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INTRODUCTION

1.1: PROJECT BRIEFING


In a MBA programme summer training is very crucial part of the course. It helps in application of knowledge and techniques learnt in the real business world. It gives an insight into the working of real organization and also helps in gaining deeper understanding in specific functional areas. It also helps in developing a realistic managerial perspective about the organization in totality. It helps in exploring career opportunities in the areas of interests. In this project, I opt to do the summer project in Hindustan copper limited, Kolkata, under the finance dept. with special reference to working capital management. The project is the keen effort to present a report in an unambiguous manner to reduce comprehensiveness, with all necessary data, information and enlighten the findings and recommendation with special attention based on study.

1.2: Objectives of the Project:


The study of the project is based on the following objectives: To assess the net working capital of HCL for the year 2010-2011.

To measure the short-term liquidity position of HCL through ratio analysis.

To study changes in the financial position of HCL through fund flow analysis.

To indentify the financial strength and weakness of HCL from available data and financial statements through Financial Statement Analysis.

To measure the effectiveness of working capital management of the company through cash cycle.

1.3: Project duration


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The duration of the project was for 8 weeks. The calculations, analysis and assessment were completed on 25th of June; 2011. In this period the days are devoted to make interpretation, conclusion and recommendations.

1.4: Scope of the project


Working Capital Management o Analysis Ratio Analysis Fund Flow Analysis Financial Statement Analysis Cash Convention Cycle

o Assessment Credit Monitoring Arrangement Data

The analysis of the financial ratio over two years in order to measure the shortterm liquidity or working capital of the company. Here I analyze 16 different ratios to know the financial position of the company. The fund flow statement analysis is mainly used to study the sources from where additional funds are derived and he use to which these sources are put. This is mainly consists of preparation of two statements i) Schedule of changes of working Capital ii)Statement of Source & Application of Funds. The financial statement analysis is done to indentify the financial strength and weakness of the company from its accounting data and financial statements. The Balance Sheet, Profit & Loss Account of HCL for the period of financial years (2008-09 to 2009-10). This analysis was done by 17 different ratios.

2. INDUSTRY AND COMPANY PROFILE


2.1: INDUSTRY PROFILE: 2.1.1: HISTORY:
The history of Indian copper industry goes back to 1967 with the incorporation of Hindustan Copper Limited (HCL) and thereafter acquisition of mines from the public sector National Minerals Development Corporations (NMDC). But, the real twist in copper industry took place with the opening up this sector for private sector players in 1992 which saw the involvement on Indo Gulf Corporation and sterlite industries into copper smelting and refining through concentrate imports from various mining-rich countries. Hindustan Copper Limited (HCL) is a public sector undertaking incorporated on 9th November, 1967 under the administrative control of the Ministry of Mines. It has the distinction of being the nations only vertically integrated copper producing company as it manufactures copper right from the stage of mining to beneficiation, smelting, refining and casting of refined copper metal into downstream saleable products. HCL also produces gold, silver, nickel-sulphate, selenium, tellurium and fertilizer as by-products.

2.2: COMPANY PROFILE 2.2.1: Introduction:


Hindustan Copper Limited (HCL), a public sector undertaking under the administrative control of the Ministry of Mines o govt. of India was incorporated on 9th November 1967. It has the distinction of being the nations only vertically integrated copper producing company as it ma and casting of refined copper metal into downstream saleable products. As a responsible corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its stakeholders in paving the way for its long term success.

2.2.2: History of the HCL:


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Hindustan Copper Ltd. (HCL) was incorporated on 9th November 1967. It is a Public Sector Enterprise under the Ministry of Mines, Government of India. In the History of Indian Copper, Hindustan Copper Limited (HCL) holds pride of place. With the spirit of an undaunted pioneer HCL has contributed immensely to the industrial growth of the Country and its march towards selfreliance. Countrys Electrical Sector was nourished by HCL through continuous supply of its prime quality Copper Cathodes, Wire Bars and Continuous Cast Rods. HCL is the only vertically integrated copper producer in India engaged in a wide spectrum of activities ranging from Mining, Beneficiation, Smelting, Refining and

Continuous Cast Rod manufacturer. HCL also produce Gold, Silver, Nickel Sulphate, Selenium, Tellurium and Fertilizer as by products. With its extensive warehouses and sales offices, HCL satisfies the demand of the customers across the length and breadth of the Country. HCL is the first Indian Copper Producer to be accredited with ISO 9002 certification for Continuous Cast Rod Manufacturer at its Taloja Plant and for manufacture of Cathode at its Refineries both at Indian Copper Complex, Ghatsila, Jharkhand and Khetri Copper Complex, Khetri, Rajasthan. November 1967 Incorporated to take over from National Mineral Development Corporation Ltd. M/S Indian Copper Corporation Limited, Private Sector March 1972 Company, located at Ghatsila, Jharkhand with Smelter and Refinery was Nationalized and made part of HCL. Fully integrated Copper complex from mining to refining February 1975 came on stream at Khetri ( capacity 31,000 tonnes of refined copper) The largest hard rock open pit mine in the country came into November stream at Malanjkhand in Madhya Pradesh of capacity 2 1982 million tonnes ore Continuous Cast Wire Rod plant of South Wire Technology of December 1989 capacity 60,000 MT was commissioned at Taloja in Maharashtra.

2.2.3: UNITS OF HCL:


HCLs mines and plants are spreads across four operating Units, one each in the states of Rajasthan, Madhya Pradesh, Jharkhand and Maharastra as named below: Khetri Copper Complex (KCC) at Khetrinagar, Rajasthan. Indian Copper Complex (ICC) at Ghatshila, Jharkhand. Malanjkhand Copper Complex (MCP) at Malanjkhand, Madhya Pradesh.
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Taloja Copper Complex (TCC) at Taloja,Maharastra.

2.2.4: Vision:
HCL carries on its operations with the following vision

To maximize shareholder value through sustainable mining and value added products.

2.2.5: Mission:
The mission of the HCL includes following More than three times increase in ore production in a decade. Continuous improvement in productivity and energy efficiency to bring it at par with the best internationally. Acquiring and developing new resources of copper domestically and internationally. To rigidly follow framework for sustainable development of mine and ensure corporate social responsibility. To be one of the most profitable Nava-Ratna Companies.

2.2.6: MANAGEMENT PHILOSOPHY


Subject to the provisions of the Companies Act, 1956 & the directives/Instructions issued by the Government from time to time and the provisions contained in the Memorandum & Articles of Association of the Company, the business of the Company is being managed by the Board of Directors of the Company, who issues guide lines & formulate policies for smooth functioning of the business. All the powers are vested with and exercised by the Board excepting those which are specifically to be exercised by the share holders of the Company in General Body meetings. However, for day-to-day operations, the C M D / Functional Directors are delegated with adequate powers. The functional Directors are, in-turn, supported by professional executives and Chiefs of Operating Units in discharging responsibilities of their respective functional Area.

2.2.7: PRODUCT MIX PRODUCTS Copper Cathode (Electrolytic Refined) 99.99% 960mm *950mm*10mm 100kg(Approx) Copper Wire Refined) Mints,Semis &Alloys Copper Sheet,Alloys,Foils,CC Rods,Wire Bar,Crop Bar PURIT Y SECTOR(USAGE)

Bar(Electrolytic 99.95% Ordance Strips,Extrusions Semis And Alloys Factories

1372mm*111mm,102mm*102m m, 106kg(Approx) Continious Cast Rod Copper Wire

Diameter(mm)-8/11/12.5/16/13 Weight-2.3Mt(Approx) Sulphuric Acid Selenium Tellurium Gold Silver Copper Sulphate

99.90%

Jelly Field Telecom Cables, Insulated Cables, Bare Wire Transformer And Switchgear, Winding Wire Manufacture Fertilizer, Alum, Drying Gases. Photo Electric Devices Glass, Bangles, Insecticide, Vulcanization of Rubber Surface Hardening And Semi Conductor Mint And Jewellery Photo Flim, Jewellery,Electroplating Electro Refining Of Copper Electrolyte And Pesticides(Agriculture)
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98% +99% +99% +99.8 % +99.9 % 24.5% to 24.8%

Palladium

As Catalyst In Automobiles, Jewellery,In Dentistry,Non Magnetic Springs In 99% to Stocks,Coating Special 99.8% Mirror,To Face Electrical Contracts In Automobiles Switchgear

2.2.8: PHYSICAL PERFORMANCE


The comparative physical performance of production and sales for the year 2009-10 vis--vis 2008-09 is as under: PARTICULERS Ore (000 Tonnes) Metal-in-Concentrate(Tonnes) Cathode(Tonnes) CC Wire Rod (Tonnes) Sales(tones) Refined MIC 2009-10 3,205 28,202 17,516 41,999 30,752 10,134 2008-09 2,983 27,589 30,036 52,777 35,714 3,540

The physical performance in the mining sector has shown improvement compared to previous year as Ore and Metal in Concentrates (MIC) production during the year was higher by 7% and 2% respectively. The improvement in performance has been achieved despite loss of production for about one and a half month at Malanjkhand Copper Project (MCP) due to water shortage. Shortfall in Cathode production was on account of continued shut-down of the Smelter Plant at Khetri Copper Complex (KCC) during the entire financial year on economic considerations.

2.2.9: PRODUCT WISE PERFORMANCE


Sale of copper products during 2009-10 has been slightly higher as compared to 2008-09. Item wise break up is as follows:(Values In MT)
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Products CC Rod Cathode Wire Bar Total Refined copper MIC Total

2009-10 29,511 1,241 -30,752 10,134 40,886

2008-09 33,336 2,359 19 35,714 3,540 39,254

2.2.10: FINANCIAL PERFORMANCE


The financial performance for 2009-10 and 2008-09 is summarized below: (Rs. in core) 2009-10 2008-09 1429.85 (46.11) 1506.04 1217.21 242.72 23.39 3.49 215.84 64.77 (3.61) -154.68 174.46 1349.10 (30.80) 1344.27 1278.20 35.27 22.97 6.82 5.48 5.98 0.55 9.26 (10.31) 21.92

PARTICULERS a. Sales b. Net of Extra ordinary Income/(Expenses) c. Value of Production d. Cost of production excluding depreciation provisions, write-off and interest e. Profit before depreciation, provisions write-off and interest f. Depreciation, provisions and write-off g. Interest h. Profit/ (Loss) before tax i. Provision for taxation Current Fringe Benefit Deferred j. Profit/ (Loss) after tax k. Cash Profit

Financial performance during the year improved substantially due to i) increase in LME price of copper compared to last year ii) improvement in performance in mining and iii) sale of surplus metal in concentrate (MIC).

2.2.11: TEN YEARS AT A GLANCE


(Rs. Cores)
YEAR FOR THE YEAR Turnover Gross Profit/ (Loss) Amortisation Net Profit/ (Loss) Value Added 1429.85 1349.10 1839.79 1799.64 1053.76 219.33 81.04 154.68 701.82 12.30 73.72 -10.31 402.06 330.51 81.89 246.46 726.12 366.68 89.45 313.94 781.08 138.75 58.37 105.88 385..39 559.11 95.05 55.75 55.98 328.53 631.24 518.87 3.46 59.05 -56.16 212.30 534.43 505.68 604.98 945.58 -80.32 90.19 -196.44 335.91 1001.66 200910 200809 200708 200607 20052004-05 2003-04 06 2002-03 200102 1999-01

-88.13 -116.61 57.71 58.12

-147.70 -184.04 147.37 501.53 153.09 586.66

Value of 1506.04 1344.28 1991.24 1909.18 1053.34 production AT THE YEAR END Share Capital Internal Resources Term Loans Cash credit from banks Capital expenditure gross Working Capital Capital employed 462.61 462.61 462.61 977.45 948.95

948.95

908.95

795.11

710.11

543.61 -0.49 681.05 122.70 1060.76

1200.69 1026.95 1015.88 -0.05 -2.30 112.50 0.98

195.60 -110.57 -298.85 -350.30 212.50 3.98 993.99 328.62 504.62 287.50 4.81 977.89 62.78 247.47 232.96 118.23 967.71 33.94 234.55 299.12 76.11 995.10 -1.02 215.28

-310.39 -169.45 316.32 139.49 326.84 122.04

1169.23 1110.85 1037.06 365.01 584.64 361.16 570.86 492.06 657.48

1007.10 1024.77 -25.95 203.89 7.51 249.29

25.95 291.03

Manpower (No.)

5300

5440

5405

5451

5583

5665

5995

7865

9502

12043

3.WORKING CAPITAL MANAGMENT


3.1: INTRODUCTION
The net working capital of business is its current assets less its current liabilities. Current Assets Stock of Raw Material Work in Progress Finished Goods Trade Debtors Prepayments Cash Balances Current Liabilities Trade Creditors Accruals Taxation Payable Dividends Payable Short term Loans

Every business needs adequate liquid resources in order to maintain day to day cash flows. It needs enough cash to by 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 business in the long term as well. Even a profitable business may fail if it does not have adequate cash flows to meet its liabilities as they fall a due. Therefore when business 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 .
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Increase production tends to engender a need to hold additional stocks of raw material & work in progress. Increased sales usually mean that the level of debtor will increase. A general increase in the firms scales of operation tends to imply a need for greater level of cash.

3.2: MEANING OF WORKING CAPITAL:


Capital required for a business can be classifies under two main categories: Fixed Capital Working Capital

Every business needs funds for two purposes for its establishments and to carry out day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land and building, furniture etc. Investments in these assets are representing that part of firms capital which is blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed for short term purposes for the purchasing of raw materials, payments of wages and other day to day expenses etc. These funds are known as working capital. In simple words, Working capital refers to that part of the firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories.

3.3: CONCEPTS OF WORKING CAPITAL:


There are two concepts of working capital: Balance Sheet concepts Operating Cycle or circular flow concept

BALANCE SHEET CONCEPT:


There are two interpretation of working capital under the balance sheet concept: Gross Working Capital Net Working Capital The term working capital refers to the Gross working capital and represents the amount of funds invested in current assets. Thus, the gross working capital is the capital invested in total current assets of the enterprises. Current assets are those assets which are converted into cash within short periods of normally one accounting year. Example of current assets is: Constituents of Current Assets: Cash in hand and Bank balance Bills Receivable Sundry Debtors
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Short term Loans and Advances Inventories of Stock as: Raw Materials Work in Process Stores and Spaces Finished Goods Temporary Investments of Surplus Funds Prepaid Expenses Accrued Incomes

The term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities or say: Net Working Capital = Current Assets Current Liabilities.

NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:


When the current assets exceed the current liabilities, the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period of normally one accounting year of the current assets or the income of the business. Examples of current liabilities are:

CONSTITUENTS OF CURRENT LIBILITIES:


Bills Payable Sundry Creditors or Account Payable Accrued or Outstanding Expenses Short term Loans, Advances and Deposits Dividends Payable Bank Overdraft Provision for Taxation, If does not amount to appropriation of profits

The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital.

OPERATING CYCLE OR CIRCULATING CASH FORMAT:


Working Capital refers to that part of firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital. The circular flow concept of working capital is based upon this operating or working capital cycle of a firm. The cycle starts with the purchase of raw material and other resources and ends with the realization of cash from the sales of finished goods. It involves purchase of raw material and stores, its conversion into stocks of finished goods through work in progress with progressive increment of labor and service cost, conversion of finished stocks into sales, debtors and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of raw materials and so on.
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The speed/ time of duration required to complete one cycle determines the requirements of working capital longer the period of cycle, larger is the requirement of working capital. The gross operating cycle of a firm is equal to the length of the inventories and receivables conversion periods. Thus,

Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP


Where, RMCP = Raw Material Conversion Period WIPCP = Work in- Process Conversion Period FGCP = Finished Goods Conversion Period RCP = Receivables Conversion Period However, a firm may acquire some resources on credit and thus defer payments for certain period. In that case, net operating cycle period can be calculated as below:

Net Operating Cycle Period = Gross Operating Cycle Period Payable Deferral period
Further, following formula can be used to determine the conversion periods. Raw = Material Conversion Period Average Stock of Raw Material. Raw Material Consumption per day

Work in process Conversion Period Average Stock of Work-in-Progress = Total Cost of Production per day Finished Goods Conversion Period = Receivables = Payable = Conversion Deferral Period Period Average Stock of Finished goods Total Cost of Goods sold per day Average Accounts Receivables Net Credit Sales per day Average Payable Net Credit Purchase per day

3.4: CLASSIFICATION OF WORKING CAPITAL:


Working capital may be classified in two ways: On the basis of concept On the basis of time On the basis of concept, working capital is classified as
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Gross working capital Net working capital.

The classification is important from the point of view of the financial manager. On the basis of time, working capital may be classified as: Permanent or Fixed working capital. Temporary or Variable working capital.

PERMANENT OR FIXED WORKING CAPITAL:


Permanent or fixed working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprises to carry out its normal business operations.

TEMPRORAY OR VARIABLE WORKING CAPITAL:


Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies.Varibles working capital can be further classified as second working capital and special working capital. The capital required to meet the seasonal needs of the enterprises is called the seasonal working capital.

3.5: AVANTAGE OF ADEQUATE WORKING CAPITAL:


Working capital is the life blood and nerve centre of a business. Just a circulation of a blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows: Solvency of the Business Goodwill Easy Loans Cash discounts Regular supply of Raw Materials Regular payments of salaries, wages & other day to day commitments. Exploitation of favorable market conditions Ability of crisis Quick and regular return on investments High morals

3.6: THE NEED OR OBJECTS OF WORKING CAPITAL:


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The need for working capital cannot be emphasized. Every business needs some amount of working capital. The need of working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. There are time gaps in purchase of raw materials and production, production and sales and sales and realization of cash, thus, working capital is needed for the following purposes: For the purchase of raw materials , components and spaces To pay wages and salaries To incur day to day expenses and overhead costs such as fuel, power and office expenses etc. To meet the selling costs as packing, advertising etc. To provide credit facilities to the customers. To maintain the inventories of raw materials, work in- progress, stores and spares and finished stock.

3.7: FACTORS DETERMINING WORKING CAPITAL


Working capital varies from company to company. The factors that determine the need for working capital are:-

Nature of business
Requirements of working capital depend upon the nature of business. In a public utility business like railways, electric supply, transport, etc. working capital requirement is more, whereas, it is minimum in manufacturing business.

Importance of labour
In case of labour-intensive industries, more working capital is required as the wages bill is more and in case of capital intensive industries, less working capital is required.

Cost of raw materials


A business unit requires more working capital if the raw material required is more in quantity and higher in cost.

Credit policy
When suppliers of raw materials give credit facility for a longer term, the requirement of working capital is less and if the company gives credit to its customers and buy raw materials for cash, the working capital required would be high.

Cash requirement

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If the cash requirements for meeting various payments like rent, salaries, taxes, etc. are high, then the working capital requirement would also be high and vice versa.

Seasonal variations
During busy season or during inflation, more working capital is required due to huge production, whereas during slack season, the working capital requirement is low.

Dividend policy
Dividend policy has an effect on the cash position of every company; often a change in the working capital necessitates a change in the dividend policy. However, if a firm wants to maintain a steady dividend policy, it shall have a good working capital.

Turnover of circulating capital


If the sale or turnover is quick, limited working capital is adequate. The faster the sales, the lesser be the working capital requirement and vice versa.

Banking connections
A company with good banking connections and credit facility requires limited working capital and vice versa.

3.8: PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY:


The following are the general principles of a sound working capital management policy:
PRINCIPLES OF WORKING CAPITAL MANAGEMNT POLICY

PRINCIPLE S OF RISK

PRINCIPLES OF COST OF

PRINCIPLES OF EQUITY

PRINCIPLES OF MATURITY OF

1.

PRINCIPLE OF RISK VARAITAION (CURRENT ASSETS POLICY):

Risk here refers to the inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current Assets with less dependence on short term borrowings, increase liquidity, reduces risk and thereby decreases the opportunity for gain or loss. On the other hand less investments in current assets with greater dependence on short term borrowings, reduces liquidity and increase profitability. In other words there is a definite inverse relationship between the degree of risk and profitability. In other words, there is a definite inverse relationship between the risk and profitability. A conservative management prefers to minimize risk by
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maintaining a higher level of current assets or working capital while a liberal management assumes greater risk by reducing working capital. However, the goal of management should be to establish a suitable tradeoff between profitability and risk.

2. PRINCIPLES OF COST OF CAPITAL:


The various source of raising working capital finance have different cost of capital and the degree of risk involved. Generally, higher and risk however the risk lower is the cost and lower the risk higher is the cost. A sound working capital management should always try to achieve a proper balance between these two.

3.

PRINCIPLE OF EQUITY POSITION:

The principle is concerned with planning the total investments in current assets. According to this principle, the amount of working capital invested in each component should be adequately justified by a firms equity position. Every rupee invested in current assets should contribute to the net worth of the firm. The level of current assets may be measured with the help of two ratios: 1. Current assets as a percentage of total assets and 2. Current assets as a percentage of total sales While deciding about the composition of current assets, the financial manager may consider the relevant industrial averages.

4. PRINCIPLES OF MATURITY OF PAYMENT: The principle is concerned with planning the source of finance for working capital. According to the principles, a firm should make every effort to relate maturities of payment to its flow of internally generated funds. Maturity pattern of various current obligations is an important factor in risk assumptions and risk assessments. Generally shorter the maturity schedule of current liabilities in relation to expected cash inflows, the greater the inability to meet its obligations in time.

CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL:


Growth may be stunted. It may become difficult for the enterprises to undertake profitable projects due to non availability of working capital. Implementations of operating plans may brome difficult and consequently the profit goals may not be achieved. Cash crisis may emerge due to paucity of working funds. Optimum capacity utilization of fixed assets may not be achieved due to non availability of the working capital. The business may fail to honour its commitment in time thereby adversely affecting its creditability. This situation may lead to business closure.

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The business may be compelled to by raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchase and reducing selling price by offering discounts . both the situation would affect profitable adversely. Now availability of stocks due to non availability of funds may result in production stoppage. While underassessment of working capital has disastrous implications on business over assessments of working capital also has its own dangerous.

CONSEQUENCES OF OWN ASSESMNET OF WORKING CAPITAL:


Excess of working capital may result in unnecessary accumulation of inventories. It may lead to offer too liberal credit terms to buyers and very poor recovery system & cash management. It may make management complacent leading to its inefficiency. Over investment in working capital makes capital less productive and may reduce return on investment. Working Capital is very essential for success of business & therefore needs efficient management and control. Each of the components of working capital needs proper management to optimize profit.

INVENTORY MANAGEMNT:
Inventory includes all type of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously stock out costs should be minimized. Business therefore should fix the minimum safety stock level reorder level of ordering quantity so that the inventory costs is reduced and outs management become efficient.

RECEIVABLE MANAGEMENT:
Given a choice, every business would prefer selling its produce on cash basis. However, due to factors like trade policies, prevailing market conditions etc. Business are compelled to sells their goods on credit. In certain circumstances a business may deliberately extend credit as a strategy of increasing sales. Extending credit means creating current assets in the form of debtors or account receivables. Investment in the type of current assets needs proper and effective management as, it gives rise to costs such as: Cost of carrying receivables Cost of bad debts losses Thus the objective of any management policy pertaining to accounts receivables would be to ensure the benefits arising due to the receivables are more then the costs incurred for the receivables and the gap between benefit and costs increased resulting in increase profits. An effective control of receivables.
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Help a great deal in properly managing it. Each business should therefore try to find out coverage credit extends to its clients using the below given formula: Total amount of receivable Average credit sale per day

Average Credit =

(Extend in days)

Each business should project expected sales and expected investments in receivable based on various factor, which influence the working capital requirement. From this it would be possible to find out the average credit days using the above given formula. A business should continuously try to monitor the credit days and see that the average. Credit offer to clients is not crossing the budgeted period otherwise the requirement of investment in the working capital would increase and as a result, activities may get squeezed. This may lead to cash crisis.

CASH BUDGET:
Cash budget basically incorporates estimates of future inflow and outflows of cash cover a projected short period of time which may usually be a year, a half or a quarter year. Effective cash management is facilities if the cash budget is further broken down into months, weeks or even a daily basis. There are two components of cash budget are: 1. Cash inflows 2. Cash outflows The main sources for these flows are given here under: 1. Cash Sales 2. Cash received from debtors 3. Cash received from Loans, deposits etc. 4. Cash receipts other revenue income 5. Cash received from sale of investment or assets.

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4. ANALYSIS AND INTERPRETATION

4.1. WORKING CAPITAL


The working capital of Hindustan copper limited for last 10 years i.e. 2001 to 2010 have been calculated below and have also the projected working Capital for next 2 year i.e. 2011 & 2012 has been calculated.

4.2. RATIO ANALYSIS


A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.
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Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.

SOURCES OF DATA FOR FINANCIAL RATIOS


Values used in calculating financial ratios are taken from the balance sheet, income statement, statement of cash flows or (sometimes) the statement of retained earnings. These comprise the firm's "accounting statements" or financial statements. The statements' data is based on the accounting method and accounting standards used by the organization.

PURPOSE AND TYPES OF RATIOS


Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in companys shares. Financial ratios allow for comparisons

between between between between

companies industries different time periods for one company a single company and its industry average

Ratios generally hold no meaning unless they are benchmarked against something else, like past performance or another company. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition, are usually hard to compare.

ACCOUNTING METHODS AND PRINCIPLES


Financial ratios may not be directly comparable between companies that use different accounting or follow various standard accounting practices.
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Most public companies are required by law to use generally accepted accounting principles for their home countries, but private, partnerships and sole proprietorships may not use accrual basis accounting. Large multi-national corporations may use International Financial Reporting Standards to produce their financial statements, or they may use the generally accepted accounting principles of their home country. There is no international standard for calculating the summary data presented in all financial statements, and the terminology is not always consistent between companies, industries, countries and time periods.

ABBREVIATIONS AND TERMINOLOGY


Various abbreviations may be used in financial statements, especially financial statements summarized on the Internet. Sales reported by a firm are usually net sales, which deduct returns, allowances, and early payment discounts from the charge on an invoice. Net income is always the amount after taxes, depreciation, amortization, and interest, unless otherwise stated. Otherwise, the amount would be EBIT, or EBITDA (see below). Companies that are primarily involved in providing services with labour do not generally report "Sales" based on hours. These companies tend to report "revenue" based on the monetary value of income that the services provide. Note that Shareholder's Equity and Owner's Equity are not the same thing, Shareholder's Equity represents the total number of shares in the company multiplied by each share's book value; Owner's Equity represents the total number of shares that an individual shareholder owns (usually the owner with controlling interest), multiplied by each share's book value. It is important to make this distinction when calculating ratios.

The important ratios thus calculated for working capital management are classified in to four different segments, those are as follows: 1. Liquidity Ratio 2. Leverage Ratio 3. Turnover Ratio 4. Solvency Ratio
1.

Liquidity Ratio:

A liquidity ratio measures a company's ability to pay its bills. The denominator of a liquidity ratio is the company's current liabilities, i.e., obligations that the company must meet soon, usually within one year. The numerator of a liquidity ratio is part or all of current assets. Perhaps the most common liquidity ratio is the current ratio, or current assets/current liabilities. Because current assets are expected to be converted to cash within one year, this liquidity ratio includes assets and liabilities of equal longevity. The problem
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with the current ratio as a liquidity ratio is that inventories, a current asset, may not be converted to cash for several months, while many current liabilities must be paid within 90 days. Thus a more conservative liquidity ratio is the acid test ratio -- (current assets - inventory)/current liabilities -- which excludes relatively illiquid inventories. The most conservative liquidity ratio is the cash asset ratio or the cash ratio, which includes only cash and cash equivalents (usually marketable securities) in the numerator. Finally, note that the liquidity ratio sometimes means the cash ratio. To measure the liquidity of HCL the following ratios are calculated: 1. Current Ratio 2. Quick Ratio 3. Absolute Liquid Ratio 4. Sales/Working Capital Ratio

CURRENT RATIO Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for
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short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. Current Ratio formula is:

YEARS CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2008-09 9,510,693 5,899,127 1.61

2009-10 8,065,311 4,415,253 1.82

INTERPRETATION: Current ratio is a financial ratio that measures whether or not a company has enough resources to pay its debt over the next business cycle (usually 12 months) by comparing firm's current assets to its current liabilities. Acceptable current ratio values vary from industry to industry. Generally, a current ratio of 2:1 is considered to be acceptable. The higher the current ratio is, the more capable the company is to pay its obligations. Current ratio is also affected by seasonality. If current ratio is bellow 1 (current liabilities exceed current assets), then the company may have problems paying its bills on time. However, low values do not indicate a critical problem but should concern the management. One exception to the rule is considered fast-food industry because the inventory turns over much more rapidly than the accounts payable becoming due.

QUICK RATIO:

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Quick ratio is a measure of a company's liquidity and ability to meet its obligations. Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of company's financial strength or weakness. CURRENT ASSETS INVENTORIES CURRENT LIAILITIES - CASH IN HAND

FORMULA =

YEARS CURRENT ASSETS INVENTORIES CURRENT LIABILITIES - CASH IN HAND QUICK RATIO

2008-09 6,911,134 5,899,127 1.17

2009-10 5,532,690 4,415,253 1.25

INTERPRETATION Quick ratio specifies whether the assets that can be quickly converted into cash are sufficient to cover current liabilities. Ideally, quick ratio should be 1:1, if quick ratio is higher, company may keep too much cash on hand or have a problem collecting its accounts receivable. A quick ratio higher than 1:1 indicates that the business can meet its current financial obligations with the available quick funds on hand. A quick ratio lower than 1:1 may indicate that the company relies too much on inventory or other assets to pay its short-term liabilities. Here, from the graph we can see that the ratio is just over than the ideal. But it is also seen that the ratio is higher in 2009-2010(1.25) than 20082009(1.17), so company may have face the problem of high quick ratio, that means company is holding too much cash in their hand.

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ABSOLUTE LEQUID RATIO: Absolute liquid ratio extends the logic further and eliminates accounts receivable (sundry debtors and bills receivables) also. Though receivables are more liquid as comparable to inventory but still there may be doubts considering their time and amount of realization. Therefore, absolute liquidity ratio relates cash, bank and marketable securities to the current liabilities. Since absolute liquidity ratio lays down very strict and exacting standard of liquidity, therefore, acceptable norm of this ratio is 50 percent. It means absolute liquid assets worth one half of the value of current liabilities are sufficient for satisfactory liquid position of a business. However, this ratio is not as popular as the previous two ratios discussed. ABSOLUTE LIQUID ASSETS CURRENT LIAILITIES

FORMULA =

YEARS ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES ABSOLUTE LIQUID RATIO

2008-09 2,994,803 5,899,127 0.50

2009-10 1.733,594 4,415,253 0.39

INTERPRETATION This ratio gains much significance only when it is used in conjunction with the current and liquid ratios. A standard of 0.5:1 absolute liquidity ratio is considered an acceptable norm. That is, from the point of view of absolute liquidity, fifty cents worth of absolute liquid assets are considered sufficient for one dollar worth of liquid liabilities. However, this ratio is not in much use.
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SALES/WORKING CAPITAL RATIO: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows:

FORMULA =

NET SALES NET WORKING CAPITAL

YEARS NET SALES NET WORKING CAPITAL SALES/WORKING CAPITAL RATIO

2008-09 11,901,491 3,611,566 3.29

2009-10 13,045,179 3.650,058 3.57

INTERPRETATION: Working capital is a measure of the margin of protection for current creditors. The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation. The above graph shows that the ratio of sales/working capital is 3.29 in 2008-2009 and 3.57 in 2009-2010 which indicates that the company is not efficiently employing its working capital in to business, but it is also real that company is improving in this section.
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2. LEVERAGE RATIO:-

The leverage ratios and other ratios are key to understanding financial statements. Our ratio calculation spreadsheets reduce time and effort in calculating decision making ratios. They reduce risk for lenders and investors and enable owners, managers and consultants to increase productivity and business profits. These spreadsheets are bargain priced to provide a huge return on investment. FIXED/WORTH RATIO: FORMULA = NET FIXED ASSETS NET WORTH

YEARS NET FIXED ASSETS NET WORTH FIXED/WORTH RATIO

2008-09 5,891,882 9,678,967 0.61

2009-10 6,285,148 11,225,815 0.56

INTERPRETATION: Fixed/worth ratio indicates how much of the owners equity has been invested in fixed assets. It measures the solvency of a company and the extent to which
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funds are available to the companys operation. A ratio higher than 0.75 indicates that the company is vulnerable to unexpected events and changes in the business climate. The fixed/worth of HCL in the year 2008-2009 is 0.61 and in 2009-2010 is 0.56 which are less than 0.75 which indicates that the company is not vulnerable to unexpected events and changes in business climate, but it is also real that company is deteriorating in this section.

DEBT/WORTH RATIO: Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company

TOTAL LIABILITIES NET WORTH

FORMULA =

YEARS TOTAL LIABILITIES NET WORTH DEBT/WORTH RATIO

2008-09 15,938,469 9,610,693 1.64

2009-10 15,641,594 11,225,815 1.39

INTERPRETATION: Debt/worth ratio expresses the relationship between capital contributed by the creditors and that contributed by the owners. It expresses the degree of protection provided by the owners for the creditors. Generally, higher in this ratio is more risky a creditor will perceive its exposure in any firm, making it
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correspondingly harder to obtain credit. The debt/worth ratio of HCL in 20082009 is 1.64 and in 2009-2010 is 1.39.from the graph indicates that the company has greater long-term financial safety and has a greater flexibility to borrow in future.

3. TURNOVER RATIO :-

WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows:

NET SALES NET WORKING CAPITAL

FORMULA =

YEARS NET SALES NET WORKING CAPITAL WORKING CAPITAL TURNOVER RATIO

2008-09 11,901,491 3,611,566 3.29

2009-10 13,045,179 3,650,058 3.57

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INTERPRETATION: Working capital is a measure of the margin of protection for current creditors. The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation. The above graph shows that the ratio of sales/working capital is 3.29 in 2008-2009 and 3.57 in 2009-2010 which indicates that the company is not efficiently employing its working capital in to business, but it is also real that company is improving in this section.

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio is one of the efficiency ratios and measures the number of times, on average, the inventory is sold and replaced during the fiscal year. Inventory Turnover Ratio formula is: COST OF GOODS SOLD AVERAGE INVENTORY YEARS Cost of goods sold Average Inventory INVENTORY TURNOVER RATIO 2008-09 11,846,630 2,599,559 4.56

FORMULA =

2009-10 10,886,731 2,532,621 4.30

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INTERPRETATION: Inventory Turnover Ratio measures company's efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of the inventory. Inventory Turnover Ratio is figured as "turnover times. A low inventory turnover ratio is a signal of inefficiency, A low turnover rate can indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a planned inventory buildup in the case of material shortages or in anticipation of rapidly rising prices. A high inventory turnover ratio implies either strong sales or ineffective buying. A high inventory turnover ratio can indicate better liquidity, but it can also indicate a shortage or inadequate inventory levels, which may lead to a loss in business.

4.

SOLVENCY RATIO :-

AVERAGE COLLECTION PERIOD: The Debtors/Receivable Turnover ratio when calculated in terms of days is known as Average Collection Period or Debtors Collection Period Ratio. The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. Following formula is used to calculate average collection period:

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FORMULA =

TOTAL DEBTORS X 365days NET SALES

YEARS TOTAL DEBTORS x 365days NET SALES AVERAGE COLLECTION PERIOD

2008-09 15,49,500 x 365 11,901,491 49 days

2009-10 1547500 x 365 13,045,179 43days

INTERPRETATION: This ratio measures the quality of debtors. A short collection period implies prompt payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors.

PROPRIETARY RATIO: This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business. Formula of Proprietary/Equity Ratio:

FORMULA =

SHARE HOLDERS FUND TOTAL ASSETS

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YEARS SHARE HOLDERS FUND TOTAL ASSETS PROPRIETARY RATIO

2008-09 9,678,967 10,039,342 0.96

2009-10 11,225,815 11,226,341 0.99

INTERPRETATION:

This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors.

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INTEREST COVERAGE RATIO: Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. It is calculated by using the following formula.

FORMULA =

PROFIT BEFORE INTEREST & TAX INTEREST

YEARS PROFIT BEFORE INTEREST & TAX INTEREST INTEREST COVERAGE RATIO

2008-09 602,300 68,149 0.11

2009-10 3,018,700 34,927 0.01

INTERPRETATION: The interest coverage ratio is very important from the lender's point of view. It indicates the number of times interest is covered by the profits available to pay interest charges. It is an index of the financial strength of an enterprise. A high debt service ratio or interest coverage ratio assures the lenders a regular and periodical interest income. But the weakness of the ratio may create some problems to the financial manager in raising funds from debt sources.

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5. FINANCIAL STATEMENT ANALYSIS Definition:


Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. Tools and Techniques: Following are the most important tools and techniques of financial statement analysis : Horizontal and Vertical Analysis & Ratios Analysis 1. Horizontal and Vertical Analysis: Horizontal Analysis or Trend Analysis: Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form. Trend Percentage: Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base. Vertical Analysis: Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements.

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2. Ratios Analysis: The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply mean one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.

GROSS PROFIT RATIO:Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales. Following formula is used to calculate gross profit ratios:

GROSS PROFIT SALES

FORMULA =

YEARS GROSS PROFIT SALES GROSS PROFIT RATIO

2008-09 54,861 11,901,491 0.0046

2009-10 2,158,448 1,034,579 0.1654

INTERPRETATION:
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Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation. It may vary from business to business. However, the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends.

NET PROFIT RATIO:Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage. The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio.

NET PROFIT SALES

FORMULA =

YEARS NET PROFIT SALES NET PROFIT RATIO

2008-09 (103,087) 11,901,491 (0.01)

2009-10 1,546,848 13,045,179 0.12

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INTERPRETATION: This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in minds that the performance of profits also is seen in relation to investments or capital of the firm and not only in relation to sales.

RETURN ON EQUITY: In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company. Return on equity capital which is the relationship between profits of a company and its equity can be calculated as follows:

FORMULA =

NET PROFIT AFTER TAX NET WORTH

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YEARS NET PROFIT AFTER TAX NET WORTH RETURN ON EQUITY

2008-09 (103,087) 9678967 (0.01)

2009-10 1,546,848 11,225,815 0.14

INTERPRETATION: This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them. Interpretation of the ratio is similar to the interpretation of return on shareholder's investments and higher the ratio better is.

INVENTORY TURNOVER RATIO: Stock turnover ratio and Inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio/Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory.

COST OF GOODS SOLD AVERAGE INVENTORY

FORMULA =

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YEARS COST OF GOODS SOLD AVERAGE INVENTORY INVENTORY TURNOVER RATIO

2008-09 11,846,630 2,599,559 4.56

2009-10 10,886,731 2,532,621 4.30

INTERPRETATION: Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment.

RETURN ON CAPITAL EMPLOYED: Capital employed and operating profits are the main items. Capital employed may be defined in a number of ways. However, two widely accepted definitions are "gross capital employed" and "net capital employed". Gross capital employed usually means the total assets, fixed as well as current, used in business, while net capital employed refers to total assets minus liabilities. On the other hand, it refers to total of capital, capital reserves, revenue reserves, debentures and long term loans. FORMULA = NET PROFIT AFTER TAX CAPITAL EMPLOYED
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YEARS NET PROFIT AFTER TAX CAPITAL EMPLOYED RETURN ON CAPITAL EMPLOYED

2008-09 (103,087) 6,427,776 (1.60)%

2009-10 1,546,848 7,576,283 20.41%

INTERPRETATION: Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, higher the return on capital employed, the more efficient the firm is in using its funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or otherwise.

DEBTORS TURN OVER RATIO: Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. DEBTORS GROSS SALES

FORMULA =
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YEARS DEBTORS GROSS SALES DEBTORS TURN OVER RATIO

2008-09 1,599,480 13,491,000 0.12

2009-10 1,547,519 14,298,479 0.11

INTERPRETATION: Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.

CREDITORS TURN OVER RATIO: This ratio is similar to the debtors turnover ratio. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as debtors turnover ratio, creditors turnover ratio can be calculated in two forms, creditors turnover ratio and average payment period. Following formula is used to calculate creditors turnover ratio:
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CREDITORS GROSS SALES YEARS CREDITORS GROSS SALES CREDITORS TURN OVER RATIO 2008-09 2,097,019 11,901,491 0.18

FORMULA =

2009-10 2,196,295 13,045,179 0.17

INTERPRETATION: The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favorable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors.

ASSETS TURNOVER RATIO: Asset turnover is an efficiency ratio used in financial analysis that shows the sales or revenue volume produced for every dollar of assets owned. Asset turnover is sales divided by assets, and asset turnover is correctly expressed both as a percentage and as x times.

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NET SALES TOTAL ASSETS

FORMULA =

YEARS NET SALES TOTAL ASSETS ASSETS TURN OVER RATIO

2008-2009 11,901,491 10,039,342 1.19

2009-2010 13,045,179 11,226,341 1.16

INTERPRETATION: The lower the total asset turnover ratio, as compared to historical data for the firm and industry data, the more sluggish the firm's sales. This may indicate a problem with one or more of the asset categories composing total assets inventory, receivables, or fixed assets. The small business owner should analyze the various asset classes to determine where the problem lies. There could be a problem with inventory. The firm could be holding obsolete inventory and not selling inventory fast enough. With regard to accounts receivable, the firm's collection period could be too long and credit accounts may be on the books too long. Fixed assets, such as plant and equipment, could be sitting idle instead of being used to their full capacity. All of these issues could lower the total asset turnover ratio.

6.FUND FLOW ANALYSIS


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In every concern, the funds flow in form different sources and similarly funds are invested in various sources of investment. It is continuous process. The study and control of this funds-flow process (i.e., the uses and sources of funds) is the main objective of financial management to assess the soundness and the solvency of the enterprise. Funds Flow Statement is not an income statement. Income statement shows the items of income and expenditure of a particular period, but the Funds flow statement is an operating statement as it summaries the financial activities for a period of time. It covers all movements that involve an actual exchange of assets. A new interpretation of the term 'funds, has now been adopted as to include assets or financial resourceful which do not flow through the working capital accounts. It seems to be the most suitable meaning fort the term 'funds' but the most commonly used interpretation of the term 'funds' is 'working capital'

OBJECTIVES (OR IMPORTANCE) OF FUNDS FLOW STATEMENT Funds Flow Statement is an analytical tool in the hands of financial manager. The basic purpose of this statement is to indicate on historical basis the changes in the working capital i.e., where funds came from and where there are used during a given period. The utility of this statement can be measured on the basis of its contributions to the financial management. It generally serves the following purposes:(1) Analysis of Financial Position: The basic purpose of preparing the statement is to have a rich into the financial operations of the concern. It analyses how the funds were obtained and used in the past. In this sense, it is a valuable tool for the finance manager for analyzing the past and future plans of the firm and their impact on the liquidity. He can deduce the reasons for the imbalances in uses of funds in the past an take necessary corrective actions. (2) Evaluation of the Firm's Financing: One important use of the statement is that it evaluates the firm' financing capacity. The analysis of sources of funds reveals how the firm's financed its development projects in the past i.e., from internal sources or from external sources. It also reveals the rate of growth of the firm. (3) An Instrument for Allocation of Resources: In modern large scale business, available funds are always short for expansion programmes and there is always a problem of allocation of resources. It is, therefore, a need of evolving an order of priorities for putting through their expansion programmes which are phased accordingly, and funds have to be arranged as different phases of programmed get into their stride. The amount of funds to be available for these projects shall be estimated by the
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finance with the help of Funds Flow Statement. This prevents the business from becoming a helpless victim of unplanned action. (4) A Tool of Communication to Outside World: Funds Flow Statement helps in gathering the financial states of Business. It gives an insight into the evolution of the present financial position and gives answer to the problem 'where have our resources been moving'? In the present world of credit financing, it provides a useful information to bankers, creditors, financial, it provides a useful information and government etc. regarding amount of loan required, its proposes, the terms of repayment an sources for repayment of loan etc. the financial manager gains a confidence born out of a study of Funds Flow Statement. In fact, it carries information regarding firm's financial policies to the outside world. (5) Future Guide: An analysis of Funds Flow Statements of several years reveals certain valuable information for the financial manager for planning the future financial requirements of the firm and their nature too i.e. Short term, long-term or midterm. The management can formulate its financial policies based on information gathered from the analysis of such statements. Financial manager can rearrange the firm's financing more effectively on the basis of such information along with the expected changes in trade p payables and the various accruals. In this way, it guides the management in arranging its financing more effectively.

In order to analyze HCLs financial position, the fund flow statement for the period 2008-09 to 2009-2010 has been prepared and interpreted. The fund flow analysis consist of :
Schedule of changes in working capital Balance sheet cum fund flow data Statement of application and sources of fund

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SCHEDULE OF CHANGES IN WORKING CAPITAL:

PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & bank balances Loans &advances Other current assets Total current assets CURRENT LIABILITIES Sundry CreditorsGoods Sundry CreditorsOthers Sundry Creditors-SSI Units Security & Earnest Money Deposits Grants-In-Aids Other Liabilities Interest Accrued Provisions Total Current Liabilities Working Capital(C.AC.L) Net Increase In WC

AS ON 31-1209

AS ON 31-1210

WORKING CAPITAL(Rs.) DECREAS INCREASE E

25,99,559 15,99,480 29,94,803 22,05,413 1,11,438 95,10,693

25,32,621 15,47,519 17,33,594 19,97,324 2,54,253 80,65,311

66,938 51,961 12,61,209 2,08,089 -15,88,197

----1,42,815 1,42,815

13,76,889 5,61,731 35,740 2,13,169 17,710 18,21,481 695 18,71,712 58,99,127 36,11,566 38,492 36,50,058

4,95,798 5,87,441 29,268 2,20,299 -7,74,921 -23,07,526 44,15,253 36,50,058 -36,50,058

8,81,091 -6,472 -17,710 10,46,560 695 -19,52,528 -38,492 38,492

-25,710 -7,130 ---4,35,814 4,68,654 ----

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BALANCE SHEET-CUM-FUND FLOW STATEMENT:

PARTICULERS Share capital Reserve and Surplus Short term loans (unsecured) Secured Loan Current Liabilities Provision

HINDUSTAN COPPER LIMITED


31.03.09 4626090 5052877 337345 23030 4027415 1871712 15938469 7313621 5216602 2097019 535877 31.03.10 4626090 6599725 0 526 2107727 2307526 15641594 7603506 5407211 2196295 571976 Net Changes 0 -1546848 337345 22504 1919688 -435814 296875 -289885 -190609 -99276 -36099

Gross Block Less: Depreciation Net Block Deferred Tax Assets(NET) Capital Work in Progress including Adv. For Capital Expenditure

127899

48801

79098

Investment Mine Development Expenditure Inventories Sundry Debtors Cash & Bank Balances Other Current assets Loans & Advances

17 3666964 2599559 1599480 2994803 111438 2205413 15938469

719159 4040052 2532621 1547519 1733594 254253 1997324 1564159

-719142 -373088 66938 51961 1261209 -142815 208089 296875


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50

STATEMENT OF APPLICATION AND SOURCES OF FUND: PARTICULERS SOURCES OF FUNDS: Increase in Short term loans (unsecured) Decrease in Deferred Tax Assets(NET) Increase in Capital Work in Progress including adv. for capital expenditure Increase in Inventories increase in cash & bank Balance INFLOWS APPLICATION OF FUND: Decrease in Reserve and Surplus Increase in secured loans Increase in current liabilities Decrease In Provision Decrease In Gross Block Decrease In Depreciation Decrease in Mine Development Expenditure increase in sundry debtors decrease in other current Assets Increase in loan & Advances Net Surplus/(Deficit) OUTFLOWS 2009-10 337,345

-36,099 79,098 66,938 1,261,209 1,708,491

-1,546,848 22,504 1,919,688 -435,814 -289,885 -190,609 -373,088 51,961 -142,815 208,089 2,485,308 1,708,491

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INTERPRETATIONS OF SCHEDULE OF CHANGES IN WIOKING CAPITAL: The Funds Flow Statement reveals the Net Change in working capital over the period for which the flow is being measured. The information relating to the changes in working capital can also be derived using the information relating to the accounts/items within the Current Area of the Balance Sheet. A statement presenting the information relating to the changes in the various items/accounts within the current area of the balance sheet is called a "Statement/Schedule of Changes in Working Capital" After preparing the schedule of changes in working capital of HCL for the period 2009-2010, it can be interpret that the companys net working capital increase in this year by Rs.38, 492 which indicates that there was an additional application of fund. INTERPRETATIONS OF BALANCE SHEET CUM FUND FLOW DATA: The Funds flow statement contain all the details of the financial resources which have became available during an accounting period and the ways in which those resources have been used up. This statement discloses the amounts rose from various sources of finance during a period and. then explains how that finance has been used in the business. This statement is valuable in interpretation of the accounts. A balance sheet sets out the financial position at a point of time, setting liabilities from which funds have been raised against assets acquired, by the use of those funds. A funds flow statement analyses the changes which have taken place in the assets and liabilities during certain period as disclosed by a comparison of the opening and closing balance sheets. A balance sheet cum fund flow data represents the comparative balance sheet figures, as at the end of years 2008-2009 & 2009-2010 and also the net changes in the individual items in the balance sheets during the intervening period for HCL. INTERPRETATIONS OF APPLICATION AND SOURCES OF FUND: Older type of financial statement summarizing transactions that (1) increased the working capital, such as net income, sale of securities, depreciation, and deference of taxes or (2) used up cash, such as purchase of machinery and equipment, payment of dividends, repayment of debts, payment of taxes. Also called sources and applications of funds statement, statement of changes in financial condition, statement of changes in financial position, or just funds statement.

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CASH CONSERVATION CYCLE Definition: In management accounting, the Cash Conversion Cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth. However, shortening the CCC creates its own risks: while a firm could even achieve a negative CCC by collecting from customers before paying suppliers, a policy of strict collections and lax payments is not always sustainable. It is also known as "cash cycle". It calculated as: CCC = Inventory conversion period + Receivables conversion period Payables conversion period In the formula above, the three variables to which CCC is dependent are defined as follows: Days = Days = Days = of of of Sales Sales Payables in Inventories Outstanding Outstanding Avg. Inventories COGS/365 Avg. Accounts Receivable Credit sale/365 Avg. Accounts Payable COGS/365

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CASH CONSERVATION CYCLE OF MANUFACTURING COMPAANY CASH OUTFLOWS: Payments for raw materials, delivery expenses etc.

CASH OUTFLOWS: Office & Admin. Overhead.

CASH OUTFLOW: Salaries, plant overhead, storage related expenses etc.

CASH INFLOWS: Collection of receivables for credit sales

CASH OUTFLOWS: Sales staff salaries or commissions, delivery expenses etc.

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CCC Of HCL & HINDALCO For The Period 2008-09 To 2009-10


CCC = DSO + DSI DPO Formula Avg. Inventories COGS/365 Company name Year DSI HCL 2008-09 2,600 32.46 80 1,599 32.61 49 1,974 32.46 61 68 2009-10 2,533 29.83 85 1,548 35.74 43 1,113 29.83 37 91 HINDALCO 2008-09 4584.02 5 46.65 98 1201.22 49.92 24 1828.91 46.65 39 83 2009-10 4995.77 5 47.32 106 1311.87 53.53 25 1613.98 47.32 34 96

Accounts Receivable sales/365

DSO

Accounts Payable COGS/365

DPO

Cash Conversion Cycle =DSO+DSI-DPO

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CASH CONVERSION CYCLE FOR THE YEAR 2009-2010

CASH

CONVERSION CYCLE FOR THE YEAR 2008-2009

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5. Analysis and Forecasting of WORKING CAPITAL of HCL


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

YEAR 2001

2002

Type Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Projected Projected 296.00 136.00 864.50 20.68 22.99 42.50 365.00 150.00 989.50 42.50

Inventories 258.75 200.82 173.91 169.96 225.64 371.99 408.54 386.12 259.96 253.26 50.00 159.95 154.75

Sundry Debtors 36.01 20.95 6.18 18.08 11.55 44.49 44.44

Total Current 123.52 11.44 7.55 124.44 37.43 52.34

360.50 287.64 354.88 250.37 360.62 770.31 826.82 806.67 770.98 713.36

Cash and Bank

12.51

10.18

Loans and 53.23 55.69 51.27 50.89 115.88 229.39 336.41 318.07 330.39 282.36 390.00 432.00

Current 301.19 316.59 347.15 216.71 277.16 565.14 662.37 447.40 447.86 210.77 328.00 314.00 Liabilities

Working Capital 59.31 -28.95 7.73 33.66 83.46 205.17 164.45 359.27 323.12 502.59 536.50 675.50

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GRAPHICAL PRESENTATION OF VARIOUS CURRENT ASSETS FROM 2001 TO 2012

Advances

Balance

Assets

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GRAPHICAL PRESENTATION OF VARIOUS CURRENT LIABILITES FROM 2001 TO 2012

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GRAPHICAL PRESENTATION OF VARIOUS WORKING CAPITAL FROM 2001 TO 2012

ANNEXURE - A BALANCE SHEET AS at 31st March; 2010 PARTICULARS SOURCES OF FUNDS Shareholders Funds Share Capital Reserves & Surplus 31.03.2010 Rs. 000 31.03.2009

4,626,09 0 6,599,72 5 11,225,81 5

4,626,09 0 5,052,87 7 9,678,967 23,030 337,345 526 11,226,34 1 360,375 10,039,34 2

Loan Funds Secured Loans Unsecured Loans TOTAL APPLICATION OF FUNDS Fixed Assets Gross Block

526 0

7,603,50

7,313,62
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Less : Depreciation Net Block Discarded Fixed Assets (net of provision) Capital Work-in-Progress including Advance for Capital Expenditure Mine Development Expenditure Investments Deferred Tax Assets (net) Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances

6 5,407,21 1 2,196,29 5 0 0 48,801 4,040,05 2 6,285,148 719,159 571,976 2,532,62 1 1,547,51 9 1,733,59 4 254,253 1,997,32 4 8,065,31 1 4,415,25 3 3,650,058 11,226,34 1

1 5,216,60 2 2,097,01 9 0 0 127,899 3,666,96 4 5,891,882 17 535,877 2,599,55 9 1,599,48 0 2,994,80 3 111,438 2,205,41 3 9,510,69 3 5,899,12 7 3,611,566 10,039,34 2

Less : Current Liabilities and Provisions Net Current Assets TOTAL

ANNEXURE B PROFIT & LOSS ACCOUNT For the year ended March 31, 2010 Rs. 000 2008-09 13,491,00 0 194,717
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PARTICULARS INCOM E Gross Sales Less : Discount & Rebate

2009-10 14,298,47 9 143,499

Less : Excise Duty Net Sales Other Income Increase/(Decrease) in Stock of Finished Goods, Semi-Finished and In Process

1,109,801 13,045,17 9 507,386 254,462 13,807,02 7 5,049,936 2,874,460 2,844,574 34,927 55,001 178,897 631,492 11,669,28 7 2,137,740 -20,708 2,158,448 647,700 -36,100 0 1,546,848 286 2,362,120 3,909,254

1,394,792 11,901,49 1 1,085,553 -1,133,847 11,853,19 7 4,995,975 2,146,191 3,923,534 68,149 41,489 188,218 549,004 11,912,56 0 -59,363 -114,224 54,861 59,800 92,648 5,500 -103,087 293 2,464,914 2,362,120

EXPENDITURE Materials , Spares & Components Employees Remuneration & Benefits Other Expenses of Manufacturing, Administration, Selling & Distribution Interest Provisions, Losses & Write off Depreciation Amortization of Mine Development Expenditure

PROFIT/(LOSS) FOR THE YEAR Prior years Net Debits/(Credits) PROFIT BEFORE TAX Provision for Tax Current Deferre d Fringe Benefit PROFIT/(LOSS) AFTER TAX Transfer from Special Reserve Profit brought forward from last years Accounts Balance of Profit carried to Balance Sheet

ANNEXURE B CASH FLOW STATEMENT FOR YEAR ENDED 31st MARCH 2010
2009-10 Rs. 000 2008-09 63

A. CASH FLOW FROM OPERATING ACTIVITIES : NET PROFIT/ (LOSS) BEFORE TAX AS PER PROFIT AND LOSS ACCOUNT Adjusted for : Depreciation Provisions charged Provisions written back Interest charged Amortization Interest income Net prior year adjustments Gain on disposal of fixed assets OPERATING PROFIT/ (LOSS) BEFORE WORKING CAPITAL CHANGES Adjusted for : Decrease/ (Increase) in Trade & other Receivables Decrease/ (Increase) in Inventories Decrease/ (Increase) in Loans & Advances Increase/ (Decrease) in Trade Payables & Provisions CASH GENERATED FROM OPERATIONS Net Prior period adjustments Taxes paid NET CASH FROM OPERATING ACTIVITIES (A) B. CASH FLOW FROM INVESTING ACTIVITIES : Purchase of Fixed Assets Sale of Fixed Assets Interest received Investment in Mutual Funds Mine Development Expenditure NET CASH USED IN INVESTING ACTIVITIES ( B ) C. CASH FLOW FROM FINANCING ACTIVITIES Loan from Bank Repayment of Loan from bank Repayment of 7.50% Corporate Term Loan Interest paid NET CASH USED IN FINANCING ACTIVITIES ( C ) NET INCREASE IN CASH AND CASH EQUIVALENTS ( A+B+C ) CASH AND CASH EQUIVALENTS - opening balance CASH AND CASH EQUIVALENTS - closing balance

2,158,448 178,897 55,001 -8,322 34,927 631,492 -268,487 -20,708 -7,645 2,753,603 52191 69,715 882,910 -2,166,643 1,591,776 20,708 -668,800 943,684

54861 188,220 41489 -155,754 68,149 549,004 -393,719 -114,224 -16,840 221,186 -1,101,820 1,247,321 -586,584 -42,438 -262,335 114,224 -443,236 -591,347

-269,069 9,477 125,672 -719,142 -956,360 -1,809,422 0 -337,345 0 -35,622 -372,967 -1,238,705 2,971,773 1,733,068

-512,552 18,859 350,631 0 -712,052 -855,114 337,345 0 -1,125,000 -72,678 -860,333 2,306,79 4 5,278,567 2,971,773

Bibliography:
1. Annual report of Hindustan Copper Limited 2. www.hindustancopper.com
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3. www.google.com 4. www.moneycontrol.com 5. Financial statement analysis by Dr. Jayanta Ghosh 6. Working Capital Management by Khan & Jain

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