Ariz Farzan Bheel

A
RESEARCH REPORT
ON
Working Capital Management with special Reference to BHEL

In partial fulfillment of the award of MASTER OF BUSINESS ADMINISTRATION, Degree MTU, NOIDA,
SUBMITTED TO:
Mr. Nitin shrivastva (HOD)
SUBMITTED BY
MOHD Ariz farzan MBA 4th Sem Roll No.: 1108470033
Bhagwant Institute of
Technology, Muzaffarnagar
WORKING CAPITAL MANAGEMENT
Declaration
I, Mohd Ariz farzan hereby declare that the research project report titled Working Captial Management in BHEL, Submitted in Partial fulfillment for the award of the degree of MBA to bhagwant institute of technology Muzzerfernagar, is my own effort and had not been submitted earlier to any other University / Board / Institute.
Date:
Place:
(MOHD ARIZ FARZAN)
ACKNOWLEDGEMENT
I express my sincere thanks to the Management of BHEL, Ranipur, Haridwar Unit for giving me an opportunity to gain exposure on matter related to Project under the esteem guidance of Mr. Anil Malik (SR. MANAGER)
The first person I would like to acknowledge is my guide Mr.Nitin shrivastva (HOD) who supported me throughout this project with utmost cooperation and patience. I am very much thankful to them for sparing their precious time for me and for helping me in doing this project. He was always there to guide me and correct me whenever I was wrong.
Finally I would like to thank all my friends & well wishers who have helped in all possible ways in making this project presentable.
Last but not the least I would like to thank the Almighty God for always helping me.
PREFACE
As MBA program is research report oriented, it frequents to the students a lot of opportunities to gather first hand knowledge from industries of repute through study of present working problems and its shuns, preventive measures and probable path of future prospects. Research report gives the students the opportunities to gather practical knowledge from the market, besides bookish knowledge. Likewise that opportunity appeared before me and I had a thorough study of working capital management industry in India.
(Mohd.Ariz Farzan)
Executive Summary
The project which is under consideration and I have analyzed is the management policies of BHEL with regard to the working capital Management.
The construction of heavy electrical equipment Plant commenced in Oct.1963after indosoviet technical co-operation agreement in Sept.1959 The BHEL is committed to provide safe and healthy working place to employees as an integral part of business performance through. The project is based on secondary data, because the management of working capital totally depends on secondary data. The Management of Working Capital is refers to difference between the total current assets and total current liabilities. Gross Working Capital = Total Current Assets Net Working Capital = Total Current Assets Total Current Liabilities Current Assets are sum of Sundry Debtors, Bills Receivable, Cash at Bank, Inventory, Marketable Securities and Parlimary Expenses. Current Liabilities are sum of Sundry Creditors, Bills Payable, Bank Overdraft and Shortterm loan. There are 3 steps using in these project report
1. Debtors Management 2. Inventory Management 3. Cash Management
DABTORS MANAGEMENT: The Debtors Management is considering for the credit policies of the Organization.
INVENTORY
MANAGEMENT:
The
Management
of
Inventory is
considering for the so many policies for the Inventory Management, every organization follow the different method of Inventory Management. ABC Analysis SDE Analysis SIC Inventory Control VED Analysis JIT Analysis
CASH MANAGEMENT: The Management of cash consider for the managing the liquidity of the organization The main aim of cash management is what amount hold the organization for the future uncertainty.
Contents
INTRODUCTION INTRODUCTION ON THE BHEL
NEEDS AND OBEJECTIVE FOR THE RESEACH TOPIC WORKING CAPITAL MANAGEMENT RESERCH METHODLOGY WORKING CAPITAL MANAGEMENT 1. MEANING 2. CLASSIFICATION OF WORKING CAPITAL MANAGEMENT 3. WORKING CAPITAL MANAGEMENT IN BHEL MANAGEMENT OF DIFFERENT COMPONENTS OF WORKING CAPITAL 63 1. DEBTOR MANAGEMENT 2. INVENTORY MANAGEMENT 3. CASH MANAGEMENT LIMITATION OF THE STUDY FINDINGS SUGGESTIONS CONCLUSION BIBLIOGRAPHY 101 103 104 105 106 23 28 34
BHARAT HEAVY ELECTRICAL LIMITED:-
BHEL is the largest engineering and manufacturing enterprise in India in the energy related/infrastructure sector today. BHEL was established more than 40 years ago when its first plant was set up in Bhopal ushering in the indigenous Heavy Electrical Equipment industry in India, a dream that has been more than realized with a well-recognized track record of performance. The Companys inherent financial strengths can be seen from its net worth, Debt Equity ratio and cash surplus. The Company has a net worth of Rs.60,270 Million as on 31st March 2005. The Companys cash surplus stood over Rs.32,000 Million as on 31st March 2005. The Debt Equity ratio of the Company is at 0.09. It has been earning profits continuously since 1971-72 and achieved a sales turnover of Rs.103,364 Millions with a profit before tax of Rs.15,816 Millions in year 2004-2005. In line with the excellent performance, an all time high dividend of 80% (including 35% interim dividend) for the financial year 2004-05 has been paid. With this BHEL has maintained its track record of paying dividends uninterruptedly for the last 29 years.
BHEL caters to core sector of Indian economy viz. Power Generation and Transmission, Industry, Transportation, Telecommunication, Renewal energy defense etc. The wide network of BHEL 's, 14 manufacturing divisions, 4 Power sector regional centers, 8 service centers ,18 regional office and a large numbers of project sites spread all over India and abroad enable the company to promptly serve its customer and provide them with suitable products, system and services at competitive prices.
BHEL has already attained ISO 9000 and all the major units/divisions of BHEL have been upgraded to the latest ISO-9001: 2000 version quality standard certification for quality
management. All the major units/divisions of BHEL have been awarded ISO-14001 certification for environmental management systems and OHSAS-18001 certification for occupational health and safety management systems.
BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs based on financial performance. Recently in survey conducted by business India, BHEL has been rated as seventh Best Employer in India.
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International Business
BHEL has, over the years, established its references in over 60 countries of the world. These references encompass almost the entire range of BHEL products and services, covering Thermal, Hydro and Gas based turnkey power projects, substation projects, and rehabilitation projects; besides a wide variety of products like: Transformers, Compressors, Valves and Oil field equipment, Electrostatic Precipitators, Insulators, Heat Exchangers, Switchgears, Castings and Forgings etc. Some of the major successes achieved by BHEL have been in Gas-based power projects in Oman, Libya, Malaysia, Saudi Arabia, Iraq, Bangladesh, Sri Lanka, China, Kazakhstan; Thermal Power Projects in Cyprus, Malta, Libya, Egypt, Indonesia, Thailand, Malaysia; Hydro power plants in New Zealand, Malaysia, Azerbaijan, Bhutan, Nepal, Taiwan 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 International markets, in terms of complexity of the works as well as technological, quality and other requirements viz. HSE requirement, financing package, 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 flexibility to exhibited adaptability by manufacturing and supplying intermediate products.
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VISION
A world-class, innovative, competitive and profitable engineering enterprise providing total business solutions.
MISSION
To be the leading Indian engineering enterprise providing quality products system and services in the fields of energy, transportation, industry, infrastructure and other potential areas.
VALUES
Meeting 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.
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RECENT ACHIEVEMENTS OF BHEL
1. BHEL's R&D ops contribute Rs. 1,151 Cr to turnover in 2005-06 [May 19 2006]NEW DELHI: Bharat Heavy Electricals Ltd on May 18 said the company has achieved a turnover of Rs.1,151crore during 2005-06 through products developed by in-house research and development operations. This revenue was eight per cent of its total revenue of Rs.14,410crore in 2005-06. This was the result of a constant thrust on developing new technologies and products, improving existing products and systems in terms of reliability, cost and quality through in-house R&D efforts. The company invested about Rs.150crore on Research and Development of products and systems during the year, which was among the highest in the country. The company also filed for 84 patents, including three abroad, taking the total number of patents filed till date to 339. Out of this, BHEL has been granted 26 patents and the rest are in various stages of processing. Thirteen copyrights have also been filed. R&D and technology development are of strategic importance to BHEL as it operates in a competitive environment where technology is a major factor. 2. BHEL to manufacture 800 mw thermal sets [Apr 14 2006] Catching up with the advancement in global technologies, Bharat Heavy Electricals Ltd (BHEL), through the efforts of its corporate research and development division in Hyderabad, is now equipped to manufacture 800 mw super-critical thermal power sets in the country. Much sought-after by several players in power generation, including AP Genco, for its fuel efficiency, the super-critical technology has been till now viewed as the sole domain of developed world. As part of its effort to emerge as one of the global technology players in power systems and other new technologies, the R&D division of BHEL has started fresh initiatives by setting up centers of excellence for surface
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engineering (COE-SE) and intelligent machines and robotics (CIMAR). According to the source, CIMAR would be set up at the Corporate R&D division in Hyderabad at an initial investment of Rs.4.77crore. Among the new products, the BHEL Corporate R&D has successfully completed design, supply and commissioning of automated
storage and retrieval systems for four of the 13 warehouses at the Central Ordnance Depot, Kanpur. 3. BHEL inks agreement with IIT Madras for new courses [Apr 25 2006] Chennai: Bharat Heavy Electricals Ltd and the Indian Institute of Technology-Madras have signed a memorandum of understanding for collaborative research in the areas of design of boilers, manufacturing, metallurgical engineering, mechanical engineering, information technology and other areas of mutual interest. With the help of BHEL, Tiruchi, IIT-M will establish a research centre at the BHEL campus for the purpose. IIT-M will select MS/PhD research scholars to work as research associates/project associates. BHEL on its part will make available its research facilities and laboratories for the purpose. The collaboration has also given scope for IIT-M to start two new courses one on energy engineering and another on welding engineering. The courses will start from the academic year 2006-07. BHEL, which designs power plant boilers for handling a variety of coals, is also interested in getting into coal research.
4. BHEL secures Rs.80 Cr export order from EETC [May 10 2006] NEW DELHI: Bharat Heavy Electricals Ltd (BHEL) has bagged its largest ever export order for transformers worth Rs.80crore from Egyptian Electricity Transmission Co (EETC). BHEL will supply 14 transformers of 125 MVA to the state-run Egyptian company as a part of the order. These transformers would be installed in eight sub-stations at different locations in Egypt. The transformers, to be built at the company's Jhansi
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plant, would be installed and commissioned under BHEL supervision. The company had earlier executed a boiler project at Al Arish in Egypt. With the order for transformers, BHEL has also established itself in the transmission market in Egypt. BHEL had earlier reported a six-fold increase in its export orders booking for the fiscal ended March 31 at Rs.3,348crore. These orders contributed to one-fifth of the company's total orders booked last year. With this BHEL is poised to achieve a quantum growth in its export business driven by consolidation in existing markets and widening its export base through expansion of existing basket of products and services and entering new markets. 5. BHEL net profit up 62 percent (the tribune,3 June 2006)BHEL has posted a net profit of Rs.867.95 crore for the quarter ended March 31,2006, as compared to Rs.534.28 crore for the quarter ended March 31, 2005, an increase of 62.45 pc. Total income has increased from Rs.4,518.94 crore in Q4 FY 04-05 to Rs.5728.96 crore for Q4 FY 05-06.It has posted a net profit of Rs.1679.16 crore for the year ended March 31,2006(FY 05-06) as compared to Rs.953.40 crore for the year ending March 31,2005.Total income has increased from Rs. 9977.36 crore in FY 04-05 to Rs.13820.02 crore for FY 05-06.The board of directors has recommended a final dividend of 20 percent of equity of the company, making it to total of 145 percent of the equity share capital of the company for the financial year 2005-06.This includes the interim dividend of 40 percent and special dividend of 85 percent already paid during the year. 6. Workers participation in management yields savings at BHEL, Hardwar DEHRA DUN, Nov 16: Empowerment of employees through the "quality the areas of import substitution, revamping of old machine tools and safety over the past two decades based on the principle of people-building and mutual development, the
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"quality circle" was adopted by the BHELs Hardwar Plant in the year 1981 and has, since then, yielded savings of nearly Rs. 5 crore, according to Mr. Ashwini Dhar, Public Relations Officer of the organization. The quality circle guides the combined efforts and knowledge of workmen of a particular section. There are more than four hundred quality circles actively working to enhance the excellence on the process, quality and delivery fronts, Mr. Dhar said. Coordinators and facilitators along with other members of the workers groups identify problems and think of solutions collectively to prevent defects and maintain overall quality. Mr. Dhar said upgrading, renovation and modernization of hydro sets installed at various power stations equipped with BHEL and non-BHEL equipment was being now undertaken by the Hardwar unit through its research and development efforts. The Hardwar unit of BHEL has received an order of Rs Eight crore from Power Development Corporation, Jammu and Kashmir, to carry out renovation and modernization of the lower Jhelum Hydro Electric Project. This project is equipped with turbine and operator equipment supplied by BHEL and the project was commissioned in 1980. Another order, worth Rs Thirty crore, was received by the BHEL plant for renovation, modernization and up rating of the units of Ganguwal and Kotla Hydro Electric Projects under Bhakra Beas. 7. Management Board and will ensure an increased output of the generating units by as much as twenty per cent. Earlier, one unit each of the above machines was renovated and up rated by the BHEL resulting in a similar output increase for these machines. More than a hundred sets of different capacities supplied by BHEL, Hardwar, are commissioned at various power stations all over the country. The hydro sets are tailor made to suit varying hydro electric parameters. Mr. Dhar said that at the Hardwar Plant, excellent engineering and manufacturing facilities are available to supply
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Kaplan, Francis, Pelt on and reversible hydro turbines along with matching generators and associated equipment. (UNI)
Contribution of BHEL in various Core Sectors
Power Transmission & Distribution Sectors

In the T&D sector, BHEL both a leading equipment-manufacture and a system-integrator. BHEL-manufacture T&D products have a proven track record in India and abroad. In the area of T&D systems, BHEL provides turnkey solution of utilities. Substations and shunt compensation installation set up by BHEL are in operation all over the country. EHV level series compensation schemes have been installed in KSEB, MSEB, MPSEB and POWERGRID networks. Complete HVDC systems and state-of-the-art Flexible AC Transmission systems (FACTS) can be delivered by BHEL. In the area of power distribution, BHEL provides turnkey solution for improving systems efficiency & reducing losses through RPM of sub-stations, SCADA and Metering Solutions, IT Solutions etc.
Industry Sector
Since its inception in 1982, the Industry Sector business has grown at an impressive rate and today, contributes significantly to BHEL turnover. BHEL, today supplies all major equipment for the industries: AC/Dc machine, alternators, centrifugal compressors, special reactor columns, heat exchangers, pressure vessels, gas turbine based captive co-generation and combined cycle power plants, DC power plants steam turbine and turbo generator for process industries, diesel engine based power plant, solar water heating system, solar photovoltaic systems, electrostatic precipitators, fabric filters, etc. BHEL also provide solution for water management system, coal & gas handling plants.
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Transportation sector
In the transportation field, BHEL product range covers: AC locomotive, AC/Dc dual-voltage locomotive, diesel-electric shunting locomotive, traction motors and transformers, traction electrics and control for AC,DC and dual voltage EMUs, diesel-electric multiple unit, diesel power car and diesel-electric locomotive, battery powered vehicles and solution for urban transportation system including electric trolley buses, LRT& MRTs. A high percentage of trains operated by Indian railways are equipped with traction equipment and controls manufactured and supplied by BHEL.
Human Resource Development Institute
BHEL has envisioned becoming "A World Class Engineering Enterprise committed to enhancing stakeholder value". Force behind realization of this vision and the source of our competitive advantage is the energy and ideas of our 44,000 strong highly skilled and motivated people. The Human Resource Development Institute situated in NOIDA, a cornerstone of BHEL learning Infrastructure, along with Advanced Technical Education Centre (ATEC) in Hyderabad and the Human Resource Development Centre at the manufacturing Units, through various organizational developmental efforts ensure that the prime resource of the organization the Human Capital is Always in a state of Readiness, to meet the dynamic challenges posed by a fast changing environment. It is their constant endeavor to take the HRD activities to the strategic level of becoming active partner to the (organizational) pursuits of achieving the organizational goals.
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The Heavy Electrical Equipment Plant (BHEL) located in Haridwar, is one of the major manufacturing plants of BHEL. The core business of BHEL includes design and manufacture of large steam and gas turbines, turbo generators, hydro turbines and generators, hydro turbines and generators, large AC/DC motors and so on. Heavy Electrical Equipment Plant, Hardwar of this Multi-unit corporation with 7467 strong highly skilled technicians, engineers, specialists and professional experts is the symbol of Indo Soviet and Indo German Collaboration. It is one of the four major manufacturing units of the BHEL. With turnover of 140697 lacs and PBT of Rs.22961 lacs BHEL added 3000 MW of power to the National grid during 2004-05. BHEL is engaged in the manufacture of Thermal and Nuclear Sets up to 1000MW, Hydro Sets up to HT Runner dia 6300mm, associated Apparatus Control gears, AC& DC Electrical machines and large size Gas Turbine of 60-200 MW. BHEL Hardwar contributes about 44% of Indias total installed capacity for power generation with total capacity of Thermal, Nuclear & Hydro Sets of over 45000MW currently working at a Plant Load Factor of 76% and Operational Availability of 86%. In spite of acute recession in economy, BHEL Hardwar received recent orders for Mejia-5&6, Sip at, Bhatinda, Chandrapura, Bakreshwar, Santaldih, Bhilai, Dholpur.
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HISTORICAL PROFILE:
The construction of heavy electrical equipment Plant commenced in Oct.1963after indosoviet technical co-operation agreement in Sept.1959The first product to roll out from the plant was an electric motor in January 1967.This was followed by first 100 MW Steam Turbine in Dec.1969and first 100MW Turbo Generator in August 1971.The plants break even was achieved in March 1974.BHEL went in for technical collaboration with M/s Siemens, Germany to undertake design and manufacture to large size thermal sets up to a unit rating of 1000 MW in the year 1976.First 200 MWTG set was commissioned at Obra in 1977.The continuum of technological advancement subsequently saw the commissioning of 500 MW TG Set in 1984 .The technical cooperation of Gas Turbine manufacture was also signed with M/s Siemens Germany. First 150 MW ISO rating gas Turbine was exported to Germany in Feb1995.Our 250 MW thermal set up at Dahanu Plant of BSES made a history by continuous operation for over 150 days and notching up a record plant load factor greater than 100%.
KEY COMPETITORS:
Power Sector Giant of the World viz. Siemens Germany, ABB, General electric of USA etc. Are the major competitors of BHEL. All these are the MNCs and enjoy huge financial and R&D backup.
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CORPORATE CITIZEN:
BHEL Hardwars Strategic plans and its policy & strategy are commensurate with BHEL Corporate / strategic Plan . As first PSU to adopt Corporate Planning as a process . Board meetings for long range development , BHEL has always guided other PSUs in their Corporate planning process .Board meeting , monthly Management Committee meetings, Annual Revenue Budget exercise , Mid term reviews , Apex TQ council reviews, Personnel Heads Meet, Quality Heads Meet , Technology Meets , Product committees meetings, InterUnit Quality Circle Meets etc. are the some of crore strengths of BHEL Corporations vast network.
KEY CUSTOMERS AND SUPPLIERS
BHELs customer profile ranges from State Electricity Boards, Government Power utilities like NTPC, NPC, and NHPC to IPPs like Reliance Energy. BHEL has also supplied Gas Turbine sets to overseas customers in Libya & Iraq. Power Sector Regions of BHEL are its key internal customers. In view of expected market scenario, BHEL has strategically decided that BHEL will concentrate on coal based Higher Rating Thermal Sets for domestic market to fulfill the countrys vision of adding 107,000 MW capacity to achieve Power on Demand by 2012. Our key customer, NTPC has drawn up plan for capacity addition of 20,000MW by 2012. BHEL has planned for execution of 34,619MW by 2012.
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FAVOURABLE BUSINESS ENVIRONMENT:
Power Sector has to grow over 10% annually to reach the 7% GDP level. Thus, the demand for thermal sets will remain high. Central Electricity Authority (CEA) is the guiding authority for Power Sector strategies in our country. BHEL representatives, along with representatives from various domestic customers, are an integral part of various committees formed by CEA. This enables us to guide and understand the market requirements and future challenges. To meet the 11th Five Year Plan target of adding 61,000MW, CEA has planned addition of 23 nos. standardized 500MW sets for faster Project execution and cost reduction. BHEL, including BHEL, is a part of this process. CEA has standardized for the next capacity of 800MW sets and has asked BHEL to prepare itself for manufacturing and supply in the 11th Five Year Plan. BHEL has tied up with Siemens for up gradation of technology. Further CEAs stress on R&M of ageing Power Plants is also providing business opportunity to unit.
MAJOR CHALLENGES:
The favorable business scenario has given the unit a major challenge of establishing Power Infrastructure of the country in close co-ordination with its key customers. BHEL has committed itself to meet the countrys requirements. To cater to the needs of higher rating sets of 800MW, BHEL has collaboration with Siemens.
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STRATEGIC CHALLENGES
Key Business Cycle time reduction State of the art technology Cost reduction Operational Timely delivery Material cost reduction Productivity improvement Effective utilization of machines Human Resource Motivation of employees Skill & Knowledge management
MAJOR MILE STONES
1975
1978 1982 1993 1995
Job Redesign concept launched for FIRST time in India. Well documented Suggestion Scheme launched. Launched Productivity Movement & Quality Circle. Concept ISO 9001 quality System. Adopted EFQM model of TQM for achieving Business Excellence.
1997
BHEL one of the 9 PSEs declared Navratna by Govt. of India .
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1997 1998
National Productivity Award for BHEL by the President of India. Certificate of Merit by National Productivity Council for Outstanding performance for 2nd consecutive year.
1998 1999
Accreditation of U stamp. Accreditation of R Stamp from National Board of Boiler and Pressure Vessel Inspector, USA.
1999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine Combustion Chambers. 1999 1999 1999 INSAAN Award for Excellence in Suggestion for 9th consecutive year. Launching of 5s concept. PCRI recognized as Environmental Lab by Haryana State Board for Prevention and Control of Pollution. 1999 2001 2003 2004 2005 2006 2007 Accreditation of ISO 14001-Enviornment management system CII Site Visit for CII-EXIM Business Excellence Award-2000 Top Management TQM Workshop at Rishikesh and HRDC INSAAN Award for excellence in Suggestion for 11th consecutive year Launching of QTM & RCA at BHEL Hardwar by CMD Launching of delivery Index, Turnover Index and Manufacturing Index JBE Workshop of Apex TQM Group at Tehri to evolve Business Policy 2008 Commendation for Significant Achievement in CIIEXIM Bank Award. 2009 Award given by Institute of Cost and Works Accountants of India for "Excellent Work in the field of Management Accounting and Cost Concepts".
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TOTAL QUALITY FOCUS:

To face the increased competition from MNCs (due to liberalization policy of Government) in early 90s and to enter European market we moved towards ISO 9000
Certification. Concept of Business Excellence through EFQM. Model was launched in entire BHEL on pilot scale in Oct.1995 In 1997 BHEL launched TQM in the entire Plant and since then Self-Assessment is done every year in September. Based on feedback Report of Assessment, critical success factors are identified. and TQ action plans are drawn. The philosophy of ISO 9001, TQM and ISO 14001 has been integrated BHEL Hardwar for ultimately achieving BUSINESS EXCELLENCE. BHEL. Hardwar plant is accredited for ISO 9001 and ISO 14001 and is now on March towards TQM.5-S was launched in March 1999 in a big way and now it has become a way of life in the organization. In 2000 BHEL applied for CII-EXIM Business excellence award and site visit was conducted Bu CII team in Seot.2000. CII feedback has gone a log way in carrying out further improvement plans and giving a structured thrust to TQM movement In July 2001, Units TQ Council reviewed the TQ Action Plans 2001-02 for its effectiveness and impact on accelerating the pace of improvement and consequent TQ Score. Executive Director laid the challenge of achieving the TQ score of 650.With an objective to bring awareness about he CII-EXIM Business Excellence Model amongst the Sr. Executives, the first Top Management TQM Workshops held at Rishikesh during oct.2001Executive Director who is TQ Assessor also, himself steered the Workshop with assistance from some experienced TQ Assessor of BHEL. It followed by second Top Management TQM Workshop steered again by Ed was held at HRDC on Oct29, 2001.Subsequantly the third Top Management TQM Workshop was held in Nov2001, where-in Sr. Counselor, CII deliberate the detail on Best practices of TATA STEEL-the winner of CII-EXIM Business Excellence Award 2000. Simultaneously ,TQ Assessors training program for the select group of young
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managers(to be developed as Think Tanks)was organized in Nov2001.To give further boost Apex Group was formed. Apex Group developed Roadmap to Business Excellence based on Criteria Linkage of CII-EXIM Business Model and the initiatives taken at Hardwar was drawn by the group and it was widely circulated amongst the employees through special issue of Hardwar Current in April 2002.It followed by JBE workshop of Apex TQM Group held at Tehri on June 30 and July 1,02 where-in following business policy and critical factors was evolved.
BUSINESS POLICY:
In-line with Companys Vision, Mission and values, we dedicate ourselves to
sustained
growth with increasing positive Economic Value Addition and Customer focused business leadership in the Power and Industry Sector and welfare of society.
CRITICAL SUCCESS FACTORS:
Strategic outsourcing of process components and assemblies. Focused drive for all round productivity through employee involvement. Focus on customer commitments. Net saving in direct material and BOI by15 crore Introduction of300-350MW sets and preparedness of 800MW thermal sets Capacity building of 5250MW manufacturing through implementation of modernization plan.
Bench marking.
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Improvement in internal customer- internal supplier satisfaction index by 20%. Contribution to the welfare of the society Effective Contract Management Technology Up gradation.
Excellence triangle for each Critical Success Factor is now being drawn comprising improvement projects. These projects will be centrally registered under On-line Central Registration system to be developed for it. While CSF Champion will take the total stock of position in the improvement projects undertaken in his respective CSF, progress of individual projects will be reviewed by Area TQ Council (ATQC) and Functional TQ Council (FTQC).
One of the major strengths of BHEL Haridwar is its free, open and consistent work culture for making continuous improvement evident from the participation of employees in Suggestions and Quality Circles. To recognize their efforts various productivity drives and competition are organized through out the year and Executive director awards the winners in the special Award Distribution Functions. National Award for Excellence in Suggestion Scheme for 11th consecutive year by INSSAN, National Award for excellence in Energy Conservation as an Energy Efficient unit by CII, CMDs Rolling Trophy for 3rd consecutive year Well known Forge Shop by Central Boiler Board etc. are some Vir Award 2001 15 employee honored with Prime Ministers shram award and 133 employees honored with Vishwakarma Rashtriya Puraskarduring 2004-05, which is a record in the organization.
The journey to excellence is unending .It is a continuous search with commitment and belongings. Sky indeed is not the limit for perfection. The transition has strongly experienced
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a silent internalization with a blend of commitment of the existing human resource for creating benchmarks for excellence. The emergence of role models and clear-cut driving force at the top provide an anvil to unleash the potential, which remain unexplored in search of Attitude to perform. The surge has started and is being communicated down the. BHEL today through TQM is on March towards excellence.
BHARAT HEAVY ELECTRICAL LIMITED is committed to provide safe and healthy working place to employees as an integral part of business performance through:
Compliance with applicable legislation and regulation and standards Designing all product and system safe to use and dispose off, recycable wherever technoeconomically feasible. Adopting approach based on elimination/reduction control for prevention of pollution and occupational health and safety risk in all operational activities. Appropriate structured training to employees and generate awareness amongst customer, contractor and supplier on environmental and OHS issues.
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NEEDS AND OBJECTIVES FOR THE RESEARCH TOPIC WORKING CAPITAL MANAGEMENT
Every business needs some amount of working capital. The needs for working capital, arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production, production and sales, and realization of cash. Thus, working capital is needed for the following purposes: To study the working capital management of the concern so as to analyze and interpret the inventory position of the BNEL. To assess the strength and weakness of the concern in various areas. To assess the overall efficiency and performance of the company. For the purchase of raw material, component and spares. To pay wages and salaries. To incur day- to- day expenses and overhead costs such as fuel, power and office expenses etc. To meet the selling costs such as packing, advertising etc. To provide credit facilities to the customers. To maintain the inventories of raw material, work in progress, store, spares, and finished stock
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MEANING OF WORKING CAPITAL
Working Capital is commonly defined as the difference between current assets and current liabilities. Efficient working capital management requires that firms should operate with some amount of working capital, the exact amount varying from firm to firm and depending, among other things on the nature of industry. Capital required for a business can be classified in two main categories viz.
1) Fixed capital, and 2) Working capital.
Every business needs funds for two purposes-for establishment and to carry out its day-to-day operations. Long-term funds are required to create production facilities. Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses, etc. These funds are known working Capital. In simple words, working capital refers to that part of the firms 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 these cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital.
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CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified on two basis: a) On the basis of Concept: On the basis of concept, working capital can be classified as, Gross Working Capital Net Working Capital
b) On the basis of Time: On the basis of time, working capital can be classified as, Permanent or Fixed Working Capital Temporary or Variable Working Capital
Gross Working Capital: The Gross Working Capital is the Capital invested in the total current assets of the enterprises. Current assets are those assets, which can be converted into cash within a short period, normally an accounting year.
Gross Working Capital = Total Current Assets
Net Working Capital: The term Net Working Capital refers to the excess of current assets over current liabilities, or say,
Net Working Capital = Current Assets Current Liabilities
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STRENGTH (S): Low cost producer of quality equipment due to cheap labor and fully depreciated plants. Flexible manufacturing set up. Entry barrier due to high replacement cost of its manufacturing facilities. Comprehensive turnkey experience from product design to commissioning.
WEAKNESSES (W): High working capital requirement due to its exposure to cash starved SEBs (State electricity boards) and High WIP. Inability to provide project financing.
OPPORTUNITIES (O): High-expected growth in power sectors (7000 MW/ p.a. needs to be added). High growth forecast in Indias index of industrial production would increase demand for industrial equipment such as motors and compressors.
THREATS (T): Technical suppliers are becoming competitors with the opening up of the Indian economy. Fall in global power equipment prices can affect profitability.
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RESEARCH METHODOLOGY
An exploratory research has been carried out to study the behavior of customers. To meet the research objective researches format, to collect information from the respondents was made and the information were collected through secondary data & the primary data. In the case of exploratory research, the focus is on the discovery ideas. In a business where sales have been declining for the past few months, the management may conduct a quick study to find out what could be the possible explanations the sales might have declined on account of a number of factors, such as the deterioration in the quality of the product, increased competition, inadequate or ineffective advertising, lack of efficient and trained salesmen or used to the wrong channels of distribution. In such a case an exploratory study may be conducted to find the most likely cause.
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Research Problem
To Assess the customers requirement regarding BHEL products & services. To evaluate the level of Customers satisfaction on BHEL products & services.
Research Objectives
The study has been designed to achieve the following objectives:
To assess the level of Customers satisfaction on BHEL product & services. To identify the customers requirement regarding telecom products & service. To compare BHEL with other company regard to their services, advertisement strategies, prices & sales ratio.
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RESEARCH DESIGN
The following methodology was adopted for the study purpose:
Type of research:
Descriptive and Analytical type of study was adopted while conducting the project. Sampling Design was taken by the researcher as the Research design. The major purpose of the study is to describe the state of affairs as it exists at present. The study was based on the facts or information already available, & analysis of this available information make a critical evaluation of the material.
Research Method/Technique:
In the project report the researcher used following techniques while conducting his study: Analysis of documents Survey Method: A market survey was done other companies. Interview (Personal): Both open and closed ended (structured and unstructured) questions were asked while taking interview from the executives.
Questionnaire (Structured): A structured designed comprehensive questionnaire was framed and pre-tested
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A) PRESCRIBED READING
To get insight of the product, the research was involved in important discussion with the relevant people. Researcher was also provided with Products catalogues, stickers.
C) SAMPLING DESIGN
Area of Sample: The area covered up in this survey was Haredwar.
Sampling unit: Sampling unit were the customers of Teliar Ganj Luker Ganj
Source list (Sampling Frame) Business class: 20 Professional class: 25 Service class: 25 (Government, Semi-Government &Private Sectors) Students: 30 Household Ladies: 10
Sample size: 100
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Sampling Procedure
On the representation basis, the sample may be probability sampling or it may be non- probability sampling.
Probability sampling: - Probability sampling is also known as Random sampling or Chance sampling. Under this sampling design, every item of the universe has an equal chance of inclusion in the sample. (i.e., once an item is selected for the sample, it cannot appear in the sample again.
Non Probability sampling: - Non probability sampling is also known by different names such as deliberate sample, purposive sampling and judgment sampling. In this type of sampling, items remain supreme.
Non-Probabilistic Sampling procedure is adopted for the Project
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D) DATA COLLECTION TECHNIQUES

Data for this study has been collected primary sources for the collection of data CONVENIENCE SAMPLING has Been used. 1. PRIMARY DATA: Primary data was collected with The help of:
(a)QUESTIONNAIRE METHOD: A Prepared questionnaire has been given to get the information. This method helps in collecting the inner view of the respondent and their suggestion about the product. (b)PERSONAL INTERVIEW: Personal Interview was conducted. A mixed type of questions was asked.
2.
SECONDERY DATA: Secondary data have collected through referred books, magazines, various articles, Internet etc.
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MEANING OF WORKING CAPITAL
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Working Capital is commonly defined as the difference between current assets and current liabilities. Efficient working capital management requires that firms should operate with some amount of working capital, the exact amount varying from firm to firm and depending, among other things on the nature of industry. Capital required for a business can be classified in two main categories viz.
1) Fixed capital, and 2) Working capital.
Every business needs funds for two purposes-for establishment and to carry out its day-to-day operations. Long-term funds are required to create production facilities. Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses, etc. These funds are known working Capital. In simple words, working capital refers to that part of the firms 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 these cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital.
CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified on two basis: -
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a) On the basis of Concept: On the basis of concept, working capital can be classified as, Gross Working Capital Net Working Capital
b) On the basis of Time: On the basis of time, working capital can be classified as, Permanent or Fixed Working Capital Temporary or Variable Working Capital
Gross Working Capital: The Gross Working Capital is the Capital invested in the total current assets of the enterprises. Current assets are those assets, which can be converted into cash within a short period, normally an accounting year.
Gross Working Capital = Total Current Assets
Net Working Capital: The term Net Working Capital refers to the excess of current assets over current liabilities, or say,
Net Working Capital = Current Assets Current Liabilities

Net Working Capital can be positive or negative. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities,
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which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets of the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits. The gross concept is sometime preferred to the concept of working capital for the following reasons: It enables the enterprise to provide correct amount of working capital at correct time. Every management is more interested in total current assets with which it has to operate then the sources from where it is made available. It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital. The concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for the following reasons:It is a qualitative concept, which indicates the firms ability to meet its operating expenses the short-term liabilities. It indicates the margin of protection available to short term creditors. It is an indicator of financial soundness of enterprise. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.
Permanent or Fixed Working Capital: Permanent or fixed capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm
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has to maintain a minimum level of current assets is called permanent or fixed working capital as this part of working capital is permanently blocked in current assets. As the business, grow the requirement of working capital also increases due to increase in current assets.
Temporary or Variable Working Capital: Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called the seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaign for conducting research etc. Temporary working capital differs from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in business.
Calculate current assets to fixed asset ratio

A firm needs current and fixed assets to support a particular level of output. However, to support the same level of output the firm can have different levels of current assets. As the firms output and sales increases, the need for current asset increases. Generally the current assets do not increase in direct proportion to output; current assets may increase at a decreasing rate with input. This relationship is based upon the notion that it takes a greater proportional investment in current assets when only a few units of output are produced than it does later on when the firm can use its current assets more efficiently. The level of the current assets can be measured by relating current assets to fixed assets. There are three policies:1) conservative current assets policy:
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CA/FA is higher. It implies greater liquidity and lower risk. 2) aggressive current assets policy: CA/FA is lower it implies higher risk and poor liquidity. 3) moderate current assets policy: CA/FA ratio falls in the middle of conservative and aggressive policies.
Estimating working capital needs
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1. Liquidity vs. Profitability: Risk Return Trade Off.
The firm would make just enough investment in current assets if it were possible to estimate working capital needs exactly. Under perfect certainty, current assets holdings would be at the minimum level. A larger investment in current assets under certainty would mean a low rate of return of investment for the firm, as excess investment in current assets will not earn enough return. A small invest in current assets, on the other hand would mean interrupted production and sales, because of frequent stock-cuts and inability to pay to creditors in time due to restrictive policy.
As it is not possible to estimate working capital needs accurately, the firm must decide about levels of current assets to be carried.
2. The Cost Trade Off: A different way of looking into the risk return trade off is in terms of the cost of maintaining a particular level of current assets. There are two types of cost involved:I. Cost of liquidity II. Cost of illiquidity
--If the firms level of current assets is very high, it has excessive liquidity. Its return on assets will be low, as funds tied up in idle cash and stocks earn nothing and high levels of debtors reduce profitability. Thus, the cost of liquidity increases with the level of current assets.
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--the cost of illiquidity is the cost of holding insufficient current assets. The firm will not be in a position to honor its obligations if it carries to little cash. This may force the firm to borrow at high rates of interests. This will also adversely affect the credit-worthiness of the firm and it will face difficulties in obtaining funds in the future. All this may force the firm into insolvency. Similarly, the low levels of stock will result in loss of sales and customers may shift to competitors. Also, low level of debtors may be due to right credit policy which would impair sales further. Thus the low level of current assets involves cost that increase as this level falls.
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Policies for financing current assets The following policies for financing current assets in BHEL, Hardwar:-
LONG TERM FINANCING:

The sources of long term financing include ordinary shares capital, preference share capital debentures, long term borrowings from financial institutions and reserves and surplus. The BHEL Haridwar manages its long term financing from capital reserve, share premium A/C, foreign project reserve, bonds redemption reserve and general reserve.
SHORT TERM FINANCING:

The short term financing is obtained for a period less than one year. It is arranged in advance from banks and other suppliers of short term finance include working capital funds from banks, public deposits, commercial paper, factoring of receivables etc.
The BHEL, Haridwar manages secured loans as:1) Loans and advances from banks. 2) Other loans and advances: (i) Debentures/bonds
(ii) Loans from State Govt. (iii) Loans from financial institutions(secured by pledge Of PSU bonds and bills accepted guaranteed by 3) Interest accrued and due on loans (a) From State Govt. banks)
(b) From financial institutions bonds and other (c) Packing credit
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The BHEL, Haridwar manages unsecured loans as:1) Public deposits 2) Short term loans and advances: (1) From banks (i) Commercial papers (2) From others (i) From companies From financial institutions 3) Other loans and advances From banks From others (i) From govt. of India
(ii) From state govt. (iii) From financial institutions (iv) From foreign financial institution (v) Post shipment credit exam bank (vi) Credit for assets taken on lease 4) Interest accrued and due on (a) Post shipment credit (b) Govt. credit (c) State Govt. loans (d) Credits for assets taken on lease (e) Financial institutions and others (f) Foreign financial institutions (g) Public deposits
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SPONTANEOUS FINANCING:Spontaneous financing refers to the automatic sources of short term funds arising in the normal course of a business. Trade Credit and outstanding expenses are examples of spontaneous financing. A firm is expected to utilize these sources of finances to the fullest extent. The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long term and short term sources of finances.
What should be the mix of short and long term sources in financing current assets?
Depending on the mix of short and long term financing, the approach followed by a company may be referred to as: 1. matching approach 2. conservative approach 3. aggressive approach
Matching approach
The firm can adopt a financial plan which matches the expected life of assets with the expected life of the source of funds raised to finance assets. Thus, a ten year loan may be raised to finance a plant with an expected life of ten year; stock of goods to be sold in thirty days may be financed with a thirty day commercial paper or a bank loan. The justification for the exact matching is that, since the purpose of financing is to pay for assets, the source of financing and the asset should be relinquished simultaneously. Using long term financing for short term assets is expensive as funds will not be utilized for the full period. Similarly,
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financing long term assets with short term financing is costly as well as inconvenient as arrangement for the new short term financing will have to be made on a continuing basis. When the firm follows matching approach (also known as hedging approach) long term financing will be used to finance fixed assets and permanent current assets and short term financing to finance temporary or variable current assets. How ever, it should be realized that exact matching is not possible because of the uncertainty about the expected lives of assets.
The firm fixed assets and permanent current assets are financed with long term funds and as the level of these assets in increases, the long term financing level also increases. The temporary or variable current assets are financed with short term funds and as their level increases, the level of short term financing also increases. Under matching plan, no short term financing will be used if the firm has a fixed current assets need only.
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Conservative approach
A firm in practice may adopt a conservative approach in financing its current and fixed assets. The financing policy of the firm is said to be conservative when it depends more on long term funds for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary current assets with long term financing. In the period when the firm has no need for temporary current assets, the idle long term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long term financing and, therefore, the firm has less risk of facing the problem of shortage of funds. The conservative financing policy is shown below. Note that when the firm has no temporary current assets, the long term funds released can be invested in marketable securities to build up the liquidity position of the firm.
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Aggressive Approach
A firm may be aggressive in financing its assets. An aggressive policy is said to be followed by the firm when it uses more short term financing than warranted by the matching plan. Under an aggressive policy, the firm finances a part of its permanent current assets with short term financing. Some extremely aggressive firms may even finance a part of their fixed assets with short term financing. The relatively more use of short term financing makes the firm more risky. The aggressive financing is illustrated in fig below.
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Importance of working capital
1. Time devoted to working capital management:The largest portion of financial manager's time is devoted to day to day internal operation the firm. This may be appropriately sum up under the heading "WORKING CAPITAL MANAGEMENT". 2. Investment in current assets:Current assets represent more than half of the total assets of a business firm. Because they represent largest investment and because this investment tends to relatively volatile, current assets are worthy for the financial manager's careful attention. 3. Importance for small firm:Current assets are similarly important for the financial manager's of small firm. Further small firm are relatively limited access to the long term markets, it must necessarily rely on the trade credit and short term bank loan, both of net effect on net working capital by increased current liabilities.
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FACTORS DETERMINING THE WORKING CAPITAL REQUIRMENT
1.
NATURE OF BUSINESS :-
The requirement of working capital is very limited in public utility undertaking such as Electricity, Water Supply and Railways because they offer cash sales only and supply services not products and no funds are tied up in inventories and receivables. On the other hand, the trading and financial firm requires less investment in fixed assets but have to invest large amounts in current assets. The manufacturing undertaking requires sizable amount of working capital along with fixed investments.
2.
PRODUCTION POLICY :-
The determination of working capital needs depends upon the production policy of the business. The demand for certain products is seasonal i.e.; such products are purchased in certain months of a year. For such industries, two types of production policy can be followed. Firstly they can produce the goods in the months of demand or secondly, they produce for the whole year. If the second alternative were followed, it would mean that until the time of demand finishes, product would have to be kept in stock. It would require additional working capital.
3.
LENGTH OF PRODUCTION CYCLE:-
The longer the manufacturing time, the raw material and other supplies have to be carried for a longer time in the process with progressive increment of labor and service costs before the final product is obtained. Therefore, working capital is directly proportional to the length of the manufacturing process.
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4.
RATE OF STOCK TURNOVER:-
There is an inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a higher rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.
5.
CREDIT POLICY:Credit policy affects the working capital requirements in two ways: (a) (b) Terms of credit allowed by customer to the firm, Terms of credit available to the firm.
A concern that purchases its requirements on credit and sells its product/services on cash requires lesser amount of working capital and vice-versa.
6. WORKING CAPITAL CYCLE :The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.
DEBTORS
CASH
FINISHED GOODS
RAW MATERIAL
WORK IN PROGRESS
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Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME .........and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales.
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7. RATE OF GROWTH AND EXPANSION OF BUSINESS: The larger size businesses require more permanent and variable working capital in comparison to small business. If a company is growing, its working capital requirements will also go on increasing. Thus, the growing concerns require more working capital as compared to the stable industries.
8. SEASONAL VARIATION: Generally, during the busy season, a firm requires larger working capital than in the slack season.
9. BUSINESS FLUCTUATION: In period of boom, when the business is prosperous, there is a need for larger amount of working capital due to rise in sales, rise in prices, optimistic expansion of business etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtors and the firm may have a large amount of working capital idle.
10. EARNING CAPACITY AND DIVIND POLICY:Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also effects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profit needs more working capital than the firms that retain larger part of its profits and does not pay so high rate of cash dividend.
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11. PRICE LEVEL CHANGES: Price level changes also affect working capital needs. If the prices of different goods increase, to maintain same level of production, more working capital is needed.
12. AVAILABILITY OF RAW MATERIAL: Availability of raw material on the continuous basis affects the requirement of working capital. There are certain types of raw materials, which are not available regularly. In such a situation firm requires greater working capital to meet the requirements of production. Some raw materials are available in particular season only for example wool, cotton, oil seeds, etc. They have to keep greater working capital.
13.
MAGNITUDE OF PROFIT:-
Magnitude of profit is different for different businesses. Nature of product, control on the market and ability of managers etc. determine the quantum of profit. If the profit margin is high, it will help to arrange funds internally, which will also increase the working capital.
14.
OTHER FACTOR: -
Operating efficiency a) Management ability b) Irregularities of supply c) Import policy d) Asset structure e) Importance of labor
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MANAGEMENT OF WORKING CAPITAL
Management of working capital means management of all aspects of current assets and current liabilities. Basically, Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that exist between them. Financial management should determine the quantum and structure of current assets. It should also see that current assets are financed from the proper sources. Management should also see that current liabilities are paid in time, while managing the working capital. The main objective of working capital management is to manage current assets and current liabilities in a manner so that working capital can be kept in a satisfactory level. It is also taken in to account that the working capital should be neither excessive nor inadequate. The amount of current assets should be adequate to pay the current liabilities in time and adequate security margin can be maintained. Accordingly, proper balance among the different constituents of current assets is maintained so that no current has more than require amount invested in it. Management of working capital affects profitability, risk and liquidity of the business significantly. Management should, therefore, maintain proper balance among these factors while managing working capital. If the quantum of working capital is more, it will increase liquidity, but decrease profitability and risk. If working capital relatively declines, it will decrease liquidity but cause an increase in profitability and risk. If business wants to earn more profit, it will have to bear higher risk. Risk means inability of the firm to pay current liabilities in time.
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Working capital management is three dimensional in nature: -
1) It concerned with the formulation. It of policies with regard to profitability, liquidity and risk. 2) It is concerned with the decisions about the composition and level of current assets. 3) It is concerned with the decisions about the composition and level of current liabilities.
Policies regarding to Profitability,
Liquidity and Risk.
Composition of level of Current assets
Composition of level of Current liabilities
Dimensions of working capital. EXISTING SYSTEM OF WORKING CAPITAL IN BHEL, HARDWAR

To maintain the optimum level of working capital in such a big organization is really a challenging task. The three basic components that determine the level of working capital in any organization are: Cash Debtors B/R Inventory.
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On the basis of our research in the BHEL Haridwar, these basic components are managed in the organisation, in the under mentioned manner.
TABLE OF WORKING CAPITAL (Rs. in Lacs)

PARTICULARS YEARS 2006-07 2004-05 ACTUAL 2005-06 ACTUA ACTUAL L Current Assets Debtors Inventory Cash Loan and Advaces Total Current Liabilities Sundry Creditors Adv.from Customers Other liabilities Provisions Total Net Working Capital Turnover Working Capital to 256(D) Turnover 98(D) 67(D) 69(D) 34(D) 15701 31634 1687 19129 68151 24794 97100 15753 26695 826 17002 60276 40327 81498 18630 27107 2665 15963 64365 50463 71799 19718 33275 1966 16682 71641 29320 108811 15562 29360 1980 14473 14473 18668 101335 16674 61889 12370 19990 110923 28745 54076 47369 17 13367 114829 50904 43461 23 6573 100962 41417 32370 527 5730 80044 55866 39214 10 5581 100671 48552 58976 9 5299 112836 64709 69798 9 5152 139668 ACTUAL ACTUAL PROV. 2007-08 2008-9 2009-010
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Working capital to turnover=net working capital/turnover*365 D stands for no. of days
Graphical presentation of current assets of the company
80000
70000 60000 50000 40000 30000 20000 10000
Loan and advance Debtors Inventory Cash
0
200102 200203 200607 200708 200809 2009010
Focusing on liquidity management
Net working capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business.
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In order to protect their interests, short-term creditors always like a company to maintain current assets at a higher level than current liabilities. It is a conventional rule to maintain the level of current assets twice the level of current liabilities. However, the quality of current assets should be considered in determining the level of current assets vis--vis current liabilities. A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound. A negative working capital means a negative liquidity and may prove to be harmful for the companys reputation. Excessive liquidity is also bad. It may be due to mismanagement of current assets. Therefore prompt and timely action should be taken by management to improve and correct imbalances in the liquidity position of the firm. Net working capital concept also covers the question of judicious mix of long-tar and shortterm funds for financing current assets. For every firm there is a minimum amount of net working capital which is permanent. Therefore a portion of the working capital should be financed with the permanent sources of funds such as equity, share capital, debentures, longterm debt, preference share capital or retained earnings. Management must decide the extent to which current assets should be financed with equity capital or borrowed capital.
Balanced working capital position
The firm should maintain a sound working capital position it should have adequate working capital to run its business operations. Both excessive and inadequate working capital positions are dangerous from the firms point of view. Excessive working capital means holding costs and idle funds which earn no profits for the firm paucity of working capital not only impairs the firms profitability but also results in production interruptions and inefficiencies and sales disruptions.
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The dangers of excessive working capital are as follows: 1. It results in unnecessary accumulation of inventories thus chances of inventory
mishandling, waste, theft and losses increase. 2. It is an indication of defective credit policy and slack collection period. Consequently,
higher incidence of bad debts results, which adversely affects profits. 3. Excessive working capital makes management complacent which degenerates into
managerial inefficiency.
4.
Tendencies of accumulating inventories tend to make speculative profits grow. This
may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.
Inadequate working capital is also bad and has the following dangers: 1. It stagnates growth. It becomes difficult for the firm to undertake profitable project for non-availability of working capital funds. 2. It becomes difficult to implement operating plans and achieve the firms profit target.
3. Operating inefficiencies creep in when it becomes difficult even to meet day to day commitments. 4. Fixed are not efficiently utilized for the lack of working capital funds. Thus the firms profitability would deteriorate. 5. paucity of working capital funds render the firm unable to avail attractive credit opportunities etc, 6. The firm loses its reputation when it is not in a position to honor its short term obligations as a result the firm faces tight credit terms.
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An enlightened management should, therefore, maintain the right amount of working capital on the continuous basis. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by judgment, should be used to predict the quantum of working capital needed at different time periods.
A firms net working capital position is not only important as an index of liquidity but it is also used as a measure of the firms risk. In this regard means chances of the firm being unable to meet its obligations on due date. The lender considers a positive networking gas a measure of safety. All other things being equal, the more the networking capital a firm has, the less likely that it will default in meeting its current financial obligations. Lenders such as commercial banks insist that the firm should maintain a minimum net working capital position.
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Graphical Representaion Of Working Capital In BHEL
60000 50463 50000 40000 30000 20000 10000 29320 18668 18475 28745
WORKING CAPITAL (RS. in Lacs)
13446
0
2004-05 2005-06 2006-05 2007-08 2008-09 2009-10
Interpretation: If we see from the above table, it can be clearly seen that net working capital has continuously come down to 13446 Lacs in 2008-09 from 50463Lacs in 2004-05.But in 200708 it is increased but it is good for the company because of its turnover is also increased. Moreover if we compare no. of days of net working capital to turnover, it has also comes down to 99 days from 256 day in previous years.
This improvement does not come accidentally but considerable measures have been taken to control working capital in organization. There is direct relation of working capital WORKING CAPITAL MANAGEMENT 68
requirement with Debtors and Inventory. Above data indicates that company has taken certain strategic measures to manage its Debtor and Inventory. Following are the measures: Special task forces were built up from debtors and Inventory Management at senior level. Regular follow up at senior level. A close contact with the customers. Proper age- wise analysis of the debtors. Proper classification between collectible Debtors and bad debts. Bad debts written off as early as possible after making all efforts for its collection. Product cycle minimized so that cost of the product does not become high to the agreed amount because of time factor. Formation of specific group in each area to identify the wastage elements and seek participation of all. Formulation of action plan to eliminate/minimize wastage. Identification of corrective actions and their implementation.
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INTRODUCTION
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It is very difficult for the organization to sell always on cash basis in todays competitive market. In almost every business, we have to sell on credit basis.
The basic objective of management of sundry debtor is to optimize the return on investment on this asset. It is obvious that if there are large amounts tied up in sundry debtors, working capital requirement would be high and consequently interest charges will be high. In such cases, the bad debts and cost of collection of debts would be high. On the other hand if the credit policy is very tight, investment in sundry debtors is low but the sale may be restricted, since the competitors may offer more liberal credit term.
We have limited resources and therefore every resource has its own opportunity cost. Therefore, the management of sundry debtors is an important issue and requires proper policies and efficient execution of such policies.
Debtors and cost of debtors have direct relation; cost will increase due to increase in debtors and vice versa. It depends on the credit sale of concern and credit period (collection period) allowed to customer. It is in interest of customer to pay as late as possible, and company whom made sales, would like to collect their debtor as early as possible. There is a conflict between the two aspects.
Debtor management is the process of finding the equilibrium at which company agrees to receive its payment without hampering or having any adverse effect on its sales and customer agree to pay at their economical buying concept.
Sundry debtor level depends on two measure issues: -
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One is volume of credit sales and another is credit period allowed to customer. It is the essence of every business that to sale on credit and allow credit period to the customer in such a competitive market, following factors may be considered before allowing credit period to the customer: -
Nature of the product Credit worthiness of the customer, which varies from customer to customer. Quantum of advance received from customers Credit policy of company, say number of days allowed to customer for payment to the customers.
Cost of debtors Manufacturing cycle time of the product etc.
Debtors Management: -
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There are mainly three aspects of Management of Debtors
1. Credit Policy: -
The credit policy is to determine. It involves a trade off between the profits on additional sale that arises due to credit being extended on one hand and the cost of carrying those debtors and bad debts losses on the other.
2. Credit Analysis:-
This requires determining as how risky is to advance credit to a particular customer.
3. Control of Receivables: -
This requires to the firm to follow up debtors and decide about a suitable credit collection policy. It involves both lying down of credit policy and execution of such policies.
There is a cost of maintaining receivables, which comprises Cost of: -
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The company require additional funds as resources are blocked in receivables which involves a cost in the form of interest (loan fund) or opportunity cost (own fund).
Administrative cost which includes record keeping, investigation of credit worthiness etc. Collection cost. Defaulting cost or Bad debts.
DEBTORS MANAGEMENT IN BHEL - HARIDWAR

B.H.E.L Haridwar is engaged in the manufacturing business of heavy electrical equipments, where cycle time of the product is 18- 24 months and most of the contracts take approximately 3-5 years to complete. Customers of B.H.E.L. Hardwar are broadly divided into following categories: -
State electricity board Power Project Public Sector Under takings Railways Government Departments Private Sectors Exports
In most of the contracts, payments of B.H.E.L. Hardwar are made in following stages:
Payment Terms
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Advance from customers. At the time of dispatch of goods. At the time of MRC (material receipt at site) Deferred payment after commissioning of project with certain test. However, the above terms may vary from contract to contract. Based on the above payment terms, B.H.E.L. Hardwar categories their debtors into two parts: Collectible debtors Deferred debtors
Collectible debtors are those, which are due for payment as on now and there is no credit time allowed to the customer say payment at the time of dispatch.
Deferred debtors are those, which will become due on the occurrence of a particular event such as issuing of MRC (material Receipt Certificate) from customer or completion of contract with certain tests etc.
ANALYSIS OF DEBTORS MANAGEMENT WITH THE HELP OF CERTAIN RATIOS: WORKING CAPITAL MANAGEMENT 75
DEBTORS TURN OVER RATIO:-
Debtors turn over ratio establishes a relationship between net credit sales and average trade debtors. The major objective to calculate ratio is to determine the efficiency with which the trade debtors are managed. We can easily calculate this ratio with the help of the following formula:
Debtors turn over ratio =Net credit sales / average debtor
YEAR
2004-05 ACTUAL
2005-06 ACTUAL 108811 52490
2006-07
2007-08
2008-09
2009-10
ACTUAL ACTUAL ACTUAL ACTUAL. 101336 46160 97432 48642 140697 52200 164059 56630
Turnover AVERAGE Debtors Ratio
71799 55713
1.3
2.1
2.2
2.0
2.7 (Rs. in Lacs)
2.9
Graphical presentation of debtor turnover ratio
76
3 2.5 2 1.5 1 0.5 0 1.3 2.1 2.2 2
2.7
2.9
DEBTOR TURNOVER RATIO
2004- 2005- 2006- 2007- 2008- 200905 06 07 08 09 10

YEARS
INTERPRETATION:
It indicates the speed with which the debtors turnover an average each year. In general a high ratio indicates the shorter collection period which implies prompt payments by debtors and a low ratio indicates a long collection period which implies delayed payment by debtors. So we can see from the graph and the table above that in the last five years the company is trying to improve the debtors turnover ratio. In 2004-05 it is the least i.e. 1.3 but it again started improving in 2005-06 2.1:1, in 2006-07 2.2:1, in 2008-09 2:1 in 2009-09 2.7:1and in 2009-10 2.9:1. It depicts that how efficiently debtors are collected.
77
AVERAGE COLLECTION PERIOD:-
AVERAGE COLLECTION PERIOD =
365 Debtor's Turnover
Year
2004-05 ACTUAL
2005-06
2006-07
2007-08
2008-09
2009-10
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL. 108811 52490 2.1 173 101336 46160 2.2 166 97432 48642 2.0 183 140697 52200 2.7 135 164059 33752 4.86 130
Turnover Debtors Ratio Days Inventory
71799 55713 1.3 of 281
78
Graphical representation of average collection period
DEBTOR COLLECTION PERIOD
300 250 200 150 100 50 0
281 173 166 183
NO. OF DAYS
135 130
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
Interpretation
We can check the managerial efficiency with the help of this ratio by the comparison of average collection period and credit policy of the company form the table we can clearly see that in the year 2004-05 to 281 days , but in year 2008-09 & 2009-10 there was a decrease and it falls down to 135 & 130 respectively . This indicates that the company was following a very liberal policy in 2004-05 & 2005-06 but it improved in the succeeding years. If the days are increasing it indicates that the bad debts are also increasing. It is difficult to lay down a standard collection period; it depends upon the nature of the business. As a general rule the receivables should not exceed 4 to 5 months of credit sales.
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STEPS INVOLVED IN MANAGEMENT OF DEBTS: -
The following steps are involved in debtors management There should a close contact with the customers. There should be proper age- wise analysis of the debtors. There should be proper classification between collectible Debtors and bad debts. Bad debts should be written of as early as possible after making all efforts for its collection. Product cycle should be minimized so that cost of the product should not become high to the agreed amount because of time factor. There must be a provision of discount for early payment of debts by the customers. Regular checking of the records of the debtors is essential so as to analysis the current position of that organization. While making a policy, regarding the debtors the point should be considered that customer having excellent past record, follow the lenient policy is adopted for doubtful customers Manage the working capital according to need as recovering the debt from customer as early as possible while, get extension of payment of dues on the company of others as suppliers of raw material as late as possible. .
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CREDIT GRANTING DECISIONS: -
CREDIT GRANTING DECISIONS
NO CREDIT
GRANT CREDIT
81
82
Introduction
Inventories constitute most significant part of current assets, in most of the companies in India. To maintain a large size of inventory, a considerable amount of fund is required. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g.10% to 20%, without any adverse effect on production and sales, by using inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on a companys profitability.
There are at least three motives for holding inventories: 1- To facilitates smooth production and sales operation (transaction motive). 2- To guards against the risk of unpredictable changes in usage rate and delivery time (precautionary motive). 3- To make advantage of price fluctuations (speculative motive).
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OBJECTIVE: Inventories represent investment of a firms funds. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider: (a) (b) (c) Costs, Return, and Risk factors in establishing its inventory policy.
Two types of costs are involved in the inventory maintenance:
1-Ordering costs: - Requisition, placing of order, transportation, and staff services. Ordering costs are fixed per order size increases.
2-Carrying costs: - Warehousing, handling, clerical and staff services, insurance and taxes. Carrying cost increases. The firm should minimize the total cost (ordering cost + carrying cost). The economic order quantity (EOQ) of inventory will occur at a point where the total cost is minimum. The following formula can be used to determine EOQ:
EOQ = (2AO/C) ^1/2 Where, A= Annual requirement. O= Per order cost. C= Per unit carrying cost.
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WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH INVENTORY?
The inventory level at which the firm places order to replenish inventory is called reorder point. It depends on (a) the lead time and (b) the usage rate. Under perfect certainty about the usage rate, the instantaneous delivery (i.e. zero lead time0, the reorder point will be equal to:
Lead-time*Usage rate + Safety stock.
The firm should strike a trade-off between the marginal rate of return and marginal cost of funds to determine the level of safety stock.
INVENTORY ANALYSIS Altogether the company deals with stock of thousands of items raising a serious problem of how one can keep control of track of all items also, where it is necessary to have some extent of control on each and every item. Different types of analysis each having its own advantages and purpose help in bringing a particular solution to the control of inventory. The most important of all such analysis is ABC analysis. The other one -
ABC analysis VED analysis SDT analysis HML analysis FSN analysis
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ABC ANALYSIS
A formal way of classifying inventory items so that important ones will be given the most attention. Through this analysis the professional inventory manager will concentrate his efforts on where they will yield the greatest rewards. The ABC of ABC analysis refers to the classes, A, B and c into which the inventory is divided. (A) is high value items whose rupee volume typically account for 75-80% of the value of total inventory while representing only 10-15% of the inventory items. (B) Class is lesser value items whose rupee volume accounts for 15-20% of the value of inventory, while representing 15-20% of the inventory items. (C) Class items are low value items whose volume accounts for 10-15% of the inventory values but 75-80% of the inventory items. The same degree of control is not justified for all the three classes of items. Class [A] requires the greatest attention and class [C] items require least attention. Class [C] items need no special calculations since they represent a low inventory investment. The order might be placed once a year and periodically reviewed once a year, class [B] items are paid more attention then, proper CODs are developed and semi annual review of variables must be done. Class [A] items needs direct attention to the inventory items, EOQ's are to be developed each time an order is placed. The major concern of an ABC classification is to give direct attention to the inventory items that represent the largest amount of expenditure. If inventory levels can be reduced for claim of items it result in a significant reduction in inventory investment.
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ABC INVENTORY CLASSIFICATION
Percentage items 10 15 75
of inventory Category classes A B C
of
value
of
the
total
inventory(rupee volume in %) 75 15 10
VED ANALYSIS
This analysis specially pertains to the classification of maintenance of spares denoting the essentiality of blocking spares.
V - Stands for vital - items when out of stock or when not readily available, completely brings the production a halt.
E - Is for essential - items without which we can temporarily loose our production or disclosure of production occurs with in a week.
D - Denotes desirable items - all other items, which are necessary but do not cause any immediate effect on production.
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S.D.E. ANALYSIS
For developing countries and especially where certain items are in scarce supply. This analysis is very useful.
S - Refers to scarce items, especially imported items and those which are very much in short supply.
D - Are difficult items which are available in market but not easily available?
E - Items are those which are easily available, most local items.
HML ANALYSIS The cost per item is considered for this analysis (H) High cost items (M) Medium cost items (L) Low cost items Help in bringing controls over consumption at departments level and for storage.
FSN ANALYSIS Materials are classified as (F) Fast moving (S) Slow moving and (N) Non moving items
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The non-moving items are of great importance. It is found that many companies maintain huge stock of non-moving items and the number of such items running is thousands. Resulting of non-moving items is to be made to determine where they could be used or to be disclosed off. The fast and slow moving classification helps in arrangement of stocks in stores and their distribution handling methods. A manufacturing concern is sure to collapse out, if an adequate supply of raw material, process or cash to meet the wage bill, or capacity to wait for the market for its finished products, or commercial enterprises or merchandise to sell its vitally good is finished. Working capital thus is the lifeblood and controlling nerve center of a business. The adequacy of working capital contributes a lot to, raising the standing of a corporation because of better items of goods' purchased reduces the cost of production, on account of the receipt of cash discounts, favorable rates of interest on bank loans, etc of company. A sufficient working capital is always in a position to take the advantage of any favorable opportunity either to purchase raw materials or to execute a special order or to wait for better market position in the general market of the mgt. Of a corporation is enhanced by its financial soundness. The ability to meet all reasonable demands for cash inordinate delay is a great psychological factor to improve the all round efficiency of the busy and create self-confidence in the press at the helm of affairs in the company. During slump the demand for Working Capital instead of coming down shoot up of good amount is coated up in the inventories and book debts. Concerns having sample resources can side over that period of depression.
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FUNCTION OF INVENTORY CONTROL
Functions to be performed in the field of Inventory Control are: 1 2 3 4 5 6 7 Setting up norms for carrying Inventory. Determining what items to be stocked. Setting rules for Inventory replenishments. Receiving, storing and issuing inventory items as needed. Maintaining records of inventory quantities and values. Identifying and deposing of slow moving, non-moving, obsolete or damage inventories. Furnishing summary information on inventory position for control purposes.
Locations of position responsible for performing each of these functions in organization structure greatly vary from company to company. In BHEL Hardwar determination of product material or direct work order material (what?) to be carried in Inventory is more or less automatic result of product design formulation and is given in material forecast for a work order. Indirect materials consumed in manufacturing
process such as electrodes, brazing alloys, tooling etc. are usually given by process engineering or at times by design departments. Balance great bulk of indirect materials is made up of repair parts and general supplies. Responsibility for specific (what?) items to be carried in inventory rests with Works Engineering. With respect to raw materials and purchased parts, responsibility for determining (when?) and how much to buy is a sign to relevant product manufacturing i.e. production planning and material planning groups. However a strict budgetary control and allocation to specific work order control on high value items is exercised by Inventory control
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department organized separately under Material Management. Purchase department attached to manufacturing department determines (where?) to buy. Determination of indirect material (when?) and how much to buy and (where?), is done by central group under Material Management by consolidating requirements of all sections and while looking at consumption trends over a No of Years. Again a strict budgetary control and control on high value items for their allocation is exercised by Inventory control group.
Receiving and storing is done by Central Stores CSX under Material Management Department. Issuing Inventory is done by CSX on demand from manufacturing and is controlled by Material Planning. Again some on Line checks are proposed to be introduced at rising of Store Issue voucher stage itself, for high value items so that induction is controlled strictly as per requirement of production schedule based on lead time for manufacture to keep WIP inventory under control.
Records of Inventory are maintained on a main frame computer centrally arranged having shared access from all functions for their specific use.
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Inventory Record Keeping and Related Procedures
How well Inventory records are maintained has a major bearing on the effectiveness of Inventory control program. Mostly information recorded in B.H.E.L. system is: Name of the part or material Short description Identifying No called Material code Unit of measurement Location in store (custody) Bin no. Opening, received, issue, closing quantity and value.
These records are maintained in an online system on main frame computer user departments have shared access for posting and retrieval of information. There is a system for reserving specific items as customer specific, which is done by tagging on the item. Posting of withdrawals or issue from inventory is done on specific authorization by a document called Store Issue voucher.
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INVENTORY MANAGEMENT IN BHEL

BHEL produces long production cycle items against the firm orders from customers. Because of this as well as sizeable imported raw materials and compulsory bulk purchase of items like steel and copper in line with availability from SAIL and MMTC, the company has to carry high level of inventories.
RS/LACS
PARTICULARS 2004-05 ACT. Raw Material & 9016 components Material with 143 fabricators Stores &spares Material in transit 2756 2718 2728 2866 1300 2333 1466 931 2092 3819 2603 1594 3716 2181 1594 3716 2181 2005-06 ACT. 10012 152 2006-07 ACT. 7639 99 2007-08 ACT. 5338 155 2008-09 ACT. 10469 155 2009-10 ACT. 10469 105
Finished goods at 1050 plant W.I.P Transfer in transit Total Turnover 30833 852 47368 71799
25121 1281 43460 108811 45414 2.4
18488 1413 32370 101336 37915 2.7
23699 1508 39214 97432 35792 2.7
38585 2326 58976 140697 49095 2.9
38585 2326 58976 164059 33752 4.8
Average inventory 42267 Inventory turnover Days of inventory 214 holding to 1.7
152
135
135
126
120
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Inventory Turnover Ratio = Sales / Average Inventory Days of Inventory Holding =365 / inventory Turnover Ratio
DAYS OF INVENTORY HOLDING
250 200 150 100 50 0
NO. OF DAYS
214 152 135 135 126 120

Days of inventory holding
2004- 2005- 2006- 2007- 2008- 200905 06 07 08 09 10

YEARS
Graphical Representation of Days of Inventory Holding
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INTERPRETRATION
If we see from the above table that the days of inventory holding in the year 2005-06 has come down to 152 days from 214days in the previous year. In spite of increase in turnover i.e. 108811 in 2002-03 from 71799 in the year 2001-02the days of inventory holding decreases. This indicates that the company is using effective strategy to bring down its inventory level. This makes very less investment in inventory. It is in the interest of every organization to minimize its inventory level.
Following is the process through which the company can achieve the optimum inventory level.
STANDARD INVENTORY LEVEL
TAKING ACTUAL INVENTORY LEVEL
COMPARISION OF ACTUAL WITH STANDARD
TAKE CORRECTIVE ACTIONS
ANALYSING REASON OF VARIATION/DEVIATION
VARIATION/ DEVIATION
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NEED OF INVENTORY MANAGEMENT
Stiff competition, globalization of trade and liberalization. Achieving, increasing and positive EVA. Cost reduction. Energy conservation. Conservation of natural resources. Better, work environment. Improved health and safety. Enhanced public image.
Graph of inventory in BHEL
70000 60000 50000 40000 30000 20000 10000 0 2004- 2005- 2006- 2007- 2008- 200905 06 07 08 09 10
Inventory in BHEL
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Interpretation
By the graphical representation, we can easily understand that the level of inventory is coming down but in 2009-10 it increases due to large amount of raw material .It comes down because company takes some effective measures to control the level of inventory. Those steps are following steps to control its inventory: -
STRATEGIES/MEASURES
Formation of specific group in each area to identify the wastage elements and seek participation of all. Identification of wastage. Formulation of action plan to eliminate/minimize wastage. Review of status. Identification of corrective actions and their implementation. Highlighting the gains.
Suggestion: After analyzing the steps taken by the company there are some suggestions to manage the Inventory There should proper analysis of requirement of raw material. Order should be placed according to the lead-time. Wastage should be avoided. There should be proper coordination between the Inventory Department and Production Department
97
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MANAGEMENT OF CASH
It is the duty of the finance manager to provide adequate cash to all segments of the organization. At the same time, he /she has also to ensure that no funds are block in idle cash as this will involve cost in terms of interest to the concern. A sound cash management scheme has to maintain the twin objective of liquidity and cost.
Meaning of cash management

The term cash management refers to the management of cash and near cash assets while cash includes coins, currency notes, cheques, bank drafts, and the demand deposits, the near cash assets include marketable securities and time deposits with banks. Such securities and deposits are easily convertible into cash.
MOTIVES FOR HOLDING CASH

In spite of the fact that cash does not earn any substantial return for the business, it is held by the concern with the following motives. 1. Transaction motive. A Company enters a variety of business transactions resulting both
inflow and outflow of cash; at times the cash outflow exceed the cash inflow. In order to meet the business obligations in such situation, it is necessary to maintain adequate cash balance. Thus, a firm with the motive of making routine business payments maintains cash balance. 2. Precautionary motive: A firm holds cash balance to meet sudden cash needs arising out of unexpected contingencies such as floods, strikes, obsolesces; sharp increase in prices of raw materials, presentation of bills for payment earlier than expected date more amount of cash will be kept by the firm if there is more possibility of such contingencies.
99
3. Speculative motive: BHEL also keeps cash balance to take advantage of unexpected business opportunities. Such motive is there of speculative nature. 4. Compensation motive. Banks provide certain services to their customers free of charge.
So they usually require the customers to keep minimum cash balance with them which enables them to earn interest and compensate for the free services rendered. Reasons of cash management: Cash management involves the following four basic problems. 1. Controlling level of cash. One of the basic objectives of cash management is to minimize the level of cash balances with the firm. This objective is sought to be achieved by means of the following: i) Preparing cash budget. Cash budget is the most important device for planning and controlling the use of cash. It involves the future receipts and payments of the firm. On the basis of this information the finance manager can determine the future cash needs of the firm.
ii)
Providing for unpredictable discrepancies. Cash budget shows discrepancies
between cash receipts and payments on the basis of normal business activities.
iii) Availability of alternative source of funds: a firm may need not keep large cash balance. If it has arrangements with banks for borrowing money in times of emergencies.
1.
Controlling of cash inflow: in order to prevent fraudulent diversion of cash receipt and
speeding up collections of cash, an adequate control on cash inflow is necessary. A properly installed internal check system can, to a great extent, minimize the possibility of fraudulent
100
diversion of cash. Speedier collection of cash can be made possible by adoption of the following two techniques:
i)
Concentration banking system: it is a system of decentralizing collection of account
receivables. According to this system, BHELs branch
ii)
Offices are authorized to collect the payment from the customers, and deposit in the
local bank accounts. This system facilities fast movement of funds. This system is good in case of the firms having their spread over a large area.
ii) Lock box system: This system is more popular in the U.S.A. and is further step in
speeding up collection of cash. This system has been devised to element delay arising in cash of the concentration banking system on account of a time gap between actual receipt of cheques by the regional collection centers and its deposits in the local bank account. Under this system BHEL hires a post office box and instruct its customers for there remits to the box. It also reduces the chances of frauds in the cash collection process and controls the cash inflows better. In order to avoid the unnecessary pockets of idle funds, the company should maintain minimum number of bank accounts. 2. Controlling outflows of cash: - an efficient control over cash outflows is equally important for conserving cash and reducing financial requirements. Control over cash outflows signifies slow disbursement. in order to control the outflows of cash efficiently, a firm should keep in view the following considerations: i) Centralized system for cash payments: should be followed as compared to decentralized system in cash of collections. All payments should be made from a single control account, i.e., from the central
101
ii) Office of the company. However, the local office of the company may pay local expenses. iii) Payment should be made on the due dates, neither before nor after. The company should neither lose cash discount nor its prestige on account of delayed payments. The company should, there fore, made payments within the terms offered by the suppliers. iv) Playing float, technique should be used by the company for maximizing the availability of funds. The term float means the account tied up in checks which have been issued by BHEL but not have been yet been presented for payment by the creditors. As a result of a time lag between issue of a cheque and its actual presentation, the actual bank balance of a firm may be more than the balance shown in the books. The difference is called payment of float. The longer the float period the greater would be the benefit of the firm.
102
TOOLS OF CASH CONTROL
1. Cash Budget: It is the most significant tool of controlling the use of cash. It provides a comparison between actual and budgeted cash receipts and disbursements locating the points of deviations, if any. The financial manager, after ascertaining the reasons for deviations between the actual and budgeted figures, can take the necessary action to remove.
2. Inflows and outflows of cash: in order to check the change in cash position of the firm from one period to another, a cash flow statement is prepared. It helps management in controlling inflows and outflows of cash.
3. Ratio analysis: Ratio analysis is also an important tool of cash control. Different financial ratios are used for this purpose. These ratios include current ratio, liquidity ratio, receivables turnover ratio, and inventory turnover ratio and cash position ratios.
103
ANALYSIS OF CASH MANAGEMENT WITH THE HELP OF CERTAIN RATIOS
CURRENT RATIO:-
It is the best ratio to find relationship between the current assets and current liabilities of BHEL. We can easily calculate the current ratio with the help of the following formula:
Current ratio = current assets/current liabilities
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Calculations 114829/64365 100962/71641 80044/61375 100671/82196 112836/99390 139668/110923
Ratio 1.8:1 1.4:1 1.3:1 1.2:1 1.1:1 1.3:1
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ANALYSIS OF CURRENT RATIO

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004- 2005- 2006- 2007- 2008- 200905 06 07 08 09 10 YEARS
CURRENT RATIO
Interpretation: - As we know that the current ratio of any company may be 2:1 but
according to the U.S.A. Accounting standard any company should maintain a ratio of 1.33:1 . Moreover, as we can see from the above Table the current ratio of BHEL is and in 2004-05 is 1.8:1 which is highest in the last five years.
In 2002-03, the current ratio goes down to 1.4:1 due to increase in the current liabilities and decrease in current assets as compared to previous year. Current assets decrease due to decrease in inventory, which is 46305 in 2001-02 & 42606 in 2005-06. It indicates the ideal stock is less, which is favorable for the company. It indicates the company is in position to meet its liabilities. In 2006-07 the ratio is going down to1.3:1 due to decrease in current assets and current liabilities. In 2007-08 the ratio is 1.2:1 and in 2009-10 1.3:1due to increase in current assets and current liabilities
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LIQUIDITY RATIO:-
This ratio establishes a relationship between quick assets and current liabilities. The major objective to compute this ratio is to measure the ability of the firm to meet its short-term obligations as and when due without relying upon the realization stock. We can easily calculate this ratio with the help of the following formula:
Liquidity ratio= liquid assets/current liabilities
YEARS
CALCULATIO NS
RATIO
2004-2005 2005-2006 2006-2007 2007-2008
67460/64365 57500/71641 47674/61375 61457/82196
1.05:1 0.80:1 0.78:1 0.74:1
2008-2009 2009-2010
53860/99390 69870/110923
0.54:1 0.63:1
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Graph showing comparison on the basis of liquidity ratio
comparision of liquidity
1.2 1 0.8 0.6 0.4 0.2 0
Liquidity ratio
YEARS
Interpretation
Liquid ratio indicates that what amounts of liquid assets are available for each rupee of current liability. We know that the liquid ratio of any company may be 1:1, is considered to be satisfactory. Now comparing the company's position according to the liquid ratio. In 200405 the ratio is 1.05:1 which the best liquidity position years were for the company. But it followed a downward trend in 2005-06 , 2006-07, 2007-08, 2009-09 &in 2009-10 the ratios are 0.8:1 , 0.78:1, 0.74:1, 0.54:1 & 0.63:1 respectively. It means that the liquidity position of the company is constantly decreasing it is due to large amount of current liabilities as compared to liquid assets. Also the number of debtors of the company is increasing. This is not better from management's point of view. As more of amount is blocked in the debts and chances of bad debt will increase.
107
108
LIMITATIONS OF THE STUDY
Non-monetary aspects are not considered making the results unreliable.
Different accounting procedures may make results misleading.
In spite of precautions taken there are certain procedural and technical limitations.
Accounting concepts and conventions cause serious limitation to financial analysis.
Lack of sufficient time to exhaust the detail study of the above topic became a hindering factor in my research.
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FINDING
Company has a good credit policy Profit before tax is more than last year which is favorable for the company After comparing the financial position of the company we find that companys policies are favorable for the organization. After comparing the average collection period &debtors turnover we find that company adopt good policy related with debtors. Company also has sound policy with creditors. Company can credit purchase in huge quantity of material from the market on the basis of their goodwill.
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SUGGESTION
From the above finding we can say that B.H.E.L is in good financial position. Above analysis of working capital shows that company has effective & sufficient level of working capital. Company has adopted sound policies. It should improve its investment climate due to positive impulses in the power sector like the on- going reforms, thrust on accelerated power development programme, extention of accelerated generation & supply programme.
There should proper analysis of requirement of raw material. Order should be placed according to the lead-time. Wastage should be avoided. There should be proper coordination between the Inventory Department and Production Department
111
CONCLUSION
There obtained some weak and strong points of the company during the analysis of the financial statements which are follows:
As just only the analysis of the financial statement is not only mean to reach our conclusion we can substitute it for sound judgment.
This performance is significant in the backdrop of the delay deferment of orders in BHEL`s business areas. The company achieves this due to its strong basics and continues focus on strong strategies.
The company has also drawn up a new vision, mission and Value statements.
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BIBLOGRAPHY
I.M PANDEY S.N MAHESWARI AGRAWAL&AGRAWAL A.V RATNAM R.P RASTOGI K.G GUPTA P. CHANDRA
FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT
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Working Capital Management with special Reference to BHEL

WORKING CAPITAL MANAGEMENT

(MOHD ARIZ FARZAN)

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

1. Debtors Management 2. Inventory Management 3. Cash Management

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

INTRODUCTION INTRODUCTION ON THE BHEL

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

BHARAT HEAVY ELECTRICAL LIMITED:-

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

RECENT ACHIEVEMENTS OF BHEL

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

Contribution of BHEL in various Core Sectors

Power Transmission & Distribution Sectors

WORKING CAPITAL MANAGEMENT

Human Resource Development Institute

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

KEY CUSTOMERS AND SUPPLIERS

WORKING CAPITAL MANAGEMENT

FAVOURABLE BUSINESS ENVIRONMENT:

WORKING CAPITAL MANAGEMENT

MAJOR MILE STONES

BHEL one of the 9 PSEs declared Navratna by Govt. of India .

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

TOTAL QUALITY FOCUS:

WORKING CAPITAL MANAGEMENT

In-line with Companys Vision, Mission and values, we dedicate ourselves to

CRITICAL SUCCESS FACTORS:

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

MEANING OF WORKING CAPITAL

1) Fixed capital, and 2) Working capital.

WORKING CAPITAL MANAGEMENT

CLASSIFICATION OF WORKING CAPITAL

Gross Working Capital = Total Current Assets

Net Working Capital = Current Assets Current Liabilities

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

The following methodology was adopted for the study purpose:

WORKING CAPITAL MANAGEMENT

Sample size: 100

WORKING CAPITAL MANAGEMENT

Non-Probabilistic Sampling procedure is adopted for the Project