WORKING CAPITAL MANAGEMENT AT BHARAT HEAVY ELECTRICALS LTD.

AMITY UNIVERSITY , NOIDA

Guided by : Submitted by: Mr.Bhaskar Chaturvedi Karishma Kaur Sr. Manager (Finance) MBA

ContentsObjectives of InternshipCompany Profile Of BHELVision Mission & ValuesObjectives Of Bharat Heavy Electricals Ltd.Swot AnalysisWorking Capital ManagementGuidelines of Working Capital ManagementBalanced Working CapitalResearch And MethodologyFuture Research & FindingsConclusion

Objectives of InternshipTo analyze the practical implication of theoretical

knowledge acquired during the MBA program. To gain practical knowledge about the organization. To understand the major functions along with products

and services of the organization The core objective of this report was to know about

the financial position of the organization , Details regarding various sub departments of finance

have been mentioned in this report.To check the liquidity condition of BHEL.To show the trend of sales for the five years of

BHEL.To show the trend of working capital for last five years

of BHEL.

Bharat Heavy Electricals Ltd.(BHEL)In the post independence era when India was moving

towards Industrialization, the major thrust of the Government was in the core sector ie; the public sector.

With this objective, Heavy Electrical (I) Limited was set up in Bhopal in August 1956 with a view to reach self sufficiency in Industrial products and power equipments. This plant was set up under technical collaboration of M/s AEI, U.K.

Three more plants were subsequently set up at Tiruchy, Hyderabad and Haridwar with Soviet and Czechoslovakian assistance in May 1965, Dec 1965 and Jan 1967 respectively.

As there was a need for an integrated approach for the development of power equipment to be manufactured in India, Heavy Electrical Ltd. Bhopal was merged into BHEL in 1974.

Continued..BHEL is the largest engineering and

manufacturing enterprise in India in the energy related/infrastructure sector, today. The company has been earning profits continuously since 1971-72 and paying dividends since 1976-77.

BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian economy viz. Power Generation and Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc.

BHEL has defined its vision, mission &values as under:-

VISIONA world class, innovative, competitive and profitable

engine, providing total business solutions.MISSIONTo be the leading Indian Engineering enterprise providing

quality products, systems and services in the fields of energy, transportation, industry, infrastructure, and other potential areas.

VALUESMeeting commitments made to external and internal

customers.Foster learning, creativity and speed of response.Respect for dignity and potential of individuals.Loyalty and pride in the company.Team Playing. Zeal to Excel.Integrity and fairness in all matters

OBJECTIVES OF BHEL Business MissionTo maintain the leading position as supplier of

transmission, utilization and conservations of energy, for application in the areas of electric power, transportation, oil and gas

GrowthTo ensure a study growth by enhancing the competitive

edge of BHEL in existing business, new areas and international operations

ProfitabilityTo provide a responsible and adequate returns on capital

employed primarily through improvements in operational efficiency, capacity, utilization and productivity.

Customer FocusTo build a high of customers confidence by providing

increased value for his money through international standards of product quality, performance and superior customer service.

People OrientationTo enable each employee to achiever his potential , improve

his capabilities, perceive his role and responsibilities

Swot analysis of BHELStrengths:The company has 180 products under 30 major product

groups cater to the needs of the core sector like power, industry, transmission, transportation, defense, telecommunications and, oil business.

BHEL ability to acquire modern technology and make it suitable to Indian conditions has been an exceptional strength of the company.

Weaknesses:PSU status is a big weakness for BHEL as it is subject to

their rules and regulations and is forced to carry a huge amount of labor force, which it is not able to retrench.

The company offers very stringent credit facilities to the customers and this is a weakness when compared in the face of rising competition.

On the other hand the customers in the power segment, SEBs, have a huge amount of receivables standing against their name in the company’s balance sheet.

Continued…Opportunities:NTPC is planning additional capacities to the tune of

2800MW,at a cost of Rs 52 bn.The business of modernization and renovations of

power plants is expected to grow in India.Joint venture with Siemens in the name of Power

Plant Performance Improvement Ltd (PPIL) is a major strength for the company.

 Threats:The global trend of consolidation has already

resulted in a fall in turnover of the company and this will prove to be a major threat in the years to come, as well.

Recently, the government has permitted its import of second hand capital goods that are 10 years old without a license. This move will definitely increase competitive pressures for BHEL.

WORKING CAPITAL MANAGEMENTWorking capital refers to firm investment in short

term assets-cash, short term securities, accounts receivable & inventories.

There are two concepts of working capital GROSS WORKING CAPITALGross working capital may be defined as firm’s

investment in current assets. Current assets which can be converted into cash within a year and include cash, short term securities, debtors, bill receivable and stock

NET WORKING CAPITALNet working capital refers to the difference

between current assets and current liabilities. Net working capital may be negative or may be positive.

WCM & RATIO ANALYSISWorking Capital turnover RatioA 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.

 Working Capital Turnover Ratio = ____Turnover____ Working capital

This graph shows the relation of turnover with working capital. In 2008-09 the working capital turnover ratio is 2.32 and increases in next two years and reached at 2.86 in 2010-11 and after that it decreases in 2011-12 and 2012-13 and comes at lower point 2.08 which is less as compare to last five years.

Continued..Year 2008-

09 2009-10

2010-11

2011-12

2012-13

Working Capital Turnover Ratio

2.32 2.67 2.86 2.75 2.08

2008-09 2009-10 2010-11 2011-12 2012-130

0.5

1

1.5

2

2.5

3

3.5 Working Capital Turnover Ratio

Working Capital Turnover Ratio

GUIDELINES OF WORKING CAPITAL MANAGEMENT

The analysis of working capital is primarily a test of short-term solvency. There are dangers in having too little or too much of working capital.The question to be studied and answered in connection with the analysis of working capital is:

1)Is the management utilizing working capital effectively?

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

3)Does the firm have favorable credit rating? 4)Is the current financial position improving?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.

BALANCED WORKING CAPITALThe firm should maintain a sound working capital

position. A balanced working capital results in smooth production and no hindrances. Excessive working capital means holding cost and idle funds, which earn no profits for the firm.

Dangers facts of excessive Working CapitalUnnecessary accumulation of inventories.Defective credit policy and slack collection period.There is managerial inefficiency.Dangerous facts of inadequate Working Capital Stagnant growth and it becomes difficult for the firm

to undertake profitable projectsFixed assets are not efficiently utilized Firm loses its reputation in the market

Research And MethodologyThis report is completed by performing ratio

analysis so as to know the liquidity of the company. Moreover, SWOT analysis has also helped to know the true worth of the organization as a whole.

For the purpose of analyzing the financial position of the company. The study is only based on the (assumed) secondary data available with the company.

Secondary data (assumed) is related to data already published by the company.

To analyze the financial position we take data from the published annual reports of the company

Future Research & FindingsDuring the training we extracted the following

distinctive features of BHEL :BHEL overseas business is going to increase more in

the next five years.Market distribution in international market can be

increased by entering into the new foreign countries. BHEL is the main market holder in the domestic

market but faces,fierce competition at the international level. 

The quality control & quality assurance is major concerning area of BHEL. 

Financial strategy adopted by BHEL is best. BHEL is the public sector unit with 65% of its share

takes in to the hands of Government.

ConclusionAll staffs are positive to the interns and they are ready

to make us learn about the operation of the organizationThe firm BHEL’s Liquidity position in terms of shot term

and long term is goodThe efficency of the company is excellent. The above

analysis enables the company to understand the financial position and financial soundness of BHEL.

BHEL’s operations are organized around three business sector, namely power Industry – including Transmission, Transportation, Telecommunication and Renewable Energy – and Overseas Business.

This enables BHEL to have a strong customer orientation , to be sensitive to his needs and respond quickly to the changes in the market.

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