PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

IN

BHARTI AIRTEL LTD

SUBMITTED TO: SUBMITTED BY:

MR. KULTESHWER SINGH

TARUN

BCOM 3rd sem.

170300305

UNIVERSITY SCHOOL OF MANAGEMENT STUDIES

RAYAT BAHRA UNIVERSITY, MOHALI (CHANDIGARH)
 ACKNOWLEDGEMENT

With an Overwhelming sense of gratitude, I acknowledge that the valuable guidance and
consistent encouragement extended to me by our knowledgeable faculty members with whose
guidance, I’m able to accomplish this endeavour. Their technical acumen and years of
experience has provided me with crucial inputs at a critical stage. I am specially thankful and
grateful to my project guide MR. KULTESHWER SINGH who motivated and helpful me in
completing my project.
 CERTIFICATE

This is to certify that TARUN, student of BCOM. 3rd Sem. ,RAYAT BAHRA UNIVERSITY has
under gone a research project on “WORKING CAPITAL MANAGEMENT IN BHARTI
AIRTEL LTD” and submitted a report under the guidance of MR. KULTESHWER SINGH for
a minor project report.

MR. KULTESHWER SINGH

(USMS)
 INDEX

S.No. Topic Page no.

INTRODUCTION
1.

2. COMPANY PROFILE

3. LITERATURE REVIEW

4. OBJECTIVE

5. METHODOLOGY

6. RESULTS

7. RECOMMENDATIONS

8. CONCLUSIONS & IMPLICATIONS

9. BIBLIOGRAPHY
 INTRODUCTION

WORKING CAPITAL - OVERALL VIEW

Working Capital management is the management of assets that are current in

nature. Current assets, by accounting definition are the assets normally converted
in to cash in a period of one year. Hence working capital management can be
considered as the management of cash, market securities receivable, inventories
and current liabilities. In fact, the management of current assets is similar to that
of fixed assets the sense that is both in cases the firm analyses their effect on its
profitability and risk factors, H differ on three major aspects.

1. In managing fixed assets, time is an important factor discounting and

compounding aspects of time play an important role in capital budgeting
and a minor part in the management of current assets.

2. The large holdings of current assets, especially cash, may strengthen the
firm’s liquidity position, but is bound to reduce profitability of the firm as
ideal car yield nothing.
3. The level of fixed assets as well as current assets depends upon the
expected sales, but it is only current assets that are ad the fluctuation in
the short run u a

business.

To understand working capital better we should have basic knowledge about the
various aspects of working capital. To start with, there are two concepts of
working capital:

¾ Gross Working Capital

¾ Net working Capital

Gross Working Capital: Gross working capital, which is also simply

known as working capital, refers to the firm’s investment in current assets:
Another aspect of gross working capital points out the need of arranging funds to
finance the current assets. The gross working capital concept focuses attention
on two aspects of current assets management, firstly optimum investment in
current assets and secondly in financing the current assets. These two aspects
will help in remaining away from the two danger points of excessive or
inadequate investment in current assets. Whenever a need of working capital
funds arises due to increase in level of business activity or for any other reason
the arrangement should be made quickly, and similarly if some
 surpluses are available, they should not be allowed to lie ideal but should be put
to some effective use.

Net Working Capital: The term net working capital refers to the difference
between the current assets and current liabilities. Net working capital can be
positive as well as negative. Positive working capital refers to the situation where
current assets exceed current liabilities and negative working capital refers to the
situation where current liabilities exceeds current assets. The net working capital
helps in comparing the liquidity of the same firm over time. For purposes of the
working capital management, therefore Working Capital can be said to measure
the liquidity of the firm. In other words, the goal of working capital management
is to manage the current assets and liabilities in such a way that a acceptable
level of net working capital is maintained.

Importance of working capital management:

Management of working capital is very much important for the success of the
business. It has been emphasized that a business should maintain sound working
capital position and also that there should not be an excessive level of
investment in the working capital components. As pointed out by Ralph
Kennedy and Stewart MC muller, “the inadequacy or mis-management of
working capital is one of a few leading causes of business failure.

Determinants of Working Capital

There is no specific method to determine working capital requirement for a

business. There are a number of factors affecting the working capital
requirement. These factors have different importance in different businesses and
at different times. So a thorough analysis of all these factors should be made
before trying to estimate the amount of working capital needed. Some of the
different factors are mentioned here below :-Nature of business: Nature of
business is an important factor in determining the working capital requirements.
There are some businesses which require a very nominal amount to be invested
in fixed assets but a large chunk of the total investment is in the form of working
capital. There businesses, for example, are of the trading and financing type.
There are businesses which require large investment in fixed assets and normal
investment in the form of working capital.

Size of business : It is another important factor in determining the working capital

requirements of a business. Size is usually measured in terms of scale of operating cycle.
The amount of working capital needed is directly proportional to the scale of operating
cycle i.e. the larger the scale of operating cycle the large will be the amount working
capital and vice versa.

Business Fluctuations: Most business experience cyclical and seasonal

fluctuations in demand for their goods and services. These fluctuations affect the
business with respect to working capital because during the time of boom, due to
an increase in business activity the amount of working capital requirement
increases and the reverse is true in the case of recession. Financial arrangement
for seasonal working capital requirements are to be made in advance.
 Production Policy: As stated above, every business has to cope with
different types of fluctuations. Hence it is but obvious that production policy has
to be planned well in advance with respect to fluctuation. No two companies can
have similar production policy in all respects because it depends upon the
circumstances of an individual company.

Firm’s Credit Policy: The credit policy of a firm affects working capital by
influencing the level of book debts. The credit term are fairly constant in an
industry but individuals also have their role in framing their credit policy. A
liberal credit policy will lead to more amount being committed to working
capital requirements whereas a stern credit policy may decrease the amount of
working capital requirement appreciably but the repercussions of the two are not
simple. Hence a firm should always frame a rational credit policy based on the
credit worthiness of the customer.

Availability of Credit: The terms on which a company is able to avail credit

from its suppliers of goods and devices credit/also affects the working capital
requirement. If a company in a position to get credit on liberal terms and in a
short span of time then it will be in a position to work with less amount of
working capital. Hence the amount of working capital needed will depend upon
the terms a firm is granted credit by its creditors.

Growth and Expansion activities: The working capital needs of a firm increases
as it grows in term of sale or fixed assets. There is no precise way to determine the
relation between the amount of sales and working capital requirement but one thing is
sure that an increase in sales never precedes, the increase in working capital but it is
always the other way round. So in case of growth or expansion the aspect of working
capital needs to be planned in advance. Price Level Changes: Generally increase in
price level makes the commodities dearer. Hence with increase in price level the working
capital requirements also increases. The companies which are in a position to alter the
price of these commodities in accordance with the price level changes will face less
problems as compared to others. The changes in price level may not affect all the firms
in same way. The reactions of all firms with regards to price level changes will be
different from one other.

CIRCULATION SYSTEM OF WORKING CAPITAL

In the beginning the funds are obtained from the issue of shares, often
supplemented by long term borrowings. Much of these collected funds are used
in purchasing fixed assets and remaining funds are used for day to day operation
as pay for raw material, wages overhead expenses. After this finished goods are
ready for sale and by selling the finished goods either account receivable are
created and cash is received. In this process profit is earned. This account of
profit is used for paying taxes, dividend and the balance is ploughed in the
business.
Working capital is considered to efficiently circulate when it turns over quickly.
As circulation increases, the investment in current assets will decrease. Total
Assets is the sum of all assets, current and fixed. The asset turnover ratio
measures the ability of a company to use its assets to efficiently generate sales.
The higher the ratio indicates that the company is utilizing all its assets
efficiently to generate sales. Companies with low profit margins tend to have
Bharit Airtel.

Ratios useful to analyze working capital management

(A) Efficiency Ratios

2011-12 2012-13

1. Working Capital Turnover (times) 4.84 10.23

2. Current Assets Turnover (times) 1.78 2.98

3. Inventory turnover (times) 9.49 9.20

(B) Liquidity Ratio and Solvency Ratio

1. Current Ratio 1.02 0.65

2. Quick Ratio 1.37 0.75

3. Debt Equity Ratio 0.29 0.24

The Company generates healthy operational cash flows and

maintains sufficient cash and financing arrangements to meet its
strategic objectives. It deploys a robust cash management system to
ensure timely servicing of its liquidity obligations. The Company
has also been able to arrange for adequate liquidity at an optimized
cost to meet its business requirements and has minimized the
amount of funds tied-up in the current assets.
As of March 31, 2012, the Company has cash and cash equivalents of Rs.

20,300 Mn and short term investments of Rs. 18,132 Mn. During the year
ended March 31, 2012, the Company generated operating free cash flow of
Rs. 101,319 Mn. The net debt - EBITDA ratio as on March 31, 2012 was at
2.56 and the net debt - equity ratio was at 1.29. The net debt in USD
terms decreased from USD 13,427 Mn as on March 31, 2011 to USD 12,714
Mn as on March 31, 2012.

On further analysis, inventory constitutes a major proportion of total current

assets. Among its various components, raw materials, stocks, spared and finished
goods in particular need further analysis as here stand out to the problem areas.
 Schedule of Changes in Working Capital

Particulars Amount

Assets 31 March 2013 31 March 2012

Gross Block 71911.80 63885.40

(-) Acc. Depreciation 28729.20 23444.60

Net Block 43182.60 40440.80

Capital Work in Progress 1030.80 4466.50

Investments 28199.10 12337.80

Sundry Debtors 2246.80 2134.50

Cash and Bank 362.70 481.20

Loans and Advances 12859.10 20430.80

Total Current Assets 15470.70 23078.60

Current Liabilities 20061.70 16067.20

Provisions 695.50 697.50

Total Current Liabilities 20757.20 16764.70

Working capital (CA-CL)

Working Capital (5286.5) 6313.90

COMPANY PROFILE
Bharti Airtel Limited

Bharti Airtel to Observe Silent period from June 30, 2012

New Delhi June 25, 2011 : Bharti Airtel, India’s leading private telecom services
provider would observe a 'Silent Period' from the close of business on June 30,
2011 (Wednesday), till the declaration of results for the first quarter ending June
30, 2011, as a commitment towards highest level of corporate governance.

Details about the quarterly and annual results announcement and the earnings
call will be made available on the website.

The practice of silent period does not refrain the company and its representatives
from any press conference & public dissemination of information. The
observation of silent period is only a practice and hence does not imply any legal
obligation for the company under any circumstances.

About Bharti Airtel Limited: Bharti Airtel Limited, a group company of Bharti
Enterprises, is among Asia’s leading integrated telecom services providers with
operations in India, Sri Lanka and Bangladesh. The company has an aggregate of
around 138 million customers across its operations. Bharti Airtel has been
ranked among the six best performing technology companies in the world by
Business Week. Bharti Airtel is structured as four strategic business units -
Mobile, Telemedia, Enterprise and Digital TV. The mobile business offers
services in India, Sri Lanka and Bangladesh. The Telemedia business provides
broadband, IPTV and telephone services in 89 Indian cities. The Enterprise
business provides end-to-end telecom solutions to corporate customers and
national and international long distance services to carriers. The Digital TV
business provides DTH Airtel’s national high-speed optic fiber network
currently spans over 126,357 Rkms across India. Airtel's international network
infrastructure includes ownership of the i2i submarine cable system and
consortium ownership in five global undersea cable systems, SEA-ME-WE 4,
EIG, I-ME-WE, AAG and Unity. For more information, visit www.airtel.in

Bharti Airtel

Airtel comes to you from Bharti Airtel Limited, one of Asia’s leading integrated
telecom services providers with operations in 19 countries across Asia and
Bharti Airtel since its inception, has been at the forefront of technology and has
pioneered several innovations in the telecom sector.

The company is structured into four strategic business units - Mobile,

Telemedia, Enterprise and Digital TV. The mobile business offers services in
India, Sri Lanka and Bangladesh. The Telemedia business provides broadband,
IPTV and telephone services in 89 Indian cities. The Digital TV business
provides Direct-to-Home TV services across India. The Enterprise business
provides end-to-end telecom solutions to corporate customers and national and
international long distance services to telcos.

Vision and Values

 Our vision

By 2020 we will build India's finest conglomerate by:

• Always empowering and backing our people

• Being loved and admired by our customers and -respected by our partners

• Transforming millions of lives and making a positive impact on society

• Being brave and unbounded in realizing our dreams

Our values

Empowerment

We respect the opinions and decisions of others. We encourage and back people
to do their best
Entrepreneurship

We always strive to change the status quo. We Innovate with new ideas and
energise with a strong passion and entrepreneurial spirit.

Transparency

We believe we must work with honesty, trust and the innate desire to do good.

Impact

Are driven by the desire to create a meaningful difference in society

Flexibility

We are ever willing to learn and adapt to the environment, our partners and the
customer's evolving needs.

Bharti Airtel Limited (BSE: 532454) formerly known as Bharti Tele-Ventures LTD
(BTVL) is an Indian company offering telecommunication services in 19 countries. It is
the largest cellular service provider in India, with more than 141 million subscriptions as
of August 2011[update] Bharti Airtel is the world's third largest, single-country mobile
operator and fifth largest telecom operator in the world with a subscriber base of over
180 million It also offers fixed line services and broadband services. It offers its telecom
services under the Airtel brand and is headed by Sunil Bharti Mittal. Bharti Airtel is the
first Indian telecom service provider to achieve this Cisco Gold Certification. To earn
Gold Certification, Bharti Airtel had to meet rigorous standards for networking
competency, service, support and customer satisfaction set forth by Cisco. The company
also provides land-line telephone services and broadband Internet access (DSL) in over
96 cities in India. It also acts as a carrier for national and international long distance
communication services. The company has a submarine cable landing station at Chennai,
which connects the submarine cable connecting Chennai and Singapore.
It is known for being the first mobile phone company in the world to outsource
everything except marketing and sales and finance. Its network (base stations,
microwave links, etc.) is maintained by Ericsson and Nokia Siemens Network,
business support by IBM and transmission towers by another company. Ericsson
agreed for the first time, to be paid by the minute for installation and
maintenance of their equipment rather than being paid up front. This enables the
company to provide pan-India phone call rates of Rs. 1/minute (U$0.02/minute).
During the last financial year [2010-10], Bharti has roped in a strategic partner
Alcatel-Lucent to manage the network infrastructure for the Telemedia Business.

The company is structured into four strategic business units - Mobile,

Telemedia, Enterprise and Digital TV. The mobile business offers services in 18
countries across the Indian Subcontinent and Africa. The Telemedia business
provides broadband, IPTV and telephone services in 89 Indian cities. The Digital
TV business provides Direct-to-Home TV services across India. The Enterprise
business provides end-to-end telecom solutions to corporate customers and
national and international long distance services to telcos.

Globally, Bharti Airtel is the 3rd largest in-country mobile operator by

subscriber base, behind China Mobile and China Unicom. In India, the company
has a 30.7% share of the wireless services market. In January 2011, company
announced that Manoj Kohli, Joint Managing Director and current Chief
Executive Officer of Indian and South Asian operations, will become the Chief
Executive Officer of the International Business Group from 1 April 2011. He
will be overseeing Bharti's overseas business. Current Dy. CEO, Sanjay Kapoor,
will replace Manoj Kohli and will be the CEO, effective from 1 April 2011.

Airtel digital TV launches two attractive offers for new customers this
festive season

- Offer 1: Now get 4 month free subscription to Economy Pack with all new
Airtel digital connections @Rs.1690
- Offer 2: Purchase a new Airtel digital TV connection for just Rs. 999

New Delhi, October 7, 2011 : Airtel digital TV, the DTH arm of Bharti Airtel,
today announced two powerful combos on new subscriptions for customers
across India. The Limited Period Offers come on the eve of the festival season.

Offer 1: Customers purchasing a new Airtel digital TV connection @ Rs.1690

need not recharge their Airtel digital TV accounts for the next 4 months. They
would be entitled to 4 months free subscription to the Economy Pack (around
150 popular channels, worth Rs.200+taxes) thereby enabling them to make the
move to the next generation DTH technology on Airtel, for an effective price of
just Rs.806!

Offer 2: New customers who purchase a new Airtel digital TV connection for
Rs.999 and get started with an initial recharge of just Rs.200.

Announcing the offers, Sugato Banerji, CMO-DTH Services, Bharti Airtel, said
"We believe that these two new entry offers will provide yet another compelling
reason for customers to join the growing Airtel digital TV family. By
significantly bring down the Total Cost of Ownership these offers will make it
more easier for more customers, to move to the next generation home
entertainment options like Airtel digital TV."

Airtel digital TV – the DTH service from Bharti Airtel – has 3.8 million
customers and is one of the leading national level DTH service in the country
which offers its customers MPEG 4 with DVBS 2 – currently the most advanced
digital broadcasting technologies available in the world after HD broadcasting.
Additionally, Airtel digital TV was the first to bring many firsts to the DTH
segment in India including a Universal Remote which operates both the Set Top
Box and TV set as well as several unique Interactive Applications. Airtel digital
TV recorder was the first to offer the capability to record live television,
anytime, anywhere and recently added HD services to its portfolio. Users can
also update themselves on the latest stock news. All this is backed by 24x7
customer care. Airtel digital TV launched its services in October 2009.

About Bharti Airtel Limited : Bharti Airtel Limited is a leading global

telecommunications company with operations in 19 countries across Asia and
Africa. The company offers mobile voice & data services, fixed line, high speed
broadband, IPTV, DTH, turnkey telecom solutions for enterprises and national &
international long distance services to carriers. Bharti Airtel has been ranked
among the six best performing technology companies in the world by
BusinessWeek. Bharti Airtel had over 188 million customers across its
operations at the end of August 2011. To know more visit www.airtel.in

Services

Mobile Services

Airtel is the name of the company's mobile services brand. It operates in 19

countries and the Channel Islands. It is the 5th largest mobile operator in the
world in terms of subscriber base. Airtel's network consists of 3G and 2G
services depending on the country of operation.

Airtel

In India, the company's mobile service is branded as Airtel. It has nationwide

presence and is the market leader with a market share of 30.07% (as of May
2011). On 19 October 2004, Airtel announced the launch of a Black Berry
Wireless Solution in India. The launch is a result of a tie-up between Bharti
Tele-Ventures Limited and Research In Motion (RIM).

The Apple iPhone 3G was rolled out in India on 22 August 2009 by Airtel &
Vodafone. Both the cellular service providers rolled out their Apple iPhone 3GS
in the first quarter of 2011. However, high prices and contract bonds discouraged
consumers and it was not as successful for both the service providers as much as
the iPhone is successful in other markets of the world.

On May 18, 2011, 3G spectrum auction was completed and Airtel will have to
pay the Indian government Rs. 12,295 crores for spectrum in 13 circles, the most
amount spent by an operator in this auction. Airtel won 3G licences in 13
telecom circles of India: Delhi, Mumbai, Andhra Pradesh, Karnataka, Tamil
Nadu, Uttar Pradesh (West), Rajasthan, West Bengal, Himachal Pradesh, Bihar,
Assam, North East, Jammu & Kashmir. Bharti is expecting to launch its 3G
service by December 2011.

On 20 September 2011, Bharti Airtel said that it has given contracts to Ericsson
India, Nokia Siemens Networks (NSN) and Huawei Technologies to set up
infrastructure for providing 3G services in the country. These vendors will plan,
design, deploy and maintain 3G-HSPA (third generation, high speed packet
access) networks in 13 telecom circles where the company has won 3G licences.
While Bharti Airtel has awarded network contracts for seven 3G circles to
Ericsson India, NSN would manage networks in three circles. Chinese telecom
equipment vendor Huawei Technologies has been introduced as the third partner
for three circles.

Subscriber base in India

The Airtel subscriber base according to Cellular Operators Association of India

(COAI) as of August 2011 was:

Metros

• Chennai - 2,877,029

• Delhi - 6,950,079

• Mumbai - 3,201,916

• Kolkata - 2,947,042

"A" Circle

• Andhra Pradesh - 14,240,429

• Gujarat - 5,980,024

• Karnataka - 13,434,418

• Maharashtra - 7,209,072

• Tamil Nadu - 8,744,937

"B" Circle

• Haryana - 1,580,398

• Kerala - 3,332,095

• Madhya Pradesh - 7,496,236

• Punjab - 5,171,278

• Rajasthan - 11,004,105
 • Uttar Pradesh (East) - 8,534,334

• Uttar Pradesh (West) - 4,923,409

• West Bengal - 6,644,688

"C" Circle

• Assam - 2,683,243

• Bihar - 12,600,521

• Himachal Pradesh - 1,452,709

• Jammu and Kashmir - 1,751,239

• North Eastern States - 1,612,005

• Orissa - 4,840,243

Airtel is the market leader in India with about 31.18% market share of 481
million GSM mobile connections as of August 2011.
Criticism

There has been lot of criticism about Airtel for its unauthorised VAS activation.
Many of its services were activated automatically according to a complaint
forum. In return Airtel launched STOP/START 121 services for such issues.

Airtel-Vodafone (Jersey and Guernsey)

On 1 May 2007, Jersey Airtel and Guernsey Airtel, both wholly owned
subsidiaries of the Bharti Group, announced they would launch mobile services
in the British Crown Dependency islands of Jersey and Guernsey under the
brand name Airtel-Vodafone after signing an agreement with Vodafone.

Airtel Lanka

In December 2009, Bharti Airtel rolled out 3.5G services in Sri Lanka in
association with Singapore Telecommunications. Airtel's operation in Sri Lanka,
known as Airtel Lanka, commenced operations on 12 January 2010. Airtel
Lanka has 1.4 million mobile customers in Sri Lanka, across 20 administrative
districts.

Airtel in Bangladesh

In January 2011, it was announced that the Bangladesh Telecommunications

Regulatory Commission (BTRC) had given Bharti Airtel the go ahead to acquire
a 70% stake in the Bangladesh business of Abu Dhabi based Warid Telcom. The
latter had till date invested a total of $600 million, with plans to bring their
Bangladesh investments to the $1 billion mark. Airtel's 70% stake in the
company is said to be at a cost of an initial $300 million. The service is being
operated under the brand name Warid Telecom.

Warid Telecom covers the entire country and has over 2.5 million customers.

Airtel in Africa

On 14, February 2011 a statement issued by Zain Ghana, said "the Board of
Directors of Kuwait's Zain Group, after its meeting on February 14, 2011, issued
a resolution to accept a proposal received from Bharti Airtel Limited (Bharti) to
enter into exclusive discussions until 25 March 2011, regarding the sale of its
African unit, Zain Africa BV." The offer was for $10.7 billion. The deal would
provide Bharti access to 15 more countries in the region, adding around 40.1
million subscribers to its already 125 million-plus user base. The combined
revenue of the two entities would be around $12 billion.

The deal ran into hurdles after the government of the of Gabon had come out
against the deal, but later approved the sale. The government of Congo Republic
had also said Bharti-Zain deal broke law. There was also a dispute about
minority ownership of Zain's operations in Nigeria, the biggest market in the
deal. Minority shareholder Econet was seeking to overturn a 2006 deal by Zain -
then called Celtel - in which it bought a majority stake in Nigerian mobile
operator Vee Networks Ltd, now Zain Nigeria. On 8, June 2011, Bharti said the
Nigeria ownership dispute had been settled. On 8, June 2011, Bharti Airtel, in
the largest ever telecom takeover by an Indian firm, completed a deal to buy
Kuwait-based Zain Telecom's businesses in 15 African countries for $10.7
billion. The transaction is the largest ever cross-border deal in an emerging
market and will result in combined revenues of about $13 billion."The overall
integration should be complete by the end of this financial year.

On September 1, 2011, Chairman and Managing Director Sunil Bharti Mittal

said that Bharti Airtel Ltd would change its Africa operations brand from Zain to
Airtel by 15 October 2011.
Airtel Seychelles

On August 11, 2011, Bharti Airtel announced that it would acquire 100% stake
in Telecom Seychelles for US$62 million taking its global presence to 19
countries. Telecom Seychelles began operations in 1998 and operates 3G, Fixed
Line, ship to shore services satellite telephony, among value added services like
VSAT and Gateways for International Traffic across the Seychelles under the
Airtel brand. The company has over 57 percent share of the mobile market of
Seychelles.

Airtel announced plans to invest US$10 million in its fixed and mobile telecoms
network in the Seychelles over three years , whilst also participating in the
Seychelles East Africa submarine cable (SEAS) project. The US$34 million
SEAS project is aimed at improving the Seychelles’ global connectivity by
building a 2,000 km undersea high speed link to Dar es Salaam in Tanzania.

Telemedia

The Telemedia business provides services in 89 Indian cities and consists of two
brands.

Airtel Broadband provides broadband and IPTV services. Airtel provides both
capped as well as unlimited download plans. The maximum speed available for
home users is 16Mbps.

Airtel Fixed Line which provides fixed line services.

Airtel has about 3.15 million wireline customers, of which 42.6% are
broadband/internet subscribers as of August 2011. Until September 18, 2004,
Bharti provided fixed-line telephony and broadband services under the Touchtel
brand. Bharti now provides all telecom services including fixed-line services
under a common brand "Airtel".
Digital Televison

Main article: Airtel Digital TV

The Digital TV business provides Direct-to-Home (DTH) TV services across

India under the brand name Airtel Digital TV. It started services on 9 October
2009 and has about 32.44 million customers as of August 2011.
Enterprise
The Enterprise business provides end-to-end telecom solutions to corporate
customers and national and international long distance services to telcos through
its nationwide fiber optic backbone, last mile connectivity in fixed-line and
mobile circles, VSATs, ISP and international bandwidth access through the
gateways and landing stations.

Merger talks

In May 2009, it emerged that Bharti Airtel was exploring the possibility of
buying the MTN Group, a South Africa-based telecommunications company
with coverage in 21 countries in Africa and the Middle East. The Financial
Times reported that Bharti was considering offering US$45 billion for a 100%
stake in MTN, which would be the largest overseas acquisition ever by an Indian
firm. However, both sides emphasize the tentative nature of the talks, while The
Economist magazine noted, "If anything, Bharti would be marrying up," as MTN
has more subscribers, higher revenues and broader geographic coverage.
However, the talks fell apart as MTN group tried to reverse the negotiations by
making Bharti almost a subsidiary of the new company.

In May 2011, Bharti Airtel again confirmed that it is in Talks with MTN and
companies have now agreed discuss the potential transaction exclusively by July
31, 2011. Bharti Airtel said in a statement "Bharti Airtel Ltd is pleased to
announce that it has renewed its effort for a significant partnership with MTN
Group".

Talks eventually ended without agreement, due to the South African government
opposition

Consecutively for four years 1997,1998,1999 and 2000, AirTel has been voted
as the Best Cellular Service in the country and won the coveted

Techies award.

AirTel has consistently strived hard to, not only deliver as per customer
expectation, but also go beyond that. According to its those at AirTel, their
vision, mission and values are as follows….

VISION

To make mobile communications a way of life and be the customers' first choice

MISSION

We will meet the mobile communication needs of our customers through :

Ø Error-free service delivery

Ø Innovative products and services

 Ø Cost efficiency

VALUES

We will always put our customers first. We will always trust and respect each
other. We will respect our associates as we respect each other. We will work
together through a process of continuous improvement
Airtel (Bharti Airtel Ltd.)

Bharti Airtel Limited was incorporated on July 7, 1995 for promoting

investments in telecommunications services. Its subsidiaries operate telecom
services across India. Bharti Airtel is India's leading private sector provider of
telecommunications services based on a strong customer base consisting of 50
million total customers, which constitute, 44.6 million mobile and 5.4 million
fixed line customers, as of March 31, 2011.

Airtel comes to us from Bharti Airtel Limited - a part of the biggest private
integrated telecom conglomerate, Bharti Enterprises. Bharti provides a range of
telecom services, which include Cellular, Basic, Internet and recently introduced
National Long Distance. Bharti also manufactures and exports telephone
terminals and cordless phones. Apart from being the largest manufacturer of
telephone instruments in India, it is also the first company to export its products
to the USA. Bharti has also put its footsteps into Insurance and Retail segment in
collaboration with Multi- National giants. Bharti is the leading cellular service
provider, with a footprint in 23 states covering all four metros and more than 50
million satisfied customers.

SERVICES

9 Airtel Prepaid

9 Strong Network Coverage Other Services

9 Voice Mail

9 SMS (Short Messaging Service)

9 Subscription Alerts

9 Airtel Live!

9 Airtel Live! WAP Services: Airtel Live! Voice Services:

9 Airtel Live! SIM Services.

9 Airtel Live! SMS Services

9 Hello Tunes

9 121@airtelindia.com.
 Airtel Postpaid

9 Easy Billing

9 Easy Payment Options. Anytime Anywhere

9 Long Distance Calling Facility

9 Widest Roaming - National and

International 9 GPRS - Roaming

Say it. In more than just words, with Services from Airtel

9 Conference call

9 Missed call alert

9 Subscription Alerts

9 Airtel Live!

9 GPRS (General Packet Radio Services)

9 Get the EDGE

Business Divisions

Bharti Airtel offers GSM mobile services in all the 23-telecom circles of India
and is the largest mobile service provider in the country, based on the number of
customers. The group focuses on delivering telecommunications services as an
integrated offering including mobile, broadband & telephone, national and
international long distance and data connectivity services to corporate, small and
medium scale enterprises. The Company compliments its mobile and broadband
& telephone services with national and international long distance services. It
has over 35,016 route kilometers of optic fibre on its national long distance
network. For international connectivity to east, it has a submarine cable landing
station at.

Bharti Airtel Limited

(A Bharti Enterprise)

Bharti Airtel is one of India's leading private sector providers of

telecommunications services based on an aggregate of 42,685,530 customers as
on May 31, 2009, consisting of 40,743,725 GSM mobile and 1,941,805
broadband & telephone customers.

The businesses at Bharti Airtel have been structured into three individual
strategic business units (SBU’s) - mobile services, broadband & telephone
services (B&T) & enterprise services. The mobile services group provides GSM
mobile services across India in 23 telecom circles, while the B&T business
group provides broadband & telephone services in 94 cities. The enterprise
services group has two sub-units - carriers (long distance services) and services
to corporates. All these services are provided under the Airtel brand.

Company shares are listed on The Stock Exchange, Mumbai (BSE) and The
National Stock Exchange of India Limited (NSE).
Partners

The company has a strategic alliance with SingTel. The investment made by
SingTel is one of the largest investments made in the world outside Singapore, in
the company.

The company’s mobile network equipment partners include Ericsson and Nokia.
In the case of the broadband and telephone services and enterprise services
(carriers), equipment suppliers include Siemens, Nortel, Corning, among others.
The Company also has an information technology alliance with IBM for its
group-wide information technology requirements and with Nortel for call center
technology requirements. The call center operations for the mobile services have
been outsourced to IBM Daksh, Hinduja TMT, Teletech & Mphasis.

The group offers high speed broadband internet with a best in class network.
With Landline services in 94 cities we help you stay in touch with your friends

LITERATURE REVIEW

CIRCULATION SYSTEM OF WORKING CAPITAL

In the beginning the funds are obtained from the issue of shares, often
supplemented by long term borrowings. Much of these collected funds are used
in purchasing fixed assets and remaining funds are used for day to day operation
as pay for raw material, wages overhead expenses. After this finished goods are
ready for sale and by selling the finished goods either account receivable are
created and cash is received. In this process profit is earned. This account of
profit is used for paying taxes, dividend and the balance is ploughed in the
business.

Working capital is considered to efficiently circulate when it turns over quickly.

As circulation increases, the investment in current assets will decrease. Current
assets turnover ratio speaks about the efficiency of Airtel in the utilization of
current assets. Fast turnover current assets results in a better rate on investment.

Table showing Current assets turnover ratio

Year Ratio (in times)

2011-12 1.38
2012-13 0.74

Ratio (in times)

1.38
1.5

1 0.74
Ratio (in
times)
0.5

2011‐12 2012‐13
BHARTI AIRTEL SERVICES LTD.

Ratios useful to analyze Working Capital Management

2011-12 2012-13

(A) Liquidity and Solvency Ratio

1. Long Term Debt Equity Ratio 0.18 0.17

2. Quick Ratio 0.75 1.37

3. Debt Equity Ratio 0.57 0.08

(B) Management Efficiency Ratios

Ratio/Year 2012-13 2011-12

Debtors Turnover Ratio 20.70 23.14

Fixed Assets Turnover Ratio 0.82 0.84

Total Assets Turnover Ratio 0.90 0.84

Asset Turnover Ratio 0.69 0.71

Number of Days In Working Capital -53.47 43.95

Interpretation (Ratio Analysis)

¾ As shown by current assets turnover ratio, the utilisation of current assets

in terms of sales has shown a decreasing trend which shows that current
assets has been effectively used to achieve sales.
¾ Again if we look at the efficiency with which individual elements of
working capital have been utilised, the picture of inventory turnover is not
very bright and moved on a same trend.

¾ Receivables turnover also shows a declining trend.

¾ As we look at the extent of liquidity of working capital, we notice that the

ration shows a increasing trend.

¾ If we analyse the structural health of working capital, the proportion of current

assets to total asests has been appropriate during this period.

Our analysis above indicates the areas of concern to management in making best
possible use of resources. Decreasing efficiency in the use of current assets hints
of the possibility of problems in working capital management.

On further analysis, inventory constitutes a major proportion of total current

assets. Among its various components, raw materials, stocks, spared and finished
goods in particular need further analysis as here stand out to the problem areas.

Cash Flow of Bharti Airtel

Sources March 2013 (in cr) March 2012 (in cr)

Net Profit Before Tax 6454.80 6956.20

Net Cash From Operating Activities 13884.70 11437.80

Net Cash (used in)/from (10725.90) (12611.80)

Investing Activities

Net Cash (used in)/from Financing (3185.70) 1400.80

Activities

Net (decrease)/increase In Cash

and (26.90) 226.80
Cash Equivalents

Opening Cash & Cash Equivalents 354.80 128.00

Closing Cash & Cash Equivalents 327.90 354.80

Interpretation (Cash Flow Statement)

¾ In the year 2012-13 cash from operation is more from previous years. The
company should take appropriate steps in order to continue the trend.

¾ In the 2012-13 company has major spending in terms of spending in form of

Acquisition/subscription/investment in subsidiaries.

¾ Out of total cash flow from operating activites there has been increase in
trade and other payables.

COMPARISON OF OPERATING CYCLE OF BHARTI AIRTEL

SERVICES LTD WITH VODAFONE ESSAR MOBILE SERVICES LTD.

Operating cycle

A direct result of our interest in both liquidity and activity ratios in the concept
of a firm’s operating cycle. A firm’s operating cycle is the length of time from
the commitment of cash for purchases until the collection of receivables
resulting from the sale of goods or services. It is as if we start a stop watch when
the purchase raw material and stop the watch only when we receive cash after
the finished goods have been sold. The time appearing on our watch (usually in
days) is the firm’s operating cycle.

Oper ating Cycl e (Bharti Airtel Service s Ltd.) 2012

Total 47 days
Oper ating Cycl e (VODAFO NE ESSA R MOBILE SERVICES LTD.) 2012

Total 45 days (A pprox.)

Our Analysis clearly indicates that Bharti Airtel has improved its operating
cycle from the year 2011. It needs to improve its operating cycle in coming years
to achieve profitability.
CASH MANAGEMENT

Cash is the important current asset for the operations of the business. Cash is the
basic input needed to keep the business running on a continuous basis It is also
the ultimate output expected to be realized by selling the service or product
manufactured by the firm. The firm should keep sufficient cash, neither more nor
less. Cash shortage will disrupt the firm’s operations while excessive cash will
simply remain idle, without contributing anything towards the firm’s
profitability. Thus a major function of the Financial Manager is to maintain a
sound cash position.

Cash is the money which a firm can disburse immediately without any
restriction. The term cash includes currency and cheques held by the firm and
balances in its bank accounts. Sometimes near cash items, such as marketable
securities or bank time deposits are also included in cash. The basic
characteristics of near cash assets are that they can readily be converted into
cash. Cash management is concerned with managing of:

i) Cash flows in and out of the firm

ii) Cash flows within the firm

iii) Cash balances held by the firm at a point of time by financing deficit or

inverting surplus cash.

Sales generate cash which has to be disbursed out. The surplus cash has to be
invested while deficit cash has to be borrowed. Cash management seeks to
accomplish this cycle at a minimum cost. At the same time it also seeks to
achieve liquidity and control. Therefore the aim of Cash Management is to
maintain adequate control over cash position to keep firm sufficiently liquid and
to use excess cash in some profitable way.

The Cash Management is also important because it is difficult to predict cash

flows accurately. Particularly the inflows and that there is no perfect coincidence
between the inflows and outflows of the cash. During some periods cash
outflows will exceed cash inflows because payments for taxes, dividends or
seasonal inventory build up etc. On the other hand cash inflows will be more
than cash payment because there may be large cash sales and more debtors’
realization at any point of time. Cash Management is also important because
cash constitutes the smallest portion of current assets, yet management’s
considerable time is devoted in managing it. An obvious aim of the firm now-a-
days is to manage its cash affairs in such a way as to keep cash balance at a
minimum level and to invest the surplus cash funds in profitable opportunities.
In order to resolve the uncertainty about cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should develop
appropriate strategies regarding the following four facets of cash management.

1. Cash Planning: - Cash inflows and cash outflows should be planned to

project cash surplus or deficit for each period of the planning period. Cash
budget should prepared for this purpose.

2. Managing the cash flows: - The flow of cash should be properly

managed. The cash inflows should be accelerated while, as far as possible
decelerating the cash outflows.

3. Optimum cash level: - The firm should decide about the appropriate
level of cash balances. The cost of excess cash and danger of cash deficiency
should be matched to determine the optimum level of cash balances.

4. Investing surplus cash: - The surplus cash balance should be properly

invested to earn profits. The firm should decide about the division of such
cash balance between bank deposits, marketable securities and inter
corporate lending.
The ideal Cash Management system will depend on the firm’s products,
organization structure, competition, culture and options available. The task is
complex and decision taken can affect important areas of the firm.
Functions of Cash Management:

Cash Management functions are intimately, interrelated and intertwined Linkage

among different Cash Management functions have led to the adoption of the
following methods for efficient Cash Management:

¾ Use of techniques of cash mobilization to reduce operating requirement of

cash.
¾ Major efforts to increase the precision and reliability of cash forecasting.

¾ Maximum effort to define and quantify the liquidity reserve needs of the firm.

¾ Development of explicit alternative sources of liquidity.

Aggressive search for relatively more productive uses for surplus money assets.
The above approaches involve the following actions which a finance manager
has to perform.

1. To forecast cash inflows and outflows

2. To plan cash requirements

3. To determine the safety level for cash.

4. To monitor safety level for cash

5. To locate the needed funds

6. To regulate cash inflows

7. To regulate cash outflows

8. To determine criteria for investment of excess cash

9. To avail banking facilities and maintain good relations with bankers

Motives for holding cash:

There are four primary motives for maintaining cash balances:

1. Transaction motive

2. Precautionary motive

3. Speculative motive

4. Compensating motive

1. Transaction motive: - The transaction motive refers to the holding of

cash to meet anticipated obligations whose timing is not perfectly
synchronized with cash receipts. If the receipts of cash and its
disbursements could exactly coincide in the normal course of operations,
a firm would not need cash for transaction purposes. Although a major
part of transaction balances are held in cash, a part may also be in such
marketable securities whose maturity conforms to the timing of the
anticipated payments.

Precautionary motive: - Precautionary motive of holding cash

implies the need to hold cash to meet unpredictable obligations and the
cash balance held in reserve for such random and unforeseen fluctuations
in cash flows are called as precautionary balances. Thus, precautionary
cash balance serves to provide a cushion to meet unexpected
contingencies. The unexpected cash needs at short notice may be the
result of various reasons as: unexpected slowdown in collection of
accounts receivable, cancellations of some purchase orders, sharp
increase in cost of raw materials etc. The more unpredictable the cash
flows, the larger the need for such balances. Another factor which has a
bearing on the level of precautionary balances is the availability of short
term credit. Precautionary cash balances are usually held in the form of
marketable securities so that they earn a return.

3. Speculative motive: - It refers to the desire of a firm to take

advantage of opportunities which present themselves at unexpected
movements and which are typically outside the normal course of business.
The speculative motive represents a positive and aggressive approach.
Firms aim to exploit profitable opportunities and keep cash in reserve to
do so. The speculative motive helps to take advantage of: In opportunity
to purchase raw materials at a reduced price on payment of immediate
 cash; a chance to speculate on interest rate movements by buying
securities when interest rates are expected to decline; delay purchases of
raw materials on the anticipation of decline in prices; etc.

4. Compensation motive: - Yet another motive to hold cash balances is

to compensate banks for providing certain services and loans. Banks
provide a variety of services to business firms, such as clearances of
cheques, supply of credit information, transfer of funds, etc. While for
some of the services banks charge a commission of fee for others they
seek indirect compensation. Usually clients are required to maintain a
minimum balance of cash at the bank. Since this balance can not be
utilized by the firms for transaction purposes, the bank themselves can use
the amount for services rendered. To be compensated for their services
indirectly in this form, they require the clients to always keep a bank
balance sufficient to earn a return equal to the cost of services. Such
balances are compensating balances. Compensating balances are also
required by some loan agreements between a bank and its customer.

CASH MANAGEMENT: OBJECTIVES

The Basic objective of cash management are two fold: (a) to meet the cash
disbursement needs (payment schedule); and (b) to minimize funds committed to
cash balances. These are conflicting and mutually contradictory and the task of
cash management is to reconcile them.

Meeting the payments schedule: - A basic objective of the cash

management is to meet the payment schedule, i.e. to have sufficient cash to meet
the cash disbursement needs of the firm. The importance of sufficient cash to
meet the payment schedule can hardly be over emphasized. The advantages of
adequate cash are : (i) it prevents insolvency or bankruptcy arising out of the
inability of the firm to meet its obligations; (ii) the relationship with the bank is
not strained; (iii) it helps in fostering good relations with trade creditors and
suppliers of raw materials, as prompt payment may also help their cash
management; (v) it leads to a strong credit rating which enables the firm to
purchase goods on favorable terms and to maintain its line of credit with banks
and other sources of credit; (vi) to take advantage of favorable business
opportunities that may be available periodically; and (vi) finally the firm can
meet unanticipated cash expenditure with a minimum of strain during
emergencies, such as strikes , fires or a new marketing campaign by competitors.
Minimizing funds committed to cash balances: - The second objective
of cash management is to minimize cash balances. In minimizing cash balances
two conflicting aspects have to be reconciled. A high level of cash balance will,
ensure prompt payment together with all the advantages, but it also implies that
large funds will remain idle ultimately results less to the expected. A low level
of cash balances, on the other hand, may mean failure to meet the payment
schedule, that aim of cash management should be to have an optimal amount of
cash balances.

Cash management techniques and process

 The following are the basic cash management techniques and process which are
helpful in better cash management:-

Speedy cash collection: In managing cash efficiently the cash in flow

process can be accelerated through systematic planning and refined techniques.
These are two broad approaches to do this which are narrated as under:

Prompt payment by customer: One way to ensure prompt payment by

customer is prompt billing with clearly defined credit policy. Another and more
important technique to encourage prompt payment the by customer is the
practice of offering trade discount/cash discount.

Early conversion of payment into cash: Once the customer has makes
the payment by writing its cheques in favor of the firm, the collection can be
expedited by prompt encashment of the cheque. It will be recalled that there is a
lack between the time and cheque is prepared and mailed by the customer and
the time funds are included in the cash reservoir of the firm.

Concentration Banking: In this system of decentralized collection of

accounts receivable, large firms which have a large no. of branches at different
places, select some of these which are strategically located as collection centers
for receiving payment for customers. Instead of all the payments being collected
at the head office
of the firm, the cheques for a certain geographical areas are collected at a specified local
collection centers. Under this arrangement the customers are required to send their
payments at local collection center covering the area in which they live and these are
deposited in the local account of concerned collection, after meeting local expenses, if
any. Funds beyond a predetermined minimum are transferred daily to a central or
disbursing or concentration bank or account. A concentration banking is one with which
the firm has a major account usually a disbursement account. Hence this arrangement is
referred to as concentration banking.
Lock-Box System: - The concentration banking arrangement is instrumental
in reducing the time involved in mailing and collection. But with this system of
collection of accounts receivable, processing for purposes of internal accounting
is involved i.e. sometime in elapses before a cheque is deposited by the local
collection center in its account. The lock-box system takes care of this kind of
problem, apart from effecting economy in mailing and clearance times. Under
this arrangement, firms hire a post office box at important collection centers. The
customers are required to remit payments to lock-box. The local banks of the
firm, at respective places, are authorized to open the box and pick up the
remittance received from the customers. Usually the authorized banks pick up
the cheques several time a day and deposit them in the firm’s account. After
crediting the account of the firm the banks send a deposit 4epo slip along with
the list of payments and other enclosures, if any, to the firm by way of proof and
record of the collection.

Slowing disbursements: A basic strategy of cash management is to delay

payments as long as possible without impairing the credit rating/standing of the
firm. In fact, slow disbursement represents a source of funds requiring no interest
payments. There are several techniques to delay payment of accounts payable
namely (1) avoidance of early payments; (2) centralized disbursements; (3)
floats; (4) accruals.

Avoidance of early payments: One way to delay payments is to avoid

early payments. According to the terms of credit, a firm is required to make a
payment within a stipulated period. It entitles a firm to cash discounts. If
however payments are delayed beyond the due date, the credit standing may be
adversely affected so that the firms would find it difficult to secure trade credit
later. But if the firm pays its accounts payable before the due date it has no
special advantage. Thus a firm would be well advised not to make payments
early i.e.

Centralized disbursements: Another method to slow down disbursements

is to have centralized disbursements. All the payments should be made by the
head office from a centralized disbursement account. Such an arrangement
would enable a firm to delay payments and conserve cash for several reasons.
Firstly it involves increase in the transit time. The remittances from the head
office to the customers in distant places would involve more mailing time than a
decentralized payment by a local branch. The second reason for reduction in
operating cash requirement is that since the firm has a centralized bank account,
a relatively smaller total cash balance will be needed. In the case of a
decentralized arrangement, a minimum cash balance will have to be maintained
at each branch which will add to a large operating cash balance. Finally,
schedules can be tightly controlled and disbursements made exactly on the right
day.

Float: - A very important technique of slow disbursements is float. The term

float refers to amount of money tied up in the cheques that have been written, but
have yet to be collected and enchased. Alternatively, float represents the
difference between the bank balance and book balance of cash of a firm. The
difference between the balance as shown in the firm’s record and the actual bank
balance is due to transit and processing delays. There is time lag between the
issue of a cheque by the firm and its presentation to its bank by the customer’s
bank for payment. The implication is that although a cheque has been issued
cash would be required later when the cheque resented for encashment.
Therefore, a firm can send remittance although it does not have cash in its bank
at the time of issuance of cheque. Meanwhile, funds can be arranged to make
payments when the cheque is presented for collection after a few days. Float
used in this sense is called cheque kitting.

Accruals: - Finally, a potential tool for stretching accounts payable is accruals

which are defined as current liabilities that represent a service or goods received
by a firm but not yet paid for instance, payroll, i.e. remuneration to employees,
who render services in advance and receive payment later. In a way they extend
credit to the firm for a period at the end of which they are paid, say, a week or
month. The longer the period after which payment is made, the greater the
amount of free financing and the smaller the amount of cash balances required.
Thus, less frequent payrolls, i.e. monthly as compared to weekly, are important
sources of accruals. They can be manipulated to slow down disbursements.
Determining the optimum level of cash balance:

Cash balance is maintained for the transaction purposes and additional amount
may be maintained as a buffer or safety stock.

The Finance manager should determine the appropriate amount of cash balance.
Such a decision is influenced by trade-off between risk and return. If the firm
maintains small cash balance, its liquidity position becomes week and suffers
from a paucity of cash to make payments. But a higher profitability can be
attained by investing released funds in some profitable opportunities. When the
firm runs out of cash it may have to sell its marketable securities, if available, or
borrow. This involves transaction cost.

On the other hand if the firm maintains a higher level of cash balance, it will
have a sound liquidity position but forego the opportunities to earn interests. The
potential interest lost on holding large cash balance involves opportunities cost
to the firm. Thus the firm should maintain an optimum cash balance, neither a
large nor a small cash balance.

To find out the optimum cash balance the transaction cost and risk of too small
balance should be matched with opportunity costs of too large a balance should
be matched with opportunity cost of too large a balance. Figure shows this trade-
off graphically. If the firm maintains larger cash balances its transaction cost
would decline, but the opportunity cost would increase. At point X the sum of
two costs is minimum. This is the point of optimum cash balance. Receipts and
disbursement of cash are hardly in perfect synchronization. Despite the absence
of synchronization it is not difficult to determine the optimum level of cash
balance.

If cash flows are predictable it is simply a problem of minimizing the total costs
- the transaction cost and the opportunity cost.

The determination of optimum working cash balance under certainty can thus be
viewed as an inventory problem in which we balance the cost of too little cash
( transaction cost) against the cost of too much cash( opportunity cash)

Cash flows, in practice, are not completely predictable. At times they may be
completely random . Under such a situation, a different model based on the
technique of control theory is needed to solve the problem of appropriate level of
working cash balance.

With unpredictable variability of cash flows, we need information on transaction

costs, opportunity costs and degree of variability of net cash flows to determine
the appropriate cash balance. Given such data the minimum and maximum of
cash balances should be set. Greater the degree of variability, higher the
minimum cash balance. Whenever the cash balance reaches a maximum level,
the differences between maximum and minimum levels should be invested in
marketable securities. When balance is falls to zero, marketable securities should
be sold and proceed should be transferred to the working cash balances.

Evaluation of cash management performances

To assess the cash management performance this phase is divided as follows:

a) Size of Cash

b) Liquidity and Adequacy of cash

3) Control of cash

A) Size of cash : The quantum of cash held by Bharti Airtel during the study
period is presented in the table. The trend percentage also calculated and shown
in the table:

Size of cash and bank balance (Rs. in Crores)

Year Cash

31 March 2013 36.27

31 March 2012 48.12

(B) Operating Profit & OPM

Operating Profit gives an indication of the current operational profitability of the

business and allows a comparison of profitability between different companies
after removing out expenses that can obscure how the company is really
performing.

Interest cost depends on the management's choice of financing, tax can vary
widely depending on acquisitions and losses in prior years, and depreciation and
amortization policies may differ from company to company.
(C) EBITDA, PBT & PAT:

EBITDA is an acronym for Earnings before Interest, Taxes, Depreciation, and

Amortization. PBT stands for Profit before Tax, and PAT stands for Profit
After Tax.

The graph visually shows how the net profit of the company stand reduced due
to the impact of Interest, Depreciation, and Tax.

(D) Total Assets & Asset Turnover Ratio:

Total Assets is the sum of all assets, current and fixed. The asset turnover ratio
measures the ability of a company to use its assets to efficiently generate sales.
The higher the ratio indicates that the company is utilizing all its assets
efficiently to generate sales. Companies with low profit margins tend to have
high asset turnover.
(E) Net Sales: Sales is the total amount of products or services sold by the
company.

(F) Return On Capital Employed %:

Capital Employed is defined as total assets less current liabilities. Return On

Capital Employed is a ratio that shows the efficiency and profitability of a
company's capital investments. The ROCE should always be higher than the rate
at which the company borrows money.
CONCEPTS OF WORKING CAPITAL

There are two broad concepts of working capital:

a) Gross Concept

b) Net Concept

Gross working capital, simply called as working capital, refers to the firm’s
investment in current assets. Net working capital refers to the difference between
current assets and current liabilities.

The two concepts of working capital i.e., gross and net are not exclusive; rather
they have equal significance from the point of view of the management.

The gross working capital concept focuses attention on two aspects of current
asset management:

a) Optimum investment in current assets

b) Financing of current assets

Net working capital, being the difference between current assets and current
liabilities, is a qualitative concept. It focuses attention on: -

a) Indicates the position if the firm

b) Suggests the extent to which working capital needs may be financed by
permanent sources of funds.
“An expert is someone who knows all the answers if you ask the right questions.”

DETERMINANTS OF WORKING CAPITITAL

A firm should plan its operations in such a way that it should neither have too
much nor too little working capital. The total working capital requirement is
determined by a wide variety of factors. It should be however noted that these
factors affect different enterprises differently. They also vary from time to time.
In general, these are some of the factors, which are involved, in the proper
assessment of the quantum of working capital required.

1) GENERAL NATURE OF BUSINESS

The working capital requirements of an enterprise are basically related to the

conduct of the business. Enterprises fall into some broad categories depending
on the nature of their business. For instance, public utilities have certain features,
which have a bearing on their working capital needs. The two relevant features
are:

a) Cash nature of business, i.e., cash sale

b) Sale of services rather than commodities.

In view of these features they do not maintain big inventories and have,
therefore, probably the latest requirement of working capital. At the other
extreme are the trading and financial enterprises. The nature of their business is
such that they have to maintain a sufficient amount of cash, inventories and book
debts. They have necessarily to invest proportionately large amounts in working
capital.

2) PRODUCTION CYCLE

Another factor, which has a bearing on the quantum of working capital, is the
production cycle. The term ‘production’ or ‘manufacturing cycle’ refers to the
time involved in the manufacturing of goods. It covers the time span between the
procurement of the raw materials and the completion of the manufacturing
process leading to the production of finished goods. Funds will have to be
necessarily tied-up during the process of manufacture, necessitating enhanced
working capital. In other words, there is some gap before raw materials become
finished goods. To sustain such activities the need for working capital is obvious.
The longer the time span (i.e., the production cycle), the larger will be the funds
tied-up and, therefore, the larger the working capital needed and vice-versa.
There are enterprises, which due to the nature of business will have a shorter
operating cycle. A distillery, which has an aging process, has relatively to make
a heavy investment in inventory. The bakery provides the other extremes. The
bakeries sell their products at short intervals and have a very high inventory
turnover. The investment in inventory and, consequently, working capital is not
large.
3) BUSINESS CYCLE

The working capital requirements are also determined by the nature of the
business cycle. Business fluctuations lead to cyclical and seasonal changes,
which, in turn, cause a shift in the working capital position, particularly for
temporary working capital requirements. The variations in business conditions
may be in two directions:

1) Upward phase when boom conditions prevail

2) Downswing phase when economic activities are marked by a decline.

During the upswing of business activity the need for working capital is likely to
grow to cover the lag between increased sales and receipt of cash as well as to
finance purchase of additional material to cater to the expansion of the level of
the activity. Additional funds may be required to invest in the plant and
machinery to meet the increased demand. The downswing phase of the business
cycle will have exactly and opposite effect on the level of working capital
requirement. The decline in the economy is associated with a fall in the volume
of sales which, in turn, will lead to fall in the level of inventories and book debts.
The need for working capital in the recessionary conditions is bound to decline.
In brief, business fluctuations influence the size of working capital mainly
through the effect on inventories. The response of inventory to business cycles is
mild or violent according to the mild or violent nature of the business cycle.

4) CREDIT POLICY

The level of working capital is also determined by credit policy, which relates to
sales and purchases. The credit policy influences the requirement of the working
capital in two ways:

a) Through credit terms granted by the firm to its customers/buyers of goods.

b) Credit terms available to the firm from its creditors.

The credit terms granted to the customers have a bearing on the magnitude of the
working capital by determining the level of book debts. The credit sales will
result in higher book debts (receivables). Higher book debts will mean more
working capital. On the other hand, if liberal credit terms are available from the
suppliers of the goods (trade creditors), the need for working capital will be less.
The working capital requirements of a business are, thus, affected by the terms
of purchase and sale and the role given to credit by a company in its dealings
with the creditors and the debtors.

3) PROFIT LEVEL
The level of profits earned differs from to enterprise to enterprise. In general, the
nature of the products, hold on the market, quality of management and monopoly
power would by and large determine the profit earned by the firm. A priori, it
can be generalised that a firm dealing in a high quality product, having a good
marketing arrangement and enjoying monopoly power in the market is likely to
earn high profits and vice-versa. Higher profit margin would improve the
prospects of generating more internal funds thereby contributing to the working
capital pool. The net profit is a source of working capital to the extent that it has
been earned in cash. The cash profit can be found by adjusting non-cash items
such as depreciation, outstanding expenses and losses written off, in the net
profit. But, in practice, the net cash inflows from operations cannot be
considered as cash available for use at the end of the cash cycle. Even as
company’s operations are in progress, cash is used for augmenting stock, book
debts and fixed assets. It must, therefore, be seen that cash generation has been
used for furthering the use of enterprise. It is in this context that elaborate
planning and projections of expected activities and the resulting cash inflows on
a day to day, week to week and month to month basis assume importance
because steps can then be taken to deal with surplus and deficit cash.

The availability of internal funds for working capital requirements is determined

not merely by the profit margin but also on the manner of appropriating profits.
The availability of such funds would depend upon the profit appropriations for
taxation, dividend, reserves and depreciation.

No person was ever honoured for what he received. Honour has been the reward
for what he gave.”

NEED FOR WORKING CAPITAL

The need for working capital (gross) or current assets can not be over
emphasized. As the objective of financial decision making is to maximize the
shareholder’s wealth, it is necessary to generate sufficient profits. The extent to
which profits can be earned will naturally depend upon the magnitude of the
sales, among other things. A successful sales program is, in other words,
necessary for earning profits by any business enterprise. However, sales do not
convert into cash instantly; there is invariably a time lag between the sale of
goods and the receipt of cash. There is, therefore, a need for working capital in
the form of current assets to deal with the problem arising out of the lack of
immediate realisation of cash against goods sold. Therefore, sufficient working
capital is necessary to sustain sales activity.
Technically, this is referred to as the operating or cash-cycle. The operating
cycle can be said to be at the heart of the need for working capital. The
continuing flow from cash to suppliers, to inventory, to accounts receivable and
back into cash. The cycle refers to the length of time necessary to complete the
following cycle of events:

1) Conversion of cash into inventory.

2) Conversion of raw materials into work in progress

3) Conversion of work in progress into finished goods

4) Conversion of finished goods into account receivable

5) Conversion of account receivable into cash

“Make no little plans, they have no magic t stir man’s blood.. Make big
plans, aim high in hope and work”

If it were possible to complete the sequences instantaneously, there would be no

need for current assets (working capital). But since it is not possible, the firm is
forced to have current assets. Since cash inflows and cash inflows do not match,
firms have to necessarily keep cash or invest in short-term liquid securities so
that they will be in position to meet obligations when they become due.
Similarly, firm must have adequate inventory to guard against the possibility of
not being able to meet a demand for their products. Adequate inventory,
therefore, provides a cushion against being out of stock. If firms have to be
competitive, they must sell goods to their customers on credit, which necessitates
the holding of accounts receivable. It is in these ways that an adequate level of
working capital is absolutely necessary for smooth sales activity which, in turn,
enhances the owner’s wealth.

“Being ignorant is not so much a shame as being unwilling to learn to do the

things the right way.”

PERMANENT AND TEMPORARY WORKING CAPITAL:

The operating cycle thus, creates the need for current assets (working capital).
To explain this continuing need of current assets, a distinction should be drawn
between permanent and temporary working capital.

The need for current assets arises, as already observed, because of the cash cycle.
Business activity does not come to an end after the realization of cash from the
customer. For a company, the process is continuous and, hence, the need for the
regular supply of working capital. However, the magnitude of working capital
required will not be constant, but will fluctuate. To carry on business a certain
minimum level of working capital is necessary on a continuous and
uninterrupted basis. For all practical purposes, this requirement will have to be
met permanently as with other fixed assets. This requirement is referred to as
permanent or fixed working capital.

Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable working capital. This portion of the required working
capital is needed to meet fluctuations in demand consequent upon changes in
production and sales as a result of seasonal changes. ‘Obstacles are those
frightful things you see when you take your eyes off the goal.”
Both kinds of working capital are necessary to facilitate the sales process
through the operating cycle. Temporary working capital is created to meet
liquidity requirements that are of a purely transient nature.

“The quality of a persons life is in direct proportion to their commitment to

excellence, regardless of their chosen field of endeavor.”

SOURCES OF FINANCE FOR WORKING CAPITAL

The sources of finance for working capital may fall into four categories, namely:

1) BANK FINANCE

2) COMMERCIAL PAPER

3) FIXED DEPOSITS

4) INTER CORPORATE DEPOSITS.

The relative importance of these sources from country and from time to time
depending on the environment. In India, the primary sources for financing
working capital are trade credit and short term bank credit. According to an
estimate, both these sources together finance about three fourth of the working
capital requirements of the industry:

The above points are elaborated as below:

1) BANK FINANCE

It is the primary institutional source for working capital finance. To obtain short-
term bank credit, working capital requirements have to be estimated by the
borrowers, and the banks are approached with the necessary supporting data.
The banks determine the maximum credit based on the margin requirement of
the security. The margin represents a percentage of the value of the asset offered
as security by the borrower. The margin is based on the nature of goods and is
laid down by the Reserve Bank of India. It is changed from time to time to suit
the requirements of the banker; the borrower draws funds periodically.

FORMS OF BANK FINANCE

Working capital advance is provided by the commercial banks in three primary ways:

i) Cash credits/overdrafts

ii) Loans

iii) Purchase/Discount of bills.

In addition to these forms of direct finance, commercial banks help their

customers in obtaining credit from other sources through the letter of credit
agreement.
i) Cash credits/overdrafts

Under a cash credit or overdraft agreement, a predetermined limit for borrowing

is specified by the bank. The borrower can draw as often as required, provided
the outstanding do not exceed the cash credit/overdraft limit. The borrower also
enjoys the facility of repaying the amount fully or partially, as and when he
desires. Interest is charged only on the running balance, and not on the limit
sanctioned. A minimum charge may be payable, irrespective of the level of
borrowing, for availing this facility. This form of advance is highly attractive
from the borrower’s point of view because while the borrower has freedom
drawing the amount in installments as and when required, interest is payable
only on the amount actually outstanding.

ii) LOANS

These are advances of fixed amounts, which are credited to the current account
of the borrower or released to him in the form of cash. The borrower is charged
with interest on the entire loan amount, irrespective of how much he withdraws.
In this respect this system differs markedly from the overdraft or the cash credit
arrangement wherein interest is payable only on the amount actually utilized.
Loans are supported by a demand promissory note executed by the borrower.
There is often a possibility of renewing the loan.

iii) PURCHASE/DISCOUNT OF BILS

A bill arises out of a trade transaction. The seller of goods draws the bill on the
purchaser. The bill may be either clean or documentary (a documentary bill is
supported by a document of the title of goods like a railway receipt or a bill of
lading) and may be payable on demand or after absence period which does not
exceed 90 days. On acceptance of the bill by the purchaser, the seller offers it to
the bank for discount/purchase. When the bank discounts/purchases the bill it
releases the funds to the seller. The bank presents the bill to the purchaser (the
acceptor of the bill) on the due date and gets its payment.

The Reserve Bank of India launched the new market scheme in 1970 to
encourage the use of bills as an instrument of credit The objective was to reduce
the reliance and the cash credit arrangement because of its amenability to abuse.
The new bill market scheme sought to promote an active market for bills as a
negotiable instrument so that the lending activities of a bank could be share by
other banks. It was envisaged that a bank, when short of funds, would sell or
rediscount the bill that it has purchased or discounted. Likewise, a bank, which
has surplus funds, would invest in bill. Obviously, for such a system to work
there has to be a lender of last resort which can come to the succor of the
banking system as a whole. This role naturally has been assumed by the Reserve
Bank of India, which rediscounts the bills of commercial banks up to a certain
limit.

SECURITY
For working capital advances, commercial banks seek security either in the form
of hypothecation or in the form of pledge.

HYPOTHECATION

Under this agreement the owner of the goods borrows money against the security
of movable property, usually inventories. The owner does not part with the
possession of property. The rights of the lender (hypothecatee) depend on the
agreement of the lender and the borrower. Should the borrower default in paying
his dues, the lender can file a suit to realise his dues by sale of the goods
hypothecated.

PLEDGE

In a pledge agreement, the owner of the goods (pledgor) deposits the goods with
the lender (pledgee) as security for the borrowing. Transfer of possession of
goods is a precondition for pledge. The lender is expected to take reasonable
care of goods pledged with him. The pledge contract gives the lender the right to
sell the goods and recover dues, should the borrower default in paying debt.

2) COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued by
firms, which enjoy a fairly high credit rating. Generally, large firms with
considerable financial strength are able to issue commercial paper. The important
features of commercial paper are as follows:

# The maturity period of commercial paper mostly ranges from 90 to 150 days.

# Commercial paper is sold at a discount from its face value and redeemed
at its face value. Hence the implicit interest rate is a function of the size of
the discount and the period of maturity.

# Commercial paper is either directly placed with the investors or sold

through the dealers.

3) FIXED DEPOSIT/PUBLIC DEPOSIT

Many firms, large and small, have solicited unsecured deposits from the public
in the recent years, mainly to finance their working capital requirements.

Evaluation

Company’s Point of View — Public deposits offer the following advantages to

the company:

# The procedure for obtaining public deposits is fairly simple.

# No restrictive covenants are involved.

 # No security is offered against public deposits. Hence the mortgageable
assets of the firm are conserved.

The post-tax cost is fairly reasonable. The demerits of public deposit are:

¾ The quantum of funds that can be raised by way of public deposits is limited.

¾ The maturity period is relatively short.

Investor’s Point of View — Investors find the following advantages in public deposit:

¾ The rate of interest is higher than several alternative forms of financial

investment.
¾ The maturity period is fairly short i.e., one to three years.

The negative features are as follows:

¾ There is no security offered by the company.

¾ The interest on public deposits is not exempt from taxation.

4) INTER- CORPORATE DEPOSITS

A deposit made by one company with another, normally for a period up to six
months, is referred to as an inter-corporate deposit. Such deposits are usually of
three types. They are as follows:
Call deposits

In theory, a call deposit is withdraw able by the lender on giving a day notice. In
practice, however, the lender has to wait for at least three days. The interest rate
on such deposits may be around 14 per cent per annum.
Three-months Deposits

More popular in practice, these deposits are taken by borrowers to tide over a
short-term cash inadequacy that may be caused by one or more of the following
factors: disruption in production, excessive import of raw material, tax payment,
delay in collection, dividend payment and unplanned capital expenditure. The
interest rate on such deposits is around 16 per cent per annum.

Six-months Deposits

Normally, lending companies do not extend deposits beyond this time frame.
Such deposits, usually made with first class borrowers, carry an interest rate of
around 18 per cent per annum.
Non-fund based facilities

Credit facilities, which do not involve actual deployment of funds by the banks, but

help the obligates to obtain certain facilities from third parties, are termed as non-fund

based facilities. These facilities include:

 Letter of credit (LC)

¾ Guarantees

¾ Guarantees

¾ Co-acceptance of Bills/Deferent payment Guarantees.

1) LETTER OF CREDIT

A letter of credit is an arrangement whereby a bank helps its customers to obtain

credit from its (customers) suppliers. When bank opens a letter of credit in
favour of its customer for some specific purchases, the bank undertakes the
responsibility to honour the obligation of its customer, should the customer fail
to do so. To illustrate, suppose a bank opens a letter of credit in favour of A for
some purchases that A plans to make from B. if A does not make payment to B
within the credit period offered by B, the bank assumes the liability of A for the
purchases covered by the letter of credit arrangement. Naturally, B would hardly
have any hesitation to extend credit to A
when a bank opens a letter of credit in favour of A. It is clear from the preceding
illustration that under a letter of credit arrangement the credit is provided by the
supplier but the risk is assumed by the bank which opens the letter of credit.
Hence, this is an indirect form of financing as against overdraft, cash credit,
loans and bill purchasing/discounting, which are direct forms of financing. It
may be noted here that in direct financing the bank assumes risk as well as
provides finance.

2) GUARANTEES

A contract of guarantee can be defined as a “contract to perform the promise or

discharge the liability of the third party in case of default”. The guarantee
facilities cannot be sanctioned in isolation. Financial guarantees can be issued by
banks only if they are satisfied that the customer will be in a position to
reimburse the bank in case the guarantee is invoked and the bank is required to
make the payment in terms of guarantee.

3) CO-ACCEPTANCE OF BILLS

Facilities of co-acceptance of bills are generally required for acquiring plant and
machinery and may be technically taken as a substitute for term loan which
would require detailed appraisal of the borrower’s needs and financial position in
the same manner as in the case of any other term loan proposal. The banks will
sanction limits of co-acceptance of bills after detailed appraisal of customer’s
requirements is completed and the bank is fully satisfied about the genuineness
of the need of the customer

“Things may come to those who wait, but only the things left by those who
hustle.”
 “The critic is one who knows the price of everything and value of
nothing.” ASSESSMENT OF WORKING CAPITAL
In the good old days, when the banks were mainly adopting security oriented
approach in lending, no emphasis whatsoever was placed on assessment of limits
as the credit decision was mainly based on the security available to cover the
advance. The concept of assessment of working capital gained currency in early
seventies and Reserve Bank of India, proposed a scientific method for such
purpose.

Assessment of working capital is always done for future period. It is always to

be assessed on the basis of projections made for the next year, keeping in view
the previous year’s figures.

The banks may not be willing to finance all the components of the working
capital, which have been taken into consideration for Gross Working Capital
requirements. Banks also stipulate margin requirements on the value of security
of raw material, semi-finished and finished goods etc. while sanctioning the
limits.

APPROACH TO LENDING

A group constituted by the Reserve Bank of India with Shri Prakash Tandon
stipulated that the firm should finance part of its currant assets from owned
funds and term liabilities, It prescribed a minimum margin of 25% to be brought
in by the firm and suggested three different methods of lending to arrive at the
contribution of the borrower in the above manner. They are as follows:

Method I : The borrower should bring in 25% of the Net Working Capital
(CA-CL) from its owned funds and long term liabilities and 75%
will be financed by the banks.

Method II: The borrower should finance 25% of all Current Assets and the
balance is financed by the banks.

Method III : The hard core current assets i.e., the borrower must exclusively
finance current assets, which are permanently required by the
firm for its functioning. The borrower should also provide
25% of the remaining current assets and only the bank will
finance the balance.

1) Application starts with the preparation

of a) Operating statement (Form-Il)
b) Balance sheet (Form-Ill)

c) Comparative Statement of Current Assets and

Current Liabilities (Form-IV)

d) Fund flow statements (Form-VI)

Working capital is assessed on the basis of projection made for next year
keeping in mind the previous figures.
Computation of maximum permissible bank finance is done (Form-V). A
statement which shows total current assets, total current liabilities, working
capital gap, firm’s contribution i.e., 25% of the current assets and actual Net
Working Capital. Then the firm’s contribution (25% of the CA) and the actual
calculated net working capital is subtracted from working capital gap. Banks
finance the amount, which comes lower.
2) Second step is the documentation. Working capital advance is provided by
the banks in generally three ways :-
a) Cash credit against -
Stock - Book Debt
b) Bill discounting
facilities C) Clean li/U

For instance, a firm needs Rs. 1000 Lacs ,then the bank according to its
prescribed limit will sanction different amounts to each of above as:-

1) CC - Stock 400

- Book Debts 350

2) Bill discounting 200

3) Clean D/D 50

1000

Documentation consists of several agreement made with the bank like

1) Agreement of hypothecation of book debts

2) Agreement of hypothecation of goods to secure a demand cash credit.

3) Agreement for Clean DD limit

4) Agreement for Bill discounting limit.

5) Availment: In this the firm has to submit stock statements of the stocks
hypothecated as security to different banks.
6) Statutory Periodical Documents: Prompt submission of Forms I, II, III under

the Quarterly Information System.

Form-I: Being estimates of the ensuing quarter and to be submitted in the week
preceding the commencement of the quarter to which it relates.

Form-II: Being a statement showing performance for previous quarter to be

furnished within 6 weeks of the close of quarter to which it relates.

Form-III: Being half yearly operating and fund flow statement to be furnished
within 2 months from the close of the half year to which it relates.
FINANCIAL STATEMENTS

Financial analysis involves the use of various financial statements. A financial

statement is a collection of data organised according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some
financial aspects of a business firm. It may show a position at a moment in time,
as in the case of Balance Sheet ( A summary of firm’s financial position on a
given date that shows total assets = total liabilities + owner’s equity ), or may
reveal a series of activities over a given period of time; as in the case of an
Income Statement ( A summary of the firm’s revenues and expenses, over a
specified period ending with net income or loss for the period ), or may show the
sources and uses of funds, as in the case of Fund Flow Statement (A summary of
a firm’s changes in financial position from one period to another).

BALANCE SHEET

The balance sheet is the first of the three major financial statements. The balance
sheet shows the assets, liabilities and the equity for the firm as of the last day of
the accounting period. In effect, it matches resources (assets) with sources
(liabilities and equity). It is commonly presented in two columns that illustrate
the relationship between assets and the sources of these assets. The assets or
resources of the firm are displayed in the right hand column and the sources of
these assets in the left hand column.

ASSETS

Current Assets is a subsection that contains all assets either held in form of cash
or those expected to be converted into cash within the current accounting period
or within the next year, through the ordinary operations of the business. It
includes the following:-

# Gash and bank balance

# Marketable securities

# Bills receivable

# Inventory

# Loans and advances

FIXED ASSETS is the subsection that contains the assets used by the firm to
generate revenues. They are acquired for use over relatively long period for
carrying on operation of firm and they are ordinarily not meant for sale in the
normal course of business.
It includes:-

# Land

# Building
# Machinery

# Equipment

# Furniture

INTANGIBLE FIXED ASSETS are the ones which do not have physical
existence but which help in earning, like goodwill, patent, trademark etc. The
cost of intangible fixed assets is amortized over their useful lives.

Anything less than a conscious commitment to the important is an unconscious

commitment to the unimportant.”

NON CURRENT ASSETS

It include:

# Investment in non marketable securities

# investment in long term loans to sister or allied or associated firm.

# Other long term investments.

# Non consumable stores and spares.

# Loans and advances of long term nature.

# Prepaid expenses of long term nature.

LIABILITIES

Liabilities are debts of the firm. They represent sources of assets since the firm
either borrows the money listed as liabilities or makes use of certain assets that
have not yet been paid for. Liabilities are divided into current and long term.

CURRENT LIABILITIES are the debts of the firm that must be paid during
the current accounting period, that is normally one year. Examples are the
following :-
# Creditors

# Bills Payable

# Bank Overdraft

# Tax Payable

# Outstanding Expenses

# Income Received in Advance

 LONG TERM LIABILITIES are the firm’s debts mat need not e paid off
during the next year. Examples are the following :-
# Long - Term Secured Financing — This covers mortgages and notes where
a building or other fixed assets are pledged as specific collateral for the debt.
# Long — Term Unsecured Financing — This consists largely of notes and
bonds. Notes payable are promissory notes with maturity periods in excess of one year.
When the note enters into final year, it is transferred to current liabilities account.

EQUITY

Equity represents the ownership rights in the company and arises from several
sources. Owners purchase the preferred or common stock either through an
initial offering or through later sales by the firm, or the firm retains a portion of
its profits and reinvests them in the firm. Equity does not represent the money
held by the firm but does show the sources of assets and approximately what
portion of the assets is financed by the owners and retention of the earnings.
Term Net Worth is used for owners equity. Types of equity include :-

# Paid up Share Capital or Proprietors Capital

# Retained Profit (General Reserve)

# Unappropriated earning (Surplus)

# Reserves of various types namely Capital Reserve, Share Premium,

share/debenture redemption reserve.

INCOME STATEMENT

The income statement, is a report of the firm’s activities during a given

accounting period. Firms often publish income statements showing the results of
each quarter, each half year and the full accounting year. It shows the revenues
and expenses of the firm, the effect of interest and taxes, and the net income for
the period. It may be called by other titles, such as the profit-and-loss statement
or the statement of earnings.

It is an accounting device designed to show stockholders and creditors whether

the firm is making money. It can also be used as a tool to identify the factors that
affect the degree of profitability.

The income statement is prepared according to generally accepted accounting

procedures. The various accounts on the books of the firm are carefully defined
and then placed in a specific format on the statement. Most large firms hire a
Chartered Accountant at the end of the fiscal period to certify the fairness of the
firm’s financial statements. When this is done, we can usually rely on the
accuracy of the profit picture presented by the income statement.
“The art of getting rich is found not in saving, but in being at the right spot at
the right time.”
FLOW OF FUNDS STATEMENTS

A third important financial statement is the flow-of-funds or sources-of- funds

statement. This statement shows the movement of funds into the form’s current
asset account from external sources such as stockholders, creditors and
customers. It also shows the movement of funds to meet the firm’s obligations,
retire stock or pay dividends. The movements are shown for a specific period of
time, normally the same time period as the firm’s income statement. The
financial manager makes decisions to ensure that the firm has sufficient funds to
meet financial obligations when they are due and to take advantage of financial
opportunities. To help the analyst appraise these decisions (made over a period
of time), we need to study the firm’s “flow of funds”. By arranging the firm’s
flow of funds in the systematic fashion, the analyst can better determine whether
the decisions made for the firm resulted in a reasonable flow of funds, or in
questionable flows, which warrant further inspection.

SOURCES OF PONDS

The sources of funds which are important to the most firms are

# Sale of fixed assets

# Sale of stock

# Long term borrowings

# Fund from operations

USES OF FUNDS

A firm may apply its funds in a number of areas. A portion of the funds is
expended for operations. The uses are the following:-
# Purchase fixed assets

# Pay dividends

# Retire long term debts

# Make up losses

# Buy back stock

FINANCIAL ANALYSIS

Financial analysis is the process of determining the significant operating and

financial characteristics of a firm from accounting data and financial statements.
The goal of such analysis is to determine the efficiency and performance of the
firm’s management, as reflected in the financial records and reports. The analyst
is attempted to measure the firm’s liquidity, profitability and other indications
that business is conducted in a rational and orderly way. Financial analysis is
used primarily to gain insights into operating and financial problems confronting
the firm. Ratio analysis is the primary tool for examining the firm’s financial
position and performance.

“Obstacles like money, habit, fear and other people can all be overcome.
Nothing can stop you when you are moving in the direction of your dreams.”
NATURE OF RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the

indicated quotient of two mathematical expressions” and as “the relationship
between two or more things”. In financial analysis, a ratio is used as an index or
yardstick for evaluating the financial position and performance of the firm. The
absolute accounting figures reported in the financial statements do not provide a
meaningful understanding of the performance and financial position of the firm.
An accounting figure conveys meaning when it is related to some other relevant
information. For example, a Rs. 5 crore net profit may look impressive, but the
firm’s performance can be said to be good or bad only when the net profit figure
is related to the firm’s investment. Ratios help to summarise the large quantities
of financial data and to make qualitative judgment about the firm’s performance.

Anyone who takes himself too seriously always runs the risk of looking
ridiculous; anyone who can consistently laugh at himseff does not.

TYPES OF RATIOS

Several ratios, calculated from the accounting data, can be grouped into various
classes according to the financial activity or function to be evaluated. The parties
which generally undertake financial analysis are short and long term creditors
owners and management. Short term creditor’s main interest is in the liquidity
position or the short term solvency of the firm. Long term creditors on the other
hand are more interested in the long term solvency and profitability of the firm.
Similarly, owners concentrate on the firm’s profitability and the analysis of the
firm’s financial conditions. Management is interested in evaluating every aspect
of the firm’s performance. They have to protect the interest of all parties and see
that the firm grows profitably. In view of the requirement of the various user of
ratios, we may classify them into the following four categories:

1. Liquidity Ratios

2. Leverage Ratios
3. Activity Ratios

4. Profitability Ratios

Liquidity ratios measures the firm’s ability to meet current obligation; Leverage
ratios show the proportion of debt and equity in financing the firm’s assets;
Activity ratios reflect the firm’s efficiency in utilising its assets, and Profitability
ratios measure the overall performance and effectiveness of the firm.

life is difficult, this is a great truth, one of the greatest truths. it is a great
truth because once we truly see this truth, we transcend il once we know that
life is difficult — it is no longer difficult,”
LIQUIDITY RATIOS

1) CURRENT RATIO

The current ratio is calculated in dividing current assets by current liabilities.

Current Assets
Current
Current Ratio = Liabilities

31.03.12 31.03.13

0.38 0.44

Current Ratio is used to assess short term financial position of business concern.
It is indicator of firm’s ability to meet its short term obligations. Current Ratio
represents a margin of safety i.e. a “cushion” of protection for creditors. A
Current Ratio of 1.33:1 is considered satisfactory.

2. QUICK RATIO

Quick Ratio is calculated by dividing the total of quick assets to current

liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon.

31.03.12 31.03.13

0.47 0.44

Quick Ratio is test short term liquidity of the firm. It is a measurement of the
firm’s ability to convert its current assets quickly into cash in order to meet
current liabilities. Generally a Quick Ratio of 1:1 is considered a satisfactory
current financial condition.
LEVERAGE RATIOS

1) DEBT EQUITY RATIO

Debt Equity Ratio is calculated by dividing Total Term Liabilities by Net Worth.
(Net Worth – Intangible Asseets0
Equity Ratio = Total Term Liabilities

Net Worth

31.03.12 31.03.13

1.36 1.45

Debt Equity Ratio is the ratio of amount invested by outsiders to the amount
invested by the others of the business. The ratio reflects the relative contribution
of creditors and owners of business in its financing. It is a measure of long term
financial position of firm. Ideal ratio is 2:1

Management Efficiency Ratios

1) Inventory Turnover Ratio

Inventory Turnover Ratio is calculated by dividing sold by average inventory.

Average inventory =Average of opening and Closing balance of the inventory.

Inventory Turnover Ratio = Cost of Goods Sold/ Average inventory

Inventory Turnover Ratio measures how quickly the inventory or the stock is
sold. It is a test of efficient inventory management

31.03.12 31.03.13

546.68 724.61

2. Debtors Turnover Ratio

Debtors Turnover Ratio is calculated by dividing credit sales by average debtor

(including bills receivables).
Debtors Tunover Ratio = Total Credit Sales
Average Debtor
Debtors Turnover Ratio indicates how quickly receivables or debtors are
converted into cash. Generally the higher the value of Debtors Turnover Ratio,
the more efficient is the management of credit.

31.03.12 31.03.13

12.05 12.35

3. Average Collection Period

Average Collection Period is calculated by dividing the number of days in a year

(generally taken as 360) by the Debtors Turnover Ratio.

360

Average Collection Period Debtors Turnover

= Ratio

31.03.12 31.03.13

360/12.05 360/12.35

30 days 29 days

Average Collection Period measure the quality of debtors since it indicates the
rapidly or slowness of collectability. The ratio should be compared against
firm’s credit term and policy to judged its credit and collection efforts.

4. Total Asset Turnover Ratio

Total Asset Turnover is calculated by dividing the total sales by the total
tangible assets.

Tangible Assets = Total Asset – Intangible Assets

Total Sales
Total Assets Turnover Tangible
= Assets
Total Assets Turnover Ratio shows the firm’s ability in generating sales from all
financial resources committed to total assets. It measure the efficiency of firm in
managing and utilizing its assets.

VALUATION RATION

Valuation Ratio indicates how the equity stock of the company is assessed in the
market. In practice, the company calculates many other ratios.

1. Earning Per Share

Earning Per Share is calculated by dividing the profit after tax by the total
number of common shares outstanding.

Earning Per Share Net Pr ofit

=
No. of Shares

31.03.12 31.03.13

Rs. 15.09 Rs. 13.42

Earning Per Share is only for equity shares. It is a measure of profitability of the
firm from the point of view of the ordinary shareholder. It measures the profit
available to equity holder on a per share basis.
2. Dividend Per Share

The Dividend Per Share is the earning distributed to the common share holders
divided by the number of common shares outstanding.
Dividened Per Share = Earning paid to shareholder
No. of outs tan ding shares

31.03.12 31.03.13

Rs.
Rs. 1.00 1.00

Dividend Per Share is the dividend paid to the shareholder on per share basis.
Dividend Per Share is a better indicator than Earning Per Share as the former
shows what exactly is received by the shareholders.
3. Dividend Payout Ratio Net Profit

Dividend Payout Ratio is obtained by dividing dividend per share by earning per
share.
Payout Ratio = Dividend per Share

Earning Per Share

Retained Earnings = 100 – Payout Ratio

31.03.12 31.03.13

7.70 7.43

Dividend Payout Ratio measures the relationship between the earning of the
ordinary share holder and the dividend paid to them or what percentage share of
net profits after taxes and preference dividend is paid out as dividend to the
equity holder.

4. Earning Retention Ratio

Earning Retention Ratio is also called as Plowback Ratio. As per definition,

Earning Retention Ratio or Plowback Ratio is the ratio that measures the amount
of earnings retained after dividends have been paid out to the shareholders. The
prime idea behind earnings retention ratio is that the more the company retains
the faster it has chances of growing as a business. This is also known as retention
rate or retention ratio. There is always a conflict when it comes to calculation of
Earnings retention ratio, the managers of the company want a higher earnings
retention ratio or plowback ratio, while the shareholders of the company would
think otherwise, as the higher the plowback ratio the uncertain their control over
their shares and finances are.

Earnings retention ratio = (Net income - dividends) / Net income

31.03.12 31.03.13

92.30 92.57
PROFITABILITY RATIO

1. Gross profit Ratio

Gross Profit Ratio is calculated by dividing the gross profit of the firm by the
total sales in that stipulated period.

Gross Pr ofit Ratio = Gross Pr ofit

OR Sales

Sales − Cost of Goods Sold

Sales

31.03.12 31.03.13

12872.20/41603.80*100 13281.50/45350.90*100

30.93% 29.20%

Gross Profit Ratio reflects the efficiency with which management produces each
unit of product. The ratio indicates the average speed between the cost of goods
sold and the sales revenue.

2. Cost of Goods Sold

Cost of Goods Sold = 100 – Gross Profit Ratio

31.03.12 31.03.13

69.07 70.8%

Cost of Goods Sold shows the equal cost incurred in the goods sold.

3. Net Profit Ratio

Net Profit Ratio is calculated by dividing the net profit of the firm by the total sales of
the firm. Net Profit Ratio is indicative of the man agement’s ability to operate the
business with suffi cient succes s not only to recover from revenues of the period, the
cost of merchandise or service, the e xpenses of operating the business etc., but also to
leave a margin of reasonable compensation to owner for pr oviding their capital at risk.
Ratio expre sses the cost price effectiveness of the operation.

4. Return On Capital Employed(%)

ROCE is used to prove the v alue the business gains from its assets and
liabilities. A busin ess which owns lots of land will ha ve a smaller ROCE
compared to a business which owns little land but m akes the sam e profit.

It bas ically can be used to show how much a business is gaining for its asset s,
or how much it is losing for its liabilities.

31.03 .12 31.03.13

12.07% 13.14 %

The r eal owners of the company are the shareholder s who bear a ll the risk,
participate in the managem ent and are entitled to all profits remaining after all
outside claims including preference dividend are met in full.

This is probably the single m ost importa nt ratio to judge wheth er the firm h as
earned a satisfactory ret urn for equity holders or not.
EXPENSES RATIO

Another profitability ratio related to sales is expenses ratio. It is computed by

dividing expenses by sales. The ratios indicate as to what proportion of the sales
is used for meeting out different expenses. Expenses ratio is used to determine
the operating efficiency of management in controlling the expenses.

1. Manufacture Expenses Ratio

Manufacturing Expenses Ratio = Manufacturing Expenses
Net Sales

31.03.12 31.03.13

15,138.50/41,603.80*100 17895.20/45350.90*100

36.3% 39.4%

2. Selling & Administration Expenses

Selling & Ad min istration Expenses = Selling & Admn. Expenses Net
Sales

31.03.12 31.03.13

10502.80/41,603.80*100 12302.70/45350.90*100

25.2% 27.12
 OBJECTIVES

• The main objective of the study is to have an insight into the current
practices of the company with regards to management of various elements
of working capital.

• Apart from the above more specifically the present study is conducted to
find out the following.
• To what extent the management of working capital in Airtel, which is one
of the leading concern in the fastener industry contribute to the overall
objective of the firm i.e. Wealth examination.

• To study management policies regarding inventory management, whether

the management have applied various inventory control techniques for
proper utilization of resources.

• To analysis the nature, effectiveness and style of functioning of various

process of payments.

• To make aware the different methods of payments that are available for
the foreign transaction, and

• To suggest the best and appropriate method of payment of foreign

transaction, and

• Also to keep in mind the other aspects of the methods this can effect the
organization.

Scope of the Study

As we were seen as a liability towards the organization since there was no

contribution from our side towards, nobody actually paid any attention towards
Working Capital.

It was very difficult to actually take out relevant information from the
Comparative Study with Vodafone were very hesitant to let us meet the
company.
METHODOLOGY

MANAGERIAL USEFULNESS OF THE STUDY

This type of analysis helps the management of the company to plan its future
polices according to the external environment. Any sound research must have an
proper design to achieve the required result, this study id constructed on the basis
of descriptive design.

The methodology, I have adopted for my study is the various tools, which
basically analyze critically financial position of to the organization:

I. COMMON-SIZE P/L A/C

II. COMMON-SIZE BALANCE SHEET

III. COMPARTIVE P/L A/C

IV. COMPARTIVE BALANCE SHEET

V. TREND ANALYSIS

VI. RATIO ANALYSIS

The above parameters are used for critical analysis of financial position. With
the evaluation of each component, the financial position from different angles is
tried to be presented in well and systematic manner. By critical analysis with the
help of different tools, it becomes clear how the financial manager handles the
finance matters in profitable manner in the critical challenging atmosphere, the
recommendation are made which would suggest the organization in formulation
of a healthy and strong position financially with proper management system.

I sincerely hope, through the evaluation of various percentage, ratios and

comparative analysis, the organization would be able to conquer its in
efficiencies and makes the desired changes
FINANCIAL STATEMENTS:

Financial statement is a collection of data organized according to logical and

consistent accounting procedure to convey an under-standing of some financial
aspects of a business firm. It may show position at a moment in time, as in the
case of balance sheet or may reveal a series of activities over a given period of
time, as in the case of an income statement. Thus, the term ‘financial statements’
generally refers to the two statements

(1) The position statement or Balance sheet.

(2) The income statement or the profit and loss Account.

OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB)

states The following objectives of financial statements: -
1. To provide reliable financial information about economic resources and
obligation of a business firm.
2. To provide other needed information about charges in such economic
resources and obligation.
3. To provide reliable information about change in net resources (recourses less
obligations) missing out of business activities.

4. To provide financial information that assets in estimating the learning

potential of the business.

LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern, still they do
not present a final picture a final picture of a concern. The utility of these
statements is dependent upon a number of factors. The analysis and
interpretation of these statements must be done carefully otherwise misleading
conclusion may be drawn.

Financial statements suffer from the following limitations: -

1. Financial statements do not given a final picture of the concern. The data
given in these statements is only approximate. The actual value can only be
determined when the business is sold or liquidated.

2. Financial statements have been prepared for different accounting periods,

generally one year, during the life of a concern. The costs and incomes are
apportioned to different periods with a view to determine profits etc. The
allocation of expenses and income depends upon the personal judgment of the
contingent assets and liabilities also make the statements imprecise. So financial
statement are at the most interim reports rather than the final picture of the firm.

3. The financial statements are expressed in monetary value, so they appear to

give final and accurate position. The value of fixed assets in the balance sheet
neither represent the value for which fixed assets can be sold nor the amount
which will be required to replace these assets. The balance sheet is prepared on
the presumption of a going concern. The concern is expected to continue in
future. So fixed assets are shown at cost less accumulated deprecation.
Moreover, there are certain assets in the balance sheet which will realize nothing
at the time of liquidation but they are shown in the balance sheets.

4. The financial statements are prepared on the basis of historical costs Or

original costs. The value of assets decreases with the passage of time current
price changes are not taken into account. The statement are not prepared with the
keeping in view the economic conditions. the balance sheet loses the
significance of being an index of current economics realities. Similarly, the
profitability shown by the income statements may be represent the earning
capacity of the concern.

5. There are certain factors which have a bearing on the financial position and
operating result of the business but they do not become a part of these statements
because they cannot be measured in monetary terms. The basic limitation of the
traditional financial statements comprising the balance sheet, profit & loss A/c is
that they do not give all the information regarding the financial operation of the
firm. Nevertheless, they provide some extremely useful information to the extent
the balance sheet mirrors the financial position on a particular data in lines of the
structure of assets, liabilities etc. and the profit & loss A/c shows the result of
operation during a certain period in terms revenue obtained and cost incurred
during the year. Thus, the financial position and operation of the firm.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and weakness of a firm from
the available accounting data and financial statements. The analysis is done

CALCULATIONS OF RATIOS

Ratios are relationship expressed in mathematical terms between figures, which

are connected with each other in some manner.

CLASSIFICATION OF RATIOS
Ratios can be classified in to different categories depending upon the basis of
classification

The traditional classification has been on the basis of the financial statement to
which the determination of ratios belongs.
These are:-

Profit & Loss account

ratios Balance Sheet
ratios
Composite ratios

RESEARCH DESIGN

For the proper analysis of data simple statistical techniques such as percentage
were use. It helped in making more accurate generalization from the data
available.
TOOLS OF ANALYSIS

It is essential to use a systematic research methodology for the assessment of a

project because without the use of a research methodology analysis of any
company or organization will not be possible.

In the present analysis mostly secondary data have been used. Its is worth a
white to mention that I have used the following types of published data:
Balance sheet ™ Profit & Loss A/c ™ Schedules

LIMITATIONS OF THE STUDY

Non monetary aspects are not considered making the results unreliable.

Different accounting procedures may make results misleading.

In spite of precautions taken there are certain procedural and technical

limitations. Accounting concepts and conventions cause serious limitation to
financial analysis. Lack of sufficient time to exhaust the detail study of the above
topic became a hindering factor in my research.

RESU LTS – R EPORT OF DAT A COL LECTION

1. CURRENT RAT IO

Current As sets
Curren t Ratio Current Liab
= ilities
 31.03.12 31.03.13

0.38 0.44

0.5
0.44
0.4 0.38

0.3

0.2

0.1

3 1.03.12 31. 03.13

Inter pretation:-

As we know that id eal current ratio for any firm is 2:1. If we see the current
ratio of the company for last three years it has increased f rom last year. The
current ratio of company is more than the ideal ratio. This depicts that
company’s liquidity posit ion is sound. Its current assets are more than its current
liabilities.

2. QUICK RATIO

QUICK RATIO = Liquid Assets/ Current liabilities

31.03 .12 31.03.13

0.47 0.44

0.5
0.4 0.47
0.44
0.3

0.2

0.1

31.03.1231.03.13

Inter pretation :

A quick ratio is an indication that the firm is liq uid and has th e ability to meet
its current liabilities in time. The ideal qui ck ratio is 1:1. Company’s quick ratio
is more tha n ideal ratio. This shows comp any has no liquid deity problem.
 3. INVENTORY TURNOVER OR STOCK TURNOVER
RATIO:

Inven tory Turno ver Ratio is calculated by dividing s old by average inventor y.

Average invento ry =Average of opening and Closing balance of the inventory.

Inven tory Turno ver Ratio = Cost of Goods Sold/ Av erage inventory

31.03.1 2 31.03.13

5 46.68 7 24.61

800

700

600
724.6 1

546.78

Inter pretation: This ratio sh ows how ra pidly the inventory is turning into receivable through sales, sh ows
that th e company’s inventory manageme nt technique is more efficient as compare to las year.

1. Debtors Turnover Ratio

Debtors Turnov er Ratio is calculated by dividing credit sale s by average debtor

(incl uding bills r eceivables).

Debtors Tunover Ratio = Total Cr edit Sales

Averag e Debtor
Inter pretation :

This ratio indicates the speed with which debtors are being converted or turn
over into sales. The higher the values or turnov er into sales. The higher th e
values of debtors turnover, the more efficient is the manag ement of cred it. But
in the company the debtor turnover ratio is decreasing year t o year. This shows
that company is not utilizi ng its debtors efficiency. No w their credit policy
becom e liberal as comp are to previous year.

15

10 12.05 1 2.35

3 1.03.12 31.03.13

5. Av erage Coll ection Period

Average Collection Period is calculate d by dividin g the num ber of days in a

year (gene rally taken as 360) by t he Debtors Turnover Ratio.

360
Average Collection Period De btors Turno ver
= Ratio

31.03 .12 31.03.13

360/1 2.05 360/12.35

30 da ys 29 days
Inter pretation:

The average collection period measures the quality of debtors and it helps in
analy zing the efficiency of collection efforts. It also helps to ana lysis the cre dit
policy adopted by comp any. In the firm average collection period increasing
year to year. It shows that the firm has Lib eral Credit policy. Th ese changes in
policy a re due to comp etitor’s cred it policy.

FINANCIAL RES ULTS AND RESULTS OF OPERATION S

In line with the amended statutory guidelines, t he Company has adop ted IFRS
(Inte rnational Fi nancial Reporting Stand ards) for co nsolidation of accounts
from the financial year 2010-11 onwa rds. Consolidated and Standalone
financial hig hlights of the operations of the Compa ny are as follows:

Consolidated Financial Highlights

 LIQUIDITY

The Company generates healthy operational cash flows and maintains

sufficient cash and financing arrangements to meet its strategic objectives. It
deploys a robust cash management system to ensure timely servicing of its
liquidity obligations. The Company has also been able to arrange for adequate
liquidity at an optimized cost to meet its business requirements and has
minimized the amount of funds tied-up in the current assets.

As of March 31, 2012, the Company has cash and cash equivalents of Rs.

20,300 Mn and short term investments of Rs. 18,132 Mn. During the year
ended March 31, 2012, the Company generated operating free cash flow of
Rs. 101,319 Mn. The net debt - EBITDA ratio as on March 31, 2012 was at
2.56 and the net debt - equity ratio was at 1.29. The net debt in USD
terms decreased from USD 13,427 Mn as on March 31, 2011 to USD 12,714
Mn as on March 31, 2012. The Company manages the short-term liquidity to
generate optimum returns by deploying surpluses albeit only in the debt and
money market instruments including in high rated liquid and income debt
fundschemes, fixed maturity plans, bank fixed deposits and other similar
instruments.

The Company is comfortable with its present liquidity position and foreseeable liquidity
needs. It has adequate facilities in place and robust cash flows to meet liquidity requirements
for executing its business plans and meeting with any evolving requirements. The Company
also enjoys strong access to capital.
 RECOMMENDATIONS

The study conducted on working capital management of Bharti Airtel shows the
evaluation of management performance in this regard. Major findings and
suggestions thereon are narrated as under:

• Current assets comprise/a significant portion of total investment in assets

of the company. There is fluctuating and rather increasing trend of this
ratio during the period which shows management in-efficiency in
managing working capital in relation to total investment. Further current
assets to fixed assets ratio also shows on fluctuating trend during the study
period which substantiate above mentioned criterion of in-effectiveness in
management of working capital by the company.

• Assets turnover ratio for the given years of study shows stagnant trend
which is due to significant increase in sales.

• The ratio used for analysis of liquidity position is current ratio and quick
ratio. This ratio reveals that company has sound liquidity position
throughout the period of study. Company should maintain significant
balance in terms of resources to improve these ratios.
• Inventory turnover ratio depict the fluctuating trend which indicates the
accumulation of inventory in turn which cause loss to the company by
way of deterioration of stock, interest loss on blockage of stock etc.
Further composition of inventory reveals that portion of individual
element of inventory has fluctuating trend which indicates that
management has no policy in respect of inventory management.

• Debtors Turnover ratio reveals a decreasing trend during the period of

study and average collection period ranges have not improved. It reveals
that management has no specific policy in respect of debtor’s
management.

Keeping in view of detailed analysis of study and our findings mentioned in

above paragraphs, the following suggestions shall be helpful in increasing the
efficiency in working capital management.

 Company should make a policy in respect of investment of excess cash, if any; in

marketable securities and overall cash policy should be introduced.
 In case of inventory management ABC analysis, FSN technique, VED technique
should be adopted to increase the efficiency of inventory management. Further a
inventory monitoring system should be introduced to avoid holding of excess
inventory.

• Management should develop a credit policy and proper self realisation

system from customers so that efficient and effective management of
accounts receivable can be ensured. This will significantly improve the
profitability and liquidity of the company.
• Purchase policy regarding raw material, consumables, tools and packing
materials etc. should be introduced which ultimately helps in planning of
inventory, availment of maximum trade! cash discount and availment of
maximum credit period from suppliers.
 CONCLUSIONS & IMPLICATIONS

Bifurcation of credit limits

Bifurcation of cash credit limits into a demand loan portion and a

fluctuating cash credit component has not found acceptance either on the
part of the banks or the borrowers. Such bifurcation may not serve the
purpose of better credit planning by narrowing gap between sanctioned
limits and the extent of utilization thereof.

2. Reduction in over dependence on bank finances

The need for reducing the over dependence of the medium and large
borrowers both in private and public sectors on bank finance for their
production / trading purposes is recognized. The net surplus cash
generation on established industrial unit should be utilized partly at least
for reducing borrowing for working capital purposes.
3. Increase in owner’s contribution

In order to ensure that the borrowers do enhance their contributions

working capital and to improve their current ratio, it is necessary to place
them under the second method of sending recommended by hand on
committee which would give a minimum current ration of 1.33:1. As
many of the borrowers may not be immediately in a position to work
under the second method of lending the excess borrowings should be
segregated and treated as working capital term loan which should be made
repayable loan, it should be charged at higher rate of interest.

4. AD-HOC or temporary Limits

Borrowers should be discouraged from approaching banks frequently for

ad-hoc or temporary limits in excess of sanctions and limit to meet
unforeseen contingencies.

Banks should charge additional interest of 1% pa over normal rate on

these 1 limits.
5. Separation of Normal Non-Peak Level & Peak Level
Requirements While assessing the credit requirement, the bank should
appraise and the separate limits or the normal non-peak level as also or
the ‘peak level’ or requirement indicating also the periods during which
the separate limits would be extended to all borrowers having working
capital of Rs. 10 lacs and above. One of the imp. Criteria for deciding
such limit should be the borrowers’ utilization of cr. Limits in the past.

6. Temporary Accommodation through loan

If any ad-hoc or temporary accommodation is req. in excess of the

sanctioned limit to meet unproven contingencies the additional finance
should be given, where necessary, through a separate demand loan A/C

Or a separate non-operable cash Cr. A/C. There should be a stiff penalty

for such demand loan or non-operable cash cr. Portion, ablest 2% above
the normal rate unless the RBI exempts such penalty. The discipline may
be made applicable in cases involving working capital limits of Rs. 10
lacs and above.
7. Penal Information

The borrower should be asked to give his quarterly requirements of funds

before the commencement of the quarter on the basis of his budget, the
actual requirements being within the sanctioned limit for the particular
peak level/non-peak level periods. Drawings of less than or in excess of
the operative limit so fined (with a tolerance o 10% either way) but not
exceeding the sanctioned limit would be subject to a penalty to be fined
by the RBI from time to time. For the time being, the penalty may be
fixed at 2% p.a. The borrower would be required to submit his budgeted
requirements in triplicate & a copy of each would be sent immediately by
the branch to the controlling office and head office for record. The penalty
would be applicable only in respect of parties enjoying cr. Limits of Rs.
10 lacs and above subject to certain exemptions.

8. Info. Systems

The non-submission of the returns in time is partly due to certain features

in the forms themselves. To get over this difficulty, simplified forms have
been proposed. As the quarterly info. System is part and parcel of the
revised style of lending under the cash cr. System, I the borrower does not
submit the return within the prescribed time, he should be penalized by
charging the whole outstanding in the A/C at a penal rate of mt., 1% p.a.
more than the contracted date for the advance from the due date of the
return till the date of its actual submission.

After completing this project it can now be concluded that an after great
effect on Airtel. Working Capital (Airtel) to very important in which have
higher unit value.

After doing my survey I have concluded that most of the consumer prefers
to buy because Airtel give the excellent after sale service than any other
 brand. and their after sale service is also very good. But beside these
points I have concluded on my survey that sharp give the better after sale
service than any brand. Airtel give the prompted after sale service than
any other company most of the customer are satisfied with the after sale
service of Airtel and attitude of compliant handler is very sensitive.

Prime lending rate:

The RBI had given the total freedom of changing the rate of interest on the
amount of credit facilities, which are extended by it. The banks has now been
advised to stick to concept of PLR, which is the minimum rate of interest, which
every bank can charge from its clients and constituents. It keeps on a changing
as per the direction of RBI. Factors taken into consideration which fixing actual
ROI:

1. The project / product

2. The promoter

3. The prospects

4. The performance of the group co.

5. Promoters contribution in the project.

6. The structural ratios like the debt equity ratio.

7. The earlier operation of the a/c.

8. The submission of QIS

9. The timely submission of the production/sales figure etc.

10. The difference between actuals and projections

 BIBLIOGRAPHY

WEBSITE:

ƒ www.airtelindia.com

ƒ http://www.hinduonnet.com/2004/12/22/stories/2004122202441700.htm

ƒ http://bhartiairtel.in/index.php?id=14

ƒ http://bhartiairtel.in/index.php?id=264

ƒ http://bhartiairtel.in/index.php?id=265

ƒ http://bhartiairtel.in/index.php?id=company_profile

ƒ http://economictimes.indiatimes.com/bharti-
airtel-ltd/balancesheet/companyid-2718.cms

ƒ http://www.moneycontrol.com/annual-
report/bhartiairtel/directors-report/BA08#BA08

ƒ http://www.moneycontrol.com/financials/bhartiairtel/finan
cial-graphs/operating-profit-ebitda-percentage/BA08
ƒ