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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BIBLIOGRAPHY 4 . CONCLUSIONS VII. OBJECTIVE OF THE STUDY III. SUGGESTIONS IX. COMPANY PROFILE II.CONTENTS I. RESEARCH METHODOLOGY IV. 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.

Railways. Rail coaches and signaling to Oil Refineries. domains that are encompassed in the DC power systems vary The from Telecommunications.) 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.e. The Company is manufacturing specialized batteries and electronics products. DRDO (Defense Research and Development Organization. Communications. 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. The end users of its products are in various sectors i. The application for DC power also finds place in Defense Research establishments like NSTL (Naval Science and Technological Laboratory). require power for communications. 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. 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. Power generating stations.A. beyond which the reliance on DC / alternative Power systems is unavoidable. DRDL (Defense Research and Development Laboratory amongst others. Aviation. 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. aviation and naval application like propulsion of torpedoes. Aviation etc. 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 . Defense applications too.

Most of these segments are core sector of country¶s economy. Thus this sector of business all over the world works out to several billion US dollars. India. Telecom. Liberalized policies of Government of India from 1991 onwards opened up foreign direct investments in several sectors i. 3. and South East Asian countries where the requirements of rapidly growing population is also very high. 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. defense. consistent and clean power source for running the establishments. have to depend on back up power supply only. Steel. 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. Thus back up power requirements are rapidly growing to cater the increasing requirements of the above segments.e. This has achieved very satisfactory level of foreign direct investments. etc. Further advent of latest technologies deployed by many sectors like Telecommunications. The segments in which we are in business the annual requirement is more than Rs. Financial sector reforms also will contribute for further growth of economy in several sectors in the years to come. railways. Petroleum. In remote areas where the mains power supply is not at all available i. Being in a very vital sector of business and past track record from last 23 years the future for this sector is quite encouraging. communications. IT. was invented by Jungner in 1899 and is still used with the same design today. NiCd batteries for industrial applications 6 . Info com. Given the background of inadequacies and shortcomings associated with the power supply situation. which will contribute to consistent growth of business of all the products including electronics products.000 crores having compound growth potential of 10 -12% annually. Transport. Information technology. every end user requires reliable. etc.Natural Gas. Market demand for the products is increasing very rapidly. The NiCd battery of type vented pocket plate (PP). Infocom. General industry.e. Among these countries like China. 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. oil exploration etc.

Industrial NiCd cells are designed as vented prismatic cells with positive and negative plates con taining the positive and negative active materials. phones. aircraft's. Fibre plate and sinter/PBE NiCd batteries are used in trains and electrical vehicles. There are four different types of vented industrial NiCd batteries commercially available. Sealed NiCd batteries are used in portable equipment. emergency lightning and in uninterrupted power supply. Fibre plate batteries are also used in aircrafts. 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. camcorders. 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. In sinter/PBE batteries the positive plates are made with sinter plate technology and the negative plates are made with plastic bonded technology. switchgear operation telecommunications. 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. Industrial NiCd-batteries of more modern weight and volume efficient designs than the pocket plate are also used in modern trains. electrical vehicles (EV) and hybrid electrical vehicles (HEV).Examples are railroad service. They have superior high discharge and low temperature performance but are the most expensive battery due to high manufacturing cost and high nickel content.are today a niche product. switchgear operation. like toys. The sinter plate battery was invented 1932 by Shlecht and Ackermann. The batteries are also used in military equipment and in 7 . The main conventional applications for vented NiCd batteries of type pocket plate. The main applications for industrial NiCd batteries are railroad service. telecommunications. 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. sinter/PBE and fibre are used in applications of industrial nature. computers and power tools. uninterrupted power supply and emergency lighting.

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

etc. consistent growth is expected and the company is planning to meet this increasing demand through capacity expansion. distribution boards etc. The Company has developed several advanced technology electronics products to cater to this high growth segment. The Company is working closely with IRISET. This is a substantial future growth area and also contributes to the diversification / introduction of new technology driven electronic sy stems in large volumes. 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. which the company is focused to capitalize. more effective dealer / reselling customer net work and product / technology improvement programmes. 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. Railway signaling is a major growth area. to industrial customers all over India and overseas. 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. own overseas facilities. Increases in capital spending and in manufacturing enterprises in the industrializing parts of the world are driving growth. Safety becoming a critical aspect in railway operations. high frequency track circuits.5. D) Electronic Products The Company is an established supplier of industrial chargers. In the developed economies. solid state interlocks. digital axle counters. With growing acceptance of the Company¶s NiCad products all over the world. HBL NIFE¶s technology driven Nickel cadmium batteries are very well here to meet this trend as the results already show. 12 . non- lead acid (alkaline) rechargeable batteries are out pacing the lead acid secondary batteries. the investment in this area will increase manifold in future. Several Project Customers prefer system suppliers for complete DC Power Systems and the Company is well placed to cater to this demand. 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. train charting systems. RDSO and other agencies with development orders and regular orders already coming in for several electronics products like Data loggers.000 crores to upgrade signaling systems in 5 years apart from their regular budgets. The Railways have allocated a special budgetary fund of Rs.

ii. tie-ups with research institutions and sheer technological enterprise. very quick growth in this area is assured. overall growth of the Company. microwave. 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. With limited competition in this product area both in India (only two suppliers HBL Power and AMCO) and overseas (SAFT.) 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. 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. This has resulted high and sustainable sales growth of the Company from the major expansion of business growth of these customers. thermal imagers etc. Telecom: The lead acid battery business in this segment has doubled last financial year re-double in two years. proximity fuzes.The Road Ahead The Company has a diversified portfolio of products. 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.E. new product development. the future is indeed bright and promising. 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. Alcad Hoppecke). radios. radar. It has carefully developed strengths in areas of limited competi tion and focused on direct marketing to chosen customers / market segments. 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. Outlook . With liberal investment in R&D. Developing new products tailored for such customers will ensure business growth from new products as well as increase the share of existing product sales. 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. 13 .

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

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

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

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. Currently the Company exports Nickel Cadmium Batteries to several customers the world. and SAB NIFE AB. Raw Materials :Major raw material required for the manufacture of NiCad batteries are Nickel plated cold rolled steel strips.24 lakhs remitted towards share capital is shown under loans and advances pending allotment of shares. electricity etc. Copper. Infrastructure facilities for raw materials and utilities like water. The requirements of the raw material are estimated according to the orders in hand and past experience of the demand. Strategic Partners / Financial Partners The Company currently has no strategic partner / financial partner. Cadmium Hydroxide. Further a sum of Rs 16. however in the past Swed Fund AB. Utilities for the Existing setup and proposed project: Power: Shameerpet works: The facility has a contracted load of 1250 KvA. Steel etc. Nickel Hydroxide. Polypropylene for Cell containers. Also. 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 .trade loss and hence no provision is made in the accounts for the fall in the investment. Potassium Hydroxide (KOH). 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. Water: 17 . it is not possible to estimate the annual quantitative requirement of raw material. while basic inputs are purchased from local market. were a strategic investor in the Company.

The facility has 2 bore wells to meet its requirements besides it sources average of daily 1.5 Lac liters of water from other sources. Railways. It is estimated that the requirement at VSEZ shall be 50 Kl liters per day . Also the company has a wastewater treatment plant wherein the water used during the manufacturing process is treated & re-cycled for re-use. It caters to a variet y of industries and end users ranging from Aviation. Lithium batteries. Defence and Industrial applications like oil refineries etc. Defence. Hyderabad.Shameerpet works : Water is required at the plant for various processes and treatment of effluents along with drinking and sanitation. Communication. and the Industrial segment. NiCad batteries. Effluent Treatment: The Company has installed the required eff luent treatment equipments at its factories and has the requisite approvals. VSEZ : Water shall be required for various processes & for drinking and sanitation. and Thermal batteries amongst others. Nature of Products/ services and end users The Company manufactures a host of batteries in the Industrial segment. NiCad batteries to be manufactured out of the current project is an existing product of the company and is used in Railways. It is has obtained necessary clearance from the Andhra Pradesh Pollution Control Board. Tubular Lead Acid batteries (Gel). Company has adequate arrangements to meet its requirements. The products include Pure Lead VRLA batteries. Nandigaum works: Water is required at the plant for various processes and treatment of effluents along with drinking and san itation. Products / Services of the Company i. The Company primarily caters to the following Industries: Industry Aviation Applicati Air Craft 18 .

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

There are no published data available to the Company for past production figures. However. the Company has shown consistently high capacity utilization in the NiCad batteries segment. marketing and proposed marketing setup Approach to NiCad batteries finds its use across industries and there is a growing ex port 20 .select players who have presence in automotive industry as well. so definitive information on the activities of the competitors is not publicly available. past trends and future prospects regarding exports. existing installed capacity. 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. demand & supply forecasts. The capacities are broad and interchangeable. as is enumerated in the table wherein Nickel Cadmium (Pocket Plate and Fibre Plate) batteries past capacity utilization and Production figures are reflected. Also HBL Power operates in a niche market and makes products as per the specifications of the customers who are generally industrial customers.

While. earnest money deposits. The predominant demand for NiCad batteries is from exports and company has an existing marketing setup with overseas subsidiaries. tender from private sector are negotiated. which functi ons under direct supervision of Chairman (Executive) considering the importance and sensitive nature of the Department. The existing marketing set up shall be used optimally to sell the production from the proposed project. HBL NIFE Defence. The Company obtains tender document from Public Sector Undertakings / Government Department on the basis of such public notice and has been successfully doing so. 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. the Company on continuous basis collects market information and makes presentation to the existing and prospective customers.market. samples etc. Clients. supplies to Government of India. Public Sector Undertakings and Government Departments invite tenders through public notice. The Company¶s past track record and its association with the industry for more than two decades also helps in getting orders. To procure contracts from Private Clients. 21 . Ministry of Other Government Departments/ PSUs and also to the is also registered Defence Vendor The Company and authorized Railway supplier. The Centralized sales Department is headed by General Manager (CSD) and is supported by his subordinates. The Company has also been successfully bagging repeat orders from its reputed existing client base. Private Railways. As regards the other products and supplies to Defence and Railways. 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. the Company functions in a market.

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

Hutchis on Essar Telecom Limited 9. 23 . 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. trained technical personnel available in India. 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. 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. Erickson India Limited 10. Further the existing businesses to be integrated deploying innovating technology and by widening the product range within the business segments.

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

it may be made clear that as per the general practice net working capital is referred to simply as 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. These two concepts of working capital are not exclusive. management and control. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital.Current Liabilities Net working capital may be positive or negative. 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. Working Capital = Current Assets . 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. the term working capital refers to the net working capital. Current assets are those assets. However. 25 . the term working capital refers to the gross working capital and represents the amount of funds invested in 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.transactions. which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. Gross concept is very suitable to the company form of organization where there is divorce between ownership. rather both have their own merits. (ii) Net Working Capital. In a narrow sense. In the broad sense.

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

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

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

Regular payment of salaries: wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors. Both excessive as well as short working capital positions are bad for any business. DISADVANTAGES OF EXCESSIVE WORKING CAPITAL Every business concern should have adequate working capital to run its business operations. Due to low rate of return on investments the value of shares may also fall. 6. When there is redundant working capital. 4. 5. waste and losses. Excessive working capital implies excessive debtors and defective credit Policy which may cause higher incidence of bad debts. wages and other day-today commitments which raises the morale of its employees. 7. 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. 29 . Quick and Regular return on Investments: Every Investor wants a quick and regular return on investments. reduces wastage¶s and costs and enhances production and profits. This gains the confidence of its investors and creates a favourable market to raise additional funds in the future. it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft. 1. as there may not be much pressure to plough back profits. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. 6. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained. there is much pressure on working capital. increases their efficiency. 3. generally. It may result into overall inefficiency in the organisation. 2. 8.5.

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

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

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

Towards their working capital management. This study is useful to the HBL power systems Ltd. A study of working capital management is a major importance to internal & external analysis. OBJECT OF THE STUDY Primary objective: y To know the Working capital management of the HBL power systems Ltd. This study helps the management of the organization in taking decision regarding working capital and financial decisions. To compare the performance of the previous year balance sheet. Secondary objective: y y y y y To identify the efficiency of cash management in the HBL power systems Ltd. To evaluate the effectiveness of inventory management in the HBL Ltd.*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 operating cycle of HBL power systems Ltd. To analyze the different ratios in HBL organization.. 33 .

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

namely cash and marketable securities. 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. finished goods. assets receivable and inventories and also administration of current liabilities. Working capital or current assets management its one of the most important aspect of the over all financial management. its effective provision and utilization can do much to ensure the success 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. accounts receivable and salable securities. The current liabilities and the inter relationships that exist between them. Current assets are the assets which 35 .INTRODUCTION TO WORKING CAPITAL MANAGEMENT Working capital may be regarded as the most important factor of a business. because of its close relationship with current day-today operations of a business. A study on working capital is of major importance. Its is concerned with the problem that arises in attempting to mange the current assets. Management of working capital usually involves planning and controlling current assets.

Funds are also needed for short-term purpose for the purchase of raw material. 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. Meaning of Working Capital Capital required for a Business can classified under two main categories. payment of wages and other day-to-day expenses. Investment in these assets represented that part of firm¶s capital.can be converted into cash with in an Accounting year and includes cash short term securities. land building. and receivables to cash. 1. Hence it is also known as revolving or circulating capital as short-term capital. 36 . Fixed Capital 2. which is blocked on a permanent or fixed basis and is called fixed capital. machinery. furniture etc. Working Capital Working capital is the amount of funds necessary to cover the cost of operating of enterprises. Every business needs funds for two purpose for its establishment and to carry out its day-to-day operations. Long-term funds are required to create production facilities through purchases of fixed assets such as plant. debtors. These funds are known as working capital funds thus. 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. 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. 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.

Sundry debtors( less provision for doubtful debts) 4. Stores and spaces d. CONSTITUTENTS OF CURRENT LIABILITIES 1. Inventories of stock as: a. Temporary investments of surplus funds 7. Raw Material b. Accrued incomes Net Working Capital is the excess of Current assets over current liabilities. Cash in hand and bank balance 2. Work in Progress c. 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 .CONSTITUTENTS OF CURRENT ASSETS 1. Finished goods. Prepaid expenses 8. Bills Payable 37 . Short term loans and advances 5. 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. Bills Receivable 3. Net Working capital may be +ve or ±ve. 6. Net Working Capital = Current assets-Current Liabilities.

if it does not amount to appropriation of profits. Temporary or variable Working Capital Permanent or fixed Working Capital: It is the minimum amount. 38 . Short terms loans. Working Capital is classified as gross Working Capital and net Working Capital. Accrued or O/S Expenses 4. On the basis of time: 1.2. On the basis of time. The basis of concepts. 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. CLASSIFICATION OF WORKING CAPITAL: Working capital may be classified into two ways: i. and some special emergencies. BOD 6. which is required to meet the seasonal demands. variable Working capital can further be classified seasonal Working Capital and special Working Capital. ii. Permanent or fixed Working Capital 2. Advances and deposits 5. which continuously required by the enterprise to carry out its normal business operation. 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. Dividend payable 7. Temporary or Variable Working Capital: It is the amount of Working Capital. 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. Sundry creditors or Accounts/payable 3.. On the basis of concepts. Provision for taxation.

increases their efficiency. 3. 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. high solvency and good credit standing can arrange the loans from banks and other on easy and favorable term. 7. 9. wages and after day-to-day commitments which raises the morale of its employees. Regular supply of raw material: Sufficient WC ensures regular material and continuous production. This gains the confidence o f its investors and creates a favorable market to raise additional funds in the future. Regular payments of salaries. reduces wastage and cost and enhances production and profit. Ability to face crisis: A WC enables a concern to face business crisis in emergencies such as depression because during such periods. The main advantages of maintaining adequate 1. Easy loans: A concern having a WC. 6. 2.IMPORTANCE OF ADEQUATE WORKING CAPITAL: WC is the life blood. 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. Goodwill: Sufficient WC enables a business concern to make prompt payment and hence in creating and maintaining goodwill. there is much prices use on WC. 5. generally. 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. 8. just as circulation of blood is essential in the human for maintaining life. Solving of the business: Adequate WC helps in maintaining solvency of the business by providing uninterrupted flow of production. 4. 39 . 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 .

2. The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies. 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. 6. The redundant working capital gives raise to speculative transaction. It cannot buy its requirements in bulk and cannot avail of discounts etc. High morale: Adequacy pf WC creates an environment of society confidence. Due to low of return on investment. 3. waste and losses. 4. It should have neither redundant or excess working capital nor inadequate or shortage of working capital. It becomes impossible to utilize efficiently the fixed assets due to non availability of liquid funds. and high morale and creates efficiency in a business. The rate of return of investments also falls with the short of working capital. 5. 6. Thus. Excessive working capital impulse excessive debtors and defectives credit policy. Both excess as well as short working capital position a bad for any business. which causes high incidence of bad debts. the values of sh ares may fall. A concern which has inadequate working capital cannot pay it short-term liabilities in time. When there is a redundant working capital it may lead to unnecessary purchasing and accumulation of inventories causing more change of theft. It may result into overall inefficiency in the organization. Factors Determining Working Capital Requirements 40 . 4.. which is more dangerous from the point of view of the firm. However. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL: 1. DISADVANTAGES OR DANGEROUS OF INADEQUATE WORKING CAPITAL: 1. 3. it will lose its reputation and shall not be able to get good credit facilities. 5. it is the inadequate of working capital. It becomes difficult for the firms to exploit due to lack of working capital. out of the two. 2.10. increased cost and reduces the profit of business. EXCESS OR INADEQUATE WORKING CAPITAL: Every business concern should have adequate working capital to run its business operations.

01 5058. 9.51 7483. 3. There is. 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.01 2005 3314. 8. 2. to accounts receivables and back into cash.97 41 . Conversion of Inventory into Receivables 3.81 1585. 7. 11.22 2358. It is defined as a continuing flow from cash suppliers. 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.01 2006 3758. 10.06 2007 4977. 13. 2.19 2372.17 2008 8563. 6. Conversion of cash into Inventory. Therefore sufficient capital is necessary to sustain sales activity. 5. 4. 12. PARTICULARS Raw material stock Work in progress 2009 9516. 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.1. It consists of 3 phases: 1. Conversion of Receivables into cash. to Inventory.

88 68861.61 2372.34 5378.52 24597.35 310.69 13834.37 89.25 108193.82 52.81 50.76 72237.42 108.35 272.31 24597.5 3.41 85.52 62.81 85.06 39.69 7.06 35625.12 11435.08 82030.08 42095.87 58828.19 7493.43 67.99 215.33 3314.56 231.91 82.17 17420.38 167.08 47.25 140126.26 31245.88 282.32 4.83 187.87 42.59 4.87 191.03 88427.09 28263.46 22485.42 7493.37 115.62 188.75 352.19 56.94 4545.92 1200.55 91950.61 25822. 42 .39 177.56 8503.99 19136.67 3.56 10484.18 22846.83 161.02 10484.39 61.43 108193.39 2358.44 97.97 30.55 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 82030.01 223.16 4977.33 13834.94 8563.43 1585.82 25822.74 9516.43 31245.01 3758.82 88.45 58828.63 4.48 17420.99 88427.27 5058.45 124.91 108.08 27300.94 78482.98 140126.39 22846.83 651.55 90.37 224.76 45580.63 134.43 242.34 68598.12 4.61 651.41 42095.95 33143.44 45580.37 78482.06 91.81 19136.93 18529.56 87.Finished goods Debtors Creditors Raw material consumption Purchases Cost of production(exclude dep) Cost of goods sold Sales 3424.38 68861.66 7483.94 125.62 91950.61 5378.01 24.66 35625.37 352.86 251.08 4.38 33143.22 61.34 119.56 32178.25 296.83 72237.91 8503.02 99.53 148.81 70.56 73.38 70.97 33285.08 18529.68 27300. which is decreases over time.81 11435.81 22485.82 33285.91 28263.01 42.37 17276.01 17276.48 2.01 34.42 3424.63 141.17 20.91 32178.86 113397.09 11.87 68598.76 383.77 4545.76 1200.62 113397.51 45.08 48.93 137.72 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.

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

Operating inefficiency creep in which it becomes difficult even to meet day-to-day commitments.56 8170.64 0 0 0 0 3055.54 17762.INADEQUATE WORKING CAPITAL: 1. 3.61 10484.21 8503. 2.01 3377.78 2008-09 9516. 5. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities.08 5403. It become difficult to implement operating plans achieve the firm profit target. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds.83 4772. Stagnates growth.59 PARTICULARS Current Assets Inventory Sundry debtors Cash & Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total 2007-08 17246. 4.56 1874.44 4930.44 0 1980.59 0 3055..96 4209.04 44 .21 2791.01 28263. STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD.71 50195.27 53549.23 INCREASE 963.32 36. AS ON 31 MARCH 2007-08 AND 2008-09 (Rs.55 27300.87 2611.28 4245.71 16045. Thus firms profitability would Detroit. Fixed assets are not efficiently utilized for the lack of working capital funds. in lakhs) DECREASE 7730.56 4792.

13 17752.42 2515.65 7493.95 298.91 5378. AS ON 31 MARCH 2005-06 AND 2006-07 (Rs.34 2471.33 4930.11 3295.68 17420.08 43.85 2442.85 2006-07 7531.81 5493.42 7224.8 1526.65 1045.Net WC (CA-CL) 37503.71 STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD.98 318.25 INCREASE 763.3 1180.47 10221.98 24976.74 2115.74 1902.79 30416. in lakhs) DECREASE 0 0 0 0 0 0 0 298.92 13834.4 45 .03 20195.76 3586.91 1227.66 32433..28 1499.95 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 6767.39 2948.

16 4255.16 INCREASE 2012. AS ON 31 MARCH 2003-04 AND 2004-05 (Rs.94 0 0 0 0 46 .18 7748.82 878.91 6160.59 99.99 740. 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 3347.65 5391.36 211.12 7297.26 4906.4 641.5 204.85 167.87 670.95 1416.34 12003.4 1601.14 6529.4 11435.STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD.83 13140.22 2004-05 5359.75 1905.37 874.18 1089.1 1248.55 4545..46 19300.15 2943.

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. Certified accounts by internal audit copy. b) PERIOD OF STUDY: 47 . a) DATA COLLECTION: The Secondary data is to be collected from the finance department of the company pertaining to the last five years. y Other details of the research data were collected from annual reports. profile of the company and through the references from different books dealing with working capital for the above financial years. by company discloses true and fair statement because these are guided by auditors as per rules and regulations stated under the law.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.

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. 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. Ratio Analysis is a technique of analysis and interpretation of financial statement. A single ratio in itself does not convey much of sense. deteriorated or remained 48 .Period of study form 01-03-2010 to 30-04-2010. The term ratio refers to the numerical relationship between two items of variables. RATIO ANALYSIS Ratio Analysis is widely used tool for financial analysis. c) LIMITATION: y y This report is restricted to secondary data. each other are for purpose of financial analysis. financial institutions. which are related to. banks. proportion of numbers This relationship expressed as These alternative methods of expressing item. 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. investors. The suppliers of goods on credit. Support from the management side may be limited due to their pre-occupied works. It is the process of establishing and interpreting various ratio s for helping in making certain decision. percentage fractions.

39 but in 2008 -09 the current ratio is 3.constant over a period of time.28 53549.46 2.98 30416.99 24976.in Lakhs) CURRENT LIABILITIES 6160. CURRENT RATIO: Current Ratio Current Assets -----------------------------Current Liabilities YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 CURRENT ASSETS 19300.83 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. Here increasing the current ratio due to increase in current assets.34 2. 49 .98 3.56 (Rs.23 CA/CL 3. I have studied the following Ratio¶s in analyzing the working capital management.13 10221.13 3.78 17762.03 16045.84.44 50195.83 7224.

52 2.55 CURRENT LIABILITIES 6160. This is due to increase and decrease in quick assets.26.79 40679.03 16045. QUICK RATIO 50 .24 2.26 2. In Lakhs)0 YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 QUICK ASSETS 13941.83 7224.96 22884.78 17762.26 2.61 36302.59 18208.80 in 2008 -09.29 Interpretation: The quick ratio of HBL power systems Ltd has show slight changes the quick ratio in And again it increased to 2.45 in 2007 - 2005-06 3.QUICK RATIO: Quick ratio Quick assets ----------------------------------Current liabilities (Rs. 08 and 2.02 but it decreased in 2006 -07 as 2.13 10221.23 QA/CL 2.

91 3.85 20195.32 YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.C 2. in Lakhs) SALES /W.52 2.20000 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.33 Interpretation: The working capital turn over ratio of HBL Ltd has shown slight changes are there if we consider the ratios in 2004-05.83 113397. 2005-06 slight changes that is increase in 2006 -07 to compare 51 .55 42095.02 4.25 37503.66 32433.34 140126.37 58828.16 17752.76 WORKING CAPITAL 13140.37 2.

18 6.C but in 2008 -09 it was decreased to 2.55 42095.41 6767.37 58828.68 17246. 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.76 AVG.01 Interpretation: The inventory turnover ratio of HBL Ltd in 2008-09 6.58 14.22 7.12 in 52 .2007-08 due to increase in sales and W.28. in Lakhs) SALES/AVG.INVENTORY 5359.92 7531.65 9516.73 YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.34 140126. INV 6.22 is greater than of 6.81 6.83 113397.

47 3.86 53 .44 28815.2007-08 due to sales is increased and inventory is also increased.83 113397.65 12353.A 3.34 140126.84 25389.41 3.INVENTO Y FIXED ASSET RATIO: Sales Fixed asset turnover ratio-----------------------------------------------------Fixed assets (Rs.55 42095. in Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.88 17634. 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.37 58828.76 FIXED ASSETS 9554.19 SALES/F.47 4.34 4.

The ratio then decreased to 2.56 54 .37 58828.15 YEAR 2004-05 2005-06 2006-07 2007-08 CREDITSALES 33143.95 13834.04 3.34 17420.42 27300.DEBTORS 11435.73 during the period 2005-06 due to decrease in sales.38 4.Interpretation: The fixed assets turnover ratio in HBL has decreased form 2.34 AVG.55 42095.41 during the period 2007-08 and 2008-09 due to increase in sales.83 113397.SALES/AVG. In Lakhs) CR.29 due to increase in fixed assets then the ratio increased to 3.76 to 2.91 3. 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.DEBTORS 2.

DEBTORS INVENTORY MANAGEMENT Inventories constitute a major part of the working capital.56 4.76 28263.96 Interpretation: Debtor turnover ratio in HBL decreased in 2007-08 compare with 2006-07. 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. Inventories are approximately 60% of current assets in Public Limited Companies. it is therefore absolutely imperative to manage inventories efficiency and effectively. but it increased in 2008-09 up to 3. Due to also.04.2008-09 140126. 55 .

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. NEED TO HOLD INVENTORIES: There are 3 general motives in holding inventories. SETTING INVENTORY LEVELS: 56 . 1) Transaction Motive: Transaction motive which emphasis to maintain inventories to facilitate smooth production of sales operations. 3) SPECULATIVE MOTIVE: Speculative motive which influences the decision to increase or decrease inventory level to take advantage of price fluctuations. There are important inputs of the final product The work-in-progress inventory consists items currently being used in the production process. which are available to sale. There are normally partially or semi-finished goods. inventories make the firm flexible. 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. 2) PRECAUTIONALY MOTIVE: Precautionary motive which influences the decision to increase or decrease inventory level to take advantage of price fluctuations. Efficiently controlled The following are some of the important control tech niques: 1. Finished goods inventory represent final on completed products.

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

The question how much to order. To provide a perpetual inventory value and a consistent and reliable basis for preparing financial statements. c. But may result in large inventory. 58 . To utilize available storage space and prevent stock from exceeding space availability. To minimize firms investment in inventories and to maximize profitability. The determination of EOQ is to balance ordering cost and carrying cost. e. To check against loss of materials through carelessness and pilferage. 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. leading to an increase in carrying cost. b. d. To maintain inventory for efficient and smooth production and sales operations. relates to the problem of determining levels of inventories.

due to decrease in current assets and current liabilities. increased to fluctuations in current assets. due to the increase in sales. y It was found that.27 to 2. the working capital turnover ratio in HBL has shown increasing trend during the period 2005-2008. debtors turnover ratio in HBL has increased from 2005 to 2006. The ratio decreased from Then in decreased to next year and again it 2006 to 2007. It further increased in 2009. y It was found that.12 during the period 2007 -08. y It was found that.28. has decreasing from 2. this is due to increase in average debtors. The ratio then increased to 6.76 to 59 . y It was found that. This is due to increase in net working capital. the inventory turnover ratio in HBL has increased from 2005 -06 due to the increasing sales. It was decreased in 2009 to 2. again it increased in 2008. It has increased from 2. this is due to the increase in sales and decrease in debtors.FINDINGS y It was found that. the fixed asset turnover ratio in HBL.41. current ratio of HBL increased from 2005 to 2006.

87 in year 2006.23 and it increased to 7422.2. due to increase in sales. due to decrease in sales. y It was found that. fixed assets in 2005 are 6346. This is due to increase in all current assets.41 during the period 2007 -08. 60 . The ratio then increased to 3.29 during the period 2005 to 2007. This is due to the increase in net block. Current assets increased in 2006 against 2005. It was constant in 2009 also.

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

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

M PANDEY FINANCIAL MANAGEMENT 4 SHARMA & SHASHI.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.BIBLIOGRAPHY S. K GUPTA FINANCIAL MANAGEMENT KALYANI PUBLISHERS VIKAS PUBLISING HOUSE PVT LTD 63 .

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

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