WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS

SUMMER TRAINING REPORT

Submitted in partial fulfillment of the requirements forthe award of the Degree of

Bachelor Of Business Administration

BYDIPANKAR HANS

(BBA/4580/09)

BIRLA INSTITUTE OF TECHNOLOGYMESRA, RANCHI

1

DECLARATION

I, Dipankar Hans, hereby declare that the following project report titled “Working Capital

Management in HCL Infosystems”.

The information and findings presented in this report are genuine, comprehensive and reliable

based on the data collected by me.

The project was undertaken as a part of the course curriculum of BBA fulltime program of Birla

Institute Of Technology, Noida Extension Centre, for the fulfillment of the degree.

The matter presented in this report will not be used for any other purpose and will be strictly

confidential.

DIPANKAR HANS Mrs. Ritu Jain

BBA/4580/09Birla Institute Of Technology Noida

2

CERTIFICATE OF APPROVAL

This is certify that the Vocational Training Report entitled “WORKING CAPITAL MANAGEMENT” submitted to HCL Infosystems , Sector-8 , Noida(U.P) in partial fulfillment of requirement for the award of the degree of Bachelor of Business Administration (BBA), original work carried out by Mr. Dipankar Hans .Under my guidance. It is understood that by this approval, the undersigned do not necessarily endorse any conclusion drawn or opinion expressed therein, but approve the project for the purpose for which it has been submitted

……………………. ……………………….. Mrs. Meenakshi Sharma Prof. (Dr.) S.L.GUPTA

In Charge, Management Academic Coordinator

……………………………..Director

Birla Institute of Technology, Noida

3

ACKNOWLEDGEMENT

I feel it a matter of great opportunity to pursue my summer training from HCL Infosystems, Noida. I would like to convey my sincere thanks to my Project Guide

Ms. Miti Saxena at HCL Infosystems for suggesting this topic and taking keen interest in solving our every small problem, clearing our doubts and helping us to

think, behave and act from manager’s stand point.

I sincerely thank to Mrs. Ritu Jain, Faculty Guide for the support and help received during Summer Training.

DIPANKAR HANS

4

ABSTRACT

Project Title: Working Capital Management in HCL Infosystems Ltd.

At HCL a substantial part of the total assets are covered by current assets. Current assets forms

around 80% of the total assets. However this could be less profitable on the assumption that

current assets generate lesser returns as compared to fixed assets.

But in today’s competition it becomes mandatory to keep large current assets in form of

inventories so as to ensure smooth production an excellent management of these inventories has

to be maintained to strike a balance between all the inventories required for the production.

So, in order to manage all these inventories and determine the investments in each inventories,

the system call for an excellent management of current assets which is really a tough job as the

amount of inventories required are large in number.

So, I have been given this topic to make an in-depth analysis and detailed study to come out with

a clear magnified view as to whether the management of working capital at HCL is sound or not.

The project report consists of four major chapters. The first chapter Introduction gives the

information regarding HCL Infosystems Ltd.. It also gives brief introduction about the project

and its objectives.

The second chapter is on Research Methodology, includes Research design, the sampling

procedures, and the data collection method and analysis procedures. The third chapter is about

Finding & Analysis, which is mainly concerned with the management of firm’s current assets

and current liabilities by keeping in mind that current assets should be large enough to cover its

current liabilities in order to ensure a reasonable margin of safety.

The fourth chapter is on Conclusion(s) & Recommendations, which is concerned with the

profitability, fixed asset turnover ratio, stock turnover ratio.

5

TABLE OF CONTENT

CHAPTER NO. SUBJECT

CHAPTER – 1 INTRODUCTION

1.1 Introduction of The Study

1.2 Conceptual Framework

1.3 Industry/Company Profile

1.4 Problem Formulation

1.5 Scope Of The Study

Chapter-2 LITERATURE REVIEW

CHAPTER – 3 OBJECTIVES AND RESEARCH METHODOLOGY

3.1 Objectives Of The study

3.2 Research Design

CHAPTER – 4 DATA ANALYSIS AND INTERPRETATIONS

4.1 Data Analysisi Of The Study

4.2 Interpretations

CHAPTER-5 FINDINGS OF THE STUDY

5.3 Trade-Off b/w Profitability & Risk

5.4 Determine Financing Mix

5.5 Working Capital Cycle

5.6 Trade Credit

5.7 Commercial Papers

5.8 Cash Management

6

5.9 Introduction to the concept of Receivables Management

5.10 Introduction to the concept of Inventory Management

5.11 Financial Performance

5.12 Financial Conditions

5.13 Working Capital Position

5.14 Risk-Return Analysis

5.15 Current Asset Scenario

5.16 Inventory Management

CHAPTER – 6 CONCLUSIONS(S) & RECOMMENDATIONS

4.1 Conclusion(s)

4.2 Recommendations

Bibliography

7

CHAPTER – 1

INTRODUCTION

Introduction Of The Study

Working Capital Management is concerned with problems that arise in attempting to manage the

current assets, the current liabilities and the interrelationship that exist between them. The term

current assets refer to those assets which in ordinary course of business can be, or will be

converted into cash within one year without undergoing a diminution in value and without

disrupting the operations of the firm. The major current assets are cash, marketable securities,

accounts receivable and inventory. Current liabilities are those liabilities which are intended, at

their inception, to be paid in the ordinary course of business, within a year, out of current assets

or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank

overdraft and outstanding expenses. 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. This is so because if the firm cannot maintain a satisfactory level of

Working Capital, it is likely to become insolvent and may even be forced into bankruptcy. The

current assets should be large enough to cover its current liabilities in order to ensure a

reasonable margin of safety. Nevertheless the level of current assets should not be too high since

in that case it will affect the overall profitability of the firm. The interaction between current

assets and current liabilities is, therefore the main theme of Working Capital Management.

Conceptual Framework

Understand Level Of Current Assests And Current Liabilities

Working Capital Cycle Of HCL INFOSYSTEMS

Cash Management

Inventory Management

Receivables Management

Financial Condition Of HCL INFOSYSTEM

RISK-RETURN ANALYSIS

Financial Performance

8

1.3Indusrty/Company Profile

HCL Infosystems Ltd. Is one of the pioneers in the It market, with its origin in 1976. The

company has been in the forefront in introducing new technologies and solutions. It has

drawn its strength since 30 years of experience in handling the ever changing IT scenario,

strong customer relationships, ability to provide the cutting edge technology at best value

for money and on the top of it, an excellent service and support infrastructure. Today

HCL is the country’s premier information enabling company. It offers one stop shop

convenience to its diverse customers having a diverse set of requirements.

Since, last 30 years HCL has been continuing the relationship with the customer, thereby

increasing customer confidence in it.

The strengths of the company are:

Ability to understand customers business and offer right technology.

Long standing relationship with customers.

Best value for money offerings.

SCOPE OF THE STUDY

From this project we have a broad knowledge on different aspects of working capital

management. Some of the aspects of working capital management are:

To Know Concepts of working capital management.

What Is The Need of working capital

What Is Operating cycle or working capital cycle?

What are Factors affecting working capital requirements?

9

LITERATURE REVIEW

1) Salmi T. & Martikainen T wrote in his article A Review of Theoritical and

Empirical Basis of Financial Ratios,Published in The Finnish Journal of

Business Economics 4/94.

“Financial ratios are widely used for modelling purposes both by practitioners

and researchers. The firm involves many interested parties, like the owners,

management, personnel, customers, suppliers, competitors, regulatory

agencies, and academics, each having their views in applying financial

statement analysis in their evaluations. Practitioners use financial ratios, for

instance, to forecast the future success of companies, while the researchers'

main interest has been to develop models exploiting these ratios. Many

distinct areas of research involving financial ratios can be discerned.

Historically one can observe several major themes in the financial analysis

literature. There is overlapping in the observable themes, and they do not

necessarily coincide with what theoretically might be the best founded areas,

ex post. The existing themes include

the functional form of the financial ratios, i.e. the proportionality

discussion,

distributional characteristics of financial ratios,

classification of financial ratios,

comparability of ratios across industries, and industry effects,

time-series properties of individual financial ratios,

bankruptcy prediction models,

explaining (other) firm characteristics with financial ratios,

stock markets and financial ratios,

forecasting ability of financial analysts vs financial models,

estimation of internal rate of return from financial statements.”

2) Anonymus wrote in the article Capital Budgeting

10

“Financial planners recommend developing a capital budgeting process for

small and large businesses to ensure long-term success. In today's economy,

it takes money to make money and it takes making wise choices to stay on

top. Whether large or small, no business can operate efficiently without

implementing a long-term plan to invest monetarily in equipment and facilities

to expedite the corporate mission and increase profitability. Improper planning

results in failed enterprises and a loss of resources; but proprietorships and

corporations which make prudent decisions about what, where, when, and

how much money to allocate to new facilities or improve on existing ones will

have a fighting chance at staying in the black. The capital budgeting process

may vary between corporations, but the principle remains constant. The goal

is to assess current operating procedures, equipment, personnel, and

capabilities; investigate other more cost effective means to increase

productivity and profitability; and devise an investment proposal which makes

a good case for improving or expanding facilities.Capital budget or valuation

of investments as the name suggests refers to capital investments that

determine the financial viability of a long-term project. Capital budgeting is an

issue deep enough and is part of the curriculum finance and financial

management worldwide. This technique of determining the financial viability

attracts investors due to the fact that it takes into account the cash flow

streams over the life of the project and to exclude non-cash expenses,

depreciation etc. Also cash flows discounted present value of investors’

required rate of return therefore, taking into account the time value of money.

The exceptional qualities above the capital budget do more than any other

approach to the criterion of acceptance or rejection of a project.

Investment appraisal is essential for the understanding of financial

management. Planning process involves decisions on capital spending based

on the concept of maximization of shareholder wealth. This process requires:

• Ability to classify investment projects of a significant order of profitability

• Ability to provide a cutoff point beyond which it is not worth further

11

investment

• consistency with corporate objectives

In business effectively managed this is a fundamental requirement that

decisions should be based on knowledge and efficiency. Countless decisions

on the nature of capital have to be taken by management as the replacement

of worn and obsolete equipment, acquisition of fixed assets, and evaluating

proposals for strategic investment.

CHAPTER – 3

OBJECTIVES AND RESEARCH METHODOLOGY

2.1 Research Methodology

Methodology includes the overall research procedures, which are followed in the research

study. This includes Research design, the sampling procedures, and the data collection

method and analysis procedures. To broad methodologies can be used to answer any

research question-experimental research and non-experimental research. The major

difference between the two methodologies lies in the control of extraneous variables by

the intervention of the investigator in the experimental research.

3.1 OBJECTIVES OF THE STUDY

To Know About Working Capital postion Of HCL Infosystem

To Know Level Of Current Assets Maintained By The Company

To Know Various Aspects Of Working Capital Through Published Sources

To Know The Level Of Current Assests As Compared To Current Liabilities

12

2.1.1 RESEARCH DESIGN

A research design is defined, as the specification of methods and procedures for acquiring the

Information needed. It is a plant or organizing framework for doing the study and collecting the

data. Designing a research plan requires decisions all the data sources, research approaches,

Research instruments, sampling plan and contact methods.

2.1.2 Data Collection Sources

Government publication

Report committees

Private publication

Research institute

Magazines

News paper articles

2.1.3 Data Collection Methods

13

14

Published Sources

DATA COLLECTION METHODS

PRIMARY SECONDARY

Direct personal Interview

Indirect personal Interview

Information from correspondents

Mailed questionnaire

Question filled by enumerators

Unpublished Sources

Govt. Publication

Private Publication

Research Institu

CHAPTER-4

DATA ANALYSIS AND INTERPRETATIONS

ANALYSIS

There has been a significant decline in volume over the years from 2004-05 to 2008-

09 as can be seen in the graph below:

The volume decreased by 17005 in 2005-06 as compared to that in 2004-05.

There has been increased in the volume by 4539 in 2006-07 as compared

that in 2005-06.

There has been increased in the volume by 6146 in 2007-08 as compared

to that in 2006-07.

The volume decreased by 2271 in 2008-09 as compared to that in 2007-

15

08.

CHAPTER – 5

FINDINGS OF THE STUDY

3.1 FINDINGS

Trade Of Between profitability And Risk

To Determine The Financing Mix

The Computation Of Operating Cycle

Trade Credit

Cash Management

Inventory Management

Receivables Management

Financial Performance

3.3 TRADE-OFF BETWEEN PROFITABILITY AND RISK:

16

The level of net working capital has a bearing on profitability as well as risk. Hence in evaluating

firms

working capital position an important consideration is the trade-off between profitability and

risk. Profitability refers to the net profits and risk refers to the probability of being insolvent so

that the firm will not be able to meet its obligations when they become due for payment.

3.4 DETERMINING FINANCING MIX:

One of the most important decisions involved in the management of working capital is how

current assets will be financed. There are broadly two sources from which funds can be raised for

asset financing: i) short-term sources (current liabilities) ii) long-term sources, such as share

capital, long term borrowings, internally generated resources like retained earnings and so on.

Now what portion of current assets should be financed by current liabilities and how much by

long-term resources?

There are basically three approaches to determine an appropriate financing mix:

Hedging approach (or Matching approach)

Conservative approach

Trade-off between these two.

17

Short-Term V/s Long Term Financing

Short-Term Long-Term

Short-Term

(Temporary)Moderate

Risk-Profitability

Low

Risk-Profitability

Long-Term

(Permanent)

High

Risk-Profitability

Moderate

Risk-Profitability

Table 3.4.1 Short-Term v/s Long-Term Financing

18

FinancingMaturity

Asset Maturity

Computation of Operating Cycle

Operating Cycle = R+W+F+D-C

R= Raw material storage period

W= Work-in-progress period

F= Finished goods storage period

D= Debtors collection period

C=Creditors deferral Period

The various components of operating cycle may be calculated as shown below:

Raw Material Storage Period =

Work-in-progress holding period =

Finished goods storage period =

Debtors collection period =

19

Average stock of raw material

Average cost of raw material consumed per day

Average work-in-progress inventory

Average cost of production per day

Average stock of finished goods

Average cost of goods sold per day

Average book debts

Average credit sales per day

Credit collection period =

3.6 Trade Credit:

Trade credit refers to the credit extended by the supplier of goods and services in the normal

course of transaction/business/sale of the firm i.e., cash is not paid immediately for purchases but

after an agreed period of time. Thus, deferral of payment represents a source of finance for credit

purchases.

There is however, no formal formal/specific negotiation for trade credit. It is an informal

arrangement between the buyer and seller without any legal instruments or acknowledgements of

debts. Such credit appears in the record of buyer of goods as sundry creditors/accounts payable.

CASH MANAGEMENT

3.10 Introduction to the concept of Cash Management

Cash management is one of the key areas of working capital management. Apart from the fact

that it is the most current liquid assets, cash is the most common denominator to which all the

current assets can be reduced because the other major liquid assets, that is, receivables and

inventory get eventually converted into cash. This underlines the significance of cash

management.

20

Average trade creditors

Average credit purchases per day

21

RECEIVABLES MANAGEMENT

3.11 Introduction to the concept of Receivables Management:

The receivables represent an important component of the current assets of any firm. The term

receivables are defined as ‘debt owe to the firm by the customers arising from sale of goods and

services in the ordinary course of business’. When a firm makes an ordinary sale of goods or

services and does not receive payment, the firm grants trade credit and creates accounts

receivable. It is also referred as trade credit management. Management should way the benefits

as well as the costs to determine the goal of receivables management.

INVENTORY MANAGEMENT

3.12 Introduction to the concept of Inventory Management

The term inventory refers to the stock of the products a firm is offering for sale and the

components that make up the product. That is, inventory is composed of assets that will be sold

in future in the normal course of business operations. These assets are i) Raw materials, ii)

Work-in-progress and iii) Finished goods. The views concerning the appropriate level of

inventory would differ among the different functional areas.

22

Table A. Five Year Financial Overview

23

2011 2010 2009 2008 2007Rs/Lacs

Table B. Assets & Liabilities

24

2008 2007 2006 2005 2004

Rs/Lacs

3.13 FINANCIAL PERFORMANCE

1. Gross Revenue:

Revenue grew by 76% from Rs. 4412 crores in the previous year to Rs. 7784 crores in

the current year.

Revenue for the Parent Company grew by 29% from Rs. 1522 crores in the previous

year to Rs. 1967 crores in the current year.

2. Other Income:

Other Income for the current year is Rs. 51 crores as against Rs. 29 crores in the

previous year. It includes income from investment in Mutual Funds Rs.11 crores

(Previous Year Rs. 12 crores), Interest income of Rs. 12 crores (Previous Year Rs. 9

crores) and gains from foreign exchange fluctuation Rs. 14 crores (Previous Year Rs.

4 crores).

Figure 3.13.1 Revenue

3. Gross Margins:

25

27054412

7784

0

2000

4000

6000

8000

Rs Crores

FY 08 FY 09 FY 10

Revenue

FY 06 FY 07 FY08FY 06 FY 07 FY08 FY 06 FY 07 FY08FY 06 FY 07 FY08 April 08April 08

Gross margins for the current year are at Rs. 603 crores as against Rs. 445 crores in

the previous year.

Gross margins for the Parent Company are at Rs. 332 crores as against Rs. 282 crores

in the previous year.

4. Personnel Costs:

Staff cost for the current year increased to Rs. 145 crores from Rs. the previous year.

Manpower increased from 3287 as at June 2007 to 3879 as at June 2008. Staff cost is

1.9% of sales for the current year as against previous year.

Staff cost for the Parent Company for the current year is Rs. 102 crores Rs. 78 crores

in the previous year.

Figure 3.13.2 Staff Cost

5. Administrative, Selling, Distribution and others:

Expenses amounted to Rs. 190 crores, as against Rs. 127 crores in the previous year.

The expenses as a % to sales declined to 2.4% from 3.0%.

26

3006 32873879

0

5001000

1500

20002500

30003500

4000

Rs Crores

FY 08 FY 09 FY 10

Staff Costs

88108 145

6. Operating Profit (EBIDT):

Operating profit excluding ‘Other income grew by 28% from Rs. 209 crores in the

previous year to Rs. 268 crores.

7. Finance Charges:

Finance charges for the year is Rs. 8 crores as against Rs. 9 crores in the previous

year.

8. Profit Before Tax:

PBT grew by 40% from Rs. 212 crores in the previous year to Rs. 296 crores in the

current year.

PBT for Parent Company grew by 16% from Rs. 128 crores in the previous year to

Rs. 149 crores in the current year.

9. Profit After Tax:

Profit after tax grew by 30% from Rs. 175 crores in the previous year to Rs. 228

crores. The profits for the current year are after a provision for Rs. 65 crores for

current tax expenses, Rs. 2 crores for deferred tax expenses and Rs. 1 crore for Fringe

Benefit Tax applicable from April 05.

Profit after tax for the Parent Company grew by 10% from Rs. 121 crores in the

previous year to Rs. 133 crores.

27

Figure 3.13.3 Profit After Tax

10. Dividend:

The company continued with the practice of declaring quarterly dividend accordingly.

It distributed dividends @ 70% in each of the first three quarters. The company

proposes to pay a final dividend of Rs 100% per fully paid up equity share Rs. 2/-

each. The interim dividends paid together with proposed final dividend total to 310 %

for the current year, entailing an outflow of Rs. 117 crores including distribution tax.

Figure 3.13.4 Dividend

11. Earning Per Share:

Consolidated Basic EPS grew from Rs 10.9 in the previous year toRs. 13.7 in the

current year. Diluted EPS grew from Rs. 10.2 in the previous year to Rs. 12.9 in the

current year.

28

93

175228

0

100

200

300

Rs Crore

s

FY 08 FY 09 FY 10

Profit After Tax

100%210%

310%

FY 08 FY 09 FY 10

Dividend

Basic EPS of the Parent Company grew from Rs. 7.5 in the previous year to Rs. 8.0 in

the current year. Diluted EPS grew from Rs. 7.0 in the previous year to Rs. 7.5 in the

current year.

Figure 3.13.5 Basic EPS

29

5.80%

10.90%13.70%

0.00%

5.00%

10.00%

15.00%

Rupees

FY 08 FY 09 FY 10

Basic EPS

3.14 FINANCIAL CONDITIONS

1. Net Worth/ Shareholders Funds: Net Worth as on 30th June 2010 is RS. 555

crores. Share capital as at 30th June 2010 is Rs. 33.4 crores divided into 16.7 crores

share of Rs. 2/- each. Reserves & surplus as at 30th June 2010 is Rs. 50 Crores after

appropriating Rs. 117.3 crores for three quarterly interim and final dividends.

Net worth of the Parent Company is Rs. 435 crores. The book value per Rs 2/- share

of the Parent Company increase from Rs. 24 as on 30th June 2010 to Rs. 26 as on 30th

June 2010.

During the year, the Company allotted 5.46 lakh share of Rs. 10/- each (sub divided

into 27.32 lakh share Rs. 2/- each 0 UNDER THE Employee Stock Options realizing

Rs. 21.5 crores. The increase in share capital on account ESOP is Rs 0.5 crores and

increase in reserves is Rs. 21.0 crores.

2. Borrowings: Year–end loan balances marginally increased from Rs. 72 crores as on

30th June 2009 to Rs. 81 crores as on 30 th June 2010. The Debt: Equity dropped from

15% to 13%.

30

Debt/Equity Ratio

0.29

0.150.1

FY 08 FY 09 FY 10

Detx/Deal Equity

Figure 3.14.1 Debt/Equity Ratio

3. Fixed Assets: Net block as on 30th June 2010 is 76 crores. During the current year the

Company made capital expenditure of Rs. 27 crores mainly for acquisition of Land in

Uttaranchal expanding customer support network. One time license fee to DOT for

Internet Business and additions to Plants & Machinery. The Company retired various

assets with a Gross block of Rs. 25 crores and a net book value of Rs . 0.1 crores.

Net block of Parent Company as on 30th June 2010 is Rs. 53 crores.

4. Inventories: Inventories increased from Rs. 280 crores as on 30 th June 2009 to Rs

349 crores as on 30th June 2010 . The inventory turn over on sales grew from 15.7

times in the previous year to 22.3 times in the current year.

Inventories of Parent Company increased from Rs. 161 crores as on 30th June 2009 to

Rs. 188 crores as on 30th June 2010. The inventory turn over on sales grew from 9.4

times in the the previous year to 10.5 in the current year.

5. Debtors: Debtors increased from Rs. 416 Crores as on 30th June 2009 to Rs. 532

crores as on 30th June 2010. Debtors as number of days of sale stands reduced to 25

days as on 30th June 2009 from 34 days as on 30th June 2010.

Debtors of the Parent Company increased from Rs. 295 crores as on 30th June 2009

to Rs. 370 crores as on 30th June 2010. Debtors as number of days of sale stands

reduced to 69 days as on 30th June 2009 from 71 days as on 30th June 2010.

31

6. Liquid Assets(Investment in Mutual Funds and Fixed Deposits with Banks):

Liquid Assets as on 30th June 2010 are at Rs. 253 crores as against Rs. 254 crores as

on 30th June 2009. These Excludes cash in hand & balance with bank in collection &

disbursement accounts.

7. Other Current Assets including loan & Advances: Other current assets increased

from Rs 70 crores as on 30th June 2009 to Rs 154 crores as on 30th June 2010.

Other current assets of the Parent Company increased from Rs. 40 crores as on 30th

June 2009 to Rs 111 crores as on 30th June 2010. Lease rent recoverable as on 30th

June 2010 is Rs. 60 crores.

8. Current Liabilities & Provisions: Current Liabilities & Provisions increased from

Rs. 697 crores as on 30th June 2009 to Rs. 863 crores as on 30th June 2010.

Current liabilities and provisions of the Parent Company increased from Rs . 398

crores as on 30th June 2009 to 468 crores as on 30th June 2010.

9. Cash Flow: The Cash generation from operating activities in the current year is Rs.

127 crores.

The cash generation of Parent Company from operating activities in the current year

is Rs. 27 crores.

32

Table C. Balance Sheet for the Year Ended as on March’11Table C. Balance Sheet for the Year Ended as on March’11

33

Balance Sheet for the Year Ended as on 31Balance Sheet for the Year Ended as on 31stst MMarch 2011arch 2011

20112011 2010 2010

34

35

CASH FLOW STATEMENT FOR THE YEAR ENDED 31CASH FLOW STATEMENT FOR THE YEAR ENDED 31STST MARCH, 2011 MARCH, 2011

20112011 20102010

36

CASH FLOW STATEMENT FOR THE YEAR ENDED 31CASH FLOW STATEMENT FOR THE YEAR ENDED 31STST MARCH, 2009 MARCH, 2009

20092009 2008 2008

Table E. Cash Flow Statement for the Year Ended 31Table E. Cash Flow Statement for the Year Ended 31stst March 2009 March 2009

3.15 WORKING CAPITAL POSITION(in crores)

2011 2010 2009 2008

CURRENT ASSETS 81533 54091 45042 55985

NET FIXED ASSETS 5329 4925 4954 5552

TOTAL ASSETS 99139 87076 71285 75205

CA / TA 82.24 62.11 63.18 74.44

NET CURRENT ASSETS 34742 14301 18752 27065

Table 3.15.1 Working Capital Position

The 143 percent increase in Net Current Assets is due to the fact that there has been an increase

in the Current Assets by 50.73% and increase in Current Liability has been only 17.50% over

that of the previous year. The firm’s level of liquidity being high we need a check on whether it

affects the return on assets. Now there is a substantial increase in the current assets to total

assets. This could be less profitable on the assumption that current assets generate lesser return as

compared with return on fixed assets.

37

3.16 RISK-RETURN ANALYSIS

2011 2010 2009

SALES 199886 154295 166604

EBIT 15634 14523 11491

RETURN ON INVESTMENT (%) 39 75.5

Table 3.16.1 Risk-Return Analysis

In case instead of Net Current assets and net block if total assets had been used in computation of

ROI then

TOTAL ASSETS 52348 47286

RETURN ON INVESTMENT (%) 60.36 30.3

38

3.17 CURRENT ASSET SCENARIO

COMPONENT 2011 2010

INVENTORY 23.07 29.81

SUNDRY DEBTORS 45.37 54.45

CASH AND BANK ASSETS 17.88 8.25

OTHER CURRENT ASSETS 9.74 2.68

LOAN AND ADVANCES 3.93 4.79

Table 3.17.1 Current Asset Scenario

While there has been increase in the value of all components of the Current Assets the proportion

of inventory debtors and loans and advances to the current assets have declined. Whether this

proportionate decline to current assets is as a result of reduced lead time and better operating

cycle? This might directly implicate better receivables management and inventory control.

39

2005

INVENTORY

SUNDRY DEBTORS

CASH AND BANKASSETS

OTHER CURRENTASSETS

LOAN AND ADVANCES

2010 - 2011

3.18 INVENTORY MANAGEMENT

COMPOSITION 2011 2010 % INC

RAW MATERIAL 41.43 38 27.2

STORES AND SPARES 15.88 16.25 13.94

FINISHED GOODS 38.51 40.34 11.36

WORK IN PROGRESS 4.16 5.4 -10.03

Table 3.18.1 Inventory Management

The increasing component of raw materials in inventory is due to the fact that the company has

gone for bulk purchases and has increased consumption due to a fall in prices and reduced

margins for the year.

40

% INC

-15-10-505

1015202530

RAWMATERIAL

STORESAND

SPARES

FINISHEDGOODS

WORK INPROGRESS

INVENTORY% I NC

RE

AS

E

% INC

To the question as to whether the increasing costs in inventory are justified by the returns from it

the answer could be found in the HCL retail expansion. They are more into it than earlier and at

present more than 650 retail outlets branded with HCL signages and more are in the pipeline.

This also ensures availability of products to meet the increasing sales.

A negative growth in WIP could be because of -

1) Better and efficient conversion of raw materials to finished goods i.e. the time taken

to convert raw materials after procurement to the end product is very minimal.

2) This also is due to capacity being not utilized at the optimum which should mean that

more of goods are stagnant at the operations. But this is not the scenario witnessed here

as could be easily seen from the increased utilization of plant capacity.

The 69.5% rise in value is primarily due to the increase in the consumption of raw materials in

processors. This shifting value has to be traced back to the sales of computers / micro processor

based systems i.e. whether sales justify this increase.

The sales in value have increased by 30% (42584.75/142148.56). This is a marked increase from

the previous year where despite the increase in the value of raw materials consumed there was a

decline in the value of sales.

The current ratio after a decline in 2009 has increased which means an increase in liquidity and

solvency position of the firm. This reaffirms what had been stated earlier firms current assets are

at an all time high. This they might have done to cover the risk involved in their expanding

operations. The present ratio of 1.742:1 could be claimed to be optimal as the desired ratio of the

company is about is about 1.33:1. but how far has been the ratio successful in indicating the

relative liquidity of current assets and liabilities have not been answered.

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The value of imported and indigenous raw material consumed give a clear picture that if there is

a change in the EXIM policy of the government it is bound to affect the company adversely as

more than70%of their consumption is from imports. But this is a scenario witnessed in the

industry as a whole and though HCL is into expanding its operations to Uttaranchal it is also

bound to be affected by a change in the import duty structure.

CASH MANAGEMENT

In cash management the collect float taken for the cheques to be realized into cash is irrelevant

and non- interfering here because banks such as Standard Chartered, HDFC and CITI who give

credit on the basis of these cheques after charging a very small amount. Even otherwise the time

taken for the cheques to be processed is instantaneous. Their Cash Management System is quite

efficient.

WORKING CAPITAL & SHORT TERM FINANCING(in crores)

NAME OF THE BANK FUND BASED NON FUND BASED

STATE BANK OF INDIA 3600 13000

ICICI BANK 1282 4790

HDFC BANK 1200 6025

STANDARD CHARTERED BANK 1200 4000

STATE BANK OF SAURASHTRA 715 4000

STATE BANK OF PATIALA 1300 3350

CANARA BANK 1203 2335

SOCIETE GENERALE 1000 1000

TOTAL 11500 38500

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The consortium of banks provide a fund based limit of 115 crores which comprises of cash credit

and working capital demand loans and non fund based limits which has bank guarantee and letter

of credit subject to a limit of 385 crores.Any issue of the commercial paper in the part of the firm

leads to a decline in the limit of fund based limits. Currently the firm having issued commercial

papers worth rs30crores for the year 2011 has asked the lead bank to deduct the fund based limit

from 115 crores to 85 crores.

In terms of desirability the commercial papers are cheaper and advantageous to the firm

compared to the consortium financing. But the firm depends on both and for working capital

financing is depended on the banks for funds such as working capital demand loans and cash

credits.

SECURED LOANS 2011 2010 2009

SHORT TERM 4991.28 6903.7 4987.52

LONG TERM 530.07 0 3461.36

TOTAL 5521.35 6903.7 8448.88

% SHORT TERM 90.4 100 59.03

UNSECURED LOANS 2011 2010 2009

SHORT TERM 2593.39 63.94 76.84

LONG TERM 17 169.51 3261.42

TOTAL 2610.39 233.45 3338.26

% SHORT TERM 99.348 27.38 2.3

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The preference of short term financing to long term as such is not the part of any policy

employed by the firm but due to the reason that they were cheaper and the interest rates lower.

The other notable feature in HCL statements has been the growing dividend policy of the firm

which has meant that the firm doesn’t have at its disposal too much cash in hand. That is the firm

disburse as dividends profits which could have either been retained in the business for capital

expenditure. But rather than investing more in plant and machine which they can at any point in

time by adding on a additional line if need be they would like to optimize their utilization in

fixed assets at present.

DIVIDEND POLICY

2011 2010 2009

DIVIDEND PAID ( INCLUDIND CDT) 11729.69 7723.22 3599.79

PROFIT AFTER TAX 13276.75 12089.64 6172.89

DIVIDEND PAY-OUT RATIO 88.34 63.88 58.31

The dividend pay-out ratio is increasing tremendously over the years. Dividends imply outflow

of cash and lowers future growth. However a high dividend pay-out ratio may lead to a rise in

prices of shares.

LOANS AND ADVANCES

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SECURED LOANS

2011 2010 2009

TOTAL BORROWINGS 5521.35 6903.7 8448.88

SHORT-TERM 4991.28 6903.7 4987.52

PERCENTAGE SHORT-TERM 90 100 59

UN-SECURED LOANS

2011 2010 2009

TOTAL BORROWINGS 2610.39 233.45 3338.26

SHORT-TERM 2593.39 63.94 76.84

PERCENTAGE SHORT-TERM 99.36 27.39 2.3

The company is going for more and more shore-term financing, could be because of the fact that

it is considered as a cheaper source than long-term financing.

CHAPTER – 6

CONCLUSION(S) &

RECOMMENDATIONS

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4.1 CONCLUSION

Sales are decreasing during the year 2009-10. Hence profitability has declined over

this time period

Due to increase in the time period for the realization of debtors, cash and bank balance

has decreased.

Stock turnover ratio is decreasing; it shows that capital is blocked into the inventory.

Fixed asset turnover ratio has decreased this year, which shows that assets have not been

used efficiently as they had been used in the previous year.

All the above ratios show a decreased or unfavorable situation because of the work of

entire replacement of coolant channel, due to which the production process had been

stopped.

4.2 RECOMMENDATIONS

Specail Efforts Shold Be Made To Analyze Loans And Advances(loans)

Inventory Should Be Reviewed Constantly(inventory Management)

A Study May Be Conducted If Required against Customer Marketing Efforts Or other Reasons(customer Satisfaction)

Company Should Try To Improve its Current Ratio(Ratios)

Loans & Advances

Special efforts should be made to analyze loans & advances, which are between 35% to 56% of

current assets. This can be classified between production / operation relation related and non-

production / operation related. No production related cases might be financed from other sources

like debenture etc. and treated separately.

Inventory

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Inventory should be reviewed constantly to identify show / dead / obsolete item and then

disposed until 2003-04 level is again achieved.

Optimum level should be revised periodically, keeping in view, distance of suppliers, production

lead time of supplier, transport problem if any and reliability of suppliers. This will help to avoid

obsolesce and dead inventory.

Debtors

A study may be conducted if required by experts to pinpoint reason behind HCL INFOSYSTEM

LTD. high correction period of 95 days in 2010-11 against 50 days of TCS It is due to quality

of products, quality of customer, the segment of customers marketing effort, distribution pattern

or other reasons.

Creditors

Though high payout days may be apparently beneficial for the company. It has it very heavy

long term cost like high interest cost, bad credit ratings and shyness of good quality / standard

suppliers.

Cash & Bank

This is the most liquid element in current asset and target shall be fixed most cautiously. Too low

a figure of 4.4% of total current assets of HCL Infosystems Ltd. in 2010-11 as against 15.5% of

TCS may be apparently too good to look at, but this may be lead to payment crisis at various

sorts.

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Ratios

The company should try to improve its current situation. The ratios, which are taken in this

research to evaluate the company’s position, are Current ratio, Quick ratio and Activity ratio.

These ratios show the actual position of the company. The Quick ratio is declining since 2006-07

till now. There is a drastic declining in the working capital turnover ratio. This ratio goes to

negative position in current year compared to previous. The Debts collection period is 359 days

for Exporters. This shows the poor collection policy. The current ratio is 1.02 in 2008-09, which

is not upto the ideal ratio. This shows that the current assets are equal to the current liabilities.

Not satisfactory.

LIMITATIONS OF THE STUDY

Information Required is Not Available Properly.

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BIBLIOGRAPHY

Referred Sites

1. www.google.com

2. www.answers.com

3. www.yahoo.com

4. www.amazon.com

5. www.hclinfosystems.com

Reference Books

6. Khan and Jain Financial Management.

7. ICAI’s Module.

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