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Working capital management at HBL POWER SYSTEMS INTRODUCTION

Working capital management is the study of short term financial requirement of a firm. It can be also said that working capital management is the difference between the current assets and current liabilities. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them.

The goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. The current asset should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. The duration plays an important role in working capital management which in turn depends on the operations. Effective management control plays a vital role.

Therefore, a detailed study regarding the working capital management in HBL Power Systems has been done to consider its effectiveness and shortcoming identified and suggestions are to be made.

INDUSTRY PROFILE AND COMPANY PROFILE

DC Power systems are used across the world for a variety of application where the traditional power supply system cannot be sustained/ supported. The domains that are encompassed in the DC power systems vary from Telecommunications,

Aviation, Rail coaches and signaling to Oil Refineries, Power generating stations, Oil drilling and pipelines. These applications have grown significantly in the last two decade due to the embracement of newer technology and also because the conventional

power sources are available only in a limited domain, beyond which the reliance on DC / alternative Power systems is unavoidable. With the march of technology and it’s blending with the industrial applications there is a need for an efficient and reliable power supply sources at all times and place. DC Power systems provide a back up /

alternative source of power for running and maintaining applications wherein loss of power supply is critical. There is a need for the power supply in remote and far-flung areas and at such places the dependence is on DC power sources is complete DC power systems are also required in mobile (non-stationary) applications like Rail coaches, Aviation etc. In these applications the usage of conventional sources of power / electricity is not possible and DC power supplied thru batteries is to be relied

upon. Defence applications too, require power for communications, aviation and naval application like propulsion of torpedoes. The application for DC power also finds place in Defence Research establishments like NSTL (Naval Science and Technological

Laboratory), DRDO (Defence Research and Development Organization, DRDL (Defence Research and Development Laboratory amongst others.

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The Company is manufacturing specialized batteries and electronics products. The end users of its products are in various sectors i.e. Communications, Railways, Defense, Oil and Natural Gas, Petroleum, Steel, General industry, etc. Most of these segments are core sector of country’s economy. Given the background of inadequacies and shortcomings

associated with the power supply situation, every end user requires reliable, consistent and clean power source for running the establishments. Thus back up power requirements are rapidly growing to cater the increasing requirements of the above segments. Further advent of latest technologies deployed by many sectors like Telecom, Info com, Information

technology, rail and road transport and manufacturing units having sophisticated computer numerically operated equipment requires continuous and reliable power supply which

necessarily has to be met through to back up power only. In remote areas where the mains power supply is not at all available i.e. railways, defense, communications, oil exploration etc. have to depend on back up power

supply only. Thus this sector of business all over the world works out to several billion US dollars. Among these countries like China, India, and South East Asian countries where the requirements of rapidly growing population is also very high. The segments in which we

are in business the annual requirement is more than Rs. 3,000 crores having compound growth potential of 10-12% annually. Being in a very vital sector of business and past track record from last 20 years the future for this sector is quite encouraging. Market demand for the products is increasing very rapidly. Liberalized policies of Government of India from 1991 onwards opened up foreign direct investments in several sectors i.e. Telecom, Infocom, IT, Transport, etc. This has achieved very satisfactory level of foreign direct investments. Financial sector reforms

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Industrial NiCd-batteries of more modern weight and volume efficient designs than the pocket plate are also used in modern trains. aircrafts. which will contribute to consistent growth of business of all the products including electronics products. There are four different types of vented industrial NiCd batteries commercially available. switchgear operation. electrical vehicles (EV) and hybrid electrical vehicles (HEV).also will contribute for further growth of economy in several sectors in the years to come. The main applications for industrial NiCd batteries are railroad service. • • Pocket plate batteries Fibre plate batteries 4 . NiCad batteries Extracts from Investigation on Storage Technologies for Intermittent Renewable Energies: Evaluation and recommended R&D strategy-Nickel batteries dated 2003-06-23 by Investire Network [Project funded by European Community under the 5th frame work programme (1998-2002)] Nickel cadmium (NiCd) batteries have been in industrial production almost as long as lead acid batteries. Industrial NiCd cells are designed as vented prismatic cells with positive and negative plates containing the positive and negative active materials. NiCd batteries for industrial applications are today a niche product. telecommunications. The NiCd battery of type vented pocket plate (PP) was invented by Jungner in 1899 and is still used with the same design today. This will increase the demand for technology driven sectors where the usage of back up power is very essential which will be a catalyst for the growth of the company’s business both in terms of volume and value. emergency lightning and in uninterruptible power supply.

Sinter Plate battery:. Sinter/plastic bonded plate batteries: In sinter/PBE batteries the positive plates are made with sinter plate technology and the negative plates are made with plastic bonded technology. The gap between the superior but high cost and size limited (<100Ah/cell) sinter battery and the low cost but bulky and heavy PP battery was filled in the eighties by the development of fiber plate batteries and later the plastic bonded electrode (PBE) batteries. They have superior high discharge and low temperature performance but are the most expensive battery due to high manufacturing cost and high nickel content. sinter/PBE and fiber are used in applications of industrial nature. The main conventional applications for vented NiCd batteries of type pocket plate. Fiber plate NiCd (FNC) batteries:Fiber plate NiCd batteries were developed for electrical vehicles (EV) applications by Deutsche Automobile sellschaft mbGh (DAUG) and are today available for general industrial applications. uninterruptible power supply and emergency lighting. switchgear operation telecommunications. Examples are railroad service.• • Sinter plate batteries Sinter/plastic bonded plate batteries Pocket plate batteries:.Sinter Plate battery was invented 1932 by Shlecht and Ackermann.Pocket plate batteries are the oldest and least expensive type with a very reliable and long-life cell design that can stand severe mechanical and electrical abuse. Fibre plate and sinter/PBE NiCd batteries are used in trains and 5 .

computers and power tools. Hyderabad Batteries Limited (HBL) an entity of Dr. Vented sintered plate NiCd batteries are used in applications requiring high power discharge service such as aircraft turbine engine and diesel engine starting and other mobile and military equipment. camcorders.electrical vehicles. 2000 the Company merged with itself HBL Limited (one of the promoter of SAB NIFE Power Systems Limited) along with another associate company Pinaki Technologies Limited. phones. The merger was with an objective of complementing the then existing product range and to establish a manufacturing facility for switch mode rectifiers at Kothur.J. A. Mahaboobnagar District Andhra Pradesh. alarms. 6 . The Company was setup with an object to manufacture various types of batteries and electronic products. Fibre plate batteries are also used in aircrafts. and memory back up. Sealed NiCd batteries are used in portable equipment. In April. Commercial production commenced in August 1988. which was engaged in manufacturing of Cap Lamps and Batteries for mining industry.A. The batteries are also used in military equipment and in emergency lightning. under the name and style of SAB NIFE Power Systems Limited by Dr.J. 1986. It received the certificate to commence business on September 22. Post merger to represent the new focus of the company it was renamed as HBL NIFE Power Systems Limited During 2001-02 the company acquired controlling interest in Compact Power Sources Private Limited. Sweden as the joint venture partner and financial collaborator. COMPANY PROFILE HBL Power Systems Limited was originally incorporated in August 29. 1986.Prasad. Prasad (Promoter) acquired the status of a co-promoter along with SAB NIFE AB. The said company was eventually amalgamated / merged with HBL Power Systems Limited vide court order in February 2004. like toys.

Ganapathi Rao.J. Mr.HBL NIFE manufactures large capacity nickel cadmium batteries and power electronics equipment like rectifiers.) D. Kavita Prasad. battery chargers and uninterrupted power systems. BOARD OF DIRECTORS Dr. Prasad. Dr. Mr. Dr. (Smt. A. P. Ms. Bernd T. Chitra Rao : : : : : : Chairman & Managing Director Director Director Director Director (IDBI nominee Director) 7 . Ashok Nagarkatti. Gans.

MANAGEMENT AND ORGANIZATION STRUCTURE : 8 .

Oil &Gas Steel  Non-Conventional Energy (Solar)  Uninterrupted Power Supply Systems MARKET DIVISIONS OF HBL POWER SYSTEMS Ltd. Telecom Sector : This sector is experiencing maximum growth in volume and reach from a tele-density of less than 5 per hundred at the turn of the century.Focus Areas of Business Presently. it has almost crossed 10 per 100 and there is a clear target of 9 .500 crores with 20% annual growth in the coming years. A) Industrial batteries : In the Indian market substantial growth is being noticed in almost all the segments in which the Company’s products are marketed. The industrial battery market currently is Rs.200 to 1. the thrust areas of the Company to which it caters are: Communications / Telecom      D e fe n s e R a ilw a y s Power Petroleum.1. i.

thereby communications sector will be most stable and effective in terms of the future growth.4.reaching 25 per 100 in three years. nickel cadmium batteries find extensive use in this segment and 25 to 10 . the battery purchase in the telecom sector will exceed Rs. With a cost approximately Rs. 2003 has liberalized the norms to ensure private power plants can be quickly implemented in short gestation periods. With the foreign direct investment (FDI) caps liberalized. The present country’s installed capacity of 112. major consolidation in the market already taken place and the global leaders in technology. As the Battery back up in the main power plant areas need to be highly reliable.1200 corers in the ii. material handling. The Electricity Act. equipment and project technology are directly undertaking the expansion of the projects. next 2 to 3 years. power supply back up to switch yards. UPS. transmission and distribution. The advanced power development and reforms programme (APDRP) of government already under implementation is helping to add capacity / improve generation even in existing plants apart from setting up of new green field projects. This translates in to a growth of nearly 100% year by year for next 3 years. Nearly 2% of the telecom capacity expansion project costs account for batteries and stand by power. auxiliaries. control and instrumentation. The expansion capacity target thus will have 20% private projects and 25% through reforms and modernization. substation and switch gears in generation.000 by 2012.000 MW is to cross to MW 200.000 over line. Power Sector: The power segment is a major user of batteries and DC power systems right from the main generating plants.

iii. The Company is also working with developers of electrical 11 .200 crores per annum of the battery purchase is envisaged to cater to the growth apart from the replacement demands for existing plants. B) Other Industrial Segments i.a. remote and non-grid areas as well as to encourage use As each solar street light. With the additional investments planned in this sector Rs. The UPS market today is more than Rs. Growth of 22 to 25% per annum is expected in this segment.30% yearly growth is expected for these alkaline batteries from this segment. The heart of each UPS is a battery bank which keeps the stand-by power stored. The other high growth industrial segment is the UPS. the potential in this area is also substantial with the Government planning to electricity 100. : The large growth in automation and IT in all spheres is driving the UPS segment that is growing by 25-30% p.000 crores per annum in the enterprise segment. The value of batteries in an UPS range from 20-50%.000 villages through the MNES programmes and private enterprises also coming into the sector. Fast growth is expected in the Solar Power (Non-conventional energy) segment to achieve electrification of of green. Road transport sector is also a growing segment where the company is making a selective and focused entry to supply high quality pure lead tin batteries to the busses of RTCs.1. home light and power plant needs batteries to store and supply the power. iii. non-polluting power.

v. where no other major manufacturers can cater. The Company has a niche in this market and with growing defense expenditure and entry of private sector now being altered. Increases in capital spending and in manufacturing enterprises in the industrializing parts of the world are driving growth. Lithium and other chemistries are used for such defense applications. aircraft starting. The total battery market globally is envisaged at US $ 43 bn out of which 30% is considered to be in non-automotive applications segment. 12 In the developed . Nickel Cadmium Sintered Plate. This translates into lighting. Defence : The defense segment has been a prized customer for the Company with several specialized. missiles. the growth in this segment for the Company is more than 30% per annum. The Company is most dependable supplier to Defence for critical application areas like torpedoes. AC coaches. this segment is a valuable business and growth area for the Company. iv. Railways: The Railways segment is growth well with expansion in tracks increasing requirement of batteries for train and more and routes.vehicles to design advanced technology batteries for these future products. ground power units etc. tailor made batteries being supplied to the Army. With more types of batteries being approved by RDSO. C) Export Markets The global market for batteries is also growing by almost 10% with much higher growth in the Asia Pacific region. Navy and the Air Force. signaling and communications. Specially designed Silver Oxide Zinc.

solid state interlocks. The Company has developed several advanced technology electronics products to cater to this high growth segment. HBL NIFE’s technology driven Nickel cadmium batteries are very well here to meet this trend as the results already show. train charting systems. the investment in this area will increase manifold in future. to industrial customers all over India and overseas. which the company is focused to capitalize. Integrated Power Supply systems (IPS) which are multi voltage charging and power supply systems are very popular with the Railways and the Company is leading supplier of this product.000 crores to upgrade signaling systems in 5 years apart from their regular budgets. own overseas facilities. distribution boards etc. Several Project programmes. more effective dealer / reselling customer net work and product / technology improvement D) Electronics Products The Company is an established supplier of industrial chargers. The Railways have allocated a special budgetary fund of Rs. The Company is working closely with IRISET. non-lead acid (alkaline) rechargeable batteries are out pacing the lead acid secondary batteries. With growing acceptance of the Company’s NiCad products all over the world. RDSO and other agencies with development orders and regular orders already coming in for several electronics products like Data loggers. 13 . consistent growth is expected and the company is planning to meet this increasing demand through capacity expansion. high frequency track circuits. Customers prefer system suppliers for complete DC Power Systems and the Company is well placed to cater to this demand. Railway signaling is a major growth area.economies. Safety becoming a critical aspect in railway operations.5.

the Company has been successful in developing advanced electronics products suitable and acceptable to the Defence applications and is poised for assumed growth in this specialized market of limited competition. With liberal investment in R&D. ii. radar. Exports & NiCad Business: 14 . thermal imagers etc. The highest growth areas of the Company in the next few years will be : i.) Defence Electronics The Company being trusted supplier of various specialized batteries to Defence has been encouraged to develop several electronics products used for electronic warfare. proximity fuzes. E.digital axle counters. radios. tie-ups with research institutions and sheer technological enterprise. This is a substantial future growth area and also contributes to the diversification / introduction of new technology driven electronic systems in large volumes. microwave. Telecom: The lead acid battery business in this segment has doubled last financial year and further expected to re-double in two years. This area will grow very rapidly since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner. The Company has undertaken execution of railway signaling contracts on turn key contract basis with supply of batteries and electronics products as a part of the terms of contract. The countrywide net work of the Company with dedicated teams for the telecom customers and matching production capabilities will ensure dominance in this segment. new product development. etc.

the future is indeed bright and promising. 2. Alcad Hoppecke). With limited competition in this product area both in India (only two suppliers HBL and AMCO) and overseas (SAFT. 1. 4. the top 10 are as under: Sr.With the Company being able to establish acceptance and growth from quality buyers from several sectors and Asian countries for its Nickel Cadmium batteries. Increased capacities and with export suited exclusive manufacturing facilities existing within shortest gestation period will spurt this growth and can double the NiCad business in next two to three years. Name of the Clients Reliance Infocom Limited Motorola India Limited Ministry of Defence Indian Railways SAFT AB 15 . Electronics: The thrust and focused attention in the Railway Signaling and ensure high turnover levels for the company in Defence Electronics Products will the years to come The Company has wide spread customer base. 5. This global demand growth of NiCad Batteries will be firmly strengthened by the rising domestic demand for the Power and Oil and gas segments where NiCad batteries are preferred over all other types. very quick growth in this area is assured. No. 3. iii.

High Lights • A leading player in industrial and specialized batteries. Lithium. Fibre. Power. Railways. 7. LMLA) etc. and Sintered Plate). 9. 16 . • The Customer segment in India include Telecom. oil and gas. Lead Acid (VRLA. Europe and the Americas. Exports are growing at over 40% with increasing business from existing markets / customers as well as from new territories. non-conventional energy (solar). DC Power Systems and other Electronic Products. Integral Coach Factory.6. lead tin. Thermal. uninterrupted power supply systems process and core industrial users. Nickel cadmium (Pocket. tubular.e. High Degree of Customer Satisfaction and increased turnover year after year has further added to the creditability of the organization HBL Power Systems Limited . Perambur Nokia India Limited Hutchison Essar Telecom Limited Erickson India Limited Bharat Heavy Electricals Limited The Company’s global presence is evident in the fact that the Company is continually expanding its facilities to meet the increasing demand of quality products. 10. Silver Oxide Zinc. • A technology focused manufacturer of several ranges of specialized application batteries i. Defence. • Products are exported to several countries in Asia. petroleum. 8.

Apart from Batteries and DC Power Systems (chargers, distribution boards, etc.), the company has developed several advanced electronic products for Indian railways and reached an advanced stage for completion of defense electronics product development. The company has made substantial investments in process development for its core products as well as the new electronic products with exclusive specialist qualified Technology development. man power for in-house

Development orders, approvals and release of commercial orders from railways and defense sectors for some of the signaling and electronic products of the Company as paved the way for additional increase in growth and major diversification in the next few years.

With its country wide sales and effective service net work, the Company is by far the largest supplier in the booming telecom sector as well as for specialized alkaline application battery segments. MAIN OBJECTS OF THE COMPANY • To Manufacture, assemble, purchase, import, export and otherwise deal in India or abroad in all types of cells, batteries, energy storage devices, conversion and generation devices, appliances, gadgets, equipments and products, including

power packs, power supplies, generators, solar panels, chargers and subassemblies, components, parts and accessories thereof. • To manufacture, assemble, purchase, sell, import, export or otherwise deal in India or abroad in all electrical, electronic, electro mechanical and metallurgical appliances, devices and sub-assemblies, accessories, parts and components thereof.

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To manufacture in India or abroad products based on electrolytic, electrothermal and electro-chemical processes, including sintered products and products

based on powder metallurgy technology. • To establish, provide, maintain an operate plants in India or abroad for the extraction, refining and electro plating of metals and alloys by electrolytic processes. • To acquire, develop or supply engineering services, know-how, technology, process designs, patents, equipment, plant and machinery in India or abroad for the manufacture and/or supply of all kinds of energy systems, electric or electronic devices and also undertake the provisions of related technical, marketing and engineering consultancy services. • To buy, sell, manufacture, refine, manipulate, treat, prepare, import and export and deal in all kinds of chemical, industrial, medical, pharmaceutical compounds, cements,

and other preparations, substances, apparatus, and articles,

oil paints, pigments and varnishes, drugs, dyes and dye-wares, paint and colour grinders, spirits, alcohol and other alkaloids, synthetics and substitutes. • To design, manufacture, install, erect, repair, alter, amend, improve, maintain, remove, exchange, replace, import, export, sell, purchase, license, lease, hirepurchase and to act as agents in India or in any part of the world for all types of special purpose industrial machinery, products made-up of composite material, computer hardware, engines, equipment, components and its related accessories and services. • To undertake the designing and development of systems and application software either for its own use or for sale in India or for export outside India and to design

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and develop such systems and application software for or on behalf of manufacturers, owners and users of computer systems and digital/electronic equipments in India or elsewhere in the world. • To set up and run electronic data processing centers and to carry on the business of data processing, word processing, software consultancy, systems studies, management consultancy, techno-economic feasibility studies of projects, design and development of management information systems, share/debenture issues management and/or registration and share/debenture transfer agency. • To carry on the business of manufacturing, producing, generating power from all or any of the available sources such as Thermal, Hydel, Gas, Wind, Cogeneration, Solar, Petroleum or from any other possible sources conventional or

non-conventional and in particular to construct, lay, own, establish, fix and carryout all necessary power stations, cables, wire lines, accumulators, lamps

and works and other elections whatsoever as may be necessary or required for generation, accumulation of power for captive consumption or for distribution,

marketing, supplying of power in India or elsewhere to any of the industries, firms, electricity boards, government of semi government bodies, public or private companies and also for private or public purpose. • To act as a Export House and to carry on the business of merchants, traders, manufacturer’s representatives, commission agents, selling agents, brokers and to export, import, indent, buy, sell or otherwise deal in all kinds of goods, products, articles, merchandise either manufacture by the company or otherwise. QUALITY CERTIFICATION OF THE HBL POWER SYSTEMS Ltd.

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Fibre Plate • • • • • • • • ISO 9001 ISO 14001 IEC 60623 Certification (CSA) Bump Test Vibration Test Seismic Test IEC 60623 Certification ( Intertek ETL SEMKO Interim Report) OHSAS 18001 Certification (NCPP & NCFP) B) Sintered Plate • ISO 9001 20 .Quality of all its products enjoy high reputation and international acceptance and advanced testing facilities supplemented by international standard quality systems (ISO) 9002:200 Certifications. Valve Regulated Pocket Plate. Products in offering to various segments  Aviation  Defense  Industry  Railway  Telecommunications Products manufactured by HBL : • • • Batteries Electronics Coating CERTIFICATIONS:1. Nickel Cadmium : A) Pocket Plate.

Lithium batteries. Defence and Industrial applications like oil refineries etc. Lithium : • ISO 9001 5. LMLA. DC-DC Convertors. Tubular Lead Acid batteries (Gel). Silver Zinc : • ISO 9001 3. Electronics : Thyristor Control Rectifiers. Defence. Lead Acid : VRLA Single Cells. and the Industrial segment. NiCad batteries. Railways. NiCad batteries to be manufactured out of the current project are an existing product of the company and are used in Railways. Aviation. VRLA GEL • • • • ISO 9001 ISO 14001 IEC 60896 Certification ( CSA) for VRLA Single Cells IEC 60896 Certification (CSA) for Monoblocks 4.2. The Company primarily caters to the following Industries: INDUSTRY APPLICATIONS 21 . It caters to a variety of industries and end users ranging from Communication. The products include Pure Lead VRLA batteries. and Thermal batteries amongst others. Defence Chargers • ISO 9001 Products / Services of the Company Nature of Products/ services and end users The Company manufactures a host of batteries in the Industrial segment. VRLA Monoblocks.

basic GSM and CDMA technologies at telephone exchanges and at MSCs (Main Switching Centers) and BTH (Towers) Oil. backup power in gas pipe lines and standby powers for generators and at transmission and distribution 22 . Signaling and communications Wireless communication in Army. Battle Tanks Engine starting Back up power. Gas Power : : Back up power in drilling and refining. Emergency Systems Train lighting and Air-conditioned coaches.Aviation Railway Defence Telecom : : : : Air Craft Engine starting.

The data required for the study is mainly based on secondary data. annual reports 2002-03 to 2006-07 Source of data 1. To analysis the effectiveness of working capital management of the company. Operating cycle analysis. Research Methodology Research design Analytical tools Data Sources Period of study Analytical Ratio analysis. 23 . schedule of change in Working capital. There fore the present study has been undertaken in this direction. The efficient management of working capital is a smooth functioning of day -t day operation of HBL POWER SYSTEMS Ltd. The working capital is having great influence on the development and progress of any organization. Hence. To study the operating cycle analysis of the company.The required information is collected from the annual report of the HBL POWER SYSTMES LIMITED comprising of balance sheets. 3. Objectives of the study • • • To study short term liquidity position of the company. 2.The related data is obtained from the printed and published journals and financial statement of the corporation.RESEARCH METHODOLOGY Need for the study Working capital is the life blood of the organization. there is a need to study the importance of working capital management in the HBL POWER SYSTMES Ltd. P&L accounts. Secondary data has been collected from Company records.

Tools for data analysis : Financial tools such as. Financial ratio analysis.e. Operating cycle analysis Period of study: Data for a period of 5 years has been taken for the study i. 24 . Working capital statements and . starting from 20042008.

and cash to pay current liabilities as they fall due. Working capital management involves the relationship between a firm's current assets and its current liabilities. If this lifeline deteriorates so does the company's ability to fund operations. no matter how large or small the organization is. Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business". which are in cash or will soon be converted into cash in "the ordinary course of business". The three reasons are for the purpose of speculation. This implies a clearly designed risk policy to determine the required liquidity level. A good way to judge a company's cash flow prospects is to look at its working capital Management. Understanding a company's cash flow health is essential to making investment decisions. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. accounts receivable and payable. reinvest and meet capital requirements and payments. Current Assets are resources. The management of working capital involves managing inventories. Why Firms Hold Cash : The finance profession recognises the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. for the 25 .WORKING CAPITAL MANAGEMENT THEORETICAL FRAME WORK “More businesses fail for lack of cash than for want of profit” Cash is the lifeline of a company.

Current Liabilities 26 . In a narrow sense. the term working capital refers to the net working capital. An example of this would be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory. In the broad sense. which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. CONCEPTS OF WORKING CAPITAL: There are two concepts of working capital: (I) Gross Working Capital. the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Working Capital = Current Assets . for. Current assets are those assets. (ii) Net Working Capital. Net working capital is the excess of current assets over current liabilities. • Precaution Holding cash as a precaution serves as an emergency fund for a firm.• Speculation Economist Keynes described this reason for holding cash as creating the ability for a firm to take advantage of special opportunities that if acted upon quickly will favour the firm. The providing of services and creating of products results in the need for cash inflows and outflows. If expected cash inflows are not received as expected cash held on a precautionary basis could be used to satisfy short-term obligations that the cash inflow may have been bench marked • Transaction Firms are in existence to create products or provide services.

(b) On the basis of time. (b) On the basis of time. 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. rather both have their own merits. TYPES OF WORKING CAPITAL: Working Capital may be classified in two ways: (a) On the basis of concept. working capital can be further classified into 1. Gross working capital. Gross concept is very suitable to the company form of organisation where there is divorce between ownership. management and control. 2. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. (a) On the basis of concept. working capital 1.Net working capital may be positive or negative. The net concept of working capital may be suitable only for proprietary form of organisations such as sole-trader or partnership firms. However. it may be made clear that as per the general practice net working capital is referred to simply as working capital. 2. Permanent or fixed working capital. Current liabilities are those liabilities which are intend to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the business. Net working capital. 27 . Temporary or variable working capital. These two concepts of working capital are not exclusive.

For example.DSO provides a rough guide to the 28 . the business will eventually run out of cash and expire. If it doesn't generate surpluses. Working Capital Cycle: Cash flows in a cycle into. If a business is operating profitably. around and out of a business. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. The faster a business expands the more cash it will need for working capital and investment. Good management of working capital will generate cash will help improve profits and reduce risks. The cheapest and best sources of cash exist as working capital right within business. Temporary working capital: Any amount over and above the permanent level of working capital is temporary. fluctuating or variable working capital. finished goods and cash balance. which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. every firm has to maintain a minimum level of raw materials. This minimum level of current assets is called fixed working capital. There are two elements in the business cycle that absorb cash . which is continuously required by the enterprise to carry out its normal business operations.Inventory (stocks and work-in-progress) and Receivables arising from credit terms extended to customers and as reflected in day sales outstanding (DSO . then it should. There is always a minimum Level of current assets.Permanent working capital: Permanent or fixed working capital is the minimum amount. in theory. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. This portion of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes. generate cash surpluses. work-in-process.

. Similarly.g. computers.g...g.TIME IS MONEY.g. As a consequence. Each component of working capital (namely inventory.number of days that a company takes to collect payment after making a sale).. collect monies due from debtors more quickly) or reduce the amount of money tied up (e. if available. get longer credit or an increased credit limit. The main sources of cash are Payables arising from trade terms adopted in supply chain management (your creditors) and Equity and Loans. It can be tempting to pay cash. When it comes to managing working capital . Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers You release cash from the cycle Your receivables soak up cash You increase your cash resources You free up cash You consume more cash • • Shift inventory (stocks) faster Move inventory (stocks) slower 29 .. the business will generate more cash or it will need to borrow less money to fund working capital.. and MONEY. you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. receivables and payables) has two dimensions. reduce inventory levels relative to sales). you effectively create free finance to help fund future sales.... Then . • • • If you . TIME .. for fixed assets e. if you can negotiate improved terms with suppliers e. plant... If you can get money to move faster around the cycle (e.

working capital is very essential to maintain the smooth running of a business.IMPORTANCE OF WORKING CAPITAL: Working capital is the lifeblood and nerve centre of business. No business can run successfully without an adequate amount of working capital. as there may not be much pressure to plough back profits. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods. This gains the confidence of its investors and creates a favourable market to raise additional funds in the future. 3. reduces wastage’s and costs and enhances production and profits. wages and other day-to-day commitments which raises the morale of its employees. Just as circulation of blood is essential in the human body for maintaining life. 7. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 5. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors. there is much pressure on working capital. Quick and Regular return on Investments: Every Investor wants a quick and regular return on investments. Regular payment of salaries: wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries. increases their efficiency. 6. 4. 8. high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms. Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. Easy loans: A concern hacking adequate working capital. 30 . generally. 2. The main advantages of maintaining adequate amount of working capital are as follows: 1.

It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained. Excessive working capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. cannot pay its shortterm liabilities in time. 31 . When there is redundant working capital. Excessive working capital implies excessive debtors and defective credit Policy which may cause higher incidence of bad debts. 5. 4. 2) The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies. It may result into overall inefficiency in the organisation. 3. waste and losses. which has inadequate working capital. Both excessive as well as short working capital positions are bad for any business. it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft. increases costs and reduces the profits of the business. DISADVANTAGES OF INADEQUATE WORKING CAPITAL 1) A concern. 3) It becomes impossible to utilise efficiently the fixed assets due to nonavailability of liquid funds. 2. 6. 1.DISADVANTAGES OF EXCESSIVE WORKING CAPITAL Every business concern should have adequate working capital to run its business operations. Thus it will loose its reputation and shall not be able to get good credit facilities. Due to low rate of return on investments the value of shares may also fall.

APPROACHES TO WORKING CAPITAL The objective of working capital management is to maintain the optimum balance of each of the working capital components. Firms grant trade credit to customers. The receivables represent an important component of the current assets of a firm. Credit Policy 8. Rate of Growth of Business 9. Rate of Stock turnover 7. Working Capital Cycle 6. Production Policy 4. Manufacturing Process 5. Size of Business/Scale of Operations 3. Though Working capital management takes place on two levels. the approach to WCM depends upon: 1. thereby maximizing the interest earned. such cash may more appropriately be "invested" in other assets or in reducing other liabilities. Price Level Changes MANAGEMENT OF ACCOUNTS RECEIVABLES Accounts receivables represent an extension of credit to customers. Natures or Character of Business 2. allowing them a reasonable period of time. because they expect the investment in receivables to 32 . This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible. in which to pay for the goods / services which they have received. Earning Capacity and Dividend Policy 10. However.4) The rate of return on investments also falls with the shortage of working capital. component level and analysis level.

DEFAULT COST 33 . DELINQUENCY COST This is the cost. 3. They have to be financed thereby involving a cost. 2. A planned credit-policy can assist in increasing corporate profitability. credit sales. which apparently could be profitably employed else where. OBJECTIVE The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit. COSTS: The major categories of costs associated with the extension of credit and accounts receivables are: 1.be profitable. are therefore a part of the cost of extending credit or receivables. either by expanding sales volume or by retaining sales that otherwise would be lost to competitors. COLLECTION COST These costs are administration costs incurred in collecting the receivables from the customers to whom credit sales have been made. When considering relaxing credit terms. management must weigh up the profits of increased sales with the cost of additional investment in debtors. 4. which arises out of the failure of the customer to meet their obligations when payment on credit sales becomes due after the expiry of the period of credit. The cost on the use of additional capital to support. CAPITAL COST The increased level of accounts receivable is an investment in assets.

the extension of credit may be to protect its current sales against emerging customers. The various forms in which inventories exist in a manufacturing company are raw materials. Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. it is oriented to sales expansions. In other words. Inventories are stock of the product a company is manufacturing for sale and components that make up the product. WORK-IN-PROGRESS : They are semi-manufactured products. As a result of increased sales the profits of the firm will be increased. and such costs are known as default costs associated with credit sales and accounts receivables. It includes raw materials. They represent products that need more work before they become finished products for sale. FINISHED GOODS : 34 .Sometimes the firm may not be in a position to recover the dues because of the inability of the customers. RAW MATERIALS : Raw materials inventories are those units. MANAGEMENT OF INVENTORY Inventory is the third major component of current assets. When the firm extends trade credit the impact of liberal policy is likely to have two forms. BENEFITS: The benefits are the increased sales and profits anticipated because of a more liberal policy. work-in-progress and finished goods. subcontracting costs and various manufacturing costs. the increase in sales would be either from the existing customer or new customers. such debts are treated as bad debts and are written off as they cannot be realized. which have been purchased for converting into finished product through the manufacturing process. Secondly. First.

TYPES OF INVENTORIES : The common types of inventories for most of the business firms may be classified as Finished Goods. while some others may be 40% completed. If the firms do not maintain a sufficient finished goods inventory. Its purpose is to uncouple the production 35 . and the overheads. and every manufacturing firm has to carry certain stock of raw materials in stores. as the customers who are unwilling to wait may turn to competitors. the direct wages. These are just ready for sale to customers. Raw materials: The raw materials include the materials. Inventory of finished goods arises because of the time involved in production process and the need to meet customer’s demand promptly. The degree of completion may be varying for different units. which are completely manufactured products. which are used in production process. others may be 90% complete. Finished Goods: These are the goods. These units of raw materials are regularly issued/ transferred to production department. The purpose of finished goods inventory is to uncouple the production and sales function so that it is not necessary to produce the goods before sales can occur and therefore sales can be made directly out of inventory. expenses already incurred.They are those inventories. Work in Progress: It refers to the raw materials engaged in various phases of production schedule. they run the risk of losing sales. So. Inventories of raw materials are held to ensure that the production process is not interrupted by a shortage of these materials. including the speed with which raw materials can be ordered and procured and uncertainly in the supply of these raw materials. the work in progress inventory contains partially produced / completed goods. which are either being purchased by the firm or are being produced or processed in the firm. The work in progress refers to partially produced goods. Work in Progress and Raw Materials. Some units might have been just introduced. The amount of raw materials to be kept by a firm expends on a number of factors. The value of work in progress includes the raw material costs. ready for sale. if any.

for the purpose of exposition.function from the purchasing function i. TYPES OF RATIOS: Ratios can be classified. coal is a finished goods but it is a raw material for a steel mill as the coal is used in the production of steel. Similarly. 3. For a coal-mining firm. to make these two functions independent of each other so that delays and the firm can satisfy its need for raw materials out of the inventory lying in the stores. are: 1. The classification of a particular item as a finished goods or raw material depends on the kind of business being discussed. 2. 2. which indicate the liquidity of a firm.. Current Ratio Acid Test / Quick Ratio Cash Ratio CURRENT RATIO 36 . The ratios. 3. into four broad groups: 1.e. Liquidity ratios Profitability ratios Activity ratios LIQUIDITY RATIOS The liquidity ratios measure the ability of a firm to meet its short-term obligations and reflect the short-term financial strength/solvency of a firm. steel is a finished good for a steel mill but it is a raw material for an Automobile firm. RATIO ANALYSIS Ratio analysis is a widely – used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statement so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined.

are considered satisfactory. QUICK ASSETS 37 . The term quick assets refer to the can be converted into cash immediately. conventionally. Thus current ratio. for every one rupee of current liabilities.The current ratio is the ratio of total current assets to total current liabilities. By exclusion of inventory and pre-paid expenses from current assets we get quick current assets. Current Assets Current Ratio = -------------------------------Current Liabilities WHERE.. It is obtained by dividing current assets by current liabilities. there should be two rupees of current assets. in a way. ACID –TEST OR QUICK RATIO The acid test ratio is the ratio between quick current assets and current liabilities and is calculated by dividing the quick assets by the current liabilities. is a measure of margin of safety to the creditors. Current assets = Inventory + debtors + B/R + cash & bank + marketable securities +prepaid Expenses Current liabilities = creditors + B/P + outstanding expenses + bank o/d + short term loans The higher the current ratio. the larger the amount of rupees available per rupee of current liability. the more the firms ability to meet current obligations and greater the safety of funds of short-term creditors. current ratios of 2:1 i. Although there is no hard and fast rule.e.

Inventory and Prepaid Expenses Quick Liabilities = Current Liabilities .ACID TEST RATIO = _______________________ QUICK LIABILITIES WHERE Quick Assets = Current Assets . CASH RATIO: The cash ratio is the ratio of cash and bank balance to the current liabilities. It is generally though that if quick assets are equal to current liabilities that the concern may be able to meet its short-term obligations.e. Relevant turnover Ratios are.Bank Overdraft (if there in current liabilities) Conventionally. a ratio of 0. The ratios to measure these are referred to as turn over ratio..5:1 i... Conventionally. This ratio is the most rigorous and conservative test of a firm’s liquidity position. for every rupee of current liability there should be 50 paisa of cash and bank balance is considered satisfactory CASH & BANK BALANCES CASH RATIO = _________________________ CURRENT LIABILITIES TURNOVER RATIOS Another way of examining the liquidity is to determine how quickly certain current assets are converted into cash. a quick ratio of 1:1 is considered satisfactory. • • • • INVENTORY TURN OVER RATIO DEBTORS TURNOVER RATIO CREDITORS TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO 38 .

if average inventory is not available we can take closing stock) This ratio indicates how fast inventory is sold. Thus. Note: if average debtors are not available alternatively we can take debtors at the end (debtors in balance sheet) WORKING CAPITAL TURNOVER RATIO: A low rate shows that debts 39 . A high ratio is good from the viewpoint of liquidity and vice versa.INVENTORY TURNOVER RATIO: It is computed by dividing the cost of goods sold by the average inventory. NET CREDIT SALES ________________________ AVERAGE DEBTORS DEBTORS TURNOVER RATIO = This ratio measures how rapidly debts are collected. A high ratio is indicative of shorter time lag between credit sales and cash collections.closing stock Average Inventory = (opening stock + closing stock) / 2 (Note: . COST OF GOODS SOLD __________________________ AVGERAGE INVENTORY INVENTORY TURN OVER RATIO = WHERE Cost of goods sold = opening stock + purchases . A low ratio would signify that inventory does not sell fast and stays on the shelf or in the warehouse for a long time. DEBTORS TURNOVER RATIO: It is determined by dividing the net credit sales by average debtors out standing during the year. are not being collected rapidly.

This ratio indicates the number of times the working capital is turned over in the course of the year this ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient utilization of working.capital and a low ratio indicates other wise.It is determined by dividing cost of goods sold by working capital. Working Capital = Current Assets – Current Liabilities COST OF GOODS SOLD WORKING CAPITAL TURNOVER RATIO = -----------------------------(Net) WORKING CAPITAL Working capital turnover ratio indicates the velocity of the utilization of net working capital. 40 .

Due to increases in inventories.02 Net Working Capital(a-b) Net increase in Working Capital Total Interpretation: In HBL POWER SYSTEMS Ltd.68 732.39 lakhs.21 885.8 674.07 657.in Lakhs) Effects on Working Capital Particulars 2002 – ‘03 2003 – ‘04 Increase Decrease Current Assets: Inventories Sundry debts Cash &Bank Bal Loans and Advances Total Current Liabilities :Current Liabilities Provisions Total (b) 3373.12 3526. 41 .03 493.70 377.80 153. It can conclude that the working capital was satisfactory.39 1751.07 2716.55 6238.46 715.59 3209.01 5564.DATA ANALYSIS AND INTERPRETATION STATEMENTS SHOWING OF CHANGES IN WORKING CAPITAL DURING 2003-’04 AND 2004-‘05 (Rs.07 8426.03 340.55 1031.28 11220.77 1751.15 4. cash and bank balances and reduces in current liabilities.40 1747.92 7693.61 3443.39 8426.47 732.01 881.62 8426.26 11635.03 (a) 3065. in the year 2003 – 04 to 2004 – 05 the working capital was increased 732..

9 1146.32 2004– ‘05 2005 – ‘06 Increase Decrease Net Working Capital(a-b) Net Decrease in Working Capital Total Interpretation: During the year 2004 – 05 to 2005-06the working capital was decreased 625.07 3862.70 3316.57 389.26 11635.07 104.9 (a) 3443.69 945.01 5564.40 1747.in Lakhs) Effects on Working Capital Particulars Current Assets: Inventories Sundry debts Cash &Bank Bal Loans and Advances Total Current Liabilities :Current Liabilities Provisions Total (b) 2716.37 4251.11 8426.54 1810.STATEMENT OF CHANGES IN WORKING CAPITAL DURING 2004-’05 AND 2005-‘06 (Rs.39 64.07 8426.2 126.01 881.11 lakhs when compared previous year.22 625.46 12052.04 538. 42 .03 493. Due to increases Current liabilities and slash down in maintenance of inventory and cash balance which was lead to decrease it current assets to current liabilities.95 7800.97 6581.59 3209.11 1810.97 625.79 1208.62 8426.93 1017.

37 2001.18 1809.97 6581.5 30.57 7157.91 2005– ‘06 2006 – ‘07 Increase Decrease Current Liabilities Provisions Total (b) Net Working Capital(a-b) Net increase in Working Capital Total Interpretation: In the year 2005 – 06 to 2006– 07 the working capital was increase in high rate from 7800.01 144.70 1090.STATEMENT OF CHANGES IN WORKING CAPITAL DURING 2005-’06 AND 2006-‘07 (Rs.46 5318.95 7800.in Lakhs) Effects on Working Capital Particulars Current Assets: Inventories Sundry debts Cash &Bank Bal Loans and Advances Current Liabilities :Total (a) 12052.97 to 13056.69 945.18 5255.57 389.54 lakhs when compared to previous year it was mainly due to rapid growth in inventories and debtors. 43 .67 481.97 5255.88 6153.10 5671.72 11562.55 13056.37 4251.79 1208.54 19210.51 3316.54 13056.1 92.75 4980.57 13056.54 7157.93 3862.29 1238. From this we can conclude that the company is increasing its working capital.

Through this we can conclude that the working capital of HBL POWER SYSTEMS Ltd.55 13056.31 5766.85 5766.04 812.88 6153.42 4696. loans & advances and Cash & bank balances.98 1449.70 1090.29 1238.85 17752.31 17752.89 (a) 5318. 44 .89 820.72 11562.54 4696.05 1233. is satisfactory..85 6491.74 1902.STATEMENT OF CHANGES IN WORKING CAPITAL DURING 2006-’07 AND 2007-‘08 (Rs.81 732.10 6767.37 19210.6 2006– ‘07 2007 – ‘08 Increase Decrease Net Working Capital(a-b) Net increase in Working Capital Total Interpretation: During the year 2006 – 07 to 2007 – 08 the working capita was increased 4696.2 2272.97 24976.67 481.in Lakhs) Effects on Working Capital Particulars Current Assets: Inventories Sundry debts Cash &Bank Bal Loans and Advances Total Current Liabilities :Current Liabilities Provisions Total (b) 5671.14 250.92 13834.30 7224.12 17752.34 2471.31 lakhs is due to increased in inventories.

92 2716.55 1031. (Rs.55 6491.46 12052.72 11562.97 6581.37 4251.12 3526.12 2003-04 3065.81 732.97 24976.70 2005-06 3316.37 19210.01 5564.03 493.34 2471.92 13834.98 Graph: Net Working Capital 45 .95 5671.93 2006-07 5318.62 3862.10 2007-08 6767.29 1238.70 1090.61 2004-05 3443.07 7800.01 881.74 1902.26 11635.79 1208.80 153. in Lakhs) PARTICULARS CURRENT ASSETS INVENTORIES SUNDRY DEBTORS CASH/BANK BALANCES LOANS AND ADVANCES SUB TOTAL (B) Current Liabilities :CURRENT LIABILITIES PROVISIONS SUB TOTAL ( C) NET WORKING CAPITAL 7693.40 1747.57 389.21 885.97 13056.59 3209..54 17752.67 481.WORKING CAPITAL OF HBL POWER SYSTEMS LTD.30 7224.28 11220.69 945. HYDERABAD.55 6238.68 (B)-(C) 8426.85 3373.88 6153.

Through this we can conclude that the working capital is increasing trend in HBL POWER SYSTEMS Ltd.07 to 7800.97. 46 .07 lakhs.N et W ing ork C ital ap 1 0 80 0 1 0 60 0 1 0 40 0 1 0 20 0 1 0 00 0 8 0 00 6 0 00 4 0 00 2 0 00 0 2003-04 2004-05 2005-06 2006-07 2007-08 Y ear INTERPRETATION The Working Capital of. From 2006-07 to 2007-08 it is study increase it reached 17752.85.e. past 5 years is in increasing trend. In 2003 – 04 to 2004 – 2005 there was a study increase from 7693. from 8426.68lakhs to 8426. But in 2005 – 06 there was a slight decrease i.

3 89 11.89 3.06 48.61 19.6 131.9 57.37 4.91 6.92 18.C in a year 2003-04 85.594 2006-07 68. of days) Particulars Raw material conversion period Work –in – process Finished goods conversion period Debtors conversion period Bills payable Operating cycle No.37 days in 2005 – 06 which was efficiency of the company to convert its inventory into cash and it was reached to 131.05 3.8 93.513 2007-08 58.63 days in 2007 – 08. 47 .9 62. The Operating Cycle was low at 78..26 25. of O.2 2.29 22 55.2 40.70 78.6 102.72 99.67 52.63 2.47 3.95 0.56 24.3 41.3 2.Operating cycle analysis: (In No.834 2004-05 72.8 53.7 59.735 INTERPRETATION :- In HBL power systems Ltd.635 2005-06 79.

48 .96 25038.31 Current Ratio (in times) C rre t R tio (In tim s) u n a e 4 3 .09 11649.18 6160.83 7224.58 2. It indicates that the company is maintaining a safe margin of solvency. :Year 2004 2005 2006 2007 2008 Current Assets Current Liabilities Current Ratio (In times) 3. In Lakhs) 11267.13 3.08 3252. Further the ratio is more than the standard Norm of 2:1 through out the study period.93 4255.39 19300.16 3.23 12003. In Lakhs) 3561.82 3.47 (Rs.096 times which more than the ideal ratio is.7 (Rs.5 3 2 .5 0 20 04 20 05 20 06 Y ear 20 07 20 08 Interpretation: The average Current ratio of the company was 3.5 2 1 .5 1 0 .Ratio Analysis CURRENT RATIO of HBL POWER SYSTEMS Ltd.

5 2 1.93 4255.78 Current Liabilities (Rs.07 2007 – 08 Quick Assets (Rs. but it reached 2.08 3252.53 Quick Ratio (In times) Quick Ratio (In times) 3 2.3 times which was more than the standard ratio(1:1) The ratio was in fluctuation trend.29 times in 2004 – 05.83 7224.26 2. In Lakhs ) 3561.04 2004 .05 2005 .QUICK RATIO OF HBL POWER SYSTEMS Ltd.5 1 0. In Lakhs ) 8153.57 8133.03 2.04 2004 .5 0 2003 .31 Quick Ratio (In times) 2.25 13941.13 8656.07 2007 – 08 Interpretation: The Average Quick ratio is 1:1 is considered satisfaction. From the above analysis we can say that the Average Quick ratio of HBL Power systems was 2. :Year 2003 .53 times in 200708 from 2.57 18270.18 6160.06 2006 .06 Year 2006 .50 2.29 2.05 2005 . It indicates that the company is effectively converting its assets into cash 49 .

The average Cash ratio was 0.2 0.07 2007 – 08 Interpretation: Cash is the most liquid for any organisation. In Lakhs) 3561.1 0 2003 .08 3252.18 6160.82 1416.35 (Rs.93 4255.05 2005 .17 2552.31 Cash ratio (In times) 0.04 2004 .29 0. In all the years the ratio was below the ideal ratio except in the year of study 2004 – 05 In this year it was 0.04 2004 .29 0. In Lakhs) 1033.6 0.07 2007 – 08 Current Liabilities (Rs.54 .23 0.04 1248.28 Cash ratio (In times) Cash Ratio(in Times) 0. INVENTORY TURNOVER RATIO OF HBL POWER SYSTEMS Ltd.CASH RATIO OF HBL POWER SYSTEMS Ltd.4 0. It was due to raid growh in Current liabilities when compared to the cash balance. :Cash Year 2003 .83 7224.54 0.06 2006 .05 2005 .06 Year 2006 .29 1768.3 0. :- 50 . From he above table in HBL ower systems ltd.34 times which as below the Standard ratio.5 0.

06 2006 .14 5359.6 4 . In Lakhs) 3113.3 17156.4 20 03 0 4 20 04 0 5 20 05 0 6 Y ar e 20 06 0 7 20 – 07 0 8 Interpretation: From the above table we can say that.87 5.64 28948.1 3347.92 In e to tu o e R tio (In tim s) v n ry rn v r a e 5 . In Lakhs) 15161.6 5 .13 5.05 2005 .44 (Rs.Inventory Inventory Year 2003 .04 2004 .186 times.9 17893. DAYS OF INVENTIRY HOLDING: (in times) 51 .2 5 4 .4 5 .39 6767.07 2007 – 08 Inventory Turnover Ratio Sales (Rs.09 5.38 turnover Ratio (In times) 4.52 3516.40 5. Which shows that the company converted its inventory into cash with in a minimal span of time.8 4 . the average inventory turnover ratio of HBL Power systems ltd 5.29 36827.

87 5.74 70. In Lakhs) Debtors (Rs.13 5.23 66.YEAR DAYS INVENTORY TURNOVER RATIO DAYS OF INVENTORY HOLDING ( In times) 2003-04 2004-05 2005-06 2006-07 2007-08 360 360 360 360 360 4.65 66. DEBTORS TURNOVER RATIO OF HBL POWER SYSTEMS Ltd.93 70.40 5.09 5. In Lakhs 52 Debtors turnover Ratio . It is good sign for the company this leads to decrease in inventory holding costs and un – necessary investment in inventories.44 (days) 73.16 DAYS OF INVENTORY HOLDING 76 74 72 Days 70 68 66 64 62 2003-04 2004-05 2005-06 Year 2006-07 2007-08 Interpretation: From the above table and graph shows that the days of inventory holding was in decreasing trend. Year Sales (Rs.

The ratio is in fluctuating trend It indicates that the company is giving longer credit period to the debtors.79 2.53 2.09 11435.3 6256.2004 2005 2006 2007 2008 15161.21 2.88 5579.66 Debtors turnover Ratio 3.3 16902.5 2 1.5 3 In times 2. 53 .63 2.8 36798.5 1 0.5 0 2004 2005 2006 Year 2007 2008 Interpretation: The average debtor’s turnover ratio of the company is 2.96 6527.94 13830.69 times.0 28379. AVERAGE COLLECTION PERIOD OF HBL POWER SYSTEMS Ltd.42 3.9 17893.

21 2.76 in 2003 – 04 and in 2007 – 08 it is 135. 148.88 142.76 112.42 3.29 135.34 Average collection period 160 140 120 100 80 60 40 20 0 2004 2005 2006 Year 2007 2008 Interpretation :The average collection period of HBL power systems is in fluctuating trend i.66 Average collection period 148.15 136.Year 2004 2005 2006 2007 2008 Days 360 360 360 360 360 Debtors turnover Ratio 2.34. Through this we can conclude that the company was efficient in collection of debtors.63 2. Working capital turnover ratio: Period 54 .e.53 2.

8 36798.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 .20 2.21 13140.3 16902 28379.9 17893.06 It indicates that the working capital Turnover ratio is low.57 2.06 2.5 1 0.15 17814.5 2 In times 1.22(High) and in 2007 – 08 it is 2. 55 .31 7748.22 2.Year 2003-04 2004-05 2005-06 2006-07 2007-08 Sales 15161.57 times and in 2005 – 06 it reaches 2.39 Average Working capital turnover ratio 1.036 Working capital turnover ratio 2.3 Net current assets 7706.13 2. Interpretation: The working capital turnover ratio was in fluctuating trend in 2003 – 04 it is 1.2 8396.

The ratio is in fluctuating trend It indicates that the company is giving longer credit period to the debtors. It was due to raid growh in Current liabilities when compared to the cash balance.69 times. Further the ratio is more than the standard Norm of 2:1 through out the study period. but it reached 2. is having a good Working Capital. From he above table in HBL ower systems ltd. 56 . It indicates that the company is maintaining a safe margin of solvency.34 times which as below the Standard ratio. Although there was a decrease in 2004-05 TO 2005 .3 times which was more than the standard ratio(1:1). Which shows that the company converted its inventory into cash with in a minimal span of time. In all the years the ratio was below the ideal ratio except in the year of study 2004 – 05 In this year it was 0.. From the above analysis we can say that the Average Quick ratio of HBL Power systems was 2. The average Cash ratio was 0.53 times in 2007-08 from 2.29 times in 2004 – 05. • From the above table we can say that. • The average debtor’s turnover ratio of the company is 2. By comparing the Working capital of past 5 years we can say that there was a steady increase from 2003-04 to 2004-05.186 times.54 . • The average Current ratio of the company was 3. the Working Capital has considerably increased from the financial year 2005-06 to 2007-08. The ratio was in fluctuation trend. It is good sign for the company this leads to decrease in inventory holding costs and unnecessary investment in inventories.Findings • HBL POWER SYSTEM LTD. It indicates that the company is effectively converting its assets into cash • Cash is the most liquid for any organisation. • The Average Quick ratio is 1:1 is considered satisfaction. the average inventory turnover ratio of HBL Power systems ltd 5.06. • From the above table and graph shows that the days of inventory holding was in decreasing trend.096 times which is more than the ideal ratio.

JIT and EOQ analysis to reduce level of inventories of raw materials. • The company should control operating general and administrative expenses.34.e. which leads to increase in profitability of the company. The company should invest its surplus cash in short. 148.• The average collection period of HBL power systems is in fluctuating trend i.22(High) and in 2007 – 08 it is 2.57 times and in 2005 – 06 it reaches 2.term deposits for better returns. Through this we can conclude that the company was efficient in collection of debtors. • • Reserves should be utilized for the growth of the company. 57 . SUGGESTIONS • It is suggested that the company has to reduce its excessive current assets so that it can increase profitability. • Company has to reduce debtor’s collection period so that effective receivable management will possible.06 It indicates that the working capital Turnover ratio is low.76 in 2003 – 04 and in 2007 – 08 it is 135. • The working capital turnover ratio was in fluctuating trend in 2003 – 04 it is 1. • The company must adopt inventory management techniques like ABC Analysis.

Pandey Kothari Working Capital Management Working Capital Management Working Capital Management Financial Management Financial Management Research Methodology - WEB SITES www.D.M.planware.yahoofinance.google.com 58 .in www.com www.BIBLIOGRAPHY Working Capital Management S.R.Agarwal G. Mathur Prasanna Chandra I.K. Bhatta Charya & M.KulKarni Satish B.com www.com www.sifyfinance.hbl.Raghava J.

86 807.58 Balance sheet of HBL Power systems ltd. Loan and Advances Inventories Receivables Cash & Bank Balances Loans & Advances Total Less : Current liabilities and Provisions Current Liabilities Provisions Total Net Current Assets (Working Capital) Miscellaneous expenditure (to the extent not written off) Deferred revenue expenditure Total 2003-04 2004-05 2005-06 2006-07 2007-08 2007.79 2007.57 389.45 8404.33 4964.70 3316.93 5318.5 4 6491.28 11220.08 23574.21 885.10 671.17 9283.61 3443.97 2095.40 1774.79 1208.73 5704. (Rs.03 493.64 763.86 944.92 7693.70 1090.00 17003.85 43.97 6581.22 1938.94 766.55 13056.55 1031.10 6767.47 135.23 9675.52 3065.23 7732.68 2716.95 12693.81 732.87 1812.53 144.95 7800.84 10980.04 15281.47 3803.23 8173.26 11635.69 945.14 1245.34 2471.30 7224.88 6153.22 33805.92 13834.78 338.07 3862.24 2007.76 1675.98 3373.37 19210.12 3526.94 1842.38 212.81 244.23 16822.85 23574.35 16157.97 17003.58 8021.61 5087.94 33805.75 2007.55 6238.79 502.97 24976.33 2007.74 1902.23 690.72 11562.45 16952.12 159.26 2575.15 11855.59 12353.49 1328..97 5671.52 9554.01 881.69 2153.23 6996.59 3209.12 314.38 9517.67 481.46 12052.91 16952.1 7 3138.in Lakhs) 59 .12 17752.62 8426.04 107.29 1238.28 186.80 153.11 7422.Particulars Source of funds Share holders funds Share capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred taxes Deferred taxes Total Application of funds Fixed Assets Less : Depreciation Net Fixed Assets Capital Works in progress Investments Current Assets.04 478.37 4251.50 15281.10 55.01 5564.53 6346.

in Lakhs) 60 . (Rs.PROFIT & LOSS ACCOUNT OF HBL POWER SYSTEM Ltd.