CHANAKYA NATIONAL LAW UNIVERSITY

The final draft for the fulfilment of project of Financial Management

On

“Working Capital of HCL”

Submitted to:-Prof. Kameshwar Pandey

Faculty of Financial Management

Submitted by:-Nitin Kumar

Roll no.1633

1st year B.A.L.L.B. (Hons.)

 ACKNOWLEDGEMENT

Writing a project is one of the most difficult academic challenges I

have ever faced. Though this project has been presented by me but
there are many people who remained in veil, who gave their support
and helped me to complete this project.

First of all I am very grateful to my subject teacher Kameshwar

Pandey without the kind support of whom and help the completion
of the project would have been a herculean task for me. She took
out time from his busy schedule to help me to complete this project
and suggested me from where and how to collect data.
DECLARATION

I hereby declare that the work reported in the BBA LL.B (Hons.) Project Report entitled
“Kameshwar Pandey” submitted at Chanakya National Law University, Patna is an
authentic record of my work carried out under the supervision of Kameshwar Pandey. I
have not submitted this work elsewhere for any other degree or diploma. I am fully
responsible for the contents of my Project Report.
INTRODUCTION

 The problems
 Purpose of study
 Research methodology
 Scope of the study
 Data sources
 Limitations
 INTRODUCTION:

The project undertaken is on “WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED”.
It describes about how the company manages its working capital and the various
steps that are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the

company's ability to fund operations, reinvest and meet capital requirements and
payments. Understanding a company's cash flow health is essential to making
investment decisions. A good way to judge a company's cash flow prospects is
to look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-day operations
or, more specifically, for financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the most important items
of working capital are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's efficiency and
financial strength.
The working capital is an important yardstick to measure the company’s
operational and financial efficiency. Any company should have a right amount
of cash and lines of credit for its business needs at all times.

This project describes how the management of working capital takes place at
HCL Infosystems.
 The Problems
In the management of working capital, the firm is faced with two key problems:

1. First, given the level of sales and the relevant cost considerations, what are the
optimal amounts of cash, accounts receivable and inventories that a firm should
choose to maintain?
2. Second, given these optimal amounts, what is the most economical way to
finance these working capital investments? To produce the best possible
results, firms should keep no unproductive assets and should finance with the
cheapest available sources of funds. Why? In general, it is quite advantageous
for the firm to invest in short term assets and to finance short-term liabilities.

PURPOSE OF STUDY

The objectives of this project were mainly to study the inventory, cash and
receivable at HCL Infosystems Ltd., but there are some more and they are -

The main purpose of our study is to render a better understanding of

The concept “Working Capital Management”.

To understand the planning and management of working capital at HCL

Infosystems Ltd.
To measure the financial soundness of the company by analyzing various
ratios.
To suggest ways for better management and control of working capital at
the concern.
 HINDUSTAN COMPUTERS LIMITED:

Type Public
(BSE: 500179,BSE: 532281)
Founded 11th August 1976

Headquarters Noida, India

(Delhi metropolitan area), India
Key People Shiv Nadar, Founder, Chairman & CEO
Sanjay Kumar Choudhary , Vineet Nayar
Industry Information Technology Services

Revenue ▲4.7 billion USD

Employees ~53,000 (as on 31st Dec 2007)

Website www.hcl.in

Hindustan Computers Limited, also known as HCL Enterprise, is one of

India's largest electronics, computing and information technology company.
Based in Noida, near Delhi, the company comprises two publicly listed Indian
companies, HCL Technologies and HCL Infosystems.

HCL was founded in 1976 by Shiv Nadar, Ajay Chowdhry and four of their
colleagues. HCL was focused on addressing the IT hardware market in India for
the first two decades of its existence with some sporadic activity in the global
market. In 1981, HCL seeded a company focused on addressing the computer
training industry, NIIT, though it has currently divested its stake in the
company. In 1991, HP took minority stake in the company (26%) and the
company was known as HCL HP for the five years of the joint venture. On
termination of the joint venture in 1996, HCL became an enterprise which
comprises HCL Technologies (to address the global IT services market) and
HCL Infosystems (to address the Indian and APAC IT hardware market). HCL
has since then operated as a holding company.
HCL Infosystems – An Overview

 Company’s history

 HCL at a glance
 HCL INFOSYSTEMS LIMITED

AN OVERVIEW ABOUT THE COMPANY

HCL Infosystems is no flash in the Information Technology pan. Founded in

1976, the firm has climbed into pantheon of India's corporate giants on the
strength of its IT products and services. HCL Infosystems specializes in IT
hardware (PC's and servers, as well as networking, imaging and
communications products), and system integration services serving the domestic
Indian market. In addition to its consumer products, the company provides
commercial IT products, facilities management, network services, and IT
security services for clients in such industries as government, financial services,
and education. HCL Corporation owns significant stakes in HCL Infosystems
(about 44%) and sister company HCL Technologies.

HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware

and systems integrator. It claims a presence in 170 locations and 300 service
centre. Its manufacturing facilities are based in Chennai, Pondicherry and
Uttarakhand .Its headquarters is in Noida.

HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year

1983, has established itself as a leading manufacturer of computer peripherals in
India, encompassing Display Products, Thin Client solutions, Information and
Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one in
Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company
has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485.
WORKING CAPITAL MANAGEMENT
CONCEPTUAL FRAMEWORK

 Introduction
 Significance of working capital management
 Classification of working capital
 Types of working capital needs
 Financing of working capital
 Factors determining working capital
requirements
 Working capital cycle
 Sources of working capital
 Working capital position
 Inventory management
 Cash management
 Receivables management
 Financing current assets
 Working capital & short-term financing
 INTRODUCTION TO WORKING CAPITAL

“Working Capital is the Life-Blood and Controlling Nerve Center of a

business”

The working capital management precisely refers to management of

current assets. A firm’s working capital consists of its investment in
current assets, which include short-term assets such as:

Cash and bank balance,

Inventories,
Receivables (including debtors and bills),
Marketable securities.
Working capital is commonly defined as the difference between current assets
and current liabilities.

Working Capital = Current Assets-Current Liabilities

There are two major concepts of working capital:

Gross working capital

Net working capital
Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets,
which can be converted into cash with in a financial year. The gross working
capital points to the need of arranging funds to finance current assets.

Net working capital:

It refers to the difference between current assets and current liabilities. Net
working capital can be positive or negative. A positive net working capital
will arise when current assets exceed current liabilities. And vice-versa for
negative net working capital. Net working capital is a qualitative concept. It
indicates the liquidity position of the firm and suggests the extent to which
working capital needs may be financed by permanent sources of funds. Net
working capital also covers the question of judicious mix of long-term and
short-term funds for financing current assets.
 Significance Of Working Capital Management

The management of working capital is important for several reasons:

For one thing, the current assets of a typical manufacturing firm account for
half of its total assets. For a distribution company, they account for even
more.

Working capital requires continuous day to day supervision. Working

capital has the effect on company's risk, return and share prices,

There is an inevitable relationship between sales growth and the level of

current assets. The target sales level can be achieved only if supported by
adequate working capital, inefficient working capital management may lead
to insolvency of the firm if it is not in a position to meet its liabilities and
commitments.
 CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:

On the basis of time

On the basis of concept

KINDS OF WORKING
CAPITAL

ON THE ON THE
BASIS OF BASIS OF
CONCEPT TIME

PERMANENT TEMPORARY
GROSS NET
/FIXED /VARIABLE
WORKING WORKING
WORKING WORKING
CAPITAL CAPITAL CAPITAL CAPITAL

REGULAR RESERVE SEASONAL SPECIAL

WORKING WORKING WORKING WORKING
CAPITAL CAPITAL CAPITAL CAPITAL
 Types of Working Capital Needs

Another important aspect of working capital management is to analyze the

total working capital needs of the firm in order to find out the permanent and
temporary working capital. Working capital is required because of existence of
operating cycle. The lengthier the operating cycle, greater would be the need
for working capital. The operating cycle is a continuous process and therefore,
the working capital is needed constantly and regularly. However, the
magnitude and quantum of working capital required will not be same all the
times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes
reflect permanent changes in the firm as is the case when the inventory and
receivables increases as the firm grows and the sales become higher and
higher. Other changes are seasonal, as is the case with increased inventory
required for a particular festival season. Still others are random reflecting the
uncertainty associated with growth in sales due to firm's specific or general
economic factors.

The working capital needs can be bifurcated as:

Permanent working capital

Temporary working capital
Permanent working capital:

There is always a minimum level of working capital, which is continuously

required by a firm in order to maintain its activities. Every firm must have a
minimum of cash, stock and other current assets, this minimum level of current
assets, which must be maintained by any firm all the times, is known as
permanent working capital for that firm. This amount of working capital is
constantly and regularly required in the same way as fixed assets are required.
So, it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position 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.
The permanent level is constant while the temporary working capital is
fluctuating increasing and decreasing in accordance with seasonal demands as
shown in the figure.

In the case of an expanding firm, the permanent working capital line may not
be horizontal. This is because the demand for permanent current assets might
be increasing (or decreasing) to support a rising level of activity. In that case
line would be rising.
 FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They
are:

Permanent or Fixed Working Capital requirements

Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we

have long-term as well as short-term sources.
 FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS

There are many factors that determine working capital needs of an enterprise.
Some of these factors are explained below:

 Nature or Character of Business.

The working capital requirement of a firm is closely related to the nature
of its business. A service firm, like an electricity undertaking or a
transport corporation, which has a short operating cycle and which sells
predominantly on cash basis, has a modest working capital requirement.
Oh the other hand, a manufacturing concern like a machine tools unit,
which has a long operating cycle and which sells largely on credit, has a
very substantial working capital requirement.
HCL Infosystems carry on activities related to computer systems.
Though they are primarily an assembling firm they also have
manufacturing facilities in Chennai and Pondicherry. This requires them
to keep a very sizeable amount in working capital.

 Size of Business/Scale of Operations.

HCL is the leader in its segment in both consumer as well as
commercial market share. They have increased their share in the
consumer segment notably in the last four years. This they have
achieved through retail expansion. The scale of operations and the size it
holds in the Indian IT market makes it a must for them to hold their
inventory and current asset at a huge level.
 Price Level Changes.
Changes in the price level also affect the working capital requirements.
It was the reduced margins in the price of the raw materials that had
prompted them to go for bulk purchases thus making on additions to
their net current assets. They might have gone for this large-scale
procurement for availing discounts and anticipating a rise in prices,
which would have meant that more funds are required to maintain the
same current assets.
WORKING CAPITAL CYCLE
The upper portion of the diagram above shows in a simplified form the chain of
events in a manufacturing firm. Each of the boxes in the upper part of the
diagram can be seen as a tank through which funds flow. These tanks, which are
concerned with day-to-day activities, have funds constantly flowing into and out
of them.

The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be carried
out on the stock, and it will become part of the firm’s work-in-progress.
Work will continue on the WIP until it eventually emerges as the finished
product.
As production progresses, labor costs and overheads need have to be met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are increased.
They will eventually pay, so that cash will be injected into the firm.

Each of the areas- Stock (raw materials, WIP, and finished goods), trade
debtors, cash (positive or negative) and trade creditors – can be viewed as
tanks into and from which funds flow.
Working capital is clearly not the only aspect of a business that affects the
amount of cash.

The business will have to make payments to government for taxation.

Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
 Shareholders (existing or new) may provide new funds in the form of
cash
Some shares may be redeemed for cash
Dividends may be paid
Long-term loan creditors (existing or new) may provide loan finance,
loans will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business
Unlike, movements in the working capital items, most of these ‘non-working
capital’ cash transactions are not every day events. Some of them are annual
events (e.g. tax payments, lease payments, dividends, interest and, possibly,
fixed asset purchases and sales). Others (e.g. new equity and loan finance and
redemption of old equity and loan finance) would typically be rarer events.
SOURCES OF WORKING CAPITAL

HCL Infosystems has the following sources available for the fulfillment of its
working capital requirements in order to carry on its operations smoothly:

Banks:
These include the following banks –

State Bank of India

Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
State Bank of Patiala
State Bank of Saurashtra

Commercial Papers:
Commercial Papers have become an important tool for financing
working capital requirements of a company.
Commercial Paper is an unsecured promissory note issued by the
company to raise short-term funds. The buyers of the commercial
paper include banks, insurance companies, unit trusts, and
companies with surplus funds to invest for a short period with
minimum risk.
HCL issues Commercial Papers and had 4000 commercial papers
in the year 2016.
WORKING CAPITAL POSITION:

CURRENT ASSET – CURRENT LIABILITY

PARTICULARS 2016 2015 2014 2013 2012

CURRENT ASSETS 1211801 1048285 100970 81533 54091
CURRENT LIABILITES 513195 286093 60627 46791 39790
% CURRENT ASSETS 15.6 938.21 23.84 50.7 20.09
INCREASE
%CURRENT LIABILITES 79.39 371.89 29.57 17.6 51.35
INCREASE

The 16.12% increase in Net Current assets despite of the fact that there has been
an increase in the Current Assets by 23.84% and increase in Current Liability
has been by 29.57% over that of the previous year has to be attributed to the fact
that in 2013, the company showed such a high increase in CA, that it is still
being offset. This is an indication as to the expanding operations of the firm.
HCL has increased its current assets in order to meet the increasing sales. The
firm’s level of liquidity being high, we need a check on whether it affects the
return on assets. In 2015 there has been a rapid expansion in current assets
(938.21) which have been off set to an extent by current liabilities (371.89%).
There has been a marginal increase in current assets of 2016 (15.6%) and in
case of liabilities there has been a significant increase of 79.39%
INVENTORY MANAGEMENT

Inventories
Inventories constitute the most important part of the current assets of large
majority of companies. On an average the inventories are approximately 60% of
the current assets in public limited companies in India. Because of the large size
of inventories maintained by the firms, a considerable amount of funds is
committed to them. It is therefore, imperative to manage the inventories
efficiently and effectively in order to avoid unnecessary investment.

Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale
and components make up of the product. The various forms of the inventories in
the manufacturing companies are:
Raw Material: It is the basic input that is converted into the finished
product through the manufacturing process. Raw materials are those units
which have been purchased and stored for future production.
Work-in-progress: Inventories are semi-manufactured products. They
represent product that need more work they become finished products for
sale.
Finished Goods: Inventories are those completely manufactured products
which are ready for sale. Stocks of raw materials and work-in-progress
facilitate production, while stock of finished goods is required for smooth
marketing operations. Thus, inventories serve as a link between the
production and consumption of goods.
Inventory Management Techniques
In managing inventories, the firm’s objective should be to be in consonance
with the shareholder wealth maximization principle. To achieve this, the firm
should determine the optimum level of inventory. Efficiently controlled
inventories make the firm flexible. Inefficient inventory control results in
unbalanced inventory and inflexibility-the firm may sometimes run out of stock
and sometimes pile up unnecessary stocks.
Economic Order Quantity (EOQ): The major problem to be resolved is
how much the inventory should be added when inventory is replenished.
If the firm is buying raw materials, it has to decide lots in which it has to
purchase on replenishment. If the firm is planning a production run, the
issue is how much production to schedule. These problems are called
order quantity problems, and the task of the firm is to determine the
optimum or economic lot size. Determine an optimum level involves two
types of costs:-
 Ordering Costs: This term is used in case of raw material and
includes all the cost of acquiring raw material. They include the
costs incurred in the following activities:
 Requisition
 Purchase Ordering
 Transporting
 Receiving
 Inspecting
 Storing

Ordering cost increase with the number of orders placed; thus the
more frequently inventory is acquired, the higher the firm’s
ordering costs. On the other hand, if the firm maintains large
inventory’s level, there will be few orders placed and ordering
costs will be relatively small. Thus, ordering costs decrease with
the increasing size of inventory.

 Carrying Costs: Costs are incurred for maintaining a given level

of inventory are called carrying costs. These include the following
activities:
  Warehousing Cost
 Handling
 Administrative cost
 Insurance
 Deterioration and obsolescence

Carrying costs are varying with inventory size. This behavior is

contrary to that of ordering costs which decline with increase in
inventory size. The economic size of inventory would thus depend
on trade-off between carrying costs and ordering cost.

Composition 2016 2015 2014

Raw Material 6349 7749 6127
Stores and Spares 3713 2987 2622
Finished Goods 13374 7245 6506
Work-in-progress 595 784 871

The increasing component of raw materials in inventory is due to the fact

that the company has gone for bulk purchases and has increased
consumption due to a fall in prices and reduced margins for the year.
Another reason might be the increasing sales, which might have induced
them to purchase more in anticipation of a further increase in demand of
the product. And the low composition of work-in-progress is
understandable as because of the nature of the business firm is involved
in.
To the question as to whether the increasing costs in inventory are
justified by the returns from it the answer could be found in the HCL
retail expansion. HCL caters to the need of the two separate segments:

a) Institutions for which they manufacture against orders and,

b) Retail segment of the market.

They are more into retail than earlier and at present more than 650 retail
outlets branded with HCL sign ages and more are in the pipeline
The company in order to meet its raw materials requirements could have
gone for frequent purchases, which would have resulted in lesser cash
flows for the firm rather than the high expenditure involved when
procuring in at bulk. The reason why the firm has gone for these bulk
purchases because of the lower margins and the discounts it availed
because of procuring in bulk quantities.
A negative growth in WIP could be because:
a) The time taken to convert raw materials to finished goods is very
minimal
b) This is also due to capacity being not utilized at the optimum.

ABC System: ABC system of inventory keeping is followed in the

factories. Various items are categorized into three different levels in the
order of their importance. For e.g. items such as memory, high capacity
processors and royalty are placed in the ‘A’ category. Large number of
firms has to maintain several types of inventories. It is not desirable the
same degree of control all the items. The firm should pay maximum
attention to those items whose value is highest. The firm should
therefore, classify inventories to identify which items should receive the
most effort in controlling. The firm should be selective in approach to
control investment in various types of inventories. This analytical
approach is called “ABC Analysis”. The high-value items are classified
as “A items” and would be under tightest control. “C items” represent
relatively least value and would require simple control. “ B items” fall in
between the two categories and require reasonable attention of
management.

JIT: The relevance of JIT in HCL Info system can be questioned. This is
because they procure materials on the basis of projections made at least
two or three months before. Even at the time of procurement they ensure
that they procure much more than what actually is required by the firm
that is they hold significant amount of inventory as safety stock. This is
done to counter the threat involved in default and accidental breakdowns.
The levels of safety stock usually vary according to the usage.
 Conversion Periods

Raw Material

Particulars 2016 2015 2014

Raw Material Consumption 121077 97971.31 57775.14
Raw Material Consumption/day 332 268.41 158.28
Raw Material Inventory 7072 6960.275 4364.735
Raw Material Holding Days 21 25.93 27.57

The raw material conversion period or the raw material holding cost has
reduced from 26 to 21. This is despite an increase in its consumption. This
indicates that the firm is able to convert the raw material at its disposal to the
work-in-progress at a lesser time as compared to the last year. It would be to the
benefit of the firm to reduce the production process and increase the conversion
rate still as the firm is required to meet the increasing demand.

Work-in-progress
Particulars 2016 2015 2014
Cost of Production 191911 159651.19 113500.33
Cost of Production/day 525.78 437.4 310.95
Work in progress inventory 689.5 827.52 679.455
WIP Holding days 1.31 1.89 2.19

The work-in-progress holding time is important for a firm in the sense that it
determines the rate of time at which the production process will be complete or
the finished goods will be ready for disposal by the firm. The firm as it is in the
process of assembling should take the least possible time in conversion to
finished goods unlike a hard core manufacturing firm, as any firm would like to
have its inventory in the work-in-progress at the minimum. There would also be
less of stock out costs as due to better conversion rates the firm is able to meet
the rise in demand situations. More the time it spends lesser its efficiency would
be in the market. Here the firm has been able to bring down its WIP conversion
periods.

Finished Goods
Particulars 2016 2015 20004
Cost of goods sold 228177 178438.85 124768.92
Cost of goods sold/day 625 488.87 341.832
Finished goods inventory 10310 6875.725 5026.505
Finished goods inventory Holding days 16 14.06 14.8

The time taken for the firm to realize its finished goods as sales has increased as
compared to last year. This growth in sales could be traced back to the growing
domestic IT market for the commercial as consumer segment in India. HCL has
around 15% of the market in desktop and it is the market leader in this segment.
So it is only natural that they are able to better their conversion rate of finished
goods to sales.

Operating Cycle
Particulars 2016 2015 2014
Inventory conversion period 38 42 45
Average collection period 70 63 66
Gross operating cycle 108 105 111
Average payment period 22 23 17
Operating cycle 86 82 94

The operating cycle of the firm reveals the days within which the inventory
procured gets converted to sales or revenue for the firm. This time period is of
importance to the firm as a lag here could significantly affect the profitability,
liquidity, credit terms, and the policies of the firm. All the firms would like to
reduce it to such extend that their cash inflows are timely enough to meet their
obligations and support the operations. That the firm has been able to reduce the
ratio is in itself an achievement as they were having huge stocks of inventory.
But the reduction in the cycle could also be attributed to the boom in the market
and the growth it is expected to reach. This boom automatically ensures the
demand for the finished goods and thus helping in it to garner sales for the firm.

Raw Material Consumption

Particulars 2016 2015 2014
Imported 92007 70784.27 42129.63
Indigenous 29070 27187.04 15645.51
% Imports 75.99 72.25 72.92

A major chunk of the imports come from Korea and Taiwan and is purchased in
US$. The value of imported and indigenous raw material consumed give a clear
picture that if there is a change in the EXIM policy of the government it is
bound to affect the company adversely as more than 70% of their consumption
is from imports. But this is the scenario witnessed in the industry as a whole and
though HCL is into expanding its operation to Uttaranchal it in the present state
is would be affected by a change in the import duty structure.
A major chunk of their current assets are in the form of inventory and the
change in technology will invariably be a threat faced by the firm. The question
of technology applying here like says a certain device going say out of fashion
or outdated. For e.g. TFT monitors being in demand more than CRT.

CASH MANAGEMENT
Sources of Cash:
Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)
Payables (credit from suppliers)
 New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans
If you have insufficient working capital and try to increase sales, you can
easily over-stretch the financial resources of the business. This is called
overtrading.

Early warning signs include:

Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts for
early cash payment
Bank overdraft exceeds authorized limit.
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay wages,
pending receipt of a cheque).

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Infosystems is mainly

lock box system.
Cash Management System involves the following steps:
1. The branch offices of the company at various locations hold the
collection of cheques of the customers.
2. Those cheques are either handed over to the CMS agencies or bank of the
particular location take charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing house to
make them realized. These cheques can be local or outstation.
 4. The CMS agencies or bank send information to the central hub of the
company regarding realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per the
agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS to the
company as per requirement.

In cash management the collect float taken for the cheques to be realized into
cash is irrelevant and non-interfering because banks such as Standard Chartered,
HDFC and CitiBank who give credit on the basis of these cheques after
charging a very small amount. These credits are given to immediately and the
maximum time taken might be just a day. The amount they charge is very low
and this might cover the threat of the cheque sent in by two or three customers
bouncing. Even otherwise the time taken for the cheques to be processed is
instantaneous. Their Cash Management System is quite efficient.
 Cash-Current Liability
Particulars 2016 2015 2014
Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1

The absolute liquid ratio is the best for three years and the cash balances as to
the current liability has improved for the firm. Firm has large resources in cash
and bank balances. While large resources in cash and bank balances may seem
to affect the revenue the firm could have earned by investing it elsewhere as
maintenance of current assets as cash and in near cash assets and marketable
securities may increase the liquidity position but not the revenue or profit
earning capacity of the firm.

Cash vs. Marketable Securities

The investment in marketable securities rather than having large cash balances
in something that has been given thought for by the firm. This is because while
a firm gets revenue in the form of interests by investments, it actually has to
pays certain amount money to the banks for maintaining current accounts and
fixed deposits usually have a longer maturity period. That is, the problem with
high investments is that the opportunity to earn is lost, thus a firm has to
maintain an optimal cash balance. But the investment in mutual funds or other
marketable securities might create a problem of investment, as they might not
be readily realizable as say liquid cash or the amount deposited in the current
account. The investments in say fixed assets say may earn a fixed rate of interest
but they have a maturity period attached to them.
In HCL, Standard Chartered is the concentration bank in which all the inflows
from the deposit banks are concentrated and passed on to the disbursement
banks for further disbursement.
Liquid Cash Balance
The liquid cash maintained in the business is only that much as is required to
satisfy the daily requirements of the firm and not more. The rest of the cash is
invested into mutual funds and also held in fixed deposits and current accounts.

Instruments Used
The instrument used here are primarily cheques comprising of around 97% of
what is used in. The rest 2-3% comprise of the letters of credit.
Thus working capital is the lifeline for every business. The main advantages of
sufficient working capital are:
 It helps in prompt payment
 Ensures high solvency in the company and good credit standing.
 Regular supply of material and continuous production.
 Ensures regular payment of salaries and wages and day to day
commitments.
 RECEIVABLES MANAGEMENT

Cash flow can be significantly enhanced if the amounts owing to a business

are collected faster. Every business needs to know.... who owes them money....
how much is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small

businesses whom can least afford it. If you don't manage debtors, they will
begin to manage your business as you will gradually lose control due to
reduced cash flow and, of course, you could experience an increased incidence
of bad debt.

The following measures will help manage your debtors:

1.Have the right mental attitude to the control of credit and make sure that it
gets the priority it deserves.
2.Establish clear credit practices as a matter of company policy.
3.Make sure that these practices are clearly understood by staff, suppliers and
customers.
4.Be professional when accepting new accounts, and especially larger ones.

5.Check out each customer thoroughly before you offer credit. Use credit
agencies, bank references, industry sources etc.
 6.Establish credit limits for each customer and stick to them.
7.Continuously review these limits when you suspect tough times are coming
or if operating in a volatile sector.
8.Keep very close to your larger customers.
9.Invoice promptly and clearly.
10.Consider charging penalties on overdue accounts.

11.Consider accepting credit /debit cards as a payment option.

12.Monitor your debtor balances and aging schedules, and don't let any debts
get too old.

Recognize that the longer someone owes you, the greater the chance you will
never get paid. If the average age of your debtors is getting longer, or is
already very long, you may need to look for the following possible defects.

 Poor collection procedures.

 Lax enforcement of credit terms.
 Slow issue of invoices or statements.
 Errors in invoices or statements.
 Customer dissatisfaction.
 Weak credit judgement.
Debtors due over 90 days (unless within agreed credit terms) should generally
demand immediate attention. Look for the warning signs of a future bad debt.
For example…..

1. Longer credit terms taken with approval, particularly for smaller orders.
2. Use of post-dated checks by debtors who normally settle within agreed
terms.
3. Evidence of customers switching to additional suppliers for the same
goods.
4. New customers who are reluctant to give credit references.
5. Receiving part payments from debtors.

Profits only come from paid sales.

The act of collecting money is one, which most people dislike for many
reasons and therefore put on the long finger because they convince themselves
that there is something more urgent or important that demand their attention
now. There is nothing more important than getting paid for your product or
service. A customer who does not pay is not a customer.

Here are few ways in collecting money from debtors: -

 Develop appropriate procedures for handling late payments.
 Track and pursue late payers
 Get external help if you own efforts fail.
 Don’t feel guilty asking for money .. its yours and you are entitled to it.
 Make that call now. And keep asking until you get some satisfaction.
 In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.
 When asking for your money, be hard on the issue – but soft on the person.
Don’t give the debtor any excuses for not paying.
 Make that your objective is to get the money, not to score points or get
even.

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS 2016 2015 2014 2013

DEBTORS TURNOVER RATIO 5.21 5.80 5.53 6.62

AVERAGE COLLECTION PERIOD 70 63 66 55

A better turnover ratio implies for the firm, more efficiency in converting the
accounts receivable to cash. A firm with very high turnover ratio can take the
freedom of holding very little balances in cash, as their debtors are easily
realizable. In case of HCL, the collection period for the firm is 70 days.

COLLECTION POLICIES:
It refers to the collection procedures such as letters, phone calls and other follow
up mechanism to recover the amount due from the customers. It is obvious that
costs are incurred towards the collection efforts, but bad debts as well as
average collection period would decrease. Further, a strict collection policy of
the firm is expensive for the firm because of the high cost is required to be
incurred by the firm and it may also result in loss of goodwill. But at the same
time it minimizes the loss on account of bad debts. Therefore, a firm has to
strike a balance between the cost and benefits associated with collection
policies.
The steps usually followed in collection efforts are:
Sending repeated letters and reminders to the customers

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 Personal visits
Using agencies involved in collection process
Making telephonic reminders
Initiating legal actions
Real Time Gross Settlement (RTGS)

Real Time Gross Settlement as such is a concept new in nature and though the
firm uses the system with all the members of the consortium, it is still in its
primal stage and will take time before all of the clients of the firm are willing to
accept it. The firm has made a proposal to the consortium of the banks during
appraisal for faster implementation of internet based banking facility by all the
banks and adoption of RTGS payment system through net.
The debtor’s turnover ratio is completely dependent upon the credit policy
followed by the firm. The credit policy followed by the firm should be such that
the threat of bad debts and the default rate involved should be terminated.

PARTICULARS 2016 2015 2014 2013

CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14

PAYMENT PERIOD 22 23 17 16

That the creditors turnover ratio has declined and payment period has increased
indicate that the company has got a leeway in making the payment to the
creditors by way of increased time.
With creditors they are having pre-agreements and have undertaken
arrangements with them, which they believe to be the best in the business and
these are fixed.
(NOTE: Acceptances are not included in the computation of creditors turnover)

Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to
make investment in current assets.

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Long term financing:

It includes ordinary share capital, preference share capital, debentures, long

term borrowings from financial institutions and reserves and surplus.

Short term financing:

It is for a period less than one year and includes working capital funds from
banks, public deposits, commercial paper etc.

Spontaneous financing:

It refers to automatic sources of short-term funds arising in normal course of

business. There is no explicit cost associated with it. For example, Trade
Credit and Outstanding Expenses etc.

Depending on the mix of short and long term financing, the company can
follow any of the following approaches.

Matching Approach

In this, the firm follows a financial plan, which matches the expected life of
assets with the expected life of source of funds raised to finance assets. When
the firm follows this approach, long term financing will be used to finance
fixed assets and permanent current assets and short term financing to finance
temporary or variable current assets.

Conservative Approach

In this, the firm finances its permanent assets and also a part of temporary
current assets with long term financing. In the periods when the firm has no
need for temporary current assets, the long-term funds can be invested in

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tradable securities to conserve liquidity. In this the firm has less risk of facing
the problem of shortage of funds.
Aggressive Approach

In this, the firm uses more short term financing than warranted by the
matching plan. Under an aggressive plan, the firm finances a part of its current
assets with short term financing.

Relatively more use of short term financing makes the firm more risky.

Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so
that the wealth of shareholders is maximized. A firm needs fixed and current
assets to support a particular level of output.

The level of current assets can be measured by relating current assets. Dividing
current assets by fixed assets gives CA/FA ratio. Assuming a constant level of
fixed assets, a higher CA/FA ratio indicates a conservative current assets
policy and a lower CA/FA ratio means an aggressive current assets policy
assuming other factors to be constant. A conservative policy i.e. higher CA/FA

45 | P a g e
ratio implies greater liquidity and lower risk; while an aggressive policy i.e.
lower CA/FA ratio indicates higher risk and poor liquidity. The current assets
policy of the most firms may fall between these two extreme policies. The
alternative current assets policies may be shown with the help of the following
figure.

In this figure the most conservative policy is indicated by alternative A, where

as CA/FA ratio is greatest at every level of output. Alternative C is the most
aggressive policy, as CA/FA ratio is lowest at all levels of output. Alternative B
lies between the conservative and aggressive policies and is an average policy.

SHORT TERM FINANCING

Other than the investment in current assets, the firm also has to be concerned
with short-term to long-term debt as this plays a very important role in
determining the amount of risk undertaken by the firm. That is, the firm not
only has to be concerned about current assets but also the sources through
which they are financed. A firm before financing in either of the two has to take
into consideration various aspects. While short term might seem the ideal way
to finance your assets than the long term due to shorter maturity period and also
less of costs are involved, there is an inherent risk in short term financing due to
fluctuating interest rates and due to the reason that the firm might be unable to
repay the amount in a short span of time.

SECURED LOANS 2016 2015 2014 2013

SHORT TERM 3849 4991.28 6903.7 4987.52
LONG TERM 0 530.07 0 3461.36
TOTAL 3849 5521.35 6903.7 8448.88
%SHORT TERM 100 90.4 100 59.03

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Under secured loan cash credit, along with non fund based facilities, foreign
currency term loan from banks are secured by way of hypothecation of stock-in-
trade, book debts as first charge and by way of second chanrge on all the
immovable and movable assets of the parent company. Term loan in Indian
rupees from a bank is subject to a prior charge in favour of company’s bankers
on book debts and stock in trade for working capital facilities.

UNSECURED LOANS 2016 2015 2014 2013

SHORT TERM 15104 2593.39 63.94 76.84
LONG TERM 11 17 169.51 3261.42
TOTAL 15115 2610.39 233.45 3338.26
% SHORT TERM 99.93 99.348 27.38 2.3

Here HCL has a major portion of their financing done through short term
financing than long term financing. The preference of short term financing to
long term as such is not the part of any policy employed by the firm but it was
due to the reason that the interest rates in short term were more investor friendly
and the cost involved in them were also low. At present, we can see that the
firm is moving more towards long term financing as the interest terms in the
long term has reduced compared to the short term.

YEAR- END COMMERCIAL PAPERS

PARTICULARS 2016 2015 2014 2013
COMMERCIAL 4000 2500 --- 3000
PAPERS

The credit rating by ICRA continued at ‘A1+’indicating highest safety to

company’s commercial paper program of Rs. 75 Crores. It acts as an effective
tool in reducing the interest cost and is used for financing inventories and other
receivables. As and when the firm issues commercial papers, it sends a letter to
the leader of the consortium, i.e., SBI to reduce from the fund based limits the

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amount it has issued in the form of the commercial papers. Suppose the firm
issues 30 Crores as commercial papers and the fund based limits are say 115
Crores. Then firm sends a letter to SBI to reduce the existing fund based limits
from 115 to 85 Crores.

In terms of desirability, the commercial papers are cheaper and advantageous to

the firm compared to the consortium financing. The main advantage being the
interest rate which is lower than the bank rates existing under consortium
financing. But the firm depends on both and for working capital financing; it is
dependent on the banks for funds such as working capital demand loans and
cash credits. There is no point in the firm not making use of the fund based
limits in the consortium banking as their commercial papers are restricted to
75 Crores

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 ANALYSIS

 Concluding analysis
 Suggestions and recommendations
 Bibliography
 Appendices

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CONCLUDING ANAYSIS

The working capital position of the company is sound and the various
sources through which it is funded are optimal.
The company has used its dividend policy, purchasing, financing and
investment decisions to good effect can be seen from the inferences made
earlier in the project.
The debts doubtful have been doubled over the years but their percentage
on the debts has almost become half. This implies a sales and collection
policy that get along with the receivables management of the firm.
The returns have been affected by a marked growth in working capital
and though a 29.75% in 2016 return on investment is good, but it got
reduced as compared to 39.01% return in 2015.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion of the
inefficiencies in the working capital management.
The firm has not compromised on profitability despite the high liquidity
is commendable.
HCL Infosystems has reached a position where the default costs are as
low as negligible and where they can readily factor their accounts
receivables for availing finance is noteworthy.

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 SUGGESTIONS AND RECOMMENDATIONS

The management of working capital plays a vital role in running of a

successful business. So, things should go with a proper understanding for
managing cash, receivables and inventory.

HCL Infosystems is managing its working capital in a good manner, but still
there is some scope for improvement in its management. This can help the
company in raising its profit level by making less investment in accounts
receivables and stocks etc. This will ultimately improve the efficiency of its
operations. Following are few recommendations given to the company in
achieving its desired objectives:

The business runs successfully with adequate amount of the working

capital but the company should see to it that the cash should not be tied
up in excessive amount of working capital.
Though the present collection system is near perfect, the company as
due to the increasing sales should adopt more effective measures so as
to counter the threat of bad debts.
The over purchasing function should be avoided as it could lead to
liquidity problems.
The investment of cash in marketable securities should be increased, as
it is very profitable for the company.
Holding of excessive and insufficient stock must be avoided as it creates
a burden on the cash resources of a business and results in lost sales,
delays for customers, etc respectively.

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 BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:

Corporate Intranet
Financial Statements (Annual Reports)
Direct interaction with the employees of the company
Internet ----www.hclinfosystems.in
Textbooks on financial management -
 I.M.Pandey
 Khan and Jain
 Prasanna Chandra
 HCL TECHNOLOGIES LIMITED

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 APPENDICES
CONSOLIDATED BALANCE SHEETS

(Thousands of US Dollars except per share data and as stated otherwise)

As of June 30,

2015 2016

ASSETS

Current assets

Cash and cash equivalents $88,049 $108,154

Short term deposit with banks 73,295 125,505

Restricted cash 645 936

Accounts receivables, net of allowances 265,445 364,303

Unbilled revenue 33,933 72,994

Investment securities, available for sale 396,610 335,564

Due from related parties 2,003 2,815

Inventories 11,074 17,668

Employee receivables 9,008 13,958

Deferred income taxes 21,948 13,384

Other current assets 146,275 156,520

Total current assets 1,048,285 1,211,801

Employee receivables 870 304

Deferred income taxes 7,690 70,027

Investment securities, held to maturity 2,946 2,788

Investments in affiliates 2,356 2,354

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 Property and equipment, net 257,606 309,453

Intangible assets, net 8,011 8,472

Goodwill 189,857 214,246

Other assets 34,738 47,323

Total assets $1,552,359 1,866,768

HCL TECHNOLOGIES LIMITED

CONSOLIDATED BALANCE SHEETS

(Thousands of US Dollars except per share data and as stated otherwise)

As of June 30,

2015 2016

LIABILITIES, MINORITY INTEREST AND

STOCKHOLDERS' EQUITY

Current liabilities

Current portion of capital lease obligations $2,029 $2,393

Accounts payable 28,264 43,607

Due to related parties 2,944 1,446

Short term loans 8,681 4,962

Accrued employee costs 39,016 63,953

Deferred revenue 22,133 45,074

Deferred income taxes 2,208 1,255

Taxes payable 76,611 128,187

Other current liabilities 104,207 222,318

Total current liabilities 286,093 513,195

Long term debt - 1,390

Capital lease obligations, excluding current portion 8,123 4,040

Deferred income taxes 54 3,272

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 Other liabilities 23,544 131,138

Total liabilities 317,814 653,035

Commitments and Contingencies (refer note 26)

Minority interest 3,566 1,313

Stockholders’ equity

Equity shares, 750,000,000 and 750,000,000 shares authorized

Issued and outstanding 663,683,116 and 666,340,272

Shares as of June 30, 2007 and 2008 respectively 33,036 33,166

Additional paid-in capital 516,466 548,072

Share application money pending allotment - 397

Retained earnings 581,204 682,627

Accumulated other comprehensive income / (loss) 100,273 (51,842)

Total stockholders' equity 1,230,979 1,212,420

Total liabilities, minority interest and

stockholders' equity $1,552,359 $1,866,768

The accompanying notes are an integral part of these consolidated financial statements.

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 ANALYSIS OF CONSOLIDATED BALANCE
SHEET

HCL TECHNOLOGIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME

(Thousands of US Dollars except per share data and as stated otherwise)

Year ended June 30

2014 2015 2016

Revenues $976,030 $1,389,577 $1,878,865

Cost of revenues (exclusive of depreciation and 622,915 874,915 1,163,144

amortization shown separately below)

Selling, general and administrative expenses 151,837 230,265 323,573

Depreciation and amortization 42,624 58,316 74,612

Income from operations 158,654 226,081 317,536

Other income, net (645) 101,870 (29,323)

Income before income taxes, share of equity in 158,009 327,951 288,213

Earnings of affiliates and minority interest

Income taxes 13,403 32,939 29,453

Income before share of equity in earnings of

affiliates and minority interest 144,606 295,012 258,760

Equity in earnings/(losses) of affiliates (139) (229) 130

Minority interest (352) (1,263) (647)

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Net income $144,115 $293,520 $258,243

Earnings per equity share

Basic $0.22 $0.45 $0.39

Diluted $0.21 $0.43 $0.38

Weighted average number of equity shares used

in computing earnings per equity share

Basic 642,788,960 652,626,782 664,424,330

Diluted 684,311,714 675,290,388 682,748,596

The accompanying notes are an integral part of these consolidated financial statements.

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ANALYSIS OF CONSOLIDATED
STATEMENT OF INCONE

The comparative income statement of HCL Info System shows

that in 2015the income from operation was $226,081 and in
2016it is increased to $317,536 i.e. there is an increase of
40.45%. Further the income before income tax and income
after income tax decreases by $114,738 and $36,252
respectively i.e. (12.12%) and (12.29%) decrease respectively.
The net income were increased by $35,277 i.e. 12.02%
decrease in net income. The result of this was a decrease in EPS
from .88 to .77 (in corers)

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