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Summer Training Project Report

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A Study of Working Capital Management of BHEL


Submitted for the partial fulfillment towards the award of the degree in Master of Business Administration of Mahamaya Technical University.

Submitted by: Ankit Kumar


Roll No:- 121337015 (Batch:2012-2014)

Under the Supervision of: Mrs. Ekta Singh

Department of MBA
Noida Institute of Engineering and Technology (NIET) 19, Knowledge Park II, Institutional Area, Greater Noida GautamBuddh Nagar (U.P), India- 201306

DECLARATION

I hereby declare that the study titled A STUDY OF WORKING CAPITAL MANAGEMENT OF BHEL in the context of HEEP B.H.E.L. being submitted by me in the partial fullfillment of the requirement for the award of MASTER OF BUSINESS ADMINISTRATION is a record of my own work. The study was conducted at finance department HEEP, B.H.E.L. The matter embodied in this project report has not been submitted to any other university or institution for the award of degree. This project is my original work and it has not been presented earlier in this manner. This information is purely of academic interest.

Date-11-10-2013

Ankit Kumar

ACKNOWLEDGEMENT

I express my sincere thanks to the Management of HEEP (Heavy Electrical Equipment Plant) of BHEL, Ranipur, and Haridwar Unit for giving me an opportunity to gain exposure on matter related to Project under the esteem guidance of Mr. S.K.Arya (Sr.Accounts Officer).

I hereby take this opportunity to put on records my sincere thanks to Mr. S.K.Aryaunder the light of whose able guidance I could complete this project in an effective and successful manner.

I am also indebted to Mr. Javed Khan (Accounts officer ) for their valuable information's and inputs, which added dimensions and meaning to my project.

I am also thankful to the rest of the staff of the SALES section & CASH section for their valuable suggestion and cooperation to achieve the task.

With sincere thanks Ankit Kumar

CONTENTS CHATER NO. DESCRIPTION. Introduction of the topic objective of the study Need and scope Limitation of study Summary Company profile, History, location , Organization structure Research methodology Theoretical base of project title, source of data Data analysis and data interpretation PAGE NO.

5-60

II

61-82

III

83-88

89-102

IV

Conclusion And Suggestions

103-106

Bibliography

107-107

Annexure

108-109

CHAPTER:-I

INTRODUCTION

WORKING CAPITAL MANAGEMENT MEANING OF WORKINGCAPITAL


Working Capital is commonly defined as the difference between current assets and current liabilities. Efficient working capital management requires that firms should operate with some amount of working capital, the exact amount varying from firm to firm and depending, among other things on the nature of industry. Capital required for a business can be classified in two main categories viz.

1) Fixed capital, and 2) Working capital.

Every business needs funds for two purposes-for establishments and to carry out its day-today operations. Long-term funds are required to create production facilities. Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc.Investments in these assets represents that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses, etc. These funds are known working Capital. In simple words, working capital refers to that part of the firms capital, which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital.

CLASSIFICATION OF WORKING CAPITAL Working Capital may be classified on two basis: -

a) On the basis of Concept: On the basis of concept, working capital can be classified as, Gross Working Capital Net Working Capital

b) On the basis of Time: On the basis of time, working capital can be classified as, Permanent or Fixed Working Capital Temporary or Variable Working Capital

Gross Working Capital: The Gross Working Capital is the Capital invested in the total current assets of the enterprises. Current assets are those assets, which can be converted into cash within a short period, normally an accounting year. Gross Working Capital = Total Current Assets

Net Working Capital: The term Net Working Capital refers to the excess of current assets over current liabilities, or say, Net Working Capital = Current Assets Current Liabilities

Both the concepts have their own merits.

The gross concept is sometime preferred to the concept of working capital for the following reasons: -

It enables the enterprise to provide correct amount of working capital at correct time. Every management is more interested in total current assets with which it has to operate then the sources from where it is made available. It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital. The concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for the following reasons:It is a qualitative concept, which indicates the firms ability to meet its operating expenses the short-term liabilities. It indicates the margin of protection available to short term creditors. It is an indicator of financial soundness of enterprise. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.

Permanent or Fixed Working Capital: -

Permanent or fixed capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of current assets is called permanent or fixed working capital as this part of working capital is permanently blocked in current assets. As the business, grow the requirement of working capital also increases due to increase in current assets.

Temporary or Variable Working Capital: Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called the seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaign for conducting research etc. Temporary working capital differ from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in business

Calculate current assets to fixed asset ratio A firm needs current and fixed assets to support a particular level of output. However, to support the same level of output the firm can have different levels of current assets. As the firms output and sales increases, the need for current asset increases. Generally the current assets do not increase in direct proportion to output ; current assets may increase at a decreasing rate with input. This relationship is based upon the notion that it takes a greater proportional investment in current assets when only a few units of output are produced than it does later on when the firm can use its current assets more efficiently.

The level of the current assets can be measured by relating current assets to fixed assets. There are three policies:1) conservative current assets policy: CA/FA is higher. It implies greater liquidity and lower risk.

2) aggressive current assets policy: CA/FA is lower .it implies higher risk and poor liquidity. 3) moderate current assets policy: CA/FA ratio falls in the middle of conservative and aggressive policies. In case of BHEL, Haridwar, the ratio of current asset to fixed asset is

Estimating working capital needs


1. Liquidity Vs. 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 estimate working capital needs accurately, the firm must decide about levels of current assets to be carried. 2.The Cost Trade Off: 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. There are two types of cost involved:-

I. Cost of liquidity II. cost of illiquidity --If the firms 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 debtors reduce profitability. Thus, the cost of liquidity increases with the 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 honour 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 creditworthiness 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.

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Policies for financing current assets


The following policies for financing current assets in HEEP, Haridwar:-

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 HEEP Haridwar manages its long term financing from capital reserve, share premium A/C, foreign project reserve, bonds redemption reserve and general reserve.

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 HEEP, Haridwar manages secured loans as:1) Loans and advances from banks 2) Other loans and advances: a)Debebtures/bonds b)Loans from State Govt. c)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

The HEEP, Haridwar manages unsecured loans as: 1) Public deposits 2) Short term loans and advances: a)From banks b)Commercial papers c)Fromcampanies

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d)From financial institutions 3)Other loans and advances a)From banks b)From others -from govt. of India -from state govt. -from financial institutions -from foreign financial institution -post shipment credit exim bank -credit for assets taken on lease 4)Interestaccured and due on -Post shipment credit -Govt. credit -State Govt. loans -Credits for assets taken on lease -Financial institutions and others -Foreign financial institutions -Public deposits

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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 utilise 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. How ever, 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 assets are financed with short term funds and as their level

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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.

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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 assets with short term financing. Some extremely aggressive firms may even finance a part of their fixed assets with short term financing. The relatively more use of short term financingmakes the firm more risky. The aggressive financing is Illustrated

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NEEDS AND OBJECTIVES FOR WORKING CAPITAL

Every business needs some amount of working capital. The needs for working capital, arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production, production and sales, and realization of cash. Thus, working capital is needed for the following purposes: For the purchase of raw material, component and spares. To pay wages and salaries. To incur day- to- day expenses and overhead costs such as fuel, power and office expenses etc. To meet the selling costs such as packing, advertising etc. To provide credit facilities to the customers. To maintain the inventories of raw material, work in progress, store, spares, and finished stock

IMPORTANCE OF WORKING CAPITAL


1.Time devoted to working capital management:The largest portion of financial manager 's time is devoted to day to day internal operation the firm. This may be appropriately sum up under the heading "WORKING CAPITAL MANAGEMENT".

2.Investment in current assets :current assets represent more than half of the total assets of a business firm. Because they represent largest investment and because this investment tends to relatively volatile,current assets are worthy for the financial manager's careful attention.

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3.Importance for small firm:current assets are similarly important for the financial manager's of small firm.Further small firm are relatively limited access to the long term markets,it must necessarily rely on the trade credit and short term bank loan , both of net effect on net working capital by increased current liabilities.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENT

1. NATURE OF BUSINESS: The requirement of working capital is very limited in public utility undertaking such as Electricity, Water Supply and Railways because they offer cash sales only and supply services not products and no funds are tied up in inventories and receivables. On the other hand, the trading and financial firm requires less investment in fixed assets but have to invest large amounts in current assets. The manufacturing undertaking requires sizable amount of working capital along with fixed investments.

4) PRODUCTION POLICY: The determinationof working capital needs depends upon the production policy of the business. The demand for certain products is seasonal i.e.; such products are purchased in certain months of a year. For such industries, two types of production policy can be followed. Firstly they can produce the goods in the months of demand or secondly, they produce for the whole year. If the second alternative were followed, it would mean that until the time of demand finishes, product would have to be kept in stock. It would require additional working capital.

5)

LENGTH OF PRODUCTION CYCLE: The longer the manufacturing time, the raw material and other supplies have to be carried for a longer time in the process with progressive increment of labor and service costs before the final product is obtained. Therefore, working capital is directly proportional to the length of the manufacturing process.

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4.

RATE OF STOCK TURNOVER: There is an inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a higher rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.

5.

CREDIT POLICY: Credit policy affects the working capital requirements in two ways: (a) (b) Terms of credit allowed by customer to the firm, Terms of credit available to the firm.

A concern that purchases its requirements on credit and sells its product/services on cash requires lesser amount of working capital and vice-versa.

6.

WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

DEBTORS CASH FINISHED GOODS WORK IN PROGRESS

RAW MATERIAL

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Each component of working capital (namely inventory, receivables and payables) has two dimensions ... TIME ......... and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly.if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales If you ... Then ...

Collect receivables (debtors) You release cash faster from the cycle Collect receivables (debtors) Your receivables slower soak up cash Get better credit (in terms of You increase your duration or amount) from cash resources suppliers

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7.

RATE OF GROWTH AND EXPANSION OF BUSINESS: The larger size businesses require more permanent and variable working capital in comparison to small business. If a company is growing, its working capital requirements will also go on increasing. Thus, the growing concerns require more working capital as compared to the stable industries.

8.

SEASONAL VARIATION: Generally, during the busy season, a firm requires larger working capital than in the slack season.

9.

BUSINESS FLUCTUATION: In period of boom, when the business is prosperous, there is a need for larger amount of working capital due to rise in sales, rise in prices, optimistic expansion of business etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtors and the firm may have a large amount of working capital idle.

10.

EARNING CAPACITY AND DIVIND POLICY :Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also effects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profit needs more working capital than the firm that retain larger part of its profits and does not pay so high rate of cash dividend.

11.PRICE LEVEL CHANGES: Price level changes also affect working capital needs. If the prices of different goods increase, to maintain same level of production, more working capital is needed.

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12.AVAILABILITY OF RAW MATERIAL: Availability of raw material on the continuos basis affects the requirement of working capital. There are certain types of raw materials, which are not available regularly. In such a situation firm requires greater working capital to meet the requirements of production. Some raw materials are available in particular season only for example wool, cotton, oil seeds, etc. They have to keep greater working capital.

13.

MAGNITUDE OF PROFIT: -

Magnitude of profit is different for different businesses. Nature of product, control on the market and ability of managers etc. determine the quantum of profit. If the profit margin is high, it will help to arrange funds internally, which will also increase the working capital.

14.

OTHER FACTOR: -

a) Operating efficiency b) Management ability c) Irregularities of supply d) Import policy e) Asset structure f) Importance of labor

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TABLE OF WORKING CAPITAL

PARTICULAS 05-06 Current Assets Debtors Inventory Cash Loan and Advances Total Current Liabilities Sundry Creditors Adv. from Customers Other liabilities Provisions Total Net Working Capital Turnover 129135 181556 3871 19560 101994 28745 2711 22655 141282 17905 16674 61889 21570 94345 130739 159187 57300 68748 9 4682 83714 66641 111 8720 06-07

YEARS 07-08 08-09 09-10 10-11

115963 64160 5 11218

157384 114706 4 21823

179637 162526 4 31590

246155 207824 4 42009

191346

293917

373757

495992

33545 128554

50927 204194

67904 239314

72084 243513

3289 35248 200636 -9290

2694 58001 315816 -21899

6823 40572 354613 19144

9534 60961 386093 109899

23316

285329

321461

423058

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Graphical presentation of current assets of the company

Debtors
Inventory Cash Loan and Advances

Balanced working capital position

The firm should maintain a sound working capital position. it should have adequate working capital to run its business operations. both excessive and inadequate working capital positions are dangerous from the firms point of view. Excessive working capital means holding costs and idle funds which earn no profits for the firm. paucity of working capital not only impairs the firms profitability but also results in production interruptions and inefficiencies and sales disruptions.

The dangers of excessive working capital are as follows: 1.it results in unnecessary accumulation of inventories. thus chances of inventory mishandling,waste,theft and losses increase. 2.it is an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts result, which adversely affects profits. 3. excessive working capital makes management complacent which degenerates into managerial inefficiency.

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4.tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers: 1. it stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. 2. it becomes difficult to implement operating plans and achieve the firms profit target. 3. Operating inefficiencies creep in when it becomes difficult even to meet day to day commitments. 4. fixed are not efficiently utilized for the lack of working capital funds. Thus the firms profitability would deteriorate. 5. paucity of working capital funds render the firm unable to avail attractive credit opportunities etc, 6. the firm loses its reputation when it is not in a position to honour its short term obligations. as a result the firm faces tight credit terms.

An enlightened management should, therefore, maintain the right amount

of

working capital on the continuous basis. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by judgment should be used to predict the quantum of working capital needed at different time periods. A firms net working capital position is not only important as an index of liquidity but it is also used as a measure of the firms risk. risk in this regard means chances of the firm being unable to meet its obligations on due date. The lender considers a positive networking as a measure of safety. All other things being equal, the more the networking capital a firm has, the less likely that it will default in meeting its current financial obligations. Lenders such as commercial banks insist that the firm should maintain a minimum net working capital position.

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DEBTORS MANAGEMENT

INTRODUCTION

It is very difficult for the organization to sell always on cash basis in todays competitive market. In almost every business, we have to sell on credit basis. The basic objective of management of sundry debtor 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 requires proper policies and efficient execution of such policies. Debtors and cost of debtors have direct relation; cost will increase due to increase in debtors and vice versa. It depend on the credit sale of concern and credit period (collection period) allowed to customer. It is in interest of customer to pay as late as possible, and company whom 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 equilibrium at which company agree 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: One is volume of credit sales and another is credit period allowed to customer. It is the essence of every business that to sale on credit and allow credit period to the customer in such a competitive market, following factors may be considered before allowing credit period to the customer: -

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Nature of the product Credit worthiness of the customer, which varies from customer to customer. Quantum of advance received from customers Credit policy of company, say number of days allowed to customer for payment to the customers. Cost of debtors Manufacturing cycle time of the product etc.

Debtors Management: There are mainly three aspects of Management of Debtors

1. Credit Policy: -

The credit policy is to determine. It involves a trade off between the profits on additional sale that arises due to credit being extended on one hand and the cost of carrying those debtors and bad debts losses on the other.

2. Credit Analysis:-

This requires to determine as how risky is to advance credit to a particular customer.

3. Control of Receivables: -

This requires to the firm to follow up debtors and decide about a suitable credit collection policy. It involves both lying down of credit policy and execution of such policies.

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There is a cost of maintaining receivables, which comprises Cost of: -

The company require additional funds as resources are blocked in receivables which involves a cost in the form of interest (loan fund) or opportunity cost (own fund). Administrative cost which includes record keeping, investigation of credit worthiness etc. Collection cost Defaulting cost or Bad debts

DEBTORS MANAGEMENT IN HEEP - HARDWAR

B.H.E.L Hardwar is engaged in the manufacturing business of heavy electrical equipments, where cycle time of the product is 18- 24 months and most of the contracts take approximately 3-5 years to complete. Customers of B.H.E.L. Hardwar are broadly divided into following categories: State electricity board Power Project Public Sector Under takings Railways Government Departments Private Sectors Exports

In most of the contracts, payments of B.H.E.L. Hardwar are made in following stages: -

Payment Terms
Advance from customers: -At the time of dispatch of goods -At the time of MRC (material receipt at site) Deferred payment after Commissioning of project with certain test However, the above terms may vary from contract to contract. 28

Based on the above payment terms, B.H.E.L. Hardwar categories their debtors into two parts: Collectible debtors Deferred debtors

Collectible debtors are those, which are due for payment as on now and there is no credit time allowed to the customer say payment at the time of dispatch.

Deferred debtors are those, which will become due on the occurrence of a particular event such as issuing of MRC (material Receipt Certificate) from customer or completion of contract with certain tests etc.

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INVENTORY MANAGEMENT

Introduction
Inventories constitute most significant part of current assets, in most of the companies in India. To maintain a large size of inventory, a considerable amount of fund is required. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g.10% to 20%, without any adverse effect on production and sales, by using inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on a companys profitability.

There are at least three motives for holding inventories: 1-To facilitates smooth production and sales operation (transaction motive). 2-To guards against the risk of unpredictable changes in usage rate and delivery time (precautionary motive). 3- To make advantage of price fluctuations (speculativemotive).

OBJECTIVE: Inventories represent investment of a firms funds. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider: (a) (b) (c) costs, return, and Risk factors in establishing its inventory policy.

Two types of costs are involved in the inventory maintenance:

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1-Ordering costs: - Requisition, placing of order, transportation, and staff services. Ordering costs are fixed per order size increases.

2-Carrying costs: - Warehousing, handling, clerical and staff services, insurance and taxes. Carrying cost increases. The firm should minimize the total cost (ordering cost + carrying cost). The economic order quantity (EOQ) of inventory will occur at a point where the total cost is minimum. The following formula can be used to determine EOQ:

EOQ=(2AO/C)^1/2

Where, A= Annual requirement. O= Per order cost. C= Per unit carrying cost.

WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH INVENTORY?

The inventory level at which the firm places order to replenish inventory is called reorder point. It depends on (a) the lead time and (b) the usage rate.

Under perfect certainty about the usage rate, the instantaneous delivery (i.e. zero lead time0, the reorder point will be equal to:

Lead-time *Usage rate +Safety stock.

The firm should strike a trade-off between the marginal rate of return and marginal cost of funds to determine the level of safety stock.

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INVENTORY ANALYSIS

Altogether the company deals with stock of thousands of items raising a serious problem of how one can keep control of track of all items also, where it is necessary to have some extent of control on each and every item. Different types of analysis each having its own advantages and purpose help in bringing a particular solution to the control of inventory. The most important of all such analysis is ABC analysis. The other one -

ABC analysis VED analysis SDT analysis HML analysis FSN analysis

ABC ANALYSIS A formal way of classifying inventory items so that important ones will be given the most attention. Through this analysis the professional inventory manager will concentrate his efforts on where they will yield the greatest rewards. The ABC of ABC analysis refers to the classes, A, B and c into which the inventory is divided. is high value items whose rupee volume typically account for 75-80% of the value of total inventory while representing only 10-15% of the inventory items. Class is lesser value items whose rupee volume accounts for 15-20% of the value of inventory, while representing 15-20% of the inventory items. Class items are low value items whose volume accounts for 10-15% of the inventory values but 75-80% of the inventory items. The same degree of control is not justified for all the three classes of items. Class [A] requires the greatest attention and class [C] items require least attention. Class [C] items need no special calculations since they represent a low inventory investment. The order might be placed once a year and periodically reviewed once a year, class [B] items are paid more attention then, proper CODs are developed and semi annual review of variables must be done.Class [A] items needs direct attention to the inventory items, EOQ's are to be developed each time an order is placed. The major concern of an ABC classification is to give direct attention to the inventory items that represent the largest amount of expenditure. If inventory 32

levels can be reduced for claim of items it result in a significant reduction in inventory investment.

ABC INVENTORY CLASSIFICATION:-

Percentage of inventory items

Category of classes A B C

value of the total inventory(rupee volume in %) 75 15 10

10 15 75 VED ANALYSIS

This analysis specially pertains to the classification of maintenance of spares denoting the essentiality of blocking spares.

V - stands for vital - items when out of stock or when not readily available, completely brings the production a halt.

E - Is for essential - items without which we can temporarily loose our production or disclosure of production occurs with in a week.

D - Denotes desirable items - all other items, which are necessary but do not cause any immediate effect on production.

S.D.E. ANALYSIS For developing countries and especially where certain items are in scarce supply. This analysis is very useful.

S - Refers to scarce items, especially imported items and those which are very much in short supply.

D - Are difficult items which are available in market but not easily available. E - Items are those which are easily available, most local items.

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HML ANALYSIS The cost per item is considered for this analysis (H) High cost items (M) Medium cost items (L) Low cost items help in bringing controls over consumption at departments level and for storage.

FSN ANALYSIS Materials are classified as (F) Fast moving (S) Slow moving and (N) Non moving items

FUNCTION OF INVENTORY CONTROL:-

Functions to be performed in the field of Inventory Control are: 1 2 3 4 5 6 7 Setting up norms for carrying Inventory. Determining what items to be stocked. Setting rules for Inventory replenishments. Receiving, storing and issuing inventory items as needed. Maintaining records of inventory quantities and values. Identifying and deposing of slow moving, non-moving, obsolete or damage inventories. Furnishing summary information on inventory position for control purposes.

Inventory Record Keeping and Related Procedures


How well Inventory records are maintained has a major bearing on the effectiveness of Inventory control program. Mostly information recorded in B.H.E.L. system is: Name of the part or material

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Short description Identifying No called Material code Unit of measurement Location in store (custody) Bin no. Opening, received, issue, closing quantity and value these records are maintained in an online system on main frame computer user departments have shared access for posting and retrieval of information.

There is a system for reserving specific items as customer specific, which is done by tagging on the item. Posting of withdrawals or issue from inventory is done on specific authorization by a document called Store Issue voucher.

INVENTORY MANAGEMENT IN BHEL

BHEL produces long production cycle items against the firm orders from customers. Because of this as well as sizeable imported raw materials and compulsory bulk purchase of items like steel and copper in line with availability from SAIL and MMTC, the company has to carry high level of inventories.

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PARTICULARS 200405 Raw materials & components Material with fabricators Stores & spares 1282 Material in transit Finished.Goods Loose Tools WI.P Transfer in transit Scrap 271 Provision for Non Moving stock Total TURNOVER Average inventory Inventory turn over ratio 1.56 Days of inventory holding 234 58331 -645 58331 90913 2326 3716 2181 40 38585 105 10469

YEARS(figures in lacks)

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

2009-10

2010-11

10676

10375

10387

15102

26063

36522 726

306

395

353

209

489

2394

2490

2505

2807

3175

4040

9910 1770 73 42120

8193 2454 58 38398

9705 1819 193 36411

24763 3138 199 65055

28748 3963 315 96830

42779 2563 588 114159

2277 273

4823 441

3630 363

4372 414

3741 533

7361 481

-1050 68748 129135

-986 66641 181557

-1205 64160 233169

-1354 114706 285329

-1332 162526 321461

-1395 207824 423058

68748

66641

64160

114706

162526

207824

1.88

2.72

3.63

2.49

1.98

2.04

194

134

100

146

184

179

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These records are maintained in an online system on main frame computer user departments have shared access for posting and retrieval of information. There is a system for reserving specific items as customer specific which is done by tagging on the item. Posting of withdrawals or issue from inventory is done on specific authorization by a document called Store Issue voucher.

Interpretation:If we see from the above table, it can be clearly seen that the total Inventory increase from 58331 to 207824. Formula used: Inventory Turnover Ratio = Sales / Average Inventory Days of Inventory Holding =365 / inventory Turnover Ratio

No. of days
2004-05 2005-06 2006-07 2007-08 2008-09

2009-10
2010-11

There is a graphical representation of above data of days of inventory holding INTERPRETATION If we see from the above table that the days of inventory holding in the year 2007-08 has come down from 2004-05.Inspite of increase in turnover i.e. in 2007-08 from the year 200405.the days of inventory holding decreases. Then after this there is a small increases in the days of inventory holding till 2010-11.This indicates that the company is using effective strategy to bring down its inventory level. This makes very less investment in inventory. It is in the interest of every organization to minimize its inventory level. Following is the process through which the company can achieve the optimum inventory level.

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STANDARD INVENTORY LEVEL

TAKING ACTUAL INVENTORY LEVEL

COMPARISION OF ACTUAL WITH STANDARD

TAKE CORRECTIVE ACTIONS

ANALYSING REASON OF VARIATION/DEVIATION

VARIATION/ DEVIATION

Inventory
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

2010-11

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There is direct relation of working capital requirement with Debtors and Inventory. Above data indicates that company has taken certain strategic measures to manage its Debtor and Inventory. Following are the measures: . Special task forces were built up from debtors and Inventory Management at senior level. Regular follow up at senior level. A close contact with the customers. Proper age- wise analysis of the debtors. Proper classification between collectible Debtors and bad debts. Bad debts written off as early as possible after making all efforts for its collection. Product cycle minimized so that cost of the product does not become high to the agreed amount because of time factor. Formation of specific group in each area to identify the wastage elements and seek participation of all. Formulation of action plan to eliminate/minimize wastage. Identification of corrective actions and their implementation.

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CASH MANAGEMENT

OBJECTIVE OF THE STUDY OF CASH MANAGEMENT-

Behind every study there is an objective, whatever people do they have some objective keeping in their mind and they work on it until their objective gets fulfilled.CASH MANAGEMENT refers to the management of cash and the whole accounts department works very hard on it. Their main objective is to maintain cash outflow in proportion to the cash inflow of the company and to avoid over drafting. Cash section

maintain cash outflow as per the payment requirement and in accordance with the allocation of funds from corporate finance.

Evolution Of Cash Management All Business transaction involves give & take. Earlier this give & take was settled through commodities. One commodit y was exchanged with another. This s ystem of Barter had three difficulties; . The Origin of cash can be easil y understand by with the below three stages Presence of two persons who could satisfy each others need. Determination of the rate of exchange Problems of exchanges of large with smaller commodities

Early Cash:- It was to overcome the disadvantages of Barter that a need for a medium of exchange was felt & commodit y as medium as entered the business arena. The commodit y money didnt serve the purpose well because was devoid of basic features of good money, i .e., durabilit y, divisibility & portabilit y. Metals became the medium of exchange. First it was silver then gold. These metals were weighted every time a transaction was settled. Later on, to overcome the difficulties of weightment every time, the metals w ere cut down in to pieces of definite weightage & coinage into circulations.

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Present Day Cash: - With the increase of business & trade it became increasingl y difficult to use commodity money as a medium of exchange due to the problem explained above. Thus started the era of paper money the initial use of paper money was in the form of receipts given by London goldsmiths for deposits of coin. In the first phase of paper money, these receipts were accepted as medium of exchange onl y if these were convertible into same value .

Future Cash:

Computer has entered every segment of commercial world. The advent of internet has further intensified its penetration. Cash too, has remained aloof from its impact. In fact, mass experiments are going on w hich could transform the way we could think about money. A new breed of cash, which is basicall y a software is being developed for circulation in future it sis a kind of a electronic money known as E cash . Under the system one may have E -cash in the form of a credit card size piece of plastic with an embedded microchip that one can load with E -money purchased with traditional currency or one can have E - cash in his personal computer or electronic wallet downloaded over phone lines from the issuer of e money.

E cash can be issued both by banks and non banks. As on date non -banking corporations are more aggressive in this process of cash replacement. Commercial banks are entrusted with the creation of money by central banks of concerned countries by keepi ng a fraction of deposit as reserve.

E-cash represents the biggest revolution in the currency since bold replaced co- wrie shells some experts look at its as a revolution similar to industrial revolution. Some of the benefits of e cash are given below:

1) E-cash is more convenient and feasible than traditional money.

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2) Banks that issue e -cash could find it much cheaper than handling checks and papers that accompany traditional money. 3) Unlike credit card which provides no privacy to its users e -cash offers virtuall y complete anonymit y.

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Objectives Of Cash Management


Inspite of the fact that cash does not earn any substantial return for the business, it is held by the concern with the following motives.

1). TRANSACTION MOTIVE - A company enters into a variet y of business transactions resulting both inflow and outflow of cash, at times the cash outflow exceeds the cash inflow. In order to meet the business obligations in such situation, it is necessary to maintain adequate cash balance. Thus, a firm with the motive of making routine business payments maintains cash balance.

2). PRECAUTIONARY MOTIVE - A firm holds cash balance to meet sudden cash needs arising out of unexpected contingencies such as floods, strikes, obsolesces sharp increase in prices of raw materials, presentation of bills for payment earlier than expected date more amount of cash will be kept by the firm if 1there will be more possibilit y of such contingencies

3). SPECULATIVE MOTIVE - BHEL also keeps cash balance to take advantage of unexpected business opportunities. Such motive is there of speculative nature .

4). COMPENSATION MOTIVE - Banks provide certain services to their customers free of charge. So they usuall y require the customers to keep minimum cash balance with them which unabl e them to earn interest and compensate for the free services render

MEANING OF CASH MANAGEMENT The term cash management refers to the management of cash and 'near cash assets' while cash includes coins, currency notes, cheques, bank drafts, and the demand deposits, the near cash assets include marketable securities and time deposits with banks. Such securities and deposits are easil y convertible into cash.

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CASH MANAGEMENT refers to the management of cash and the whole accounts department works very hard on it. Their main objective is to maintain cash outflow in proportion to the cash inflow of the company and to avoid over drafting. Cash section maintain cash outflow as per the payment requirement and in accordance with the allocation of funds f rom finance. corporate

INTRODUCTION OF CASH

Cash is that form of money which the person can use any time. It may be in the form of any currency. It is also called liquid money .it is the most desirable

form of money because this money can use withou t any obstacle or regulation.

NATURE OF CASH: It is liquid money.

The most important nature of cash is its liquid form. Cash is that form of money which is available to use any time. So the liquidit y is the main feature of cash.

Life blood of business.

Cash is the most important sector of business without cash business cannot run that is why it is indispensable part of business.

One of the mode of payment. Cash is one of the most acceptable form of receipts because if the payment is made in the form of cash then it will give more securit y to the receiver. That is why it is more desirable.

It is the part of current assets.

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Cash is the part of current asset and is shown on the assets side of the balance sheet. Cash at bank and cash in hand are two major parts of cash. Now I am going to discuss all the things, tools and procedure, which the BHEL is using for, cash management (A centralized system)

REASONS OF CASH MANAGEMENT


Cash management involves the following four basic problems 1).CONTROLLING LEVEL OF CASH - One of the basic objectives of cash management is to minimize the level of cash balance with the firm. This objective is sought to be achieved by means of the following:

Preparing cash budget - Cash budget is the most important device for planning and controlling the use of cash. It involves the future receipts and payments of the firm. On the basis of this information the finance manager can determine the future cash needs of the firm .

Providing for discrepancies - Cash budget shows discrepancies between cash receipts and payments on the basis of normal business activities.

Availability of alternative source of funds - A firm may not need to keep large cash balance. If it has arrangements with banks for borrowing money in times of emergencies.

2). CONTROLLING OF CASH INFLOW - In order to prevent fraudulent diversion of cash receipt and speeding up collections of cash, an adequate control on cash inflow is necessary. A properl y installed internal check s ystem can, to a great extent, to minimize the possibilit y of fraudulent diversion of cash. Speedier collection of cash can be made possible by adoption of the following two techniques :

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Concentration banking system : It is a system of decentralizing collection of account receivables. According to this system branch offices are authorized to collect the paym ent from the customers, and deposit in the local bank accounts this system facili ties fastmovement of funds. This system is good in case of the firms having there spread over a large area .

Lock box system: This system is more popular in the U.S.A. and is further step in speeding up collection of cash. This system has been devised to element delay arising in cash of the concentration banking system on account of a time gap between actual receipt of checks by the regional collection centers and its deposits in the local bank account. Under this system BHEL higher a post office box and ins tructs its customers for their remits to the box. It also reduces the chances of fraud in the cash collection process and controls the cash inflows better. In order to avoid the unnecessary pockets of idle funds, the company should maintain minimum number of bank accounts

3). CONTROLLING OUTFLOWS OF CASH - an efficient control over cash outflows is equall y important for conserving cash and reducing financial requirements. Control over cash outflow signifies slow disbursement. In order to control the outflow s of cash efficientl y, a firm should keep in view the following consideration.

Centralized system for cash management - should be followed as compared to decentralized system in cash of collections. All payments should be made from a single control account , i.e., from the central office of the company. However, the local office of the company may pay local expenses.

Payments should be made on due dates , neither before nor after. The company should neither loss cash discount nor its prestige on account of delayed payments. The company should, therefore, made payments within the terms offered by the suppliers.

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3). PLAYING FLOAT: - Technique should be used by the company for maximizing the availabilit y of funds. The term 'float' means the account tide up in checks, which have been issued by BHEL but not have yet been presented, for payment by the creditors. As a result of time lag between issue of a cheque and its actual presentation, The actual bank balance of a firm may be more than the balance shown in the b ooks. The difference is called 'payment of float'. The longer the 'float period the greater would be the benefit of the firm

Factors Influencing Cash Management in Business: The Cash Flow in a business is influenced by a number of factors. These can be classified into two categories 1) Internal factors 2) External factors Internal factors are those factors which are internal to the business, and by & large arise as a result of management decisions. External factors, on the other hands are such environmental f actors which are not under the direct control of management, such factors affect the econom y as a whole & their ramifications are felt by an individual business as well.

These exercise influence on the availabilit y of cash in a business. Now we will try to go in deep to understand in a proper manner that how they influence cash management as a whole.

1) Internal

Factors-

Internal

Factors are products of management

policies followed either consciousl y & positivel y, or unconsciousl y b y default, or combination of both. Following are some of the avenues from where these factors emanate & affect the cash in a business.

Operating policies: These refer to all types of decisions which make the business operative. Operating policies are basicall y aims for the

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business BECAUSE EVERY BUSINESS DES IRES TO OPERATE AT ITS OPTIMUM LEVEL. For this it has to gear up its entire department like production, marketing sales etc. 53

Fixed Assets: Fixed assets are the long lived properties of the business which it owns & uses as an aid to generate the profits. So far as cash is concerned investment in fixed assets embodied two important features. 1) It requires cash outlay of high order. 2) The cash is sunk for a longer period whenever these are purchased.

Management of Receivabl es:

In the modern competitive business

environment there is no escape from selling goods on credit The credit policy followed by the business has a direct bearing on the cash in the business. The cash remains blocked to the extent and period of credit allowed. Also credit term like cash discount will affect the flow of cash from debtors.

Inventory: Inventory refers to the stock held by the business. Funds are normall y tied up in three kinds of inventory 1) Raw Material 2) Work in process 3) Finished goods

Payment Policies: It refers to the policies concerning the payment to be released to creditors & suppliers. Extracting maximum credit from suppliers, utilizing cash discount offered by them are some of the ingredients of prudent purchase management policies re sulting in decelerating of cash outflow.

Miscellaneous: Other factors which affect the cash flow may arise due to commercial & statutory requirements. Some of the examples are

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periodic deposit of advance tax installment.

External Factors: External factors are covered by all determinants relevant to the overall economy &/or a particular industry

Monetary & fiscal factors: These factors relate to the money suppl y in the econom y. During period of inflation, the econom y is flushed with money, Price rise has a cascading effect on the output and the business has cash in abundance. On the other hand, during recessionary period demand for goods contracts & econom y faces cash drought.

The fiscal factors too, have a direct bearing on the cash ava ilabilit y in a business Tax is an important fiscal factors which disposable cash in the hands of business determines the size of

Special factors relevant to an industry : In addition to monetary & fiscal factors, there may be some special factors unique to a particular industry as well. These also influence the cash flow of a business.

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Cash Flow Cycle:

Cash

Sales

Purchase

Stock

Labour

WIP

DIAGRAM OF CASH FLOW CYCLE

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TOOLS OF CASH CONTROL

1). CASH BUDGET : - It is the most significant tool of controlling the use of cash. It provides a comparison between actual and budgeted cash receipts and disbursements locating the points of deviations, if any. The financial manager, after ascert aining the reasons for deviations between the actual and budgeted figures, can take the necessary action to remove.

2). INFLOWS AND OUTFLOWS OF CASH :- In order to check the change in cash position of the firm from one period to another a cash flow statement is cash.

3). RATIO ANALYSIS - Ratio anal ysis is also an important tool of cash control. Different ratio, liquidit y ratio, receivables turnover ratio, and inventory turnover ratio and cash position ratios.

ANALYSIS OF CASH MANAGEMENTS WITH THE HELP OF CASH BUDGET:

INVESTMENTS OF SURPLUS FUNDS

As we knew that cash is a non earning asset. Cash not required for the temporary period can be invested in near cash asset i.e., marketable securities, which are readil y convertible into cash, short term securities are considered near cash because they are income bearing and near cash items, excess cash should be invested in marketable securities, which can be promptl y converted into cash for two reasons -: 1) The working capital requirements fluctuate due to reasonabilit y and different business aid. Excess cash in slack season is idle temporaril y and it should be used for investment in short term securities.

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2)

Excess cash may be held as a buffer to meet unpredictable financial need the decision to invest in short term securities must following points : take into account

(a)

SAFETY : there are two t ypes of risk associated with dealing in securities i.e. price risk and default risk. Price risk refers to adverse price movements. Default risk is the risk that an issuing organization may not be able to its obligations safe securities earn low return. A company is normall y interested in receiving as high return as possible, but a proper balance should be maintained between profitabilit y and risk.

(b)

MATURITY : The long maturit y of securities is associated with danger of price fluctuations. So BHEL should prefer to invest in securities; whose remaining life is longer then six to nine months.

Company in the following short term investments may invest the tem porary cash surplus:DEPOSIT ACCOUNTS : - This is a very flexible investment with low risk but interest rates are relativel y low.

TERM DEPOSITS:- Interest rates are higher and depend on length of deposit, but amount invested cannot be drawn except on matur ing.

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ANALYSIS OF CASH MANAGEMENT STATEMENT WITH THE HELP OF CASH FLOW STATEMENT: -

Cash flow statement shows inflows & outflows of cash or sources and application of cash during a periodic period. This statement explains the various transactions, which have affected the cash balance and cumulative impact of these transactions in cash balances between two balance sheet dates. This statement is extremel y helpful in planning for immediate future to avoid serious cash shortages. A proper planning of c ash transactions helps management to have cash available when needed.

INTERPRETATION OF CASH FLOW STATEMENT It helps us to plan of optimum utilization of funds and avoid the situations leading to idle cash \ surplus. It ensures timel y payment of dividend and other major cash transactions. It exhibit in right peers perceive the company's abilit y to meet demand of trade creditors and bank loan. It discloses the reasons that lead to movement of cash balance.

TECHNIQUE OF CASH FORECASTING AND CASH BUDGETING: Cash forecasting means of cash near future. It is very important task because it avoids the problem of over cash and under cash. Cash forecasting is based on two major factors: 2) Forecasting of payment 3) Forecasting of receipts

FORECASTING OF PAYMENT:

Forecasting of payment means is to forecast the payment of near future that is requirement of cash for payment purpose. There are a lot of many payments, which the company pays. Some of them are as follows:

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Day today basic funds requirements Medical reimbursement Traveling allowances

Pending of bills Argent bills Statuary bills - sales tax, excise dut y, reasonable provident fund (RPF), income tax. Priorit y payments.

Employee related payments Salary payments Overtime payments Incentives Festival advances etc.

FORECASTING OF RECEIPTS Forecasting of receipts means to forecast the cash that the company receives. There are several t ypes of receipts. Some of them are as follows:

1. Vocational trainees fees 2. Rent of residential house 3. Medical card fees 4. Tender document 5. Earnest money 6. Securit y deposit 7. Payment by customer

After forecasting the receipts and the payments companies makes a comparison between them and estimate the net difference and on the basis of the difference company estimates the cash requirements.

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CASH FLOW STATEMENT


CASH FLOW STATEMENT

A cash flow statement is a statement showing inflow & outflow of cash during a particular period.

Many organizations follow the procedure of accounting standard 3 for making the cash flow statement.

CASH FLOW STATEMENT PERFORMA (ACC TO AS. -3)

(A) CASH FLOW FROM OPERATI NG ACTIVITIES

Net profit before tax as per profit & loss A/C Adjustment for Depreciation Loss on sale of fixed assets Gain on sale of fixed assets Interest paid or received Dividend received

OPERATING PROFIT BEFORE WORKING CAPITAL CAHANGES

Add - decrease in current assets Increase in current liabilit y Less - decrease in current assets Increase in current liabilit y

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Cash generated from operating activities


Less- Income tax Cash flow before extra ordinary items Add/Less Extra ordinary items Net cash inflow from operating activities.

(B) CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets Sale of fixed assets Purchase of investments Sale of investments Interest & dividend received Net cash used in investing activities

(c) CASH FLOW FROM FINANCIAL ACTIVITIES Repayments of loans Issue of share capital Interest & dividend paid Net cash used in financial activities (A+B+C) Net increase or Decreas e in Cash. Add- opening balance of cash Get closing balance of cash.

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Objective of the study


To see whether the working capital management in BHEL, HARIDWAR is an effective one. To find out the extent of the need and adequacy of the working capital of the firm. To see the liquidity position of the company. To see the changes in the working capital. To determine the requirement of working capital.

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Limitations of the study


1. The data is collected on secondary basis. 2. The time was short to cover the whole information. 3. The management was reluctant in providing there data as where only for office use.

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SUMMARY

The company is able to reduce its working capital from 2004-05 to 2009-10 in a span of six years except the last year i.e.2010-11 which means that company is sincerely utilizing its funds and has reduced the locking of funds. The creditors of the company have increased while the current liabilities of the company have increased which means that company has adopted a good realization policy.

The current ratio of the company in last six years has decreased which reveals that company is moving from aggressive working capital strategy to conservative working capital strategy.

The latest working capital ratio indicates the efficiency of utilization of net working capital is increased in a span of six years.

The working capital leverage ratio of company has increased due to change in sales and current assets which shows that company is getting the favorable results.

The debtors turnover ratio has gone up which shows that the company is collecting its debtors efficiently.

The debtors collection period has decreased from days which show that the company is collecting its debts speedily.

The inventory holding period has reduced which shows that inventory is turning into finished goods very quickly and the company has reduced the locking of funds in inventories.

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The current ratio of the company is continuously decreasing. but it increases in 201011. Increase in current assets is again due to stock, or inventory and sundry debtors. It indicates that the ideal stock is high.

Liquidity ratio of the company is decreasing but then increasing from 2010-11. Through analyze of six years cash flow statements and Ratios Companys inflow of cash is higher than outflow.

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CHAPTER:-II

COMPANY PROFILE:-

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HISTORY

BHEL is India's largest engineering company and one of its kind in this part of the hemisphere. It manufactures a wide range of state of the art power generation equipment and systems besides equipment for industry, transmission, defence, telecommunication and oil business. The first plant of BHEL was set up in Bhopal in 1956, which signaled the dawn of the heavy electrical industry in India. In the early 60's three more major plants were set up in Hardwar, Hyderabad and Tiruchirapalli. The company now has 14 manufacturing divisions, 10 services centers and power sectors regional centers besides project sites spread all over India and also abroad to provide prompt and effective service to customers. BHEL's business broadly covers conversions, transmission, utilizations and conservation of energy in core sectors of economy that fulfill vital infrastructure needs of the country. Its product have established an enviable reputation of high quality and reliability, which is largely due to emphasizes placed all along on contemporary some of the best technologies of the world from the leading companies in U.S.A.,EUROPE, and JAPAN together with technologies from its own R&D centers technologies B.H.E.L .has consistently upgraded its design and manufacturing facilities to international standards by acquiring and assimilating.

B.H.E.L. A CORPORATE GIANT

Established in the late 50's BHARAT HEAVY ELECTRICALS LIMITED (BHEL) is a name which is recognized across the industrial world. It is one of the largest engineering and manufacturing enterprises in INDIA and is one of the leading international companies in the power field. BHEL offers a wide spectrum of products and services for core sectors like power transmission, industrial transportation, oil and gas, telecommunication etc. Besides supply of non-conventional energy systems. It has also embarked into other areas including defense and civil aviation. A dynamic 63000 strong team embodies the BHEL philosophy excellence through continuous striving for state of the art technology. With cooperate headquarters in NEW DELHI, fourteen manufacturing units, a wide spread regional services network and projects sites all over India and even abroad, BHEL is India's industrial ambassador to the world with export presence in more than 50 countries.

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BHEL's range of services extent from project feasibility studies to after sales services, successfully meeting diverse needs through turnkey capability. BHEL has a consistent track record of growth, performance and profitability. The world bank in its report on the Indian Public Sectors, has described BHEL as one of the most efficient enterprises in the industrial sector, at par with international standards of efficiency". BHEL has acquired ISO 9000 certificate for most of its operations and has taken up Total Quality Management (TQM).

All the major units/divisions of BHEL have been upgraded to the latest ISO-9001: 2000 version quality standard certification for quality management. All the major units/divisions of BHEL have been awarded ISO-14001 certification for environmental management systems and OHSAS-18001 certification for occupational health and safety management systems.

BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs based on financial performance. Recently in survey conducted by business India, BHEL has been rated as seventh Best Employer in India.

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BHEL IN INTERNATIONAL BUSINESS:-

BHEL has, over the years, established its references in over 60 countries of the world. These references encompass almost the entire range of BHEL products and services, covering Thermal, Hydro and Gas based turnkey power projects, substation projects, and rehabilitation projects; besides a wide variety of products like: Transformers, Compressors, Valves and Oil field equipment, Electrostatic Precipitators, Insulators, Heat Exchangers, Switchgears, Castings and Forgings etc. Some of the major successes achieved by BHEL have been in Gas-based power projects in Oman, Libya, Malaysia, Saudi Arabia, Iraq, Bangladesh, Sri Lanka, China, Kazakhstan; Thermal Power Projects in Cyprus, Malta, Libya, Egypt, Indonesia, Thailand, Malaysia; Hydro power plants in New Zealand, Malaysia, Azerbaijan, Bhutan, Nepal, Taiwan and Substation projects & equipment in various countries. Execution of these overseas projects has also provided BHEL the experience of working with world-renowned Consulting Organizations and Inspection Agencies. The Company has been successful in meeting demanding requirements International markets, in terms of complexity of the works as well as technological, quality and other requirements viz. HSE requirement, financing package, associated O&M services to name a few. BHEL has proved its capability to undertake projects on fast-track basis. BHEL has also established its versatility to successfully meet the other varying needs of various sectors, be it captive power, utility power generation or for the oil flexibility to exhibited adaptability by manufacturing and supplying intermediate products.

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B.H.E.L. IN INDIA:# REGIONAL OFFICES (POWER SECTORS) *********************************** 1. NEW DELHI (NORTHERN REGION) 2. CALCUTTA (EASTERN REGION) 3. NAGPUR (WESTERN REGION) 4. CHENNAI (SOUTHERN REGION)

# BUSSINESS OFFICES ******************* 1. BANGLORE 2. BARODA 3. BHUBANESHWAR 4. MUMBAI 5. CALCUTTA 6. CHANDIGARH 7. GUWAHATI 8. JABALPUR 9. JAIPUR 10. LUCKNOW 11. CHENNAI 12. NEW DELHI 13. PATNA 14. RANCHI 15. SECUNDRABAD

# MANUFACTURING UNITS *********************** BANGALORE BHOPAL GOINDWAL HARIDWAR HYDERABAD JAGDISHPUR JHANSI RUDRAPUR RANIPET TIRUCHIRAPALLY

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# SERVICE CENTRES ****************** BANGLORE BARODA CALCUTTA CHANDIGARH SECUNDRABAD NEW DELHI NAGPUR PATNA VARANASI

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VISION & MISSION

In-line with Companys Vision, Mission and values, we dedicate ourselves to sustained growth with increasing positive Economic Value Addition and Customer focused business leadership in the Power and Industry Sector.

VALUES

MEETING COMMITMENTS MADE TO EXTERNAL AND CUSTOMERS. FOSTER LEARNING, CREATIVITY AND SPEED OF RESPONSE. RESPECT FOR DIGNITY AND POTENTAIL OF INDIVIDUALS. LOYALTY AND PRIDE IN THE COMPANY. TEAM PLAYING 67

INTERNAL

ZEAL TO EXCEL INTEGRITY AND FAIRNESS IN ALL MATTER

COMPANY'S BUSINESS MISSION AND OBJECTIVES


BUSINESS MISSION ********************* To maintain a leading position as suppliers of quality equipment, systems and services in the field of conversion of energy, for application in the areas of electric power transportation, oil and gas exploration and industries. Utilize company's capabilities and resources to expand business into allied areas and other priority sectors of the economy like defence, telecommunications and electronics. BUSINESS OBJECTIVES ************************ GROWTH: -To ensure a steady growth by enhancing the competitive edge of BHEL defence, telecommunication and electronics in existing business, new areas and international operations so as to fulfill national expectations from BHEL.

PROFITABILITY: -Toprovide a reasonable and adequate return on capital employed, primarily through improvements in operational efficiency, capacity utilization , productivity and generate adequate internal resources to finance the company's growth.

CUSTOMER FOCUS: -To build a high degree of customer confidence by providing increased value for his money through international standards of product quality, performance and superior services.

PEOPLE- ORIENTATION: -To enable each employee to achieve his potential, improve his capabilities, perceive his role and responsibilities and participate and contribute positively to the growth and success of the company. To invest in human resources continuously and be alive to their needs.

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TECHNOLOGY: -Achieve technological excellence in operations by development of indigenous technologies and efficient absorption and adaptations of imported technologies to suit business need and priorities and provide the competitive advantage to the company.

IMAGE: -To fulfill the expectations which stakeholders like government as owner, employees, customers and the country at large have from BHEL.

DIVISIONS OF BHEL:There are 20 Divisions of BHEL, they are as follows:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

HEEP, Haridwar HPEP, Hyderabad HPBP, Tiruchy SSTP & MHD, Tiruchy CFFP, Haridwar BHEL, Jhansi BHEL, Bhopal EPD, Bangalore ISG, Bangalore ED, Bangalore BAP, Ranipet IP, Jagdishpur IOD, New Delhi COTT, Hyderabad IS, New Delhi CFP, Rudrapur HERP, Varanasi Regional Operations Division ARP, New Delhi TPG, Bhopal Power Group (Four Regions and PEM)

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MAJOR COMPETITORS OF BHEL:-

1. Ansaldo 2. Asea Brown Boueri 3. Beehtel 4. Block &Neatch 5. CNMI & EC 6. Costain 7. Electrim 8. Energostio 9. Electro Consult 10. Franco Tosi 11. Fuji 12. GEC Alsthom 13. General Electric 14. Hitachi 15. LMZ 16. Mitsubishi 17. Mitsui 18. NEI 19. Raytheon 20. Rolls Royce 21. Sanghai Electric Co.

Italy Switzerland USA USA China U.K. Poland Russia Italy France Japan U.K. USA Japan Russia Japan Japan U.K. USA Germany China

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RECENT ACHIEVEMENTS OF BHEL

1. BHEL's R&D ops contribute Rs 1,151 cr to turnover in 2005-06 [May 19 2006] 2. BHEL to manufacture 800 mw thermal sets [Apr 14 2006] 3. BHEL inks agreement with IIT Madras for new courses [Apr 25 2006] 4. BHEL secures Rs 80 cr export order from EETC [May 10 2006] 5. BHEL net profit up 62 pc(the tribune,3 June 2006). 6. Workers participation in management yields savings at BHEL, Hardwar

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BHEL Corporation - An Introduction



GOINDWA L HARIDWA R RUDRAPU NEW R DELHI JAGDISHPU JHANS R VARANAS I BHOPA I CALCUTT PATN L AAAAA BAROD A A NAGPU R HYDERABA DddDDDDD RANIPE T TIRUCHIRAPALL Y

Employees - 46274 (As on 1-04-11) Turnover - Rs43337Crores (200910) 14 Manufacturing divisions 4 Power Sector regional centres 8 service centres and 16 regional offices Major Units/Divisions are Certified with ISO 9001(2000), ISO 14001 and OHSAS 18001 Continuous Profits since 1971-72 Caters to Core Sectors viz., Power, Industry, Transportation, Telecommunication, Renewable Energy etc. Manufactures over 180 products under 30 major product groups

BANGALOR EEEEEEEEE EEE

CORPORATE OFFICE MANUFACTURING LOCATIONS SERVICE CENTRES

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Ultra modern blade shop at BHELs Haridwar plant

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HEAVY ELECTRICAL EQUIPMENT PLANT, HARDWAR:

The Heavy Electrical Equipment Plant (HEEP) located in Haridwar, is one of the major manufacturing plants of BHEL. The core business of HEEP includes design and manufacture of large steam and gas turbines, turbo generators, hydro turbines and generators, hydro turbines and generators, large AC/DC motors and so on. Heavy Electrical Equipment Plant, Hardwar of this Multi-unit corporation with 7467 strong highly skilled technicians, engineers, specialists and professional experts is the symbol of Indo Soviet and Indo German Collaboration. It is one of the four major manufacturing units of the BHEL. With turnover of 164059 lacs and PBT of Rs.32489 lacs HEEP added 3000 MW of power to the National grid during 2005-06. HEEP is engaged in the manufacture of Thermal and Nuclear Sets up to 1000MW, Hydro Sets up to HT Runner dia 6300mm, associated Apparatus Control gears, AC& DC Electrical machines and large size Gas Turbine of 60-200 MW. HEEP Hardwar contributes about 44% of Indias total installed capacity for power generation with total capacity of Thermal, Nuclear & Hydro Sets of over 45000MW currently working at a Plant Load Factor of 76% and Operational Availability of 86%. Inspite of acute recession in economy, BHEL Hardwar received recent orders for Mejia-5&6,Sipat, Bhatinda, Chandrapura, Bakreshwar, Santaldih, Bhilai, Dholpur.

HISTORICAL PROFILE:The construction of heavy electrical equipment Plant commenced in Oct.1963after indo- soviet technical co-operation agreement in Sept.1959The first product to roll out from the plant was an electric motor in January 1967.This was followed by first 100 MW Steam Turbine in Dec.1969and first 100MW Turbo Generator in August 1971.The plants break even was achieved in March 1974.BHEL went in for technical collaboration with M/s Siemens, Germany to undertake design and manufacture to large size thermal sets upto a unit rating of 1000 MW in the year 1976.First 200 MWTG set was commissioned at Obra in 1977.

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The continuum of technological advancement subsequently saw the commissioning of 500 MW TG Set in 1984 .The technical cooperation of Gas Turbine manufacture was also signed with M/s Siemens Germany.First 150 MW ISO rating gas Turbine was exported to Germany in Feb1995.Our 250 MW thermal set up at Dahanu Plant of BSES made a history by continuous operation for over 150 days and notching up a record plant load factor greater than 100%.

CORPORATE CITIZEN:-

HEEP Hardwars Strategic plans and its policy & strategy are commensurate with BHEL Corporate / strategic Plan . As first PSU to adopt Corporate Planning as a process . Board meetings for long range development , BHEL has always guided other PSUs in their Corporate planning process .Board meeting , monthly Management Committee meetings, Annual Revenue Budget exercise , Mid term reviews , Apex TQ council reviews, Personnel Heads Meet, Quality Heads Meet , Technology Meets , Product committees meetings, Inter-Unit Quality Circle Meets etc. are the some of crore strengths of BHEL Corporations vast network.

KEY CUSTOMERS AND SUPPLIERS :HEEPs customer profile ranges from State Electricity Boards,Government Power utilities like NTPC, NPC, NHPC to IPPs like Reliance Energy. HEEP has also supplied Gas Turbine sets to overseas customers in Libya&Iraq. Power Sector Regions of BHEL are its key internal customers. In view of expected market scenario,BHEL has strategically decided that HEEP will concentrate on coal based Higher Rating Thermal Sets for domestic market to fulfil the countrys vision of adding 107,000 MW capacity to achieve Power on Demand by 2012. Our key customer, NTPC has drawn up plan for capacity addition of 20,000MW by 2012. HEEP has planned for execution of 34,619MW by 2012.

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FAVOURABLE BUSINESS ENVIRONMENT:Power Sector has to grow over 10% annually to reach the 7% GDP level. Thus, the demand for thermal sets will remain high. Central Electricity Authority (CEA) is the guiding authority for Power Sector strategies in our country. BHEL representatives, along with representatives from various domestic customers, are an integral part of various committees formed by CEA. This enables us to guide and understand the market requirements and future challenges. To meet the 11th Five Year Plan target of adding 61,000MW, CEA has planned addition of 23 nos. standardized 500MW sets for faster project execution and cost reduction. BHEL, including HEEP, is a part of this process. CEA has standardized for the next capacity of 800MW sets and has asked BHEL to prepare itself for manufacturing and supply in the 11th Five Year Plan. BHEL has tied up with Siemens for upgradation of technology. Further CEAs stress on R&M of ageing Power Plants is also providing business opportunity to unit.

MAJOR CHALLENGES:The favorable business scenario has given the unit a major challenge of establishing Power Infrastructure of the country in close co-ordination with its key customers. HEEP has committed itself to meet the countrys requirements. To cater to the needs of higher rating sets of 800MW, HEEP has collaboration with Siemens.

STRATEGIC CHALLENGES: Key Business Cycle time reduction State of the art technology Cost reduction Operational Timely delivery Material cost reduction Productivity improvement

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Effective utilization of machines Human Resource Motivation of employees Skill & Knowledge management

MAJOR MILE STONES:1975 1978 1982 1993 1995 1997 1997 1998 Job Redesign concept launched for FIRST time in India. well documented Suggestion Scheme launched. Launched Productivity Movement & Quality Circle. Concept of ISO 9001 quality System. Adopted EFQM model of TQM for achieving Business Excellence. BHEL one of the 9 PSEs declared Navratna by Govt. of India . National Productivity Award for HEEP by the President of India. Certificate of Merit by National Productivity Council for Outstanding Performance for 2nd consecutive year. 1998 1999 Accreditation of U stamp. Accreditation of R Stamp from National Board of Boiler and Pressure Vessel Inspector, USA . 1999 1999 1999 1999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine Combustion Chambers INSAAN Award for Excellence in Suggestion for 9thconsecutive year Launching of 5s concept PCRI recognized as Environmental Lab by Haryana State Board for Prevention and Control of Pollution 1999 2000 2001 2001 Accreditation of ISO 14001-Enviornment management system CII Site Visit for CII-EXIM Business Excellence Award-2000 Top Management TQM Workshop at Rishikesh and HRDC INSAAN Award for excellence in Suggestion for 11th consecutive year 2001 Launching of QTM & RCA at HEEP Hardwar by CMD

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2002 2002 2003

Launching of delivery Index, Turnover Index and Manufacturing Index JBE Workshop of Apex TQM Group at Tehri to evolve Business policy Commendation for Strong Commitment to Excel in CII-EXIM Bank Award

2004 Commendation for Significant Achievement in CIIEXIM Bank Award. 2005 Award given by Institute of Cost and Works Accountants of India for "Excellent Work in the field of Management Accounting and Cost Concepts".

OVERVIEW OF FINANCE FUNCTIONS

Role of finance functionFinance function is the backbone of any organization. The finance function plays a very critical role in the maximization of shareholders who provide the funds to the company. This objective is being achieved by the finance department, which provides the carious information on the financial parameters such as cash flows, profitability, cost and margin, assets, working capital and shareholder value for the purpose of efficient utilization of resources resulting in better profitability of the company.

The various activities undertaken by the finance department achieve the aforesaid objectives, may be summarized as follows

Maintenance of account books, cost records. Preparation of salary bills and other related payment to employees: PP, bonus, TA, departmental advances of PF accounts etc. Preparation of Profit & Loss a/c and Balance Sheet. Generation of various MIRs for management use: MIRs relating to turnover, profitability, cash requirements, inventory. Coordination with company auditors, Govt. auditors, cost auditors and tax auditors.

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Decisions relating to purchase and sales. Investment decisions: capital investment decisions and working capital management decisions. Financing decisions: decisions relating to financing-mix or capital structure or leverage. Dividend policy decisions.

COST SECTION
Cost- section of the company is divided into following two sections viz, PRODUCT COST & CENTRAL COST and these deals with the following functions: (i) (ii) (iii) (iv) Determination of periodic profits including inventory valuation. Determination of pricing policy of the company. Work related to capital expenditures of the company. Developing variance Management Information report for different parts of management for purpose of cost control and reduction. (v) (vi) Valuation of work in progress and finished goods. Interaction with management of top management link for achieving cost control and cost reduction and thereby improving bottom line of the company. (vii) Preparation of cost sheet of different product and their analysis for future planning.

SALES SECTION
Sales accounts section will deal mainly with the following items :(i) Scrutiny and vetting of estimates / quotation for sale of products / services, wherever financial concurrence is required. (ii) (iii) (iv) Scrutiny and vetting of agreements for sales of products and services Invoicing for sale / advance or progressive payment / erection income and other. Maintenance of subsidiary records like sales journals / sales daybook, sundry debtors ledgers, advances from customer ledger etc. (v) Payments, recovery and accounting of sales tax, excise duty.

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(vi)

Accounting of claims on carriers/ insurance companies for missing items / damages on outward consignments.

(vii)

Scrutiny, payments and accounting of bills of carriers and insurers and other miscellaneous claims relating to the outwards consignments.

(viii)

Calculation and scrutiny of data for payments of royalties to the collaborators.

STORES SECTION

For the convenience of performance of various function it is divided in to further three sections which are as follows: a) Stores bills. b) Stores review. c) Foreign payment.

They deal mainly with the following items of works: Payment of suppliers bills including bills for advances -indigenous and foreign. Pricing of stores receipt vouchers including fixed assets vouchers and fixed assets receipt vouchers. (iii) Maintenance of accounts of advances to suppliers, claims recoverable, claims for short suppliers, rejections and rectifications of materials and sundry creditors. (iv) Opening of letter of credit and arranging payments to foreign suppliers under foreign credit / differed payment agreements. (v) Payment of bills for ocean freight, port trust dues, custom duty, local agents commission and clearing agents bills, transit insurance bills, bills of contractors for transport /handling etc. and accounting of such payments are made at regional offices.

(i) (ii)

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(vi)

Maintenance of accounts of material issued on loan and materials issued to subcontractors.

(vii)

Keeping account of earnest money and security deposits received from tender and suppliers.

(viii)

Adjustment of stores in transit to be made at the close of the year.

PAYROLL SECTION
This section deals mainly with the following functions: (i) (ii) Preparation of monthly wage bills. All account work related to personal payments and disclose profit and loss account of the company. (iii) (iv) Dealing with income tax authority with regard to personal taxation of employee. Dealing with other statutory authority such as P.F. Commissioner, ESI (employee state insurance). (v) To ensure correct payment of salary and wages and other benefits to employees in, telephone and miscellaneous payments. (vi) (vii) Preparation of monthly wage bills. All account work related to personal payments and disclose profit and loss account of the company. (viii) (ix) Dealing with income tax authority with regard to personal taxation of employee. Dealing with other statutory authority such as P.F. Commissioner, ESI (employee state insurance).

WORKS SECTION
Works section of the company is dealing with the following functions: Payments of contractors bills including bills for advance.

(i)

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(ii)

Maintenance of accounts of contractors with regard to security deposits, earnest money, progressive payments.

(iii) (iv)

215 maintenance of accounts of materials issued on loans to contractors. All accounting work related to capital expenditure in progress on erection of plant & machinery and building.

(v)

All other miscellaneous work relating to hiring of various facilities.

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CHAPTER:-III

RESEARCH METHODOLOGY

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Working capital management


Net working capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. In order to protect their interests, short-term creditors always like a company to maintain current assets at a higher level than current liabilities. It is a conventional rule to maintain the level of current assets twice the level of current liabilities. However, the quality of current assets should be considered in determining the level of current assets vis-a vis current liabilities. A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound. A negative working capital means a negative liquidity and may prove to be harmful for the companys reputation. Excessive liquidity is also bad. It may be due to mismanagement of current assets. Therefore prompt and timely action should be taken by management to improve and correct imbalances in the liquidity position of the firm. Net working capital concept also covers the question of judicious mix of long-ter and short-term funds for financing current assets. For every firm there is a minimum amount of net working capital, which is permanent. Therefore a portion of the working capital should be financed with the permanent sources of funds such as equity, share capital, debentures, long-term debt, preference share capital or retained earnings. Management must decide the extent to which current assets should be financed with equity capital or borrowed capital.

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Research Methodology and Data Source

Introduction to research:Research refers to a search for knowledge. Research is scientific investigation.

ACCORDING TOREDMAN and MORY, A market research cant draw decision, but it helps in the task of decision making. Research is a systematic effort to gain new knowledge. ACCORDING TO LERNERS DICTIONARY OF CURRENT ENGLISH, Research is careful investigation or inquiry especially through search for new facts in any branch of knowledge.

OBJECTIVES OF RESEARCH
The main idea behind the research is to study the objectives of the research design and to ensure that data collected is relevant to the objectives. The main aim thus to research is to find out the truth, which is hidden, and which has not been discovered as The purpose of research is to discover an answer to question through the application of specific procedures.

RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the problem. In it researcher generally adopt studying the research problem along with logic behind them. It is necessary for the researcher to know not only the research method/ techniques but also the methodology.

When we talk of research methodology, we not only talk of research method but also consider the logic behind the method we use in context of our research study and explain why we are not using others. So the researchresult is capable of being evaluated either by the researcher himself or by others.

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RESEARCH PROCESS

Identify the problem

Set the objective

Develop the Research Plan

Data collection

Analysis of Data

Finding (results)
All these steps are done systematically as one by one to find out the results. The first step in the research process is to identify the problem and set objective carefully and agree on the research objective.

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The second step to research process is to develop the most efficient research plan for gathering the needed information. Designing the research plan call for gathering the primary data, secondary data, or both, research instruments, sampling plan & contacts methods

The next step in the research process is data collection. It is most expensive and most prone to error. Data collection methods are rapidly improving, thanks to modern computer and tele communication.

The forth step in research process is to analyze the collected data. In this step researcher tabulate the data and develop the frequency distribution.

The last step in the research process is that the researchers present their findings to the relevant parties. The researcher should present the major findings that are pertinent to major marketing decision facing management.

Research methodology constitute of research method.

The methodology which I have adopted in my report: Research methodology is a way to systematically solve the research problem.

Data Collection:

Collection of data is one of the important aspects of research methodology. This consists of gathering the data from various sources.

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Secondary data:
Data is important to collect the necessary information. Data may be of two types: primary and secondary data.

Secondary data is one of the parts of research methodology through which information about the project can be collected. For this research data is collected through internet and various books. Different financial data like annual report, balance sheet, books and bank manual, books and budget manual were used.

This research is based on secondary data. Data used is the balance sheet of BHEL, Haridwar from 2005-06 to 2010-2011.

Analysis tool used is ratio analysis.

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CHAPTER:-IV

ANALYSIS AND INTERPRETATION

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Analysis and interpretation:-

Analysis and interpretation of data is the next step of research methodology in this we have analyses the working capital and cash management of the company. Through this we were able to find out the reasons of stock piling and other related issue affecting the working capital management in the organization. Various graphs, pie chart and table were used to present and interpret the results.

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DATA ANALYSIS

Graphical Representaion Of Working Capital In BHEL

Net Working Capital

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Interpretation: If we see from the above table, it can be clearly seen that net working capital has continuously increased to 109899 Lacs in 2010-11 from 28745 Lacs in 2005-06. it is good for the company because of its turnover is also increased. This improvement does not come accidentally but considerable measures have been taken to control working capital in organization

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WORKING CAPITAL TURNOVER RATIO This ratio helps to measure the efficiency of the utilization of the working capital. It signifies that for an amount of sales, a relative amount of working capital is needed. This ratio shows the direct relationship between the sales and working capital.

W.C. turnover ratio = sales/working capital

Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Calculations 129135 / 28745 181556 / 17905 23316 / -9290 285329 / -21899 321461 / 19144 423058/109899

Ratio 4.49:1 10.13:1 -2.50:1 -13.02:1 16.79:1 3.84:1

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GRAPHICAL PRESENTATION OF WARKING CAPITAL TURNOVER RATIO

W.C. turnover ratio


2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Interpretation: By observing the above ratio we find that the organization was using its working capital in the best possible manner from 05-06 to 10-11 .In this Graph this ratio increase from 4.49 to 10.13 but in the year 2008-09 this ratio has rapidly comes down & in the year 2009-10 this ratio is increase again .This increase was because the sales do increase in the same ratio as the working capital decrease so it shows that working capital management is in a proper manner and in accordance to sales.

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GRAPHICAL PRESENTATION OF CURRENT ASSETS TURNOVER RATIO


CURRENT ASSETS TURNOVER RATIO

This ratio indicates the efficiency with which current assets turn into sales. A higher current assets turnover rate or a lower current assets turnover period is better. It indicates the efficient use of the funds and the reverse case indicates reduced lock-up of funds in current assets. C.A.turnover ratio = sales / currentassets

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Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Calculations 129135 / 130739 181556 / 159187 23316 / 191346 285329 / 293917 321461 / 373757 423058/495992

Ratio 0.99:1 1.14:1 0.12:1 0.97:1 0.86:1 0.85:1

Interpretation: B y observing t he above ratio we find that current assets t urnover rate i ncreased from 05-06 to 06-07. Then aft er there was a bi g decli ne in 07 -08 but ver y s oon the compan y improved its current assets position from 0.12 t o 0.97 in 08 -09. In 09-10 & 10-11 th ere were a small decli ne in this rate whi ch shows that current assets m anagem ent i s improved.

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ANALYSIS OF DEBTORS MANAGEMENT WITH THE HELP OF CERTAIN RATIOS: -

DEBTORS TURN OVER RATIO:Debtors turn over ratio establishes a relationship between net credit sales and average trade debtors. The major objective to calculate ratio is to determine the efficiency with which the trade debtors are managed. We can easily calculate this ratio with the help of the following formula: Debtors turn over ratio =Net credit sales / average debtor YEAR Turnover AVERAGE Debtors Ratio 2005-06 129135 49122 2006-07 181556 70507 2007-08 23316 99839 2008-09 285329 136674 2009-10 321461 168511 2010-11 423058 212896

2.6

2.5

0.23

2.08

1.90 (Rs.in lacs)

1.98

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Ratio
2005-06
2006-07 2007-08 2008-09 2009-10 2010-11

INTERPRETATION :
It indicates the speed with which the debtors turnover an average each year. In general a high ratio indicates the shorter collection period which implies prompt payments by debtors and a low ratio indicates a long collection period which implies delayed payment by debtors. So we can see from the graph and the table above that in the last six years the company is trying to improve the debtors turnover ratio. In 2005-06 it is 2.6 (High) but it comes down in 2007-08 i.e. 0.23, but then after this it increases rapidly from 0.23 to 1.98 in 2010-11. It depicts that how efficiently debtors are collected.

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AVERAGE COLLECTION PERIOD:AVERAGE COLLECTION PERIOD =365 / DEBTORS TURNOVER Year Turnover Debtors Ratio Days of Inventory 2005-06 ACTUAL 129135 49122 2.6 140 2006-07 ACTUAL 181556 70507 2.5 146 2007-08 ACTUAL 23316 99839 0.23 1586 2008-09 ACTUAL 285329 136674 2.08 175 2009-10 ACTUAL. 321461 168511 1.90 192 2010-11 ACTUAL 423058 212896 1.98 184

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Graphical representation of average collection period

No. of days
2005-06
2006-07 2007-08 2008-09 2009-10 2010-11

Interpretation
We can check the managerial efficiency with the help of this ratio by the comparison of average collection period and credit policy of the company form the table. we can clearly see that in the year 2005-06 it was 140 days, but in year 2007-08 there was a big increment 140 to 1586. This indicates that the company was following a very liberal policy in 2007-08 but it improved in the succeeding years. If the days are increasing it indicates that the bad debts are also increasing. It is difficult to lay down a standard collection period; it depends upon the nature of the business. As a general rule the receivables should not exceed 4 to 5 months of credit sales.

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ANALYSIS THROUGH RATIO ANALYSIS;

CURRENT RATIO: - It is the best ratio to find relationship between the current assets and current liabilities. We can easil y calculate the current ratio with the help of the following formula: Current ratio = current assets/current liabilities

Current Ratio
2004-05 2005-06

2006-07
2007-08 2008-09 2009-10 2010-11

INTERPRETATION: As we all know that the current ratio of any company may be 2:1, but according to the USA accounting standard any company should maintain a ratio of 1.33:1. Moreover we can see from the above calculations that the current ratio of BHEL in 2010- 11 is 1.28:1 which is quite unfavorable and bad from the companys point of view, the current assets and current liabilities were in inappropriate proportion. It means that the company was not quite able to meet out its liabilities. The current ratio of the company is rise in 2005 -06 i.e 1.28 from 1.15, in 2007 -08 & 2008 -09 it was decrease. But after this its increases till the year 2010-11 because current assets is increases due to high stock, or inventory and sundry debtors. It indicates that the ideal stock is High, which is favorable for the company.

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LIQUIDITY RATIO :- This ratio establishes a relatio nship between

quick

assets and current liabilities. The major objective to compute this ratio is to measure the abilit y of the firm to meet its short -term obligations as and when due without rel ying upon the realization stock. We can easil y calculate this ratio with the help of the following formula: Liquidity ratio= liquid assets/current liabilities

Graph showing comparison on the basis of liquidity ratio

Liquidity ratio
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

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INTERPRETATION

Liquid ratio indicates that what amounts of liquid assets are available for each rupee of current liability. We know that the liquid ratio of any company may be 1:1, is considered to be satisfactory. Now comparing the company's position according to the liquid ratio. In 2004-05 the liquid ratio of the company is 0.50:1 which was less than the standard ratio that indicates liquid position of the company was not good. After then it increases till 2006-07. There was a big fall in 2009-10 i.e. it was 0.14:1.But again it followed a upward trend in 2010-11 i.e. 0.75:1. It means that the liquidity position of the company is constantly decreasing it is due to large amount of current liabilities as compared to liquid assets. This is not better from management's point of view. As more of amount is blocked in the debts and chances of bad debt will increase. Also there is a small increment in 2010-11 which is quite favorable condition for the company.

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CHAPTER:-V

FINDINGS AND SUGGESTIONS

103

FINDINGS
There obtained some weak and strong points of the company during the analysis of the financial statements which are as follows: As just only the analysis of the financial statement is not only mean to reach our conclusion we can substitute it for sound judgment. This performance is significant in the backdrop of the delay deferment of orders in BHEL`s business areas. The company achieves this due to its strong basics and continues focus on strong strategies. The company has also drawn up a new vision, mission and values statements. The major problem of the company is that it fails to meet its commitment to its customers in terms of delivery orders even after they have put lots of efforts to overcome the problem.bhel is facing major threat from china as they are offering power at much lower rates BHEL has lost 4 to 5 orders to china.

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SUGGESTIONS

From the above finding we can say that B.H.E.L is in good financial position. Above analysis of working capital shows that company has effective & sufficient level of working capital. Company has adopted sound policies. It should improve its investment climate due to positive impulses in the power sector like the on- going reforms, thrust on accelerated power development programme, extension of accelerated generation & supply programme. side by side, they should also conduct some value added programmes. No doubt BHEL and its cash department are very good. They are performing their functions in a very impressive way but if the company thinks about these following points then the working will be better.

Cash

department

is

the All

backbone

of

the

finance are

department through

and this

organization department.

itself.

money transactions

done

Staff of the cash department should be sufficient because the load always very much there on them. So it will be good if organization increases its working force for their cash department.

Cash section should not be very far away from other departments like finance department which controls the cash section. So that employees

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would not have to face difficulties, because every time they have to go there again and again. Cash section should not be very small in size. Speciall y book keeping section. It should not be very congested. So organization must provide enough space Cash department should be totall y connected with corporate office. It works on the instruction of corporate office. That is why the system is called centralized cash management system. All tools should be used by cash department & in a efficient and reliable way. Salary disbursement, system should be marvelous and other tools

like bank book, cash book, voucher, cash draft etc. should be helpful to maintain account up to date and in a systematic form.

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BIBLIOGRAPHY

Website www.bhelhwr.co.in I.M. PANDAY, FINANCIAL MANAGEMENT K.G.GUPTA, FINANCIAL MANAGEMENT J.D. AGGARWAL , WORKING CAPITAL MANAGEMENT

CASH AND BANK MANUAL BOOKS AND BUDGET MANUAL

BHEL- BALANCE SHEET 2010-2011

BHEL- ANNUAL REPORT

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ANNEXURE

108

Bharat Heavy Electricals Ltd. :BalanceSheet(Rs in Cr.) : Profile : Management : Profit & Loss : Balance Sheet : Halfyearly : Quarterly : Ratios : Corporate Actions : Corporate News :
Quotes
Year Equity Share Capital Share Application Money Preference Share Capital Reserves & Surplus Secured Loans Unsecured Loans Total Gross Block Less : Revaluation Reserve Less : Accumulated Depreciation Net Block Capital Work-in-progress Investments Current Assets, Loans & Advances Less : Current Liabilities & Provisions Total Net Current Assets Miscellaneous expenses not written Total Book Value of Unquoted Investments Market Value of Quoted Investments Contingent liabilities Number of Equity shares outstanding 2012-13 489.52 0.00 0.00 29954.58 1286.00 129.20 31859.30 10585.56 0.00 6127.07 4458.49 1171.59 429.17 64069.20 38269.15 25800.05 0.00 31859.30 429.17 0.00 3441.04 244.76 2011-12 489.52 0.00 0.00 24883.69 0.00 123.43 25496.64 9542.79 0.00 5245.98 4296.81 1347.61 461.67 60669.93 41279.38 19390.55 0.00 25496.64 461.67 0.00 6500.34 244.76 2010-11 489.52 0.00 0.00 19664.32 0.00 102.14 20255.98 7917.62 0.00 4516.70 3400.92 1733.76 439.17 53686.44 39004.31 14682.13 0.00 20255.98 439.17 0.00 5129.50 48.95 2009-10 489.52 0.00 0.00 15427.84 0.00 127.75 16045.11 6579.70 0.00 4164.74 2414.96 1550.49 79.84 44515.53 32515.71 11999.82 0.00 16045.11 79.84 0.00 2538.13 48.95

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