PREFACE

This project deals with the study of working capital management in HEG Ltd.,
Mandideep, Bhopal.

It is one of the basic functions of financial management, which is important part of

every organization.

Working capital management is concerned with short-term financial management

of the organization.

This reflects the importance of finance of any organization.

The objective of this project is to precede clear and understandable analysis of

working capital management of the organization.

MANIT, Bhopal 1
 ACKNOWLEDGEMENT
I take this opportunity to place on record my grateful thanks and sincere gratitude
to all those who gave me valuable advice and inputs for my study. My study could
have been completed if I had not been able to get the reference material from the
company.

I am thankful to Mr. Manoj Lahoti, DGM (Finance), Mr. Ravi Tripathi, Manager
(Finance), Ms. Ruchi Saxena, Executive HR and Mr. B. Bhanu Murti Sr. Assistant
for their kind guidance and suggestions.

Last but not the least, I would like to express my thanks to my family members,
my faculties and friends who inspired me to put in best efforts for the
research/project work.

Jose T George

MANIT, Bhopal 2
 DECLARATION
I hereby declare that the project report entitled "Working Capital
Management" in HEG Ltd., Mandideep is the outcome of my own
work and the some has not been submitted to any university for
the award of any degree or any professional diploma.

Date:

30th Jun., 2010 Jose T George

MBA IInd Sem.

MANIT, Bhopal 3
 LIST OF FIGURES

1. Working Capital Cycle 14

2. Types of Working Capital 15

3. Steps involved in preparation of cash flow statement 20

4. Graphical representation of position of inventory in HEG

ltd 40

5. Graphical representation of cash & bank balance in HEG

ltd 42

6. Graphical representation of position of loans & advances in

HEG ltd 44

7. Graphical representation of position of sundry creditors 46

8. Graphical representation of provision for bad debt at HEG

ltd 48

9. Graphical representation of current asset v/s working

capital 49

10. Graphical representation of current liability v/s working

capital 50

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 LIST OF TABLES

1. Calculation of Working Capital in HEG ltd 36

2. Statement showing change in Working Capital 37

3. Position of inventories 39

4. Position of cash & bank balance 41

5. Position of loans & advances 43

6. Position of current liabilities 45

7. Position of provision for bad debt 47

8. Current assets v/s Working Capital 49

9. Current liability v/s Working Capital 50

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 INDEX
1.0 Part – 1

• Introduction 08

• Company profile 25

2.0 Part – 2

• Data Analysis & Interpretation 33

3.0 Part – 3

• Research Methodology 51

4.0 Part – 4

• Conclusion 54

Bibliography & Annexure 56

Abbreviations 57

Glossary 58

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 Part – 1

• Introduction

• Company Profile

• Limitation of the study

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 INTRODUCTION OF WORKING
CAPITAL
Working capital may best be defined as current assets minus current liabilities.
Gross working capital is total current assets, which are represented mainly by cash
and government securities account receivable and inventories of raw materials,
goods in process and finished goods. Increase in the level of inventories and
receivables throughout the production process use of cash.

The amount by which current assets exceed current liabilities is significant in

finance management for two reasons. First, the amount of working capital
represents the extent to which current assets are financed from long-term sources.
If the current assets of a firm are Rs.100000 and its current liabilities Rs.40000,
the remaining Rs.60000 has been financed from other than current sources.
Second, working capital represents a margin of safety foe short term creditors.
Current assets are likely to yield a higher percentage of their book value on
liquidation then to fixed assets.

MEANING

"Working capital is the life blood and controlling nerve system of a business."

Working capital means the part of the current assets of the business that change
from one form to another form in the ordinary course of business operation.

The word working capital is made of two words –

• Working and

• Capital

The word working means day to day operation of the business, whereas the work
capital means monetary value of all assets of the business.

MANIT, Bhopal 8
 DEFINITIONS

According to Shubin

"Working capital is the amount of funds necessary to cover the cost of operating
the enterprise."

According to Genestenbery

"Circulating capital means current assets of a company that are changed in the
ordinary course of business from on form to another; as for example from cash to
inventories, inventories to receivables, receivables into cash."

Objectives of the working capital

• To ensure optimum investment in current assets.

• To ensure adequate flow of funds for current operations.

• To speed up the flow of funds or to minimize the stagnation of

funds.

• To strike a balance between the twin objective of liquidity and

profitability in the use of funds.

Concept of working capital

Commonly two concepts of working capital found in the existing literature of

finance –

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• Gross working capital (Quantitative Concept)

• Net working capital (Qualitative Concept)

GROSS WORKING CAPITAL

The total current assets are termed as the gross working capital or circulating
capital. Total current assets include; cash marketable securities, accounts
receivables, inventory prepaid expense, advance payment of tax; etc.

NET WORKING CAPITAL

The excess of current assets over current liabilities represents net working capital.

Components of working capital

The main components of working capital is –

• Current assets

• Current liabilities

CURRENT ASSETS

Current assets are those assets that in the ordinary course of business can be or
will be turned into cash with in an accounting period with out undergoing
diminution in value and without disrupting the operations.

Current Assets –

• Cash

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• Marketable securities

• Inventories

• Sundry debtors

• One year fixed deposits with banks, and

• Prepaid expenses

CURRENT LIABILITIES

Current liabilities are those liabilities intended to be paid in the ordinary course of
business with a reasonable period out of the current assets or revenue of the
business.

Current Liabilities –

• Sundry creditors

• Loans and advances

• Bank overdrafts

• Short term borrowings, and

• Taxes and proposed dividends

Importance or Advantages of adequate working capital

Working capital is the life blood and nerve center of a business. Just as circulation
of blood is essential in the human body for maintaining life, working capital is
very essential to maintain the smooth running of the business. No business can run
successfully without an adequate amount of working capital.

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 The main advantages of maintaining adequate amount of working capital are as
follows –

1. Solvency of the business – Adequate working capital helps in

maintaining solvency of the business by providing uninterrupted flow of
production.

2. Goodwill – Sufficient working capital enables a business concern to

make prompt payments and hence helps in creating and maintaining
goodwill.

3. Easy loans – A concern having adequate working capital, high

solvency and good credit standing can arrange loans from banks and others
from easy and favorable terms.

4. Cash discounts – Adequate working capital also enables a concern

to avoid cash discount on the purchase and hence it reduces cost.

5. Regular supply of raw materials – Sufficient working capital

ensures regular supply of raw materials and continuous production.

6. High morale – Adequacy of working capital creates an environment

of security, confidence, high morale and creates efficiency of the business.

7. Ability to face crisis – Adequate working capital enables a

concern to face business crises in emergencies such as depressions because
during such periods, generally there is much pressure on working capital.

8. Excess or inadequate working capital – Every business

concern should have adequate working capital it run its business
operations. It should have either redundant or excess working capital her
inadequate of working capital. Both excess and short working positions

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 are bad for any business. However out of the two it is the inadequacy of
working capital, which is more dangerous from a point of view of the firm.

Factors determining the working capital requirement

• Nature or character of business

• Size of business / scale of operations

• Production policy

• Manufacturing process / length of production cycle

• Seasonal variations

• Rate of stock turnover

• Credit policy

• Business cycles

• Rate of growth of business

• Earning capacity and dividend policy

• Price level changes

• Other factors

• Working capital cycles

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 Working Capital Cycle

Debtors
(Receivables)

Cash Finished Goods

Raw Materials Work-in-Process

Fig 1

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 Types of working capital

Types of working capital

On the basis of B's On the basis of time

concept

Gross Net Regular Temporary

Working Working Working Working
Capital Capital Capital Capital

Seasonal
Working
Capital

Specific
Working
Capital

Fig 2

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 Where is working capital analysis most critical

On the on hand, working capital is always significant. This is especially true from
the tenders or creditors perspective, where the main concern is defensiveness; can
the company meets its short-term obligations, such as paying vendor bills.

Sources of working capital

There are three main sources of working capital management –

1. Short term financing – Generally current assets should be

financed by only short term financial sources. Short-term finance is
obtained for a period of less than one year. The sources of short-term
finance are loans from banks, public deposits, commercial papers,
factoring of receivables, bills discounting, retention of profits, etc.

2. Long-term financing – Net current assets or permanent current

assets or working capital are supposed to be financed by long-term sources
of finance. Long-term finance is raised for a period of more than five year.

Long-term finance sources include ordinary share capital, preference share

capital, debentures and long-term loans from bankers and suppresses.

3. Spontaneous financing – It refers to the automatic sources of

short-term funds arising in the normal course of a business.

The source includes trade credit and outstanding expenses.

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 Sources of additional working capital

Sources of additional working capital include the following –

• Existing cash reserves

• Profit (when you secure it as cash)

• Payables (credit from suppliers)

• New equity or loans from share holders

• Band overdrafts or lines of credit

• Long-term loans

Working capital has a direct impact on cash flow in a business. Since cash flow is
a name of the game for all business owners. A good understanding of working

capital is imperative to make any venture successful.

Statement of cash flow (SCF)

• Provide a foundation to predict future cash flow.

• Ability to forecast cash needs and cash availability to purchase capital

assets, repay non-current debt and other non current sheet items is essential.

• Owners and creditors assume that is a business generates positive cash

flows in the past, it will in the future.

• Serves as a basis for the evaluation of management's performances

regarding cash management.

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• Allows the identification of cash inflows and cash outflows with in
operation activities, investing activities and financing activities.

• To prepare an SCF, the reported accrual net income (or loss) in converted
from an accrual basis by evaluating the balance sheet accounts that have changed
during and operating period.

Evaluation of net cash flow

• It is possible for an operation to have positive net income and produce a

negative cash flow, or to show a net loss and have a positive cash flow.

• Operating Section (of on set) – Adjusts and reconciles the net income or
net loss for and operating period to the net cash flow from operations.

Methods to determine net cash flows

• Direct Method – Uses cash receipts from operations and cash

disbursements to create the income statement on a cash basis.

• Indirect Method – Start with net income and adjust it for charge in
current asset and current liability accounts, generally eastern and more commonly
used method.

Segmenting cash flow analysis

Segmenting into three types of activity –

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• Operative activity

• Investing activity

• Financing activity

OPERATIVE ACTIVITY

Involve the primary objective of the business, the production of sales revenue
inflows from the exchange of goods, merchandise and services creating sales
revenue inflows for cash or credits.

INVESTING ACTIVITIES

Involve transactions that affect non current accounts, long-term purchases.

FINANCING ACTIVITIES

Transactions that course changes to ownership equity and the payment of

borrowing on long-term debt.

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 Steps in the preparation of cash flow
statements

Prepare non-current account to

identify the cash flow

Cash inflows Cash outflows

Sales of assets or Purchase of assets or

investments, raising of investments, redemption
financial resources of financial resources

Balancing figure

Fig 3

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 Management of sundry debtors

The finance manager has an operating responsibility for the management of

investment in receivables. In addition to his role of supervising the administration
of credit, the finance manager is in a particular, strategic position to contribute to
top management decisions relating to the best credit policies of the firm. In the
beginning the finance manager plays an important role in the determination of
credit period and deciding the criteria for selection of credit applications.

The basic objectives of management of sundry debtors is to optimize the return on

investment on the asset. It is obvious that if there are large amount tied up in
sundry debtors, working capital requirements and consequently interest charges
will be high.

Also, in such a case, the bad debts and the cost of collection of debts would be
high. On the other hand, if the investment in sundry debtors is low, the sales may
be restricted, since the competitors may offer more liberal credit terms. Therefore,
management of sundry debtors is an important issue and requires proper policies
and efficient execution of such policies.

There are basically three aspects of management of sundry debtors. Firstly, the
credit policy is to be determined. This involves a trade of between the profit on
additional sales that arise due to credit beings extended on the one hand on cost of
carrying those debtors and bad debts losses on the other. The second aspects of
management of sundry debtors is credit analysis where by the finance manager
determines as to how risky is to advance credit to a particular party. The third
aspect is follows up of debtors and credit collection. Thus, management of sundry
debtors involves both laying down credit policies and execution of such policies.

The objectives for which credit is granted can be:

• Increasing Sales and Market shares

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 • Increasing Profit Due to Higher sales and Higher margins on Credit
sales

• Meeting competition

CREDIT POLICY

The credit policy of a firm involves decisions relating to length of the credit
period, cash discount and other special items.

CREDIT PERIOD

The credit period is also dependent on the custom in the industry and the practice
followed by various competitors. The availability of funds and credit risks
involves also determined the credit period.

CASH DISCOUNT

A cash discount is a reduction in payment offered to customers to induce them to

repay credit obligation within a specified period of time, which will be less than
normal credit period. If the customer does note avail the offer he must make
payment within the normal credit period.

COLLECTION POLICY

Efficient and timely collection of debtors ensure that the bad debt losses are
reduced to the minimum and the average collection period is shorter. If a firm
expends more resources on collection of debts, it is likely to have smaller bad
debts. Thus, a firm must work out the optimum amount that it should spend on
collection of debtors. This involves a trade off between the level of expenditure on
the one hand decrease in debt losses and investment in debtors on the other.

On the other hand, it has to keep the amount of the outstanding in check. Hence, it
has to work in a very smoothen manner and diplomatically.

MANIT, Bhopal 22
 AGEING SCHEDULE

In this receivables are classified according to their age. The Ageing Schedule
provides an effective method of comparing the liquidity of receivables with the
liquidity of receivables in the past and also comparing liquidity of receivables of
one firm with that of other firms.

INVENTORY MANAGEMENT

Inventories constitute a major element of working capital. It is, therefore,

important that investment in inventory is properly controlled. The objectives of
inventory management are, to a great extent, similar to the objectives of cash
management. Inventory management covers a large number of problems including
fixation of minimum and maximum levels, determining the size of inventory to be
carried. deciding about the issues. Receipts and inspection procedures.
Determining the economic order quantity, proper storage facilities, keeping
cheque over obsolescence and ensuring control over movement of inventories.
Important that the financial aspects of inventories is carefully examined.

Aids to inventory management

Management of inventory can be achieved through the use of one or more of the
following techniques:

1. Minimum/Maximum levels – The simplest and the oldest form of

inventory management consist of fixation of minimum and maximum levels of
various inventory items. These levels would obviously take into account the factors
like:

• Importance of each item to the production! sales process,

MANIT, Bhopal 23
• Availability of alternative sources of supply/ substitutions,

• The lead-time involved in the procurement of items.

2. Re-ordering levels – There ordering level is meant to alert the

inventory controller to a fall in the level of stocks where immediate action is required
to be taken for procurement of the items.

3. Economic order quantity – The E.O.Q is an important concept in the

purchase of raw materials and in the storage of finished goods and in transit
inventories, generally, to determine the optimal order quantity of a particular item of
inventory, we should be given its forecasted usage, ordering costs and carrying cost.
Ordering can mean either purchase of the item or its production. The E.O.Q. formula
helps in ascertaining the economic order

EOQ = 2AO/C

A= total usage in units for a period.

0= 0 for ordering cost per order.

C= c for per units carrying costs per period.

4. Perpetual inventory system – The perpetual inventory system is a

method of controlling stock items by recording balances in the stores after each
receipt and issue.

5. ABC Analysis or selective techniques – In case of manufacturing

company like HEG, the number of items of raw material run into thousands. From the
point of view of monitoring information for control. It becomes extremely difficult to
consider one of these items.

In this case ABC analysis becomes useful and enables the management to
concentrate attention and keep a close watch on a relatively less number of

MANIT, Bhopal 24
 items, which account for a high percentage of annual usage value of all
items of inventory.

In this analysis items are categorized into ABC. Category on the basis of
their usage value. The more costly items classified as 'A' this represent
larger investment items but are low in number. In BHEL 'A' category items
amount to 60% of investment in inventory items. Inventory items of
average usage value are put in 'B' category and these accounts for 30% of
total investment in inventory. Low usage value items are put in 'e'
category. It represents 10% of total investment in inventory. The 'A'
category items require greater degree of control and accurate planning 'B'
category requires moderate control. As 'e' category represents low usage
value. Much importance is not paid on its control. Also the planning and
control cost incurred for this category will be greater than their total cost.

The advantages of this system are –

• Ensures closer control on costly items.

• Helps in developing scientific method of controlling inventories

clerical costs are reduced and stock is maintained at optimum level.

• Helps in achieving the main objective of control at level.

COMPANY PROFILE

LNJ BHILWARA GROUP

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 Founded in 1961, the LNJ Bhilwara Group is today, is a Rs. 2049 crore with a
strong global presence lead by the Founder & Chairman – Emeritus, Mr.
L.N.Jhunjhunwala the business. Group is one of the largest firms in the India
corporate world with over 20000 employees and 17 production units positioned at
strategic locations across the country with its headquarter in Noida (New Delhi).

The group is a well-diversified conglomerate. It actively seeks growth and

profitability by investing in a variety of systematically identified businesses
making it a multi-product conglomerate with interests in a range of industries such
as textiles, graphite electrodes, power generation, power consultancy services,
sponge iron and its enabled services. In its four decade of long existence, the
group has come to be identified with quality and technology.

The LNJ Group believes in the philosophy of "Quality how & forever" & makes
no bones that it is "Proud to be Indian; privileged to be Global." This is borne out
by the fact that 7 of its companies have ISO 9000 certification & 45% of the
group's turnover comes from exports.

The journey can be well appreciated from the milestones given below:

• 1970 – Established.

• 1972-73 – Incorporation of the company with an intension to set up a

10000 MT capacity plant.

• 1976-77 – Full scale commercial production started.

• 1978-79 – Installed full 10000 MT capacity; Dispatched 4857 MT to the

market (domestic).

• 1981-82 – Exports to graphite electrodes started by HEG.

• 1984-85 – Modernization done to manufacture, UHP grade (Ultra High

Power) electrode.

MANIT, Bhopal 26
• 1991-92 – Collaboration quashed with seers; HEG decided to go on its
own.

• 1994-95 – Expansion cum modernization completed to reach 21000 MT

capacity.

• 1996-97 – Expansion cum modernization (including technological

upgradation) undertaken to reach 24000 MT capacity with captive power; 13.5 MW
Tawa Hydet Power plant & 128 MW Durg HWRS Power plant commissioned.

• 2001-02 – Expansion cum modernization completed to reach 32000 MT

(100% OHP) capacity.

As it would emerge, HEG Ltd. setup as a 10000 MT plant manufactures HP grade

electrodes for the domestic market is now a 32000 MT UHP plant selling 80% in
the export market & competing on equal footing with the leading manufactures
(MNGS) in the world.

The critical success factor has been:

• Self Reliance for Technology

• State of the art manufacturing facilities

• Dynamism to anticipate & adopt to the volatile market situations

An Introduction of HEG

HEG a premier company of the LNJ Bhilwara Group is Asia's leading graphite
electrode manufacturer and India's largest graphite electrodes exporter established
in 1977 in technical and financial collaboration with society Des Electrodes ET

MANIT, Bhopal 27
 refroctaires savoie (SFRS), a subsidiary of pectinery of finance. HEG has the
largest integrated graphite plant in South Asia & Middle East, located in
Mandideep near Bhopal (M.P.) with a capacity of around 52000 MT per annum.
HEG's graphite division has facilities for production of graphite electrodes and
graphite specialties.

The company also operates o sponge iron plant, a steel Billent's plant and a 12.8
MW waste heat recovery system power plant with a rated capacity of 25 MW of
Mandideep.

Graphite Electrodes

Graphite electrodes find their biggest industrial use in Electric Arc Furnaces
(EAF) used in steel plants to melt steel scrap produce steel. Steel production
volumes through the EAF therefore drive the demand for graphite electrodes
route, which is fast growing. The manufacture of graphite electrodes is a
technology intensive process that involves heat treating non graphite carbon to
temperatures upto 3000oC, with quality of output being a key success factor. HEG
is one of the few players that cater to the graphite electrodes market worldwide,
supplying its products to leading steel makers globally.

In 1985, we pioneered exports of graphite electrodes in the country. Today, export

is one of HEG's key drivers contributing to around 70% of revenues.

We export to over 25 countries including highly competitive markets such as

USA, Canada, Germany, France, Italy, Australia and South Korea.

Awards & Achievements

• Awarded ISO 9001 (2000) and later ISO 14001 certification by "BVQI".

MANIT, Bhopal 28
• Awarded "Rajiv Gandhi National Quality 2001 Award for Quality" by
Bureau of Indian Standards, Government of India.

• HEG Ltd. has bagged the prestigious National Export Award instituted by
the Ministry of Commerce, Government of India, for outstanding export performance
for the year 1997-98.

• HEG Rishabhdev bagged the National Export Award.

• HEG has also won the country's top export award instituted by the
Chemical & Allied Products Export Cernical (CAPEXIL) for outstanding exports for
the past 17 consecutive year for 2001-02 HEG awarded the highest export award.

• HEG has the largest Graphite Electrode manufacturing plant in South Asia.

• HEG has been regularly exporting electrodes since 1980 and today exports
more than 80% of its production.

• HEG's graphite electrodes are exported to 25 countries around the world,

including developed countries like USA, Canada, Germany, France, Italy, South
Korea, Australia, etc. A award for our commitment to world winning quality and
performance.

Mission and Vision Statement

Mission statement of HEG

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 "To become a leading international player in graphite electrodes and
related business by leveraging our core competence and there by
enhancing value to our customers, shareholders, employees and
society."

Vision statement of HEG

"A vibrant globally acknowledged top league player in graphite

electrodes and allied businesses with commitment to growth,
innovation, quality and customer focus."

About the HEG Ltd.

• Established – 1970.

• Set-up – 1977.

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• Diversified companies – Graphite electrode, textiles, sponge iron and
hydro-power.

• Turnover – 2007-08 Rs. 2049 crores.

• Location – HEG Ltd. Mandideep near Bhopal (M.P.) India.

• Size of unit – 100 acres.

• Company status – Largest manufactures and exporter of graphite

electrodes in South Asia.

• ISO 9002 Accredited Company since 1996.

• 80% of the product is exported to 25 countries across the world.

• Excellent quality products established in highly demand steel works

worldwide.

Production capacity

52000 MT per annum.

Board of Directors

L.N. Jhunjhunwala Chairman – Emeritus

Ravi Jhunjhunwala Chairman & Managing Director

Shekhar Agarwal Vice-Chairman

V. K. Mehta Director

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 D. N. Davar Director

K. N. Memani Director

Kamal Gupta Director

P. Murari Director

R.C. Surana Executive Director & CEO

Riju Jhunjhunwala Executive Director

N. Mohan Raj Nominee Director – LIC

N. Mehta Alternate to V.K. Mehta

Manvinder Singh Ajmani Chief Financial Officer

Ashish Sabharwal Company Secretary

MANIT, Bhopal 32
 Part – II

• Data Analysis & Interpretation

DATA ANALYSIS & INTERPRETATION

What does working capital mean?

A measure of both a company's efficiency and its short-term financial health. The
working capital is calculated as –

Working capital = Current assets – Current liabilities

MANIT, Bhopal 33
 Positive working capital means that the company is able to pay off its short-term
liabilities.

Negative working capital means that a company currently is unable to meet its
short-term liabilities with its current assets. (Cash, account receivable and
inventory)

Also known as "Net working capital" or "Working capital ratio."

Investopedia explains working capital

If a company's 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 deriding working capital ratio over a long-term 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 and smaller.

Working capital also gives investors an idea of the company’s underlying

operational efficiency money that is tied up in inventory or money that customer
still owes to the company cannot be used to pay off any of the company's
obligations. So if a company is not operating in the most efficient manner (slow
collection), it will show up as an increase in the working capital. Comparing the
working capital from one period to another can see that this slow collection may
signal an underlying problem in the company's operations.

MANIT, Bhopal 34
 Calculation of working capital for HEG Ltd.

Particulars Year Year Year

2009 2008 2007

A. Curr
ent Assets
• Inventory 40972.41 27337.87 28088.75
• Sundry

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 debtors 32854.30 28835.42 20313.15
• Cash &
Bank 638.30 4319.00 10325.01
• Loans & 16269.09 21204.71 12441.10
Advances

Total of 90734.11 81697.00 71168.01

Current Assets

B. Current
Liabilities
• Sundry 8953.65 8888.52 7459.40
creditors
• Provision for
bad debts 5042.84 3548.24 4050.37

Total of 13996.49 12436.76 11509.77

Current
Liabilities

Net Working 76737.62 69260.24 59658.24

Capital
(A - B)

(Rs in lac)

Table 1

Statement showing change in working capital for HEG

Ltd.

Particulars Year Year Change in

2008 2009 working
capital

Increase Decrease

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1. Current
Assets
• Inventory 27337.87 40972.41 13634.54
• Sundry 28835.42 32854.30 4018.88
debtors
• Cash & 4319.00 638.30 3680.70
Bank
• Loans & 21204.71 16269.09 4935.62
Advances
Total of 81697.00 90734.11
Current
Assets
2. Current
Liabilities
• Sundry
creditors 8888.52 8953.65 65.13
• Provision
for bad
debts 3548.24 5042.84 1494.60
Total of 12436.76 13996.49
Current
Liabilities
Net 69260.24 76737.62
Working
Capital
Increase 10596.83
Total 19213.1519213.15

(Rs in lac)

Table 2

Note:

Increase in current assets Increase in working capital

Decrease in current assets Decrease in working capital

Increase in current liabilities Decrease in working capital

MANIT, Bhopal 37
Decrease in current liabilities Increase in working capital
 1. INVENTORY ANALYSIS

Inventory is total amount of goods and materials content store of factory of

any given time. Inventory means stock of three things –

• Raw materials

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 • Semi finished goods

• Finished goods

Position of inventory in HEG Ltd.

(Rs. in lac)

Particulars Year Year Year

2009 2008 2007

Inventories
Stock in trade 6603.20 1909.15 3229.86
Work in process 15766.71 14840.69 11004.58
Raw materials 16097.60 8541.00 11249.58
Stores & 2504.89 2047.03 2604.73
spares/Loose
tools

Total 40972.41 27337.87 28088.75

Table 3

Calculation through Chart

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 50000
40972.41
40000

30000 27337.87 28088.75

Position of
20000 Inventory in HEG

10000

0
2009 2008 2007

Fig 4

Interpretation –

By analyzing the 3 year data we see that the inventories are increased year by year.
By this growth we can say that the company is growing very rapidly in cement
sector. But in 2008 inventories are low than 2007. A company uses inventory
when they have demand in market. That is the biggest reason for increase in
inventories. From this point of view, we can say that the liquidity of fairly is
blocked in inventories but to stock is very good due to uncertainty of availability
of raw material in time.

2. CASH & BANK BALANCE ANALYSIS

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 Cash is called the most liquid asset and vital current assets. It is an important
component of working capital. In a narrow sense, cash includes notes, bank
draft, cheque, etc. While in a broader sense it includes near cash assets such as
marketable securities and time deposits with bank.

Position of cash & bank in HEG Ltd.

(Rs. in lac)

Particulars Year 2009 Year 2008 Year 2007

Cash & bank 638.30 4319.00 10325.01

Table 4

Calculation through Chart

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 12000
10325.01
10000
8000
6000
4319
Cash & Bank
4000
2000
638.3
0
2009 2008 2007

Fig 5

Interpretation –

If we analyze the above table and chart, we find that it follow decreasing trend.
Lathery company's cash is decreasing but this is very good sign for the company
because they are not holding cash in hand but using the cash for better project.
Company is utilizing the fixed cash for exploding the project that is good for
growth.

3. LOANS & ADVANCES ANALYSIS

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 Loans & advances may refer to amount given to different parties, company
and employees for a specific period of time and in return they will be liable to
make timely repayment of that amount in addition to interest on that loan.

Position of loans and advances in HEG Ltd.

(Rs. in lac)

Particulars Year Year Year

2009 2008 2007

Loan & 16269.09 21204.71 12441.10

advances

Table 5

Calculation through Chart

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 25000
21204.71
20000
16269.09
15000
12441.1
Loans &
10000 Advances

5000

0
2009 2008 2007

Fig 6

Interpretation –

If we analyze the table and chart, we can see that it follows an uneven trend.

4. CURRENT LIABILITIES ANALYSIS

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 Current liabilities are any liabilities that are incurred by the firm on
a short-term basis or current liabilities that has to be paid by the
firm within one year.

Position of current liabilities in HEG Ltd.

(Rs. In lac)

Particulars Year Year Year

2009 2008 2007

Sundry 8953.65 8888.52 7459.40

creditors

Table 6

Calculation through Chart

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 8953.65 8888.52
9000
8000 7459.4

7000
6000
5000
Sundry
4000 creditors
3000
2000
1000
0
2009 2008 2007

Fig 7

Interpretation –

If we analyze the above table and chart, we can see that it follow an increasing
trend. The important component of current liabilities is sundry creditors and other
liabilities.

5. PROVISIONS ANALYSIS

Provisions are liabilities estimated to allow for events or transactions that have
taken place but are not legally due and payable until some time in the future.

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 Position of provision for bad debts in HEG Ltd.

(Rs. in lac)

Particulars Year Year Year

2009 2008 2007

Provision for bad 5042.84 3548.24 4050.37

debts

Table 7

Calculation through Chart

MANIT, Bhopal 47
 6000
5042.84
5000
4050.37
4000 3548.24

3000 Provision for

bad debts
2000

1000

0
2009 2008 2007

Fig 8

Interpretation –

If we analyze the above table and chart, we can see that provision
shoes an uneven trend.

Current Assets V/s Working Capital

(Rs. in lac)

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Particulars Year 2009 Year 2008 Year 2007

Current Assets 90734.11 81697.00 71168.04

Working Capital 76737.62 69260.24 59658.24

Table 8

Calculation through chart

100000
90734.11
90000
81697
80000 76737.62
70000 69260.24 71168.04
59658.24
60000
50000 Current Assets
40000 Working Capital
30000
20000
10000
0
2009 2008 2007

Fig 9

Current Liabilities V/s Working Capital

(Rs. in lac)

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Particulars Year Year Year
2009 2008 2007

Current 13996.49 12436.76 11509.77

Liabilities

Working Capital 76737.62 69260.24 59658.24

Table 9

Calculation through chart

80000 76737.6

70000 69260.24

60000
49658.24
50000 Current
40000 Liabilities
30000 Working Capital
20000 13996.49 12436.76 11509.77
10000
0
2009 2008 2007

Fig 10

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 Part – III

• Research Methodology

RESEARCH METHODOLOGY

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 Research may be defined as a documented prose work. Documented prose work
means organized analysis of the subject based on borrowed materials with suitable
acknowledgment and consultation in the admin body of the paper. Research in
management is particularly important to find out different phenomena.

Research is the systematic approach towards purposeful investigation. This needs

formulating a hypothesis collection of data on relevant variables, analyzing and
interpreting the results and reaching conclusions either in the form of a solution or
contains generalizations.

Research design

The next job is of data collection for data to be useful. Our observation needs to be
organized so that we can get some patterns and come to logical conclusion.

There are two types of data used for preset research work-

• Primary data

• Secondary data

PRIMARY DATA

Primary data is one which collected by the investigator himself for the purpose of
a specific enquiry of study. Such data is original in character and is generated by
surveys conducted by individuals or research institutions.

SECONDARY DATA

When an investigator uses the data which has already been collected by others is
secondary data. Such data can be obtained from journals, reports, government
publications, publications of professionals and research organizations and so on.

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MANIT, Bhopal 53
 Part – IV

• Conclusion

CONCLUSION
Working capital is one of the important aspects of operational efficiency of
business. Working capital plays a very important role for increase in any

MANIT, Bhopal 54
 operational efficiency in any organization. Both the current assets and current
liabilities are very much influencing working capital of organization.

After large discussion and analysis position of HEG, it is cleared that working
capital management is at sound position. Working capital is not measures by only
current liabilities; there is also other factor that largely influenced. Working
capital e.g. operating cycle nature of product, etc. In current assets there are two
important factors i.e. debtors and inventory; which are largely effected position of
working capital.

BIBLIOGRAPHY
For the competition of this project following book are used and help from other
resources has been taken.

MANIT, Bhopal 55
 Books –

• Bhat Sudhindera, 2007 Financial Management, Excel Books. (A-45

Naraina, Phase I, New Delhi-110028)

• Pandikumar MP 2007 Management Accounting Excel Book.

• Bhalla, V.K. (2001): "Working Capital Management – Text & Cases",

Anmol Publications, New Delhi.

• Pandey, I.M.: "Financial Management" Vikas Publishing House, New

Delhi.

• Sharma, R.K. & Gupta, Shashi K. (2003) "Management Accounting"

Kalyani Publishers, New Delhi.

Journals –

• Internet (Google)

• Annual Report of last year 2008-09,2007-08

Websites –

• www.hegltd.com

• www.mba.com

ABBREVIATIONS
AC – Alternative Current

AGM – Annual General Meeting

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 BPL – Bhilwara Processors Ltd.

BSL – Bhiwara Synthetics Ltd.

CAPEXIL – Chemical and Allied Products Export Promotion

Council

EAF – Electric Arc Furnace

EU – European Union

FICCI – Federation of India Chambers of Commerce and

Industry

HP – High Power

HEG – Hindustan Electrode Graphite

HR – Human Resource

ICAI – Institute of Chartered Accountants of India

MNC – Multi National Company

MT – Metric Tonne

MP – Madhya Pradesh

R&D – Research & Development

SERS – Society Et Refreactory Savioe

GLOSSARY

Accounting

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 Accounting is the process of recording, classifying and summarizing in a
significant manner of transaction which is financial in nature and finally
interpreting the result.

Balance Sheet

This is the fundamental statement of the firm which explores the firm's financial
status through the resources mobilized and investments applied i.e. liabilities and
assets respectively.

Cash Balance

It includes both cash in hand and cash at bank. It is classified into both operating
and closing balances.

Cash Flow

Change is the cash position of the firm.

Cash Inflow

Cash receipts of the enterprise through various ways and means.

Cash Outflow

Cash payments i.e. going out of the enterprise through various ways and means.

Current Assets

Assets which are in the form of cash equivalent to cash or easily convertible into
cash.

Current Liabilities

Short-term financial resources of the firm.

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 Desired Profit

It is a profit level desired by the firm to earn at the given level of sales volume.

Fund

Fund means working capital of the company.

Flow

Flow means changes occurring in between two different time periods.

Inventory

Stock of raw material, stock of work in progress, stock of finished goods, stock of
spares of company.

Marginal Cost

Change occurred in the cost of operation due to change in the level of production.

Net Income Profit after Tax

This is an accounting statement which matches the administrative selling and

distribution expenses with the gross profit after tax.

Working Capital

It refers to the funds which a company must possess to finance its day-to-day
operation.

Working capital = Current assets – Current liabilities

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MANIT, Bhopal 60