Roll No.50,A Study on Working Capital Management

CHAPTER – I

INTRODUCTION

1.1 PROFILE OF THE COMPANY (BHEL)

Bharath Heavy Electricals Limited is the largest engineering and manufacturing

enterprise of its king in India. It is also one of the leading international companies in the

field of power equipment measures.

The first plant of BHEL was set up at Bhopal in 1956, which signaled the beginning

of the Heavy Electrical Industry in India.

1.2 Wide spread centers

In the early sixties, three more major plants were set up at Haridwar, Hyderabad and

Trichy. The company has fourteen manufacturing units, four power sector regional centers,

eight service centers and eighteen regional offices, besides project sites, spread all over

India and abroad. A strategic business unit for ceramics was formed at Bangalore.

1.3 Unique specialties

BHEL has a well recognized track record of performance making profits

continuously since 1971-72 and paying dividends since 1976-77. BHEL manufactures over

180 products under thirty major groups.

The quality and reliability of its products is due to the emphasis on design,

engineering and manufacturing to international standards best acquiring and adopting some

of the best technologies from leading companies in the world together with technologies

developed in its own R&D centers.

1.4 Certifications

BHEL has acquired certifications from both ISO 9000 & ISO 14000 standards for

its operations and has also adopted the concepts of total quality management. BHEL has

adopted occupational health and safety standards as per OHSAS 18001. The major units of

BHEL have already acquired the ISO 14001 certification.

The company’s inherit potential coupled with its strong performance over the years

has resulted in it being chosen as one of the “Navratna” status.

1.5 Business sectors of BHEL

BHEL’s operations are organized around three business sectors namely Power,

Industry and International Operations. Industry operation includes Transmission,

Transportation, Telecommunication and Renewable Energy.

1.6 POWER SECTOR

1.6.1 Generation

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

business. Though BHEL supplied sets account logs nil till 1969- 70, it rises to 62,051

MV or 65% of the total installed capacity of 95377 MV in the country.

BHEL has the capability of turning power projects from concept to commissioning.

With its technology, it has the ability to produce thermal sets with super critical parameters

unto 1000 MV unit rating and gas turbine- generator sets of upto 240 MV units rating.

1.6.2 Achievements

a) To make the most part of the high-ash content coal used in India, BHIL supplies

circulating fluidized bed combustion boilers to both thermal and combined cycle power

plants.

b) The company manufactures 235 MV nuclear turbine-generator sets and obtains a

production of 500 MV in these sets.

c) Custom made hydro sets of Francis, Pelton and Kaplan types for different head-

discharge combinations are also engineered and manufactured by BHEL.

d) Until now, the company had placed orders for more than 700 utility sets of

thermal, hydro, gas and nuclear plants. This is based on contemporary technology

comparable to the best in the world. It is also internally competitive.

1.7 INDUSTRIAL SECTOR

1.7.1 Industry

BHEL is a major contributor of equipment and system to industries. Its major

contributions are cement, sugar, fertilizer, refineries, petrochemicals, steel, paper etc.

The range of systems and equipment supplied includes captive power plants, DG

power plants, high-speed industrial drive turbines, electrical machines, pumps, valves etc.

1.7.2 Transportation

Most of the trains operated by the Indian railways, including the metro in Calcutta,

are equipped with BHEL’s traction electrics and traction control equipment. The company

also supplies electric locomotives to Indian railways and diesel shunting locomotives to

various industries.

The company have supplied 5000/4600 DC locomotives to Indian railways. Battery

powered road vehicles are also manufactured by the company.

1.8 Telecommunication

BHEL also give importance to telecommunication sector by way of small, medium

and large switching systems.

1.8.1 Renewable energy

Technologies used by BHEL for discovering non-conventional and renewable

sources of energy include, wind electric generators, solar-power based water pumps,

lighting and beating systems.

1.8.2 International operations

BHEL has been established in over 50 counties of the world. Its knowledge is

known from the United States in the West to the New Zealand in the far East.

BHEL in these countries covers turnkey power projects of thermal, hydro and gas

based type besides a wide variety of products like Switchgear, transformers and heat

exchangers.

BHEL has contributed over 1100 MV of boiler capacity to Malaysia. Besides this,

they have also achieved successes in Oman, Saudi Arabia, Libya, Greece, Egypt, SriLanka

etc.

Their development in overseas has also provided BHEL, the experience of working

with world renewed consulting organizations and inspection agencies.

The demanding requirements of both domestic and international markets have been

dealt successfully by BHEL. In terms of difficult works as well as technological, quality

and other requirements like financing package, extended warrantees have proven its

capabilities.

The company has also been successful in meeting varying needs of the industry like

captive power plants, utility power generation or for the oil sector requirements.

BHEL possesses large amount of flexibility to interface and change international

companies for large projects. The company also exhibits adaptability by manufacturing and

supplying intermediate products, like steam generator pressure parts.

BHEL can be compared with the original equipment manufactures by its success in

the area of rehabilitation and life extension of power projects.

1.9 BHEL product range throughout India

The BHEL ranges are

1. Thermal Power Plants

2. Gas based Power Plants

3. Hydro Power Plants

4. Heat exchanges and Pressure Vessels

5. Oil field Equipment

6. Boilers

7. Boilers Auxiliaries

8. Pumps

9. Power station Control Equipment

10. Switch Gear

11. Bus Ducts

12. Equipment for Nuclear Power Plants

13. Steam less Steel Tubes vision

14. Compressors

A world class-engineering enterprise committed to enhancing stakeholder value.

Employees, customers and suppliers are given adequate knowledge about environment.

BHEL will also assist and co-operate with the concerned Government Agencies and

Regulatory Bodies engaged in environmental activities, which offer the companies

capabilities in this field.

1.10 BHEL’S Vision

BHEL’S vision is to become a world class innovation and competitive and

profitable engineering enterprise providing total business solutions.

1.11 Mission

It is an Indian multinational engineering enterprise providing total business

solutions through quality products, systems and services in the fields of energy, industry,

transportation infrastructure and other potential areas.

1.12 Values:

1. Zeal to excel and zest for change.

2. Integrity and fairness in all matters.

3. Respect for dignity and potential individuals.

4. Strict adherence to commitments.

5. Ensure speed of response.

6. Foster learning, creativity and team work.

7. Loyalty and pride of the company.

1.13 Opportunities and threats

1.13.1 World

Investments made in the electricity sector have been lowered in recent years by

foreign electricity venture as foreign direct investment in the developing world. This is one

of the parts of the sluggish state of the global economy and because of unsatisfactory

financial performance of many acquisitions in the electric power sector.

These changes in the environment have led to a cautious approach by developers and it’s

harder to get off the new projects from the ground. Some countries have modified their

plans because of the change in restructuring electricity market and reforms.

The total worldwide order of booking has been lowered leading to aggressive

marketing by major global power plant equipment manufacturing players, who have been

undergoing a phase of consolidation.

Though there has been a decrease in overall orders in the recent times, many

developing nations are planning to expand their electricity infrastructure for the

forthcoming years.

Number of promising market for new power equipment are found in South- East

Asian countries, Middle-East and Gulf cooperation council( GCC) countries.

Moreover, BHEL has the global opportunity for servicing of generating machinery

as well as distributing generation in the developing countries

1.13.2 Positioning for the future

BHEL has finalized a new corporate plan with the title “strategic plan 2007” and

steps are taken to start the iniatives. The company has also revised the vision, mission and

values statements, which are suitably adjusted and with remodification to reflect it’s current

aspuations.

In corporate line the company aims to accelerate the growth with suitable strategies

and focus area the core strengths of the and company are

1) To strengthen and extend the core business of power generation power, power

transmission, transportation and industrial systems and products.

2) Areas like water management pollution control and waste management, port

handling systems, simulators [power and process], energy conservation systems, LNG

terminals are newly entered

3) To enter into continuous revenue stream business like power generation and

transmission and distribution.

1.14 BHEL, TRICHY UNIT

BHEL, Trichy unit was established in 1963 and is situated in Trichy- Tanjore

highway road around 20km from Trichy Central Bus Stand. 12,000 employees are working

in this organization on permanent basis and around 4000 employees are working on

contract basis. It has an area of 2, 50,000 sq. meters and consists of a major unit namely.

1. High Pressure Boiler Plant (HPBP)

2. Seamless Steel Tube Plant (SSTP)

3. Combined Cycle Demonstration Plant (CCDP)

Boiler Auxiliaries plant of Ranipet and piping centre of Madras (Chennai) and

Goinwal come under the control of Trichy Unit.

1.15 Product profile of BHEL, Trichy

o Steam Generators for Power Generation and

o Industrial Applications

o Heat Recovery Steam Generators

o Industrial Boilers

o Atmosphere and Circulating Fluidized bed

o Combustion Boilers

o Nuclear Steam Generators and Reactors

o Pressure Vessels

o Hear Exchange

o Seamless Steel Tubes

o Studded tubes

o Serrated fin. Tubes

o Piping systems

o Columns

o Valves

o Boiler Auxiliaries

o Wind Electric Generators

1.16 Finance Department Of BHEL, Trichy

The following are the important operations of finance department of BHEL, Trichy.

Sales Accounting

Purchase Approvals

Budgets

Legal – Excise, Sales Tax, Income Tax & Customs

Costing

Pay Roll

Internal Audit

Foreign Trade- Imports, Exports

System

Cash and Bank

CHAPTER –II

REVIEW OF LITERATURE

2.1 WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the decisions which are related with

the current assets and the current liabilities. It means, it concerned with day-to-day

management activities.

The key factor, which is used to differentiate long term financial management and

short- term financial management, is the timing of cash.

Long- term financial decisions by buying capital equipment or issuing debentures,

involve cash which flows over an extended period of time.

But a short time financial decision mainly involves the cash flow within a year, or

with in the operating cycle of the firm.

2.2 CONCEPTS OF WORKING CAPITAL

The two concepts of working capital are

1. Gross working capital

It refers to the investment made by the company in current assets. Current assets are

the assets which can be converted into cash with an accounting year or operating cycle. It

also includes cash, short-term securities, debtors, bills receivable and stock.

2. Net working capital

The difference between current assets and current is called the net working capital.

Current liabilities are the one which is claimed from the outsiders and are expected to be

returned within an accounting year. It includes creditors, bills payable, and out siding

expenses.

Net working capital may be positive or negative. A net working capital becomes

positive only when the current assets exceed current liabilities. A negative net working

capital occurs when current liabilities exceed current assets.

2.3 TWO DANGEROUS POINTS OF CURRENT ASSETS

2.3.1 Danger of inadequate working capital

1. Inadequate working capital will lead to a condition, in which one cannot pay its

short-term liabilities in time. So there arises a situation where there is a loss of reputation

and tight credit terms.

2. The organization’s requirements cannot be fulfilled in bulk; hence it cannot take

the advantage of cash discounts.

3. Difficulties will arise in meeting the day-to-day expenses. This will lead to

inefficiency and increase in costs with the minimum profits.

4. Lack of working capital will lead to less favorable marketing conditions and less

profitable projects.

5. Due to scarcity of working capital, fixed assets are not properly utilized. Thus

this results in the fall of investments return.

2.3.2 Danger of Excessive Working Capital

1. Excessive working capital will lead to low investments in fixed assets. Hence

there will be no profits for the business and there can be no proper rote of return on its

investments.

2. The low rate of return on investment will lead to the fall in the value of shares.

3. Excessive working capital will lead to unnecessary purchasing and excessive

amount of inventories. As a result, there are chances of theft and loses.

4. Excessive debtors and defective credit policy are the indication of excessive

working capital. There may be delay in collection and increased incidence of bad debts.

5. Excessive working capital will make the management complacent. This will lead

to overall inefficiency in the organization.

2.4 NEED FOR WORKING CAPITAL MANAGEMENT

Beyond the limit, both the current assets i.e., inadequate working capital and

excessive working capital are dangerous. Beyond the limitations of both the level, the

common goal of the organization cannot be achieved.

Working capital Management provides effective and efficient decision to allocate

the current assets.

2.5 TYPES OF WORKING CAPITAL

The two types of working capital are,

1. Permanent working capital.

2. Temporary working capital.

2.5.1 Permanent Working Capital

As the operating cycle is a continuous process, the need for current assets is felt

constantly. The Magnitude of the current assets need not to be the same. It may increase or

decrease over the time.

However, there is a minimum level of current assets which are continuously

required by the firm to continue its business operations. This minimum level of the current

assets is known as permanent or fixed working capital. However the permanent working

capital line needs not to be horizontal.

2.5.2 Temporary working capital

On the other hand, when there is a slack period in the market, the investment made

on the inventories and account receivable will be low.

The change of the extra working capital used to support the production and sales, is

known as fluctuating or variable or temporary working capitals.

When the company has a peak period of sales, it will have large amount of

inventories, when compared to their normal sales. This makes the costumers to invest

money for credit sales.

2.6 RATIO ANALYSIS

Ratio analysis, simply defined, refers to the analysis and interpretation of financial

statements through ratios. Now a day it is used by all the business and industrial concerns

in their financial analysis.

2.7 RATIO

The term ratio simply means one number expressed in terms of another. It describes

in mathematical terms the quantitative relationship that exists between two numbers.

2.8 TYPES OF RATIOS

1. CURRENT RATIO

It is relationship between firm’s current assets and current liability.

Current assets

Current ratio = _______________________________

Current liability

2. QUICK RATIO

It is relationship between liquid assets and current liabilities.

Liquid assets

Quick ratio = _________________________

Current liabilities

3. CASH RATIO

It is relationship between cash and current liabilities.

Cash

Cash ratio = _______________________

Current liabilities

4. DEBTOR’S TURNOVER RATIO

It indicates the number time debtors turned over each year. Generally the

higher value of debtor’s turnover shows high efficiency to manage the credit

management.

Total sales

Debtors turnover ratio = ______________________________

Debtors

5. DEBT COLLECTION PERIOD

It indicates the speed with which debts are collected.

Days/months in a year

Debt collection period = _______________________________

Debtor’s turnover ratio

6. CREDITORS TURNOVER RATIO

The ratio shows on an average the number of times creditors turned over

during the year.

Credit purchase

Creditors turnover ratio = ________________________

Average creditors

7. DEBT PAYMENT PERIOD

Creditor’s turnover ratio indicates the number of days taken by the firm, to

pay the debtors to creditors.


Debt payment period = _______________________________

Creditor’s turnover ratio

8. INVENTORY TURNOVER RATIO

It indicates the inventories turning into receivables through sales.

Sales

Inventory turnover ratio =__________________________

Inventory

9. INVENTORY HOLDING PERIOD

It indicates duration of holding inventories in stores.


Inventory holding ratio = ______________________________

Inventory turnover ratio

10. WORKING CAPITAL TURNOVER RATIO

This ratio explains the relationship between sales and working capital.

Net sales

Working capital turnover ratio = ______________________________

Net working capital

CASH TURNOVER RATIO

It is the relationship between sales and cash.

Cash turnover ratio = Sales

___________________

Cash balance

2.9 ARTICLES

To make one’s project effective, it is better to go through the projects done by

others earlier. This gives a complete idea about one’s project. It also helps to correct the

mistakes done in the earlier projects. Summing up, it improves one’s project.

So with this idea, let us see some of the projects done by others earlier.

Mr. J. Maria peter Ignatius., MBA., of Bharathidasan University did a project

with the title “Working Capital Management in Bharath Heavy Electricals Limited,

Tiruchirrappalli”. He did this project in the month of June 2004, using the data from 1998

to 2003.

The objectives of his study were

To analyse the requirement of funds for the routine activities of business.

To study on the source of fund generated and their methods of utilization.

To know the amount of funds allotted in the current assets and to forecast the

working capital trend.

To study cash receivables position of the organization.

His findings were

In all the years the value of the quick ratio is higher than the ideal value; it indicates

firm’s ability to pay the immediate obligations

Cash ratio clearly indicates firm’s debt borrowing power from financial institutions

and other sources.

The firm’s debt collection period have more than 150 days. Firm increased the debt

collection period year by year. It shows firm’s liberal debt collection policy.

Working capital turnover ratio was decreased in year by year. It clearly shows firm

reduced to use net working capital for sales

Mr. G. Dhanabal., MBA., of Bharathidasaan University did a project with the title

“Working Capital Management in Trichy Steel Rolling Mills Limited, Tirchirappalli”.

He did the project in the month of June 2004, using the data from 1998 to 2003.

His objectives were

To study the financial position of the firm

To estimate the future of working capital requirement of the unit

To bring out the level of inventory and to analyse the receivables, payables and

cash management of the company

His findings were

Firm ability have been was increasing every year in order to meet the short term

liabilities.

More sales has been done on credit basis

Bank balance is sufficient to tackle unexpected problem.

Current ratio satisfactory level is 2:1. It is significantly achieved by the company.

Miss. Mohanapriya, M.B.A, in her research on “Working capital management of

Tanjore co-operative milk supply society Ltd.” Which is the partial fulfillment of the

requirements for the award of her degree submitted to Bharathidasan University, in the year

November – 2003. Outlined the following objectives and findings.

Her Objectives were:

Know the project of Co-operative milk supply society.

Analysis the short term liquidity position of the study unit during the period 96-97

to 2000-01.

Analysis and evaluate working capital management.

Her Findings were:

The size of current assets has increased during the study period.

During the study period the working capital turnover ratio were 210.51;

194.60; 45.44 and 11.86 times respectively the higher ratios in the 2 year 1997-98

and 98-99 indicates sufficient amount of working capital and effective utilizations

of working capital.

The cash turnover ratio is to be increasing times.

Miss. Abiramisundhari, in her research on “Working capital management of

TSRM Limited Trichy”. Which is the partial fulfillment of the requirements for the award

of her M.Com degree submitted to Bharathidasan University, in the year November – 2003.

Outlined the following objectives and findings.

Her Objectives were:

To study the importance of W/c management for a concern.

To assess the proportion of the components of W/c of TSRM Ltd, Trichy.

To suggest measures to increases the efficiency of W/c management of TSRM

Ltd, Trichy.

Her Findings were:

The company has been taken for sufficient care for the maintenance of adequate

accounting period.

The proportion of net W/c to total assets showed on increasing trend through

out the five years.

The over all performance of receivables management showed a satisfactory

position throughout the past 5 years.

Mr. Kamaraj, M, Phil, in his research on “Working capital management of Dalmia

Cement Limited Trichy”. Which is the partial fulfillment of the requirements for the award

of her degree submitted to Bharathidasan University, in the year November – 2003.

Outlined the following objectives and findings.

His Objectives were:

To know the Financial Performance of Dalmia Cement.

To examine the practice follow into Management of cash.

To know the techniques of Inventory Management in D.C.B.C.

His Findings were:

Raw Material Consumption over the study period in terms of quantity and value has

showed an incise trend.

Operating ratio is considered to be yardstick of operating efficiently of the concern.

The concern has show dormant and fast moving inventories during the 5 years a

study period.

Performance of the co should be judged on the basis of return on equity capital. It

is satisfactory positive

CHAPTER –III

3.1 OBJECTIVES

1. Evaluate the working capital of the company during the period of study.

2. Analysis of working capital with various tools.

3. Analysis of various components of working capital.

4. To study the adequacy of working capital and suggest improvement to overcome

deficiency if any.

CHAPTER –IV

4.1 RESEARCH METHODOLOGY

It is purely and simply the framework or a plans for the study that guides the

collection and analysis of data. Research is the scientific way to solve the problem and it’s

increasingly used to improve market potential. This involves exploring the possible

methods, one by one, and arriving at the best solution, considering the resources at the

disposal of research.

4.2 PRIMARY DATA

The primary data is collected by observation by the researcher of the functioning of

the unit.

4.3 SECONDARY DATA

It is derived from the annual reports, magazines, web sites and the internal auditing

books of BHEL.

4.4 TOOLS OF ANALYSIS

The researcher used tools to analysis the financial performance of the firm. They are

1. Ratio analysis

2. Trend analysis

4.5 SCOPE OF THE STUDY

The main scope of the study is to evaluate, analyze and understand the current

assets management and to know the influence of the components of working capital on

sales in the year 2001 – 2002 to 2005 – 2006.

4.6 PERIOD OF THE STUDY

The study analysis, “the financial performance of Bharath Heavy Electrical Ltd”

covers the financial years from 2001 – 2006 consequently.

CHAPTER – V

DATA ANALYSIS AND INTERPRETATION

TABLE – 5.1

STATEMENT SHOWING CURRENT RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

CURRENT

ASSETS

805139.02 834839.66 1042469.93 1334297.99 1633077.90

CURRENT

LIABILITIES

471346.54 475605.95 633685.33 844589.43 1032002.23

CURRENT

RATIO

1.71 1.76 1.65 1.58 1.58

SOURCE: SECONDARY DATA

INTERPRETATION

Current ratio during the year 2001-2002 was 1.71 and its slightly increased in 1.76

at 2002-2003 and its decreased 2003–2004 at 1.65 and its same value in 2004–2005 and

2005 – 2006. There is no significant.

CHART – 5.1

CURRENT RATIO

TABLE – 5.2

STATEMENT SHOWING QUICK RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

LIQUID

ASSETS

605716.15 634734.05 832081.57 1042687.26 1258640.84

LIQUID

LIABILITIES

471346.54 475605.95 633685.33 844589.43 1032002.23

LIQUID

RATIO

1.29 1.33 1.31 1.23 1.22


INTERPRETATION

The quick ratio in the year 2001-2002 was 1.29 and it gets increased 0.04% at 2002

and 2003 (1.33) and in 2003-2004 get decreased 0.02% (1.31) and 2004-2005 get decreased

0.08% (1.23) and it again decreases 2005-2006 at 0.01%(1.22).

CHART – 5.2

LIQUID RATIO

STATEMENT SHOWING CASH RATIO

TABLE – 5.3

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

CASH 47658.92 132091.11 265963.89 317786.21 413397.54

CURRENT

LIABILITIES

471346.54 475605.95 633685.33 844589.43 1032002.23

CASH RATIO 0.10 0.20 0.42 0.38 0.40


INTERPRETATION

The Cash ratio of BHEL in the 2001-2006 was fluctuation in 2005-2006 it was 0.40

times and in 2001-2002 it was 0.10 times and 2003-2004 it was reduced to 0.42.

CHART – 5.3

CASH RATIO

TABLE – 5.4

STATEMENT SHOWING DEBTORS TURNOVER RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

TOTAL

SALES

682311.04 693030.43 801903.20 952713.54 1337403.27

DEBTORS 458407.08 407578.21 460848.04 597214.22 716806.49

DEBTOR

TURNOVER

RATIO

1.48 1.70 1.75 1.56 1.87


INTERPRETATION

Debtors constitute an important constitute of current assets and therefore the quality

of debtors to a great extent determines firm’s liquidity .The higher the ratio, the better it is,

since it would indicate that debts are being collected promptly. In the year 2004-2005 the

debt is 1.56 comparing to the previous year came down.

CHART- 5.4

DEBTOR TURNOVER RATIO

DEBT COLLECTION PERIOD

TABLE – 5.5

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

DAYS 365 365 365 365 365

DEBT

TURNOVER

RATIO

1.48 1.70 1.75 1.56 1.87

DEBT

COLLECTION

PERIOD

247 215 210 234 195


INTERPRETATION

The debt collection period of BHEL in the 2001-2002 was 247 days and in 2005-

2006 it was 195 days.

CHART – 5.5

DEBT COLLECTION PERIOD

TABLE – 5.6

CREDITORS TURNOVER RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

CREIDT

PURCHASE

330676.82 316037.84 363465.65 509767.76 709940.33

CREDITORS 404107.97 393240.68 517389.20 708633.44 875960.92

CREDITORS

TURNOVER

RATIO

0.82 0.80 0.70 0.72 0.81


INTERPRETATION

The Creditors turnover ratio of BHEL was fluctuating during the year 2001 – 2006.

It was upward in (2001 – 2002) was 0.82 times and it was downward in 2003 – 2004 is 0.70

times.

CHART -5.6

CREDITORS TURNOVER RATIO

TABLE –5.7

DEBT PAYMENT PERIOD

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

DAYS 365 365 365 365 365

CREDITORS

TURNOVER

RATIO

0.82 0.80 0.70 0.72 0.81

DEBT

PAYMENT

PERIOD

445 456 522 507 451


INTERPRETATION

The debt collection period of BHEL in the 2001-2002 was 245 days and in 2005-

2006 it was 451 days.

CHART – 5.7

DEBT PAYMENT PERIOD

TABLE –5.8

CASH TURNOVER RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

SALES 682311.04 693030.43 801903.20 952713.54 1337403.27

CASH 47658.92 132091.11 265963.89 317786.21 413397.54

CASH

TURNOVER

RATIO

14.32 5.25 3.02 3.00 3.24


INTERPRETATION

The cash turnover ratio in the year 2001-2006 was downward in the year in the

2001-2002 it was decreased 3.24.

TABLE – 5.9

INVENTORY TURNOVER RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

SALES 682311.04 693030.43 801903.20 952713.54 1337403.27

INVENTORY 199422.87 200105.61 210388.36 291610.73 374437.06

INVENTORY

TURNOVER

RATIO

3.42 3.46 3.81 3.26 3.57


INTERPRETATION

Inventory turnover of BHEL for 2001 – 2006 was fluctuation. in 2001-2002

the inventory turnover ratio was high up to 3.81 and it was low in 2004-2005 at 3.27.

CHART –5.9

INVENTORY TURNOVER RATIO

TABLE – 5.10

INVENTORY HOLDING PERIOD

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

DAYS 365 365 365 365 365

INVENTORY

TURNOVER

RATIO

3.42 3.46 3.81 3.26 3.57

INVENTORY

TURNOVER

PERIOD

107 106 96 112 102


INTERPRETATION

Inventory turnover period of BHEL for 2001 – 2006 was 107 days in 2003.it was

106 days and 2003-2004 it get reduced 96 days and it got raised in 2004-2005 to 112 days

In 2005 -2006it got downwards to 102 days.

CHART – 5.10

INVENTORY TURNOVER PERIOD

TABLE-5.11

WORKING CAPITAL TURNOVER RATIO

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

SALES 682311.04 693030.43 801903.20 952713.54 1337403.27

NET

WORKING

CAPITAL

333792.48 359233.71 408784.60 489708.56 601075.67

WORKING

CAPITAL

TURNOVER

RATIO

2.04 2.00 2.00 2.00 2.23


INTERPRETATION

Working capital turnover ratio for the year 2005-2006 was 2.23 times. It is higher

when comparing the past four years. The working capital management has to improve by

more concentration on collection strategies.

CHART-5.11

WORKING CAPITAL TURNOVER RATIO

TABLE –5.12

WORKING CAPITAL FOR TREND ANALYSIS

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

CURRENT

ASSETS

805139.02 834839.66 1042469.93 1334297.99 1633077.90

CURRENT

LIABILITIES

471346.54 475605.95 633685.33 844589.43 1032002.23

WORKING

CAPITAL

333792.48 359233.71 408784.6 489708.56 601075.67


INTERPRETATION

In this current asset is increasing during the period of study. Current liability is also

increased during the period of study. And working capital is also increased.

CHART – 5.12

WORKING CAPITAL FOR TREND ANALYSIS

TABLE –5.13

ANALYSIS OF VARIOUS COMPONENTS IN WORKING CAPITAL

CURRENT ASSETS

Rs in lakhs

Particulars 01-02 02-03 03-04 04-05 05-06

inventories 24.77

56.94

5.92

.0006

12.38

23.97

48.82

15.82

0.012

11.37

20.20

44.21

25.51

0.13

9.97

21.85

44.75

23.82

0.35

9.22

22.93

43.90

25.31

0.52

7.35

Sundry debtors

C& B balance

Other assets

Loans and advances

Total 100 100 100 100 100


INTERPRETATION

In this period inventories, sundry debtors, other current assets and loan and

advances was decreased during the period of the study. Cash and bank balance was only

increased during the period of the study.

CHART – 5.13

ANALYSIS OF VARIOUS COMPONENTS IN WORKING CAPITAL

TABLE –5.13

CURRENT LIABILITIES

Rs in lakhs

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005 -2006

CURRENT

LIABILITIES

86.32 83.04 82.01 84.30 85.34

PROVISIONS 13.68 16.95 17.98 15.69 14.65

TOTAL 100 100 100 100 100


INTERPRETATION

In this liabilities was downward in the period of study in this provision was upward

in the period of study.

CHART – 5.13

CURRENT LIABILITIES

CHAPTER – VI

FINDINGS OF STUDY

1. The working capital as per trend analysis, current assets was in the year 2001-2002

was Rs.805139.02 and the in the year 2005-2006 was Rs.1633077.90.so the current

assets was increased during the period of study.

2. The working capital as per trend analysis, current liabilities was in the year 2001-

2002 was Rs.47l346.54 and the in the year 2005-2006 was Rs.1032002.90.so the

current liabilities was increased during the period of study.

3. The working capital as per trend analysis, working capital was in the year2001-2002

was 333792.48 and the in the year 2005-2006 was 601075.67.so the working capital

was increased during the period.

4. In this analysis of various components in working, in current asset, in inventory

sundry debtors in loan and advances and other current assets are downward trend.

Then cash and bank balance only upward trend.

5. In current liabilities, liabilities downward trend and provision are upward trend

during the period of study.

6. Analysis of each component in working capital sundry creditors is upward manner

during the period of study.

7. Working capital turnover ratio was downward year by year.

8. Inventory turnover ratio was 3.57 in 2005-2006. It is upward while comparing from

2001-2002.

9. The current ratios for all the subsequent years are good. All of them are above

standard norm. So the short term solvency position of the company is good.

10. The debtor turnover ratio in the year 2001-2002 was 1.48 and get increased in the

year 2005-2006 was 1.87.

11. The quick ratio for all the subsequent year is good. It is all of them are standard

norm. From the above table the quick ratio found satisfactory.

12. The Cash balances of the organization found fluctuating over the years. The

proportion of cash in current asset was increasing in 2001-2006.

13. The average collection period is high in 2001-2002 that is 107 days and 2005-2006

is 102 days in this reduce collection period.

CHAPTER - VII

SUGGESTION AND RECOMMEDATIONS

1. Apart from present technique of age wise analysis, reason wise analysis to be done

periodically and suitable actions to be taken by the organization.

2. While collecting dues from customer collecting focus on customer irrespective of

production unit, division and products to be followed.

3. Automatic storage and retrieval system (ASRS) presently implementing in

components stores of BHEL, trichy may also be introduce in others stores or units.

4. Periodic review on non moving and slow moving items of inventory must be done

by the organization.

5. All suppliers are to be educated on the requirement of various documents so that

delay in processing of bills and payment may be reduced/avoided by the

organization.

6. Debt collection policy is also very liberal. To avoid bad debts and to increase

effective sales.

7. Through the current assets a level is satisfactory. They excess of the fund can be

invested in other productive applications.

CHAPTER – VIII

CONCLUSION

The overall working capital management of BHEL is effective and satisfactory. However,

effective steps may be taken to reduce sundry creditors and inventory by using latest tools

and techniques. the most care has been taken to analyze the working capital position of the

BHEL, Apart from that growth and financial soundness of the studying unit have also been

made.

CHAPTER –IX

LIMITATION

Only secondary data collected from BHEL trichy is used for the study, hence the

accuracy of the findings and conclusion of the statement will depend upon the accuracy

of the given data.

Only five years financial statement of BHEL are used for this schedule.

The limitations of the tools and techniques used in the study will also reflect in the

outcome of the study.

CHAPTER - X

SCOPE FOR FURTHER STUDY

The present study concentrates on the working capital position with reference to BHEL. In

addition to that study contains the analysis of financial soundness and growth of the firm in

the term of liquidity solvency and trend analysis.

BIBLIOGRAPHY

BOOKS

M.Y.Khan and p. k. Jain, financial management, third edition,Tata McGraw Hill

Publishing Company Limited, ,NEW Delhi, 2001.

P.V. Kuldarni, and B.G. Sathyaprasad, financial management, Ninth edition,

Himalaya publishing House, NEW Delhi, 2001.

S. N. Maheshwari, principles of management accounting, Thirteenth edition, Sultan

chand & sons New Delhi,2002.

Dr. S. N. Maheshwari, financial management, sixth edition, Sultan chand & Sons

New Delhi,2000.

I. M. Pandey, Financial management,eighth edition, Vikas publishing House

pvt.Ltd., New Delhi, 2003.

Prasanna Chandra, Financial management,fourth edition,Tata McGraw- Hill

publishing Company Limited,New Delhi,1999.

Annual reaports of BHEL (2001-2006) Internal records of the company

WEBSITE:

www. Bhel.org

www. abb. in

www .ge. co

www.siemens.org

Roll No.50,A Study on Working Capital Management

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