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Every business needs adequate liquid resources in order to maintain day-today cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity. Increased production tends to engender a need to hold additional stocks of raw materials and work in progress. Increased sales usually mean that the level of debtors will increase. A general increase in the firm’s scale of operations tends to imply a need for greater levels of cash.
NEED FOR THE STUDY
Working capital is the life blood of the any business, every business requires funds for mainly two purposes, one for its establishment and other is to carry on its day-to-day operations. Long-term funds are used to create production facilities through purchase of fixed assets, such as plant, machinery etc. investments in these assets represents that part of firm's capital which is blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed for the short-term purposes. The firm invests its capital wealth in fixed assets and current assets. The capital used to finance the business operations of the firm such as purchasing, producing, and selling is called as working capital. So the BHEL is maintaining the long term and fixed capital is effective.
To study the existent system of working capital management in BHEL. To examine the feasibility of present system of managing cash,
debtors and inventory in BHEL. Suggesting a better way if any for improving management of working capital.
To analyze the financial performance of the company, with reference to
its working capital components.
Primary data: Primary data is obtained by having interaction with the personnel who are working in finance and accounts departments of the organization. Secondary Data: It has been taken from Annual Reports and the Books and Trade Journals kept by the Management The working capital management mechanism is studied in detail. The various factors of working capital management arc studied in detail.
The existing scenario of debtor's management, collection period, cash system, inventory policies were studied to familiarize with the company polices.
DESIGN OF STUDY:
Working capital management is of vital importance to an organization like BHEL which deals with its customers like state electricity boards, private industries and public sectors. Even though its internal resources for diversification's and for expansion projects supported most of its working capital requirements, they have designed working capital management by keeping the nature of the industry and its product life cycle. The design of study is as follows: Streamlining of cash inputs. Forecasting of material requirements. Keeping the tracks of system of centralize cash collections. Existing inventory procurement system for both indigenous nature and import consignment.
LIMITATIONS The Study is confined to only BHEL Ltd.SCOPE OF THE STUDY The scope of study is restricted to the following. Comparison analysis done in comparison of its sister units. The scope is limited to the operations of BHEL. Some data used in this project has been obtained orally wherever written/printed data is not available. The entire study is based on the financial data that is provided by the Annual Reports and data kept by the Management. 4 . the Balance sheet was of last five years. The information obtained from the primary and secondary sources were limited to BHEL The profit and loss A/C.
CHAPTER-II PROFILES 5 .
BHEL caters to the needs of different sectors by designing and manufacturing according to the need of its clientele in power sector. This is due to the emphasis placed all along on design. Three more major plants in HARDWAR. defense. diversify. engineering and manufacturing to international standards by acquiring and adopting some of the best technologies developed in its own R&D centers. transmission. Its products have established an enviable reputation for high quality and reliability. besides project sites spread all over India and abroad. This success story of BHEL however goes back to 1956 when its first plant was set up in BHOPAL. BHEL manufactures over 180 products under 30 major product groups and meets the needs of core sector like power. BHEL has acquired ISO 9000 certification for quality management and ISO 14001 certification for environment management. industry. These plants have been the core of BHEL' s efforts to grow. 8 service centers and 4 power sector regional centers. HYDERABAD AND THRICHIRAPALLI followed this. manufacturing and offering services in power sector. The company now has 14 manufacturing units. The vital role played by the BHEL today in the country is the mark of its continuous efforts to improve the service in the nation by consultancy. oil business etc.PROFILE OF THE COMPANY BHEL is one of the pioneers in engineering industries in the world. and become one of the most integrated power and industrial equipment manufacturers in the world. telecommunications. 6 .
industrial boilers and process industries PUMPS: Pumps for various applications to suit utilities unto a capacity of 660 MW. POWER DEVICES: High power capacity silicon diodes. butterfly. Pressure vessels. PIPING SYSTEM: Constant load hangers. Thruster devices and Solar Photovoltaic Cells. AVIATION: Light Aircraft. SYSTEM AND SERVICES: Power generation system Transmission system Transportation system Industrial system. Emergency oil pumps. Condensate pumps. Heat recovery steam generators.PRODUCT PROFILE THERMAL POWER PLANT: Steam turbines. boilers and generators of up to 500 MW capacities to manufacture boilers and steam turbines with super critical steam cycle parameters and matching generators up 660MW unit facilities available for 1000MW size. variable. Boiler feed pumps. 7 . spring hanger for power stations up to 850 MW capacities combined cycle plants. HYDRO POWER PLANT: Mini/Micro hydro sets Spherical. Boiler feed booster pumps. clamp and hanger components. Chemical recovery boilers for paper industry ranging from capacity of 100 to l00t/day of dry solids. rotary values and auxiliaries for hydro station GAS BASED POWER PLANTS: Gas turbines and generators up to 260 MW (150) rating Gas turbines based cogeneration and combined cycle system for industry and utility applications B1OLERS.
8 . CAPACITORS: Power capacitors for industrial and power systems of up to 250 KVA rating for application up to 400 KV.SWITCH GEAR: Switch of various types for indoor and outdoor application and voltage rating up to 400 KV. and hydro business. BHEL now has the capability to set up power plants from the concept to commissioning.500 KV. gas. Today BHEL accounts for nearly 65% of the total installed capacity in the country. HVDC transformers and reactors of up to + or . BUS DUCTS: Bus with associated equipment to suit generator power output of utilities up to 500 MW capacities. BHEL has taken India from a position of total dependence on overseas sources to complete self-reliance in power sector. TRANSFORMERS: Power transformers for voltage up to 400 KV. SECTORS: Power is the core sector of BHEL and comprises of thermal nuclear. COMPRESSORS: Centrifugal compressors of varying size driven by Steam Turbine for industrial applications handling almost all types of gases. Vacuum circuit breakers. Co-generation and combiner cycle plants have been introduced to achieve higher plant efficiencies. Coupling /CVVT capacitors for voltages up to 400 KV. diesel. BHEL possesses the technology and capability to produce thermal sets with super critical parameters up to 1000 MW units rating and gas turbine generators sets up to 240 MW rating. Gas insulators switch gears.
OIL SECTOR: BHEL has been supplying onshore drilling rigs. It can also supply subsea wellheads. TRASM1SS1ON SECTOR: Equipment for high voltage direct current systems is being supplied for economic transmission of bulk power over long distances. TELECOMMUNICATION: BHEL also manufactures MAX -L. drive turbines.BHEL manufactures 235 MW nuclear turbine generator sets and has commenced production of 500 MW nuclear turbine generator sets. 9 . INDUSTRY SECTOR: BHEL contributes major capital equipment and systems like captive power plants centrifugal compressors.and controls supplied by BHEL. India's first underground metro at Calcutta runs on drives .XL system days drawn DOT technology and has plans to make other ranges of telecommunication equipment as well. TRANSPORTATION SECTOR: Most of the trains in the Indian railways are equipped with BHEL’s traction and traction control equipment. Christmas tree valves and wellheads up to a rating of 1000 PSI to ONGC and OIL India. NCES: Technologies have been' developed and commercialized for exploiting nonconventional and renewable sources of energy to serve remote and rural areas. heavy castings etc. super deep drilling rigs. desert rigs and hail rigs. MAX.
RESEARCH AND DEVELOPMENT: BHEL is one of the tow companies worldwide involved in development of Integrated Gasification Combined Cycle (IGCC) technology. 10 . BHEL exports turnkey power projects of thermal. Sri Lanka. rehabilitation projects. transformers. substation projects. Egypt. INTERNATIONAL OPERATIONS: BHEL has exported its equipment and services to over 50 countries. Cyprus. a positive work culture and participative style of management have led to the development of a motivated Work force and enhanced productivity and quality. solar power based pumps. Some of the recent successful R&D products are automated storage retrieval systems. BHEL R&D efforts have produced several new products. BHEL has also emerged as a major manufacturer of wind electric generators up to 250 KW. automated guided vehicles for material transportation. which would usher in clean coal technology.These include polo voltaic cell. and Australia etc. valves. Cyprus. besides a wide variety of products like insulators. and gas based types. BHEL has supplied 80% of the Boilers besides several hydro sets and gas turbines. Oman. BHEL equipments are in operation in Malta. Iraq. hydro. motors. automatic robotic welding systems. Continuous training and retaining. Bangladesh. HUMAN RESOURCES DEVELOPMENT: The greatest strength of BHEL is its highly skilled and committed people. traction generators and services for renovation and modernization and operation power station. In Malaysia. Greece. Libya. Every employee is given equal opportunity to develop himself and improve his position. Saudi Arabia. lighting and heating system.
transportation. PROFITABILITY: To provide a reasonable and adequate return on capital employed.COMPANY'S VISION. creativity & speed of response. Foster learning. primarily through improvements in operational efficiency. competitive and profitable engineering enterprise providing total business solutions. Team playing. Loyalty and pride in the company. infrastructure and other potential areas. new areas and international operation so as to fulfill national expectations from BHEL. Zeal to excel. industry. GROWTH: To ensure a steady growth by enhancing the competitive edge of BHEL in existing business. VALUES Meeting commitments made to external & internal customers. innovative. Respect for dignity & potential of Individuals. Integrity and fairness in all matters. MISSION AND VALUES VISION A world class. MISSION: To be the leading engineering enterprise providing quality products systems and services in the field of energy. 11 . capacity utilization and productivity and generate adequate internal resources to finance the companies growth.
12 .H. To invest in human resources continuously and be alive to their needs TECHNOLOGY: To achieve technology excellence in operations by development of indigenous technologies to and efficient absorption and adaptation of imported technologies to . Transmission. and Utilization & Market Leadership. customers and the country at large have from BHEL.suit business needs and priorities and provide a competitive advantage of the company. perceive his role and responsibilities. participate.L: To achieve and maintain1 a leading position as supplies of Quality Equipment. performance and superior customer service. Systems and services to serve the National & International Markets in the field of Energy. and contribute positively to the growth success of the company. OBJECTIVES OF B.CUSTOMER FOCUS: To build a high degree of confidence by providing increased value for this money through international standards of product quality. The areas of interest would be Conversion. improve his capabilities. employees. IMAGE: To fulfill the expectations which stockholders like government as owner. PEOPLE ORIENTATION: To enable each employee to achieve his potential.E.
Poor infrastructure. Dominate players in domestic market.SWOT ANALYSIS The strengths. No financial parlage.More compensation. Export potential growing. have been summed up in the following lines STRENGTHS: Vast pool of trained manpower. which are experienced by BMK1-as a growing concern. OPPORTUNITIES: Growing power sector machinery. Liberalization has opened up the market. 13 . Govt. Navaratna company status. Taxation policy. opportunities and threats. weakness. Inadequate compensation payable to employees. MNC' s weaning away good employees with good attractive salaries. THREATS: Liberalization -Entry of MNC’s private sector. System implementation inadequate. Excellent state of all facilities WEAKNESS: Excess manpower.against manufacturing sectors.
CHAPETR III THEORETICAL BACKGROUND ABOUT THE TOPIC 14 . Dumping of goods.
Why Firms Hold Cash The finance profession recognizes the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. An example of this would be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory. and cash. The management of working capital involves managing inventories. and for making transactions. Speculation Economist Keynes described this reason for holding cash as creating the ability for a firm to take advantage of special opportunities that if acted upon quickly will favor the firm. To pay current liabilities as they fall due. This implies a clearly designed risk policy to determine the required liquidity level. accounts receivable and payable.WORKING CAPITAL MANAGEMENT Working capital management involves the relationship between a firm's shortterm assets and its short-term liabilities. 15 . The three reasons are for the purpose of speculation. All three of these reasons stem from the need for companies to possess liquidity. 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 precaution.
Firms hold cash in order to satisfy the cash inflow and cash outflow needs that they have. the term working capital refers to the net working capital. which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. Net working capital is the excess of current assets over current liabilities. The providing of services and creating of products results in the need for cash inflows and outflows. Current assets are those assets. CONCEPTS OF WORKING CAPITAL There are two concepts of working capital: (i) (ii) Gross Working Capital Net Working Capital. In a narrow sense. Working Capital = Current Assets . In the broad sense. If expected cash inflows are not received as expected cash held on a precautionary basis could be used to satisfy short-term obligations that the cash inflow may have been bench marked for. Transaction Firms are in existence to create products or provide services.Precaution Holding cash as a precaution serves as an emergency fund for a firm. the term working capital refers to the gross working capital and represents the amount of funds invested in current assets.Current Liabilities 16 .
(b) On the basis of time. • On the basis of concept. These two concepts of working capital are not exclusive. However. When the current assets exceed the current liabilities. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. 2. Net working capital. Gross concept is very suitable to the company form of organization where there is divorce between ownership. it may be made clear that as per the general practice net working capital is referred to simply as working capital. rather both have their own merits. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. 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 business. working capital 1. Gross working capital. 17 . the working capital is positive and the negative working capital results when the current liabilities are more than the current assets.Net working capital may be positive or negative. management and control. TYPES OF WORKING CAPITAL Working Capital may be classified in two ways: (a) On the basis of concept.
Permanent or fixed working capital. It is the business's lifeblood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. which is continuously required by the enterprise to carry out its normal business operations. around and out of a business. every firm has to maintain a minimum level of raw materials. There is always a minimum Level of current assets. which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. If a business is operating profitably. finished goods and cash balance. If it doesn't generate surpluses. generate cash surpluses. fluctuating or variable working capital. The cheapest and best sources of cash exist as working capital right within 18 . 2. Temporary or variable working capital. Temporary working capital: Any amount over and above the permanent level of working capital is temporary.• On The basis of time. The faster a business expands the more cash it will need for working capital and investment. working capital can be further classified into 1. 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. work-in-process. Working Capital Cycle Cash flows in a cycle into. then it should. the business will eventually run out of cash and expire. This minimum level of current assets is called fixed working capital. For example. Permanent working capital: Permanent or fixed working capital is the minimum amount. in theory.
receivables and payables) has two dimensions . Each component of working capital (namely inventory.g.g. If you can get money to move faster around the cycle (e.business. you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. the business will generate more cash or it will need to borrow less money to fund working capital. When it comes to managing working capital TIME IS MONEY. Similarly. reduce inventory levels relative to sales).Inventory (stocks and work-in-progress) and Receivables (debtors owing you money).TIME and MONEY.. The main sources of cash are Payables (your creditors) and Equity and Loans. Therefore. There are two elements in the business cycle that absorb cash . collect monies due from debtors more quickly) or reduce the amount of money tied up (e. Good management of working capital will generate cash will help improve profits and reduce risks.. if you can negotiate. improved terms 19 . 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.
equity.. Similarly...g. they remove liquidity from the business. IF YOU . these are cash outflows and. if you pay dividends or increase drawings. if available. plant. if cash is tight. for fixed assets e. consider other ways of financing capital investment . More businesses fail for lack of cash than for want of profit. You release cash from the cycle Your receivables soak up cash Get better credit (in terms of duration or amount) You increase your cash resources from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower You free up cash You consume more cash It can be tempting to pay cash. like water flowing down a plughole. ADVANTAGES OF ADEQUATE WORKING CAPITAL 20 . computers.loans. leasing etc. If you do pay cash. vehicles etc. remember that this is now longer available for working capital. Collect receivables (debtors) faster Collect receivables (debtors) slower THEN.. you effectively create free finance to help fund future sales.g. Therefore. get longer credit or an increased credit limit.with suppliers e.
there is much pressure on working capital. 6. 5. 7. high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms. increases their efficiency. 21 . Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. generally. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods.to-day commitments which raises the morale of its employees. Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill.Working capital is the lifeblood and nerve centre of business. No business can run successfully without an adequate amount of working capital. Regular payment of salaries. Easy loans: A concern hacking adequate . wages and other day. working capital is very essential to maintain the smooth running of a business. The main advantages of maintaining adequate amount of working capital are as follows: 1. 4. reduces wastage's and costs and enhances production and profits. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production. 3.working capital. wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries. Just as circulation of blood is essential in the human body for maintaining life. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted How of production. 2.
2. 4. 6. cannot pay its short-term liabilities in time. Both excessive as well as short working capital positions are bad for any business. confidence. and high morale and creates overall efficiency in a business.8. A concern. 3. Excessive working capital implies excessive debtors and detective credit Policy. 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. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. which has inadequate working capital. It may result into overall inefficiency in the organization. waste and losses. Thus it will loose its reputation and shall not be able to get good credit facilities. DISADVANTAGES OF INADEQUATE WORKING CAPITAL 1. DISADVANTAGES OF EXCESSIVE WORKING CAPITAL Every business concern should have adequate working capital to run. High morale: Adequacy of working capital creates an environment of security. which may cause higher incidence of bad debts. Due to low rate of return on investments the value of shares may also fall. When there is redundant working capital. it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft. 5. 1. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained. its business operations. 22 .
2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.
It becomes difficult for the firm to exploit favorable market conditions
and undertake profitable projects due to lack of working capital.
The firm cannot pay day-to-day expenses of its operations and it creates
inefficiencies, increases costs and reduces the profits of the business.
It becomes impossible to utilize efficiently the fixed assets due to non-
availability of liquid funds.
The rate of return on investments also falls with the shortage of working capital.
DETERMINANTS OF WOKING CAPITAL
1. Natures or Character of Business 2. Size of Business/Scale of Operations 3. Production Policy 4. Manufacturing Process 5. Working Capital Cycle 6. Rate of Stock turnover 7. 8. Credit Policy Rate of Growth of Business
9. Earning Capacity and Dividend Policy
MANAGEMENT OF CASH
Cash Management is one of the key areas of working capital management. Cash, the liquid asset is of vital importance to the daily operation of business firms. Crucial for the solvency of the business it is referred to as the “life blood of business”. Firm needs cash to meet the needs of daily transactions, to take advantage of unexpected investment opportunities. While cash serves these functions, it is an idle resource with an opportunity
cost. The liquidity provided by the holding cash is at the expense of profits that could accrue from alternative investment opportunities. Hence, the firm should plan and control cash carefully.
• Bringing the company's cash resources within control as quickly and efficiently as possible. • Achieving the optimum conservation and utilization of the funds. Accomplishing the first goal requires, establishing accurate, timely forecasting and reporting system, improving cash collections and disbursements and decreasing the cost of moving funds among affiliates.
Cash management deals with the following:
1. Cash inflows and outflows 2. Cash flows within the firm 3. Cash balances held by the firm at a point of time
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. A projected cash flow statement may be prepared, based on the present business operations and anticipated future activities. The cash inflows from various sources may be anticipated and cash outflows will determine the possible uses of cash.
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. It is a forecast of expected cash intake and outlay.
Normally a cash budget consists of
1. 2. 3. Cash collections Cash payments Cash balances
OPTIMUM CASH BALANCE: A firm has to maintain a minimum amount of cash for settling the dues in time. By preparing Cash Budget, we determine the optimum cash balance. If a firm maintains less cash balance then its liquidity position will be weak.
INVESTMENT OF SURPLUS FUNDS:
There are, sometimes, surplus funds with the companies, which are required after sometime. These funds can be employed in liquid and risk free securities to earn some income. There are number of avenues where these funds can be invested.
Unit 1964 Scheme:
Ready forwards Investment in Marketable Securities Bald Financing
OBJECTIVE: The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit. CAPITAL COST: The increased level of accounts receivable is an investment in assets. When considering management must weigh up the profits of increased sales with the cost of additional investment in debtors. COSTS: The major categories of costs associated with the extension of credit and accounts receivables are: 1. 2. because they expect the investment in receivables to be profitable. A planned credit-policy can assist relaxing credit terms. in increasing corporate profitability. COLLECTION COST: These costs are administration costs incurred in collecting the receivables from the customers to whom credit sales have been made. Firms grant trade credit to customers. The cost on the use of additional . either by expanding sales volume or by retaining sales that otherwise would be lost to competitors. The receivables represent an important component of the current assets of a firm. in which to pay for the goods / services which they have received. They have to be financed thereby involving a cost. allowing them a reasonable period.MANAGEMENT OF ACCOUNTS RECEIVABLES Accounts receivables represent an extension of credit to customers.
which apparently could be profitably employed elsewhere. 4. the extension of credit may be to protect its current sales against emerging customers. BENEFITS: The benefits are the increased sales and profits anticipated because of a more liberal policy. 3. are therefore a part of the cost of extending credit or receivables. Because of increased sales. First. such debts are treated as bad debts and are written off as they cannot be realized. When the firm extends trade credit. such costs are known as default costs associated with credit sales and accounts receivables. the impact of liberal policy is likely to have two forms. DELINQUENCY COST: This is the cost. the profits of the firm will be increased. the increase in sales would be either from the existing customer or from new customers. which arises out of the failure of the customer to meet their obligations when payment on credit sales becomes due after the expiry of the period of credit. The three crucial decision areas in receivables management are: CREDIT POLICIES: The credit policy of a firm providing the framework to determine: Whether or not to expend credit to a customer and How much credit to expend. DEFAULT COST: Sometimes the firm may not be in a position to recover the dues because of the inability of the customers. Secondly. it is oriented to sales expansions.capital to support. In other words. credit sales. The credit policy decision of a firm has two broad dimensions: .
1. The speculations under which goods are sold on credit are referred to as credit terms. Degree of effect to collect overdue 2. develop appropriate sources of credit information and methods of credit analysis. C: CASH DISCOUNT PERIOD: It refers to the duration during which the discount can be availed of. These policies cover two aspects: 1. A firm has to establish and use standards in making credit decisions. Credit standards and 2. . B: CASH DISCOUNT: The amount which a customer can take advantage of. Type of collection effects. COLLECTION POLICIES: The third area in the account receivable management is collection policies. Credit analysis. CREDIT TERMS: The second decision area in accounts receivables management is the credit terms. Credit terms have three components: A: CREDIT PERIOD: Time duration for which trade credit is extended.
. Inventories are stock of the product a company is manufacturing for sale and components that make up the product. They represent products that need more work before they become finished products to sale. subcontracting costs and various manufacturing costs. which have been purchased for converting into finished product through the manufacturing process. It serves as a link between production and distribution process.The collection policy should aim at accelerating collections from slow payees and reducing bad debt losses M N G M N O IN EN R A A E E T F V TO Y Inventory is the third major component of current assets. WORK-IN-PROGRESS: They are semi- manufactured products. RAW MATERIALS: Raw materials inventories are those units. It includes raw materials. Every enterprise needs inventory for smooth running of its activities.
ready for sale. 3. To ensure continuous supply of materials.FINISHED GOODS: They are those inventories. To avoid both overstocking and under stocking of inventory. The following are the objectives of the inventory management: 1. which are completely manufactured products. To eliminate duplication in ordering and replenishing stocks. The operational objective means that the materials and spares should be available in sufficient quantity so that work is not interrupted for want of inventory. 4. 5. To maintain investments in inventories at the optimum level as required by the operational and sales activities. 2. The financial objectives means that investments in inventories should not remain idle and minimum working capital should be locked in it. spares and finished goods. To keep materials cost under control. . OBJECTIVES: The main objectives of inventory management are operational and financial.
SPECULATIVE MOTIVE: It may be required to keep some inventory in order to capitalize an opportunity . customer demand etc. 9. To ensure perpetual inventory controls so that materials shown in stock ledgers should be actually lining the stocks. the fresh supply of raw materials may not reach the factory due to strike by the transports or due to natural calamities in a particular area. For example. production process. PRECAUTIONARY MOTIVE: The firm should keep some inventory for unforeseen circumstances also. pilferage. To minimize losses through deterioration. To ensure right quality goods at reasonable prices. 10. 7. To facilitate furnishing of data for short-term and long-term planning and control of inventory.6. To design proper organization for inventory management. wastages and damages 8. MOTIVES FOR HOLDING INVENTORY: TRANSACTION MOTIVE: Every firm has to maintain some fuel of inventory to meet the day-to-day requirements of sale.
sufficient level of inventory may help the firm to earn profit in case of expected shortage in the market. .to make profits Example.
It is defined as the systematic use of ratio to interpret the financial statement so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. which indicate the liquidity of a firm. TYPES OF RATIOS Ratios for the purpose of Working Capital Management can be classified into two broad categories: Liquidity Ratios Turnover Ratios. the ability of a firm to meet its short-term obligations and reflect the short-term financial strength/solvency of a firm. are: Current Ratio Acid Test / Quick Ratio Cash Ratio .RATIO ANALYSIS Ratio analysis is a widely used tool of financial analysis. The ratios. LIQUIDITY RATIOS The liquidity ratios measure.
Thus current ratio. current ratios of 2:1 i. It is obtained by dividing current assets by current liabilities. conventionally.. QUICK ASSETS ACID TEST RATIO = CURRENT LIABILITIES Conventionally. CASH RATIO OR ABSOLUTE LIQUID RATIO . this implies the ability of the firm to pay its short-term obligations as and when they become due. the more the firms ability to meet current obligations and greater the safety of funds of short-term creditors.CURRENT RATIO The current ratio is the ratio of total current assets to total current liabilities. It is generally thought that if quick assets are equal to current liabilities then the concern may be able to meet its short-term obligations. in a way. Quick assets also known as liquid assets represent the liquidity of the line. ACID -TEST OR QUICK RATIO The Acid test ratio is the ratio between quick assets and current liabilities and is calculated by dividing the quick assets by the current liabilities. By exclusion of inventory and pre-paid expenses from current assets. the larger the amount of rupees available per rupee of current liability. is a measure of margin of safety to the creditors. we get quick assets. a quick ratio of 1:1 is considered satisfactory. are considered satisfactory. for every one rupee of current liabilities. Although there is no hard and fast rule.e. CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES The higher the current ratio. there should be two rupees of current assets.
for every rupee of current liability there should be 50 paisa of cash and bank balance. which is considered satisfactory.e. INVENTORY TURNOVER RATIO DEBTORS TURNOVER RATIO CREDITORS TURNOVER &ATIO WORKING CAPITAL TURNOVER RATIO The ratios to measure these are INVENTORY TURNOVER RATIO It is computed by dividing the cost of goods sold by the average inventory.5:1 i. This ratio is the most rigorous and conservative test of a firm's liquidity position.. CASH & BANK BALANCES = CURRENT LIABILITIES CASH RATIO TURNOVER RATIOS Another way of examining the liquidity is to determine how quickly certain current assets are converted into cash.. DEBTORS TURNOVER RATIO . Relevant Turnover Ratios are. Conventionally. a ratio of 0.. A low ratio would signify that inventory does not sell fast and stays in the warehouse for a long time. A high ratio is good from the viewpoint of liquidity and vice versa.The cash ratio is the ratio of cash and bank balance to the current liabilities. INVENTORY TURN OVER RATIO = COST OF GOODS OLD AVGERAGE VENTORY This ratio indicates how fast inventory is sold. referred to as Turnover Ratios.
Thus. Generally. less favorable are the results. N ET C ED R IT PU C A R H SES CR ITO S TU N V RA ED R R O ER TIO = AVERAGE CREDITORS The ratio indicates the velocity with which the creditors are turned over in relation to purchases. A low ratio shows that debts are not being collected rapidly.It is determined by dividing the net credit sales by average debtors outstanding during the year. NET CREDIT SALES DEBTORS TURNOVER RATIO = DEBTORS AVERAGE This ratio measures how rapidly debts are collected. . Thus. higher the creditors' velocity better it is or otherwise lower the creditors velocity. A high ratio is indicative of shorter time lag between credit sales and cash collections. CREDITIORS TURNOVER RATIO It is determined by dividing the net credit purchases by average creditors outstanding during the year.
Thus. . COST GOODS SOLD SOLD WORKING WORKING CAPITAL TURNOVER RATIO CAPITAL OF = Working capital turnover ratio indicates the velocity of the utilization of net working capital. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.WORKING RATIO CAPITAL TURNOVER It is determined by dividing the cost of goods sold by working capital. This ratio indicates the number of times the working capital is turned over in the course of the year this ratio measures the efficiency with which the working capital is being used by a firm.
IV DATA ANALYSIS DATA ANALYSIS .CHAPTER.
78171 104863 114577 SUB TOTAL 1241 133234 157951 E x p o rt In c en tiv e s 2816 3886 3870 O ther R eceipts 550 580 502 DIt l C sT n l 2004-05 T o SaC R IaP h IIO fNo w 127544 2005-06 2006-07 137700 162323 C A S H IN FT O WO W : OU L FL : A A an R IA P 22778 19348 13916 Md vT Eces/PL S : D ispa B H E 23229 9 02 3 2945 1N D . O F . H E L 5396 8557 E xciseBD uty 7 0 47476 9 7770 7587 IN p se s B B E E 2599 28442 3364 E x De.P S U BFC O N T 800 1552 2108 L M T TH ER 783 5 86237 845 9 T O T A L O FA O E R I A L S 41410 58334 57887 P erso nn el P aym ents 23392 31682 27088 T alesl T axt F l o w ota O u 119725 144571 142476 4366 5410 4194 E X PSS . tch esL B H E L 7476 5396 8557 8 D i s p. loans and advances and cash balances are decreased in 200809 when compared to 2007-08. CS FO O AH L W F B E. In terest 800 1552 2108 T O T A L O F O TH ER 48315 58334 54589 2 0 07 -0 8 2008-09 16357 29443 13781 32748 1 1 1 843 125412 141981 187603 2481 3275 2370 5M8 2007-08 2008-09 146832 191476 16357 13781 8301 1 1 1 843 28623 141981 48624 2481 3922 2370 1274 146832 90744 18583 3910 8301 8368 28623 4275 4862 8667 4 3922 125 1274 (463) 90744 43465 18583 134209 3910 12623 8368 4275 8667 125 (463) 43465 134209 12623 29443 32748 9723 125412 39656 187603 34868 3275 • 1 08 1 5M8 1370 191476 96430 20207 4735 9723 9900 39656 3975 34868 9013 1 08 1 • 1370 (260) 96430 47570 20207 144000 4735 47476 9900 3975 9013 (260) 47570 144000 47476 T otal O u t F low EXPS.78171 tc h N 104863 114577 IN D 25995 28442 30864 SUB TOTA 1241 133234 157951 Im ports G IFL 31541 40512 40670 E x p o rt InDen tiv e s c u ty 2816 3886 3870 C u stom s 5271 10822 6451 O ther R eceipts 550 580 502 FAB. S U R P L U S /(D E F E C IT ) 119725 7819 144571 (6871) 142476 19847 . Lakhs) 200 4-05 2005-06 2 0 0 6 -0 7 DISCRIPTION C A S H IN F L O W : A d v an ces/P P 22778 19348 13916 D ispa tch es B H E L 23229 9 02 3 29458 D i s p a tc h e s N o n . therefore the changes in working capital is decreased in 2007-08 and the total current assets are increased in 2007-08 when compared to 2006-07 there has been increase in working capital since the current assets are more than current liabilities.As the inventories. O F F . In terest 1127 1065 1345 CA B . Interest 5271 10822 6451 D u stom s D u ty 27 57 532 F O R . nN O N H HL L 3228 5 3961 40864 Im p e n se s N 31541 4051 4067 E x ports G IFo n B H E L 9453 7902 2 87160 C IR . S U R P L U S /(D E F E C IT ) 7 8 1 9 (6871) 19847 E xcise D uty 7049 7770 7587 E x p e n se s B H E L 3228 3961 4364 E x p e n se s N o n B H E L 9453 7902 8716 D IR . Interest 27 57 532 C O R P .H DR B D HL YEAA (Rs. SUB CONT 1127 1065 1345 T o tT l C aM AIT ElR wA L S aAL sh nf o I 127544 137700 162323 O 71410 86237 87887 C A S H el T F L ents P erso nnO UP aym O W : 23392 31682 27088 Males E R IA L S : A T T ax S 4366 5410 4194 1N D .a N O e s B H E L N o n .
HYDERABAD DISCRIPTION MATERIAL Raw material INVENTORY & 2004-05 8460 1329 5394 1588 1106 106 17983 . 19694 6195 25889 2005-06 9447 1667 5534 1255 1574 66 19543 20201 9048 37249 56792 131937 157 139 2006-0 7 12060 1470 7131 1811 1371 55 23898 29779 4669 34448 58346 153205 193 20 07-08 2008 16646 1317 10262 2029 1297 111 31662 25812 15320 41132 72794 137838 133 1 Indirect materials Materials in Transit Transfer in Transit Materials withScrap & Others Fabricators Total of 1 1 1 1 8 3 mat.Production Inventory Work In Progress Finished Goods Total of Production Total Inventory Inventory Turnover No:of days of T.INVENTORY OF BHEL.O 1 8 2 6 1 .
OPERATING CYCLE OF BHEL HYDERABAD .
Bal Additions Deletions Cl. Office Inter & Unit 92857 (3869) 2764 95004 2005-06200 6-07 3252 83839 17180 299 104570 3252 93293 1362 738 (24!) 98404 2 007-08 3252 102496 (2066) 573 104255 2008-09 3252 110026 (3 1 896) 386 81768 Def.DISCRETION 2004-05 RESOURCES Funds from 3252 Reserves CORP. (NET) Balances Credit Loans TOTAL UTILISATION FIXED ASSETS OF FUNDS Gross Block Op. Net Block Capital WIP TOTAL (A) WORKING Current CAPITAL assets Inventories Book Debts Cash/ Bank Loans & SUB TOTAL (B) Current Liabilities Advances fromSundry Creditors Customers Other 29404 263 32037 23906 8131 883 9014 32037 1020 33057 25412 7645 250 7895 33057 1767 32824 26965 7859 344 8203 34825 886 35711 28616 7095 1793 8888 35711 2808 38519 30159 8360 2053 92 10505 43744 84558 845 14287 143434 29116 19484 4295 56606 84880 957 12859 155302 28822 22543 4549 58130 85001 898 11763 155792 31636 29738 2824 72540 81237 1281 11611 166669 32228 27610 2612 63246 82829 473 9104 155652 44162 20467 7841 . Bal Less Cum Dep.
Expends.PARTICULARS Current Assets nventory debtors Cash oans & Advances Total (A) Current Liabilities Advances from Customers Sundry Creditors Other liabilities 3 rovisions Total (B) Net Working Capital (A-B) Provisions SUB TOTAL © NET WORKING CAPITAL (B)Def.Rev. TOTAL 2004-05 2005-06 2006-07 20 07-08 2008-09 121 233 2 77 433 80 105 23 30 238 195 10843 63738 79696 6294 9500 156 235 3 56 450 80 98 20 23 221 229 8376 64290 91012 5663 10457 138 203 2 51 394 75 129 12 21 237 157 8931 73129 82663 7538 98404 192 215 3 55 465 85 130 12 32 259 206 1197 7442 9224 3125 1042 132 173 1 239 545 92 87 34 26 p39 306 12520 84990 70662 601 81768 .
545. 2665.9 179. 2563. 1 .5 3171.EARNINGS Sales less returns Despatches made to customers Income from external erection and Revenue from works contract : services Jobs done for internal use .6 48 165. 209.6 259.7 3192.6 876.0 75 1 797.8 (221.0 830. 6387. 905.4) 1577.0 19.0 0. 253.7 3 7552.3 56.1 0.0 447.4 8.4 1546 393.9 552.4 125. 0. '' TOTAL OUTGOINGS Raw materials Stores & spares Transfer in other divisions Employees remuneration & Mfg. 1415 2065.4 2065. 442. 2713.1 1368.4 150.8 3439. 9329: 0.0 1447. (25. 8) 3274. 1577.1 24. & other expenses Interest Depreciation DRE written off Provisions Prior period item Profit before tax TOTAL Profit before tax Balance of profit brought LESS: forward from last year A.1 549.1 2069. 193.3 1536 16772. 6967.8 8 4544.0 824.3 16772. 167.8 1. Net prior period 2. 7291.7 546. 8404.0 97.85 9723 2286.2 1093.5 1502 545.3 0. 1502 1576 7788.0 2067. 3397. Other revenues Accretion/(desertion) to W1P Transfer out to & finished goods other divisions. 0 0. 0. 407.5 9283. 2593. Provision t/fd to unit a.3 10249.6 (626.0 1185.4 638.8 9) 2945. 0.4 161.3 6 7629.5 327.4 2329. 1536 1368.9 441. 79. 1576 1044. 456. 8600. 1184 526. 545 465 706.8 704.9 611.7 1686.9 (1429. 3343.7 10457.9 164.2 713.4 1044. Taxation 2004-05 2005-06 2006-07 20 07-08 2008-09 4065. 6 1415 6249.8 (27.2 0 1378.3 . 305. 701.2 580. 8381.0 24.
PROFIT &LOSS A/C OF BHEL. HYDERABAD 2004 -05 2005-06 2 0 0 6 -0 7 2 0 07 -0 8 2008-09 CURRENT ASSETS Inventories Book Debts Cash/ Bank Balances Loans & Advances SUB TOTAL (A) Current Liabilities Advance from Customers Sundry Creditors Other Liabilities Provisions SUB TOTAL (B) NET WORKING CAPITAL (B)-(C) 43744 84558 845 14287 143434 56606 84880 957 12859 155302 58130 85001 898 11763 155792 31636 29738 2824 72540 81237 1281 11611 166669 32228 27610 2612 11977 74427 92242 63246 82829 473 9104 155652 44162 20467 7841 12520 84990 70662 29116 28822 19484 22543 4295 4549 10843 8376 8931 63738 64290 73129 (A-B) 79696 91012 82663 .
83 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation The ratio is equal to or near to 2:1.23 1.5 1 0.e. In the context of BHEL. i.83 RATIO 2. In Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 CURRENT ASSETS 143434 155302 155792 166669 155652 CURRENT LIABILITIES 63738 64290 73129 74427 84990 RATIO 2.5 0 RATIO 2.25 2.25 2. and current assets double the current liabilities are considered to be satisfactory.13 2.41 2.5 2 1.CURRENT RATIO: (Rs.41 2.23 1.13 2. Hyderabad the current ratio is more than standard. It has always been ..
53 1.4 0.6 1.53 1. QUICK RATIO: (Rs.33 1. in Lakhs) QUICKASSETS 99690 98696 97662 94129 92406 YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 CURRENT LIABILITIES 63738 64290 73129 74427 84990 RATIO 1.08 Interpretation: As a convention Quick Ratio of 1.56 1.4 1.2 0 2004-05 2005-06 2006-07 2007-08 2008-09 RATIO 1.6 0.2 1 0.08 RATIO 1. 1 is considered satisfactory. Thus it is an indication of efficiency of the firm of maintaining current assets.8 0.33 1.26 1. From the above we can see that Quick Ratio .above 2.56 1.26 1.
even though it was decreasing.for the past five years has been above or equal to "1" which is good. .
Though the ratio for 2008-09 has shown a slight increase i.005 RATIO 0.014 0.05.016 0.012 0. .01 0.CASH RATIOS: (Rs.012 0.014 0.018 0.013 0. 0.5:1 or 1:2.017 Interpretation The acceptable norm for this ratio is 50% or 0. in Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 LIQUID ASSESTS 845 951 898 1281 473 CURRENT LIABILITIES 63738 64290 73129 74427 84990 RATIO 0.013 0.004 0.002 0 2004-05 2005-06 2006-07 2007-08 2008-09 0.006 0.008 0.0 1 7 0..005 RATIO 0.e.012 0.014 0.
5 3 2. In these years inventory has not been sold fast and stayed on the self for a longer period. In 2005-06 there has been a decrease in the inventory turnover ratio.02 2.33 1. In Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 TURNOVER 132265 131972 153205 137838 1 74490 AVG 43744 INVENTORY 56606 58330 72540 63246 RATIO 3.66 1. In 2007.66 2.76 Interpretation The inventory turnover ratio measures how quickly the inventory is sold. due to the increase in net sales.9 2.76 RATIO 3.INVENTORY TURNOVER RATIO : (Rs.33 2.5 1 0.5 2 1.5 0 2004-05 2005-06 2006-07 2007-08 2008-09 3. .inventory ratio has increased.02 2.9 RATIO 2.
76 due to increase in sales.But in 2008 the ratio is increased to 2. .In 2008 the ratio is decreased .
YEAR OVER RATIO PERIOD 365 365 365 365 365 9.INVENTOTRY CONVERSION PERIOD: YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 NO.06 1. CONV.7 9.89 2. . OF DAYS IN A 1NVERTORY TURN INV . there was a fall in 2008-09.05 2.08 38 40 177 193 175 RATIO 193 177 175 200 180 160 140 120 100 80 60 40 20 0 38 40 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation: From the above we can say that the Inventory Conversion Period has shown a steady increase from 2004-05 to 2007-08.
5 1.1 2 1.8 1. But in the current year it again drastically increased to 2.5 1 0.7 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation: The debtor’s turnover ratio of BHEL Hyderabad had been considerably decreasing from 1.1 RATIO 2.7 in year 2008.7 2.DEBTORS TURNOVER RATIO: in Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 TURNOVER 132265 131972 153205 137838 1 74490 (Rs.1. which increased to 1. AVG DEDTORS 78147 84719 84940 83119 82033 RATIO 1.5 0 1.5 1.80 in 2007 and again decreased to 1.5 in 2005.5 2.7 in the accounting year 2005 to l.8 1.7 1.7 1. .
AVERAGE COLLECTION PERIOD: YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 NO.e.7 365 365 365 365 1.. 214 243 203 215 174 250 214 200 150 100 50 0 243 203 215 174 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation The Average Collection Period i. the duration provided for the collection of debts has been increasing from 214 days in 2004-05 to 243 days in 2005-06 but it decreased in 2006-07 to 203 days and again it has increased to 215 days in the 2007-08 and it decreased to 174 in the financial year 2008-09.1 AVG. .8 1. COLL.7 2.OF DAYS IN A DEBTORS YEAR TURNOVER 365 1.5 1.
14 (Rs.92 2.75 3.43 in 2007-08.43 3. and has decreased rapidly to 2.71 2.92 2.5 0 3. CREDITORS 16678 21013.43 3. Lakhs) 4 3.5 28674 24038.14 in the financial year 2008-09.75 3. .5 26140.9 in 2006-07.5 2 1.7 in 2005-06 and to 2.5 3 2.75 in the year 2004-05 and it decreased to 3.5 1 0. and it increased to 3.71 2.5 RATIO 3.14 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation: Here the Creditors Turnover Ratio was 3.CREDITORS TURNOVER RATIO: YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 PURCHASES 62496 77888 76291 69672 75521 AVG.
AVERAGE PAYMENT PERIOD: (Days) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 NO. and it decreased to 116 in the financial year 2008-09.P 97 98 125 150 116 160 140 120 100 80 60 40 20 0 2004-05 2005-06 2006-07 97 98 125 150 116 2007-08 2008-09 Interpretation The Average payment Period has steadily increased from 98 days in 2005-06 to 150 days in 200708.92 2.43 3. .71 2.14 A.75 3.P. OF DAYS CREDITORS IN A YEAR TURNOVER RATIO 365 365 365 365 365 3.
In Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 TURNOVER 132265 131972 153205 137838 174490 WORKING CAPITAL 79696 91012 82663 92242 70662 RATIO 1.5 2 1.85 1.49 2.45 in 2005-06.85 in 2006-07 it again decreased to 1.49 in .49 2. although it showed a slight increase of 1.46 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation A higher Working Capital Turnover Ratio indicates efficient utilization of working capital.46 2.65 in 2004-05 to 1.5 0 1.WORKING CAPITAL TURNOVER RATIO: (Rs. But for BHEL Hyderabad the ratio has been decreasing from 1.45 1.5 1 0.65 1.45 1.65 1.85 1.
.46 in the current financial year.2007-08 and drastically increased to 2.
.95 3.61 10 9 8 7 6 5 4 3 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09 Interpretation: The Raw Material Inventory Turnover Ratio for the organization has been increasing at a fast pace from 8. but in the subsequent years.88 4.RAW MATERIAL INVENTORY TURNOVER RATIO: (Rs. The ratio of the current year is 4.17 in 2004-05 to 8.61.17 8.82 in 2005-06. Lakhs) YEAR RAW MATERIAL CONSUMERD 69099 83287 83866 64672 75521 RAW MATERIAL INVENTORY 8461 9446 12060 16647 16350 RATIO 2004-05 2005-06 2006-07 2007-08 2008-09 8.82 6. there was a decline in the ratios.
WORK-IN-PROCESS INVENTORY TURN OVER RATIOS: YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 COST OF PRODUCTION 107986 119326 132623 118357 151482 WIP INVENTORY 19694 20201 29779 25812 18689 RATIO 5.48 5.58 8.90 4.45 4.10 RATIO 9 8 7 6 5 4 3 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09 .
4 13. FINISHED GOODS INVENTORY TURNOVER RATIO: (Rs in Lakhs) YEAR COST OF GOODS SOLD FINISHED GOODS 6801.4 RATIO 25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 . This has increased and decreased subsequently in the later years but less in comparison with the financial year 2008-09.5 INVENTORY 7621.4 12.3 16.48 in 2004-05 to 5.Interpretation: The Work In Progress Inventory Turnover Ratio has been decreasing from 5.5 1 1 800 RATIO 2004-05 2005-06 2006-07 2007-08 2008-09 110749 124808 139705 124418 158669 16.4 20.90 in 2005-06.5 9994.5 6858.
Interpretation The Finished Goods Inventory Turnover Ratio of BHEL Hyderabad has been fluctuating in all the five years of the study made. .
HYDERABAD (in lakhs) DISCRETION RESOURCES Funds from CORP. Net Block Capital WIP TOTAL (A) WORKING CAPITAL Current assets Inventories Book Debts Cash/ Bank Balances Loans & Advances SUB TOTAL (B) Current Liabilities Advances from Sundry Creditors Other Provisions SUB TOTAL © NET WORKING Def.Rev. TOTAL 2004-05 3252 92857 (3869) 2764 95004 2005-06 3252 83839 17180 299 104570 2006-07 3252 93293 1362 738 (24!) 98404 2007-08 3252 102496 (2066) 573 104255 2008-09 3252 110026 (3 1 896) 386 81768 29404 263 32037 23906 8131 883 9014 43744 84558 845 14287 143434 29116 19484 4295 10843 63738 79696 6294 95004 32037 1020 33057 25412 7645 250 7895 56606 84880 957 12859 155302 28822 22543 4549 8376 64290 91012 5663 104570 33057 1767 32824 26965 7859 344 8203 58130 85001 898 11763 155792 31636 29738 2824 8931 73129 82663 7538 98404 34825 886 35711 28616 7095 1793 8888 72540 81237 1281 11611 166669 32228 27610 2612 11977 74427 92242 3125 104255 35711 2808 38519 30159 8360 2053 92 10505 63246 82829 473 9104 155652 44162 20467 7841 12520 84990 70662 601 81768 . Reserves & Surplus Inter Unit Balances Def. Expends. Bal Less Cum Dep. Credit Loans TOTAL UTILISATION OF FIXED ASSETS Gross Block Op. Bal Additions Deletions Cl.BALANCE SHEET OF BHEL.
1 1368.2 580. Dividends c.2 1093.4 150. Net prior period 2.6 7552.1 0.0 0.6 876.2 253. Others B.0 97. Development Rebate Reserve C.0 2067.4 1044.6 48 165. Investment Allowance Reserve Balance of profit carried Balance Sheet 0.0 7291.0 0.9 552.8 193.2 2563.3 6249.3 2665.6 8404.0 830.5 327.8 2003-04 4544.7 526.3 (25.8 8600.8) 3274.8 (221.0 75 1 797. 1 209.8) 545.7 3192.2 2005-05 3397.8 0.b.1 24.3 6967.0 9329:0 0.7 2593.7 2006-07 3171.0 824.3 456.0 0.3 16772.3 0.4 1546 393.9) 2945.3 2004-05 11848. Provision t/fd to unit a.7 Despatches made to customers 6387.4 638. 1 .3 2065.0 11002.2 2003-04 EARNINGS Sales less returns 4065. & other expenses Interest Depreciation DRE written off Provisions Prior period item Profit before tax TOTAL Profit before tax Balance of profit brought forward LESS: from last year A.9) 164.0 0.3 2713.3 56.0 0.3 16772.3 1368.2 Income from external erection and 442.6 3343.5 1378.85 9723 2286.0 0.8 Revenue services from works contract : Jobs done for internal use Other revenues Accretion/federation) to W1P 1.0 0.0 to 9283.9 79.3 10249.9 611.0 0.0 9329.0 1447.3 Transfer out to other divisions.9 (1429.0 0.0 0.0 10249.8 3439.6 8381.5 9283.6 0.9 179.4 14154.0 8381.0 0.0 24. Taxation .3 545.1 549.6 15761.7 1686.9 441.0 0.0 447.9 545 465 706.8 (27.6 14154.0 15361.3 0.7 546.4 8.4 161.4 2065.4 2329.0 0.6 & 259.6 (626.6 1577.8 704.1 15361.8 0.8 701.4) 1577.3 0.8 7629.0 19.2 713.8 1044.0 0.0 0.0 1185.4 0.7 15761.6 407. '' finished goods TOTAL OUTGOINGS Raw materials Stores & spares Transfer in other divisions Employees remuneration & benefits Mfg.7 10457.1 2069.0 0.3 7788.0 0.5 15023.8 15023.4 125.6 0.6 905.9 305.1 167.
CONCLUSIONS & SUGGESTIONS .CHAPTER V FINDINGS.
63738 Lakhs in 20042005 to Rs. and so on decreasing till 2005-06. 6. This shows that the rate at which the stock is turned over. 143434 Lakhs in 2004-05 to Rs. The debtors constitute nearly 50% of the total current assets this shows that the organization is providing more credit terms to its customers. The Net Working Capital was Rs. Current Assets have steadily increased from Rs. 79696 Lakhs in 2004-05. 2..02 in 2004-05 to 2. 155302 Lakhs in 2005-06 and steadily increased so on to 155652 till 2008-09. during the past five years is becoming lesser and lesser. which increased to Rs. the Current Liabilities have also comparably increased from Rs. 5. 2:1 and 1:1.FINDINGS: The findings of the study of Working Capital Management of BHEL Hyderabad are as follows: 1. 3. 84990 in 2008-09. Again it increased to 92242 in 2007-08 and then it decreased to 70662 in the year 2008-09. 8. The maintenance of Cash and Bank Balances has been fluctuating. 91012 Lakhs in 2005-o6hough it decreased in 2006-07 to 82663.33 2005-06. Thus the collection period given . The Inventory Turnover Ratio has been decreasing Iron 3.e. this shows that the debts are not collected promptly. The Debtors Turnover Ratio has been decreasing in the past five years. As the Current Assets increased over the past five years. this is because the investment in inventory has steadily increased over the past five years4. Thus the inventory conversion period has been increasing. The organization is able to maintain both the Current & Quick Ratio above the standard norms i. 9. 7.
12. 11. The turnover of BHEL Hyderabad as compared to the financial year 2004. The raw material consumed in the organization has been steadily increasing from Rs. The finished goods inventory has always been fluctuating from the past five years.has been increased to 42225 lakhs.14 in 2008-09 which is also revealed by the Average Payment Period. The organization's Creditors Turnover Ratio has also been decreasing because of the prompt payments made by the organization to the outsiders till 2005-06. 15. in the current year.and again it increased to 3. but it increased to 2. 83866 Lakhs in 2008-09 but the consumption in the current year has declined to Rs. 77154 Lakhs. 56653 Lakhs in 2004-05 to Rs.46 in 2008-09. 13. Though the Working Capital Turnover Ratio is decreasing over the last four years still the company is maintaining a positive ratio of turnover to working capital. .to the customers has increased from 191 days in 2004-05 to 220 days in 2008Bharat Heavy Electrical Limited 10. this is due to more production and profits.
3. Apart from the LIFO and FIFO methods can be used for the purpose of the stock valuation. 4. in the current year. 5. which is mainly due to the decrease in the manufacture cycle time for the last four year and increased from 4. . The turnover of BHEL Hyderabad as compared to the financial year 2004-05 has been increased to 42225 lakhs. The liquidity position of the company is satisfactory. BHEL is using the moving average method in valuing the slick. DUEL follows a centralized cash management system but it has some disadvantages.CONLUSSIONS: 1. this is due to more production and profits. Even though the company's current ratio does not equal the standard norm. It is imperative to have perfect condition between the regional operating divisions in the commercial departments of the BHEL. 4. The net working capital of BHEL is good.58 in the year 2006-07 to 8.10 in the Year 2007-08 which shows increase in manufacture cycle time. There has been increasing and decreasing rate in the Work in Progress Inventory Turnover Ratio. 2. But the company's working capital turnover ratio shows the utilization of working capital is not satisfactory.
which has been increasing over the years. Necessary measures should be taken for the disposal of the scarp as soon as possible. Company should collect the debts as soon as possible. 6. Steps also should be taken to reduce the scrap. 3. If sales order increases the High quality position of the company also improves. The inventory should be reduced to the maximum extent by following procedures like "just. As far as possible the raw material should be brought as and when necessary. Company's average collection period of debtors is satisfactory when compared to previous years.in-time". 4. import substitution. To the company this is difficult to manage the accounts receivables. management 2. there has been a considerable increase in the raw materials and the components. The debtors constitute nearly 50% of the total current assets. Some contract should enter with electricity boards such that the necessary Power will be supplied by them for producing the goods . By observing the material inventory. Majority of the sundry debtors constitute state electricity board and public sector undertakings. It is suggested that the company should concentrate on the of current assets and current liabilities more effectively.SUGGESTIONS: 1. But the company should strive to minimize the period future. 5.
necessary with regards to the other public sector undertaking also mutual exchange of services can be done whenever possible. There should be revision of credit policy on sales and liquidity to reduce the debtors there by increase efficiency in collection performance. 7. 9. It should be applied to the government that some aid is granted directly to BHEL with regard to electricity boards and other public sector unit so that the previous debts will be recovered. Thus. . There has been reduction in W-I-P inventory also which is mainly due to decrease in manufacture cycle time. 8. it can be recommended reducing the cycle time to possible extent.
com .N.MAHESHWARI • BHEL ANNUAL REPORT 2008-09 • www.com • www.investopedia.studyfinance.BIBLIOGRAPHY • FINANCIAL MANAGEMENT BY I M PANDEY • PRINCIPLES OF MANAGEMENT ACCOUNTING BY Dr. S.
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