A PROJECT REPORT ON

“Working Capital Management in HCL

INFOSYSTEMS LTD.”
In Partial Fulfilment for the award of

BACHELOR DEGREE IN COMMERCE

Submitted by:

Chandan kumar Sahu

Exam Roll No : 011603CM083
Under The Guidance Of

Pravat kumar Sahoo

Lect. in Com., Khallikote Auto. College, Berhampur

POST GRADUATE DEPARTMENT OF COMMERCE,

KHALIKOTE AUTONOMOUS COLLEGE,

BERHAMPUR, GANJAM
2016-2019

1
 CERTIFICATE

This is certifying that Mr. Chandan kumar sahu, a

student of B.COM final year in Khallikote Autonomous
College, Berhampur, bearing Exam Roll
no.011603CM083, has worked a project on “A STUDY ON
WORKING CAPITAL MANAGEMENT” under the guidance and
supervision. This project report has the requisite standard
and to best of my knowledge no part of it has been
reproduce from any other project, monograph, report or
book.

Date:
Place: Signature of guide

2
 DECLARATION

I, Chandan kumar Sahu, bearing Roll

No.011603CM083, a student of Khallikote Autonomous
Collage, Berhampur hereby declare that the project work
on Working Capital Management prepared by me is an
authentic work carried out for the partial fulfillment of
the requirement for the award of the degree of bachelor
of commerce under the guidance of Pravat kumar sahoo,
Lect. In Commerce, Khallikote Autonomous College,
Berhampur.

The matter embodied in the project work has not

been submitted for the award of any other degree,
diploma or any other similar title or prizes to the best of
my knowledge and belief.

Chandan kumar sahu

Roll No:-011603CM083
B.com final year

ACKNOWLEDGEMENT
3
To make any project report, essential requirement is able
guidance is able guidance and reference without which
project is incomplete. First and foremost, I would like to
thank my respectable and learned guide, Pravat kumar
sahoo Lect. in commerce who has provided such as
opportunity and motivation to gain knowledge through
this type of project. This will help me a lot in my career.
Secondly, I would like to bestow my gratitude to the
Khallikote Autonomous Collage, which provides me
such opportunity to undertake the project report on
Working Capital Analysis for providing valuable input
resources for preparing project like library.
Last but not least, I am also thankful to my
friends, colleagues, parents and all faculty member of
commerce department whose co-operation and moral
support has contributed major part in preparation of my
project.

Chandan kumar sahu

Date: RollNo.011603CM083
Place: B.com final year

4
 CONTENTS

1. CHAPTER-01

 INTRODUCTION OF COMPANY 06
 INTRODUCTION OF WORKING CAPITAL 11

2. CHAPTER-02

 PURPOSE OF STUDY 13
 SCOPE OF STUDY 14
 LIMITATION OF STUDY 15

3. CHAPTER-03

 TYPES OF WORKING CAPITAL 17

 WORKING CAPITAL CYCLE

3. CHAPTER-04

 INVENTORY MANAGEMENT 32
 CASH MANAGEMENT 38

5. CHAPTER-05

 FINDINGS AND CONCLUSION 43

 BIBLIOGRAPHY 44

5
 CHAPTER-01
Introduction to the Company
The project undertaken is on “WORKING CAPITAL
MANAGEMENT IN HCL INFOSYSTEMS LIMITED”.
It describes about how the company manages its working capital and the
various steps that are required in the management of working capital.

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

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

Working capital refers to the cash a business requires for day-to-day

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

6
AN OVERVIEW ABOUT THE COMPANY

HCL Infosystems is no flash in the Information Technology pan.

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

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

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

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

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

7
 INTRODUCTION TO WORKING CAPITAL
WORKING CAPITAL MANAGEMENT

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

business”

The working capital management precisely refers to management of

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

Cash and bank balance,

Inventories,
Receivables (including debtors and bills),
Marketable securities.

Working capital is commonly defined as the difference between current

assets and current liabilities.

WORKING CAPITAL = CURRENT ASSETS-CURRENT

LIABILITIES

There are two major concepts of working capital:

Gross working capital

Net working capital

8
 Gross working capital:

It refers to firm's investment in current assets. Current assets are the

assets, which can be converted into cash with in a financial year. The
gross working capital points to the need of arranging funds to finance
current assets.

Net working capital:

It refers to the difference between current assets and current liabilities.

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

CHAPTER-02
9
PURPOSE OF STUDY

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

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

of

the concept “Working Capital Management”.

To understand the planning and management of working capital at

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

SCOPE OF THE STUDY

10
This project is vital to me in a significant way. It does have some
importance for the company too. These are as follows –

This project will be a learning device for the finance student.

Through this project I would study the various methods of the
working capital management.
The project will be a learning of planning and financing working
capital.
The project would also be an effective tool for credit policies of the
companies.
This will show different methods of holding inventory and dealing
with cash and receivables.
This will show the liquidity position of the company and also how do
they maintain a particular liquidity position.

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 LIMITATIONS OF THE STUDY:

We cannot do comparisons with other companies unless and until we

the data of other companies on the same subject.
Only the printed data about the company will be available
and not the back–end details.
Future plans of the company will not be disclosed to the
trainees.
Lastly, due to shortage of time it is not possible to cover all
the factors and details regarding the subject of study.
The latest financial data could not be reported as the
company’s websites have not been updated.

CLASSIFICATION OF WORKING CAPITAL

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Working capital can be classified as follows:

On the basis of time

On the basis of concept

CHAPTER-03
13
 TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze

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

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

The working capital needs can be bifurcated as:

Permanent working capital

Temporary working capital

Permanent working capital:

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

Temporary working capital:

Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position of the
required working capital is needed to meet fluctuations in demand
consequent upon changes in production and sales as a result of seasonal
changes.

15
The permanent level is constant while the temporary working capital is
fluctuating increasing and decreasing in accordance with seasonal
demands as shown in the figure.

In the case of an expanding firm, the permanent working capital line

may not be horizontal. This is because the demand for permanent
current assets might be increasing (or decreasing) to support a rising
level of activity. In that case line would be rising.

16
 WORKING CAPITAL CYCLE

The upper portion of the diagram above shows in a simplified form the
chain of events in a manufacturing firm. Each of the boxes in the upper
part of the diagram can be seen as a tank through which funds flow.
These tanks, which are concerned with day-to-day activities, have funds
constantly flowing into and out of them.

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

Each of the areas- Stock (raw materials, WIP, and finished goods), trade
debtors, cash (positive or negative) and trade creditors – can be viewed as
tanks into and from which funds flow.

Working capital is clearly not the only aspect of a business that affects
the amount of cash.

17
 The business will have to make payments to government for
taxation.
Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
Shareholders (existing or new) may provide new funds in the form
of cash
Some shares may be redeemed for cash
Dividends may be paid
Long-term loan creditors (existing or new) may provide loan
finance, loans will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business

Unlike, movements in the working capital items, most of these ‘non-

working capital’ cash transactions are not every day events. Some of
them are annual events (e.g. tax payments, lease payments, dividends,
interest and, possibly, fixed asset purchases and sales). Others (e.g. new
equity and loan finance and redemption of old equity and loan finance)
would typically be rarer events.

18
 SOURCES OF WORKING CAPITAL

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

Banks:
These include the following banks –
State Bank of India
Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
State Bank of Patiala
State Bank of Saurashtra

Commercial Papers:
Commercial Papers have become an important tool for
financing working capital requirements of a company.
Commercial Paper is an unsecured promissory note issued
by the company to raise short-term funds. The buyers of the
commercial paper include banks, insurance companies, unit
trusts, and companies with surplus funds to invest for a short
period with minimum risk.
HCL issues Commercial Papers and had 4000 commercial
papers in the year 2006.

19
 HCL FINANCIALS:

WORKING CAPITAL POSITION :

CURRENT ASSET – TOTAL ASSET

PARTICULARS 2006 2005 2004 2003 2002

CURRENT 100970 81533 54091 45042 55985
ASSETS
NET BLOCK 7970 5329 4925 4954 5552
TOTAL ASSETS 122479 99139 87076 71285 75205
CA/TA 82.44 82.24 62.12 63.18 74.43

The current asset percentage on total asset is the highest over the years.
This increasing percentage of current assets to the total assets at first
might indicate a preference for liquidity in place of profitability, but a
look into the nature of the business carried on by HCL Infosystems
reveal the reason behind it. How far their preference to current assets
has affected the sales is shown below.

NET CURRENT ASSET – SALES

PARTICULARS 2006 2005 2004 2003 2002

NET CURRENT 40343 34742 14301 18752 27065
ASSETS
SALES 238136 199886 154295 166604 127003
WORKING 16.12 142.93 -23.736 -30.7 -0.46
CAPITAL %
INCREASE
SALES % 19.14 29.54 -7.38 31.18 8.7
INCREASE

20
The sales has increased and the profits risen despite the 16.12% increase
in working capital. But what is noteworthy here is that the firm has
managed to maintain the trend of an increase in net current assets.
Whether the change has worked for the company has to be analysed in
the context of the growth in sales as compared to the previous year.
There has been a 19.14% rise in the sales or revenue generated. This
would automatically suggest towards a very efficient working capital
management where the assets of the firm which are short-term in nature
have been utilized optimally in connection to their fixed assets. The firm
has gone towards such a dramatic shift in their working capital position
might be because of the tremendous growth witnessed in the domestic
IT market

CURRENT ASSET – FIXED ASSET

PARTICULARS 2006 2005 2004 2003 2002

NET CA/NET BLOCK 5.062:1 6.519:1 2.903:1 3.785:1 4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the
liquidity position of the firm. This ratio has declined for the firm
compared to the previous year. There could be an argument as to whether
the increased ratio of working capital to net block is a conservative policy
and whether it would be detrimental to the interest of the company. Or,
whether it would have been proper if the company invested more into the
capital expenditure in the form of plant and machinery or invested in any
other form that would have got them an internal rate of return. What has
to be kept in mind before coming to a conclusion as to the policy of the
company, is the fact that the firm being primarily into assembling, its
investment in the fixed asset segment need not be high. A look into the
capacity utilization of the plant would reaffirm this point. It would be
ideal for the firm to continue in the same line and not have excessive
investment in the fixed asset as they can easily add onto this part.

21
 CURRENT ASSET – CURRENT LIABILITY

PARTICULARS 2006 2005 2004 2003 2002

CURRENT ASSETS 100970 81533 54091 45042 55985
CURRENT LIABILITES 60627 46791 39790 26290 28920
% CURRENT ASSETS 23.84 50.7 20.09 -19.54 8.9
INCREASE
%CURRENT 29.57 17.6 51.35 -9.1 19.45
LIABILITES INCREASE

The 16.12% increase in Net Current assets despite of the fact that there
has been an increase in the Current Assets by 23.84% and increase in
Current Liability has been by 29.57% over that of the previous year has to
be attributed to the fact that in 2005, the company showed such a high
increase in CA, that it is still being offset. This is an indication as to the
expanding operations of the firm. HCL has increased its current assets in
order to meet the increasing sales. The firm’s level of liquidity being
high, we need a check on whether it affects the return on assets.

CHAPTER-05

22
 INVENTORY MANAGEMENT

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

Nature of Inventories

Inventories are stock of the product of the company is manufacturing for

sale and components make up of the product. The various forms of the
inventories in the manufacturing companies are:

Raw Material: It is the basic input that is converted into the

finished product through the manufacturing process. Raw materials
are those units which have been purchased and stored for future
production.
Work-in-progress: Inventories are semi-manufactured products.
They represent product that need more work they become finished
products for sale.
Finished Goods: Inventories are those completely manufactured
products which are ready for sale. Stocks of raw materials and
work-in-progress facilitate production, while stock of finished
goods is required for smooth marketing operations. Thus,
inventories serve as a link between the production and
consumption of goods.

Inventory Management Techniques

In managing inventories, the firm’s objective should be to be in

consonance with the shareholder wealth maximization principle. To
achieve this, the firm should determine the optimum level of inventory.

23
Efficiently controlled inventories make the firm flexible. Inefficient
inventory control results in unbalanced inventory and inflexibility-the
firm may sometimes run out of stock and sometimes pile up unnecessary
stocks.

Economic Order Quantity (EOQ): The major problem to be

resolved is how much the inventory should be added when
inventory is replenished. If the firm is buying raw materials, it has
to decide lots in which it has to purchase on replenishment. If the
firm is planning a production run, the issue is how much
production to schedule. These problems are called order quantity
problems, and the task of the firm is to determine the optimum or
economic lot size. Determine an optimum level involves two types
of costs:-
 Ordering Costs: This term is used in case of raw material
and includes all the cost of acquiring raw material. They
include the costs incurred in the following activities:
 Requisition
 Purchase Ordering
 Transporting
 Receiving
 Inspecting
 Storing

Ordering cost increase with the number of orders placed;

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

 Carrying Costs: Costs are incurred for maintaining a given

level of inventory are called carrying costs. These include
the following activities:
 Warehousing Cost
 Handling
 Administrative cost
24
  Insurance
 Deterioration and obsolescence

Carrying costs are varying with inventory size. This

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

Composition 2006 2005 2004

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

The increasing component of raw materials in inventory is due to

the fact that the company has gone for bulk purchases and has
increased consumption due to a fall in prices and reduced margins
for the year. Another reason might be the increasing sales, which
might have induced them to purchase more in anticipation of a
further increase in demand of the product. And the low
composition of work-in-progress is understandable as because of
the nature of the business firm is involved in.

To the question as to whether the increasing costs in inventory are

justified by the returns from it the answer could be found in the
HCL retail expansion. HCL caters to the need of the two separate
segments:

a) Institutions for which they manufacture against orders and,

b) Retail segment of the market.

They are more into retail than earlier and at present more than 650
retail outlets branded with HCL sign ages and more are in the
pipeline

25
 The company in order to meet its raw materials requirements could
have gone for frequent purchases, which would have resulted in
lesser cash flows for the firm rather than the high expenditure
involved when procuring in at bulk. The reason why the firm has
gone for these bulk purchases because of the lower margins and the
discounts it availed because of procuring in bulk quantities.

A negative growth in WIP could be because:

a) The time taken to convert raw materials to finished goods is

very minimal
b) This is also due to capacity being not utilized at the
optimum.

ABC System: ABC system of inventory keeping is followed in

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

CASH MANAGEMENT
SOURCES OF CASH:

Sources of additional working capital include the following:

26
 Existing cash reserves
Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans

If you have insufficient working capital and try to increase sales, you
can easily over-stretch the financial resources of the business. This is
called overtrading.

Early warning signs include:

Pressure on existing cash

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

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Infosystems is

mainly lock box system.

Cash Management System involves the following steps:

27
 1. The branch offices of the company at various locations hold the
collection of cheques of the customers.
2. Those cheques are either handed over to the CMS agencies or bank
of the particular location take charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing
house to make them realized. These cheques can be local or
outstation.
4. The CMS agencies or bank send information to the central hub of
the company regarding realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per
the agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS
to the company as per requirement.

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

Cash-Current Liability

Particulars 2006 2005 2004

Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1

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

28
Dividend Policy-Cash

Particulars 2004 2005 2006

Dividend Policy% 210 310 400
Shift in Sales 154295 199886 238136
Cash Balance 4463.43 14582.65 14529.29
Cash in Hand 118.33 128.97 128.97
Cash Flow in Operating Activities

Working Capital Changes

Working Capital Changes 2006 2005 2004

Trade and other receivables -14166 -14510.69 -7106.68
Inventories -5221 -2683.92 -7221.11
Trade Payables and other Liabilities 13026 6419.13 14311.5

The cash from the operation has been subject to considerable change due
to the changes that could be adjusted towards trade receivables and trade
payables. The outflows in inventory have become as low as 37% of what
it was last year despite an increase in the inventory consumption by
16.64%. The resulting reduction in the cash outflows might be because of
the inventories being procured more on credit. That the cash from
operations has declined has affected the current liability index of the firm.

Cash Flow in Investing Activities

Investments in Mutual Funds 2006 2005 2004

Investments (year end) 13539 12277.44 28059.88
Purchase of Investment -65992 -53075.99 -59249.81
Disposal/Redemption of 65312 65489.84 52087.36
Investment

The investments have reduced from the last year due to the redemption of
investments taken place to meet various needs such as increasing demand

29
in stock or inventory and to ensure better credit and receivables policy.
We can see that the firm has in these three years increased their cash
inflow from the investing activities by way of disposal of investments
when in need. That is the firm has redeemed to realize cash as to meet its
expanding operations, fund the inventory procurement and meet the
obligations.

The investments in mutual funds are beneficial to the firm in the context
that they contain interest bearing securities which add up as a source of
revenue for the firm unlike cash which remains idle and unproductive
when not in use. This reduction of dividend could be attributed to
disposal of investments in mutual funds and subsidiary. This disposal
creates a fund, which can be used by the company as and when the need
arises.

RECEIVABLES MANAGEMENT

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

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

Late payments erode profits and can lead to bad debts.

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

businesses whom can least afford it. If you don't manage debtors, they
will begin to manage your business as you will gradually lose control

30
 due to reduced cash flow and, of course, you could experience an
increased incidence of bad debt.

The following measures will help manage your debtors:

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

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

10.Consider charging penalties on overdue accounts.

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

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

31
Recognize that the longer someone owes you, the greater the chance you
will never get paid. If the average age of your debtors is getting longer,
or is already very long, you may need to look for the following possible
defects.

 Poor collection procedures.

 Lax enforcement of credit terms.
 Slow issue of invoices or statements.
 Errors in invoices or statements.
 Customer dissatisfaction.
 Weak credit judgement.

32
Debtors due over 90 days (unless within agreed credit terms) should generally
demand immediate attention. Look for the warning signs of a future bad debt.
For example…..

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

Profits only come from paid sales.

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

HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -

 Develop appropriate procedures for handling late payments.
 Track and pursue late payers
 Get external help if you own efforts fail.

33
 Don’t feel guilty asking for money .. its yours and you are entitled to it.

 Make that call now. And keep asking until you get some satisfaction.
 In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.
 When asking for your money, be hard on the issue – but soft on the person.
Don’t give the debtor any excuses for not paying.
 Make that your objective is to get the money, not to score points or get
even.

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS 2006 2005 2004 2003

DEBTORS TURNOVER RATIO 5.21 5.80 5.53 6.62
AVERAGE COLLECTION PERIOD 70 63 66 55

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

PARTICULARS 2006 2005 2004

PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) 3 49.85 25
DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) 47 134.09 69.8

34
The debts doubtful have doubled but their percentage on the debts has almost
become half. This implies a sales and collection policy that get along with the
receivables management of the firm.

COLLECTION POLICIES:

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

The steps usually followed in collection efforts are:

Sending repeated letters and reminders to the customers

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

Real Time Gross Settlement as such is a concept new in nature and though the
firm uses the system with all the members of the consortium, it is still in its
primal stage and will take time before all of the clients of the firm are willing to
accept it. The firm has made a proposal to the consortium of the banks during
appraisal for faster implementation of internet based banking facility by all the
banks and adoption of RTGS payment system through net.

The debtor’s turnover ratio is completely dependent upon the credit policy
followed by the firm. The credit policy followed by the firm should be such that
the threat of bad debts and the default rate involved should be terminated.

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PARTICULARS 2006 2005 2004 2003

CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14

PAYMENT PERIOD 22 23 17 16

That the creditors turnover ratio has declined and payment period has increased
indicate that the company has got a leeway in making the payment to the
creditors by way of increased time.

With creditors they are having pre-agreements and have undertaken

arrangements with them, which they believe to be the best in the business and
these are fixed.

(NOTE: Acceptances are not included in the computation of creditors turnover)

MANAGING PAYABLES (Creditors)

Creditors are a vital part of effective cash management and should be

managed carefully to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function

can create liquidity problems.

Consider the following: -

 Who authorizes purchasing in your company - is it tightly managed or

spread among a number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities, which take account of stock holding and
purchasing costs?
 Do you know the cost to the company of carrying stock?

36
 Do you have alternative sources of supply? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms as it reduces
dependence on a single supplier.
 How many of your suppliers have a return policy?
 Are you in a position to pass on cost increases quickly through price
increases to your customers?
 If a supplier of goods or services lets you down can you charge back the
cost of the delay?
 Can you arrange (with confidence!) to have delivery of supplies staggered
or on a just-in-time basis?

There is an old adage in business that "if you can buy well then you can sell
well". Management of your creditors and suppliers is just as important as the
management of your debtors. It is important to look after your creditors- slow
payment by you may create ill feeling and can signal that your company is
inefficient (or in trouble!).

Remember that a good supplier is someone who will work with you to enhance the future viability and

profitability of your company.

Financing Current Assets

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

Long term financing:

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

term borrowings from financial institutions and reserves and surplus.

37
Short term financing:

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

Spontaneous financing:

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

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

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

Matching Approach

In this, the firm follows a financial plan, which matches the expected life of
assets with the expected life of source of funds raised to finance assets. When
the firm

follows this approach, long term financing will be used to finance fixed assets
and permanent current assets and short term financing to finance temporary or
variable current assets.

Conservative Approach

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

38
tradable securities to conserve liquidity. In this the firm has less risk of facing
the problem of shortage of funds.

Aggressive Approach

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

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

Current asset to fixed asset ratio:

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

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

higher risk and poor liquidity. The current assets policy of the most firms may fall
between these two extreme policies. The alternative current assets policies
may be shown with the help of the following figure.

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

as CA/FA ratio is greatest at every level of output..

39
 CHAPTER-5

FINDINGS AND CONCLUSION

A developing economy requires an increasing

volume

of investments not only in fixed assets but also in working

capital. Because of the scarcity of investible resources, the

rate

The funds required for carrying out current

operations have been variously called as short-term finance,

short-term funds and working capital.Capital requirements of

a business can be fixed capital and working capital.

In the present study, an attempt has been made by the

40
researcher to present the various facets of working capital

managements and their impact on the liquidity, short-term

solvency and profitability of the units considered for the

study. The study has made a comparison between the

medium

sized and large sized non-banking finance companies. The

various issues related to the problem have been effectively

dealt with and suitable suggestions have been made to

overcome them. The researcher hopes that his attempt

would

serve a useful purpose. Further, it is felt that the study would

pave the way for further research on the same or related

41
issues. The researcher would feel amply rewarded if the

study is made use of by any one connected with

management

of working capital.

42
 BIBLIOGRAPHY

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

Corporate Intranet
Financial Statements (Annual Reports)
Direct interaction with the employees of the company
Internet ----www.hclinfosystems.in
Textbooks on financial management -
 I.M.Pandey

 Khan and Jain

 Promod kumar

Last 4 year Income Statement:

Year over year, HCL Infosystems Ltd. has seen revenues remain
relatively flat (113.7B to 116.9B), though the company was able to grow
net income from 2.8B to 3.2B. A reduction in the percentage of sales
devoted to cost of goods sold from 93.21% to 92.53% was a key
component in the bottom line growth in the face of flat revenues.

Currency in As of: Jun 30 Jun 30 Jun 30 Jun 30
Millions of Indian Rupees 2004 2005 2006 2007
Restated Restated Reclassified

Revenues 43,064.4 77,478.9 113,683.1 116,853.0

Other Revenues -- -35.7 61.6 63.8

TOTAL REVENUES 43,064.4 77,443.2 113,744.7 116,916.8

Cost of Goods Sold 38,701.3 71,496.1 105,964.4 108,121.4

43
GROSS PROFIT 4,363.1 5,947.1 7,780.3 8,795.4

Selling General & Admin Expenses, Total 2,268.8 3,305.9 3,764.3 4,527.1

Depreciation & Amortization, Total 180.6 152.4 124.3 148.1

Other Operating Expenses -- -84.0 84.8 91.2

OTHER OPERATING EXPENSES, TOTAL 2,449.4 3,374.3 3,973.4 4,766.4

OPERATING INCOME 1,913.7 2,572.8 3,806.9 4,029.0

Interest Expense -82.8 -77.6 -132.6 -214.6

223.8

Interest and Investment Income 132.1 146.1 208.0

NET INTEREST EXPENSE 49.4 68.5 75.4 9.2

CASH FROM OPERATIONS 1,614.0 1,267.5 2,786.3 264.7

Capital Expenditure -180.7 -267.8 -424.3 -674.5

Sale of Property, Plant, and Equipment 3.5 10.7 80.3 1.6

Investments in Marketable & Equity Securities 73.7 841.4 -1,453.6 289.0

CASH FROM INVESTING 30.8 622.4 -1,683.3 -231.9

Short-Term Debt Issued 41.1 169.5 -- --

Long-Term Debt Issued 200.8 231.3 200.5 1,837.2

TOTAL DEBT ISSUED 241.9 400.8 200.5 1,837.2

Short Term Debt Repaid -- -- -172.3 -74.7

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Long Term Debt Repaid -707.9 -302.7 -- -250.0

TOTAL DEBT REPAID -707.9 -302.7 -172.3 -324.7

Issuance of Common Stock 283.3 215.2 163.9 44.2

Common Dividends Paid -866.2 -1,047.4 -1,526.6 -1,546.1

TOTAL DIVIDEND PAID -866.2 -1,047.4 -1,526.6 -1,546.1

Other Financing Activities -98.9 -95.4 -132.0 -216.1

CASH FROM FINANCING -1,147.8 -829.5 -1,466.5 -205.5

NET CHANGE IN CASH 497.1 1,060.4 -363.5 -172.7

45