PROJECT REPORT

ON

“A STUDY ON WORKING CAPITAL MANAGEMENT WITH THE

REFERENCE TO BHARAT HEAVY ELECTRICAL LIMITED (BHEL),
MYSORE ROAD BANGALORE”

SUBMITTED IN PARTIAL FULFILLMENT OF BACHELOR OF

BUSINESS MANAGEMENT DEGREE COURSE OF BANGALORE

UNIVERSITY

2013-2014

BY

ASHRAF AABDI

REG NO. 11YAC18033

UNDER GUIDANCE OF

MRS. RAJEEVI NAYAK

PRESIDENCY COLLEGE, KEMPAPURA, HEBBAL,

BANGALORE - 560024

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 DECLARATION

I hereby declare that this titled as “A STUDY ON WORKING CAPITAL

MANAGEMENT WITH THE REFERENCE TO BHARAT HEAVY

ELECTRICAL LIMITED (BHEL), MYORE ROAD BANGALORE” is my

original work under the guidance of Mrs. Rajeevi Nayak towards the partial

fulfilment of the requirements for BBM course of Bangalore University. This has

not been submitted earlier for award of any other degree by Bangalore University

or any other University.

DATE: NAME: Ashraf Aabdi

PLACE: BANGALORE REG NO: 11YAC18033

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Chapter no. Title Page no.

CHAPTER 1 – INTRODUCTION
This chapter includes introduction to BHEL, Evolution of BHEL,
1.
Stages of BHEL evolution, Future prospects of BHEL in India.
Meaning of working capital, Introduction to working capital, use
and significance of working capital, Steps involved in working
capital, Classification of working capital, advantages of working
capital, Limitations of working capital.
2. CHAPTER 2 – RESEARCH DESIGN
 Title of the study
 Executive summary
 Objectives of the study
 Statement of the problem
 Research Methodology
 Tools of Data Collection
3. CHAPTER 3 – COMPANY PROFILE
This chapter contains the historical background of the BHEL,
organisational structure, company vision, future plans and
prospects of the BHEL.

4. CHAPTER 4 – DATA ANALYSIS AND

INTERPRETATION
Analysis and interpretation from the data collected, tables and
graphs representing it.

5. CHAPTER 5– FINDINGS AND CONCLUSIONS

This chapter contains the findings drawn from the study.

6. CHAPTER 6 – SUGGESTIONS AND

RECOMMENDATIONS
This chapter contains few suggestions to the company.

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 ANNEXURES
This chapter contains the balance sheets and profit and loss
accounts of the bank from 2010-2013
BIBLIOGRAPHY
Name of the books, authors, magazines and websites referred.

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LIST OF TABLE’S WITH PAGE NUMBERS
TABLE NO. TABLE NAMES PAGE NO.

4.1.1 Table showing net working capital

4.1.2 Table showing percentage of net working capital

4.2.1 Table showing current ratio

4.2.2 Table showing quick ratio

4.2.3 Tale showing cash ratio

4.3.1 Table showing working capital turnover ratio

4.3.2 Table showing current asset turnover ratio

4.3.3 Table showing return on current asset

4.3.4 Table showing work in progress to current asset

4.3.5 Table showing finished goods to current asset

4.4.1 Table showing debtors turnover ratio

4.4.2 Table showing average collection period

4.5.1 Table showing creditors turnover ratio

4.5.2 Table showing average payment period

4.6.1 Table showing inventory turnover ratio

4.6.2 Table showing raw material conversion period

4.6.3 Table showing work in progress conversion period

4.6.4 Table showing finished goods conversion period

4.6.5 Table showing average inventory ratio

4.6.6 Table showing stock turnover ratio

4.6.7 Table showing average age of stock

4.6.8 Table showing spare part index

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LIST OF GRAPHS WITH PAGE NUMBERS
GRAPH NO. GRAPH NAMES PAGE NO.

4.1.1 Graph showing net working capital

4.1.2 Graph showing percentage of net working capital

4.2.1 Graph showing current ratio

4.2.2 Graph showing quick ratio

4.2.3 Graph showing cash ratio

4.3.1 Graph showing working capital turnover ratio

4.3.2 Graph showing current asset turnover ratio

4.3.3 Graph showing return on current asset

4.3.4 Graph showing work in progress to current asset

4.3.5 Graph showing finished goods to current asset

4.4.1 Graph showing debtors turnover ratio

4.4.2 Graph showing average collection period

4.5.1 Graph showing creditors turnover ratio

4.5.2 Graph showing average payment period

4.6.1 Graph showing inventory turnover ratio

4.6.2 Graph showing raw material conversion period

4.6.3 Graph showing work in progress conversion period

4.6.4 Graph showing finished goods conversion period

4.6.5 Graph showing average inventory ratio

4.6.6 Graph showing stock turnover ratio

4.6.7 Graph showing average age of stock

4.6.8 Graph showing spare part index

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1
 CHAPTER-1
INTRODUCTION

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 CHAPTER-1

INTRODUCTION

This project is based on study of ―Working Capital Management at Bharat Heavy

Electricals Limited. Working Capital is the life blood of the company; it shows

the liquidity position of the firm to handle day to day operations. Working

capital specifically inventory management holds the major part in the firm

because of more blockages of the funds in current assets, current liabilities and

inventory lead to lose of opportunity cost.

In this study, analysis has been done with the help of financial ratios and the

analysis helps in measuring the working capital position of the company which

will also help companies to assess their liquidity position, inventory holding cost

and receivable and payable management.

The working capital management is to ensure that the firm is able to continue its

operations and that it has sufficient cash flow to satisfy both maturing short-term

debt and upcoming operational expenses. It involves the relationship between a

firm‘s short-term assets and its short-term liabilities. Working capital gives

investors an idea of the company's underlying operational efficiency. Money that

is tied up in inventory or money that customers still owe to the company cannot

be used to pay off any of the company's obligations. So, if a company is not

operating in the most efficient manner (slow collection), it will show up as an

increase in the working capital. Various financial ratios are used to understand

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the short term financial position, turnover rates, conversion periods, inventory

holding period and involvement of current goods in raw material, work in

progress and finished goods are analysed to understand the performance of

BHEL in managing working capital.

1.1 LITERATURE REVIEW

A literature review is secondary research that aims to review the critical points of

current knowledge including substantive findings as well as theoretical and

methodological contributions to a particular topic. As literature reviews are

secondary sources, and as such, do not report any new or original

experimental work. It is also a critical and in depth evaluation of previous

research. It is a summary and synopsis of a particular area of research, allowing

anybody reading the paper to establish why you are pursuing this particular

research program.

1) According to Kesseven Panache researcher from School of Public Sector

Policy and Management, University of Technology, Mauritius, in his

International Review of Business Research Paper Trends in Working Capital

Management and its Impact on Firms Performance An Analysis of Mauritian

Small Manufacturing Firms- has studied how the trend in working capital needs

and profitability of firms are examined to identify the causes for any significant

differences between the industries.

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The purpose of this paper is to examine the trends in working capital management

and its impact on firm’s performance. The dependent variable, return on total

assets is used as a measure of profitability and the relation between working

capital management and corporate profitability is investigated for a sample of 58

small manufacturing firms, using panel data analysis for the period 1998–

2003.The regression results show that high investment in inventories and

receivables is associated with lower profitability. The key variables used in the

analysis are inventories days, accounts receivables days, accounts payable days

and cash conversion cycle. This study has shown that the paper and printing

industry has been able to achieve high scores on the various components of

working capital and this has positively impact on its profitability. On this

premise this industry may be referred as the hidden champions and could thus

be used as best practice among the SMEs. This analysis has been constrained by

the sample size and the nature of the data, which could have well affected the

results.

2) According to Morris Lumberton University of Central Arkansas in his

research on Financial Analysis And Working Capital Management Techniques

Used By Small Manufacturers‘: Survey And Analysis has studied on the

importance of and utilization of financial analysis and working capital

management concepts by small manufacturers. The article summarized the

responses of 103 small manufacturers to a mail questionnaire survey sent to the

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chief financial officer of 477 firms located in the southern region of the U.S. The

findings were encouraging; a significant percentage of the small firms expressed

little or no usage of the concepts. While this study did not do an analysis of

usage by the size of firms, the author did observe that the use of these concepts

seemed to increase as firm size increased.

3) According to ―Sharif‖ Dean of Faculty Affairs Office, IIT Kanpur in his

research on ‗A Comparison of Purchase and Inventory Management System of

two Educational Institutes has studied on the current practices of Inventory

management system being followed in two world class Institutions Service

Industry ―Academic Institute‖ (Technical) and Service Industry ―Academic

Institute‖ (Management) in the field of technology and management education.

Important contribution of the research is that researcher address the purchase and

inventory management issues in technology and management institutes. Further,

researcher has made a set of observations and recommendations in the study.

Some of the recommendations can be adopted with immediate effect while

some of them could be adopted in phases as it may not be possible to alter the

whole system instantly at few places. The suggestions are likely to improve the

management of the inventory system in both the organizations which would

ultimately result in better customer satisfaction, reduce cost of inventory

purchased and carrying costs and achieve the best results. The study has

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however been limited to only two organizations. To understand the

differences as well as cause- effects, a more detailed study across other service

organizations like Health care and banking as well as Manufacturing

organizations like Textile and Defence should be undertaken.

1.2 INDUSTRY OVERVIEW

HEAVY ELECTRICAL INDUSTRY

Heavy Electrical Industry is an important manufacturing sector, catering to

the need of energy sector & other industrial sectors. Major equipment‘s like

boilers, turbo generators, turbines, transformers, condensers, switch gears and

relays and related accessories are manufactured by Heavy Electrical

Equipment manufacturers. The performance of this Industry is closely linked

to the power programme of the country. The Government of India has an

ambitious mission of Power for All by 2013 and planned power capacity

addition of 78,577 MW in the 11th five year plan (2008-13). Companies with

average monthly production/turnover exceeding Rs. 10crores have been regarded

as major PSEs. There is a strong manufacturing base for the manufacture of

Heavy Electrical equipment‘s in the country. Manufacturers of Heavy Electrical

equipment have absorbed latest technology available in the world up to a unit

capacity of 660 MW and gearing up for adopting super- critical technology for

unit size of 800 MW and above for thermal sets. Industry is augmenting its

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installed capacity to meet the ambitious 11th Plan target and future growth of

installation of nuclear reactors in the country. Gas turbines up to 260 MW Unit

capacity and Transmission and Distribution equipment up to higher voltage class

of 765 KV are also being manufactured by Indian Industry. Heavy Industry in

India comprises of the heavy engineering industry, machine tool industry, heavy

electrical industry, industrial machinery and auto-industry. These industries

provide goods and services for almost all sectors of the economy, including

power, rail and road transport. The machine building industry caters the

requirements of equipment for basic industries such as steel, non-ferrous metals,

fertilizers, refineries, petrochemicals, shipping, paper, cement, sugar etc.

Electrical equipment‘s such as transformers, switchgears etc. are used by

several sectors of the Indian Economy. Some major areas where these are used

are the multi-core projects for power generation including nuclear power

stations, petrochemical complexes, chemical plants, integrated steel plants, non-

ferrous metal units, etc. New power plants to be set up will generate substantial

demand for heavy electrical equipment. The Industry has been continuously

upgrading the technology and is now capable of taking up turnkey contracts

both in India and abroad. Technology transfer is allowed in this core sector of

industry with 100 percent FDI. A strong manufacturing base has already been

established for heavy electrical equipment and existing installed capacity of the

industry is of the order of 6,400 MW of thermal, 2,240 MW of Hydro and about

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600 MW of Gas based power generation equipment per annum. The Indian

Heavy Electrical Industry is also capable of manufacturing and supplying of

equipment‘s required for setting up nuclear power plants. The present share of

the Indian electrical industry is about 66 percent of the country‘s power

generation capacity. The Heavy Electrical Industry is capable of manufacturing,

transmission and distribution equipment up to 400 KV AC and high voltage DC.

The industry has taken up the work for up gradation of transmission to the next

higher voltage system of 765 KV and have upgraded their manufacturing

facilities to supply 765 KV class transformers, reactors, bushing and insulators,

etc. Large electrical equipment used in steel plants, petrochemical complex and

other such heavy industries are also being manufactured in the country. The

domestic heavy electrical equipment manufacturers are making use of the

developments in the global market with respect to product designs and upgrading

of manufacturing and testing facilities.

 Department of Heavy Industry administers 32 operating Central Public

Sector Enterprises and assists them in their effort to :

- Improve capacity utilisation & increase profitability

- Generate resources and Re-orient strategies to become more competitive.

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 CHAPTER-2
RESEARCH DESIGN

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 CHAPTER-2
RESEARCH DESIGN

2.1 TITLE OF THE STUDY

The title of the study is “A Study on Working Capital Management with reference

to Bharat Heavy Electrical Limited”

2.2 STATEMENT OF THE PROBLEM

The study on working capital management was taken at Bharat Heavy Electrical

Limited (BHEL). Company needs working capital to meet its day to day

financial needs. But investment in working capital is not profitable. Both over

investment and under investment in working capital are harmful for the

organisation. On considering this problem faced by BHEL. A study is carried

on to understand the management of working capital.

2.3 RESEARCH DESIGN OF THE STUDY

 The study is carried out using the secondary data of financial reports of the

company of last three years.

 Three years data is considered and accordingly conclusions are drawn on the

financial reports for future analysis.

 Both qualitative and quantitative research techniques will be used.

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1. Qualitative technique will be used so as to capture complexities of phenomena

by carrying out an in-depth survey on the target population thereby collecting a lot

of data. It will also be used to build theories.

2. Quantitative research technique will be used to gather information on the

relationship between various variables of the study. Present some data in form of

statistics and aggregated data.

2.4 OBJECTIVES OF THE STUDY

Objective of the study is to understand the working capital management i.e.,

creditors, debtors and inventory management at BHEL. The methodology used to

analyse the data is collected through secondary source. That is from annual

report of BHEL, website and internal auditing books. Tool and techniques used

to analyse the data are through graphs, charts, diagrams, and table showing

percentages.

Main objectives of study are:

 To have a better understanding of the concept of Working Capital

Management.

 To know the application of the concept practically while studying an

organisation.

 To analyse and find the reason as to what bring changes in working

capital of the company.

 To know efficiency of the company in management of receivables and

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 payables

 To understand the efficiency of the company in management of inventory

 To suggest better way of managing the working capital.

 2.5 SCOPE OF THE STUDY

The scope of study is based on financial data of last three years. Financial ratios

are used to understand various component of working capital and to know the

management of each component.

2.6 LIMITATION OF THE STUDY

The user of the financial information is not able to find complete information

about the data of the company and the study is limited to the three years data of

BHEL. The researcher could use one of the tools of financial management that is

‘Ratio Analysis’, to analyse and interpret the data related to working capital. Due

to time the constraint other techniques of financial management such as cash flow

statement, fund flow statements, comparative balance sheets etc could not be used.

2.7 METHODOLOGY OF THE STUDY

Methodology is purely and simply the framework or a plans for the study that

guides the Collection and analysis of data. This involves exploring the possible

methods, one by one, and arriving at the best solution. This is a descriptive

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research and the methodology started with the understanding of concepts

related to working capital. Various ratios are used to analyse and compare the

past three years to see the Growth/decline in the performance of the company.

Tools, Techniques of analysis and presentation of data:

The analytical tools used are mostly graphical in nature which include:-

 Graphs, Charts, Diagrams

 Ratio Analysis

 Tables showing percentages

Area of work:

The work was conducted at Bharat Heavy Electricals Limited-

Electronic Division Bangalore.

2.8 CHAPTER SCHEME:

Chapter 1: Introduction

The chapter will include the subject background of the research topic.

Chapter 2: Design of the study

This chapter will include brief introduction of the subject background,

statement of the problem, review of previous literature if any, objectives of the

study, operational definition of the concepts, methodology, tools and

techniques for collection of data, plan of analysis, limitation and an overview of

chapter scheme.
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 Chapter 3: Profile of the company

This chapter will contain a complete profile of the organization in terms of the

history, the nature of its business, products or services, its competitors,

turnover, no of branches, staff pattern, organization structure etc and a brief

SWOT analysis of the organization with reference to the research topic.

Chapter 4: Analysis and interpretation of data

This chapter will contain an analysis of the primary data in tune with the

objectives. Each question is followed by explanation and inferences. The

analysis may also be supported by graphs, charts and diagrams, where ever

necessary.

Chapter 5: Summary of findings

This chapter will contain a summary of the findings, conclusions drawn from

the findings.

Chapter 6: Recommendation and suggestion

This chapter will recommend and suggest about BHEL.

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 CHAPTER-3
COMPANY PROFILE

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 CHAPTER-3

COMPANY PROFILE

Bharat Heavy Electricals limited (BHEL) is the largest engineering and

manufacturing enterprise in India in the energy-related/infrastructure sector,

today. BHEL was established more than 40 years ago, ushering in the

indigenous Heavy Electrical Equipment industry in India - a dream that has been

more than realized with a well-recognized track record of performance. In the

post-independence era when India was moving towards industrialization, the

thrust by the government was in the core sector. With this objective, In 1956

Company was set up at Bhopal in the name of M/s Heavy electrical (India) Ltd.

In collaboration with AEI, UK was made with a view to reach self-sufficiency

in industrial products and power equipment‘s. Subsequently, three more plants

were set up at Hyderabad, Hardwar and Trichy. The Bhopal Unit was controlled

by the company; the other three were under the control of Bharat Heavy

Electricals Ltd. The Company`s object is to manufacture of heavy electrical

equipment‘s. In 1972 July the Operations of all the four plants were

integrated. In 1974 January Heavy electrical (India) Ltd was merged with

BHEL. - For the manufacture of a wide variety of products, the company has

developed technological infrastructure, skills and quality to meet the stringent

requirements of the power plants, transportation, oi

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BHEL has entered into collaboration which is technical in nature. Under these

agreements, the collaborators have transferred, furnished the information,

documentation, including know- how relating to design, engineering,

manufacturing assembly etc. The company has been earning profits continuously

since 1971-72 and paying dividends since 1976-77. BHEL manufactures over 180

products under 30 major product groups and caters to core sectors of the Indian

Economy viz., Power Generation, Industry, Transportation, Telecommunication,

Renewable Energy, etc. The wide network of BHEL's 14 manufacturing

divisions, four Power Sector regional centres, over 100 project sites, eight service

centres and 18 regional offices, enables the Company to promptly serve its

customers and provide them with suitable products, systems and services --

efficiently and at competitive prices. The high level of quality & reliability of its

products is due to the emphasis on design, engineering and manufacturing to

international standards by acquiring and adapting some of the best technologies

from leading companies in the world, together with technologies developed in

its own R&D centres.

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Vision

To have modern, healthy and robust auto, heavy engineering & capital goods

sectors and self- reliant & growth oriented PSEs under the Department.

Mission

The Department of Heavy Industry strives to bolster profit making PSEs

as well as restructure and revive sick and loss making PSEs under its

administrative control.

The Department of Heavy Industry seeks to achieve its vision of global

automotive excellence through creation of state-of-the-art Research and Testing

infrastructure through the National Automotive Testing and R&D Infrastructure

Project (NATRIP) by 2011-12.

The Department of Heavy Industry seeks to achieve its vision by providing

necessary support to the Auto Sector and all sub sectors of Capital Goods

Industry‖.

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Plan Implementation of Department of Heavy Industry for the year

2012-2013

Develop a detailed implementations plan and identify points for coordination

and milestones and review points.

 Short term support measures could be completed by March, 2012

 Initial initiatives on long term support measures could be completed by

March, 2013

 Scheme for enhancement of competitiveness in the capital goods sector

including machine tools to be prepared by the Department by 30th October,

2012

 Reconstitution of Development Council for Machine Tools Industry - 30th

July, 2012

 1st meeting of the reconstituted Development Council for Machine

Tools Industry- August, 2012

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MARKET SEGMENT

Figure 1: Market
segment
Boilers

Boiler is a pressurised system in which water is vaporised to steam, the desired

end product, by heat transferred from a source of higher temperature, usually the

products of combustion from burning fuels. High pressure steam thus generated

may be used directly as the working fluid in a prime mover to convert thermal

energy to mechanical work, which in turn may be converted to electrical energy.

BHEL is the largest manufacturer of boiler in the country accounting for around

2/3rd of the domestic market share. It has the capacity to manufacture steam

generators for utilities ranging from 30 MW to 500 MW capacity using coal,

lignite, oil, natural gas or a combination of these fuels. They are also

manufacturing higher capacity boilers with super critical parameters up to 800

MW Unit size.
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Turbines and Generator Sets

The capacity established for manufacture of various kinds of turbines such as

steam and hydro turbines including industrial turbines is more than 12000 MW

per annum. The AC Generator industries in India are adequately catering to the

alternative power requirement of large and small industries, commercial

establishments and domestic sector. For this sector, manufacturers in India are

capable of manufacturing AC Generators right from 0.5 KVA to 25000 KVA

with specified voltage ratings.

Transformer

A transformer is an electrical device, which changes Voltage levels and

facilitate transmission, distribution and utilisation of electrical power in the

most efficient and economic manner. The health of transformer Industry

depends largely on the power generation and transmission system programme.

The major users of this product are the State Electricity Boards, Power Grid

Corporation of India Ltd. and other Industries.

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Switch gear and control gear

Switchgear refers to the combination of electrical disconnects, fuses and/or

circuit breakers used to isolate electrical equipment. Switchgear is used both to

de-energise equipment to allow work to be done and to clear faults

downstream. Switchgear & Control gear are indispensable not only in

transmission and distribution of power, but anywhere where there is a need to

access and control electricity.

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Total orders received in 2008-2013 to heavy industries by Government of India

Figure 2: Total orders received in 2008-2013 by

Government of India

The Government of India has an ambitious mission of Power for all by 2013

and planned power capacity addition of 80,000 MW in the 11th five year plan

(2008-13). Of the total orders received BHEL alone bagged 54% and other

players in the market received 45%. BHEL has diversified business and out of

54% thermal received 41%, hydro 8%, gas 5% and nuclear 1%.

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 Key player in the industry
Table 1:Key Players in the Industry

Company Sales(Rs Crore) Products/divisions/

2009–2010 sectors served

BHEL 33154.48 Caters to power generation and transmission,

transportation (especially railways), telecom,
renewable energy and the industry at large

Hindustan Aeronautics Ltd
10373.38 Supplies and provides services mainly to the
Indian defence services, coast guard and border
security force. Further, the transport aircraft and
helicopters have been supplied to airlines as well
as the state governments of India.

Crompton Greaves 5578.34 Largest private sector enterprise in the business

of electrical engineering

Larsen &Turbo Ltd (L&T) 36870.19 Four segments namely engineering and
Construction (E&C), cement, electrical and
electronics and diversified business. In addition,
it has19 subsidiaries.

Thermal Ltd 3128.3 Six core businesses — boilers and heaters,

Absorption cooling, water and waste solutions,
chemicals for energy and environment
applications, captive power and cogeneration
systems, air pollution.

Cummins India Ltd 3028.79 Equipment division and process technology

Division.

Asia Brown Boveri Ltd 6,315.96 ABB India caters to the power and industry
(ABB Sectors.

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 Siemens Ltd 9322.41 Power generation and distribution equipment,
industrial projects and equipment, transportation
systems, communication and healthcare products

The above table displays key players in the Heavy Electrical Industry, their

sales achieved and their area of operations for the year 2009-2010. Larsen &

Turbo Ltd leads the market with sales of Rs 36870.19crore including its

subsidiaries. BHEL has accomplished sales of worth Rs 33154.48crore, followed

by HAL and Siemens at 10373.38crore and 9322.41crore respectively.

Note: BHEL accounts for 85% of total Turnover and 55% of total manpower

of all PSEs.

Vision of the company

A world-class Engineering Enterprise Committed to Enhancing

Stakeholder value

Mission of the company

To be an Indian Multinational Engineering Enterprise providing Total Business

Solutions through quality Products, Systems and Services in the fields of

Energy, Industry, Transportation, Infrastructure and other potential areas.

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The Diversified Sectors of BHEL

Power Generation

In Power generation segment, BHEL is the largest manufacturer in India

supplying a wide range of products & systems for thermal, nuclear, gas and

hydro based utility and captive power plants and providing services from

Concept to Commissioning to meet customer requirements. BHEL-make steam

turbines are designed to achieve higher efficiencies. BHEL is the only Indian

company capable of manufacturing large-size gas-based power plant equipment,

comprising advanced-class gas turbines up to 289 MW (ISO) rating for open and

combined-cycle operations. BHEL is one of the few companies worldwide,

involved in the development of Integrated Gasification Combined Cycle (IGCC)

technology which would usher in clean technology.

Industries

BHEL is a leading manufacturer of a variety of electrical, electronic and

mechanical equipment‘s to meet the demand of a number of industries, like

metallurgical, mining, cement, paper, fertilizers, refineries & petrochemicals etc.,

besides captive/industrial power utilities. BHEL has supplied systems and

individual products including a large number of co- generation Captive power

plants, Centrifugal compressors, Drive Turbines, Industrial boilers and

auxiliaries, waste heat recovery boilers, Gas turbines, Pumps, Heat exchangers,

Electrical machines, Valves, Heavy castings and forgings, Electrostatic

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precipitators, ID/FD fans, Seamless pipes etc., to a number of industries other

Than power utilities. BHEL is the leading company in the world having mastered

The art of burning Naphtha in Gas Turbines.

Transportation

BHEL‘s involvement in the transportation sector has been marked with rapid

growth. The largest railway network of the world, the Indian Railways, is

equipped with traction equipment built by BHEL. Most of the drives of the

Railways, whether conventional DC or state-of the- art AC or diesel powered, are

equipped with BHEL‘s traction propulsion system and controls. The range of

products supplied by BHEL includes traction motors, traction

generators/alternators, transformers, substation equipment, vacuum circuit

breakers, locomotive bogies, smoothing reactors, exciters, converters,

inverters, choppers and associated control equipment, viz., master controllers,

chopper controllers, brake and door equipment, electronic controls including

software based controls extending to rolling stock and other transport

application’

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Renewable Energy
In conformity with its concern for the environment, BHEL has been contributing

to the national effort for developing and promoting renewable energy based

products on a sustained basis. BHEL has commissioned 1065 kW of solar photo-

voltaic grid interactive as well as stand-alone plants at 12 locations contributing

to the preservation of the natural habitat of Lakshadweep islands. Range of

Renewable Energy product and systems manufactured and supplied includes a

number of solar water heating systems, solar photo-voltaic (SPV) systems for

both Domestic and Industrial application and wind electric generators all over

India. As part of the government‘s green energy initiative, BHEL has upgraded

its solar PV module manufacturing facility to 700 hp (SPP) Diesel-electric

shunting locomotives for Space grade solar panel manufactured at EDN,

Bangalore.

Oil and Gas

BHEL possesses expertise to design, manufacture and service various types of

on-shore rigs to suit the Indian service conditions. The range of equipment covers

on-shore deep drilling rigs, super-deep drilling rigs, helirigs, work-over rigs,

mobile rigs and desert rigs with matching draw works and hoisting equipment.

BHEL now has the capability to manufacture conventional on shore deep

drilling rigs up to a depth of 9000 meters, mobile rigs to a depth of 3000 meters

and well servicing rigs to a well depth of 6,100 meters.

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Transmission

BHEL is present in the field of power transmission in India with a wide range of

transmission systems and products. The products manufactured by BHEL include

Power transformers, Instrument transformers, Dry type transformers, Shunt

reactors, Vacuum and SF6 switchgear, Gas insulated switchgears, Ceramic

insulators, etc. Major critical hardware such as capacitor banks, circuit breakers,

control and protection equipment and thyristor valves are in its manufacturing

range.

BHEL has acquired certifications to Quality Management Systems

(ISO9001), Environmental Management Systems (ISO 14001) and Occupational

Health & Safety Management Systems (OHSAS 18001) and is also well on its

journey towards Total Quality Management. BHEL is one of the only four Indian

companies, ranked at 590, in ‗The Global Innovation 1000‘ of Booz & Co., a list

of 1,000 Publicly-Traded Companies which are the biggest spenders on R&D in

the world

BHEL has

 Installed equipment for over 90,000 MW of power generation for

Utilities, Captive and Industrial users.

 Supplied over 2, 25,000 MVA transformer capacity and other

equipment in Transmission & Distribution network up to 400 kV (AC &

1
 DC).

 Supplied over 25,000 motors with Drive Control System to Power

projects, Petrochemicals, Refineries, steel, Aluminium, Fertilizer, Cement

plants, etc.

 Supplied Traction electrics and AC/DC locos to power over 12,000

kames Railway network.

 Supplied over one million Valves to Power Plants and other Industries

BHEL EDN (Bangalore)

The Electronics Division(EDN) of BHEL was formed in 1976, mainly to

establish a strong base in the areas of power and industrial electronics and

supplement the company‘s pioneering efforts in power generation, transmission,

industry and transportation sectors. Making a modest beginning in 1976, the

unit has registered continuous and impressive growth, which is amply

reflected in the fact that a large number of power plants in the country today,

are equipped with products and systems made by BHEL-EDN.

Technical collaborations with international leaders as well as BHEL-Electronics

Division‘s relentless efforts and unwavering commitment to in-house solutions

have contributed to its rapid growth and success. Despite stiff competition posed

by the world leaders and domestic private manufacturers, the unit has

successfully maintained its growth rate and become a major force to reckon

with in power and industrial electronics. Electronics Division has also been

making pioneering efforts in Renewable Energy Sector by commissioning

1
Large-size Grid-Interactive as well as Stand-Alone Solar Power Plants, thus

lighting the lives of people living in remote parts of the country. The unit has also

been making humble contribution to Indian Space Programmes by fabricating

Space Grade Solar Panels and Space Quality Batteries for ISRO.

2.3.5 Electronic Division

Overview

 Karnataka State Undertaking REMCO, taken over by BHEL in 1976.

 Nodal Agency for Electronic products and systems in BHEL.

 Market leader in the area of Control & Instrumentation (C&I) for power

sector.

 An ISO 9001, ISO 14001, OHSAS 18001, ISO 27001(ISMS) Company.

 Commendation for Strong Commitment to Excel by CII-EXIM in2006,

2009 & 2010

EDN has been conferred the ICWAI National Award for Excellence in

Cost Management‘ under Public Manufacturing Unit in Medium Category in

2008 and in Large Category in 2009.

1
Organisational structure of
BHEL (2009-2010)

1
Product Range of BHEL

 Power  Transmission

Air Pre heaters Bushings

Boilers Capacitors
Control Relay Panels Control Relay Panels
Electrostatic Precipitators Dry-type Transformers
Fabric Filters Energy Meters
Fans HVDC Transmission System
Gas Turbines Insulators
Hydro Power Plant Switchgears
Piping Systems Power Semiconductor Devices
Pulverisers Power System Studies
Pumps Control Shunt Reactor
Seamless Steel Tubes
 Transportation
Soot blowers
Steam Generators Electric Rolling Stock

Steam Turbines Electrics for Rolling Stock

Turbo generators Electrics for Urban Transportation System

Valves  Non-Conventional Energy

 Industry Source

Capacitors Certain Mini/Micro Hydro Sets

Compressors Solar Lanterns

Desalination Plants Solar Photo voltaic

Diesel Generating Sets Solar Water Heating Systems

Industrial Motors & Alternators Wind Electric Generators

Gas Turbines
Oil Field Equipment
Solar Photovoltaic’s
Power Semiconductor Devices

1
Seamless Steel Tubes  R&D Products
Soot blowers
Steel Castings & Forgings Fuel Cells

Steam Generators Surface Coatings

Steam Turbines Automated storage &Retrievals

Turbo generators Load Sensors

Valves Transparent Conducting Oxide

Share holding pattern of BHEL
Table 2: Shareholding Pattern of BHEL

President of India 67.72%

Foreign Institutional Investors 15.21%
Mutual Funds 6.99%
Insurance Companies 4.26%
Corporate Bodies 4.18%
Public 1.69%
Others 0.20%

Insurance Shareholding Pattern of BHEL

Companies Corporate Bodies Public
4% 4% 2%

Mutual Funds
7%

Foreign
Institutional
Investors President of India
15% 68%

Figure 3: Shareholding Pattern

The above graph shows the share holding pattern of BHEL. As BHEL is a

public sector unit, majority of the stake is held by President of India which is

67.72%. Foreign Institutional Investors have invested 15.21% in company.

Mutual Fund and Insurance companies hold 6.99% and 4.26% respectively.

Corporate bodies obtain 4.18%. 2%of the shares are confined by Public and rest

0.20% are with others.

 Strengths:

 A Navigant company and a Major Integrated Power Plant

Equipment Manufacturer in the World.

 It has substantial Experience in the industry with an Installed base of more

than 100GW, it has 2/3 share in India‘s total installed base.

 Technology Edge over others with70 TCAs till date; 7 ongoing TCAs

with global technology leaders; technology absorption & adaption

capability to suit local needs e.g. High ash coal.

 Human Capital consists of 46,274 highly committed engineering,

technical &managerial human capital base; negligible attrition.

 Diversified Business Portfolio of 21-27% business from Industry

sector viz. Transportation, Oil &Gas, NCES and Transmission; slated to

rise further.

 Service & Spares available country wide with efficient after sales service

network &understanding of Indian conditions.

 Sustained Financial Performance by making profits since 1971-72,

with above industry average profitability and maintaining strong reserves.

Weaknesses:

 Though BHEL is competitive in the international majors in terms of cost,

delivery and equipment in the domestic market, the company‘s inability to

match the financial packages provided by the multinationals has been one

of its major weaknesses

 There is also the danger of internal inefficiency of bureaucratic activity

which comes from being a company in which the government is the major

stakeholder.

 Larger delivery cycles in comparison with international suppliers

of similar equipment.

OPPORTUNITY:

 The power sector reforms are expected to pick up in the near future in

India, which would directly benefit BHEL.

 Increase in defence budget will increase the top line for the company.

 NTPC is planning additional capacities to the tune of 2,800 MW, at a

cost of Rs 52 billion. BHEL could benefit a lot as it has happened in the

past that significant portion of the project of NTPC is handled by BHEL.

Nearly 85% of the NTPC projects were assigned to BHEL only

 Electricity sectors of developing Asian nations are expected to be the

fastest growing sectors in the world

  Ageing power plants would give rise to more spares and services business.

 Export opportunities to tap the overseas expanding opportunities.

Threats:

 Recently the government has permitted the import of second hand capital
goods that are 10 years old without the need for a license. This move will
definitely increase competitive pressures for BHEL.
 Global power industry is facing uncertainty because of rising fuel prices,
limited non renewable energy sources and a wobbling global economy
 Increased competition is prevalent from both national & international
players.
 Decreasing protection from the Government in terms of introduction of
competitive bidding of projects wherein earlier BHEL was given a price
preference over other private players.
FUTURE PLAN

WORKING CAPITAL MANAGEMENT

Working capital is the life blood and nerve centre of a business. Just as

circulation of blood is essential in the human body for maintaining life, working

capital is very essential to maintain the smooth running of a business. No

business can run successfully without an adequate amount of working-capital.

Working capital refers to that part of firm‘s capital which is required for

financing short term or current assets such as cash, marketable securities,

debtors, and inventories. In other words working capital is the amount of funds

necessary to cover the cost of operating the enterprise.

MEANING:

Working capital means the funds (i.e.; capital) available and used for day to

day operations (i.e.; working) of an enterprise. It consists broadly of that

portion of assets of a business which are used in or related to its current

operations. It refers to funds which are used during an accounting period to

generate a current income of a type which is consistent with major purpose of a

firm existence.
Need of Working Capital:

Every business requires some amount of working capital. It is needed for

following purposes-

• for the purchase of raw materials, components 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 provide credit facilities to customers etc.

Factors That Determine Working

Capital:

(1)Nature and Volume of

Business:

The nature and volume of business is an important factor in deciding the

amount of working capital. For example, the amount of working capital is

generally more in trading concerns and in service units as compared to the

manufacturing units. The retail trading units have also to invest large funds in

working capital. In some manufacturing units also, the working capital holds a

significant place. On the other hand, public utilities require less working

capital. Other manufacturing units need more working capital as compared to

public utilities. The relation between the volume of business and the

requirement of working capital is more direct and clear. The bigger the size of
 the units, the more will be the requirement of working capital.

2) LENGTH OF MANUFACTURING CYCLE

The time that elapses from the purchase and use of raw materials to the
production of finished goods is called manufacturing cycle. The longer the
period a manufacturing cycle takes, the larger is the amount of working
capital required, because the funds get locked up in production process for
a longer period of time.
3) BUSINESS FLUCTUATION

Business fluctuations are of two types: seasonal fluctuations which arise out of

seasonal changes in demand for the product and cyclical fluctuations which

occur due to ups and downs of economic activities in the country as a whole.

If demand for the product is seasonal, production will have to be increased

during the season, and it will have to be reduced during the off-season.

Correspondingly, there will be fluctuations in the requirement of working capital.

The business unit will have to face some other problems in addition to this one. It

has to bear extra expenses to increase production when product demand

increases. It has to bear, costs even to maintain work force and physical

facilities during slack season. For this reason, many units prefer to continue

production even during slack season and increase the level of their inventories.

The cyclical fluctuations are made up of periods of prosperity and depression.

The sales and prices increase during prosperity necessitating more working

capital in the form of Inventories and book-debts. If new investment is made

in fixed capital to meet additional demand for the product, then also there will be

an increase in working capital requirement. Generally,

business units adopt the policy to borrow funds on a large scale to increase

investment in working capital. As against this, the requirement of working

capital gets reduced during depression and therefore they adopt the policy of

reducing their short term debts.

(4)PRODUCTION POLICY

The production policy of business is also an important determinant of

working capital requirement. If the policy of Constant Production is adopted,

there are two possible effects. If demand for the product is regular and constant,

this policy helps in reducing working capital requirement to the lowest possible

level. But if demand for the product is seasonal, this policy raises the level of

inventory during off season and thereby increases the working capital

requirement. If the cost of maintaining inventory is considerably high, the

policy of varying production according to demand is preferred. If the unit

produces varied products, it can reduce the requirement of working capital by

adjusting the structure of production to the changes in demand.

(5)CREDIT POLICY

In the present-day circumstances, almost all units have to sell goods on credit.

The nature of credit policy is an important consideration in deciding the amount

of working capital requirement. The larger the volume of credit sales, the greater

will be the requirement of working capital. Also, the longer the period the

collection of payment takes, the greater will be the requirement of working

capital.

Sources of Working Capital:

The working capital requirements should be met both from short term as well
as long term sources of funds.

1) Financing of working capital through short term sources of funds has the
benefits of lower cost and establishing close relationship with banks.

2) Financing of working capital through long term sources provides the benefits of
reduced risk and increased liquidity.

Types of working capital:

Permanent working capital:

It refers to that minimum amount of investment in all current assets which is

required at all times to carry out minimum level of business activities.

Temporary working capital:

The amount of such working capital keeps on fluctuating from time to time
 on the basis of business activities.

Advantages of working capital:

• It helps the business concern in maintaining the goodwill.

• It can arrange loans from banks and others on easy and favourable terms.

• It enables a concern to face business crisis in emergencies such as depression.

• It creates an environment of security, confidence, and overall efficiency in a

Business.

• It helps in maintaining solvency of the business.

Disadvantages of working capital:

• Rate of return on investments also fall with the shortage of working capital.

• Excess working capital may result into overall inefficiency in organization.

• Excess working capital means idle funds which earn no profits.

• Inadequate working capital cannot pay its short term liabilities in time

Management of Working Capital

A firm must have adequate working capital, i.e.; as much as needed the firm. It

should be neither excessive nor inadequate. Both situations are dangerous.

Excessive working capital means the firm has idle funds which earn no profits

for the firm. Inadequate working capital means the firm does not have sufficient

funds for running its operations. It will be interesting to understand the

 relationship between working capital, risk and return. The basic objective of

working capital management is to manage firms current assets and current

liabilities in such a way that the satisfactory level of working capital is

maintained, i.e. neither inadequate nor excessive. Working capital sometimes is

referred to as circulating capital. Operating cycle can be said to be at the heart

of the need for working capital. The flow begins with conversion of cash into

raw materials which are, in turn transformed into work-in-progress and then to

finished goods. With the sale finished goods turn into accounts receivable,

presuming goods are sold as credit. Collection of receivables brings back the

cycle to cash. The company has been effective in carrying working capital cycle

with low working capital limits. It may also be observed that the PBT in

absolute terms has been increasing as a year to year basis as could be seen from

the above table although profit percentage turnover may be lower but in

absolute terms it is increasing. In order to further increase profit margins, SSL

can increase their margins by extending credit to good customers and also by

paying the creditors in advance to get better rates.

RATIO ANALYSIS
Ratio Analysis is one of the important techniques that can be used to check

the efficiency with which working capital is being managed by a firm. The

most important ratios for working capital management are as follows. Ratio

Analysis is a powerful tool of financial analysis. Alexander Hall first presented

it in1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison

of one figure against other, which makes a ratio and the appraisal of the ratios

to make proper analysis about the strengths and weakness of the firm‘s

Operations. The term ratio refers to the numerical or quantitative relationship

between two accounting figures. Ratio analysis of financial statements stands

for the process of determining and presenting the relationship of items and group

of items in the statement .Ratio analysis can be used both in trend analysis and

static analysis. A creditor would like to know the ability of the company, to meet

its current obligation and therefore would think of current and liquidity ratio and

trend of receivable.

Purpose of Ratio Analysis:

Ratio analysis is concerned to be one of the important financial tools for appraisal

of financial condition, efficiency and profitability of business. Here ratio analysis

is useful from following objects.

1. Short term and long term planning.

2. Measurement and evaluation of financial performance.

3. Decision making for investment and operations.

4. Diagnosis of financial ills.

5. Providing valuable insight into firm‘s financial position or picture.

 CHAPTER-4
DATA ANALYSIS AND
INTERPRETATION
 CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

Working Capital Management

4.1 Working Capital of BHEL for the past 3 years

Table4.1.1: Net working capital (Rs in crore)

from 2011 to 2013
Particulars 2010 – 2011 2011 – 2012 2012 – 2013

Current assets 27704.72 36985.16 43022.76

Current liabilities 19820.84 28568.74 32656.09

Net working capital 7883.88 8416.42 10366.67

ANALYSIS

The net working capital of the company is 7883.88, 8416.42 and 10366.67 for the

years 2011, 2012 and 2013 respectively.

INTERPRETATION

Net working capital increased with a growth rate of 7% in 2012 to 23% in

2013 which mirrors the efficacy of the company. It is increasing year on year

which is very good for BHEL.

 Graph4.1.1: Showing Net working capital

Net working capital

12000

10000

8000

6000

4000

2000

0
2010 - 2011 2011 - 2012 2012 - 2013
4.1.2: Percentage of net working capital

Table4. 1.2: Showing Percentage of net working capital

Years Amount Proportion

2010 – 2011 7883.88 0.30
2011 – 2012 8416.42 0.32
2012 – 2013 10366.67 0.39
Total 26666.97 1.00

ANALYSIS
Percentage of net working capital is 0.30 in the year 2010-11 which increases in

the year 2011-12 to 0.32 and again it increases in the year 2012-13 to 0.39.

INTERPRETATION

The company‘s current asset has increased largely in the year 2013, which

indicate increasing liquidity position and payable capacity of the

company. Due to adequate current asset in hand, as of now company is

not facing any kind of interruption in its day to day operations.

4.1.2: Graph showing percentage of net working capital
0.45

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2010-2011 2011-2012 2012-2013
 LIQUIDITY POSITION OF A COMPANY

4.2 Liquidity position of BHEL

4.2.1: Current Ratio

One of the most universally known ratios, which reflect the Working Capital

situation, indicates the ability of a company to pay its short-term creditors from

the realisation of its current assets and without having to resort to selling its fixed

assets.

Table4.2.1: current ratio (Rs. In crore)

Particulars 2010 – 2011 2011 – 2012 2012 – 2013

Current assets 27704.72 36985.16 43022.76
Current liabilities 19820.84 28568.74 32656.09
Current ratio 1.40 1.29 1.32

ANALYSIS

The Current Ratio of the Company is 1.40in the year 2010-11 which decreases to

1.29 in the year 2011-12 and again it increases to 1.32 in the year 2012-13.

INTERPRETATION

Conventional thinking holds that this ratio should be at least 2:1. The current

ratio of 1.32 indicates BHEL has current assets 1.32 times more than current

liabilities in the year2013. In total, the Current Ratio of BHEL over the period of

time is less to the ideal ratio of 2:1 indicating that the BHEL is not in a good
liquid Position, making Creditors to have a tight credit policy.

4.2.1: Graph showing current ratio

Current Ratio
1.42
1.40
1.38
1.36
1.34
1.32
1.30
1.28
1.26
1.24

2010 - 2011 2011-2012 2012 - 2013

 4.2.2: Quick ratio
The quick ratio measures a company's ability to meet its short-term obligations

with its most liquid assets.

Table 4.2.2: (Rs in crore)

Quick ratio
Particulars 2010 – 2011 2011 - 2012 2012 – 2013
Quick assets 21968.32 29093.17 33738.98
Current liabilities 19820.84 28568.74 32656.09
Quick ratio 1.11 1.02 1.03

ANALYSIS

The Quick ratio of the company is 1.11 in the year 2010-11 which decreases

in the year 2011-12 to 1.02 , and in the year 2012-13 it increases slightly to

1.03.

INTERPRETATION

Inventory accounts for 21.3% of current assets on an average in three years.

Quick ratio has decreased in the last two years. It is maintaining in the edge and

if it falls below 1 the company will be in risk in meeting its immediate obligation.
 4.2.2Graph showing quick ratio

Quick Ratio
1.16
1.14
1.12
1.10
1.08
1.06
1.04
1.02
1.00
2010 - 2011 2011 - 2012 2012 - 2013
4.2.3: Cash ratio
The cash ratio is most commonly used as a measure of company’s liquidity. It

can therefore determine if, and how quickly, the company can repay its short-

term debt.

Table 4.2.3:
Cash ratio (Rs in crore)

Particulars 2010 – 2011 2011 – 2012 2012 – 2013

Cash and bank balances 8386.02 10329.46 9856.42
Current liabilities 19820.84 28568.74 32656.09
Cash Ratio 0.42 0.36 0.30

ANALYSIS

Cash ratio of the company is 0.42 in the year 2010-11 which decreases in the

year 2011-12 to 0.36 and again it decreases in the year 2012-13 to 0.30.

INTERPRETATION

Cash ratio is low and has been decreasing year to year. This situation is

Critical for the company. The ratio is poor. It can manage very quick

Liabilities only up to certain extent. It may not give a good picture to the

creditors in case of immediate settlement by cash.

 4.2.3: Graph showing cash ratio

Cash Ratio
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2010 - 2011 2011 - 2012 2012 - 2013
 EFFICIENCY IN MANAGEMENT OF WORKING CAPITAL

4.3.1 Working capital turnover ratio

Ability to generate sales per rupee of net current assets

Table 4.3.1 showing

working capital (Rs in crore)

Particulars 2010 – 2011 2011 – 2012 2012 – 2013

Cost of goods sold 14839.64 21611.4 26529.48
Net working capital 7883.88 8416.42 10366.67
Working capital turnover ratio 1.9 2.6 2.6

ANALYSIS

Working capital turnover ratio is 1.9 in the year 2010-11 which increases to 2.6 in

the year 2011-12 and again it remained constant in the year 2012-13.

INTERPRETATION

The working capital turnover ratio measures the efficiency with which the

working capital is being used by a firm. BHEL is utilising working capital

efficiently and it is maintaining consistent ratio during last two years at 2.6 times.
GRAPH4.3.1: SHOWING WORKING CAPITAL TURNOVER RATIO

Working Capital Turnover Ratio

3.0

2.5

2.0

1.5

1.0

0.5

0.0
2010 – 2011 2011 - 2012 2012 – 2013
4.3.2 Management of Current Assets

Current Asset Turnover Ratio

Current Assets Turnover ratio shows the productivity of the company's current

Assets.

Table 4.3.2: Current assets

turnover ratio
(Rs.in crore)
Particulars 2010 - 2011 2011 – 2012 2012 – 2013
Turnover 19304.64 26491.4 33154.48
Current assets 27704.72 36985.16 43022.76
Current assets turnover ratio 0.70 0.72 0.77

ANALYSIS

Current Assets Turnover Ratio is 0.70 in the year 2010-11 which increases to

0.72 in the year 2011-12 and again it increases to 0.77 in the year 2012-13.

INTERPRETATION

Current assets turnover ratio ranges from 0.7 to 0.77 in three years, which shows

that sale of 70% is achieved from current assets. This has been gradually

Increasing year after year. This shows that company‘s efficiency is increasing in

managing current assets. This ratio also indicates increasing turnover of the

Company.
GRAPH 4.3.2 SHOWING CURRENT ASSET TURNOVER RATIO

Current assets turnover ratio

0.78
0.76
0.74
0.72
0.70
0.68
0.66
0.64
2010 - 2011 2011 - 2012 2012 - 2013
4.3.3: Return on current assets
It shows the profit earned on current assets.

Table 4.3.3: Return on

current assets (Rs in crore)
Particulars 2010 – 2011 2011 - 2012 2012 – 2013
Net profit 2859 3138 4311
Current assets 27704.72 36985.16 43022.76
Return on current assets 10.32 8.48 10.02

ANALYSIS

Return on current assets ratio is 10.32 in the year 2010-11 which comes down to

8.48 In the year 2011-12 and again it increases to 10.02 in the year 2012-13.

INTERPRETATION

Return on current assets is 10.32% in 2011 and declined to 8.48% in 2012

which again bounced backed to 10% in 2013. It is around same momentum.

This shows that the company‘s profit amounts to 10% of total current assets.

Current asset forms nearly 90% of the total assets and company‘s profit is

generated mainly from its core operations.

 GRAPH 4.3.3 SHOWING RETURN ON CURRENT ASSET

Return on Current Assets

12.00

10.00

8.00

6.00

4.00

2.00

0.00
2010 - 2011 2011 - 2012 2012 - 2013
4.3.4: Work In Progress to Current Asset

The ratio indicates the percentage of work in progress involvement in the current

asset of the company.

Table 4.3.4: Work In Progress (Rs in crore)

to Current Asset
Particulars 2010-2011 2011-2012 2012-2013

Work In Progress(Closing Stock) 2548.53 3612.59 4321.4

Current Assets 27704.72 36985.16 43022.76

Work In Progress to Current Asset 9.20 9.77 10.04

ANALYSIS

Work in progress to current asset is 9.20 in the year 2010-11 which increases to

9.77 in the year 2011-12 and again it increases to 10.04 in the year 2012-13.

INTERPRETATION

The WIPCA for the year 2012-2013 has increased from 9.77 to 10.04 compared

to previous year indicating the rate of increase by 2.83%. This shows the delay

in production process, which in turn increases cost of production.

Graph4.3.4: showing work in progress to current asset

Work In Progress to Current Asset

12.00
10.00
8.00
6.00
4.00
2.00
0.00
2010-2011 2011-2012 2012-2013

WIPCA %change in WIPCA

 4.3.5: Finished Goods to Current Asset

The ratio indicates the percentage of fixed asset involvement in the current

asset of the company.

Table 4.3.5: showing Finished

Goods to Current Asset (Rs in crore)

Particulars 2010-2011 2011-2012 2012-2013

Finished Goods(Closing Stock) 472.98 519 599.53

Current Assets 27704.72 36985.16 43022.76

Finished Goods to Current Asset 1.71 1.40 1.39

ANALYSIS

Finished Goods to current asset in the year 2010-11 is 1.71 which decreases to

1.40 in the year 2011-12 and again it decreases to 1.39 in the year 2012-13.

INTERPRETATION

The FGCA for the year 2012-2013 has fallen to 1.39 times compared to previous

year 2011-12 which was 1.40 times and in the year 2010-2011 it was 1.71 times,

reducing stock level in total of current asset. This indicates that there is fast

movement of stock, which is a sign of better liquidity position and better turnover

of the company.
 Graph4.3.5: showing Finished Goods to Current Asset

Finished Goods to Current Asset

5.00

0.00
2010-2011 2011-2012 2012-2013
-5.00

-10.00

-15.00

-20.00

FGCA %change in FGCA

 DEBTORS TURNOVER RATIO

4.4.1 Management of Debtors

Debtor’s turnover ratio

This ratio indicates the velocity of debt collection of a firm. In simple words it

indicates the number of times average debtors (receivable) are turned over during a

year.

Table 4.4.1: Receivable/Debtors (Rs in crore)

turnover ratio
Particulars 2010 – 2011 2011 – 2012 2012 – 2013
Credit sales 19304.64 26491.4 33154.48
Debtors 10793.84 14023.2 18432.07

Debtors turnover ratio 1.79 1.89 1.80

ANALYSIS

Debtors turnover ratio in the year 2010-11 is 1.79 which increases in the year

2011-12 to 1.89 and again it decreases to 1.80 in the year 2012-13.

INTERPRETATION

Accounts receivable turnover ratio or debtor‘s turnover ratio indicates the

number of times the debtors are turned over in a year. Low debtors turnover ratio

implies inefficient management of debtors or less liquid debtors. It is the reliable

measure of the time of cash flow from credit sales. In three years the ratio is in

the range of 1.7 to 1.9. In the year 2012-13 the ratio has decreased to 1.8 times as
compared to previous year ratio of 1.89 times. Reduction in DTR affects cash

flow of the company in turn working capital.

Graph4.4.1: Showing Receivable/Debtors turnover ratio

Debtors turnover Ratio

1.90
1.88
1.86
1.84
1.82
1.80
1.78
1.76
1.74
1.72
2010 - 2011 2011 - 2012 2012 - 2013
 4.4.2: Average Collection Period

The approximate period taken for a business to receive payments owed,

In terms of receivables, from its customers and clients.

Table 4.4.2: Average

collection period
(In days)
Particulars 2010 – 2011 2011 – 2012 2012 – 2013
Average collection period 204 193 202

ANALYSIS

Average collection period in the year 2010-11 is 204 days which decreases to 193

days in the year 2011-12 and again it increases to 202 days in the year 2012-13.

INTERPRETATION

The Debtors collection period shows the number of days the company takes to

receive cash from its debtors. More number of days causes more blockages of

funds, requiring additional working capital. In BHEL debtors are converted into

cash in around 202 days which is very high.

 Graph4.4.2: showing Average collection period

206.00 Average collection period

204.00
202.00
200.00
198.00
196.00
194.00
192.00
190.00
188.00
186.00

2010 - 2011 2011 - 2012 2012 – 2013

 CREDITORS TURNOVER RATIO

4.5 Management of Creditors

Creditor’s turnover ratio

It signifies the credit period enjoyed by the firm in paying creditors.

Accounts payable include both sundry creditors and bills payable.

Table 4.5.1: Payable/Creditors

turnover ratio (Rs in crore)

Particulars 2010 – 2011 2011 – 2012 2012 – 2013

Credit purchases 8881.96 13591.06 16523.91
Sundry creditors 3940.475 5161.055 6753.985
Creditors turnover ratio 2.25 2.63 2.45

ANALYSIS

Creditor’s turnover ratio in the year 2010-11 is 2.25 which have increased to 2.63

in the year 2011-12 and again it has decreased to 2.45 in the year 2012-13.

INTERPRETATION

The ratio expresses the number of times accounts payable are paid during the

year. The Creditors Turnover Ratio of BHEL is not that high. In the year 2010-11

the ratio was 2.25 which means that company was required to pay 2.25 times

annually to their creditors. In the year 2013 the ratio has increased slightly to

2.45.
Graph4.5.1: Showing Payable/Creditors turnover ratio

Creditors Turnover Ratio

2.70
2.60
2.50
2.40
2.30
2.20
2.10
2.00
2010 - 2011 2011 - 2012 2012 - 2013
4.5.2: Average Payment Period
The average payment period (APP) is defined as the number of days a company

takes to pay off credit purchases.

Table 4.5.2: showing Average payment period (IN DAYS)

Particulars 2010 – 2011 2011 - 2012 2012 – 2013

Average payment period 162 138 149

ANALYSIS

Average payment period in the year 2010-11 is 162 days which decreases in the

Year 2011-12 to 138 days and again it increases in the year 2012-13 to 149 days.

INTERPRETATION

The higher number of days of creditor‘s payment period, lesser the requirement

of cash for the firm. The company has a high Creditors Payment Period i.e. of

162 days in the year 2010-11 and 149 in the year 2013, which shows that the

company is enjoying a good credit period from its creditors. Higher credit

payment period reduces the need for working capital requirement.

 GRAPH4.5.2 SHOWING AVERAGE PAYMENT PERIOD

Average payment period

165.00
160.00
155.00
150.00
145.00
140.00
135.00
130.00
125.00
2010 - 2011 2011 - 2012 2012 - 2013
4.6. INVENTORY MANAGEMENT

Inventories are stock of the product a company is manufacturing for sale and

components that makeup the products. The various forms in which inventories

exist in a manufacturing company are: Raw-materials, work-in-process, finished

goods.

 Raw-Materials: - Are those basic inputs that are converted into finished

products through the manufacturing process. Raw-materials inventories are

those units, which have been purchased and stored for future production.

 Work-In-Process inventories are semi-manufactured products. They

represent products that need more work before they become finished

products for sale.

 Finished Goods inventories are those completely manufactured products,

which are ready for sale. Stocks of raw-materials and work-in-process

facilitate production which stock of finished goods is required for smooth

marketing operations. These inventories serve as a link between production

and consumption of goods.

 Stores and spares are also maintained by some firms. This includes office

and plant cleaning materials like soaps, brooms, oil, fuel, light, bulbs etc.

These materials do not directly enter in production. But are necessary for

production process.
4.6.1 INVENTORY TURNOVER RATIO

The inventory turnover ratio measures the ability of a company to use its

inventory to generate e sales.

Table 4.6.1: Inventory turnover ratio (Rs in crore)

Particulars 2010 - 2011 2011 – 2012 2012 – 2013

Cost of goods sold 14839.64 21611.4 26529.48
Inventory 4977.035 6814.195 8587.885
Inventory turnover ratio 2.98 3.17 3.09

ANALYSIS

Inventory turnover ratio in the year 2010-11 is 2.98 which increases in the 2011-

12 to 3.17 and again it decreases to 3.09 in the year 2012-13.

INTERPRETATION

Inventory turnover ratio measures the velocity of conversion of stock into sales.

A low inventory turnover ratio indicates an inefficient management of inventory.

A low inventory turnover implies over-investment in inventories as it is a capital

goods industry it has high inventory. In three years it is around 3 times.

 Graph 4.6.1: showing inventory turnover ratio

Inventory Turnover Ratio

3.20
3.15
3.10
3.05
3.00
2.95
2.90
2.85
2010 - 2011 2011 - 2012 2012 - 2013
 4.6.2 Raw Material Conversion Period
The ratio states that how many days raw material have to be spend in stores

before sending to the production department for work in progress.

Table 4.6.2: Raw material Conversion period

(Rs in crore)
Particulars 2010-2011 2011-2012 2012-2013

Average stock of raw material 1495.295 2163.28 2777.46

Raw Material Consumed 10400.69 15746.65 17915.7

RMCP 52 50 56

Percentage Change in RMCP -4.44359 12.84686

ANALYSIS

Raw material conversion period in the year 2010-11 is 52 which have decreased

to 50 in the year 2011-12 and again it has increased to 56 in the year 2012-13.

INTERPRETATION

One can observe the data presented in above table that Raw material conversion

period 0f 2012-2013 has increased from 50 days to 56 days by 12.85%. This

shows that production process has slowed down compared to previous year and

it reflects inefficient inventory management.

 Graph 4.6.2: showing Raw material conversion period

Raw Material Conversion Period

60.00
50.00
40.00
30.00
20.00
10.00
0.00
-10.00 2010-2011 2011-2012 2012-2013

Raw Material Conversion Period Percentage Change in RMCP

 4.6.3Work in Progress Conversion Period
The ratio states that how many days is taken by production department to

convert raw material into finished goods.

Table 4.6.3: Work in Progress Conversion Period (Rs in crore)

Particulars 2010-2011 2011-2012 2012-2013

Average stock of Work in Progress 2212.08 3099.89 3988.58

Cost of Production 15010.06 21659.51 26608.91

Work in Progress Conversion Period 53 52 55

Percentage Change in WIPCP -2.89 4.74

ANALYSIS

Work in progress conversion period in the year 2010-11 is 53 which decrease to 52

in the year 2011-12 and again it increases in the year 2012-2013 to 55.

INTERPRETATION

We can observe that Work in Progress Conversion Period 0f 2012-2013 has

increased from 52 days to 55days i . e . , by 4.74%. Here company should

increase the utilization of factors of production to have better utilization of funds

in production process.
Graph4.6.3: Showing Work in Progress Conversion
Period

Work in Progress Conversion Period

60.00
50.00
40.00
30.00
20.00
10.00
0.00
2010-2011 2011-2012 2012-2013
-10.00

Work in Progress Conversion Period Percentage Change in WIPCP

 4.6.4: Finished Goods Conversion Period

The ratio states that how many days is taken to dispatch finished goods to

sales i.e. time period between production and sales.

Table 4.6.4: Finished Goods Conversion Period

(Rs in crore)
Particulars 2010-2011 2011-2012 2012-2013

Average stock of Finished Goods 387.77 498.99 560.8

Cost of Goods sold 14839.64 21611.4 26529.48

Finished Goods Conversion Period 9 8 7

Percentage Change in FGCP -11.64 -8.45

ANALYSIS

Finished Good conversion period in the year 2010-11 is 9 which decreases in

the year 2011-12 to 8 and again there is further decrease in ratio to 7 in 2012-13.

INTERPRETATION

It can be observed that Finished Goods Conversion Period 0f 2010-2011 has

fallen from 8.43 days to 7.72 days by 8.45%. It indicates about the company‘s

ability to recover its cost incurred in production process, that in turn makes profit.

It also reduces warehouse cost.

Graph 4.6.4: showing Finished Goods Conversion Period

Finished Goods Conversion Period

15.00

10.00

5.00

0.00
2010-2011 2011-2012 2012-2013
-5.00

-10.00

-15.00

Finished Goods Conversion Period Percentage Change in FGCP

 4.6.5: Average Inventory Turnover Ratio
This ratio measures how much time a company takes to convert its cash

outflows during purchase of materials to sale of finished goods or cash inflows.

Table 4.6.5: Average Inventory Turnover Ratio (Rs in crore)

Particulars 2010-2011 2011-2012 2012-2013

Average Inventory 4977.035 6814.195 8587.885

Gross Sales 19304.64 26491.4 33154.48

ITR 25.78 25.72 25.90

Average Inventory Turnover Ratio -0.23 0.70

ANALYSIS

Inventory Turnover ratio is 25.78 in the year 2010-11 which decreases to

25.72 in the year 2011-12 and again it increases to 25.90 in the year 2012-13

respectively.

INTERPRETATION

It can be observed that average inventory turnover has slightly increased in 2012-

2013 from 25.90 to 25.72 i.e. 0.70%. This is causing more blockages of funds in

inventory.
Graph4.6.5: Average Inventory Turnover Ratio

Average Inventory Turnover Ratio

30.00
25.00
20.00
15.00
10.00
5.00
0.00
2010-2011 2011-2012 2012-2013
-5.00

Average Inventory Turnover Ratio %change in ITR

 4.6.6: Stock Turnover Ratio
This ratio measures how quickly stock is sold during a year.

Table 4.6.6: Stock (Rs in crore)

Turnover Ratio
Particulars 2010-2011 2011-2012 2012-2013

Average stock 4977.035 6814.195 8587.885

Cost Of Goods Sold 14839.64 21611.4 26529.48

Stock Turnover Ratio 2.98 3.17 3.09

Percentage change in STR 6.37 -2.60

ANALYSIS

Stock Turnover ratio is 2.98 in the year 2010-11, which increases to 3.17 in the

year 2011-12 and again it decreases to 3.09 in the year 2012-13.

INTERPRETATION

It can be observed that Stock Turnover has decreased to 3.09 from 3.17 in the

year 2012-2013 compared to previous year. This shows that company has more

stock resides with it compared to previous year.

Graph 4.6.6: showing stock turnover ratio

Stock Turnover Ratio

8.00

6.00

4.00

2.00

0.00
2010-2011 2011-2012 2012-2013
-2.00

-4.00

Stock Turnover Ratio Percentage change

4.6.7Average age of stock

It shows the average amount stock that has to reside with the company.

Table 4.6.7: Average age of stock

Particulars 2010-2011 2011-2012 2012-2013

Stock Turnover Ratio 2.98 3.17 3.09

Average age of stock 122 115 118

Percentage change -5.99 2.59

ANALYSIS

Average age of stock is 122 in the year 2011 which comes down to 115 in the year

2012 and again which goes to 118 by the year 2013.

INTERPRETATION
It can be observed that Average age of stock has increased to 118.12 times from

115.14 times in the year 2012-2013 compared t o p r e v i o u s y e a r . This shows

that c o m p a n y h a s m o r e r i s k o f obsolescence.
 Graph 4.6.7: Average age of stock

Average age of stock

140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2010-2011 2011-2012 2012-2013
-20.00

Average age of stock Percentage change

 4.6.8. SPARE PART INDEX

This ratio indicates the percentage of spare parts in the net block of plant and

Machinery. Also it shows the usage of plant and machinery in operation.

Table 4.6.8: spare (Rs in crore)

part index
Particulars 2010-2011 2011-2012 2012-2013

Store(closing) 147.43 186.65 170.54

Net bock of Plant and Machinery 442.89 664.91 1181.26

Spare part index 33.29 28.07 14.44

Percentage change -15.67 -48.57

ANALYSIS

Spare part index is 33.29 in the year 2010-2011 which decreases in the year 2011-

2012 to 28.07 and again it decreases in the year 2012-13 to 14.44.

INTERPRETATION

It can be observed that SPI index has decreased to 14.44 from 28.07 in the year
2012-2013 i.e. to 48.75%. It means the usage of office and plant cleaning
materials in operation is not efficient.
 Graph 4.6.8: showing Spare part index

Average age of stock

40.00

20.00

0.00
2010-2011 2011-2012 2012-2013
-20.00

40.00

60.00

spare part index Percentage change

 TABLE4.6.9: SHOWING
CALCULATION OF OPERATING CYCLE

Accounts Receivables (Days)

Particulars 2010 - 2011 2011 – 2012 2012 – 2013

Sundry Debtors 10793.84 14023.2 18432.07
Credit Sales (Total Sales) 19304.64 26491.4 33154.48
Accounts Receivables 204 193 203
(Days) (1)

Average Holding Period or Inventory (Days)

Particulars 2010 - 2011 2011 - 2012 2012 - 2013

Inventory 4977.035 6814.195 8587.885
COGS 14839.64 21611.4 26529.48

Average Holding Period

or Inventory(Days)(2) 122 115 118

Operating Cycle (Days)

(1+2) = 326 308 321

INTERPRETATION
The operating cycle increased to 321 days in 2012-2013 as compared to 308

days in 2011-2012. This shows more cash is blocked into the operating cycle of

the company due to the high accounts receivables.

 CHAPTER-5
SUMMARY OF FINDINGS
AND INTERPRETATION
 SUMMARY OF FINDINGS AND CONCLUSTION

The financial data of BHEL is used to study the efficiency in management of

working capital. The data is analysed and interpreted using various financial ratios

related to working capital and its components. The study is focussed to fulfil the

objectives of the research work. The few objectives of this study are to know the

changes in working capital over the years, to understand the management of

different component of working capital such as, receivables, payables and

inventory. Based on data analysis and interpretation following findings are

derived.

 Working capital of BHEL

 While studying changes in working capital, it was observed that there is

an increase in working capital which is good sign of liquidity position.
Current assets are increasing at increasing rate and current liabilities are
increasing at decreasing rate. This indicates that the company has less
risk of liquidity.

 The working capital turnover ratio measures the efficiency with

which the working capital is being used by a firm. BHEL is utilising
working capital efficiently and the ratio is consistent during last two
years at 2.6 times. Adequate amount is invested in working capital.
 Liquidity position

 Cash ratio is low and has been decreasing year on year. Cash ratio

for the year 2012-2013 is 0.30.

 Quick ratio is 1.03 which has decreased in the last two years. It

shows the delay in payment of debts by the company.

 Current Asset Management

 Return on current assets is 10.02% which has increased from

8.48% of the year 2011-2012. This shows that the Company’s

profit amounts to 10 times the total current assets.

 Raw Material to Current Asset has fallen in the year 2012-2013

to 4.56% wh i c h wa s 6.79 and 7.12 during previous two years.

This shows the gain due to opportunity cost for the company.

 The Work In Progress to Current Asset for the year 2012-2013

has increased from 9.77 to 10.04 compared to previous year 2011-

12, rate of increase is 2.83%.

 The FGCA for the year 2012-2013 has fallen from 1.40 to 1.39

compared to previous year by 0.69%.This shows that company is

not able to convert finished goods into cash immediately.

 Receivable Management

 The company’s collection Period has increased to 202 in 2013 as

compared 193 days in 2012 which denotes improper credit policy.

 Payable Management

 The company‘s payment period has been increased to 149 days from

138 Days in 2013. Company is enjoying longer credit period. Increased

payment period reduces the working capital requirement.

 Inventory Management

 Average inventory turnover has slightly increased in 2012-2013

25.72 i.e. 0.70% increase. This shows the increase in the funds

invested for holding inventory.

 Stock Turnover has decreased to 3.09 from 3.17 in the year 2012-

2013 as compared to previous year. This shows that company has

more stock resides with it.

 It can be observed that SPI index has decreased to 14.44 from 28.07

in the Year 2012-2013 i.e., by 48.75%.It means the usage of office

and plant Cleaning materials in operations of the company has

decreased.

 Average inventory period has increased in the year 2013 which

tells that more funds are invested for holding inventory.

 The average age of stock is 118.12 days in the year 2013 which has
 also increased compared to previous year. This shows that company
has to bear more risk of obsolescence.
 Raw material turnover ratio is 6.45 in the year 2012-13 which is
a favourable ratio, showing that the organization is not building up
its inventory of raw Materials.
 Work in progress turnover ratio for the period ranges from 6.79 to
6.67 from 2010-2013, indicating how well the organization is
managing its WIP and converting them into finished goods at faster
phase reducing its inventory build-up cost.

 Raw material conversion period 0f 2012-2013 has increased from

5o days to 56 days by 12.85%. This shows that production
process has slowed down compared to previous year.

 Work in Progress Conversion Period 0f 2012-2013 has increased

from 52.24 days to54.71days by 4.74%. This tells that company

Should completely utilize factors of production.

 Finished Goods Conversion Period o f 2012-2013 has fallen from

8.43 days to 7.72 days by 8.45%. This shows that company is able
to recover its cost of production sooner and also can reduce
warehouse cost.

 Through the study of inventories, it was observed that there was a

continuous increase in the level of inventories, which is good

Because old stock is moving out and new stock is coming in

according to customer taste.

 Operating cycle of BHEL is 321 days which is very high. But has
 BHEL is a capital incentive business it is taking longer period to

Complete one operation.

CONCLUSION

To conclude, this study focuses on Working capital management and Inventory

Management position of Bharat Heavy Electricals Limited. The study provides
a frame work of liquidity position of Bharat Heavy Electricals Limited and the
efficient usage of the inventory to reduce holding cost. After analysing various
ratios relating to working capital management one can conclude that company is
having strong working capital position and it is efficiently managing day to day
operations. As the company is involved in the production of capital goods whose
cost is very high the collection period and payment period will be longer.
The companies raw material and work in progress conversion period is
increased compared to previous year but the finished goods conversion period is
less and company is converting it to sales quickly compared to previous year and
this shows the better conversion of finished goods to sales. The overall position of
the company is good and it is giving tough competition in its industry. The study
has however been limited to 7 weeks and analysis is restricted to the data
available publically and the ratios are compared for past 3 years and with which
it is difficult to forecast the future.
 CHAPTER-6
RECOMMENDATIONS
AND SUGGESTION
 RECOMMENDATIONS AND SUGGESTION

 from the above findings, it can be noted that debt collection period of the

company has been increased indicating a sort of inefficiency of collection

department. Debtor‘s collection can be improved by giving discounts for

early payment’s to avoid bad debt and to improve liquidity of the firm.

 Raw material conversion period and Work in progress conversion

period have been increasing, showing inefficiency in management of

inventory. Hence conversion period of inventory must be reduced by

using proper inventory control techniques that results into better

utilization of factors of production and profit.

 Inventory holding c o s t c a n b e r e d u c e d b y u s i n g m o d e r n i z e d

t e c h n o l o g y and converting raw material to finished goods as quickly

as possible.

 Retail outlet can be opened for the sales of solar panels for the

commercial purpose to save electric energy and to create strong consumer

base in the country.

 Cash ratio and quick ratio has been decreased in 2009-2010 compared

to past two years. So the company needs to give an attention to maintain

cash reserves by having quick collection period.

ANNEXURES
BIBLIOGRAPHY
 BIBLIOGRAPHY

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