SUMMER TRAINING REPORT

STUDY OF CAPEX BUGETING AT JCB LIMITED,

Submitted in the partial fulfillment of the requirement

of degree in
Bachelor of Business Administration of Maharshi
Dayanand
University, Rohtak
SESSION (2010-11)

Under the guidance of:

Submitted by:

Ms. Kannu
GAJENDER

Lecturer- B.B.A Roll

number:-51220

University Roll no.:-

 (D.A.V. CENTENARY COLLEGE FARIDABAD)
Affiliated to Maharshi Dayanand University,
Rohtak

PREFACE

• A well-planned, properly executed and evaluated industrial training helps a lot in

inculcating good work culture. It provides the linkage between the student and
industry in order to develop the awareness of industrial approach to problem
solving based on broad understanding of the plant, machinery process and mode
of operation or industrial organization.

• My project has enabled me to have broader knowledge about this system and
what are the methods and techniques adopted for CAPEX BUDGETING . This
training also provided an opportunity to gain practical knowledge And
experience how to motivate employees in an organisation

• Through this report, I have tried to summarized all my observation experience

and knowledge acquired in this report.

GAJENDER
 ACKNOWLEDGEMENT

“If the words are considered as the science of gratitude, then let these words convey the
same”

Firstly, I would like to express my profound gratitude to Mrs. Neelam Dhaka, Senior
Manager HR, for giving me the opportunity to work as an intern at JCB India. Also I
would like to thank Mr. Pradeep Kathuria, GM Finance, for accepting my request and
letting me do my training in the Finance Department of JCB.

I express my deepest gratitude to Mr. Jagjeet Singh, Senior Manager Finance for giving
me an opportunity to work on this project & acting as a torch bearer. His ideas &
suggestions were commendable & acted as foundation for my project.

I thank Mrs. Asha Kansal, Deputy Manager Finance, for all the support she provided
me. I sincerely thank Ms. Anshu Rajpal, MT Finance, for helping me understand the
various processes at the CAPEX division.

And last but not the least, I am really thankful to those ‘Ms.Kannu’, which have guided
me throughout the project and helped me in its completion.
 CONTENTS

 COMPANY PROFILE

 REVIEW OF LITERATURE

 RESEARCH METHODOLOGY

 DATA ANALYSIS

 FINDINGS ANALYSIS

 CONCLUSION
 RECOMMENDATION AND SUGGESTION
 ANNEXURE
COMPANY PROFILE
JCB is one of the ten largest construction equipment manufacturers in the world and
has 17 factories in the UK, Germany, Brazil, North and South America, India and
China. The company employs some 8,000 people on 4 continents, has a range of more
than 250 products and has operations in 150 countries.
NEW PROJECT MODEL - LIFTALL
At JCB a new project specially one involving massive capital investment is treated like a
separate project. It is a detailed plan which takes one from the conceptualization of the
project through all the phases which converts this plan to paper and then from paper to
shop floors. It has around 4 phases which have been briefly described below:

Different Stages:

PHASE 1
This is the first step to initiate the proceeding of any new project. It kicks starts by
submission of a formal document containing the following 5 important points:
a) Project Title: An appropriate title is given to the new project.
b) Outline of the Project: A brief sketch of the project is laid down on
paper
c) Need for new project: A justification for the new project is also
given.
d) Foreseen benefits: The future benefits to the company obtained
from the suggested project are also written down.

It is followed by an executive meeting after which the following are documented:

a) The key product deliverables are planned
b) A thorough distribution strategy is prepared.
c) The quality standards are finalized and further improvement targets
are set
d) The finance model and sales and marketing model are prepared
 e) The resources for the next phase are finalized.

For reviewing the progress of Phase 1 an interim meeting is held in which the following
are evaluated:
a) Sales and Marketing brief
b) Customer Machine Evaluation Strategy
c) Serviceability objectives
d) Product benchmarking
e) Manufacturing plans
f) Engineering brief

PHASE 2
In this phase the business plan gets approved. For that an exhaustive document of 13
pages is prepared containing various details regarding the project. Some of them are
listed below:
a) Updated manufacturing plan
b) Tooling requirement plan
 c) Pre-production and shakedown plans
d) Project team approval
e) Finalized engineering bill of materials
f) Manufacturing and assembly feasibility
g) List of approved suppliers
h) Patents and trademark
Apart from the above there are various other steps too. A risk assessment is done.
Various opportunities and threats are analyzed.

PHASE 3
This phase is preceded by a progress review. The steps are given below:
a) Production intent design detail review
b) Supplier quality plan developed
c) Production packaging
d) Production tooling costs agreed
e) Appraisal of service conducted

PHASE 4
This is the last phase before the project goes to the shop floor. Hence in this phase we see
all the finalization of every aspect of a business plan taking place:
a) Sign – off of marketing, finance and attachments.
b) Sign off of manufacturing and assembly.
c) Pre-production review and statement of manufacturing readiness.

VISION-
“Brand of first choice, providing complete solutions for customers construction equipment
needs, through innovative products and services.”

MISSION-
"Our mission is to grow our company by providing innovative, strong and high
performance products and solutions to meet our global customers' needs."
• Our business is to Design, Develop, Manufacture, market and Support the
Construction & Earthmoving Equipment. Our aim is to exceed customer
expectation through innovation, continues quality improvement and people
involvement ensuring health, safety of employee and environment protection.
• We shall grow profitably along with our stakeholders and achieve market
leadership in the core segment of our business.
• We will support our world-class products by providing superior customer care.
Our care extends to the environment and the community.
• We want to help build a better future for our children, where hard work and
dedication are given its just reward.

BUSINESS STRATEGY-
“Our strategy is to deliver the best customer support in our industry - putting the customer
at the very heart of our business.”

CORE VALUES-

1. SUSTAINIBILITY-
As a responsible company, JCB has the greatest respect for the environment and its
employees
 2. CUSTOMER SATISFACTION-

JCB India believes in extraordinary customer satisfaction, as they are the principal
force guiding all JCB initiatives and endeavors. It designs and develops the products on
the basis of needs and requirements of the customers as well as on the growing
infrastructure needs of the country.

3. INNOVATION AND CREATIVITY-

At JCB, we are constantly looking at new, innovative ways to help our customers get the
most out of the machine.
 4. QUALITY-
All machines are high quality products, at par with the world's best and deliver their
optimum performance.

INTRODUCTION

Mr. J.C.Bamford Sir Anthony Bamford

In October 1945, Joseph Cyril Bamford (Mr. JCB) launched the construction and
agricultural equipment manufacturing company that bears his initials. The firm is
headquartered in Rocester, Staffordshire. JCB is a true family owned and operated
business. Today, the company is run by Joseph’s son, Anthony Bamford.

J.C.Bamford Excavators Limited is ranked as the world’s third largest manufacturer of

earthmoving and construction equipment and is considered one of Britain’s a most
impressive success stories. JCB is also the world number one producer for backhoe
loaders. It produces over 300 different models, which are sold in over 150 countries

JCB India Limited, India’s largest manufacturer of Earthmoving and Construction

equipment is a fully owned subsidiary of J.C. Bamford Excavators Limited (U.K).

JCB started its operations in India in 1979. In 1991, the firm entered a joint venture
with Sumitomo of Japan to produce excavators. The venture ended in 1998. In 2003
JCB, UK acquired 100% shares in the joint venture and today JCB is the fastest
growing company in the Indian earthmoving and construction equipment industry. The
company is a pioneer in the industry and has been recording excellent growth rates.
Today in India, JCB has a park of over 80,000 machines and out of every two
Construction equipments sold in India, one is a JCB.
THE STORY BEHIND JCB - ACHIEVEMENTS

The industry name for a ‘digger’ is a backhoe loader, first introduced by JCB in 1953.
Since then it has become the brand leader virtually the world over and its yellow
machines are a familiar part of the landscape and language. The JCB name even
appears in the Oxford English Dictionary.

The backhoe loader is part of a rich heritage of innovation. Another major achievement
was the introduction of the Loadall machine in 1978. This revolutionised aspects of the
building industry, allowing bricks to be lifted in pallets instead of being carried in a hod
by a labourer. JCB also developed the first and still the only high-speed tractor, the
Fastrac. Designed to combine all the benefits of a normal tractor with road versatility,
the Fastrac has won numerous awards, including the Prince of Wales Award for
Innovation. Another design classic is the Teletruk – the only material handling machine
not to use cumbersome double masts at the front. Instead, it employs a single lifting arm
which gives the driver greater flexibility.

JCB has won many other awards over the years for innovation, excellence, exporting
and design. Among them there are fifteen Queen’s Awards for Technology and Export
Achievement.

JCB recently brought all its advertising and creative design in-house; copywriting,
illustration, photography, web and graphic design are now under one roof – JCB
DesignWorks. JCB DesignWorks has won many accolades for in-house design and has
recently designed work for all the brand extension side of JCB – clothing, food, power
tools and leisureproducts.
 ACHIEVEMENTS

JCB backhoe loader wins the Greates

Ever Digger title 15/09/05 . The world famous JCB backhoe loader has won a
television “David and Goliath” contest to be voted the world's greatest ever digger.

The machine, pioneered by the company's founder Joseph Cyril Bamford more than 50
years ago, was judged to be the number one digger by a panel of experts on THE
GREATEST EVER, a television series produced by Cineflix and IWC Media in
association with Discovery Channel Canada, Discovery Networks Europe and Five.

The GREATEST EVER is a “top ten” celebration of human achievements. It's a fast-
paced, informative and irreverent look at the marvels of modern technology. During the
episode on the GREATEST EVER Diggers, the overall performance of the JCB backhoe
was compared to nine others in order to compile a league table of the ten excavators
considered to be the best in history.

The small but versatile JCB workhorse, which has achieved sales of more than 325,000
across five continents, beat off stiff competition from the larger machines of leading
competitors to be placed at Number One as the greatest of them all.

Plant operators and other industry professionals in the UK and North America singled
out the JCB backhoe range for particular praise during the programme.

JCB has established a reputation for continuing innovation that has kept its backhoe
ahead of the rest. The latest groundbreaking development was announced this year
when JCB became the first company in the world to offer a lock-up torque converter on
its backhoe loaders.

This revolutionary development engages the machine in top gear to eliminate losses in
torque. The subsequent increase in performance means reduced travel times and
improved fuel consumption that results in substantial cost saving benefits.
During the “Greatest Ever” Mining Consultant Bristoll Voss said: “One out of four
backhoes is a JCB. If you look in the Oxford English Dictionary the definition of a
hydraulic digger is JCB.”

American digger expert Eric Orlman said: “It's not necessarily the biggest and the most
powerful that comes out on top. Sometimes it is the smallest and the most versatile tool
that comes in at number one. That's why in the top ten of the world's greatest
earthmovers the JCB comes in at number one”

In one sequence, man is pitted against machine when a team of 15 burly rugby players
from Burton RUFC use the World's Strongest Shovels from JCB to try to dig a trench
3ft wide, 3 ft deep and 25ft long faster than a JCB backhoe loader. The muscle power of
the rugby team was no match for the hydraulic power of the JCB which won
comfortably in just 14 minutes 56 seconds!

A JCB spokesman said: “As part of JCB's philosophy to achieve engineering developed
in order to keep them at the forefront of a market that is extremely competitive.

“We are therefore very proud and delighted that the machine which is synonymous with
the JCB name has been judged by our peers as being the best of its kind in the world.”
 REVIEW
OF

LITERATURE
CAPITAL EXPENDITURE is the Funds used by a company to acquire or upgrade
physical assets such as property, industrial buildings or equipment. This
type of outlay is made by companies to maintain or increase the scope of their operation.
These expenditures can include everything from repairing a roof to building a brand-
new factory.

The amount of capital expenditures a company is likely to have depends on the industry
it occupies. Some of the most capital-intensive industries include oil, telecom and
utilities.

In terms of accounting, an expense is considered to be a capital expenditure when the

asset is a newly purchased capital asset or an investment that improves the useful life of
an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized;
this requires the company to spread the cost of the expenditure over the useful life of the
asset. If, however, the expense is one that maintains the asset at its current condition,

At the time of Budget particular amount is sanctioned to the particular Department

depending upon the predicted growth or expansion of the company in coming financial
year.

The Department needs to allocate its expenses such that their Capital Expenses should
be within the amount assigned / allocated.

The users from the department will generate/ initiate a request and he will get
quotations from various vendors.
Then the user will form Capital Sanction Request and it is mandatory for him to attach
justification (like to increase production, legal binding, maintaining Hygienic conditions)
and get it signed by 6 peoples:

• Head of his department

• Director- Finance
• DGM – Finance
• MD (JCB INDIA LTD.) and
• MD (U.K)

The CSR is send to MD (U.K), when the product is either IT related (More than 500
GBP) or Others (More than 1000 GBP). Here, 1 GBP = Rs =.75)

CAPEX is the fund required by companies to create future benefits. A capital

expenditure is incurred when companies spend money to either buy fixed assets or
upgrade existing fixed assets. CAPEX is used to increase the scope of the business. The
amount of capital expenditure a company has depends on the industry in which it
operates. Certain industries like telecom, oil etc are capital intensive.

The following are included in capital expenditure:

a) Acquiring fixed assets
b) Fixing problems with an asset which existed prior to acquisition if it results in
superior fixtures.
c) Restoring property or adapting it to a new use
d) Preparing asset to be used in business
e) Starting a new business
For accounting purposes CAPEX is commonly found in cash flow statement in the
investing subsection. There is often a dilemma over whether certain expenditures should
be expensed or capitalized. Costs that are expensed appear in the income statement
whereas costs which are capitalized are amortized over multiple years. But for certain
capital expenditure which maintains the asset in its current state the cost is deducted
fully in the year of the expense. Capitalized exiture appears in the balance sheet.

Capital expenditureexpiare subject to much debate amongst economists.

These questions include interesting topics such as global macroeconomic
imbalances, the existence of a saving glut, and excess liquidity. Of course all
these topics are intimately related and my impetus for this entry is a recent
note over at MS The global economy today is surrounded by many vexing
questions which GEF entitled the global capex debate where a number of
MS analysts engage in a discussion on the topic. So in this entry I am going
to address yet another derivative of the global economy, namely that of
global capex (investment and capital accumulation), what it is, where it is
and is there too little, too much, or just about enough of it, and lastly, but
by no means leastly, what drives it?

What is Global Capex

Generally, capex can be thought of as the investment and/or capital

accumulation which accrues as a response to increased capacity needs. As
such, there is both a supply and a demand dimension here since global
capex can be operationalized as the?
Supply side to capacity which then translates itself further downstream into
demand. This conceptualization might seem false since it by-passes the
tradtional definition of AD which in itself includes investment as a by-
product of savings. However, as I move along here I will make it clear why
we need to look at it this way.
But why is global capex important then? To answer this question we need
to include the concept of the global capital to labour ratio (K/L ratio) and
crucially to ask ourselves what has happened to this ratio in the last decade
or so. One of the most notable changes in the global economy over the last
10-20 years has been the massive supply shock to the global economy in
terms of how big emerging economies such as China, India, and Brazil have
come onstream effectively skewing the K/L ratio in favor of the latter.

This supply shock, as it were, has most widely been conceptualized as the so-called
China effect which is normally thought to have had two overall effects on the global
economy. Firstly, this labour supply shock has often been seen as a positive growth
shock to developed economies or perhaps more accurately to their domestic labour and
product markets.

The point, in its most simple form, is that the emergence of cheap labour has enabled
central banks to keep interest rates low without fuelling inflation in many domestic
economies. The underlying point is that the abundance of cheap labour in, for example,
China has lead to the import of deflation in consumer goods. A further consequence of
this is also said to be one of excess global liquidity (a saving glut) as a result of low
interest rates. Secondly, we have the global labour arbitrage argument which is used to
explain why wages or perhaps more specifically labour compensation has been subdued
in developed economies especially in certain sectors. In the US this discussion is for
example packaged as a discourse about inequality and how to explain the seeming
correlation between productivity growth and income inequality.

So what was global capex again? Well, if we follow the definition advanced in the
introduction to the MS' debate we can say as the global K/L ratio has become effectively
skewed towards labour, and that the
global economy is suffering from a shortage of capital investment or more specifically
capex. With this in mind, that the whole concept of 'excess' global liquidity is itself a
result of the low level of investment relative to the volume of capital available.

In itself includes investment as a by-product of savings. However, as I move along here I

will make it clear why we need to look at it this way.

But why is global capex important then? To answer this question we need to include the
concept of the global capital to labour ratio (K/L ratio) and crucially to ask ourselves
what has happened to this ratio in the last decade or so. One of the most notable changes
in the global economy over the last 10-20 years has been the massive supply shock to the
global economy in terms of how big emerging economies such as China, India, and
Brazil have come onstream effectively skewing the K/L ratio in favor of the latter. This
supply shock, as it were, has most widely been conceptualized as the so-called China
effect which is normally thought to have had two overall effects on the global economy.
Firstly, this labour supply shock has often been seen as a positive growth shock to
developed economies or perhaps more accurately to their domestic labour and product
markets.

The point, in its most simple form, is that the emergence of cheap labour has enabled
central banks to keep interest rates low without fuelling inflation in many domestic
economies.

The underlying point is that the abundance of cheap labour in, for example, China has
lead to the import of deflation in consumer goods.

A further consequence of this is also said to be one of excess global liquidity (a saving
glut) as a result of low interest rates. Secondly, we have the global labour arbitrage
argument which is used to explain why wages or perhaps more specifically labour
compensation has been subdued in developed economies especially in certain sectors. In
the US this discussion is for example packaged as a discourse about inequality and how
to explain the seeming correlation between productivity growth and income inequality.
So what was global capex again? Well, if we follow the definition advanced in the
introduction to the MS' debate we can say as the global K/L ratio has become effectively
skewed towards labour, and that the global economy is suffering from a shortage of
capital investment or more specifically capex. With this in mind, that the whole concept
of 'excess' global liquidity is itself a result of the low level of investment relative to the
volume of capital available.
 RESEARCH
METHODOLOGY
OBJECTIVE OF THE STUDY

• To study the capital expenditure process of JCB India Pvt. Ltd.

• To find out the various methods & techniques through which HR can
overcome the challenges of present business scenario.

• To develop a process for post CAPEX appraisal.

• To do analysis and reach at a conclusion.

SOURCES OF DATA COLLECTION
To understand the system better and to make practical suggestion for improvement, it is
imperative to think in an innovative manner and with in the constraints imposed by the
system. To affect this plan and to get deeper in to the system, the following sources were
adopted.

PRIMARY SOURCES

DIRECT OBSERVATION:
Since the procedure for various function are lengthy and
complex, the best way to get aquatinted with the system is direct observation so as to get
a first hand experience of the issues and problem facing the organisation in carrying out
the particular procedure.

The direct observation of various documents at the time of auditing helped

understanding the various aspects of the procedures as also the problems and issues
arising there from. It also helps enhancing the perception about the possible issues that
might arise in future, if the same procedure is being followed.

Similarly the direct observation of the issue procedure has helped to understand the
pressures at the time of auditing and practical constraints in the procedure due to slow
speed. This method helps us to understand the current procedure followed by different
area owners.

INQUIRY:
The inquiry through questioning the staff member or through investigation is another
method to get aquatinted with the system and procedures. While the inquiry from the
experienced staff member may help in bettering the perception process about the
system, procedures and the constraints there in, but this method must be used very
cautiously for it may give a particular mindset and reduce the chances for own
innovative thinking.

RESEARCH DESIGEN

As the project has two distinct divisions, it required two separate treatments. The first
part of the project involved my understanding the workings of the Finance Department,
specifically the CAPEX division. For that I understood the various steps involved in
maintain and monitoring the CAPEX of the company.
Not only that I was also involved with every step of CAPEX monitoring. Through that I
got a thorough idea about the division. I was also exposed to the ERP (SAP) package
used here, and also various functionalities of Microsoft Excel.

The second part of the project involved suggesting a method for doing the post CAPEX
appraisal of the LIFTALL project. For that I researched about the product using
secondary data, and after that came to know more about it through various company
documents. Later I collected the planned, budgeted and actual data related to the
LIFTALL project and calculated and analyzed the variation.

LIMITATIONS

Although I have indulged myself in a through research and aimed to come up with a
comprehensive list of recommendations, the following limitations might have
affected the project

• Since JCB India Ltd. is a closed bound company, they don’t reveal their
profits and sales figures and the company is not listed on stock exchange

Hence, I did not had the privilege to work on a large scale, so my findings
and recommendations may not be as much in tune with the ground realities
as may be considered desirable.
 • Last but not the least, the time constraint faced in the project .

.
 DATA ANALYSIS

CAPEX PROCESS OF JCB

At JCB expenditure on assets broadly falling under the following categories are taken as
capital expenditure:
a) Land and Building
 b) Computers

c) Furniture and fixtures

d) Plant and Machinery

e) Vehicles

Various departments throughout the year initiate a request for expenditure of some
amount of the budget allocated to that department. After all the formalities involved
with sanctioning a capital expenditure request is completed, the next involves
making a Purchase Order and subsequent asset code generation. The flow chart
below shall give an idea of the structure of budget allocation followed at JCB India

BUDGET
PROJECT DEPARTMENT
 CSR CSR CSR CSR

PO PO PO PO PO PO

STEPS IN CAPEX PROCESS

 CAPEX Budget Approval

 CSR(Capital Sanction Request) checking
 CSR posting
 PO(Purchase Order) checking
  Asset Code Generation
 CAPEX Reporting

CAPEX Budget Approval

The financial year of JCB is Jan – Dec. Thus every department at the time of budget has
to submit the amount of CAPEX they would be requiring in the coming financial year.
At JCB the budgeting is done using the zero-based budgeting method.

Thus instead of traditional process of budgeting where a department just increases over
previous year’s budget, here every department has to prepare a detailed budget having
detailed break-up of the expenditure to be incurred. For example a typical capital
expenditure budget of any department would look like:

REFER TO TABLE 1.1

SL.No. Description Of Purpose Date of Cost Center Category

CAPEX Capitalisation
 1 Wi-Fi New Project Plant &
connectivity Machinery

2 Vehicles for Replacement Vehicles

sales Managers
- 30 Nos.

The above budget is of the Marketing Department. Similarly every department submits
its own detailed CAPEX Budget. The justification of the costs needs to be approved by
each division manager. After that the Finance Department sums up all the CAPEX costs
and submits the same for approval to the Head Office. Once the amount is approved the
respective department starts spending the fund on various capital goods.

Capital Sanction Request

For any desired capital expenditure the department has to raise a capital sanction
request. It has to be signed by the heads of various affected departments.

Apart from this page there is a justification sheet containing the reason for purchase of
that asset which is attached with the CSR. It also should have quotations from different
vendors attached.
CSR Checking and Posting

The amount of CAPEX should include the basic price + all taxes + installation costs + all
costs required for transporting the fixed asset to the current location. The fixed asset for
which the CSR is raised can fall in any of the following categories:
a) Land and Building
b) Computers
c) Furniture and fixtures
d) Plant and Machinery
e) Vehicles

Each of the above categories or asset classes has a separate asset code.
Now after the respective department raises the CSR, it is approved by the head of that
department. Once this formality is finished it is send to the finance department for
further approvals. In the finance department an excel document is maintained as a
database for all the CSR which has been raised. For every year there is a separate excel
document. The current excel document has three worksheets, one for CSR raised by the
engine department, second for all the other departments and another sheet containing
the allotted budget for all departments including Engine.
The following values are entered into the excel sheet:
1) DEPARTMENT – A dropdown containing list of all the departments
2) AMOUNT- The CSR amount is entered in INR.

3) STATUS- There can total 6 types of status:

• Approved- After obtaining all the mandatory signatures the

CSR is declared and a photocopy of the CSR is sent to the user
department for further process required for asset purchase.

• Sent to user- This status can denote either a cancellation or a

hold status (the CSR might be sent back due to some doubts).

• Sent to UK- If the CSR amount is greater than 1000 GBP, or in

INR terms Rs. 77,000 (the budget rate is taken: 1 GBP = Rs
1000) then a scanned copy of the CSR is mailed to UK for
further approval after the MD has signed it.

• Cancelled- There can be various reasons leading to cancellation

of a CSR. It might be that the Finance Department doesn’t
approve of the costing for the asset, or UK rejects the CSR. It
also might be that the department which raised the CSR later
cancels it due to change in the business plan

• Pending with Finance- After all the particulars are verified, the
CSR is sent to Director Finance for approval. Till the Director
doesn’t sign the CSR the status remains as Pending with
Finance.

• Pending with MD- The next step in the approval process in that
the CSR is sent to the MD for approval.

4) DATE OF SENDING TO U.K- For all those CSR which are sent to
UK the date is noted down.
5) INITIATOR- The name of the initiator is noted down here.

6) BUDGET IN / OUT- As mentioned above there is a worksheet

containing the allotted budget of various departments. This sheet
typically looks like this:
REFER TO TABLE 1.2

Deptts. CSR approved Budget Further CSR's

till date Total that can be
Raised

IT

Manufacturing

Marketing

HR

Sales

The amount which is entered in the CSR worksheet gets added up appropriately and
thus a positive value in the column further CSR gives us an idea whether the
department has exceeded the allotted budget.
When a department exceeds it budget they are asked for further justification of the
CSR, and the value is noted under the forecasted budget of that department.
DATE OF APPROVAL- The day the final signature on the CSR is obtained the CSR is
declared approved, and that date is noted down.
As we can see that CSR posting also include checking various details in the raised CSR.
Thus to ease the job of CSR checking off late a CSR checklist has been prepared which
is illustrated below:

REFER TO TABLE 1.3

CSR Justification Quotation Replacemen Budget Payback Signature UK

No. Sheet (Nos) t (Year) Period by HOD Approval
Required
Asset Code Generation
When the CSR is approved the next step is asset code generation. Now say for example
the HR department has raised a CSR for 10 laptops. Say on priority basis they want to
purchase 1 Laptop. Then they would approach the Finance department with the
approved CSR for generating an asset code. Now every asset falls under a unique asset
class. There are a total of 19 asset classes and there are 3 asset classes for CWIP. The
table containing some of the asset classes with their life spans and depreciation rates is
given below:

REFER TO TABLE 1.4

Asset Description HO India Life HO Dep Rate India

Class Life (yrs) Dep
(yrs) Rate
XX1100 Land
XX1200 Building
XX1401 Jigs, Dies and
Fixtures

XX1403 Industrial
Electrification

XX1405 Moveable plant and

Machinery

XX2100 CWIP P&M 0 0 0 0

XX2000 CWIP Building 0 0 0 0

XX2200 CWIP Furniture 0 0 0 0

These particulars are entered in the SAP. The SAP screen is illustrated below:

REFER TO TABLE 1.5

The SAP generates a unique 9 digit code for every asset. Thus every asset is associated
with a brief description, cost centre (the department for which it is being obtained),
location (eg: Balabgarh, Guwahati, Kolkata etc), and the depreciation rates.
Now there are two types of asset codes:
 1) DIRECT ASSET CODE: For all the assets under asset classes 1 – 21
direct asset codes are given, because as soon as they are obtained they
are capitalized and thus their depreciation is charged. Assets whose
CSR’s value is less than Rs. 77000 are depreciated completely in the
current year.

2) INDIRECT / CWIP ASSET CODE: Say JCB is constructing a

machine at one of its plants. Now the various tools and parts required
for the machine to be constructed would be given an indirect asset
code (the last three CWIP asset codes). Now once the machine is build
verification is done and an installation certificate is given. The asset is
now reclassified into any of the asset classes and given a direct code.

Purchase Order checking

Once the CSR is approved the user department can raise purchase order as and when
they require the asset. The purchase order is sent to the Finance department for
approval. The following mandatory attachments / particulars are checked:

• CSR number- The PO should contain the CSR number.

• Commercials- The PO should contain all the quotations from

different vendors for that asset. There should be a minimum of two
quotations for every PO. The minimum of the two quotations is taken
and this is checked by the finance department. For certain assets like
laptop, desktops etc there is a dedicated vendor HP, and hence no
second quotation is taken.

• Budget- It is checked whether the PO is within the approved CSR

budget.
Now after approval the PO is deposited in the purchase department where they make an
entry in the SAP application. In this entry a purchase order is tagged with its CSR.

SAP CUSTOMIZED REPORT

SAP can generate a report which contains the following details till the date of
generation:

• Asset Number.
• Asset Class
• Description
• CSR No
• Qty
• Vendor
• Currency
• Correct PO Value

Now every CSR can have more than one PO. It is important thus to track the total
amount of the entire PO, and to see whether it is still within the CSR amount. Hence to
ease this job a PO checking sheet is made using the CSR sheet and ZAST sheet.

CAPEX Reporting
At the end of every month a consolidated CAPEX report is prepared using the ZAST
report. In the report the 23 asset classes used for generating asset codes are clubbed into
five broad categories:
1) Land & Building
2) Plant & machinery
3) Fixtures and Fittings
4) Motor Vehicles
5) CWIP

The reclassification of assets from CWIP to direct assets are calculated, and every
months total CAPEX expenditure is also tracked by deducting the YTD previous
months value. The depreciations for each category are separately calculated and finally
net CAPEX done is obtained.
The report also contains forecasted CAPEX for each department.

APPRAISAL AND CONTROL OF THE CAPEX

Capital Expenditures are some of the important decisions taken by the management as
they involve substantial costs and by purchasing those assets the company commits itself
to using that asset for some time. If such a decision proves to be wrong the company
might be forced to sell the asset at a discount. Capital investments affect the future
profitability and productivity and thus has affect on all the stakeholders of the company.
The essential problem in appraisal of capital expenditure is determining whether the
cash outflow involved in the investments were justified by the cash inflows created from
revenue. Now at JCB there are basically three distinct phases in the life of a project.
When the project still in the papers a forecasted cash flow is prepared for a stipulated
number of years.
Interestingly throughout all the years for which the cash flow had been prepared for
projecting future sales and costs, the rates had been taken constant. At JCB cash flows
are prepared on an inflation neutral template. It is assumed that any increase in input
costs would be offset by an equivalent increase in price of the product.

Another assumption is that the sales and marketing cost is considered only for the pre-
launch phase. Using the NPV method the feasibility and viability of the project is
calculated and only then the next step for implementing the project is taken.
In the next phase come the budgeting this is done for every year. A detailed budget is
done for every department and separately for big projects (eg. LIFTALL). Using the
data from the forecasted cash flow prepared in business plan, and studying the current
industry scenario a budget with revised figures is prepared.
Finally throughout the year the expenditures are tracked through the elaborate CAPEX
monitoring method explained earlier and the revenues are also tracked. This comprises
the actual data. So we have now three sets of data. Using these we have to answer the
two most important question for the appraisal; what should be the appraisal indices and
when should the appraisal take place. Hence for a comprehensive appraisal of the
planned cash flow the following should be evaluated:
1) Forecasted cash Flow Vs. Budget
2) Budget Vs. Actual
3) Forecasted Vs. Budget Vs. Actual
4) Estimated Vs Actual Payback Period
Forecasted Vs. Budget
For every financial year budget is prepared. Hence once the budget is prepared it can be
compared with the model / forecasted cash flow. There are likely to be changes in the
sales and also the estimated capital and operational expenses. Hence it is suggested that
the appraisal should be conducted at the end of every year , and in case of variations the
reasons should be analyses and effort should be put to make the budget in line with the
forecasted cash flow.

Budget Vs. Actual

Every month a CAPEX report is prepared which clearly states the amount of
expenditure incurred by each department / project. For big projects like LIFTALL
which entail a lot of initial CAPEX, it is necessary to tally the budget and the actual
expenditure at the end of every month. As the budget is broken down into months it
would be very easy to compare the two set of data.
Using bar charts one can easily prepare a pictorial representation of the variations.
Once the areas where large digressions from the budget are identified they can be dealt
with.
If the actual is overshoots the budget by large value then it is of concern, and as the
appraisal is done every month rectification can be done in the next month. On the other
hand if this appraisal is being done at the end of the year, possible checks for controlling
the actual expenditure are not possible.

Forecasted Vs. Budget Vs. Actual

Once in every year all the three phases should be evaluated against each other. So when
the appraisal is being done in June the actual data is present only till June. Now using
that data it is difficult to predict the sales of the coming months. It is often seen that
sales in some quarter is more than the sales in other quarters. Hence one can take the
actual data till June and add the budgeted data for the next six months and thus prepare
an appraisal report. In the report there should be comparison of all the three set of data,
and the following percentages should be calculated:

1) Percentage deviation of Budget from Model

 2) Percentage deviation of Actual form Model
3) Percentage deviation of Actual from Budget

The percentages should be calculated for each of the constituents of the cash flow. This
shall give a clear picture on the areas where the deviation is more. A large deviation
might point two things:
1) Unforeseen Issues.
2) Faulty Model
For the first there can be some backup plan, but if the problem is with the model, then
immediate action needs to be taken.
As throughout the year the actual capital expenditure and sales are checked against the
budgeted this last step is performed only twice a year. The budget is prepared keeping
the forecasted cash flow in mind. As the effort is made to conform the actual cash flow
to the budgeted cash flow, all the three type of cash flows become in-lined.

Estimated Vs Actual Payback Period

Now while preparing every project a payback period for the investments is calculated.
JCB too has a fixed maximum number of months as the payback period.
If a project exceeds the maximum number of months, then it is not taken up by the
company. So when the investment incurred for the project is being appraised it is very
important to calculate the amount and timing of the actual income. Using this we can
validate the estimated payback period. If there is a deviation and the actual payback
period is coming to be longer than the estimated period, there should immediate review
of all the processes and sales. It is necessary to find out whether the reason is high cost
or low revenue. As we already have all these data documented one can easily identify the
cause and thus take appropriate action.

Risk Management
 OVERVIEW

The days of corporate treasuries being aggressive profit centres are long gone
although there are a few that still survive. These days Corporates are far more
conservative with foreign exchange risk management and have reasonably well defined
guidelines for the management of forex risk. At a minimum Corporates should have a
foreign exchange policy which spells out exactly what should be done with the foreign
exchange risks they face. Quite often this policy is developed in tandem with an exposure
measurement process. For Corporates with minimal risk exposure measurement may be
a very simple process of forecasting what the cash receipts or payments are likely to be
for a given period. For other companies who purchase or sell products in Australian
dollars but where the underlying product is priced in USD on world markets then the
risks are less obvious but just as real.

IMPORT PAYMENTS
A bill of entry, abbreviated B/E, is an account of goods entered at a Customs House, for
imports and exports, detailing the merchant, quantity of goods, their type, and place of
origin or destination

A bill of lading is a document issued by a carrier, e.g. a ship's master or by a company's

shipping department, acknowledging that specified goods have been received on board
as cargo for conveyance to a named place for delivery to the consignee who is usually
identified. A through bill of lading involves the use of at least two different modes of
transport from road, rail, air, and sea.
The term derives from the noun "bill", a schedule of costs for services supplied or to be
supplied, and from the verb "to lade" which means to load a cargo onto a ship or other
form of transport.

The standard short form bill of lading is a part of the contract of carriage of goods and
it serves a number of purposes:
• it is evidence that a valid contract of carriage exists and it incorporates the full terms
of the contract between the consignor and the carrier by reference (i.e. the short
form simply refers to the main contract as an existing document, whereas the long
form of a bill of lading (connaissement intégral) issued by the carrier sets out all the
terms of the contract of carriage);
• it is a receipt signed by the carrier confirming whether goods matching the contract
description have been received in good condition (a bill will be described as clean if
the goods have been received on board in apparent good condition and stowed ready
for transport); and
• it is also a document of transfer, but not a negotiable instrument, i.e. it governs all
the legal aspects of physical carriage but, unlike a cheque or other negotiable
instrument, it does not affect ownership of the goods actually being carried. This
matches everyday experience in that the contract a person might make with a
commercial carrier like FedEx is separate from any contract for the sale of the goods
to be carried.

In most national and international systems, a bill of lading is not a document of title, but
does no more than identify that a particular individual has a right to possession at the
time when delivery is to be made. Problems arise when goods are found to have been lost
or damaged in transit, or delivery is delayed or refused

Generally the payment terms with the vendor are on credit basis of 30 days or 45 days.
The vendor sends Bill of lading, Bill of Entry, and Invoice along with the goods to the
custom department .

Also he’ll sends Bill of lading to JCB India ltd. as a proof of loading of goods for
departure. After JCB India ltd.
 pays the custom duty then they can release their material from the custom deptt.

After receiving goods the following procedure is followed at JCB India Ltd. for making
Import payment:

• The CPD (Central Purchase Department) will receive the goods and will verify
them according to the PO.
• They will enter the imported goods in their file and will give it a unique 4 digit
DRAR No. (Document Receipt & Action Report)
Against DRAR, they will make entry of Performa Invoice, Bill of Lading, Bill of
entry, Vendors name & address, Credit terms, due date of payment.

• In order to make the payment to the vendor, the Finance deptt. will receive copy
of Invoice, B/L , B/E from CPD .
• Within credit period, Finance department will arrange DRAR according to
credit terms and they should not exceed Rs. 2 crore.
• Along with Bill of Lading and Bill of Entry Finance department sends form A to
the bank. Form A contains the currency and Import Licence detail along with
vendor’s name, Invoice detail, Name of Bank from which payment is to be made.
Form A will be send to RBI by the respective bank as per RBI Regulations

JCB - FINANCE DEPARTMENT

HEAD OF
DEPARTMENT
(Mr. Shrikant)

CHIEF CHIEF MANAGER CHIEF MANAGER CHIEF

MANAGER DEBTORS & MATERIAL & MANAGER
INSURANCE COST CHIEF MANAGERMIS AND
GENERAL
CHIEF MANAGER ACCOUNTS INDIRECT BUDGETING
ACCOUNTS
ASST CREDITORS AND
STAFF TAXATION STAFF
EXCISE
STAFFSTAFF STAFF
SUPERVISOR STAFF
STAFF STAFF
STAFF STAFF STAFF
.STAFF COMPANY ASST. SUPERVISOR
MGR.ASST. MGR. SALES
FINDINGS ANALYSIS
SWOT Analysis is an effective way of identifying your Strengths and Weaknesses, and

of examining the Opportunities and Threats you face.

What makes it particularly powerful is that with a little thought, it can help you

uncover opportunities that you are well placed to take advantage of. And by

understanding your weaknesses, you can manage and eliminate threats that would

otherwise catch you unawares.

More than this, by looking at yourself and your competitors using the SWOT

framework, you can start to craft a strategy that helps you compete successfully in your

market.

STRENGTH

1. Brand Image: As the company is the oldest entrant in the field of construction
equipment so it has well reckoned name. Through its innovative & versatile approach
leads him to set the benchmark for its competitors

2. Financial soundness: JBC extents its operations in various areas of the country as well

as all around the world due its financial worthiness. JCB having highest 37 dealers &

150 retail outlets in India .

3. Efficient and skilled staff: JCB possesses skilled and efficient

staff, through their rigorous effort and efficient management

planning leads the company in the premium position.

4. Technology: The technology offers to the customers is of high quality they timely

make changes in their products according to the changing market condition.

5. Wide range of products: JCB India ltd. manufactures wide range of machines of

different capacities keeping in view the need and desire of different projects and clients.

6. After sales services: JCB is best known for its after sales services .JCB having highest

37 dealers and 150 retail outlet, its components are also easily available in local market,

companies operators providing their services to customers within 24 hour with his

utmost efficiency.
 WEAKNESS
In spite of having good brand image as well as self-sufficient resources the company is

not able to trap big market share in all products especially in case of Excavators, for

that they should offers more advanced technology at reducing price to tap big potential

market.

OPPORTUNITIES

1. Emergence of Indian economy: As globalization took place it brings immense

opportunities for construction equipment companies. Government takes active
participation in the construction of dams, metros, railways, roads, infrastructure
development ,various other projects soon to be commenced which will enhance the
scope of construction earthmovers industry .

2. Development of agriculture Sector : Govt showing keen interest in the development of

agriculture sector they make heavy expenditure for up liftment of rural areas .It
provides several grants to farmers for using the latest hi - tech machines available in the
market.
3. Development of banking and other financial institution: Now in the era of
globalization banking and other financial institution are emerging in a remarkable
manner, which proves to be the boom for the customers. Easily availability of credit
lures the investors and farmers to think of a high – tech construction machines.

THREATS

1Entry of new entrants: As Globalization brings prospect for the Construction industry
but the company should take care that new players are emerging at very high rate with
high technology.

2. Joint Venture of big MNC : Although the JCB is fully owned subsidiary company
having good financial backup but still collaboration of big MNC creates hurdles in
catering market share in various earthmovers products by getting economies of scale
CONCLUSION
As per the sales figure for the year 2003-04 and 2004-5 there has been increases in the
sales revenue by 35% and 45% respectively, This shows an upward trend in the market
share of the company.

The company has been investing in its Fixed Assets drastically by 68% and 58% for the
year 2003-04 and 2004-5 respectively. This has been a good sign as the company is going
in for expansion of its business

Though the company has been increasing its sales revenue and fixed assets in the past
few years, the percentage increase in sales revenue over the years has been
comparatively less than the increase in fixed assets.

This shows that the company has not been utilizing its fixed assets efficiently and has
much greater scope of increasing its market share, by making full use of its resources.

The revenue figures of the company include both, the sales revenue and income from
other sources but the main contribution in the increase in the sales figures in the past
has been from the core activities of the company,

This is a good sign as the company is concentrating on its core business activities.

The company has been sourcing its funds for the purpose of expansion through long
term loans .Thus; there has been increase in the loan funds by 44% in year 2003-04.

The company is doing good business in the past 2 years; hence it has been going into
investments to channelize its ideal resources in a productive way. The company had
invested Rs. 450 crore to set up a new plant at Pune.

The current ratio of the company for the past 3 years has been 2.7, 2.46 and 2.36 for the
year 2004-05, 2003-04, and 2002-03 respectively. This has been good sign as the current
ratio has remained stable over the years and is an ideal ratio as per the industry
standard.
The debt- equity ratio for the company has declined from 1.8 in the year 2003-04 to 0.39
in the year 2004-05, this shows that the company has been declining its debt funds and
funding its resources through Equity funds which has reduced the payment obligation
for the company. This indicates a declining leverage and consequently decline in the
financial risk of the company.
RECOMMENDATIONS
AND SUGGESTION

• This shows that the percentage share of the Operating Profit of the
company is quite high in the total net profit earned, as compared to
income from peripheral activities, which is favorable for the
company. value creationExists whenever enterprises cannot, or
choose not to, accept all value-creating investment projects. Possible
causes:

 Banks and investors say “NO”

 Managerial conservatism

• Analysis is required. One must consider sets of projects, or

“bundles”, rather than individual projects. The goal should be to
identify the value-maximizing bundle of projects.
• The danger is that the capital-rationing constraint heightens the
influence of nonfinancial considerations, such as the following:

 Competition among alternative strategies

 Corporate politics
 Bargaining games and psychology

The outcome could be a sub-optimal capital budget, or, worse, one

that destroys value!
.

ANNEXURE
BIBLIOGRAPHY

1. Alliance to Save Energy, Industrial Investment in Energy Efficiency:

Opportunities,
Management Practices, and Tax Incentives, Washington DC (July 1983).

2. P. Asquith and D.W. Mullins, Jr., "Equity Issues and Offering Dilution,"
Journal of Financial
Economics (Jan./Feb. 1986), pp 61-89.

3. J.M. Fremgen, "Capital Budgeting Practices: A Survey," Management

Accounting, U.S. (May
1973), pp 19-25.

4. L.J. Gitman, and J.R. Forrester, Jr., "A Survey of Capital Budgeting
Techniques Used by
Major U.S. Firms," Financial Management (Fall 1977), pp 66-71.

5. C. Gurnani, "Capital Budgeting: Theory and Practice," Engineering

Economist, 30 (Fall
1984), pp 19-46.
6. J.W. Petty, D.F. Scott and M.M. Bird, "The Capital Expenditure
Decision Making Process of
Large Corporations," Engineering Economist, 20 (Spring 1975), pp 159-
172.
QUESTIONAIRE
1) How long term capital expenditure budgeted in a quarterly budgeting
process?

2) What is planned expenditure in government budget ?

3) What is the difference between capital expenditure and revenue

expenditure?

4) Capital budget is a functional budget ?

5) Is the capital expenditure budget included in a small business master

budget?

6) How are long term capital expenditures budgeted in a small budgeting

process?

Thank you for your kind cooperation.

Journals and Periodicals
 The Times of India
 The Harvard Business Review
 Business Today
 Business World
 Human Capital

Internet
 www.google.com
 www.indiatimes.com
 www.hrmguide.com