A STUDY ON WORKING CAPITAL MANAGEMENT

With special Reference to

HBL POWER SYSTEMS LIMITED
HYDERABAD. PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (Center for Distance Education, Acharya Nagarjuna University) BY BATTULA RAMA KOTI REDDY

M.B.A (3 YEARS PATTERN) [2007-2008] Reg. No: A07BU113003
Under the Guidance of Sri. K. Mahidhar General Manager, Finance & Accounts

HBL POWR SYSTEMS LIMITED
HYDERABAD

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ACKNOWLEDGEMENT

It is May pleasant duty to express my profound gratitude and esteemed regards to my project guide Sri K. Mahidhar, General Manager, Finance & Accounts, HBL Power Systems Limited.

Although project report

I

personally

bear

full

responsibility

for al l the notes in the HBL POWER

entitled WORKING CAPITAL MANAGEMENT at

SYSTEMS LIMITED; a work of this has been done by a team of supportive people ± all of whom deserve to the thanked.

It is also essential to Mr. N.P.Subramanyam(Finance Manager, HBL) And my project guide to Sri. K.MAHIDHAR who has assigned me a meaningful topic & give me valuable guidance.

(B.RAMA KOTI REDDY)

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DECLARATION

I, B.Rama Koti Reddy, student of

M.B.A (3 years pattern), Center for

Distance Education, Acharya Nagarjuna University, here by declaring that the project work entitled on ³WORKING CAPITAL MANAGEMENT´ for HBL power

systems Ltd is on original work done by me in partial fulfillment of the requirement of Master of Business Administration. This is not been submitted else where for the award of any degree in part or in full.

B.Rama Koti Reddy

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RESEARCH METHODOLOGY IV.CONTENTS I. SUGGESTIONS IX. BIBLIOGRAPHY 4 . COMPANY PROFILE II. CONCLUSIONS VII. OBJECTIVE OF THE STUDY III. DATA ANALYSIS & INTERPRETATION  Comparative statement of current assets& current liabilities  Schedule of changes in Working Capital  Working capital related ratios & graphs  Debtors management  Inventory management  Creditors management VI.INTRODUCTION TO THE WORKING CAPITAL MANAGEMENT  Definitions  Concepts of working capital  Operating cycle  Importance  Determinants Techniques V.

There is a need for the power supply in remote and far-flung areas and at such places the dependence is on DC power sources is complete DC power systems are also required in mobile (non-stationary) applications like Rail coaches. Communications. Defense applications too. aviation and naval application like propulsion of torpedoes. These applications have grown significantly in the last two decade due to the embraceable of newer technology and also because the conventional power sources are available only in a limited domain. Oil drilling and pipelines. Defense. DC Power systems provide a back up / alternative source of power for running and maintaining applications wherein loss of power supply is critical. Power generating stations. The application for DC power also finds place in Defense Research establishments like NSTL (Naval Science and Technological Laboratory). In these applications the usage of conventional sources of power / electricity is not possible and DC power supplied thru batteries is to be relied upon. Oil and 5 . DRDO (Defense Research and Development Organization.) Industry Overview DC Power systems are used across the world for a variety of appli cation where the traditional power supply system cannot be sustained/ supported. require power for communications.e. Aviation. domains that are encompassed in the DC power systems vary The from Telecommunications.A. Aviation etc. The Company is manufacturing specialized batteries and electronics products. Rail coaches and signaling to Oil Refineries. DRDL (Defense Research and Development Laboratory amongst others. beyond which the reliance on DC / alternative Power systems is unavoidable. The end users of its products are in various sectors i. With the march of technology and it¶s blending with the industrial applications there is a need for an efficient and reliable power supply sources at all times and place. Railways.

defense. Given the background of inadequacies and shortcomings associated with the power supply situation. The segments in which we are in business the annual requirement is more than Rs. have to depend on back up power supply only. etc. NiCad batteries Source: Extracts from Investigation on Storage Technologies for Intermittent Renewable Energies: Evaluation and recommended R&D strategy-Nickel batteries dated 2003-06-23 by Investire Network [Project funded by European Community under the 5th frame work programme (1998-2002)] Nickel cadmium (NiCd) batteries have been in industrial production almost as long as lead acid batteries. communications. Info com. Petroleum. Being in a very vital sector of business and past track record from last 23 years the future for this sector is quite encouraging. Thus back up power requirements are rapidly growing to cater the increasing requirements of the above segments. Liberalized policies of Government of India from 1991 onwards opened up foreign direct investments in several sectors i. India. NiCd batteries for industrial applications 6 . Telecom. railways. Financial sector reforms also will contribute for further growth of economy in several sectors in the years to come. Thus this sector of business all over the world works out to several billion US dollars. This will increase the demand for technology driven sectors where the usage of back up power is very essential which will be a catalyst for the growth of the company¶s business both in terms of volume and value. etc. General industry. and South East Asian countries where the requirements of rapidly growing population is also very high.000 crores having compound growth potential of 10 -12% annually. Infocom. oil exploration etc. consistent and clean power source for running the establishments. This has achieved very satisfactory level of foreign direct investments. Transport. Further advent of latest technologies deployed by many sectors like Telecommunications.e. Steel. rail and road transport and manufacturing units having sophisticated computer numerically operated equipment requires continuous and reliable power supply which necessarily has to be met through to back up power only. was invented by Jungner in 1899 and is still used with the same design today. In remote areas where the mains power supply is not at all available i. IT. Market demand for the products is increasing very rapidly. 3. every end user requires reliable. Among these countries like China. which will contribute to consistent growth of business of all the products including electronics products.e.Natural Gas. Information technology. The NiCd battery of type vented pocket plate (PP). Most of these segments are core sector of country¶s economy.

Industrial NiCd-batteries of more modern weight and volume efficient designs than the pocket plate are also used in modern trains. camcorders. sinter/PBE and fibre are used in applications of industrial nature. phones. Vented sintered plate NiCd batteries are used in applications requiring high power discharge service such as aircraft turbine engine and diesel engine starting and other mobile and military equipment. The sinter plate battery was invented 1932 by Shlecht and Ackermann. emergency lightning and in uninterrupted power supply. computers and power tools. like toys. There are four different types of vented industrial NiCd batteries commercially available. Fibre plate NiCd (FNC) batteries were developed for electrical vehicles (EV) applications by Deutsche Automobilesell schaft mbGh (DAUG) and are today available for general industrial applications. They have superior high discharge and low temperature performance but are the most expensive battery due to high manufacturing cost and high nickel content. aircraft's. The batteries are also used in military equipment and in 7 .Examples are railroad service. In sinter/PBE batteries the positive plates are made with sinter plate technology and the negative plates are made with plastic bonded technology. Fibre plate batteries are also used in aircrafts. Fibre plate and sinter/PBE NiCd batteries are used in trains and electrical vehicles. telecommunications. Industrial NiCd cells are designed as vented prismatic cells with positive and negative plates con taining the positive and negative active materials.are today a niche product. Sealed NiCd batteries are used in portable equipment. y y y y Pocket plate batteries Fibre plate batteries Sinter plate batteries Sinter/plastic bonded plate batteries Pocket plate batteries are the oldest and least expensive type with a very reliable and long-life cell design that can stand severe mechanical and electrical abuse. The main applications for industrial NiCd batteries are railroad service. electrical vehicles (EV) and hybrid electrical vehicles (HEV). The gap between the superior but high cost and size limited (<100Ah/cell) sinter battery and the low cost but bulky and heav y PP battery was filled in the eighties by the development of fibre plate batteries and later the plastic bonded electrode (PBE) batteries. switchgear operation telecommunications. uninterrupted power supply and emergency lighting. The main conventional applications for vented NiCd batteries of type pocket plate. switchgear operation.

emergency lightning, alarms, and memory back up. History and Corporate Structure of HBL POWER History and Major Events HBL Power Systems Limited (formerly known as HBL NIFE POWER SYSTEMS LIMITED) was originally incorporated in August 29, 1986 (Registration No.01 -6745 of 1986-87) with

registered Office at 8-2-601, Road # 10, Banjara Hills, Hyderabad 500 034 under the name and style of SAB NIFE Power Systems Limited by Dr. A J Prasad. It received the certificate to commence business on September 22, 1986. Hyderabad Batteries Limited (HBL) an entity of Dr. A.J. Prasad (Promoter) acquired the status of a co-promoter along with SAB NIFE AB, Sweden as the joint venture partner and financial collaborator. The Company was setup with an object to manufacture various types of batteries and electronic products. Commercial production commenced in August 1988. SAB NIFE Power Systems Limited came out with a public issue of 30 Lacs Equity Shares of Rs. 10/- each at par in February 1992 to part finance its expansion and diversification plans. In April, 2000 the Company merged with itself HBL Limited (one of the promoter of SAB NIFE Power Systems Limited) along with another associate company Pinaki Technologies Limited. The merger was with an objective of complementing the then existing product range and to establish a manufacturing facility for switch mode rectifiers at Kothur, Mahaboobnagar District Andhra Pradesh. Post merger to represent the new focus of the company it was renamed as HBL NIFE Power Systems Limited During 2001-02 the company acquired controlling interest in Compact Power Sources Private Limited, which was engaged in manufacturing of Cap Lamps and Batteries for mining industry. The said company was eventually amalgamated / merged with HBL NIFE Power Systems Limited vide court order in February 2004. HBL NIFE manufactures large capacity nickel cadmium batteries and power electronics equipment like rectifiers, battery chargers and uninterrupted power systems.

HBL Power Systems Limited - High Lights 1. A leading player in industrial and specialized batteries, DC Power Systems and other Electronic Products. 2. A technology focused manufacturer of several ranges of specialized application batteries

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i.e. Nickel cadmium (Pocket, Fibre and Sintered plate), Silver Oxide Zinc, Lithiu m, Thermal, Lead acid (VRLA, MBD etc) 3. The Customer segment in India include telecom, railways, defense, Power, non conventional energy (solar), petroleum, oil and gas, uninterrupted power supply systems process and core industrial users. 4. Products are exported to several countries in Asia, Europe and the Americas. Exports

are growing at over 40% with increasing business from existing markets / customers as well as from new territories. 5. Apart from Batteries and DC Power Systems (chargers, distribution boards, etc.), the company has developed several advanced electronic products for Indian railways and reached an advanced The stage for has completion made of defence electronics in product process

development.

company

substantial

investments

development for its core products as well as the new electronic products with exclusive specialist qualified man power for in-house Technology development. 6. Development orders, approvals and release of commercial orders from railways and defence sectors for some of the signaling and electronic products of the Company as paved the way for additional increase in growth and major diversification in the next few years. 7. With its country wide sales and effective service net work, the Company is by far the largest supplier in the booming telecom sector as well as for specialized alkaline application battery segments. Focus Areas of Business Presently,        the thrust areas of the Company to which it caters are:

Communications / Telecom Defence Railways Power Petroleum, Oil &Gas, Steel Non-Conventional Energy (Solar) Uninterrupted Power Supply Systems Business Overvie w Overview of the Market / business:

A) Industrial Batteries:

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In the Indian market substantial growth is being noticed in almost all the segments in which the Company¶s products are marketed. The industrial battery market currently is Rs.2000 to 2500 crores with 20% annual growth in the coming years.

Telecom Sector :

This sector is experiencing maximum growth in volume and reach

from a tele-density of less than 10 per 100 at the turn of the century, it has almost crossed 20 per 100 and there is a clear target of reaching 35 per 100 in three years. This translates in to a growth of nearly 100% year by year for next 3 years. With the foreign direct investment (FDI) caps liberalized, major consolidation in the market already taken place and the global leaders in technology, equipment and project technology are directly undertaking the expansion of the projects, thereby communications sector

will be most stable and effective in terms of the future growth. Nearly 2% of the telecom capacity expansion project costs account for batteries and stand by power. With a cost approximately Rs.4,000 over line, the battery exceed Rs.1200 corers in the Power Sector: The power segment is a major user of batteries and DC power systems right from the main generating plants, power supply back up to auxiliaries, material next 2 to 3 years. purchase in the telecom sector will

handling, UPS, control and instrumentation; switch yards, substation and switch gears in generation, transmission and distribution. The present country¶s installed capacity of 112,000 MW is to cross to MW 200,000 by 2012. The advanced power development and reforms programme (APDRP) of

government already under implementation is helping to add capacity / improve generation even in existing plants apart from setting up of new green field projects. The Electricity Act, 2003 has liberalized the norms to ensure private power plants can be quickly implemented in short gestation periods. The expansion capacity target thus will have 20% private projects and 25% through reforms and modernization. As the Battery back up in the main power plant areas need to be highly reliable, nickel cadmium batteries find extensive use in this segment and 25 to 30% yearly growth is expected for these alkaline batteries from this segment. With the additional investments planned in this sector Rs.200 crores per annum of the battery purchase is envisaged to cater to the growth apart from the replacement demands for existing plants.

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signaling and communications. tailor The Company is most dependable supplier to torpedoes. the potential in this area is also substantial with the Government planning to electricity 100.a.000 crores iii. Railways: The Railways segment is growth well with expansion in tracks and routes. where no other major manufacturers can cater.000 villages through th e MNES programmes and private enterprises also coming into the sector.B) Other Industrial Segments i. Road transport sector is also a growing segment where the company is making a selective and focused entry to supply high quality pure lead tin batteries to the busses of RTCs. Defence : The defence segment has been a prized customer for the Company with made batteries being supplied to the Army. Fast growth is expected in the Solar Power (Non-conventional energy) segment to achieve electrification of non-polluting power. the 30% per annum. Navy and the Air Force. AC coache s. The value of of each UPS is a battery bank which keeps batteries in an UPS range from 20-50%. growth in this segment for the Company is more than v. With more and more types of batteries being approved by RDSO. As each solar street light. ii.1. The UPS market today is more than Rs. This translates into increasing requirement of batteries for train lighting. The Company is also working with developers of electrical vehicles to design advanced technology batteries for these future products. home light and power plant needs batteries to store and supply the power. aircraft starting. driving the UPS segment that is growing by 25-30% p. The heart the stand-by power stored. per annum in the enterprise segment. Specially designed Silver Oxide Zinc. Growth of 22 to 25% per annum is expected in this segment. this segment is a valuable business and growth area for the Company. The Company has a niche in this market and with growing defence expenditure and entry of private sector now being altered. and IT in all spheres is The large growth in automation remote and non-grid areas as well as to encourage use of green. Defence for critical application areas like several specialized. The other high growth industrial segment is the UPS. Nickel Cadmium Sintered Plate. missiles. ground power units etc. iv. Lithium and other chemistries are used for such defence applications. 11 .

Integrated Power Supply systems (IPS) which are multi voltage charging and power supply systems are very popular with the Railways and the Company is leading supplier of this product. consistent growth is expected and the company is planning to meet this increasing demand through capacity expansion. 12 .000 crores to upgrade signaling systems in 5 years apart from their regular budgets. The Company has undertaken execution of railway signaling contracts on turn key contract basis with supply of batteries and electronics products as a part of the terms of contract. The Railways have allocated a special budgetary fund of Rs. non- lead acid (alkaline) rechargeable batteries are out pacing the lead acid secondary batteries.5. etc. own overseas facilities. Increases in capital spending and in manufacturing enterprises in the industrializing parts of the world are driving growth. train charting systems. The Company has developed several advanced technology electronics products to cater to this high growth segment. more effective dealer / reselling customer net work and product / technology improvement programmes. Railway signaling is a major growth area. D) Electronic Products The Company is an established supplier of industrial chargers. solid state interlocks. digital axle counters. The total battery market globally is envisaged at US $ 43 bn out of which 30% is considered to be in non-automotive applications segment.C) Export Markets The global market for batteries is also growing by almost 10% with much higher growth in the Asia Pacific region. the investment in this area will increase manifold in future. The Company is working closely with IRISET. In the developed economies. RDSO and other agencies with development orders and regular orders already coming in for several electronics products like Data loggers. to industrial customers all over India and overseas. distribution boards etc. which the company is focused to capitalize. high frequency track circuits. This area will grow very rapidly since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner. With growing acceptance of the Company¶s NiCad products all over the world. Several Project Customers prefer system suppliers for complete DC Power Systems and the Company is well placed to cater to this demand. Safety becoming a critical aspect in railway operations. HBL NIFE¶s technology driven Nickel cadmium batteries are very well here to meet this trend as the results already show. This is a substantial future growth area and also contributes to the diversification / introduction of new technology driven electronic sy stems in large volumes.

ii. This has resulted high and sustainable sales growth of the Company from the major expansion of business growth of these customers. proximity fuzes. the future is indeed bright and promising. This global demand growth of NiCad Batteries will be firmly strengthened by the rising domestic demand for the Power and Oil and gas segments where NiCad batteries are preferred over all other types. the Company has been successful in developing advanced electronics products suitable and acceptable to the Defence applications and is poised for assumed growth in this specialized market of limited competition. The highest growth areas of the Company in the next few years will be: i. Developing new products tailored for such customers will ensure business growth from new products as well as increase the share of existing product sales. It has carefully developed strengths in areas of limited competi tion and focused on direct marketing to chosen customers / market segments. new product development. radar. With limited competition in this product area both in India (only two suppliers HBL Power and AMCO) and overseas (SAFT. The direct sales approach through a network of more than 10 branches in India and 3 overseas with a growing teams of sales and service engineers exceeding (presently over 200) ha s enabled the company to own selected customers and become their preferred supplier. Increased capacities and with export suited exclusive manufacturing facilities within shortest ges tation period will spurt this growth and can double the existing NiCad business in next two to three years. thermal imagers etc. Telecom: The lead acid battery business in this segment has doubled last financial year re-double in two years. very quick growth in this area is assured.The Road Ahead The Company has a diversified portfolio of products. Exports & NiCad Business: With the Company being able to establish acceptance and growth from quality buyers from several sectors and Asian countries for its Nickel Cadmium batteries. Outlook . With liberal investment in R&D.E. tie-ups with research institutions and sheer technological enterprise. Alcad Hoppecke). overall growth of the Company. 13 . microwave. The countrywide net work of the customers and matching production This strategy will drive the and further expected to Company with dedicated teams for the telecom capabilities will ensure dominance in this segment. radios.) Defence Electronics The Company being trusted supplier of various specialized batteries to Defence has been encouraged to develop several electronics products used for electronic warfare.

generators. electric or electronic devices and also undertake the provisions of related technical. 5. maintain an operate plants in India or abroad for the extraction. apparatus. 6. install. spirits. 4. purchase. develop or supply engineering services. export or otherwise deal in India or abroad in all electrical. oil paints. solar panels. batteries. To buy. To acquire. parts and components thereof. 14 . synthetics and substitutes. electr o-thermal and electro-chemical processes. erect. equipment. chargers and sub -assemblies. parts and accessories thereof. devices and sub-assemblies. paint and colour grinders. appliances. plant and machinery in India or abroad for the manufacture and/or supply of all kinds of energy systems. import. amend. industrial. export and otherwise deal in India or abroad in all types of cells. maintain. conversion and generation devices. manufacture. refining and electroplating of metals and alloys by electrolytic processes. medical. pigments and varnishes. 7. assemble. including sintered products and products based on powder metallurgy technology. electronic.iii. refine. purchase. manufacture. provide. sell. patents. manipulate. To manufacture in India or abroad products based on electrolytic. technology. dyes and dye-wares. and articles. power supplies. To manufacture. prepare. To Manufacture. To establish. To design. substances. repair. treat. compounds. components. remove. equipments and products. drugs. cements. alcohol and other alkaloids. know-how. process designs. energy storage devices. 2. accessories. assemble. import. sell. marketing and engineering consultancy services. electro mechanical and metallurgical appliances. 3. gadgets. pharmaceutical and other preparations. including power packs. improve. import and export and deal in all kinds of chemical. alter. Electronics: The thrust and focused attention in the Railway Signaling and Defence ensure high turnover levels for the company in the years to come Electronics Products will MAIN OBJECTS OF THE COMPANY 1.

cables. commission agents. producing. purchase. computer hardware. manufacturer¶s representatives. own. engines. Gas. accumulators. merchandise either manufacture by the company or otherwise. lay. license. equipment. generating power f rom all or any of the available sources such as Thermal. Solar. indent. hire-purchase and to act as agents in India or in any part of the world for all types of special purpose industrial machinery. electricity boards. selling agents. supplying of power in India or elsewhere to any of the industries. management consultancy. sell or otherwise deal in all kinds of goods. public or private companies and also for private or public purpose. import. 10. articles. 15 . 9. products. 8. replace. To act as a Export House and to carry on the business of merchants. owners and users of computer systems and digital/electronic equipments in India or elsewhere in the world. fix and carryout all necessary power stations. traders. To undertake the designing and development of systems and application software either for its own use or for sale in India or for export outside India and to design and develop such systems and application software for or on behalf of manufacturers. components and its related accessories and services. To carry on the business of manufacturing. Wind. systems studies. marketing. Hydel. wire lines. buy. export. sell. 11. share/debenture issues management and/or registration and share/debenture transfer agency. word processing. Petroleum or from any other possible sources conventional or non-conventional and in particular to construct. To set up and run electronic data processing centers and to carry on the business of data processing. design and development of management information systems. establish. software consultancy. lamps and works and other elections whatsoever as may be necessary or required for generation. firms. accumulation of power for captive consumption or for distribution. lease. products made-up of composite material. import. brokers and to export. government of semi government bodies. Co-generation. techno-economic feasi bility studies of projects.exchange.

486701 H on June 23. as there is no reduction in cash balance as on 31-03-2009. the investment of Rs 72. Bhd.e. ) The Company was incorporated in with company no. The operations of Bhagirath Energy Systems Ltd. A wholly owned subsidiary in Nepal is in process of winding up and hence the latest audi ted financial statement are not available. Sanagaon. 2002. 1999 in Malaysia. The Company was engaged in the business of execution of the orders placed by the holding company i.51 lakhs up to 31-03-2009. Lalitpur. HBL Power Systems Limited. 2002 with Company number 4427297. No further provision is considered necess ary.95 lakhs and other dues Rs 14. Provision for diminution in the value of investment.29 lakhs.Subsidiaries of the Company The Company has 3 subsidiaries. has been made based on Official Liquidator's Certificate of cash available as on 31-03-2005. HBL NIFE (UK) Limited.Bhd.44 lakhs. Nepal The Company was incorporated in October 2001 and started commercial operation in the month of May 2002. The Company is engaged in the business of trading of batteries and systems. This loss is considered temporary as it is a 16 .40 lakhs have been fully provided. The company initiated winding up proceedings. The Company is engaged in the business of Manufacturing of Nickel batteries. HBL NIFE (M) Sdn. Malaysia (Formerly known as HBL Technologies (M) Sdn . Nepal (BES) a 100% subsidiary of the company became unviable with the changes in duty structure in India and the sourcing of the raw materials by the company and therefore it has been decided to wind up the subsidiary company. This Joint venture company in Malaysia has reported a profit of Rs 16. HBL (UK) Limited has a Trademark violation case initiated against it during financial year 2006 as a first defendant and the Parent company as a second defendant by SAFT AB.. advance against investment of Rs 30. Bhagirath Energy Systems Private Limited. Company is wholly owned subsidiary of HBL Power Systems Limited.52 lakhs for the year and accumulated loss of Rs 3. which was Rs 79. Considering liquidation proceeding and non -availability of audited financial statements of the Subsidiary Company. It commenced trading on June 1 4. UK The Company was incorporated as a private limited company by shares on April 30.

Cadmium Hydroxide. Strategic Partners / Financial Partners The Company currently has no strategic partner / financial partner. Raw Materials :Major raw material required for the manufacture of NiCad batteries are Nickel plated cold rolled steel strips. electricity etc. and SAB NIFE AB.24 lakhs remitted towards share capital is shown under loans and advances pending allotment of shares. Steel etc. however in the past Swed Fund AB. from APCPDCL Nandigaum works: The facility has a contracted load of 1650 KvA from APCPDCL VSEZ & VZM:The facility has a contracted load from APEPDCL . The requirements of the raw material are estimated according to the orders in hand and past experience of the demand. Water: 17 . Nickel Hydroxide. Also. Polypropylene for Cell containers. Utilities for the Existing setup and proposed project: Power: Shameerpet works: The facility has a contracted load of 1250 KvA. Copper. Infrastructure facilities for raw materials and utilities like water.trade loss and hence no provision is made in the accounts for the fall in the investment. while basic inputs are purchased from local market. Currently the Company exports Nickel Cadmium Batteries to several customers the world. it is not possible to estimate the annual quantitative requirement of raw material. There is no problem in the availability of the requisite quantity of raw material and the company is having regular suppliers with long standing relationships for meeting its requirements. Potassium Hydroxide (KOH). Further a sum of Rs 16. The Company has evolved a system for bulk purchases of the specialized and valuable materials and a separate team tracks the movement of prices on regular basis. were a strategic investor in the Company.

Communication. Nandigaum works: Water is required at the plant for various processes and treatment of effluents along with drinking and san itation. Effluent Treatment: The Company has installed the required eff luent treatment equipments at its factories and has the requisite approvals. Tubular Lead Acid batteries (Gel). VSEZ : Water shall be required for various processes & for drinking and sanitation. Products / Services of the Company i.Shameerpet works : Water is required at the plant for various processes and treatment of effluents along with drinking and sanitation. The Company primarily caters to the following Industries: Industry Aviation Applicati Air Craft 18 . It is has obtained necessary clearance from the Andhra Pradesh Pollution Control Board. NiCad batteries.5 Lac liters of water from other sources. The products include Pure Lead VRLA batteries. and Thermal batteries amongst others. Defence and Industrial applications like oil refineries etc. Also the company has a wastewater treatment plant wherein the water used during the manufacturing process is treated & re-cycled for re-use. Nature of Products/ services and end users The Company manufactures a host of batteries in the Industrial segment. Hyderabad. Company has adequate arrangements to meet its requirements. The facility has 2 bore wells to meet its requirements besides it sources average of daily 1. Railways. and the Industrial segment. It caters to a variet y of industries and end users ranging from Aviation. It is estimated that the requirement at VSEZ shall be 50 Kl liters per day . NiCad batteries to be manufactured out of the current project is an existing product of the company and is used in Railways. Defence. Lithium batteries.

The current expansion will provide for the additional capacities at a lower cost and will position the company to offer its customers better products and face the competitionp past Production figures and existing Installed Capacity The Industrial batteries industry is highly specialized and is catered to by a few 19 . there are 4-5 companies who can be considered as competitors. The company is not in automotive sector and focuses on the industrial sector of specialized batteries and electronics covering major segments of industry. existing installed production capacity Competition In India. basic GSM and CDMA technologies at telephone exchanges andat MSCs (Main Switching Centers) and BTH (Towers) II. unlike competitors. besides Amco and Kirloskar can be claimed as distant competitors. Excide and Amara Raja Batteries are the major ones. past figures for the industry. Also. It is pertinent to note that Excide and Amara Raja specialize in manufacture of automotive batteries. Among them . Market including details of the Competition. the company has basket of products that caters to variety of end user requirements varied across industries.HEB. wherein the HBL Power has no presence.Railway Train lighting and Air -conditioned coaches. Signaling and communications Defence Wireless communication in Army. The company has been consistently investing in modernizing and expanding capacities so as to achieve economies of scale. Battle Tanks Engine starting Telecom Back up power.

Also HBL Power operates in a niche market and makes products as per the specifications of the customers who are generally industrial customers. demand & supply forecasts. marketing and proposed marketing setup Approach to NiCad batteries finds its use across industries and there is a growing ex port 20 . Year Capacity Producti on Utilization FY 2008-09 Ah Ah 101% FY 2007-08 Ah Ah 76% FY 2006-07 Ah Ah 91% 420 Lacs 384 Lacs 550 Lacs 417 Lacs (% Age) 550 Lacs 554 Lacs Capacity Installed iii.select players who have presence in automotive industry as well. There are no published data available to the Company for past production figures. as is enumerated in the table wherein Nickel Cadmium (Pocket Plate and Fibre Plate) batteries past capacity utilization and Production figures are reflected. existing installed capacity. The capacities are broad and interchangeable. the Company has shown consistently high capacity utilization in the NiCad batteries segment. However. so definitive information on the activities of the competitors is not publicly available. past trends and future prospects regarding exports.

wherein the suppliers are few and the products to be supplied need a pre approval and to that extent there cannot be a threat of new players entering into th e market and associated price pressure. The Company adopts direct marketing approach thru its branches located at all important customer locations. earnest money deposits. 21 . Clients. The predominant demand for NiCad batteries is from exports and company has an existing marketing setup with overseas subsidiaries. supplies to Government of India. Public Sector Undertakings and Government Departments invite tenders through public notice. The Company has also been successfully bagging repeat orders from its reputed existing client base. the Company functions in a market. the Company on continuous basis collects market information and makes presentation to the existing and prospective customers.market. Ministry of Other Government Departments/ PSUs and also to the is also registered Defence Vendor The Company and authorized Railway supplier. These branches forward the information of the orders to the Centralized Sales Department at Hyderabad that coordinates the sales efforts of all the branches and arrange necessary follow up bank guarantees. As regards the other products and supplies to Defence and Railways. HBL NIFE Defence. While. To procure contracts from Private Clients. which functi ons under direct supervision of Chairman (Executive) considering the importance and sensitive nature of the Department. tender from private sector are negotiated. The Company obtains tender document from Public Sector Undertakings / Government Department on the basis of such public notice and has been successfully doing so. Private Railways. The existing marketing set up shall be used optimally to sell the production from the proposed project. The Company¶s past track record and its association with the industry for more than two decades also helps in getting orders. The Centralized sales Department is headed by General Manager (CSD) and is supported by his subordinates. samples etc.

the top 10 are as under: Sr. No. Indian Railways 5. Nokia India Limited 8. Reliance Infocom Limited 2.The Company has wide spread customer base. Power Solutions 6. Ministry of Defence 4. Nam e of the Clients 1. 7. Integral Coach Factory. Motorol a India Limited 3. AEG 22 .

Bhar at Heavy Electricals Limited The Company¶s global presence is evident in the fact that the Company is continually expanding its facilities to meet the increasing demand of quality products. High Degree of Customer Satisfaction and increased turnover year after year has further added to the creditability of the organization Business Strategy The Company¶s Business Strategy is to develop globally competitive business in manufacturing and services by taking advantage from the cluster of scientific / technology institutions and qualified. 23 . trained technical personnel available in India.Hutchis on Essar Telecom Limited 9. Further the existing businesses to be integrated deploying innovating technology and by widening the product range within the business segments. Erickson India Limited 10. Also the Company believes in a high degree of in house components thus reducing the dependability on outside vendors at the same time it gives the company the requisite flexibility to make to order as per customer¶s specification and thus providing enhanced customer satisfaction.

SYNOPSIS WORKING CAPITAL MANAGEMENT More businesses fail for lack of cash than for want of profit Cash is the lifeline of a company. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short -term debt and upcoming operational expenses. for the purpose of precaut ion. A good way to judge a company's cash flow prospects is to look at its working capital Management. and for the purpose of making 24 . The management of working capital involves managing inventories. Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business". accounts receivable and payable. Understanding a company's cash flow health is essential to making investment decisions. Current Assets are resources. and cash to pay current liabilities as they fall due. which are in cash or will soon be converted into cash in "the ordinary course of business". reinvest and meet capital requirements and payments. This implies a clearly designed risk policy to determine the required liquidity level. The three reasons are for the purpose of speculation. no matter how large or small the organization is. If this lifeline deteriorates so does the company's ability to fund operations. Working capital management involves the relationship between a firm's current assets and its current liabilities. Why Firms Hold Cash The finance profession recognises the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash.

25 . it may be made clear that as per the general practice net working capital is referred to simply as working capital. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. Net working capital is the excess of current assets over current liabilities.Current Liabilities Net working capital may be positive or negative. In a narrow sense. the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Working Capital = Current Assets . Current liabilities are those liabilities which are intend to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the busin ess. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. All three of these reasons stem from the need for companies to possess liquidity CONCEPTS OF WORKING CAPITAL: There are two concepts of working capital: (I) Gross Working Capital. However. rather both have their own merits. In the broad sense. Current assets are those assets. the term working capital refers to the net working capital. Gross concept is very suitable to the company form of organization where there is divorce between ownership. (ii) Net Working Capital. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets.transactions. These two concepts of working capital are not exclusive. management and control. which in the ordinary course of business can be converted into cash within a short period of normally one accounting year.

Working Capital Cycle: Cash flows in a cycle into. There is always a minimum Level of current assets. Net working capital. If it doesn't generate surpluses. fluctuating or variable working capital. Temporary or variable working capital. If a business is operating profitably. Gross working capital. every firm has to maintain a minimum level of raw materials. Permanent or fixed working capital. which is continuously required by the enterprise to carry out its normal business operations. working capital 1. the business will eventually run out of cash and expire. then it should. Permanent working capital: Permanent or fixed working capital is the minimum amount. This minimum level of current assets is called fixed working capital. in theory. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. around and out of a business. For example. work-in-process. generate cash surpluses. which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. working capital can be further classified into 1. (b) On the basis of time.TYPES OF WORKING CAPITAL: Working Capital may be classified in two ways: (a) On the basis of concept. (b) On the basis of time. 26 . Temporary working capital: Any amount over and above the permanent level of working capital is temporary. finished goods and cash balance. (a) On the basis of concept. 2. 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. 2.

the business will generate more cash or it will need to borrow less money to fund working capital. Good management of working capital will generate cash will help improve profits and reduce risks.. Each component of working capital (namely inventory. you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. reduce inventory levels relative to sales). When it comes to managing working capital . As a consequence.. if you can negotiate improved terms with suppliers e.. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.. you effectively create free finance to help fund future sales. If you can get money to move faster around the cycle (e.g. 27 . receivables and payables) has two dimensions.. and MONEY. TIME . Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. The main sources of cash are Payables arising from trade terms adopted in supply chain management (your creditors) and Equity and Loans. There are two elements in the business cycle that absorb cash .g. The cheapest and best sources of cash exist as working capital right within business.g.TIME IS MONEY..The faster a business expands.DSO provides a rough guide to the number of days that a company takes to collect payment after making a sale)..Inventory (stocks and work-in-progress) and Receivables arising from credit terms extended to customers and as reflected in day sales outstanding (DSO . the more cash it will need for working capital and investment. get longer credit or an increased credit limit.. Similarly.

You release cash from the cycle Your receivables soak up cash You increase your cash resources You free up cash You consume more cash t can be te mp I ting to pay cash. Therefore. if available.loans. consider other ways of financing capital investment . Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. leasing etc. like water flowing down a plug hole. Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. these are cash outflows and. Just as circulation of blood is essential in the human body for maintaining life. 4.. y y y Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers y y Shift inventory (stocks) faster Move inventory (stocks) slower Then . 2.. IMPORTANCE OF WORKING CAPITAL: Working capital is the lifeblood and nerve centre of business. computers. if cash is tig ht. equity. The main advantages of maintaining adequate amount of working capital are as follows: 1.. they remove liquidity from the business. plant. vehicles etc. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. remember that this is now longer available for working capital. 3.If you . high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms. for fixed assets e. Easy loans: A concern hacking adequate working capital. No business can run successfully without an adequate amount of working capital. if you pay dividends or increase drawings. Similarly. 28 . working capital is very essential to maintain the smooth running of a business. If you do pay cash.g..

Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production. Regular payment of salaries: wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries. 3. 4. When there is redundant working capital. 29 . Due to low rate of return on investments the value of shares may also fall. Quick and Regular return on Investments: Every Investor wants a quick and regular return on investments. there is much pressure on working capital. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods. as there may not be much pressure to plough back profits. Excessive working capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. reduces wastage¶s and costs and enhances production and profits.5. it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft. 6. 1. 8. 6. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. 7. This gains the confidence of its investors and creates a favourable market to raise additional funds in the future. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors. increases their efficiency. 2. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained. Excessive working capital implies excessive debtors and defective credit Policy which may cause higher incidence of bad debts. DISADVANTAGES OF EXCESSIVE WORKING CAPITAL Every business concern should have adequate working capital to run its business operations. It may result into overall inefficiency in the organisation. 5. wages and other day-today commitments which raises the morale of its employees. generally. Both excessive as well as short working capital positions are bad for any business. waste and losses.

such cash may more appropriately be "invested" in other assets or in reducing other liabilities. Manufacturing Process 5.DISADVANTAGES OF INADEQUATE WORKING CAPITAL 1) A concern. However. Rate of Stock turnover 7. cannot pay its short-term liabilities in time. Natures or Character of Business 2. Rate of Growth of Business 9. 2) The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies. the approach to WCM depends upon 1. increases costs and reduces the profits of the business. component level and analysis level. Credit Policy 8. Though Working capital management takes place on two levels. Size of Business/Scale of Operations 3. 4) The rate of return on investments also fall with the shortage of working capital. thereby maximizing the interest earned. Earning Capacity and Dividend Policy 30 . Thus it will loose its reputation and shall not be able to get good credit facilities. 3) It becomes impossible to utilise efficiently the fixed assets due to non-availability of liquid funds. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible. Working Capital Cycle 6. Production Policy 4. CAPITAL MANAGEMENT APPROACHES TO WORKING The objective of working capital management is to maintain the optimum balance of each of the working capital components. which has inadequate working capital.

establishing accurate. The second objective is achieved by minimizing the required level of cash balances. Price Level Changes MANAGEMENT OF CASH Cash Management is one of the key areas of working capital management. While cash serves these functions. Cash. to take advantage of unexpected investment opportunities. the most liquid asset is of vital importance to the dail y operation of business firms. making money available when and where it is needed and increasing the risk-adjusted return on those funds that can be invested. Cash balances held by the firm at a point of time 31 . The liquidity provided by the holding cash is at the expense of profits that could accrue from alternative investment opportunities. Cash management deals with the following: 1. Cash inflows and outflows 2. improving cash collections and disbursements and decreasing the cost of moving funds among affiliates. the firm should plan and control cash carefully. OBJECTIVES: *0 Bringing the company¶s cash resources within control as quickly and efficiently as possible.´ Firm needs cash to meet the needs of daily transactions. it is an idle resource with an opportunity cost. Cash flows within the firm 3. Hence. Crucial for the solvency of the business it is referred to as the´ life blood of business.10. timely forecasting and reporting system. *1 Achieving the optimum conservation and utilization of the funds. Accomplishing the first goal requires.

sometimes. INVESTMENT OF SURPLUS FUNDS There are. Cash collections 2. There are number of avenues where these funds can be invested. Normally a cash budget consists of 1. By preparing Cash Budget we determine the optimum cash balance. If a higher cash balance is maintained then an opportunity to earn is lost. *2 *3 Unit 1964 Scheme Ready forwards 32 . surplus funds with the companies. It is a forecast of expected cash intake and outlay. Cash payments 3. The cash inflows from various sources may be anticipated and cash outflows will determine the possible uses of cash. which are required after sometime. based on the present business operations and anticipated future activities. If a firm maintains less cash balance then its liquidity position will be weak.Cash Management needs strategies to deal with following various facets of cash: CASH PLANNING It is a technique to plan and control the use of cash. These funds can be employed in liquid and risk free securities to earn some income. A projected cash flow statement may be prepared. CASH FORECASTS & BUDGETING A cash budget is the most important device for the control of receipts and payment of cash. A cash budget is an estimate of cash receipts and disbursements during a future period of time. Cash balances OPTIMUM CASH BALANCE A firm has to maintain a minimum amount of cash for settling the dues in time.

This study is useful to the HBL power systems Ltd. OBJECT OF THE STUDY Primary objective: y To know the Working capital management of the HBL power systems Ltd.. Towards their working capital management. 33 .*4 *5 *6 Investment in Marketable Securities Bald Financing Negotiable Certificate of Deposit Rational Behind the study: In these days working capital is most important in every company. To analyze the different ratios in HBL organization. To compare the performance of the previous year balance sheet. To evaluate the effectiveness of inventory management in the HBL Ltd. A study of working capital management is a major importance to internal & external analysis. This study helps the management of the organization in taking decision regarding working capital and financial decisions. Secondary objective: y y y y y To identify the efficiency of cash management in the HBL power systems Ltd. To analyze the operating cycle of HBL power systems Ltd.

by firm may often make working capital 34 . To compare the statement of changes in working capital of HBL power systems Ltd. 4. It is based on monetary information but not on non -monetary information . The working capital management is concerned with the firm current assets and liabilities. 3. It is important and integral part of financial management as short term survival to long term success. It does not consider change in price level. Changes in accounting procedures management. 2. y y y To analyze the ratio analysis of HBL power systems Ltd. It is only a study of interim reports.SCOPE OF THE STUDY The study is mainly conducted to know the working capital management of the firm. LIMITATIONS 1. To compare the balance sheet of HBL power systems Ltd.

Working capital or current assets management its one of the most important aspect of the over all financial management. because of its close relationship with current day-today operations of a business. The term working capital stands for that form of capital which is required for the financially of working or current need of the company it is usually invested in raw material work in progress.INTRODUCTION TO WORKING CAPITAL MANAGEMENT Working capital may be regarded as the most important factor of a business. its effective provision and utilization can do much to ensure the success of a business. finished goods. Current assets are the assets which 35 . A study on working capital is of major importance. accounts receivable and salable securities. namely cash and marketable securities. Its is concerned with the problem that arises in attempting to mange the current assets. assets receivable and inventories and also administration of current liabilities. Management of working capital usually involves planning and controlling current assets. The current liabilities and the inter relationships that exist between them. While the efficient management may not only lead to loss of projects but also to the ultimate shown fall of what other wise would be considered as promising concern.

1. Meaning of Working Capital Capital required for a Business can classified under two main categories. machinery. Investment in these assets represented that part of firm¶s capital. Fixed Capital 2. payment of wages and other day-to-day expenses. Hence it is also known as revolving or circulating capital as short-term capital. invested current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets. Every business needs funds for two purpose for its establishment and to carry out its day-to-day operations. Funds are also needed for short-term purpose for the purchase of raw material. The goal of working capital management is to mange the firms current assets and current liabilities in such a way enough to cover its current liabilities in order to ensure that they are obtained and used in the best possible way. which is blocked on a permanent or fixed basis and is called fixed capital. 36 . debtors.can be converted into cash with in an Accounting year and includes cash short term securities. Circulating capital means current assets of a company that are changed in the ordinary course of business from to another for example: From cash to inventories to receivables. and receivables to cash. furniture etc. bill receivable and inventories current liabilities are those claims of out side which are expected to mature for payment with in an Accounting year and includes creditors bill payable and outstanding expenses. Working Capital Working capital is the amount of funds necessary to cover the cost of operating of enterprises. These funds are known as working capital funds thus. Long-term funds are required to create production facilities through purchases of fixed assets such as plant. land building.

Finished goods. Sundry debtors( less provision for doubtful debts) 4. Cash in hand and bank balance 2. CONSTITUTENTS OF CURRENT LIABILITIES 1.CONSTITUTENTS OF CURRENT ASSETS 1. Stores and spaces d. Work in Progress c. Current Liabilities are those liabilities which are intended to the paid in the ordinary course of business with in a short period of normally one accounting year out of the Current Assets or the income of the business. 6. Accrued incomes Net Working Capital is the excess of Current assets over current liabilities. Inventories of stock as: a. Raw Material b. Temporary investments of surplus funds 7. Net Working Capital = Current assets-Current Liabilities. Short term loans and advances 5. Net Working capital may be +ve or ±ve. Bills Payable 37 . Prepaid expenses 8. When the Current assets exceed the Current liabilities the Working capital is +ve and the ±ve Working capital results when the Current Liabilities are more than the Current Assets . Bills Receivable 3.

CLASSIFICATION OF WORKING CAPITAL: Working capital may be classified into two ways: i. Accrued or O/S Expenses 4. Permanent or fixed Working Capital 2. ii. Dividend payable 7. The capital required to meet the seasonal needs of the enterprise is called seasonal Working Capital special Working Capital is that part of Working Capital which is required to meet the special exigencies such as launching of extensive marketing campaigns for conduction research etc. On the basis of concepts. 38 .2. which is required to meet the seasonal demands. which continuously required by the enterprise to carry out its normal business operation. variable Working capital can further be classified seasonal Working Capital and special Working Capital. Short terms loans. Temporary or variable Working Capital Permanent or fixed Working Capital: It is the minimum amount. As the business grants the requirement of permanent we also increases due to increase in Current Assets from cash to inventories from inventories to receivables and from receivables to cash and so on. On the basis of time: 1. Provision for taxation. which is required to Current ensure effective utilization of fixed facilities and for maintaining the circulation of Assets there is always a minimum level of Current Assets. if it does not amount to appropriation of profits. and some special emergencies. Working Capital is classified as gross Working Capital and net Working Capital.. Sundry creditors or Accounts/payable 3. Advances and deposits 5. The basis of concepts. Temporary or Variable Working Capital: It is the amount of Working Capital. On the basis of time. BOD 6.

WC is very essential to maintain to smooth running of a business no business can run successfully wit out an adequate of amount of WC are as follows: WC . wages and after day-to-day commitments which raises the morale of its employees. Quick and regular return on investment: Every investor wants a quick and regular return on his investments sufficiency of WC enables a concern to pay quick and regular dividends to its investors as then may no be much pressure to plough back projects. Solving of the business: Adequate WC helps in maintaining solvency of the business by providing uninterrupted flow of production. This gains the confidence o f its investors and creates a favorable market to raise additional funds in the future. 8. 2. reduces wastage and cost and enhances production and profit. 6. wages and other day-to-day commitments: supply of raw Company which has ample WC can make regular payments of salaries. Cash discount: Adequate WC also enables a concern to avail cash discounts on the purchase and hence it reduced cost. 4. high solvency and good credit standing can arrange the loans from banks and other on easy and favorable term. 9. Regular payments of salaries. Ability to face crisis: A WC enables a concern to face business crisis in emergencies such as depression because during such periods.IMPORTANCE OF ADEQUATE WORKING CAPITAL: WC is the life blood. Goodwill: Sufficient WC enables a business concern to make prompt payment and hence in creating and maintaining goodwill. The main advantages of maintaining adequate 1. Exploitation of favorable market condition: Only concern with adequate WC an exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding it inventories for higher prices. just as circulation of blood is essential in the human for maintaining life. Regular supply of raw material: Sufficient WC ensures regular material and continuous production. there is much prices use on WC. 3. 7. generally. 39 . 5. increases their efficiency. Easy loans: A concern having a WC.

Due to low of return on investment. which causes high incidence of bad debts. Thus. which is more dangerous from the point of view of the firm. 4. EXCESS OR INADEQUATE WORKING CAPITAL: Every business concern should have adequate working capital to run its business operations. out of the two.. However. A concern which has inadequate working capital cannot pay it short-term liabilities in time. Excess working capital means ideal funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. The redundant working capital gives raise to speculative transaction. 5. 2. increased cost and reduces the profit of business. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL: 1. 5. It cannot buy its requirements in bulk and cannot avail of discounts etc. Excessive working capital impulse excessive debtors and defectives credit policy. 6. 2. Both excess as well as short working capital position a bad for any business. and high morale and creates efficiency in a business. 6. It should have neither redundant or excess working capital nor inadequate or shortage of working capital. The rate of return of investments also falls with the short of working capital. it will lose its reputation and shall not be able to get good credit facilities. 4. When there is a redundant working capital it may lead to unnecessary purchasing and accumulation of inventories causing more change of theft. The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies. it is the inadequate of working capital. It becomes difficult for the firms to exploit due to lack of working capital. It may result into overall inefficiency in the organization. 3. Factors Determining Working Capital Requirements 40 . DISADVANTAGES OR DANGEROUS OF INADEQUATE WORKING CAPITAL: 1. waste and losses. High morale: Adequacy pf WC creates an environment of society confidence. 3.10. the values of sh ares may fall. It becomes impossible to utilize efficiently the fixed assets due to non availability of liquid funds.

Conversion of cash into Inventory. There is. It consists of 3 phases: 1. 13. It is defined as a continuing flow from cash suppliers. Conversion of Receivables into cash.17 2008 8563.22 2358. 9.1. to Inventory. Nature or character of Business Size of Business/ sale of Operations Production policy Manufacturing process/Length of the Production cycle Seasonal Variations Working Capital Cycle Stock Turnover ratio Credit policy Business Cycle Rate of Growth of Business Earning Capacity and Dividend Policy Price Level Changes Other Factors OPERATING CYCLE The profit earned by the firm depends upon magnitude if the scales among things successful scales program is in other words necessary for earning profits by one business enterprises.97 41 .19 2372. 5. PARTICULARS Raw material stock Work in progress 2009 9516. 4. Technically there is referred to as the operating cycle and cash cycle. However sales do not convert into cash instantly there is invariably time lag between sale of goods and receipt of cash. 3. 7. Therefore sufficient capital is necessary to sustain sales activity. 2.81 1585. therefore a working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. 8.01 5058. 12. to accounts receivables and back into cash.51 7483. Conversion of Inventory into Receivables 3. 10.01 2006 3758. 11.01 2005 3314. 2.06 2007 4977. 6.

06 39.91 28263.76 383.56 32178.01 17276.94 4545.94 125.68 27300.09 11.43 242.62 91950.77 4545.87 68598.31 24597.55 90.44 97.97 33285.41 85.43 67.35 310.82 33285.Finished goods Debtors Creditors Raw material consumption Purchases Cost of production(exclude dep) Cost of goods sold Sales 3424.39 2358.37 224.83 187.63 4.81 19136.88 68861.08 47.81 11435.74 9516.08 82030.82 88.25 140126.62 113397.91 82.17 20.69 13834.76 45580.08 18529.56 10484.01 223.56 231.34 68598.42 108.81 50.92 1200.25 108193.08 27300.52 62.63 141.93 18529.95 33143.62 188.45 124.01 34.61 25822.82 52.48 17420.38 70.17 17420.35 272.19 7493.99 215.99 19136.39 22846.91 8503.56 8503.42 7493.83 651.37 17276.48 2.88 282.46 22485.45 58828.98 140126.72 PERMANENET AND VARIABLE WORKING CAPITAL: The magnitude of working capital required is not always the same and increases and However there is always a minimum level of current asse ts.83 72237.76 1200.33 13834.33 3314.87 42.25 296.38 167.53 148.91 108.32 4.39 61.03 88427.41 42095.12 4.42 3424.38 68861.81 85.99 88427.43 31245.82 25822.34 119.93 137.43 1585.26 31245.01 3758.83 161.38 33143.81 70.63 134.66 7483.81 22485.39 177.27 5058.75 352.87 191.34 5378.44 45580.55 PARTICULARS Raw material Conversion period Raw material Consumption during the year average consumption per day Raw material Closing stock value Raw material conversion in days Work in progress conversion period Total cost of production excluding dep cost of production per day WIP value WIP conversion period in no days Finished goods conversion period Total cost of goods sold cost of goods sold per day Finished goods value Finished goods conversion in days Debtors conversion period in no days Sales value Sales value per day Debtors value Debtors conversion period in no days Payments differed period Total purchase value Purchase value per day Creditors value at closing Creditors payment differed period Gross working capital operating cycle days (RMCP+WIPCP+FGCP+DCP) Net working capital operating cycle days (Gross operating cycle-PDP Operating Cycle in no months 2009 2008 2007 2006 2005 82030.19 56.97 30.51 45.86 251.37 115.08 48.91 32178.59 4.09 28263.01 24.61 651.06 91.67 3.43 108193.94 78482.94 8563.22 61.08 4.61 5378.5 3.87 58828.55 91950.37 89.56 87.52 24597.37 78482.18 22846.06 35625.37 352.76 72237.02 99.08 42095.02 10484. which is decreases over time.12 11435. 42 .61 2372.16 4977.66 35625.86 113397.56 73.01 42.69 7.

It is permanent in the same way as the firm fixed assets are. It is indication of defective credit policy and slack collection period consequently higher incidence of bad debts results. over and above permanent working capital will fluctuate . For example extra inventory of finished goods will have to be maintained to support peak period of sale and investment. However a permanent working capital the time need not be horizontal of the firm. but temporary working capital is created by the firm to meet liquidity requirements that will last only temporarily. The extra working capital needed to support the changing production and sales temporary working capital. activity is called fluctuation or variable or Both kind of working capital -permanent ad temporary are necessary to facilitate production and sales through operating cycle. In receivables any also increase during such periods. It result in unnecessary accumulation of inventories thus Echinacea of inventory mishandling. the difference between permanent and temporary working capital depicted below. which adversely effects profits. Excessive working capital makes management complacent which degenerates in. 43 . to managerial inefficiency. Depending up on the changes in production and sales the need for working capital. Permanent working capital is stable over time while temporary working capital is fluctuating. theft and losses increases 2. waste. DRAW BACK OF EXCESSIVE WORKING CAPITAL: 1.continuously required by the firm to carry on this business operation this minimum level of current is referred to as permanent for fixed working capital. 3. Requirements for permanent capital are increasing over period for a growing firm.

It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. in lakhs) DECREASE 7730.61 10484.56 4792. 2. Fixed assets are not efficiently utilized for the lack of working capital funds.64 0 0 0 0 3055.96 4209. AS ON 31 MARCH 2007-08 AND 2008-09 (Rs.44 4930.71 16045.INADEQUATE WORKING CAPITAL: 1.78 2008-09 9516.87 2611.08 5403.44 0 1980.04 44 ..59 PARTICULARS Current Assets Inventory Sundry debtors Cash & Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total 2007-08 17246.23 INCREASE 963.56 8170. Operating inefficiency creep in which it becomes difficult even to meet day-to-day commitments.55 27300. 5.54 17762.32 36. Stagnates growth.01 28263. 3.27 53549.21 8503.71 50195. It become difficult to implement operating plans achieve the firm profit target.59 0 3055.28 4245. STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD. Thus firms profitability would Detroit.56 1874.01 3377.21 2791. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities.83 4772. 4.

91 5378.85 2442.71 STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD.81 5493.65 7493.98 318.8 1526.Net WC (CA-CL) 37503. AS ON 31 MARCH 2005-06 AND 2006-07 (Rs.98 24976.4 45 . in lakhs) DECREASE 0 0 0 0 0 0 0 298.3 1180.03 20195..33 4930.68 17420.76 3586.91 1227.85 2006-07 7531.95 0 PARTICULARS Current Assets Inventory Sundry debtors Cash&Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total Net WC (CA-CL) 2005-06 6767.47 10221.74 2115.39 2948.08 43.42 2515.42 7224.25 INCREASE 763.28 1499.65 1045.34 2471.66 32433.79 30416.74 1902.95 298.11 3295.13 17752.92 13834.

18 1089.36 211.55 4545.94 0 0 0 0 46 . in lakhs) DECREASE PARTICULARS Current Assets Inventory Sundry debtors Cash&Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total Net WC (CA-CL) 2003-04 3347.46 19300.65 5391.95 1416.83 13140.STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD.5 204.4 1601.4 641.99 740.91 6160.82 878.59 99.75 1905.18 7748.4 11435.22 2004-05 5359.26 4906.1 1248..16 4255.15 2943.85 167.14 6529.87 670.37 874.16 INCREASE 2012.12 7297.34 12003. AS ON 31 MARCH 2003-04 AND 2004-05 (Rs.

Certified accounts by internal audit copy. a) DATA COLLECTION: The Secondary data is to be collected from the finance department of the company pertaining to the last five years. y The data from these reports have been analyzed by using various tools and techniques (accounting and statistical ) with a view to evaluating of working capital and its various components y Annual report published.RESEARCH METHODOLOGY y The secondary data was collected from the finance department of the company pertaining to five financial years 2003-2004 to 2008 -2009. by company discloses true and fair statement because these are guided by auditors as per rules and regulations stated under the law. profile of the company and through the references from different books dealing with working capital for the above financial years. b) PERIOD OF STUDY: 47 . y Other details of the research data were collected from annual reports.

share holders and management make use of ratio analysis as a tool in evaluation the financial positions and performance of a firm for granting credit providing loans and making investments in the firms.Period of study form 01-03-2010 to 30-04-2010. c) LIMITATION: y y This report is restricted to secondary data. proportion of numbers This relationship expressed as These alternative methods of expressing item. each other are for purpose of financial analysis. A single ratio in itself does not convey much of sense. financial institutions. which are related to. banks. investors. The suppliers of goods on credit. Support from the management side may be limited due to their pre-occupied works. Evaluation may be done by direction of changes and comparing present rations and past ratios as this indicates the whether the firm¶s performance and financial positions has improved. deteriorated or remained 48 . The term ratio refers to the numerical relationship between two items of variables. Ratio Analysis is a technique of analysis and interpretation of financial statement. It is the systematic use of ratio to interpret the financial statement so that the strength and weakness of a firm as well as its historical performances and current financial position can be determined. It is the process of establishing and interpreting various ratio s for helping in making certain decision. percentage fractions. RATIO ANALYSIS Ratio Analysis is widely used tool for financial analysis.

03 16045.constant over a period of time.98 3.13 10221.23 CA/CL 3.98 30416. 49 .in Lakhs) CURRENT LIABILITIES 6160.28 53549. Here increasing the current ratio due to increase in current assets.83 Current Ratio 30000 25000 20000 Amount 15000 Microsoft Office Excel Worksheet CURRENT ASSETS CURRENT LIABILITIES 10000 5000 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Financial Years Interpretation: Current ratio HBL Power in 2007-08 3.46 2.39 but in 2008 -09 the current ratio is 3.83 7224. CURRENT RATIO: Current Ratio Current Assets -----------------------------Current Liabilities YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 CURRENT ASSETS 19300.84.99 24976.44 50195.78 17762.13 3.34 2.56 (Rs. I have studied the following Ratio¶s in analyzing the working capital management.

29 Interpretation: The quick ratio of HBL power systems Ltd has show slight changes the quick ratio in And again it increased to 2. This is due to increase and decrease in quick assets.26 2.96 22884.55 CURRENT LIABILITIES 6160. In Lakhs)0 YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 QUICK ASSETS 13941.13 10221.24 2.26 2.61 36302.23 QA/CL 2.02 but it decreased in 2006 -07 as 2.83 7224.78 17762.QUICK RATIO: Quick ratio Quick assets ----------------------------------Current liabilities (Rs. 08 and 2.80 in 2008 -09.45 in 2007 - 2005-06 3.79 40679.26. QUICK RATIO 50 .59 18208.03 16045.52 2.

85 20195.16 17752.91 3. 2005-06 slight changes that is increase in 2006 -07 to compare 51 .66 32433.32 YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.55 42095.C 2.37 2.34 140126.83 113397. in Lakhs) SALES /W.52 2.25 37503.33 Interpretation: The working capital turn over ratio of HBL Ltd has shown slight changes are there if we consider the ratios in 2004-05.76 WORKING CAPITAL 13140.37 58828.02 4.20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2004-05 2005-06 2006-07 2007-08 2008-09 CURRENT LIABILITIES QUICK SSETS WORKING CAPITAL TURNOVER RATIO: Net Sales Working capital turnover ratio -------------------------------------------Working Capital (Rs.

65 9516.18 6.C but in 2008 -09 it was decreased to 2.81 6.2007-08 due to increase in sales and W.55 42095.58 14.22 7. INV 6. in Lakhs) SALES/AVG.22 is greater than of 6.92 7531.83 113397.34 140126.73 YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.76 AVG.41 6767.28.37 58828. WORKING CAPITAL TURNOVER RATIO 45000 40000 35000 30000 25000 SALES 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 WORKING CAPITAL INVENTORY TURNOVER RATIO: Net Sales Inventory turnover ration-------------------------------------Avg Inventory (Rs.INVENTORY 5359.01 Interpretation: The inventory turnover ratio of HBL Ltd in 2008-09 6.68 17246.12 in 52 .

in Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.34 140126.76 FIXED ASSETS 9554.84 25389.19 SALES/F.47 4.44 28815.41 3.88 17634.2007-08 due to sales is increased and inventory is also increased.65 12353.A 3.55 42095.47 3.37 58828. I INVENTORY TURN OVER RATIO 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 SALES AVG.86 53 .34 4.83 113397.INVENTO Y FIXED ASSET RATIO: Sales Fixed asset turnover ratio-----------------------------------------------------Fixed assets (Rs.

FIXED ASSET RATIO 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 SA ES FIXED ASSETS DEBTORS TURNOVER RATIO: Credit Sales Debtors turnover ratio --------------------------Average Debtors (Rs.34 17420. In Lakhs) CR.15 YEAR 2004-05 2005-06 2006-07 2007-08 CREDITSALES 33143.56 54 .DEBTORS 2.41 during the period 2007-08 and 2008-09 due to increase in sales.34 AVG. The ratio then decreased to 2.42 27300.SALES/AVG.55 42095.37 58828.38 4.95 13834.DEBTORS 11435.04 3.73 during the period 2005-06 due to decrease in sales.91 3.76 to 2.Interpretation: The fixed assets turnover ratio in HBL has decreased form 2.83 113397.29 due to increase in fixed assets then the ratio increased to 3.

56 4. Inventories are approximately 60% of current assets in Public Limited Companies.DEBTORS INVENTORY MANAGEMENT Inventories constitute a major part of the working capital.96 Interpretation: Debtor turnover ratio in HBL decreased in 2007-08 compare with 2006-07.04. but it increased in 2008-09 up to 3. it is therefore absolutely imperative to manage inventories efficiency and effectively. Due to also. 55 . increase in debtors and also increase in credit sales DEBTORS TURNOVER RATIO 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 CREDITSA ES A G.76 28263.2008-09 140126.

There are normally partially or semi-finished goods. INVENTORY MANAGEMENT TECHNIQUES: The company should aim at an optimum level of inventory on the basis of trade-off between cost and benefit to maximize company¶s wealth. Efficiently controlled The following are some of the important control tech niques: 1. There are important inputs of the final product The work-in-progress inventory consists items currently being used in the production process. SETTING INVENTORY LEVELS: 56 . NEED TO HOLD INVENTORIES: There are 3 general motives in holding inventories. which are available to sale. 2) PRECAUTIONALY MOTIVE: Precautionary motive which influences the decision to increase or decrease inventory level to take advantage of price fluctuations.NATURE OF INVENTORIES: The various forms of inventories exist in a company are: 1) Raw Materials 2) Work ±in-progress 3) Finished goods The raw materials inventory consists of items that are purchased by the firm from others and are converted into finished goods. inventories make the firm flexible. 1) Transaction Motive: Transaction motive which emphasis to maintain inventories to facilitate smooth production of sales operations. Finished goods inventory represent final on completed products. 3) SPECULATIVE MOTIVE: Speculative motive which influences the decision to increase or decrease inventory level to take advantage of price fluctuations.

. It there is a stock-out-resulting in loss of production. insurance of inventory etc. a) CARRYING COST: These cost all increased for maintaining or carrying inventory. i. These levels should not be allowed to the static. They must be revised to such circumstances. insurance. a requisition for supply is placed and second bin is used in the mean time. ABC ANALYSIS: All items in the inventory are not equally important.. depreciation. they may be 30% of investment in inventor. The second bin contains a reserve stock.This involves fixing a define maximum and minimum reorder levels. ordering costs and stock out cost. A. For that purpose the inventories are categorized into 3 classes. They are related to processing and generating an order and connected paperwork. which is sufficient for usage which occurs between receipts of an order and placing of next order.e Tax. telex. which will be sufficient for consumption from the date of order to delivery date and reserve stock. impact on future stock. TWI BIN SYSTEM: Under this system of control. The are carrying costs. INVENTORY BREAK DOWN BASED ON ABC ANALYSIS CLASS A B C QUANITY 5%-10% 15%-20% 70%-75% VALUE OF ITEM 70%-80% 15%-20% 5%-10% 3. They may be They loss of profit on lost production. ECONIMIC ORDER QUANTITY (EOQ): There are 3 major cash involved with inventories. 57 . As soon as the first bin is empty. consist of salaries. Emphasis of control should very depending upon the importance use and value of item. to purchasing staff. The first bin contains stock. c) STOCK OUT COSTS: They are invisible get important.B and C based on their usage value are quantity. Some of the carrying costs are storage cost. telegrams. these costs are incurred by the company . b) ORDERING COST: These costs are also known as acquisition or setup costs. 4. 2. loss of goodwill. two bins are maintained for each item of inventory.

e. To minimize firms investment in inventories and to maximize profitability. To check against loss of materials through carelessness and pilferage. leading to an increase in carrying cost. relates to the problem of determining levels of inventories. To provide a perpetual inventory value and a consistent and reliable basis for preparing financial statements. 58 . d.The question how much to order. b. Bulk buying reduces the frequency of ordering and hence ordering cash. Formula EOQ = 2 AO/C Where A = Annual Consumption O = Ordering cost per unit C = Carrying cost per unit OBJECTIVES OF INVENTORY MANAGEMENT: a. c. To utilize available storage space and prevent stock from exceeding space availability. The determination of EOQ is to balance ordering cost and carrying cost. But may result in large inventory. To maintain inventory for efficient and smooth production and sales operations.

It has increased from 2. debtors turnover ratio in HBL has increased from 2005 to 2006. The ratio then increased to 6.41. again it increased in 2008.76 to 59 . increased to fluctuations in current assets. due to the increase in sales.FINDINGS y It was found that. It further increased in 2009.28. the inventory turnover ratio in HBL has increased from 2005 -06 due to the increasing sales. This is due to increase in net working capital. this is due to the increase in sales and decrease in debtors. It was decreased in 2009 to 2. y It was found that. current ratio of HBL increased from 2005 to 2006. y It was found that. The ratio decreased from Then in decreased to next year and again it 2006 to 2007. the working capital turnover ratio in HBL has shown increasing trend during the period 2005-2008.12 during the period 2007 -08. due to decrease in current assets and current liabilities.27 to 2. has decreasing from 2. y It was found that. y It was found that. the fixed asset turnover ratio in HBL. this is due to increase in average debtors.

fixed assets in 2005 are 6346. 60 . y It was found that. This is due to the increase in net block. Current assets increased in 2006 against 2005. It was constant in 2009 also.41 during the period 2007 -08.23 and it increased to 7422.2. This is due to increase in all current assets.29 during the period 2005 to 2007. due to increase in sales.87 in year 2006. The ratio then increased to 3. due to decrease in sales.

To study the financial performanc e of HBL POWER SYSTEMS LIMITED: 61 . To study the Growth of HBL POWER SYSTEMS LIMITED: y Company should try to control its expenditures by reducing Administration and Rep airs & Maintenance expenditure. y Company should try to improve total income and other incomes by increasing product sales. If authority is passed on the lower level it will increase responsibility in them. y Net current assets should be maintained at a steady level by keeping a fixed level of inventories. HBL POWER SYSTEMSS: y y Some amount of expenditure authority has also to be passed on the lower level. which will help in motivating them.SUGGESTIONS To study the management practices of M/s.

y Company should try to improve its current ratio either by increasing current assets or decreasing current liabilities. EPS should be maintained constant or a study growth by improving net profit margin. y y y Increasing product sales should increase net profit margin. Increasing reserves & surplus should increase book value of shares. 62 .

BIBLIOGRAPHY S. K GUPTA FINANCIAL MANAGEMENT KALYANI PUBLISHERS VIKAS PUBLISING HOUSE PVT LTD 63 .NO 1 AUTHOR TITLE FINANCIAL PUBLISHER VIKAS PUBLISING HOUSE PVT LTD KHAN AND JAIN 2 PRASANNA CHANDRA MANAGEMENT FINANCIAL MANAGEMENT THEORY AND PRACTICE TATA MCGRAW ± HILL PUBLISING CO LTD 3 I.M PANDEY FINANCIAL MANAGEMENT 4 SHARMA & SHASHI.

5 RUSTAGI R.www.in 64 .hbl.P FINANCIAL MANAGEMENT GALGOTIA PUBLISING HOUSE WEBSITE: .

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