profitability of an enterprise. It is useful for inter-firm comparison
so that the companies can review their performance and also plan
forward to make necessary changes in their working styles.
This study gives in detail the analysis of various financial ratios based upon the past as
well as the present performance of Bharat Heavy Electricals Limited (BHEL) expressed
in financial data. Based upon the results from these financial ratios conclusions are driven
out that whether the company has been earning profits or not and also that how much it
has used these results in its growth. So, the company can also manage each of its current
assets namely inventory management, cash management, accounts receivable
management and also its liabilities like creditors, loans, bills payables etc. so that it can
maintain an identical financial ratio for each of its business aspects like solvency ratios,
turnover ratios, profitability ratios etc. The research methodology adopted for this study
is mainly from secondary sources of data which includes annual reports of BHEL, and
website of the company. The use of primary sources is limited to interviews with few
employees in the finance department and also from the working process adopted in the
company as interviewed from employees. The study of financial ratio analysis has shown
that BHEL has a strong base in meeting the identical financial ratios as well as has
increased its profits from the past years. The company is enjoying reasonable profits.
BHEL employs forex funds instead of domestic loans and WC facilities. BHEL sales
position is also very good. Its excellent performance is attributed to reduced cost of
product and ultimately contributing to a good financial as well as a profitable position in
the market.
Page | 6

OBJECTIVE OF THE STUDY

To know the financial as well as the profitability position of Bharat Heavy

Electricals Limited (BHEL).

To know whether the financial ratios of the company are ideal or not, which is the
sign of a healthy business enterprise.

To analyze and compare the performance of the company with the help of these
financial ratios from other companies and competitors in the market.

Page | 7

CHAPTER 1

INTRODUCTION

Page | 8

INTRODUCTION
When it comes to investing, analyzing financial statement information (also known as
quantitative analysis), is one of, if not the most important element in the fundamental
analysis process. At the same time, the massive amount of numbers in a company's
financial statements can be bewildering and intimidating to many investors. However,
through financial ratio analysis, you will be able to work with these numbers in an
organized fashion. The objective of this analysis is to provide a guide to sources of
financial statement data, to highlight and define the most relevant ratios, to show you
how to compute them and to explain their meaning as investment evaluators.
So, in order to give a clear view we can say that ratio analysis is a widely used tool of
financial analysis. It is defined as the systematic use of ratio to interpret the financial
statements so that the strength and weaknesses of a firm as well as its historical
performance and current financial condition can be determined. The term ratio refers to
the numerical or quantitative relationship between two variables. The financial ratios are
of great importance for an organization, and as an organization contributes to the
economic growth of the country it is necessary that they should maintain an ideal ratio for
the various aspects of the business. Also, these ratios are very helpful in judging the
performance of an enterprise by comparing its performance with the other industries of
same nature present in the market. In a way it can be said that ratios are very useful to
evaluate the performance of the company by using ratios as a yardstick to measure the
efficiency of the company. To understand the liquidity, profitability and efficiency
positions of the company during the study period. To evaluate and analyze various facts
of the financial performance of the company. To make comparisons between the ratios
during different periods. Financial Management is the specific area of finance dealing
with the financial decision corporations make, and the tools and analysis used to make
the decisions. The discipline as a whole may be divided between long-term and shortterm decisions and techniques. Both share the same goal of enhancing firm value by
ensuring that return on capital exceeds cost of capital, without taking excessive financial
risks by analyzing them carefully with the help of financial ratios. Also several debt ratios
may be used to analyze the long term solvency of the firm.
It would be of relevance to know the proportion of the interest-bearing debt (also called
funded debt) in the capital structure of the firm. Thus, debt ratio can be computed by
dividing total debt by capital employed or net assets. Total debt includes short and long
termborrowings from financial institutions, debentures/bonds, deferred payment
arrangements for buying capital equipments, bank borrowings, public deposits and any
other interest bearing loan.
Page | 9

FINANCIAL RATIO ANALYSIS

Financial ratio analysis is a widely used tool of financial analysis. It is defined as the
systematic use of ratio to interpret the financial statements so that the strength and
weaknesses of a firm as well as its historical performance and current financial condition
can be determined. The term ratio refers to the numerical or quantitative relationship
between two variables.

DEFINING RATIO ANALYSIS: AN OVERVIEW

A very popular and single most important technique of financial analysis in
which quantities are converted into ratios for meaningful comparisons, with past ratios
and ratios of other firms in the same or different industries. Ratio analysis
determines trends and exposes strengths or weaknesses of a firm. Also, with the help of
ratio analysis conclusion can be drawn regarding several aspects such as financial health,
profitability and operational efficiency of the undertaking. Ratio points out the operating
efficiency of the firm i.e. whether the management has utilized the firm's assets correctly,
to increase the investor's wealth. It ensures a fair return to its owners and secures
optimum utilization of firms assets.
The information given in the basic financial statements serves no useful Purpose unless it
s interrupted and analyzed in some comparable terms. The ratio analysis is one of the
tools in the hands of those who want to know something more from the financial
statements in the simplified manner. Basically, ratios can be divided into five major
groups which are:
1.
2.
3.
4.
5.

Liquidity Ratios.
Activity Ratios.
Solvency Ratios.
Profitability Ratios.
Leverage Ratios.

LIQUIDITY RATIOS
Liquidity ratios are the ratios that measure the ability of a company to meet its short term
debt obligations. These ratios measure the ability of a company to pay off its short-term
liabilities when they fall due. The liquidity ratios are a result of dividing cash and other
liquid assets by the short term borrowings and current liabilities. They show the number
of times the short term debt obligations are covered by the cash and liquid assets. If the
Page | 10

value is greater than 1, it means the short term obligations are fully covered. Generally,
the higher the liquidity ratios are, the higher the margin of safety that the company posses
to meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is
in good financial health and it is less likely fall into financial difficulties. Most common
examples of liquidity ratios include current ratio, acid test ratio (also known as quick
ratio), cash ratio and working capital ratio. Different assets are considered to be relevant
by different analysts. Some analysts consider only the cash and cash equivalents as
relevant assets because they are most likely to be used to meet short term liabilities in an
emergency.

Significance:
The significance of liquidity ratios are probably the most commonly used of all the
business ratios. Creditors may often be particularly interested in these because they show
the ability of a business to quickly generate the cash needed to pay outstanding debt. This
information should also be highly interesting since the inability to meet short-term debts
would be a problem that deserves your immediate attention.

ACTIVITY RATIO
An activity ratio is a metric which determines the ability of a company to convert
its balance sheet accounts into revenue. Activity ratios assess how effectively a company
is able to generate revenue in the form of cash and sales based on
its asset, liability and capital share accounts. Examples of such ratios include the
inventory turnover ratio and the accounts receivable turnover ratio. Activity ratios are
critical in evaluating a company's fundamentals because, in addition to expressing how
well a company generates revenue, activity ratios also indicate how well the company is
being managed.
Accounting ratios that measure a firm's ability to convert different accounts within its
balance sheets into cash or sales. Activity ratios are used to measure the relative
efficiency of a firm based on its use of its assets, leverage or other such balance sheet
items. These ratios are important in determining whether a company's management is
doing a good enough job of generating revenues, cash, etc. from its resources. Companies
will typically try to turn their production into cash or sales as fast as possible because this
will generally lead to higher revenues. Such ratios are frequently used when performing
fundamental analysis on different companies. The total assets turnover ratio and
Page | 11

inventory turnover ratio are two popular examples of activity ratios used widely across
most industries.

Significance:
A companys efficiency in collecting the money owed by customers is measured by the
receivables turnover ratio, sometimes called the accounts receivable turnover ratio. To
determine the ratio analysts divide net credit sales by average accounts receivable. A low
ratio can mean that the company has trouble collecting from its customers. A company
that does most or all of its business on a cash basis will have a very high receivable
turnover ratio. As with all accounting ratios that are used in fundamental analysis, it is
important to compare any activity ratio between companies within the same industry.
Some industries will typically have far lower ratios than others, so comparing companies
across industries will usually produce irrelevant data. For example, an activity ratio for a
manufacturing company will typically be far lower than the same activity ratio for a fast
food company. In order for the comparison of an activity ratio between two or more
companies to be useful, the companies should be in the same industry.

SOLVENCY RATIO
The term solvency refers to the ability of a concern to meet its long term obligations.
The long-term liability of a firm is towards debenture holders, financial institutions
providing medium and long term loans and other creditors selling goods on credit. These
ratios indicate firms ability to meet the fixed interest and its costs and repayment
schedules associated with its long term borrowings. The following ratios serve the
purpose of determining the solvency of the business firm. Acceptable solvency ratios will
vary from industry to industry, but as a general rule of thumb, a solvency ratio of greater
than 20% is considered financially healthy. Generally speaking, the lower a company's
solvency ratio, the greater the probability that the company will default on its debt
obligations. One of many ratios used to measure a company's ability to meet long-term
obligations. The solvency ratio measures the size of a company's after-tax income;
excluding non-cash depreciation expenses, as compared to the firm's total debt
obligations.

Page | 12

The measure is usually calculated as follows:

Significance:
Solvency ratios are of interest to long-term creditors and shareholders. These groups are
interested in the long-term health and survival of business firms. In other words, solvency
ratios have to prove that business firms can service their debt or pay the interest on their
debt as well as pay the principal when the debt matures. One ratio in particular serves as
both a debt ratio and a solvency ratio. That ratio is the Total Debt/Total Assets ratio. This
ratio measures how much of the firm's asset base is financed using debt. Let's say that the
Total Debt/Total Assets ratio = 50%. This means that half the firm's assets are financed
using debt and the other half are financed using equity sources.
The only way you know if this is high or low or average is if you have industry average
data to compare to. If industry average data for this firm's industry is around 50%, then
you know your firm is in line with the industry and you are probably doing well with
regard to the Debt/Assets ratio. If the Debt/Assets ratio for your company is, for example,
65%, then your debt is high as compared to other firms in your industry and you should
definitely take a look at it. Your company is not as solvent as other firms in the industry.

PROFITABILITY RATIO
The main aim of an enterprise is to earn profit which is necessary for the survival and
growth of the business enterprise. It is earned with the help of amount invested in
business. It is necessary to know how much profit has been earned with the help of the
amount invested in the business. This is possible through profitability ratio. These ratios
examine the current operating performance and efficiency of the business concern. These
ratios are helpful for the management to take remedial measures if there is a declining
trend. A class of financial metrics that are used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a specific
period of time. For most of these ratios, having a higher value relative to a competitor's
ratio or the same ratio from a previous period is indicative that the company is doing
Page | 13

well. Some examples of profitability ratios are profit margin, return on assets and return
on equity. It is important to note that a little bit of background knowledge is necessary in
order to make relevant comparisons when analyzing these ratios. For instance, some
industries experience seasonality in their operations. The retail industry, for example,
typically experiences higher revenues and earnings for the Christmas season.
Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin
with its first-quarter profit margin. On the other hand, comparing a retailer's fourthquarter profit margin with the profit margin from the same period a year before would be
far more informative. Profitability ratios are the most popular metrics used in financial
analysis. Different profitability ratios provide different useful insights into the financial
health and performance of a company. For example, gross profit and net profit ratios tell
how well the company is managing its expenses. Return on capital employed (ROCE)
tells how well the company is using capital employed to generate returns. Return on
investment tells whether the company is generating enough profits for its shareholders.
For most of these ratios, a higher value is desirable. A higher value means that the
company is doing well and it is good at generating profits.

Significance:
Net profit ratio determines overall efficiency of the business. It indicates the extent to
which management has been effective in reducing the operational expenses. Higher the
net profit ratio, better it is for the business. Operating profit is an indicator of operational
efficiencies. It reveals only overall efficiency. It establishes relationship between
operating profit and net sales. This ratio is expressed as a percentage. It helps in
examining the overall efficiency of the business. It measures profitability and soundness
of the business. Higher the ratio, the better is the profitability of the business. This ratio is
also helpful in controlling cash. ROI ratio judges the overall performance of the concern.
It measures how efficiently the sources of the business are being used. In other words, it
tells what is the earning capacity of the net assets of the business. Higher the ratio the
more efficient is the management and utilization of capital employed.

Page | 14

LEVERAGE RATIO
Leverage ratio is otherwise known as capital structure ratio. The term capital structure
refers to the relationship between various long term forms of financing such as
debentures (long term), preference share capital and equity share capital including
reserves and surpluses. Financing the firms assets is a very crucial problem in every
business and as a rule there should be a proper mix of debt and equity capital in financing
the firms assets. Leverage or capital structure ratios are calculated to test the long term
financial position of a firm. Generally capital gearing ratio is mainly calculated to analyze
the leverage or capital structure of the firm. Any ratio used to calculate the financial
leverage of a company to get an idea of the company's methods of financing or to
measure its ability to meet financial obligations. There are several different ratios, but the
main factors looked at include debt, equity, assets and interest expenses. A ratio used to
measure a company's mix of operating costs, giving an idea of how changes in output
will affect operating income. Fixed and variable costs are the two types of operating
costs; depending on the company and the industry, the mix will differ. Companies with
high fixed costs, after reaching the breakeven point, see a greater increase in operating
revenue when output is increased compared to companies with high variable costs. The
reason for this is that the costs have already been incurred, so every sale after the
breakeven transfers to the operating income. On the other hand, a high variable cost
company sees little increase in operating income with additional output, because costs
continue to be imputed into the outputs.
The degree of operating leverage is the ratio used to calculate this mix and its effects on
operating income. In finance, leverage (sometimes referred to as gearing in the United
Kingdom and Australia) is a general term for any technique to multiply gains and losses.
Leverage exists when an investor achieves the right to a return on a capital base that
exceeds the investment which the investor has personally contributed to the entity or
instrument achieving a return. Common ways to attain leverage are borrowing money,
buying fixed assets and using derivatives.

Significance:
Capital gearing ratio is very important ratio. Gearing should be kept in such a way that
the company is able to maintain a steady rate of dividend. High gearing ratio is not good
for a new company or a company of which future learnings are uncertain. It can also be
said that leverage ratios tend to find the debt a company has on its balance sheet or its
financial health. For a shareholder the first claim he has is against the companys assets,
therefore a company might not be left with nothing in the phase of bankruptcy after
Page | 15

satisfying the debt holders besides the assets. The most well known debt to equity ratio
determines the risk that a company is in if it has taken tones of death. For example a
company has a $10M debt and its equity is $20M, the debt to equity ratio will be 0.5.
Companies with less debt equity ratio are less risky than the companies having a high
ratio. It is important for a share holder to look at the financial ratios in order to invest in
it.

SCOPE OF RATIO ANALYSIS TECHNIQUE

Ratio analysis is a technique of analyzing the financial statements by calculating ratios.
They are of great importance for the firm and provide a great scope for comparability
features between the organizations. Here are some points of their usefulness in view of a
company or firm:
1. It is useful for inter firm comparison which implies that company compares its
performance with that of its industry peers.
2. It is useful in intra firm comparison which means that company will compare the
performance of various departments of the company so as to judge the best department
within the company.
3. It is useful in simplifying the accounting figures to make them understandable to a
layman, because it is easier to understand ratios then plain figures.
4. It is also useful in forecasting and planning for the future, also it helps in control by
comparing the actual performance with that of forecasted performance and looking for
reason for it.
5. It is also used for analysis of financial statements by various interested parties like
bankers, creditors, supplier etc. for taking future decision about the company.

Page | 16

IMPORTANCE OF RATIO ANALYSIS

Financial ratio analysis is a useful tool for users of financial statement. It has following
advantages:
1. It simplifies the financial statements.
2. It helps in comparing companies of different size with each other.
3. It helps in trend analysis which involves comparing a single company over a
period.
4. It highlights important information in simple form quickly. A user can judge a
company by just looking at few numbers instead of reading the whole financial
statements.

LIMITATIONS OF RATIO ANALYSIS

Despite usefulness, financial ratio analysis has some disadvantages. Some key demerits
of financial ratio analysis are:
Ignorance of qualitative aspect
The ratio analysis is based on quantitative aspect. It totally ignores qualitative aspect
which is sometimes more important than quantitative aspect.
Ignorance of price level changes
Price level changes make the comparison of figures difficult over a period of time. Before
any comparison is made, proper adjustments for price level changes must be made.
No single concept
In order to calculate any ratio, different firms may take different concepts for different
purposes. Some firms take profit before charging interest and tax or profit before tax but
after interest tax. This may lead to different results.
Page | 17

Misleading results if based on incorrect accounting data

Ratios are based on accounting data. They can be useful only when they are based on
reliable data. If the data are not reliable, the ratio will be unreliable.
No single standard ratio for comparison
There is no single standard ratio which is universally accepted and against which a
comparison can be made. Standards may differ from Industry to industry.
Difficulties in forecasting
Ratios are worked out on the basis of past results. As such they do not reflect the present
and future position. It may not be desirable to use them for forecasting future events.

Different companies operate in different industries each having different

environmental conditions such as regulation, market structure, etc. Such factors
are so significant that a comparison of two companies from different industries
might be misleading.

Financial accounting information is affected by estimates and assumptions.

Accounting standards allow different accounting policies, which impairs
comparability and hence ratio analysis is less useful in such situations.
Ratio analysis explains relationships between past information while users are
more concerned about current and future information.

Page | 18

Page | 19

CHAPTER 2

COMPANY PROFILE

Page | 20

Company Background

1956- Company was set up at Bhopal in the name of M/s Heavy electrical (India) Ltd. in
collaboration with AEI, UK. Subsequently, three more plants were set up at Hyderabad,
Hardwar and Trichy. The Bhopal Unit was controlled by the company, the other three
were under the control of Bharat Heavy Electricals Ltd. - The Company's object is to
manufacture of heavy electrical equipments. 1972- In July the Operations of all the four
plants were integrated. 1974- In January Heavy electrical (India) Ltd was merged with
BHEL. - For the manufacture of a wide variety of products, the company has developed
technological infrastructure, skills and quality to meet the stringent requirements of the
power plants, transportation, petro chemicals, oil etc. - BHEL; has entered into
collaboration which are technical in nature. Under these agreements, the collaborators
have transferred, furnished the information, documentation, including know how relating
to design, engineering, manufacturing assembly etc. 1982- BHEL also entered into power
equipments, to reduce its dependence on the power sector. BHEL Insulator Plant (IP),
Jagdishpur set up in 1984.
BHEL Has:
1. Installed equipment for over 1,00,000 MW of power generation for utilities captive and
industrial users worldwide.
2. Supplied over 225000 MW a transformer capacity and other equipment operating in
transmission and distribution network up to 400kv (Ac & Dc).
3. Supplied over 25000 motors with drive control system to power projects,
petrochemicals, refineries, steel, aluminum, fertilizers, cement plants etc.
4. Supplied traction electrics and AC/DC locos to power over 12000 kms railway
network.
5. Supplied over one million valves to power plants and other industries.

BHEL caters to core sectors of the Indian economy viz; power generation &
transmission, industry, transportation, telecommunication, renewable energy, defense etc.
the wide network of BHEL's 14 manufacturing divisions, four power sector regional
centers, over 100 project sites, eight service centers and 14 regional offices enables the
company to be closer to its customers and provide them with suitable products, systems
Page | 21

and services efficiently and at competitive prices. Having attained ISO 9000 certification,
BHEL is now well on its journey towards total quality management (TQM), on the
environmental management front, the major units of bhel have 4 already acquired the
ISO14001 certification,

Power sector
Power generation sector comprises thermal, gas, hydro and nuclear power plant
business. As of 31-3-2008, BHEL supplied sets account of nearly 85, 786 MW or 64% of
the total installed capacity of 1,34,6976 MW in the country, Significantly, there sets
generated an all time high 454.59 Billion Units of electricity contributing 73% of the total
power generated in the country. BHEL has proven turnkey capabilities for executing
power project s from concepts to commissioning. The company has introduced new
rating thermal set of 270 MW,525 MW, 600 MV in sub critical range and possesses the
technology & capabilities to produce large capacity thermal set with super critical
parameters and gas turbine-generator sets. Co-Generation and combined-cycle plants
have been introduced to achieve higher plant efficiencies. To make efficient use of the
high ash content coal available in India, BHEL supplies circulating fluidized bed
combustion boilers to both thermal and combined-cycle power plants. The company
manufactures 220/235/500/540 MW, nuclear turbine generator sets, Custom-made hydro
sets of Francis, Pelton and Kaplan types for different head discharge combination sare
also engineered and manufactured by BHEL. In all, orders for more than 700 utility sets
of thermal, hydro, gas and nuclear have been placed on the company as on date. The
power plant equipment manufactured by BHEL is based on contemporary technology
comparable to the best in the world, and is also internationally competitive. The company
has proven expertise plant performance improvement through renovation, modernization
and upgrading of variety of power plant equipment, besides specialized know how of
residual life assessment, health diagnostics and life extension of plants.

Transmission
BHEL also supplies a wide range of transmission products and systems of up to 400 KV
class. These include high voltage power & instrument transformers, dry type
transformers, shunt & series reactors switch gear, 33 KW gas insulated sub-station
capacitors, insulators etc. for economic transmission of bulk power over long distances,

Page | 22

and High Voltage Direct Current (HVDC) systems are supplied. Series and shunt
compensation systems, to minimize transmission loses, have also been supplied.

Industry sector

Industries
BHEL is a major contributor of equipment and systems to industries: cement, sugar,
fertilizer, refineries, petrochemicals, steel, paper etc. the range of systems and equipment
supplied includes: captive power plants, dg power plants, high speed industrial drive
turbines, industrial boilers and axillaries, waste heat recovery boilers, gas turbines, heat
exchangers and pressure vessels, centrifugal compressors, electrical machines, pumps,
valves, seamless steel tubes and process controls, control systems for process industries,
and control and instrumentation systems for power plants, defense and other applications.
The company has connected manufacture of large scale desalination plants to help
augment the supply of drinking water to people

Transportation
Mostly of the trains operated by the railways, including the metro in Calcutta, are
equipped with BHEL'S traction electrics and traction control equipment. The company
supplies electric locomotives to Indian Railways and diesel shunting locomotives to
various industries. 5000/4600 hp ac/dc locomotives developed and manufactured by
BHEL have been supplied to Indian railways. Battery powered road vehicles are also
manufactured by the company. BHEL also supplies traction electrics and traction control
equipment for electric locos, diesel electric locos, and EMUs/DEMUs to the railways.
Telecommunication
BHEL also caters to telecommunication sector by way of small, medium, and
large switching systems.
Renewable energy
Technologies that can be offered by BHEL for exploiting non-conventional and
renewable resources of energy includes: wind electric generators, solar power based
water pumps, lighting and heating systems. The company manufactures wind electric
Page | 23

generators of unit size up to 250 KW for wind farms, to meet the growing demand for
harnessing wind energy.
International operations
BHEL has, over the years established its references in over 50 countries of the
world, ranging from the United States in the west to new-Zealand in the far east. These
references encompass almost the entire product range of BHEL, covering turnkey power
projects of thermal, hydro and gas based type sub-station projects, rehabilitation projects,
besides a wide variety of products, like switch gear, transformer heat exchangers,
insulators, castings and forgings. Apart from over 1100 MW of boiler capacity
contributed in Malaysia, some of the other major successes achieved by the company
have been in Oman, Saudi a Arabia, Libya, Greece, Cyprus, Malta, Egypt, Bangladesh,
Azerbajan, Srilanka, Iraq etc. execution of overseas projects has also provided BHEL the
experience of working with world renowned consulting organizational and inspection
agencies.

Technology Up gradation and research and development

To remain competitive and meet customers' expectations, BHEL lays great
emphasis on the continuous up gradation of products and related technologies, and
development of new products. The company has upgraded its products to contemporary
levels through continuous in house efforts as well as through acquisitions of new
technologies from leading engineering organizations of the world. The corporate R&D
division at Hyderabad leads BHEL'S research efforts in a number of area of importance
to BHEL's research efforts in a number of area of importance to BHEL's product range.
Research and product development centers at each of the manufacturing divisions play a
complementary role. BHEL's investment in R&D us amongst the largest in the corporate
sector in India. Products developed in house during the last five years contributed about
8% to the revenues in 2003-04.

Page | 24

PRODUCTS

THERMAL POWER PLANTS

Steam turbines, boilers and generators of up to 800 MW capacity for utility and combined
cycle applications; Capacity to manufacture boilers and steam turbines with supercritical
system cycle parameter and matching generator up to 100 MW unit size.
Steam turbines, boilers and generators of CPP applications; capacity to manufacture
condensing, extraction, back pressure, injection or any combination of these types of
steam turbines.
NUCLEAR POWER PLANTS
Steam generator & Turbine generator up to 700 MW capacity.
GAS-BASED POWER PLANTS
Gas turbines of up to 280 MW(ISO) advance class rating.
Gas turbine based co-generation and combined cycle systems of industry and utility
applications.

There are other products given as follows:

HYDRO POWER PLANTS
DG POWER PLANTS
INDUSTRIAL SETS
BOILERS BOILER AUXILIARIES
PIPING SYSTEMS
HEAT EXCHANGERS AND PRESSURE VESSELS
PUMPS
POWER STATION CONTROL QUIPMENT
SWITCHGEAR BUS
Page | 25

ACHIEVEMENTS

BHEL has put in place a number of initiatives, as follows

1. Strengthening company's core businesses of Power Generation, Transmission &
Distribution, Transportation and Industrial Systems & Products, through accelerated
project6 completion and consequent benefits to customers, along with new initiatives in
marketing, technology, facility up-gradation and modernization, enhancing operational
effectiveness etc.
2. Business Development efforts in related and allied areas utilizing the organizational
strengths and forming customer focused specialized business groups e.g. formation of Oil
Sector R & M Business Group to address business in Renovation and Modernization of
off-shore and on-shore oil platforms, downstream petroleum refining areas and Power
Plant Operational Services Group to provide Operations and Maintenance (O&M),
Services for Power Plants.
3. After Market Services being the areas for future growth, spares and R & M services
business have been integrated into one focused group, R& M for hydro sets is an area
having major growth opportunity which BHEL is poised to tap.
4. Exploring Business opportunities in areas like Energy Conservation, Water
Management, Pollution Control and Waste Management, Ports, LNG terminals etc.
5. Positioning for Information technology Business leveraging the domain knowledge in
Power Sector & Engineering field to provide IT enabled services for Power Sector and
software services for Engineering Industry. Sustain and Enhance Exports for products and
services through multi-pronged approaches like entering new territories, focus on product
sales, entry into IPP segment, offering O&M and LTSA, EPC, becoming a service center
for international Original Equipment Manufacturers (OEMs) and setting up to
manufacturing assembly and repair centers in the regions of demand etc. BHEL is also
taking steps to reposition itself to meet the demands of the new market economy through
suitable strategies keeping in view the ultimate objective of enhancing value for its
stakeholders.

Page | 26

RISKS AND CONCERNS

1. Since most of the projects in industry are being contemplated on BOO/BOOT basis,
various issues viz, business model of the Project, revenue collection, operation and
maintenance etc. would need to be suitably addressed to gain entry in the business.
2. Railways have indicated 3% growth in 10th plan as against 6% growth during the 9th
plan, which would result in scanty order flow for Electric locos and dip in demand for
electrics for Locos.
3. Collaborators increasingly restricting export territories under license agreements in
order to protect their market share in territories outside India particularly where BHEL
has built up references and strengths.

RECENT ACHIEVEMENTS OF BHEL

1. BHEL got Shram Bhushan Award

2. BHEL's Finance got ICWAI Award for Excellence in Cost Management
3. BHEL's R&D contributed Rs. 50,270 crore turnover in 2007-08
4. BHEL manufactured 800 MW thermal sets
5. BHEL net profit up 60 pc.

INSULATOR PLANT-BHEL, JAGDISHPUR

The insulator plant BHEL, Jagdishpur was set up in 1984, catering to electric
power transmission business by way of manufacture and supply of disc insulator.
Presently the plant is geared to produce 19 thousand tons of disc insulators annually and
one thousand tons of Ly. of insulators. Over the year lot of technological innovation have
taken place in the plant which has streamlining of manufacturing processes & has taken it
into the level of best industry. New type of disc insulator has also been introduced
periodically and today it manufactures disc insulators up to 160-Kn.Stength ranging from
normal to anti fog type. The plant has till date executed many prestigious export contracts

Page | 27

and has supplied disc insulators to Turkey, Lalysia, Trinidad & Tobago, Ghana, and
Nigeria etc.
Since 1994, low tension types of insulators have also been introduced in the product
range in addition it supplies to domestic market quantities have also been exported to
countries like UK & South Africa. In present area of liberalization the company has not
only gone for diversification but also has taken concrete measure for organizational and
product improvement by ISO-9001 certification and adopting iqm approach.
In the present world an attempt has been made to system erotically analyze the export
market requirements of insulators and identify the product forming bulk exports. The
world market scenario of insulators imports have been presented with a view to provide
strategic global market information for insulator exports. On 3rd march 1984 the prime
minister of India Smt. Indira Gandhi inaugurated BHEL's 11th manufacturing unit in
Jagdishpur Sultanpur district, 78 kilometers away from Lucknow, on the Lucknow
Sultanpur highway. BHEL's more than 40 years experience in the ceramic field, blended
with that of NKG, Japan's world leader in insulator technology, set the pace for been
provided with the most modern and sophisticated facilities, and was commissioned in a
record line of 18th months. Insulator plant Jagdishpur has developed into one of the
India's disc insulator manufacturing centers with the most streamlined layout and modern
technology. It has provisions to cope with latest advances in the ceramic field.

MAJOR RIVALS OF 'BHEL' INSULATOR PLANT, JAGDISHPUR

JAI SHREE INSULATORS, KOLKATA (BIRLA GROUP)

WS INSULATORS, KOLKATA (WEST BENGAL)
MODERN INSULATORS, CHENNAI
IEC, KOLKATA (WEST BENGAL)
BATHINDA CERAMICS, PUNJAB
JI-TECH, KHURJA (U.P.)
POWER TECH, KHURJA (U.P.)

Page | 28

MAJOR CUSTOMER OF 'BHEL'IP JAGDISHPUR

Jagdishpur insulator plant has some important customer which are state electricity
board, government organizations, public sector units and private customer and Indian
railways.

STATE ELECTRICITY BOARD SUPPCL

MPSEB

GEB

PSEB KSEB KPTCL TNEB MSEB

PUBLIC SECTOR UNITS

POWER GRID NTPC NHPC DVC NLC
Government Organizations
Govt. of Tripura, Govt. of J & K, Govt. of Mizoram, Govt. of Manipur
Private Customers
Jyoti Structures Ltd.,
JSPL (Jindal Steel Power Ltd)
Associated Transrail Structures Ltd
RPG Transmission ltd.
Tata Project
Ramji Power Construction
EMC (Electrical Manufacturing Company)
KPTL(Kalputra Power Transmission Ltd.)
Devang Electricals.

PROCESS OF MANUFACTURING INSULATORS

The various manufacturing units through which the insulator passes before getting
converted into the finished product are as follows:
Page | 29

1) STORAGE: The different raw materials for manufacture of insulators are stored in the
identified bins. The raw materials that are required are:
a)

Calcined chaibasa clay

b)

Dolomite

c)

Manganese dioxide

d)

Chorme ore

e)

Calcite

f)

Tale

g)

Ellur clay

h)

Thin clay

i)

Quartz for brown clay

j)

Quartz

k)

Feldspar

l)

Bikaner clay

m)

Pyrophyllite

n)

Felcite

o)

Sericite

p)

Japan ball clay

All these materials are used in different quantities for different type of insulators
that are manufactured and demanded by the customers.

2) SLIP HOUSE- The slip house performs the following operations:

Page | 30

a) WEIGHING:
Different raw materials from the storage bins are collected and
weighed according to the percentage composition given by the E&D and according to the
ball mill capacity to be charged. Then the weighing card is attached to the lot.
A sample data for preparation of suspension body slip in a 5 ton ball mill for the
first charge are as follows:
Quartz

1053 kg

Feldspar

603 kg

Pyrophyllite

653 kg

Bikaner clay

387 kg

Felcite

201 kg

Pebbles
mill)

157 kg (due the presence of previously charged pebbles in the ball

B) RIVER -PEBBLE CHARGING ; For initial charging of river pebble in the ball mill
after rolling large, medium and small pebbles are collected as per specification number
(PPSL: 0100 R-2) and pebbles are charged as per the quantity specified.
C) PREPARATION OF FIRST CHARGE BODYSLIP: Weighed quantity of first charged
raw materials is charged into the ball mill by attaching cone to its hole from the charging
hole on the platform. The pebbles are cleaned with water before charging and then
specified quantity of water is charged into the ball mill. Generally charging takes 1-2
hours and ball mills runs 14-16 hours.
D) PREPARATION OF SECOND CHARGE BODY SLIP ; Weighed quantity of second
charge is changed into the ball mill with required quantity of water after preparation of
first charge body slip and the ball mill is run for specified time. Then the slip is
discharged into the mixing tank and is agitated continuously.
E) BLUNGING RETURN SLIP: scrap and water returned by the process is charged into
the blunger in specified proportions to get required specific gravity of the slip. Then it is
blunged to achieve homogeneous slip.
F) PREPARATION OF CAKE: The slip from the initial tank is pumped into the press
using plunger pump and then adequate pressure is applied to turn it into a cake. Here the
slip house work is complete.
Page | 31

3) JIGGERING UNIT: The cake from the slip house is fed into the plungmill.
Plungmill makes dough of the cake and releases it in continuous cylindrical moulds.
These moulds are then made into required shaped by automatic jiggering machines.
4) FINISHING UNIT:
the article is placed on the rotating wheel and adequate
layer of mass is removed without affecting die formation. Then the articles are placed on
tunnel drier cars and the card is led into the temperature dryings chambers.
5) GLAZING UNIT: the glazing unit carries out the following operations
a) CMC solution preparation
b) Sanding glaze preparation
c) Brown glaze preparation
d) Glazing operation
e) Sanding operation
f) Stamping and loading
6) FIRING UNIT: the firing work is done in the kiln. It is a continuous process and the
kiln temperature and cycle is maintained according to the instructions of the E&D. This is
done to test and check the suitability of the product according to the specifications
mentioned during the whole process.
7) ASSEMBLY SECTION: The various operations performed during assembly are:
a)

Application of bituminous paint

b)

Preparation of cement mortar

c)

Assembly of insulators

8) TESTING SECTION: here the testing of the finished product is done before the
dispatch by the R&D of the company. This is usually done by taking any sample from the
lot and then testing it.
9) DISPATCH SECTION: after all the above processes are finished and the testing is
complete a green chit is marked which confirms that the product is not defective and right
for dispatch.

Page | 32

IT DEPARTMENT
The company also has an IT department which gives full technical support to all
equipments related to information technology. Now a day IT plays a big role in
transmitting information in any company. It is much more efficient and fast than the
conventional system. BHEL IT department sets a good example of it. Here we can see the
complete system through which company is interlinked as well as with EPD Bangalore
(A branch of BHEL).
They provide services to all the departments via LAN (local area network) and
WAN (Wide area network).
A SHORT HISTORY OF INSULATOR
INTRODUCTION:
A transition of insulator can be seen in various types of pin insulator suspension
long road insulators etc. The history of electric power industry is more than 100 year and
in this line span the industry has performed the indispensable role of supply of energy to
various industry & is still developing at a transition of insulator can be seen in various
types of pin insulators and in this span conductor suspended from silk threads to insulate
them from ground.
SUSPENSION INSULATOR
Pin type insulators continued to be used for transmission of voltages up to 70 KV.
However, pin type insulators were already becoming too large to be used with
transmission voltages over 100 KV. And was quickly becoming impractical for large
voltages. This lead to the development of suspension insulator by Mr. Lock, owner of the
lock insulator mfg.Co, who produced the world's first suspension insulator in 1903. This
isolator soon had its shape improved to become the Duncan insulator. This insulator had
the advantage that it could be copies for use with higher transmission voltages. In Europe,
the first suspension insulator was developed in 1908 by the Hermsdorf problem fabric.
These insulators had shaped which was an advanced over those of pin type insulator.
In 1907 the American E.M. Hewlett developed the insulator which is known as the interline, or fish-type insulator. These insulators soon came to be known as Hewlett insulators
and were widely used all over the world for many years 1915 bought the development the
J.D. insulators by the American company of Jeffery Dewitt, thickness, thoroughness and
no deterioration advocated by this insulator attracted the attention of the electric power
industry, but its advantage of heavy weight resulted in their disappearance after 10 years.
Page | 33

Today's suspension insulators are an improvement of the Duncan type and use the
connecting method for insulator, which has developed around 1910 by the look co. this
developed into the cleaves type suspension insulator as we know it today. About the
sometime, The Ohio Brass Co. developed the two type of suspension insulator. Many
improvements were later made on these two types of suspension insulator to provide the
standard form of suspension insulator in use today.
The tensile strength of the standard 250-mm suspension insulator in 1921 is so was at
level of 4000-5000 Kg. With an extremely poor annual deterioration rate of 0.75 later
improvements to the porcelain body and the introduction kilns and the improved design
of the porcelain part, the inner surface of the cape and the pin head part as well as content
improvement resulted in a gradual advance in quality and performance. In 1850 the
German company Siemens developed a porcelain pin type of insulator with a single lair.
The development of the first glass pi type of insulator followed in 1858. The paths of
development which shapes of insulators on opposites of the Atlantic took were fairly
different. The first insulator had increased thickness of porcelain for higher voltage with
diameter of porcelain been increased to make the leakage distance longer. The range of
increase leakage distance or resistance or resistance which was made possible by
increased diameter was very limited. It was at this stage that double lair pin type insulator
was developed in the USA. The surface of pin type insulator was often short-circuited
with atmospheric moistures and this led to the hasty development of oil pin insulators in
Europe. However, even the practical use of this concept was soon out moded by multi lair
pin type insulators.
The size of porcelain insulators become extremely large with high transmission voltage
and the production of large pieces of porcelain of was of by means simple. This brought
about the manufacture of lair pin type insulators in order to insulator transmission voltage
20KV, a transmission of 55KV was successful operated in the USA in 1902. The
transmission was first planned to use the triple lair pin insulators, but as these were found
to be mechanically weak, quadruple, this resulted in their eventual adoption.
Consequently, when compared with the first such insulators, today's insulators are four
times as strong and have an annual deterioration rate of about 1/1000.

Long-Rod Is Insulators
The early suspension insulators had a high deterioration rate. One of the cause was the
expansion of the cement connecting the pin of the suspension insulators to the porcelain
Page | 34

cavity parts which resulted in an internal force tending to push the insulators open and the
corresponding increase in the tension stress in the porcelain, bringing about the eventual
destruction of the insulators stress this was regarded a fundamental structural problem in
both Germany & Switzerland, it was considered that any improvement on the
conventional structure would not amount to any complete eradication of the problem.
Therefore, a structure, which did not generate increased tension in the porcelain, even if
the cement expands, was study. The insulator which was forerunner of today's long road
insulators was developed in Switzerland by the Motors-Columbus Co. in 1917. At the
time, the use of cement filler was out of favor, so the structure had a metal fitting. Which
was mechanically consternated from the outside? This was later modified to the normal
metal cap connection. The insulators manufactured by Motor-Columbus Co. are called
motor insulators. Such insulators parts become sort when copra to the length of insulators
in its connecting states. This is today that for a comparison of motor insulator and
suspension insulators in case of same. This necessitated increasing length of porcelain in
portion of the motor insulators and consequence gave rise around. These insulators also
come to be made in fairly long and let to the development and manufacture of the long
stab isolator which could with stand 110 KV and a length of more than one meter. This
insulator was developed by the Hermsdorf-Schaumburg Co. in 1936 and was forerunner
of today's long rod insulators.

Apparatus Insulators
These are two main type of insulator for apparatus at sub stations. They are the hollow
porcelain used for the transformer bushings, and the subject insulators used for
supporting the bus lines.

Estimating working capital needs

1. Liquidity V/s. Profitability: Risk Return Trade Off.
The firm would make just enough investment in current assets if it were possible to
estimate working capital needs exactly. Under perfect certainty, current assets holdings
would be at the minimum level. A larger investment in current assets under certainty
would mean a low rate of return of investment for the firm, as excess investment in
current assets will not earn enough return. A small invest in current assets, on the other
hand, would mean interrupted production and sales, because of frequent stock-cuts and
inability to pay to creditors in time due to restrictive policy. As it is not possible to
Page | 35

estimate working capital needs accurately, the firm must decide about levels of current
assets to be carried. A different way of looking into the risk return trade off is in terms of
the cost of maintaining a particular level of current assets.
2. The Cost Trade Off:
A different way of looking into the risk return trade off is in term of the cost of maintain
level of current assets. There are two types of cost involved:
I.

Cost of liquidity

II.

Cost of illiquidity.

If the firm's level of current assets is very high, it has excessive liquidity. Its return on
assets will be low, as funds tied up in idle cash and stocks earn nothing and high level of
current assets.
The cost of illiquidity is the cost of holding insufficient current assets. The firm will not
be in a position to honor its obligations if it carries to little cash. This may force the firm
to borrow at high rates of interests. This will also adversely affect the credit worthiness of
the firm and it will face difficulties in obtaining funds in the future. All this may force the
firm into insolvency. Similarly, the low levels of stock will result in loss of sales and
customers may shift to competitors. Also, low level of debtors may be due to right credit
policy which would impair sales further. Thus the low level of current assets involves
cost that increase as this level falls.

Policies for financing current assets:

The following policies for financing the current assets in (IP) Jagdishpur
LONG TERM FINANCING:
The sources of long term financing include ordinary shares capital, preference share
capital debentures, long term borrowings from financial institutions and reserves and
surplus. The (IP) Jagdishpur manages its long term financing from capital reserve, share
premium A/c, foreign project reserve, bond redemption reserve and general reserve.

Page | 36

SHORT TERM FINANCING

The short term financing is obtained for a period less than one year. It is arranged in
advance from banks and other suppliers of short term finance include working capital
funds from banks, public deposits, commercial paper, factoring of receivables etc.
The BHEL (IP) JAGDISHPUR manages secured loans as:
1)

Loans and advances from banks

2)

Other loans and advances:

(i)

Debentures/bonds

(ii)

Loans from state govt.

(iii)
Loans from financial institutions (secured by pledge of PSU
bonds and bills accepted guaranteed by banks)
3)

Interest accrued and due on loans

(a)

From State Govt.

(b)

From financial institutions bonds and other

(c)

Packing credit

The (IP) JAGDISHPUR manages unsecured loans as:

1)

Public deposits

2)

Short term loans and advances:

i) From banks
(a) Commercial papers
ii) From others
(a) From companies
(b) From financial institutions

Page | 37

SPONTANEOUS FINANCING:
Spontaneous financing refers to the automatic sources of short term funds arising in the
normal course of a business. Trade Credit and outstanding expenses are examples of
spontaneous financing. A firm is expected to utilize these sources of finances to the
fullest extent. The real choice of financing current assets, once the spontaneous sources of
financing have been fully utilized, is between the long term and short term sources of
finances.

What should be the mix of short and long term sources in financing current assets?
Depending on the mix of short and long term financing, the approach followed by a
company may be referred to as:
1.

Matching approach

2.

Conservative approach

3.

Aggressive approach

Matching approach
The firm can adopt a financial plan which matches the expected life of assets with
the expected life of the source of funds raised to finance assets. Thus, a ten year loan may
be raised to finance a plant with an expected life of ten year; stock of goods to be sold in
thirty days may be financed with a thirty day commercial paper or a bank loan. The
justification for the exact matching is that, since the purpose of financing is to pay for
assets, the source of financing and the asset should be relinquished simultaneously. Using
long term financing for short term assets is expensive as funds will not be utilized for the
full period. Similarly, financing long term assets with short term financing is costly as
well as inconvenient as arrangement for the new short term financing will have to be
made on a continuing basis. When the firm follows matching approach (also known as
hedging approach) long term financing will be used to finance fixed assets and permanent
current assets and short term financing to finance temporary or variable current assets.
However, it should be realized that exact matching is not possible because of the
uncertainty about the expected lives of assets. The firm fixed assets and permanent
current assets are financed with long term funds and as the level of these assets in
increases, the long term financing level also increases. The temporary or variable current
Page | 38

assets are financed with short term funds and as their level increases, the level of short
term financing also increases. Under matching plan, no short term financing will be used
if the firm has a fixed current assets need only.

Conservative approach
A firm in practice may adopt a conservative approach in financing its current and
fixed assets. The financing policy of the firm is said to be conservative when it depends
more on long term funds for financing needs. Under a conservative plan, the firm
finances its permanent assets and also a part of temporary current assets with long term
financing. In the period when the firm has no need for temporary current assets, the idle
long term funds can be invested in the tradable securities to conserve liquidity. The
conservative plan relies heavily on long term financing and, therefore, the firm has less
risk of facing the problem of shortage of funds. The conservative financing policy is
shown below. Note that when the firm has no temporary current assets, the long term
funds released can be invested in marketable securities to build up the liquidity position
of the firm.

Aggressive Approach
A firm may be aggressive in financing its assets. An aggressive policy is said to be
followed by the firm when it uses more short term financing than warranted by the
matching plan. Under an aggressive policy, the firm finances a part of its permanent
current with short term financing. Some extremely aggressive firms may even finance a
part of their fixed assets with short term financing makes the firm more risky. The
aggressive financing is illustrated in fig below.

Short term v/s long term financing: A Risk Return Trade off
A firm should decide whether or not it should use short term financing. If short term
financing has to be used, the firm must determine its position in total financing. This
decision of the firm will be guided by the risk return trade off. Short term financing may
be preferred over long term financing. For two reasons:
1. The cost advantage

Page | 39

2. Flexibility: But short term financing is more risky than long term financing Cost; term
financing should generally be less costly than long term financing. It has been found in
developed countries like USA, the rate of interest is related the maturity of debt. The
relationship between the maturity of debt and its cost is called the term structure of
interest rates. The curve, relating to maturity of debt and interest rates, is called the yield
curve. The yield curve may assume any shape, but it is generally upward sloping. Fig
below shows the yield curve. The fig indicates that more the maturity greater the interest
rate. The justification for the higher cost of long term financing can be found in the
liquidity preference theory. This theory says that since lenders are risk averse, and risk
generally increases with the length of lending time (because it is more difficult to forecast
the more distant future), most lenders would prefer to make short term loans. The only
way to induce these lenders to lend for longer period is to offer them higher rates of
interest. The cost of financing has an impact on the firm's return. Both short and long
term financing have a leveraging effect on shareholders' return. But the term financing
out to cost less than the long term financing; therefore, it gives relatively higher return to
shareholders. It is noticeable that in India short term loans cost more than the long term
loans. Banks are the major suppliers of the working capital finance in India. Their rates of
interest on working capital finance are quite high. The main source of long term loans are
financial institutions which till recently were not charging interest at differential rates the
prime rate of interest rate charged by financial institutions is lower than the rate charged
by banks.

Flexibility: It is relatively easy to refund short term funds when the need for funds
diminishes. Long term funds such as debenture loan or preference capital cannot be
refunded before time. Thus, if a firm anticipates that its requirement for funds will
diminish in near future, it would choose short term funds.

Risk: Although short term financing may involve less cost, it is more risky than long
term financing. If the firm uses short term financing to finance its current assets, it runs
the risk of renewing borrowing again and again. This is particularly so in the case of
permanent assets. As discussed earlier, permanent current assets refer to the minimum
level of current assets which a firm should always maintain. If the firm finances it
permanent current assets with short term debt, it will have to raise new short term funds
as debt matures. This continued financing exposes the firm to certain risks. It may be
difficult for the firm to borrow during stringent credit periods. At time, the firm may be
unable to raise any funds and consequently, it operating activities may be disrupted. In
Page | 40

order to avoid failure, the firm may have to borrow at most inconvenient terms. These
problems are much less when the firm finances with long term funds. There is less risk of
failure when the long term financing is used. Risk returned trade-off: Thus, there is
conflict between long term and short term financing. Short term financing is less
expensive than long term financing, but, at the sometime, short term financing involves
greater risk than long term financing. The choice between long term and short term
financing involves a tradeoff between risk and return.
1. HANDLING RECEIVABLES (DEBTORS)
2. MANAGING PAYABLES (CREDITORS)
3. INVENTORY MANAGEMENT
4. KEY WORKING CAPITAL RATIOS

HANDLING RECEIVABLES (DEBTORS)

Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know who owes them money........... How much is
owed....... how long it is owing ......... for what it is owed.
Late payments erode profits and can lead to bad debts.
Slow payment has a crippling effect on business; in particular on small businesses; in
particular on small businesses who can least afford it. If you don't manage debtors, they
will begin to manage your business. As you will gradually lose control due to reduced
cash flow and, of course, you could experience an increased incidence of bad debt.
It is very difficult for the organization to sell always on cash basis in today's competitive
market. In almost every business, we have to sell on credit basis. The basic objective of
management of sundry debtors is to optimize the return on investment on this asset. It is
obvious that if there are large amounts tied up in sundry debtors, working capital
requirement would be high and consequently interest charges will be high. In such cases,
the bad debts and cost of collection of debts would be high. On the other hand if the
credit policy is very tight, investment in sundry debtors is low but the sale may be
restricted, since the competitors may offer more liberal credit term. We have limited
resources and therefore every resource has its own opportunity cost. Therefore the
management of sundry debtors is an important issue and required proper policies and
efficient execution of such policies. Debtors and cost of debtors have direct relation; cost
Page | 41

will increase due to increase in debtors and vice-versa. It depends on the credit sale of
concern and credit period (collection period) allowed to customer. It is interest of
customer to pay as late as possible and company, who made sales, would like to collect
their debtor as early as possible. There is a conflict between the two aspects. Debtor
management is the process of finding the balance at which company agrees to receive its
payment without hampering or having any adverse effect on its sales and customer agrees
to receive its payment without hampering or having any adverse effect on its sales and
customer agree to pay at their economical buying concept.
Sundry debtor level depends on two measure issues:

Volume of Credit sales

Credit period allowed to customers.

Following factors may be considered before allowing credit period to the customer:
1. Nature of product
2. Credit worthiness of the customer, which varies from customer to customer
3. Quantum of advance received from customers
4. Credit policy of company, say number of days allowed to customer for payment to
the customers.
5. Cost of debtors
6. Manufacturing cycle time of the product etc.

Credit policy:
The term credit policy is used to refer to the combination of three decision variables:
Credit standard are criteria to decide the types of customers to whom goods could be sold
on credit. If a firm has more slow paying customers, its investment in accounts receivable
will
increase. The firm will also be exposed to higher risk of default. Credit terms
specify duration of credit and terms of payment by customers. Investment in accounts
receivable will be high if customers are allowed extended time period for making
payments. Collection efforts determine the actual collection period. The lower the
collection period, the lower the investment in accounts receivable and vice-versa.
Page | 42

Credit Policy Variables:

These are:
1.

Credit standers and analysis

2.

Credit terms

3.

Collection policy and procedures

The financial manager or the credit manager may administer the credit policy of a
firm. Credit policy has important implications for the firm's production, marketing and
finance functions. The impact of changes in the major decision variables of credit policy
are:

Credit standards
These are the criteria which a firm follows in selecting customers for the purpose of
credit extensions. The firm may have tight credit standards; that is, it may sell mostly on
cash basis and may extend credit only to the most reliable and financially strong
customers. Such standards will result in no bad debt losses and less cost of credit
administration. But the firm may not be able to expand sales. The profit sacrificed on lost
sales may be more than the costs saved by the firm. On the contrary, if credit standards
are loose, the firm may have larger sales. But the firm will have to carry larger sales. But
the firm will have to carry large receivables. The cost of administrating credit and bad
debt losses will also increase. Thus, the choice of optimum credit standards involves a
trade-off between incremental return and incremental costs.
Credit standards influence the quality of the firm's customers. There are two aspects of
the quality of customers;
(I) The time taken by customers to repay credit obligation and (ii) The default rate. The
average collection period determines the speed of payment by customers. It measures the
number of days for which credit sales remain outstanding. The longer the average
collection period, the higher the firm's investment in accounts receivables. Default rate
can be measured in terms of bad debt losses ratio-the proportion of uncontrolled
receivable. Bad debt losses ratio indicates default risk. Default risk is the likelihood that a
customer will fail to repay the credit obligation. On the basis of past practice and
experience; the finance manager should be able to form a reasonable judgment regarding
the chance of default. To estimate the probability of default, the financial or credit
Page | 43

manager should consider: Character refers to the customer's willingness to pay, the
financial or credit manager should judge whether the customers will make honest efforts
to honor their credit obligations. The moral factor is of considerable importance in credit
evaluation in practice. Capacity refers to the customer's ability to pay. Ability to pay can
be judge by assessing the customer's capital and assets which he may offer as security.
Capacity is evaluated by the financial position of the firm as indicated by analysis of
ratios and trends in firm's cash and working capital position. The financial or credit
manager should determine the real worth of assets offered as security. Condition refers to
the prevailing economic and other conditions which may affect the customer's ability to
pay. Adverse economic conditions can affect the ability or willingness of a customer to
pay. The firm may categorize its customers at least in the following three categories 1.
Good accounts; financially strong customers 2. Bad accounts ; financially very weak,
high risk customers. 3. Marginal accounts; customers with moderate financial health and
risk.

Credit terms:
The stipulations under which the firm sells on credit to customers are called credit terms.
These stipulations include (A) credit period (B) Cash discount. Credit period: the length
of time for which credit is extended to customers is called the credit period. It is generally
stated in term of a net date. A firm's credit period may be governed by the industry norms.
But depending on its objectives the firms can lengthen the credit period. On the other
hand, the firm may tighten its credit period if customers are defaulting too frequently and
bad debts losses are building up.

Collection policy and procedures

A collection policy is needed because all customers do not pay the firm's bill in time.
Some customers are slow payers while some are non-payers. The collection efforts
should, therefore, aim at accelerating collections from slow payers and reducing bad-debt
losses. A collection policy should ensure prompt and regular collection. Prompt collection
is needed for fast turnover of working capital, keeping collection costs and bad debts
within limits and maintaining collection efficiency. The collection policy should lay down
clear cut collection procedures. The collection procedures for past dues or delinquent
accounts should also be established in unambiguous terms. The slow paying customers
should be handled very tactfully. Some of them may not be permanent customers. The
Page | 44

firm should decide about offering cash discount for prompt payments. Cash discount is a
cost to the firm for ensuring faster recovery of cash. Some customers fail to pa within the
specified discount period, yet they may make payment after deducting the amount of cash
discount. Such cases must be promptly identified and necessary action should be initiated
against them to recover the full amount.

Page | 45

CHAPTER 3

PRESENTATION OF DATA
AND ANALYSIS

Page | 46

RESEARCH METHODOLOGY
Methodology is said to be the procedure or way in which the project work has been done.
In the project work, the methodology adopted is data collection, interpretation and
analysis and open ended survey through interviews and questionnaire.
SOURCE OF DATA:
The data for the study has been collected from various primary sources and some
secondary sources.

PRIMARY DATA:
It refers to the statistical material which the investigator originates for himself for the
purpose of the enquiry in hand. In other words, it is one which is collected by the
investigator for the first time e.g. if the cost of living of workers in a city are to be
computed, then the information regarding the facts collected by the investigators or
enumerators would be termed as Primary data. In India there are various agencies which
collect primary data e.g. National Sample Survey (NSS), State Level Economic and
Statistical Departments etc. When we use primary data, it is called raw material.
According to Wessel, "Data originally collected in the process of investigation are known
as primary data."
The use of primary sources is limited to interviews with some of the employees in the
finance department. The reason being, it is against the companys policies and procedures
to reveal the sensitive financial information.

ADVANTAGES

Degree of accuracy is quite high.

It does not require extra caution.

It depicts the data in great detail.

Primary source of data collection frequently includes definitions of various terms

and units used.

For some investigations, secondary data are not available.

Page | 47

SECONDARY SOURCES OF DATASecondary sources of data include annual reports of BHEL. Statement of changes in
working capital for the past five years is done using the data taken from these financial
reports. Similarly time series analysis of operating cycle and calculations of ratios is
done. Apart from this, the website of BHEL is referred to know the products, product
facilities, network etc.
It also contains charts & diagrams from the financial reports and annual reports which are
analyzed thoroughly in this report. Industry analysis is done based on the information
gathered from newspapers, websites of Indian Steel ministry and other sector related
websites.

QUESTIONNAIRE:
In questionnaires certain questions are asked frequently to an individual or a group of
individuals and analysis is done based upon their answers and the results are taken out.
And in this context the following questions were asked to the finance officer in the
industry which are as follows:
1. The turnover of the company plays a major role in the growth of the company.
True or False?
2. The market price of the shares of the company is favorable in consideration with
its net worth. True or False?
3. Earning per share has contributed in the improved profitability of the company.
True or False?
4.

The debtors turnover ratio has made a greater impact upon the debt recovering
capacity of the company from the debtors. True or False?

5. The dividend paid to shareholders in the company has been following a varying
pattern. True or False?
6. The net profit of the company has not added any value to it in the current year.
True or False?

Page | 48

The turnover of the company plays a major role in the growth of the company. True
or False?
TURNOVER

As we can see clearly in the diagram BHEL turnover increases from year to year in 200405 it was 10000 & in 2005-06 its 15000 & in 2007-08 its increased 21401 after that in
year 2009-10 it increases to 34154 that turnover just because adoption of new technology
and in year 2011-12 it increases to 49510.
All efforts have been made to maintain inventory at a lower level. Inventory as number of
days of turnover is 86 days in 2012-13 as against 100 days in 2011-12.
During 2012-13, BHEL recorded its highest ever turnover of ` 50156 Crore. Power
segment and Industry segment contributed 79% and 21% respectively for the total
revenue of the company.

Page | 49

The market price of the shares of the company is favorable in consideration with its
net worth. True or False?
NET WORTH PER SHARE

Net worth per share in year 2007-08 it was 44.02 after that in year 2009-10 it increased to
82.34 and after at the year 2011-12 it was increased to 103.67 and then it increased to
124.38 in 2013. This ratio is helpful in the determination of the market price of the equity
shares of the company. The ratio is also helpful in estimating the capacity of the company
to declare dividends on equity shares.

Page | 50

Earning per share has contributed in the improved profitability of the company.
True or False?
EARNING PER SHARE

Earnings per share was 11.68 in year 2007-08 and it was increased to 12.82 in year 2008
and after that it was increased to 28.76 in year 2011-12 and gone down to 27.03 in 201213. The overall profitability of a company can also be judged by calculating earning per
share which is calculated with the help of the following formula:
Net Profit (after interest, tax and dividend on Preference Shares)
Number of equity shares

In this context, earning per share refers to profit available to equity shareholders and as
the profit decreased the earning per share available to shareholders shall also be
decreased.

Page | 51

The debtors turnover ratio has made a greater impact upon the debt recovering
capacity of the company from the debtors. True or False?
DEBTORS TURNOVER RATIO
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

DTR

2005-06 2006-07 2007-08 2008-09 2009-10

DTR was 1.8 in 2005-06 and then it decreased to 1.7 in 2006-07 and after that it was
controlled in year 2007-08 i.e.; 1.5 and year 2009-10 it was 1.6. The formula for
calculation of Debtors Turnover ratio is as follows:
Net Credit Sales
Average Debtors + Average B/R
This ratio shows the relationship between credit sales and average debtors during the
year, and provision for doubtful debts are not deducted from total debtors so that it may
not
give
a
false
impression
that
debtors
are
collected
quickly.
DEBT COLLECTION PERIOD

Page | 52

250
200
150
DCP

100
50
0

2005-06 2006-07 2007-08 2008-09 2009-10

Debt collection period was 150 in 2005-06 but increased to 200 in 2009-10. The debt
collection period can be taken out by following formula:
Days in a year
Debtors Turnover Ratio
By using the above formula Debtors turnover ratio can also be converted into number of
days within which the cash is collected from debtors and bills receivables. Increase in this
ratio indicates excessive blockage of funds with debtors which increases the chance of
bad debts.

The dividend paid to shareholders in the company has been following a varying
pattern. True or False?
DIVIDEND PAYOUT RATIO

Page | 53

As we can see from the above chart that the dividend payout ratio has immensely
decreased from the year 2008-09 from 31.0 to 23.3 in year 2012-13 which clearly shows
that the dividend paying pattern of the company to the shareholders has followed a
varying pattern in the past years. Profits remaining after payment of tax and preference
dividend are available to equity shareholders which we get in following way:
Dividend Per Share =

Dividend Paid to equity shareholders

Number of equity shares

BHEL % CHANGE IN OPERATIONAL AREAS

Page | 54

BHEL PERFORMANCE HIGHLIGHTS:

The net profit of the company has not added any value to it in the current year. True
or False?
Page | 55

NET PROFIT RATIO

The net profit of the company has been rising consistently from 2008 to 2012 but in 2013
the net profit has decreased from 7040 to 6615 which is a serious concern for the
company. The net profit ratio shows the relationship between net profit and sales. It can
be calculated by two methods which are:
(a) Net Profit Ratio: Net Profit

*100

Net Sales

OVERALL FINANCIAL PERFORMANCE

Page | 56

Gross Block increased by 1076 Crore and Capital Work in progress including Intangible
Assets under development decreased by 175 Crore during the year. The net increase is
due to capital expenditure incurred on augmentation of manufacturing capacity and
modernization of the facilities in manufacturing units and at power project sites.
The company has paid an interim dividend of 106% (2.12 per share), 518.89 Crore, on
share capital of 489.52 Crore during the year 2012-13. The Board has also recommended
a Final dividend of 164.5% (3.29 per share) i.e. 804.11 Crore. The total dividend
(exclusive of dividend tax) for the year 2012-13 is 1323 Crore (5.41 per share) as against
1566.47Crore (6.40 per share) in the previous year. Provision of 136.66 Crore has been
made for corporate dividend tax on the final dividend proposed. Corporate dividend tax
of 84.18 Crore has already been paid on the interim dividend.

Page | 57

CHAPTER 4

FINDINGS ,CONCLUSION &

SUGGESTIONS

FINDINGS:
Ratio analysis serves as one of the most important tools and technique to measure the
profitability and liquidity for a firm or company. It measures the efficiency of our capital
Page | 58

whether of owner or borrowed that how effectively it can be used without incurring any
extra expense. It also helps in maintaining the debt repayment capacity of an organization
by providing them efficient asset management techniques through ratio analysis. Also, it
helps to improve a companys performance through intra-firm comparison because ratio
analysis is the most widely used and reliable source of financial result analysis.
Now, the findings of this study can be expressed as follows:
Debtors Turnover Ratio
Debtors turnover ratio was 1.8 in 2005-06 and then it decreased to 1.7 in 2006-07 and
after that it was controlled in year 2007-08 i.e.; 1.5 and year 2009-10 it was 1.6 which
shows a continuous decrease in the DTR. And as we know that higher the debtor turnover
ratio the better it is and in BHELs case it is declining continuously in the past years
which shows that the speed of recovery from the debtors has been going down
continuously.
Earnings per Share
Earnings per share was 11.68 in year 2007-08 and it was increased to 12.82 in year 2008
and after that it was increased to 28.76 in year 2011-12 and gone down to 27.03 in 201213. As a result based on the above data upto 2012 the company has been gaining a greater
rate of EPS and its overall profitability was also increasing but in 2013 we saw a decrease
in the EPS which shows that the firm should see upon its operating pattern and try to
enhance its value of shares.

Dividend Payout Ratio

Based on the data presented in the BHELs annual report we can see from the above chart
that the dividend payout ratio has immensely decreased from the year 2008-09 from 31.0
to 23.3 in year 2012-13 which clearly shows that the dividend paying pattern of the
company to the shareholders has followed a varying pattern in the past years. Although it
is not clear that how much of the profits are distributed among the shareholders as
dividends and how much is retained in the business. But it is advisable that the company
should follow an ideal pattern so as to maintain confidence among its shareholders.
Net Worth
Net worth per share in year 2007-08 it was 44.02 after that in year 2009-10 it increased to
82.34 and after at the year 2011-12 it was increased to 103.67. As per the data we see a
Page | 59

20 points change in the net worth of BHEL from 2012-13 which is a good sign and will
also increase the earning per share of the company and enhance its goodwill in the market
and from other competitors.

Net Profit Ratio

In the net profits of the company we see a decline of 8.4 points in profits before tax and 6
points in profits after tax. So, these are a few areas where the organization should look
upon and should see that they should not leave a bad impression in the market otherwise
other competitors present in the market would take benefits of these loopholes to rise and
to dominate them.

Turnover
As we can see clearly that BHELs turnover increases from year to year in 2004-05 it was
10000 & in 2005-06 its 15000 & in 2007-08 its increased 21401 after that in year 200910 it increases to 34154 that turnover just because adoption of new technology and in
year 2011-12 it increases to 49510 and in 2013 it rose upto 50156 points. Although there
is increase in the turnover but it very small comprises only 1.3% which is not a very
satisfying.

Current Ratio
The current ratio is used to assess the firms ability to meet its short-term liabilities on
time. And as per the data the current ratio of BHEL is said to have been 1.47 which is a
not satisfactory position for the firm because as per the research we know that the ideal
current ratio is 2:1. It means that the current assets of a business should, at least, be twice
of its current liabilities. The higher the ratio, the better it is, because the firm will be able
to pay its current liabilities more easily.

SUMMARY & SUGGESTIONS

Page | 60

This study gives in detail the analysis of various financial ratios based upon the past as
well as the present performance of Bharat Heavy Electricals Limited (BHEL) expressed
in financial data. Based upon the results from these financial ratios conclusions are driven
out that whether the company has been earning profits or not and also that how much it
has used these results in its growth. So, the company can also manage each of its current
assets namely inventory management, cash management, accounts receivable
management and also its liabilities like creditors, loans, bills payables etc. so that it can
maintain an identical financial ratio for each of its business aspects like solvency ratios,
turnover ratios, profitability ratios etc. The research methodology adopted for this study
is mainly from secondary sources of data which includes annual reports of BHEL, and
website of the company. The use of primary sources is limited to interviews with few
employees in the finance department and also from the working process adopted in the
company as interviewed from employees. The study of financial ratio analysis has shown
that BHEL has a strong base in meeting the identical financial ratios as well as has
increased its profits from the past years. The company is enjoying reasonable profits.
BHEL employs forex funds instead of domestic loans and WC facilities. BHEL sales
position is also very good. Its excellent performance is attributed to reduced cost of
product and ultimately contributing to a good financial as well as a profitable position in
the market.
The operational areas of BHEL and its performance has been quite satisfactory only in
some of the aspects it failed to achieve the ideal targets, so it needs to look upon these
areas and adopt certain measures which can be cost reduction, efficient asset
management, better inventory control, working capital management, managing
workforce, adopting suitable policies and there are other various sources also which can
be taken into consideration in order to enhance productivity as well as to increase the
profits of the firm by applying labour-intensive techniques or capital-intensive techniques
which fits the organization best. Also we know that, a single ratio in itself cannot be said
to be good or bad, in order to comment on the quality of a ratio it has to be compared
with some standard or benchmark.
These benchmark can be:
1. Past Ratio: A ratio could be compared or benchmarked with past years ratio. It is
popularly known as time-series analysis.

Page | 61

2. Ratio of similar firms or industry average: A ratio could be compared with the
ratios of similar firms in the same industry or by industry average in the same
point of time.
3. Rule of thumb: Certain rule of thumb based upon well proven conventions
have evolved over a period of time which can serve this purpose well.

LIMITATIONS OF THE STUDY

Although every effort has been made to study the Ratio Analysis in detail in an
organization of BHEL size, it is not possible to make an exhaustive study in a limited
duration of three weeks.
It is not possible to include an exact data of 2012-2013, but raw data has been provided in
the report because the audited financial report has not come yet (at the time of
preparation of this report). However the data of 2012-2013 is included partially from the
unaudited financial reports of BHEL.
Apart from the above constraint, one serious limitation of the study is that it is not
possible to reveal some of the financial data owing to the policies and procedures laid
down by BHEL.
However the available data is analyzed with great effort to get an insight into Financial
Ratio Analysis in BHEL.

Page | 62

CONCLUSION

Let us summarize our discussion on the structure and financing of current assets. The
relative liquidity of the firm's assets structure is measured by current to fixed assets or
current asset to total asset ratio. The greater this ratio, the less risky as well as the less
profitable will be the firm and vice versa. Similarly, the relative liquidity of the firm's
financial structure can be measured by short-term financing to total financing ratio. The
lower this ratio the less risky as well as profitable will be the firm and vice versa. In
shaping its working capital policy, the firm should keep in mind these two dimensions:
relative asset liquidity (level of current assets) and relative financing liquidity (level of
short term financing of the working capital management. A firm will be following a very
conservative working capital policy if it combines a high level of current assets with a
high level of long term financing (or low level of short term financing). Such a policy
will not be risky at all but would be less profitable. An aggressive firm on the other hand
would combine low level of current assets with a low level of long term financing (or
high level of short term financing).
This firm will have high profitability and high risk. In fact, the firm the firm may follow a
conservative financing policy to counter its relatively liquid asset structure in practice.
The conclusion of all this is that the considerations of assets and financing mix are crucial
to the working capital management which is a major constraint in the working out of the
financial ratio analysis.

Page | 63

BIBLIOGRAPHY
Reference:
Financial management

I.M. Pandey

Financial Management

R.K. Sharma & S.K. Gupta

Analysis of financial Statements

D.K. Goel, Rajesh Goel, Shelly Goel

Reports:
Annual Reports of BHEL
General Articles of BHEL
Audited financial reports of BHEL

Website:
www.bhel.com
www.profit.ndtv.com
www.moneycontrol.com

Newspapers:
Economic Times of India, The Hindu.

Page | 64