SUMMER TRAINING PROJECT REPORT

On

“WORKING CAPITAL MANAGEMENT”

At BHEL, JHANSI

In partial fulfilment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

(Financial Management)

Batch 2015-17

Under the Guidance Of:- Submitted by:-

Dr. M. S. Ansari Anuj Singh

(Assistant Professor) Roll No.: 151145095010

Signature:___________

Submitted to:

INSTITUTE OF ECONOMIC AND FINANCE

BUNDELKHAND UNIVERSITY JHANSI

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Certification

TO WHOM SO EVER IT MAY CONCERN

This is to certify that the summer Training Project Report “Working Capital

Management In BHEL, Jhansi’’ submitted in partial fulfillment for the award of the degree

of Master of Business Administration in Financial Management from Bundelkhand

University, Jhansi was carried out by Anuj Singh under my guidance. This has not been

submitted to any other University for the award of any degree/diploma/certificate.

Signature of Guide

Date……./......./......... Dr. M.S. Ansari

Place........................ Assistant Professor

Academic Coordinator

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DECLARATION

It is hereby declared that the Summer Training Project Report entitled “Topic,

Working Capital Management at BHEL, JHANSI.” has been prepared as the part for the

completion of the degree of Masters of Business Administration from Bundelkhand

University, Jhansi, and it is based on the original research work and will be used only for the

academic purpose.

I hereby declare that this Summer Training Project Report is a bona fide work undertaken by

me and it is not submitted to any other University or Institution for the award of any degree

diploma / certificate or published any time before.

------------------------------

Signature of Student’s

Date: ---/----/------ Student’s Name: Anuj Singh

Place: Jhansi Course: MBA (Full Time)

Roll No : 151145095010

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ACKNOWLEDGEMENT

I hereby certify that the work, which is being presented in the summer project report,

entitled “Working capital management in BHEL, Jhansi” in partial fulfillment of the

requirement for the award of the degree of Master of Business Administration and submitted

to the institution is an authentic record of my own work carried out during the period of June

to July 2016 under the supervision of

I would also like to express my gratitude and regards to my guide Dr. M. S. Ansari ( Asst. Prof. I.E.F., BU Jhansi ) for her exemplary guidance, monitoring and constant encouragement throughout the course of the study. The blessing, help and guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark.

I greatly acknowledge Ms. MK Nayak, Account officer in Bharat Heavy

Electricals Limited, Jhansi. For giving me the opportunity to work in his prestigious

place.

ANUJ SINGH

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PREFACE

The conceptual knowledge acquired by management students is best manifested in the

projects and training they undergo. As a part of curriculum of MBA, I have got a chance to

undergo practical training in BHEL, Jhansi. The present project gives a perfect vent to my

understanding of the financial management specially.

The project entitled “Working Capital Management” is based on them of BHEL Jhansi

performance on the basis of economic value addition made by the BHEL in the last 5 years.

The project will provide all the information regarding Ratio Analysis and their importance in

BHARAT HEAVY ELECTRICAL LIMITED, JHANSI.

I also hope that this report will be beneficial for my next batches and for those who are

related to this topic.

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Table of contents

1. Industry profile…………………………………………………………………......7-12

An overview of BHEL………………………………………………………7

BHEL Existence……………………………………………………………..9

Units in India……………………………………………………………….10

BHEL Performance (Corporate Level)…………………………………….11

Vision, Mission and Values of BHEL……………………………………..12

2. Objectives of BHEL………………………………………………………………….13

3. BHEL Business Areas………………………………………………………………..15

4. Statement Showing Shareholding Pattern of BHEL (31-3-2016) ………………..17-18

Shareholding………………………………………………………………..18

Public Shareholding………………………………………………………..18

5. Depart mentation in BHEL Jhansi Unit……………………………………………...19

6. Finance Department BHEL, Jhansi…………………………………………………..23

7. Introduction of Working Capital………………………………………………….29-38

Working Capital Policy…………………………………………………….30

Receivable Policy…………………………………………………………..32

Inventory …………………………………………………………………..34

8. Analysis of Working Capital……………………………………………………...39-53

9. Limitation…………………………………………………………………………….54

10. Conclusion & Comments…………………………………………………………….55

11. Bibliography………………………………………………………………………….56

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1. AN OVERVIEW OF BHEL

BHEL has been the flag bearer of Indian engineering enterprises across the globe for

over four decades. Continuing its focus on globalization, BHEL has achieved consistent

growth in its exports. Its references encompass almost the entire range of BHEL products and

services, covering thermal, hydro and gas-based turnkey power projects, substation projects,

rehabilitation projects, besides a wide variety of products like Transformers, Compressors,

Motors, Valves and Oil field equipment, Electrostatic Precipitators, Photovoltaic equipment,

Insulators, Heat Exchangers, Switchgears, Castings and Forgings, etc.

The cumulative overseas installed capacity of BHEL manufactured power plants

stands at close to 10 GW. The first large turnkey project export by an Indian company was

done by BHEL in Libya (1977) and since the past few decades, BHEL has been expanding its

operations in the field of exports. Currently, BHEL has established references in 78 countries

across the globe with major contributions in the power sector of various countries and has

contracted power plant equipment of around 17,000 MW outside India. With the growing

impetus on the renewables sector worldwide, BHEL has reinforced its presence in this

segment with orders from Turkey and Nigeria. In 2015-16, BHEL secured export orders from

17 countries with maiden orders from Belgium and Mozambique.

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Some of the major successes achieved by BHEL have been in gas-based power

projects in Oman, Libya, Malaysia, UAE, Saudi Arabia, Iraq, Bangladesh, Sri Lanka, China,

Kazakhstan, Belarus, Yemen; thermal power projects in Cyprus, Malta, Libya, Egypt,

Indonesia, Thailand, Malaysia, Sudan, Syria, Ethiopia, Senegal, New Caledonia, Ukraine;

hydro power plants in New Zealand, Malaysia, Azerbaijan, Bhutan, Nepal, Taiwan,

Tajikistan, Vietnam, Rwanda, Thailand, Afghanistan, Democratic Republic of Congo,

Burundi; and substation projects & equipment in various countries. Execution of these

overseas projects has also provided BHEL the experience of working with world renowned

consulting organizations and inspection agencies. The company has been successful in

meeting demanding requirements of international markets, in terms of complexity of work as

well as technological, quality and other requirements viz. HSE requirements, financing

packages and associated O&M services, to name a few. BHEL has proved its capability to

undertake projects on fast-track basis. BHEL has also established its versatility to

successfully meet the other varying needs of various sectors, be it captive power, utility

power generation or for the oil sector. Besides undertaking turnkey projects on its own,

BHEL also possesses the requisite flexibility to interface and complement other international

companies for large projects, and has also exhibited adaptability by manufacturing and

supplying intermediate products.

The company is taking a number of strategic business initiatives to fuel further growth

in overseas business. This includes firmly establishing itself in target export markets,

positioning BHEL as a regular EPC contractor in the global market both in utility and IPP

segments and exploring various opportunities for setting up overseas joint ventures, etc.

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BHEL Existence

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UNITS in India

FIRST GENERATION

Bhopal : Heavy Electrical plant.

Haridwar : Heavy Electrical Equipment plant.

Hyderabad : Heavy Electrical Power Equipment plant.

SECOND GENERATION

Tiruchy : High Pressure Boiler plant (Tamil Nadu)

Jhansi : Transformer and Locomotive Plant.

Haridwar : Central foundry and forge Plant.

Tiruchy : Seamless Steel Tube Plant.

UNITS THROUGH ACQUISTION & MERGER

Bangalore : Electronics Division

: Electro Porcelain Division

NEW MANUFACTURING UNITS

Ranipet : Boiler Auxiliaries Plant

Jagdishpur : Insulator plant.

Govindwal : Industrial Valves Plant

Rudrapur : Component and fabrication plant.

Bangalore : Energy Systems Division

BHEL is growing concern to meet the changing needs of the nation has taken it

beyond power into the total gamut of energy, industry and transportation BHEL is able to

offer a service in each of this fields. Its manufacturing capability is supported by a corporate

R&D division at Hyderabad works closely with the research and development cells at various

units and Welding Research Institute at Tiruchinapalli.

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BHEL PERFORMANCE (CORPORATE LEVEL)

PARAMETER 2014-15 2015-16

Turnover (Rs. /Cr.) 30,947 9,792

Order inflow (Rs. /Cr.) 22,096 31,528

Net Profit (Rs. /Cr.) 3,461 2,140

Net Worth (Rs. /Cr.) 33,047 34,085

Megawatts Commissioned 9,270 10,340

R & D Investment (Rs. /Cr.) 1,199 1,248

Patents / Copyrights Filled (Nos.) 351 385

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VISION, MISSION AND VALUES OF BHEL

VISION

A global engineering enterprise providing solutions for a better tomorrow.

MISSION

Providing sustainable business solution in the fields of Energy, Industry &

Infrastructure.

VALUES

GOVERNANCE: We are stewards of our shareholders investments and we take

that responsibility very seriously. We are accountable and responsible for delivering

superior results that make a difference in the lives of the people we touch.

RESPECT: We value the unique contribution of each individual. We believe in

respect for human dignity and we respect the need to preserve the environment around

us.

EXCELLENCE: We are committed to deliver and demonstrate excellence in

whatever we do.

LOYALTY: We are loyal to our customers, to our company and to each other.

ENTEGRITY: We work with highest ethical standards and demonstrate a behavior

that is honest, decent and fair. We are dedicated to the highest levels of personal and

institutional integrity.

COMMITMENT: We set high performance standards for ourselves as individuals

and our teams. We honour our commitments in a timely manner.

INNOVATION: We constantly support development of newer technologies,

products, improved processes, better services and management practices.

TEAM WORK: We work together as a team to provide best solutions & services to

our customers. Through quality relationships with all stakeholders we deliver value

to our customers.

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2. OBJECTIVES of bhel

A dynamic is one which keeps its aim high adopts itself quickly to changing environment.

So here we are in BHEL. The objectives of the company have been redefined in the corporate

plan for the 90’s.

1. BUSINESS MISSION

To be a leading engineering enterprises providing quality product system and

services in the field of conversion, transmission, utilization and conversion of energy

for application in the areas of electric power, transportation, oil & gas explorations

and industries. Utilize company’s capabilities and resources to extend business into

allied areas and other priority sector of the economy like defence, communication and

electronics.

2. GROWTH

To ensure a steady growth by enhancing the competitive edge of BHEL in

existing business new areas and international market so as to fulfil national

expectation from BHEL.

3. PROFITABILITY

To provide a reasonable and adequate return on capital employed, primarily

through improvement in operational, efficiency, capacity utilization and productivity

and generate adequate internal resources to finance the company’s growth.

4. FOCUS

To build a high degree of customers confidence by providing increased value

for his money though International standards of product quality performance and

superior customer service.

5. PEOPLE ORIENTATION

To enable each employees to achieve his potential, improve his capabilities perceive

his role and responsibilities and participate and contribute to the growth and success

of the company.

To invest in human resources continuously and be alive to their needs.

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6. TECHNOLOGY

To achieve technological excellence in operation by development of

indigenous technologies and efficient absorption and adoption of imparted

technologies to suit business and priorities and provide competitive advantage to the

company.

7. IMAGE

To fulfil the expectation this stakes holders like government as owner.

Employees, customers and the country at large have from BHEL.

Products of BHEL

1. Indian Railways WCAM 3 Manufactured By BHEL

2. Boiler (steam generator) under collaboration with Combustion Engineering, USA

3. Gas generator

4. Hydro generator

5. Steam turbine - under collaboration with Siemens, Germany

6. Gas turbine - under collaboration with GE, USA

7. Hydro turbine

8. Transportation equipment

9. Traction machines

10. AC Motors

11. Transformer

12. Switchgear

13. Oil field equipment (OFE)-under collaboration with National Oil well Varco.

14. Boiler drum

15. Water wall panel, Coils, Super Heaters, Re heaters, SOFA panels, Burner panels,

Piping & Headers

16. Wind mill

17. Valves

18. Electrostatic precipitators

19. R & D products

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3. BHEL Business Areas

POWER GENERATION

Power generation sector comprises thermal, gas, hydro, and nuclear power

plant business.

TELECOMMUNICATION

BHEL also caters to Telecommunication Sector by way of small, medium and

large switching systems.

TRANSMISSION AND DISTRIBUTION (T&D)

BHEL offers wide-ranging products and systems for T&D applications.

Products manufactured include: power transformers, instrument transformers, dry

type transformers, series &shunt reactors, capacitor banks, vacuum &SF6 circuit

breakers, gas-insulated switchgears and insulators.

INDUSTRIES

BHEL is a major contributor of equipment and systems to industries, cement,

sugar, fertilizer, refineries, petrochemicals, paper, oil and gas, metallurgical and other

process industries. The range of systems & equipment supplied includes: captive

power plants, co-generation plants, DG power plants, industrial steam turbines,

industrial boilers and auxiliaries, waste heat recovery boilers, gas turbines, heat

exchangers and pressure vessels, centrifugal compressors, electrical machines, pumps,

valves, seamless steel tubes, electrostatic precipitators, fabric filters, reactors,

fluidized bed combustion boilers, chemical recovery boilers and process controls.

TRANSPORTATION

BHEL is involved in the development, design, engineering, marketing,

production, installation, and maintenance and after-sales service of rolling stock and

traction propulsions systems. BHEL manufactures electric locomotives up to 5000

HP, diesel electric locomotives from 350 HP to 3100 HP, both for mainline and

shunting duty applications. It also produces rolling stock for special applications viz.

overhead equipment cars, special well wagons, and Rail-cum road vehicle.

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RENEWABLE ENERGY

Technologies that can be offered by BHEL for exploiting non-conventional

and renewable sources of energy include: wind electric generators, solar photovoltaic

systems, solar heating systems, solar lanterns and battery-powered road vehicles.

OIL AND GAS

BHEL’s products range includes Deep Drilling Oil Rigs, Mobile Rigs, Work

Over Rigs, Well Heads and X-Mas Trees, Choke and Kill Manifolds, Full Bore Gate

Valves, Mudline Suspension System, Casing Support system Sub-Sea Well Heads,

Block valves

, Seamless pipes, Motors, Compressor, Heat Exchangers etc.

INTERNATIONAL OPERATIONS

BHEL is one of the largest exporters of engineering products & services from

India, ranking among the major power plant equipment suppliers in the world.

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4. Statement showing Shareholding

pattern of BHEL (31-3-2016)

Category of Shareholders No. of

Shareholders

Total No. of

Shares

Central Government/ State Government 1 1543452000

Total (A) 1 1543452000

Public Shareholdings

A. Institution

1. Mutual funds/ UTI 90 66355008

2. Financial Institution/ Banks 69 1228617301

3. Insurance Companies 8 255393216

4. Foreign Institutional Investors - -

5. Qualified Foreign Investors 427 341291372

Sub-Total (P) 594 791656897

B. Non-Institution

1. Bodies corporate - -

2. Individuals

a) Individuals holding nominal share capital upto

Rs 1 lakh

- -

b) Individuals holding nominal share capital in

excess of Rs 1 lakh

393424 77945610

c) Others 10610 34545493

Sub-Total (Q) 404034 112491103

Total B= (P+Q) 404628 904148000

Grand Total (A+B) 404629 2447600000

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Shareholding Pattern shown by Graph

Public Shareholding

This above pie-chart shows the public shareholding shareholders institution and non-

institution both separately.

Shareholding Pattern

Central Government/ StateGovernment

Public Shareholding(Institution)

Public Shareholding (Non-Institution)

Public Shareholding Mutual funds/UTI

Financial Institutions / Banks

Insurance companies

Foreign Institutional Investors

Qualified Foreign Investor

Individual holding nominal sharecapital upto Rs 1 lakhIndividual holding nominal sharecapital in excess of Rs 1 lakhother

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5. DEPARTMENTATION IN JHANSI UNIT

1. Commercial

The function of this department involve tendering, issue of the work order, co-

ordination with various agencies inside as well as outside BHEL such as design

production, planning, quality control, purchase, stores, finance, CDC, etc. The outside

agencies involved are the business sector, other units of BHEL and customers. The

other functions are dispatch monitoring, collection of receivable, organisation of

erection activities and services after sales.

2. Engineering

The main functions of this department are:

Technical offer and cost estimation

Design and drafting

Specification of component

Resolving technical problem of manufacturing, sites and warranties

Analysis of sites complaints.

3. Production planning and control

The main functions are;

Preparation of annual budget and product wise monthly production scheduled

Preparation of the monthly production plan for feeder and assembly shops

Get engineering information released from design department so as to meet

production scheduled

After release of manufacturing information, PPC decides whether to make

component inside the plant or off loaded them off ancillaries

Preparation of actual output at the end of every month

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4. Personnel department

BHEL has been a pioneer in public in many fields including the areas of

human resource management. It is being increasingly acknowledge, that fair and

uniform application of personnel policies and function have a great impact on morale

and its major roles are:

Personnel Role

o Advisory management on effective use of human resources

o Manpower planning recruitment, selection, promotion

o Training and development of lineman

o Measurement of assessment of individual and group behaviour

welfare Role

o research in personnel and organisation problems

o managing services like canteen, crèches, etc

o group dynamics like group counselling, motivation, leadership, etc

Clerical Role

o Salary and wages administration

o Maintenance of records

Legal role:

o Grievance handling, settlement of disputes

o Handling disciplinary actions

o Collective bargaining

o Joint consultation

Planning and development (P&D)

The function of P&D may be broadly listed as follow:-

Preparation of budget and budgeted control:- each year the department

prepares the revenue and capital budget. These budgets as benchmarks against

which actual performance is assessed.

Data compilation and report generation:- numerous reports are required to be

sent to various internal and external agencies throughout the year. All these

reports are prepared and sent by P&D department.

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Strategic Planning:- this department is also actively involved in identification

of new business areas, assessment of project viability, obtaining approval for

project and their subsequent execution.

5. Works Engineering and Services

It is concert with maintenance. The function of this department is to seek

break down occurrence in the machine and to get it rectified. Every type of problem

relating to township, electricity, overwork, plant machinery is looked after by the

department.

6. Electronic Data Processing (EDP) Department

EDP involved in computerization of work under the various departments:

Financial Department:- to prepare

o Pay rolls of employees

o Sales accounts of the company

o Financial accounts

o Report related to supply bills

o Material accounts

Production Management:- to prepare

o Production docket system

o Operation card

o Material issue voucher

o Yellow factory receipt

Engineering Management:- to prepare

o Shipping list

Material Management:- to prepare

o Indent generation

o Monitoring of indents

o Issue of tender notice

o Issue of purchase cards

o Bin card monitoring

Personnel Management

o To keep records of all employees

o To make MIS possible for timely control measures

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Design Department: - their main objects are-

o To generate feasible economic design and engineering information of

products

o To assist in solving day-to-day manufacturing problems

o To assist the testing the groom in replying technical doubts

o To assist QC (Quality Control) department in preparing quality plant

and check point

o To assist production department in preparing a different process

specification

7. Publicity and Public Relation

It helps the commercial department to remain indirect contact with customers.

This department acts as a spoke man of the company. Publicity is generated through

the following:

Meetings

Arranging seminars

Arranging press conference- news papers

Visit to the factories, etc.

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6. FINANCE DEPARTMENT IN BHEL

A sound financial management is the crux of the efficient management of a business

enterprise and financial management on scientific and sound lines in a prime consideration of

BHEL. The Finance/Accounts Department of the company controls all the financial

operations. That is directed at improving profitability and internal resources generation

through optional utilization of man, material, machines, tools and money. According to its

various functions the Finance/ Account Department is divided into following sections:

1. Cash

2. Price Store Ledger (PSL)

3. Cost Section

4. Sales section

5. Supply Bill

6. Pay

7. Books Budget and MIS

8. Miscellaneous and Revenue

9. Internal Audit

10. Provident Fund

11. Works

12. Travelling Allowance

13. Export Incentives, Sales Tax and Income Tax

1. Price Store Ledger(PSL)

PSL section is entrusted with the job of material pricing and determination of

material consumption. PSL are used for the material accounting as well as their

financial accounting. The documents involved are: -

SRV – Store Receipt Voucher

MIV – Material Issue Voucher

SRN – Store Return Note

MTV – Material Transformer Note

RCDV – Receipt cum Dispatch Voucher

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Passing of Bills

The Bills Passing process starts after the account section gets the purchase order,

SRV’s and bills from suppliers. The accountant’s section then makes payment.

Terms of Payment are of three kinds:

a. 10% in advance payment

b. 100% after receipt and acceptance

c. Partial advance and the remaining after the receipt and

acceptance

Foreign Purchase

There are certain items, which are to be imported. A license is required for

such items. The license can reacquired from DGTD. There is also a provision for

forward cover.

2. Cash, & P.F

This section is responsible of banking of all the money worth received by the

company from the costumers and disbursement of all authorized payment on behalf of

the company to suppliers, contractors in form cheques, cash, drafts, postal orders etc.

It is also concerned with payment of salaries, wages and other personal payments of

employees.

Cash section prepares these statements for management information: -

Daily – cash flow > Direction collection of sales.

Weekly – Cash inflow > outflow – during week

Statement of pending bills of cash section status of margin money.

Monthly – cash flow forecast for 3 months.

Operating result statement.

Statement of outstanding letter of credit & bank guarantee.

Daily bank transfer statement.

Bank reconciliation statement is also prepared

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BHEL has centralized cash credit system.

P.F stands for provident fund that was started from 1952 the rate of interest

decided by time to time rate of reduction is 8.33% to 12% that whole amount get by

employee at the time of retirement. P.F includes same contribution of employees as

well as company.

3. Cost Section

This section is responsible for accounting and reporting of costs. It determines

direct labor rates and Engineers rates and overheads recovery factors of

manufacturing, engineering, commercial and administration for cost estimation. The

cost accounting is done to record and collect cost for work orders and product level

information. It prepares material/ labor overheads consumption statements. It

furnishes cost reports to management about: –

a. Profitability –Product wise/ Order wise.

b. Variance _Estimated and Actual Cost

c. Performance –Efficiency and operating results

4. Books, Budget and MIS

General ledger is the consolidated list of general entries. As soon as the general

voucher is received, the general ledger is prepared.

In the general ledger, receipt and expenditure both are recorded. This section prepares

section wise and monthly Trial Balance.

After the preparation of general ledger and trial balance, P&L Account and the

Balance Sheet are prepared yearly. The Balance sheet is prepared in accordance with

the company’s act.

Two types of Audits are done by the BHEL:

a. Internal Audit

b. Government Audit

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Budget

Budget is a target setting for operations. There are two types of Budget prepared by

BHEL: –

Revenue Budget:

It consists of consolidated production programmed &related expenses to carry out

that program.

Capital Budget:

It includes the fixed assets. Preparation of budget is done at three levels

a. Internal Level: – Each department is sent information about the budgeted

expenses provided to the department. It is necessary for control

b. Corporate Level: – Budget of BHEL unit is sent to the corporate office

c. Government Level: – Budget of BHEL is also sent to Government level.

5. Management Information System

Three types of information system are generated in the BHEL.

a. Internal for the Unit

b. For the Corporate Office

c. For Government

Every month’s information is generated regarding allocation of funds on various

aspects for each department and is sent to every department. Information is generated

mainly for control purpose. Other information generated is:-

a. Cash Flow

b. Inventory Level (non-moving and slow moving items)

c. Inventory of finished goods

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6. Pay Section

It is assigned the job of payment of salaries and other personal payments to

employees it looks after provident fund, gratuity and bonuses insurance facilities

extend to employees.

Employees leave encashment, official travelling reimbursement and this

section deals other welfare expenses. It is also entrusted with clearance of medical

claims.

7. Sales Section

The accounting of sales is done in this section. The activity of this section starts when

the commercial department issues a work order. Work order part II(Financial)

summarizes the financial terms of the contract. It contains the information like the

name of customer &consignee, description of goods to be produced and sold,

quantity, sales value, terms of delivery and payment, price variation clause, sales tax,

excise duty, liquidates damages, Bank guarantee, fight etc. with the part II W.O.

details. Apart from that the terms and conditions embodied in W.O. part II as regard

adjustment of advances, deferred debts and calculation of PVC, Excise duty and Sales

tax must also be complies with. Sales section submits the bills to the customers as

desired by Commercial either direct or through Financial such as Banks.

This Section does the necessary accounting for the bills raised; money collected from

customers in form of advance or sale proceeds.

8. Miscellaneous and Revenue

Miscellaneous wing of this section deals with the payment of advances to employees

going on official tours, LTC etc. Payment to transporters, welfare activities, security

services, repairs and maintenance, daily wages, furniture, departmental and other

petty expenses. The revenue wing of this section with recovery of rent, electricity and

water charges for other facilities from the salary of the employees

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9. Internal Audit

BHEL is having its own team of internal auditors, who to unearth the

discrepancies in accounting, check periodically the books of accounts as well as

schedules forming part of accounts.

10. Export Incentives, Sales Tax and Income Tax

This section deals with all the procedural work during export of goods and import

of raw material and components. It is responsible for the assessment of sales tax claim

for export incentive and duty drawback and matters relating to custom duty and sales

tax. To promote export and makes indigenous good compete in the international

market the government is providing a number of incentives in form of duty exemption

scheme and duty drawback scheme.

Duty Exemption

Under this scheme an Advance License is granted for the import of raw materials

intermediaries, component accessories and packing material used as an input for the

manufacture of goods to be exported without payment of customs duty. Advance

license provide is of two types-

a) Value Based Advance License

b) Quality Based Advance License

All advance license issued subject fulfilment of time bound export obligation and

value addition as per specified at the time of issue of license.

Duty drawback scheme

Duty drawback is the provision made for the exporter for the refund of customs

and central excise duty charged on the input used for the manufacture of the export

product. Physical and deemed are fully exempted from sales tax and excise duty.

BHEL is provided concession in sales tax subject to the insurance of CST press from

prescribed by the statute.

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7. INTRODUCTION OF WORKING CAPITAL

A measure of both a company’s efficiency and its short term financial health. If

company current assets do not exceed its current liabilities, then it may run into trouble

paying back creditors in the short term. The worst case scenario is bankruptcy. A declining

working capital ratio over a longer time period could also be a red Flag that warrants further

analysis.

For example: - It could be that the company’s sales volumes are decreasing and as a result its

accounts receivables number continues to get smaller. The working capital is calculated as:

Working Capital = Current Assets – Current Liabilities

Meaning OF Working Capital

“Working capital refers to a firm’s investment in short term assets-cash, short term

securities, accounts receivable and inventories.”

Weston &Brigham

Working capital refers to the part of the firm’s capital which is required for financing

short-term or current assets such as cash, marketable securities, debtors and inventories.

Funds, thus invested in current assets keep revolving fast and are being constantly converted

into cash and this cash flows out again in exchange for other current assets. Hence it is also

known as revolving or circulating capital or short term capital.

Working capital can be classified regularly on its requirement. There are two concepts of

working capital

a) Gross working capital

b) Net working capital

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Gross Working Capital

Gross working capital is the total cash, and cash equivalents, that a business has on-

hand. Cash equivalents may include inventory, accounts receivable, and investments, such as

marketable securities, which may be liquidated within the year.

The gross working capital concept work over two aspects of current assets management.

a) Optimum investment in current assets

b) Financing of current assets

Net working capital

Net working capital refers to the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders, which are expected to mature for

payment within an accounting year and include bills payable and outstanding expenses. Net

working capacity indicates the liquidity position of the firm. Generally net working capacity

is referred to as working capital.

Net working capital may be referring to:

1) Conversion of cash into raw material

2) Conversion of raw material into work-in-progress

3) Conversion of work-in-progress into finished goods

4) Conversion of finished goods into accounts receivable, and

5) Conversion of accounts receivable into cash

31

Objective of working capital management

The basic objective of working capital management is to provide adequate support of the

functioning of normal business operation of a company. The term adequate working capital is

subjective depending on management’s attitude towards uncertainty /risk.

a) Maintenance of working capital

b) Availability of sample fund at the time of need

EXCESS

CASH

CREDIT MGMT

MINIMIZE TIME

BANK MGMT

MINIMIZE TIME

A/C RECEIVABLE MGMT

MINIMIZE TIME

A/C PAYABLE MGMT

OPTIMIZE TIME

SAFETY LIQUIDITY PROFITABILITY

MEDIA

32

Receivable Policy

The customers from whom receivable or book debts have to be collected in the future

are called trade debtors. Trade credit always creates trade debtors or account receivables. The

trade credit arises when a firm sells its product or services on credit and does not receive cash

immediately.

Business firms generally sell goods on credit top facilities sales. When a firm makes an

ordinary sale of goods and services and does not receive payments. The firm grants trade

credit and create accounts receivable that would be collected in the future.

The characteristics of credit sales are;

It involves an element of risk

It is based on economic value

It implies for future

Credit policy is prepared in the receivable management, it is the

combination of three decision variables:

Credit standard

Credit terms

Collection effort

33

Receivable Policy in BHEL Jhansi

1. The main products of BHEL are heavy industrial goods with long operating cycle.

BHEL grant liberal term regarding trade credit to lure the potential customers to by its

products at favourable selling prices.

2. To utilize its capacity, BHEL is granting liberal trade credit to its main customers like

railways, power industries and other private parties.

3. All the BHEL units are having their commercial departments and Regional

Operational Divisions (RODs).

4. Carry out the job of recovery from customers, the sales section also takes a part in

receivable management by preparing and sending invoices and reminders to

customers at appropriate time. They keep track records of money received from

customers as advances, as against dispatch of finished goods and money recoverable

on account of price variation claims and conversion of deferred department into

debtors. Monitoring is done on basis of work orders and schedule is prepared

regarding outstanding balances. The terms and condition with the customers are

finalized according to the credit policy laid down by corporate office BHEL.

34

INVENTORY MANAGEMENT

Inventories are the most significant part of current assets of a large majority of

companies in India. The large size of inventory maintained by the firms as a considerable

amount of fund’s which is required to be committed to them. A firm neglecting the

management of inventories will be jeopardizing its long run profitability and may fail

ultimately.

In a manufacturing firm the level of inventory depends on the operation cycle, and a

long operating cycle bearing firm needs to maintain high levels of inventory.

Nature of Inventories

Inventory is stocks of the product a company is manufacturing for sale and components

that constitutes the product. They are of following types;

a) Raw material

b) Work in progress

c) Finished goods

d) Supplies or stores and spares

Need of Inventory

It has also same needs as receivable management, viz;

a) Transaction motive

b) Precautionary motive

c) Speculative motive

Techniques of Inventory management

1) EOQ (Economic Order Quantity)

2) Ordering cost: order placing, transportation cost

3) Carrying cost: warehousing, handling

4) Reorder point

5) Safety stock

35

a) cost of running out of goods

b) material cost

c) order cost

d) carrying cost

e) cost of funds tied up in inventories

Inventory Control Systems

1) ABC inventory control system: - This analytical approach tends to measure the

significance of each item of Inventories in terms of its value.

2) JIT system: - Japanese firm popularize that system which eliminates the necessity of

carrying large inventories and thus, saves carrying and other expenses.

3) Computerized Inventory Control System:- It is an automatic system of counting

inventories.

36

Inventory Management Policy in BHEL

Jhansi

The investment in inventory in proportion to total is a dominant determinant of

working capital management. It holds much importance in context in BHEL as it is having a

long production cycle where a good amount of capital is tied up in form of raw material,

work in progress and conversion cost.

Production planning and control department plays a pivotal role in inventory management.

The engineering department plays a supporting role and provides the requisition regarding

technology to be applied and material required to PPC department.

In BHEL the inventory control is perform with following steps;-

1. Planning:- This is done by PPC department is consultation with purchase,

commercial, design and manufacturing department prepares the planning schedule.

The schedule along with information provided by engineering and design department

help in material planning and inventory control.

2. Procurement:-The procurement is done by purchase department. It is done with the

assistance of PPC and commercial department for maintaining a trade off between

carrying cost and ordering cost.

A single purchase order is placed for the entire quantity of a specific item and its

scattered delivery over a period of time is received. The method helps in obtaining

cash and quantity discount and saving carrying cost. In case of foreign purchase also

one order in placed for the full requirement of an item and scattered delivery is

obtained because variation caused in material cost due to fluctuation in exchange rate

is much less than the carrying cost of the material which is approximately 25% of the

total price.

3. Receipt & custody:-For the proper inventory control on receipt of material in store,

quality control department checks the material as per specification. The cost section

fills details of all the purchase by issuing store receipt voucher and material issue

voucher.

37

4. Issue:-After receiving the material and storing, the management keeps the

information whether these material are being issued to desired destination. Full record

of every issuing of material is kept for the proper inventory control.

5. Accounting:-The record of every transaction regarding the use of material in every

department is kept. These records give the overall view of how and where inventories

have been used.

Methods use for Inventory Control:-In BHEL, planning and control of Inventory is

done by using two methods-

a) ABC analysis

b) Slow moving and non-moving goods analysis

c) Budgeting material requirement

d) Fixation of raw material levels

e) Variety reduction

38

Inventory valuation

1) Inventory is valued at actual/ estimated cost or net realizable value, whichever is

lower.

2) Finished goods in plants and work in progress involving hydro and thermal sets

including gas based power plants, boilers auxiliaries, compressors and industrial turbo

sets are valued at actual / estimated factory cost or at 97.5% of the realizable value

whichever is lower.

3) In respect of valuation of finished goods in plant and work-in-progress, cost means

factory cost, actual/estimated factory cost include excise duty payable on

manufactured goods.

4) The components and other materials purchased/ manufactured against production

order but declared surplus are charged off to revenue retaining residual value based on

technical estimates.

5) In respect of raw material, components, loose tools, stores and spares cost means

weighted average cost.

39

8. ANALYSIS OF WORKING CAPITAL

MANAGEMENT

The analysis working capital is primarily a test of short term solvency. There are

dangers in having too little or too much working capital. Therefore the managers have to be

very vigilant all throughout about the trends in the items that make up working capital.

The question to be studied and answered in connection with the analysis of working capital

1) Is the management utilising working capital effectively?

2) Is the amount of working capital is adequate, excessive or insufficient?

3) Does the firm have favourable credit rating?

4) Is the current financial position improving?

Tools of Working Capital Analysis

Working capital ratio analysis

Movement of working capital analysis

Fund flow analysis

Cash flow analysis

Working capital budget

Working capital report

We are using the technique of ratio analysis as a means of checking upon the

efficiency with which working capital is being used in the company. These ratios

would increase or decrease that measures the working capital of management of

BHEL. These are as follows

40

Balance Sheet

Cash 506 41 9 15 7

Sale/Turnover 130033 137146 111703 70689 63087.50

W. capital 47265 65992 72435 81146 76116 .88

1. Current Ratio

2. Quick Ratio

3. Cash Ratio

4. Turnover Ratio

5. Inventory Turnover Ratio

6. Total Assets Turnover Ratio

7. Return on Capital Employed

8. Debtors Turnover Ratio

9. Creditors Turnover Ratio

Resources 2011-12 2012-13 2013-14 2014-15 2015-16

Current Assets 101217 121726 113634 118952 111881.95

Fixed Assets 30441 32955 31098 29499 28183.53

Total Assets 131658 154681 144732 148451 140065.48

Current

Liabilities

53952 55734 41198 37806 35765.07

Fixed

Liabilities

77706 98947 103532 110644 104300.41

Total

Liabilities

131658 154681 144730 148450 140065.48

Inventories 36733 45581 39726 42411 47593.57

41

Trends of working capital in BHEL Jhansi

(in lakhs)

Working capital = Current assets-current liabilities

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Working Capital 47265 65992 72435 81146 76116.88

Working capital difference between current assets and current labilities.

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2011-12 2012-13 2013-14 2014-15 2015-16

Trends of Working Capital

Trends of Working Capital

42

1. Current ratio

Current ratio represent the margin of safety for creditors, higher the current ratio

greater the margin of safety, larger the amount of current assets in relation to current

liabilities, the more the firm’s liability to meet its current obligations. This ratio is calculated

as follows:

Current Ratio = Current Assets / Current Liabilities

Satisfactory Current Ratio is 2:1

Current ratio measure the short term solvency of the firm, it ability to meet short term

obligation which indicates the rupees of current assets available for each rupee of current

liability the current ratio of 2:1 is been considered satisfactory.

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Current ratio 1.87 2.18 2.76 3.15 3.12

0

0.5

1

1.5

2

2.5

3

3.5

2011-12 2012-13 2013-14 2014-15 2015-16

Current Ratio

Current Ratio

43

Analysis: From the above ratios it can be seen that Current Ratio for year 20114-15 has

growth by approx. 3 % from the previous year which indicates that short term solvency of

the firm has gone grow. But the current ratios of last three years are less than

one and on an average it is 1.2616:1. This means for every one Re. of current

liabilities there is 1.2616 of current assets available to meet the short term obligation. So this

indicates that the short-term liquidity position of the company is very good and short-term

conditions are safe as far as payment is concerned, although, as a conventional rule, a current ratio of 2 to 1 is

considered far better.

2. Quick Ratio

The quick ratio is a measure of how well a company can meet its short-term financial

liabilities. Also known as the acid-test ratio, it can be calculated as follows:

Quick Ratio = Current Assets - Stock

Current Liabilities

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Quick ratio 1.195 1.366 1.793 2.024 1.797

Analysis: The liquid ratio of 1:1 is considered to be satisfactory in case of any

organization whereas in case of BHEL Jhansi Liquidity Ratio is not even approaching one,

hence there is liquidity problem in payment in time. Here payments to creditors are not made in time due to

lack of cash / liquid fund.

0

0.5

1

1.5

2

2.5

2011-12 2012-13 2013-14 2014-15 2015-16

Quick Ratio

Quick Ratio

44

3. CASH RATIO

Cash is the most liquid assets and it should be minimum in the firm as the excess of

cash in hand or bank implies loss of interest i.e. the wrong utilization of funds, which could

have been utilized/invested elsewhere. There is nothing to be worried about lack of cash if the

company has the reserve borrowing power.

Cash Ratio = _____Cash_______

Current Liabilities

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Cash Ratio 0.0937 0.000735 0.000218 0.000396 0.000195

Analysis: This cash ratio graph shows that the cash ratio 2012-13 decrease because cash

flow decrease in past financial year but current liabilities is increase so this ratio 0.092 down

and 2012-13 to 2015-16 not more variable.

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

2011-12 2012-13 2013-14 2014-15 2015-16

Cash Ratio

Cash Ratio

45

4. Turnover Ratio

A company uses working capital to fund operations and purchase inventory. These

operation and inventory are then converted into sales revenue for the company. The working

capital turnover ratio is used to analyze the relationship between the money used to fund

operations and the sales generated from these operations. In a general sense, the higher the

working capital turnover, the better because it means that the company is generating a lot of

sales compared to the money it uses to fund the sales.

Turnover Ratio = Turnover /Working capital

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Working Capital

Turnover Ratio

2.75

2.08

1.54

0.87

0.82

Analysis: Turnover ratio show this manufacturing BHEL, Jhansi unit financial position in

not good because sales is decrease constantly year by year.

0

0.5

1

1.5

2

2.5

3

2011-12 2012-13 2013-14 2014-15 2015-16

Working Capital Turnover Ratio

Working Capital TurnoverRatio

46

5. Inventory Turnover Ratio

It shows how rapidly the inventory is turning into receivable through sales. High ratio

is indicates of good inventory management. A low ITR implies excessive inventory levels.

Ratio should not be too high and should not be low.

Inventory Turnover Ratio = Sales______

Avg. Inventory

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Current ratio 3.88 3.33 2.62 1.77 1.40

Analysis: Inventory turnover ratio indicates that how quick inventories are uncontrolled

into sales. It gives the position of the inventory management of the company. The average of

this ratio for past five years comes out to be 2.6 which show that for every ratio 2.6 of net

sales. The efficiency of BHEL, Jhansi in turning its inventory for year 2015-16 has dropped

from last five years which indicates that in the plant.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2011-12 2012-13 2013-14 2014-15 2015-16

Inventory Turnover Ratio

Inventory Turnover Ratio

47

6. Total Assets Turnover ratio

Total assets turnover computation is for just to get an idea for net assets turnover the

ratio shows organization ability in generating sales from all financial resources committed to

total assets. The total assets of turnover of BHEL show.

Total Assets Turnover Ratio = Sales_____

Total Assets

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Total Assets

Turnover Ratio

0.987

0.886

0.771

0.476

0.450

Analysis: This graph shows the relation between total turnover and total assets. In 2011-12

to 2015-16 sales is constantly down so the ratio is also decrease, Total Assets Turnover Ratio

was 0.987 and an decrease to last five year 2016 to 0.450

0

0.2

0.4

0.6

0.8

1

1.2

2011-12 2012-13 2013-14 2014-15 2015-16

Total Assets Turnover Ratio

Total Assets Turnover Ratio

48

7. Return on capital employed

Return on capital employed of financial year

PBIT

Return on Capital employee = Capital Employed

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Return on

capital

employed

0.226 0.133 0.00828 -0.118 0.267

In this graph the return on capital employed in 2011-12 was 0.226 and decreased to

three year 2014-15,0.118 but in 2015-16 was 0.267 and from this point it start falling down

and reached at 2015-16 was 0.267

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

2011-12 2012-13 2013-14 2014-15 2015-16

Return on Capital Employed

Return on Capital Employed

49

8. Debtors’ turnover Ratio

This ratio expresses the amount of unrealized debts out of credit sales. Thus, debtor’s

turnover ratio is calculated to obtain the information regarding success or failure of

organization in collection of debts. This ratio is also known as Receivable Turnover Ratio.

Debtors Turnover Ratio = ___Credit Sales___

Avg. Receivables

Avg. Collection Period (Days) = ____365_________

Debtors Turnover Ratio

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Sales avg.

Debtors Ratio

2.120 2.114 1.609 1.022 0.982

Analysis: This ratio was indicates that how quick debtors are collected and higher

ratio show better position of the company. Here from the graph it is clear that in 2011-12

debtors were collected normally but from 2012-13 to 2015-16 is condition has worsened as

ratio has decrease it mean debts are not being collected rapidly.

0

0.5

1

1.5

2

2.5

2011-12 2012-13 2013-14 2014-15 2015-16

Debtors Turnover Ratio

Debtors Turnover Ratio

50

9. Creditors Turnover Ratio

This ratio is also known as Payable Turnover ratio. It depicts the relation between

Credit Purchase and Creditors. This ratio indicates the condition of an organization with

regard to payment of creditors. Higher ratio indicates quicker payment and vice-versa.

Creditors

Turnover Ratio = ___Net Credit Purchase/Consumption___

Creditors

Credit Payment Period (Days) = _________365__________

Creditors Turnover Ratio

Year 2010-11 2011-12 2012-13 2013-14 2015-16

Credit Payment

Ratio

-- 2.51 2.63 2.27 2.34

2

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2011-12 2012-13 2013-14 2014-15

Creditors Turnover Ratio

Creditors Turnover Ratio

51

Analysis: This ratio was indicates that how quick creditors are collected and higher

ratio show better position of the company. Here from the graph it is clear that in 2011-12 to

2012-13 creditors were collected quickly but from 2012-13 to 2015-16 is condition has

worsened as ratio has decrease it mean creditors are not being collected rapidly.

Standard credit period for industry like BHEL Jhansi is 90days. As against that actual

period is very high. This is basically because the time involved in procurement and

acceptance of material is very long due to technical reason.

52

Comparative graph of Turnover and PBIT

Through this graph we understand easily that turnover increases year by year in

20115-16 it was 130032.72 lakhs and reached to 137146 lakhs in 2012-13 in 2013-14 the rate

of turnover decrease is more. And the profit of BHEL in 2015-16 was 13001 lakh and it

decreases to 10260 in 2012-13 but fall down in 2012-13 to 10260. This shows that last 4

years profit of company decreased and last two year sufferer loss.

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Total Turnover 130032.72 137145.84 111703 70689 63087.50

PBIT 13001 10260 709 -11328 -23817.67

53

54

9. Limitation

Since time available is only six weeks for the project work, a detailed analysis was not

possible.

The researcher was not able to focus on qualification factors, which influences the

financial position of the organisation.

The study was limited to BHEL, so the result could not be generalized to macro level.

Ratio analysis is only tools used for the financial statement analysis.

Since the finance and accounting is an organisation being a very sensitive area,

analysis is based on the assumed data of BHEL.

As the study is only for one particular company, inter firm comparison is not possible.

55

10. Conclusion & comments

At the end of this project I’m feel that I have gained a lot of knowledge about this

Jhansi unit and “Working Capital Management” procedure followed in BHEL Jhansi unit.

In rotation work I learned about its working routine and collecting a lot of information related

to stream like Engineering and physics and employees mutual relations.

So, through this project I have learned:

Object of finance

Analysis of finance

Analysis of estimation of working capital

Analysis of receivable management

Inventory management of BHEL Jhansi

The firm BHEL liquidity position in terms of short term and long term are good.

The efficiency of the company is also good but last some years not batter.

The above analysis enables the company to understand the financial position and

financial soundness of BHEL Jhansi unit.

So, at last I am highly obliged of BHEL Jhansi unit for providing me the knowledge about

their unit and we are thankful to all member of BHEL Jhansi unit.

56

11. BIBLIOGRAPHY

Annual reports of BHEL

Collected the Data from BHEL Jhansi

S.N Maheshwari Management Accounting

Management Accounting by I.M Pandey

WEBSITES VISITED

www.bhel.com

www.bheljhs.co.in