Working Capital Management in Bhel

SUMMER TRAINING REPORT ON

“WORKING CAPITAL MANAGEMENT IN BHEL”

Undertaken at

BHARAT HEAVY ELECTRICALS LIMITED

Submitted in partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

to

Mahamaya Technical University, Noida

Under the Guidance of Submitted by

Dr. Praveen Kumar Poonam Namdev

MBA-IIIrd Sem

Roll No.-09817003910

Session 2011 – 12

To Whom It May Concern

I _______________________, Enrolment No. ______________from MBA-III Sem of the Tecnia Institute of Advanced

Studies, Delhi hereby declare that the Summer Training Report (MS-204)

entitled_____________________________________________________________________________________

________at ________________________________ is an original work and the same has not been submitted to any other

Institute for the award of any other degree. A presentation of the Summer Training Report was made on

_______________________ and the suggestions as approved by the faculty were duly incorporated.

Date: Signature of the Student

Certified that the Summer Training Report submitted in partial fulfillment of Master of Business

Administration (MBA) to be awarded by G.G.S.I.P. University, Delhi by _________________________,

Enrolment No. ________________ has been completed under my guidance and is Satisfactory.

Date: Signature of the Guide

Name of the Guide:

Designation:

ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution

make it successful. Since such a list will be a prohibitively long. I may be excused

for important omission.

I am grateful to all who helped & guided me at every stage of my work. Their

constant appraisal & encouragement helped me to accomplish my training smoothly.

I am thankful to “ Mr C.P. Bahari”(AGM , Taxation) & Mr. Sandeep Kataria

(DGM) for the cooperation extended to me in compiling the project report. This

acknowledgement would be incomplete without the mention of “Mr. Devendra”

who sorted out my queries time to time.

I gained a lot of knowledge & experience by observing their way of working which

is surely to be admired. I extend my gratitude to the entire staff that provided a very

comfortable environment which helped me deliver this performance.

POONAM

NAMDEV

MBA 3rd

Sem

DECLARATION CERTIFICATE

This is to certify that the Project work entitled “ A STUDY OF WORKING

CAPITAL MANAGEMENT IN BHEL” is a record of bonafide work carried out

by Mr. AMIT GUPTA under my supervision towards partial fulfillment of the MBA

course of IIMT College of Management, Greater Noida.

Place: Signature

Date: Name &

Designation of

the Project Guide

CONTENTS

SR.NO TOPIC PAGE NO.

1. CERTIFICATE

2. SUMMER TRAINING APPRAISAL

3. ACKNOWLEDGEMENT

4. EXECUTIVE SUMMARY

5. Chapter-1 Introduction

Introduction of working capital

Objective of study

Scope of study

Introduction of organization

6. Chapter-2 Review of literature

7. Chapter-3 Research Methodology

8. Chapter-4 Data reduction, presentation & interpretation

Ratio analysis

Trend analysis

9. Chapter-5 Summary & Conclusion

Facts &Findings

Recommendation & Suggestion

10. Bibliography

ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution

make it successful. Since such a list will be a prohibitively long. I may be excused

for important omission.

I am grateful to all who helped & guided me at every stage of my work. Their

constant appraisal & encouragement helped me to accomplish my training smoothly.

I am thankful to “ Mr C.P. Bahari”(AGM , Taxation) & Mr. Sandeep Kataria

(DGM) for the cooperation extended to me in compiling the project report. This

acknowledgement would be incomplete without the mention of “Mr. Devendra”

who sorted out my queries time to time.

I gained a lot of knowledge & experience by observing their way of working which

is surely to be admired. I extend My gratitude to the entire staff that provided a very

comfortable environment which helped me deliver this performance.

POONAM

NAMDEV

MBA 3rd

Sem

CHAPTER-

1

INTRODUCTI

ON

INTRODUCTION ON FINANCE

Finance is one of the major elements that activate the overall growth of the

economy. Finance is the life blood of economic activity. A well - knit financial

system directly contributes to the growth of the economy. An efficient financial

system calls for the efficient performance of institution, financial instruments and

financial markets.

Finance which acts as the lifeblood in the modern business types is one of the most

important consideration for an entrepreneur-company. While Implementing,

expanding, diversifying, modernizing or rehabilitating any project the meaning of

finance is better understood. In this section we have covered finance related

information and the process of managing the same.

Finance is a science of managing money and other assets. It is the process of

channelization of funds in the form of invested capital, credits, or loans to those

economic agents who are in need of funds for productive investments or otherwise.

E.g. On one hand, the consumers, business firms, and governments need funds for

making their expenditures, pay their debts, or complete other transactions. On the

other hand, savers accumulate funds in the form of savings deposits, pensions,

insurance claims, and savings or loan shares, etc which becomes a source of

investment funds. Here, finance comes to the fore by channeling these savings into

proper channels of investment,

In general, finance is that business activity which is concerned with acquisition and

Conservation of capital funds in meeting financial needs and over all objectives of a

business entrepreneur.

Finance is the common denominator for a vast range of corporate ., projects and the

major part of any corporate plan must be expressed in financial terms”.

The main reasons a business needs finance are to:

• Start a business

• Finance expansions to production capacity

• To develop and market new products

• To enter new markets

• Take-over or acquisition

• Moving to new premises

• To pay for the day to day running of business

MEANING OF WORKING CAPITAL

Working capital refers to the management of current assets.

Working capital refer to that part of total capital which is used for carrying out the

routine or regular business operation. In other words, it is the amount of funds used

for financing the day-to day operation. In short, it is the capital with which the

business is worked over.

Thus, the capital invested and locked up in various current assets , such as stocks of

raw material, work in progress , stocks of finished goods account receivable and

cash and bank balances constitutes the working capital.

Working capital may be regarded as life blood of a business. Its effective provision

can do much to ensure the success of a business while its in provision can do much

to ensure the success of a business while its in efficient management can lead not

only to loss of profits but also to the ultimate downfall of what otherwise might be

considered as a promising concerns.

> According to shoo-in, “Working Capital is the amount of funds necessary to cover

the cost of operating the enterprise”. Working Capital is also known as Revolving or

Circulating Capital.

> According to Genesterberg, “Circulating Capital means current assets of a

company that are changed in the ordinary cause of business from one to another

form. Example: From cash to inventory, inventories to bills receivable and bills

receivable to cash.

Concept of working capital

There are five concepts of working capital :-

o Gross Working Capital

o Net Working Capital

o Negative working capital

o Permanent working capital

o Variable working capital

On the basis of the components or items comprised in working capital, working

capital can be classified into the following types:

Gross Working capital: Simply called as working capital, refers to the firms

investment in current assets. Current assets which can be converted in to cash with

in the accounting year (or operating cycle) and includes cash, short term securities,

debtors, Bills receivable and stock (inventory) .

Net Working Capital: Refers to the difference between current assets and current

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

mature for payment with in a year and include creditors, Bills payable and outsider’s

expenses.

Negative working capital or working capital deficit: means the excess of current

liabilities over the current assets. It accurse when the current liabilities exceed the

current assets

Permanent working capital or fixed working capital: refer to the minimum

amount of investment in current assets required throughout the year for carrying out

the business. In other words , it is the amount of working capital which remains in

the business permanently in one form or other.

Variable working capital or fluctuating working capital: refer to the amount of

working capital which goes on fluctuating or changing from time to time with the

change in the volume of business activities.

Ratios :

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

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

NEED FOR WORKING CAPITAL

Every business undertaking requires funds for two purposes, investments in fixed

assets & investment in current assets.

Funds required for investing in inventory, debtors & other current assets keep

changing in shape & volume. Company has some cash in the beginning; this cash

may be the source of raw material, keeping the labor cost & other overheads. These

three combined would generate work in progress, which will be converted into

finished goods on the completion of the production process into debtors & when the

debtor pay, the firm may generate cash. Working capital is needed for sustaining

(i.e., maintaining) the sales activities. If adequate working capital is not maintain for

this period ,the firm will not be able to sustain or maintain the sales , since it may

not be in a position to purchase raw material and pay wages and other expenses ands

produce the goods required for the sales.

NATURE OF WORKING CAPITAL

In ordinary parlance, Working Capital is taken to be the fund available for meeting

day-to-day requirements of enterprises. It cannot be denied that a part of the fixed or

permanent capital is invested in assets, which are kept in the business or for a long

period for the purpose of earning profit. These are usually known as fixed assets viz.

Land & buildings, plant & machinery, furniture & fitting & intangibles like

goodwill, patents, trademarks & long-term investment.

Another part of permanent capital left in the business for supporting the day-to-day

normal operation is known as the “Working Capital”. This Working Capital

generates the important element of cost viz. Material, wages & expenses. These cost

usually lead to production & sales in case of manufacturing concerns & sales alone

in others. These costs occur gradually in a flow & do not come into being abruptly at

a given moment.

Hence the initial investment of cash as working capital for this specific purpose has

to be continued until the sales revenue commences flowing in substantially & in a

regular way. From this stage the business is found to acquire a momentum of its

own. The flow of revenue is expected to continue to replace the cost lost in its day-

to-day out flow for the generation of the revenue mentioned above.

SOURCE OF WORKING CAPITAL

The financial manager is always interested in obtaining the working capital at the

right time, at a reasonable cost and at the best possible favorable terms. A part of the

working capital investment are permanent investments is fixed assets. The following

is snapshot of various source of working capital.

Sources of working capital divided into two

• Long –term

• Short –term

Sources of long term working capital

• Issue of shares

• Floating of debentures

• Ploughing back of profit

• Loans

• Public deposit

Sources of short-term working capital

Internal sources

• Depreciation

• Taxation

• Accured expenses

External sources

• Trade credit

• Credit papers

• Bank credit

• Customer’s credit

• Govt. Assistances

• Loans from director

• Security of employees

WORKING CAPITAL CYCLE:-

The working capital of a concern goes on changing in shape and volume. For

Instance, a concern may have some cash in the beginning. The cash may be used by

the concern for the purpose of purchase of raw material, payment of wages and other

expenses’. These elements of cost or items of expenses, raw material , wages and

overheads , will result in work- in-progress during the process of manufacture. On

the in compilation of the production process, the work- in –progress becomes

finished goods.

Meaning

The length of time involved in this cycle of conversion of cash into raw material,

raw material into work-in progress, work-in-progress into finished goods, finished

goods into debtors and debtors into cash again is called the operating cycle or

working capital cycle of the firm, in other words, it is period between the date raw

material are purchased and the date the sale proceeds of finished goods are realized

by concern.

INTER-DEPENDENCE AMOUNG COMPONENTS OF WORKING

CAPITAL OPERATING CYCLE :

A company starting with cash purchase raw materials, components etc., on a cash or

credit basis. These materials will be converted into finished goods after undergoing

various stages of work-in-process. For this purpose the company has to make

payments towards wages, salaries and manufacturing costs. Payments to suppliers

have to be made on purchases in the case of cash purchases and on the expiry of the

credit purchases. Further, the company has to meet other operating costs such as

selling and distribution costs, general administration costs and non-operating costs

described as financial costs (interest on borrowed capital). In case the company sells

its finished goods on cash basis, it will pass through one more stage, viz, accounts

receivable and gets back cash along with profit on expiry of credit period. Once

again the cash will be used for the purchase of materials and / or payments to

suppliers and the whole cycle is termed as working capital or operating cycle repeats

itself. This process indicates the dependents of each stage or components of working

capital on its previous stage or component.

WORKING CAPITAL MANAGEMENT

Introduction

Working capital management is one of the most important aspects of financial

management. It forms a major function of the finance manager.

Meaning :

Working capital management means management or administrating of all aspect of

working capital, i.e., currents assets and currents liabilities.

In other words of Smith, “working capital management is concerned with the

problems that arise in attempting to manage the current assets, the current liabilities

and the inter-relationship that exists between them”.

BASIC OBJECTIVE OF WORKING CAPITAL MANAGEMENT :

The basic objective of working capital management is to manage the firm’s working

capital (i.e., currents assets and currents liabilities) in such a way that a satisfactory

level of working capital (i.e., neither excessive nor inadequate working capital) is

maintained. This is necessary because, if the working capital is excessive or large,

the liquidity position of the firm would, no doubt, improve, but its profitability

would be adversely affected, as funds would remain idle. Conversely, if the working

capital is too small, the, profitability of the firm may improve, but the liquidity

position of the firm would be adversely affected.

Advantages of working capital:

• It helps the business concern in maintaining the goodwill.

• It can arrange loans from banks and others on easy and favorable terms.

• It enables a concern to face business crisis in emergencies such as depression.

• It creates an environment of security, confidence, and over all efficiency in a

business.

• It helps in maintaining solvency of the business.

Disadvantages of working capital:

• Rate of return on investments also fall with the shortage of working capital.

• Excess working capital may result into over all inefficiency in organization.

• Excess working capital means idle funds which earn no profits.

• Inadequate working capital can not pay its short term liabilities in time.

OBJECTIVES OF THE PROJECT

The objectives of study

1) To identify the financial strengths & weakness of the company.

2) Through the net profit ratio & other profitability ratio, understand the profitability

of the company.

3) Evaluating company s performance relating to financial statement analysis.

4) To know the liquidity position of the company with the help of current ratio.

5) To find out the utility of financial ratio in credit analysis & determinig the

financial capacity of the firm.

COMPANY PROFILE

BHARAT HEAVY ELECTRICAL LIMITED-

BHEL is India's largest engineering company and one of its kind in this part of the

hemisphere. It manufactures a wide range of state of the art power generation

equipment and systems besides equipment for industry, transmission, defence,

telecommunication and oil business. The first plant of BHEL was set up in Bhopal

in 1956, which signaled the dawn of the heavy electrical industry in India. In the

early 60's three more major plants were set up in Hardwar, Hyderabad and

Tiruchirapalli. The company now has 14 manufacturing divisions, 10 services

centers and power sectors regional centers besides project sites spread all over India

and also abroad to provide prompt and effective service to customers.

BHEL's business broadly covers conversions, transmission, utilizations and

conservation of energy in core sectors of economy that fulfill vital infrastructure

needs of the country. Its product have established an enviable reputation of high

quality and reliability, which is largely due to emphasizes placed all along on

contemporary some of the best technologies of the world from the leading

companies in U.S.A., EUROPE, and JAPAN together with technologies from its

own R&D centers technologies B.H.E.L. has consistently upgraded its design and

manufacturing facilities to international standards by acquiring and assimilating.

HISTORICAL PROFILE:-

The construction of heavy electrical equipment Plant commenced in Oct.1963after

indo-soviet technical co-operation agreement in Sept.1959 The 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 plant’s “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 upto a unit rating of 1000 MW in the year 1976.First 200

MWTG set was commissioned at Obra in 1977. The continum 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 Feb”1995”.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%.

B.H.E.L A CORPORATE GIANT

Established in the late 50's BHARAT HEAVY ELECTRICALS LIMITED

(BHEL) is a name which is recognized across the industrial world. It is one of the

largest engineering and manufacturing enterprises in INDIA and is one of the

leading international companies in the power field. BHEL offers a wide spectrum of

products and services for core sectors like power transmission, industrial

transportation, oil and gas, telecommunication etc. Besides supply of non-

conventional energy systems. It has also embarked into other areas including

defence and civil aviation. A dynamic 63000 strong team embodies the BHEL

philosophy excellence through continuous striving for state of the art technology.

With corporate headquarters in NEW DELHI, fourteen manufacturing units, a wide

spread regional services network and projects sites all over India and even abroad,

BHEL is India's industrial ambassador to the world with export presence in more

than 50 countries.

BHEL's range of services extent from project feasibility studies to after sales

services, successfully meeting diverse needs through turnkey capability.

BHEL has had a consistent track record of growth, performance and profitability.

The World Bank in its report on the Indian Public Sectors, has described BHEL as

“one of the most efficient enterprises in the industrial sector, at par with

international standards of efficiency". BHEL has acquired ISO 9000 certificate for

most of its operations and has taken up Total Quality Management (TQM).

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.

VISION, MISSION AND VALUES

MAJOR MILE STONES

1975 Job Redesign concept launched for FIRST time in India.

1978 well documented Suggestion Scheme launched.

1982 Launched Productivity Movement & Quality Circle. Concept

1993 Accreditation of ISO 9001 quality System.

1995 Adopted EFQM model of TQM for achieving Business Excellence.

1997 BHEL one of the 9 PSE’s declared “Navratna” by Govt. of India .

1997 National Productivity Award for HEEP by the President of India.

1998 Certificate of Merit by National Productivity Council for

Outstanding performance for 2nd consecutive year.

1998 Accreditation of U stamp.

1999 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 INSAAN Award for Excellence in Suggestion for 9th consecutive year

1999 Launching of 5s concept

1999 PCRI recognized as Environmental Lab by Haryana State Board for Prevention

and Control of Pollution

1999 Accreditation of ISO 14001-Enviornment management system

2000 CII Site Visit for CII-EXIM Business Excellence Award-2000

2001 Top Management TQM Workshop at Rishikesh and HRDC

2001 INSAAN Award for excellence in Suggestion for 11th consecutive year

2001 Launching of QTM & RCA at HEEP Hardwar by CMD

2002 Launching of delivery Index, Turnover Index and Manufacturing Index

2002 Accreditation of ISO 9000-2k

2002 JBE Workshop of Apex TQM Group at Tehri to evolve Business policy and

CSF

TOTAL QUALITY FOCUS:

To face the increased competition from MNCs (due to liberalization policy of

Government) in early 90’s 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 HEEP 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”.

HEEP 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 organisation. In 2000 HEEP 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, Unit’s 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 Workshop’s held at Rishikesh

during oct.2001Executive Director who is TQ Assessor also, himself steered the

Workshop with assistance from some experienced TQ Assessor of HEEP.It followed

by second Top Management TQM Workshop steered again by Ed was held at HRDC

on Oct’29,2001.Subsequantly the third Top Management TQM Workshop was held in

Nov’2001,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

managers(to be developed as Think Tanks)was organized in Nov’2001.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.

BHEL has acquired certifications to Quality Management System ( ISO 9001 ),

Environmental Management System ( ISO 14001 ) and Occupational Health &

SAFETY management System (OHSAS 18001 ) and is also well on its journey

towards Total Quality Management.

BHEL has Installed equipment for over 90,000 MW of power generation – for Utilities , Captive

and Industrial users.

Supplied over 225000 MV. A transformer capacity and other equipment operating in

Transmission & Distribution network up to 400 Kv (AC&DC).

Supplied over 25000 Motors with Drive Control System to Power projects,

Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc.

Supplied Traction electrics and AC/DC locos to power over 12000 kms Railway

network.

Supplied over one million Valves to Power Plant and other Industries.

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

Power,Industry – including Transmission, Transportation, Telecommunication &

Renewable Energy and Overseas Business. This enables BHEL to have a strong

customer orientation, to be sensitive to his needs and respond quickly to the changes

in the market.

PRODUCT RANGE:

This list is intended as a general guide and does not represent all of BHEL’s product

and systems.

THERMAL POWER PLANTS

Steam turbines and generators of up to 500 MW capacity for utility and

combined – cycle applications; up to 1000 MW unit size.

Steam turbines for CPP application; capability to manufacture condensing,

extraction, back pressure, injection or any combination of these types.

GAS BASED POWER PLANT

Gas turbine of up to 255MW ( ISO ) rating.

Gas turbine based co-generation and combined – cycle systems for industry

and utility applications.

HYDRO POWER PLANTS

Custom-built conventional hydro turbines of Kaplan, Francis and Pelton

types with matching generators, pump turbines with matching motor-

generators.

Mini/micro hydro sets.

Spherical, butterfly and rotary valves and auxiliaries for hydro station.

DG POWER PLANTS

USD, LDO, FO, LSUS. natural – gas/biogas based diesel power plants, unit

rating up to 20MW and voltage up to 11Kv, for emergency, peaking as well

as base load operations on turnkey basis.

INDUSTRIAL SETS

Industrial turbo – sets of rating from 1.5 to 120MW.

Gas turbines land matching generators ranging from 3 to 255MW (ISO)

rating.

Industrial stream turbines and gas turbines for drive applications.

BOILERS

Combination of these fuels: capability to manufacture boilers with super

critical parameters up to 1000 MW unit size.

Steam generators for industrial applications, ranging from 40 to 450 t/hour

capacity using coal, natural gas, industrial gases, biomass, lignite, oil,

biogases or a combination of these fuels.

Pulverized fuel fired boilers.

Stoker boilers.

Atmospheric fluidized bed combustion boilers.

Circulating fluidized bed combustion boilers.

Waste heat recovery boilers.

Chemical recovery boilers for paper industry, ranging from capacity of 100

to 1000 t/day of dry solids.

Pressure vessels.

BOILER AUXILIARIES

Fan

Air-Pre-heater

Gravimetric Feeders

Pulverizes

Pulse Jet and Reverse Air Type Fabric Filters ( Bag Filters )

Electrostatic Precipitators

Mechanical Separators

Soot Blowers

Valves

HEAT EXCHANGERS AND PRESSURE

VESSELS

Air – cooled heat exchangers.

Surface condensers.

Reactors, drums.

PUMPS

Pumps for various applications to suit utilities up to a capacity of 660MW.

Boiler feed pumps (motor or steam turbine driven ).

Boiler feed booster pumps.

Emergency oil pumps.

Lubricating oil pumps.

POWER STATION CONTROL EQUIPMENT

Microprocessor-based distributed digital control systems.

Data acquisition systems.

Man-machine interface.

SWITCHGEARS

SF6 circuit breakers (132 kV –400 Kv ).

Vacum circuit breakers (3.3 Kv – 33k V ).

BUS DUCTS

Bus – ducts with associated equipment to suit generator power output of utilities of

up to 500 MW capacity.

TRANSFORMERS

Special transformers: earthing; furnace; rectifier; electrostatic precipitator; freight

loco and ACEMU and traction transformers.

INSULATORS

High- tension ceramic insulator

CAPACITORS

Coupling/CVT capacitors for voltages up to 400 Kv.

Low Tension Thyristor Switched Capacitors ( LTTSC ) for dynamic power

factor correction.

ENERGY METERS

Single phase, Poly Phase and Special – purpose electro – mechanical and

electrical meters.

BUSINESS POLICY

“In-line with Company’s Vision, Mission and values, we dedicate ourselves to

sustained growth with increasing positive Economic Value Addition and Customer

focussed business leadership in the Power and Industry Sector.

CRITICAL SUCCESS FACTORS:

Increase Orders of Spares/Services to 230 Cr.

Decrease Capital employed by Rs. 120 Cr.

Saving in Material Cost by 16 Cr. i.e. 5%- Rs. 4 Cr.

Decrease in indirect material +miscellaneous expenses by 5%- Rs. 4 Cr.

Effective implementation of QTM/RCA/CTQ

Strengthening Internal customer concept

Development of an Incentive Scheme

Reward Scheme including EXCEL Awards

Effective implementation of PMS

Effective Contract Management

Technology Upgradation

‘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 HEEP Hardwar 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 throughout 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, CMD’s Rolling Trophy for 3rd consecutive year, ‘Well known Forge Shop “ by

Central Boiler Board etc. are some Vir Award 2001” and 12 employees honored with

“Vishwakarma Rashtriya Puraskar”during 2001-02.

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 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.

CHAPTER-2

REVIEW

OF

LITERATURE

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

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

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

in the year November – 2003. Outlined the following objectives and findings.

Her Objectives were:

Know the project of Co-operative milk supply society.

Analysis the short term liquidity position of the study unit during the period

96-97 to 2000-01.

Analysis and evaluate working capital management.

Her Findings were:

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

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

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

1997-98 and 98-99 indicates sufficient amount of working capital and

effective utilizations of working capital.

The cash turnover ratio is to be increasing times.

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

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

award of her M.Com degree submitted to Bharathidasan University, in the year

November – 2003. Outlined the following objectives and findings.

Her Objectives were:

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

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

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

TSRM Ltd, Trichy.

Her Findings were:

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

adequate accounting period.

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

through out the five years.

The overall performance of receivables management showed a

satisfactory position throughout the past 5 years.

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

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

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

2003. Outlined the following objectives and findings.

His Objectives were:

To know the Financial Performance of Dalmia Cement.

To examine the practice follow into Management of cash.

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

His Findings were:

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

value has showed an incise trend.

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

concern.

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

years a study period.

Performance of the co should be judged on the basis of return on equity

capital. It is satisfactory positive

Mr. Kushagra Dabur, in his research on “Working capital management of Kotak

Mahindra Life Insurance Company”. Which is the partial fulfillment of the

requirements for the award of her degree submitted to Amity University, Uttar

Pradesh, in the year February – 2006. Outlined the following objectives and

findings:

His Objectives were:

To meet the cash disbursement needs (payment schedule);

To minimize funds committed to cash balances.

The present study is limited to one Co., i.e. Kotak Mahindra Life Insurance,

and covers a period from 2003 and 2006 due to limitation of time and

accessibility to data base.

The authenticity of the suggestions and recommendations depend upon the

rationality of the data provided to me.

His Findings were:

The relative growth rate of short term trade credit and value industrial

production.

The relative growth rates of short term trade credit & inventories with

industry & trade.

The diversion of short-term credit for fixed asset acquisition & for lower and

Investments.

The incidence or multiple financing,

The elongation of credit period.

CHAPTER-3

RESEARCH

DESIGN

General Methodology

The study was carried on an explorative basis using accounting and financial data.

The procedures followed in this study consist of following steps:

1)The research includes figurative and diagrammatic interpretation for the ease of

comparison.

2) Understanding of aluminium industry in global and domestic scenario.

3) Determining the demand and supply in near future to understand the future

prospect of the industry.

4) Analysis of Government Policy toward aluminium industry.

5) Evaluating BHEL, HARIDWAR’S position in aluminium industry.

Research Methodology

Research methodology that is used here was purely exploratory because we

know it is used when one is seeking insight in to the general nature of the

problem possible decision alternatives and relevant variables that need to be

considered.

This resistance also help full / use full for establishing priorities among

research questions and for learning about practical problems of carrying out

the research.

CHAPTER -4

DATA

ANALYSIS,

PRESENTATI

ON AND

INTERPRETATI

ON

Data source

Data collection was through literature survey and expert opinion. Literature survey

includes the collection of data from various sources like bank agreement and

statement, handbooks as well as study material.

A part of data` s was collected from primary data and other was collected from the

secondary data.

Primary sources

Information gathered by interview and discussions with the head and employees of

various departments and my project guide.

Secondary sources

Company annual report.

Published information on finance.

Internal circulation booklets.

Company Websites

DATA ANALYSIS AND INTERPRETATION

Ratio Analysis is a powerful tool o financial analysis. Alexander Hall first presented

it in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of

one figure against other, which makes a ratio and the appraisal of the ratios of the

ratios to make proper analysis about the strengths and weakness of the firm’s

operations. The term ratio refers to the numerical or quantitative relationship

between two accounting figures. Ratio analysis of financial statements stands for the

process of determining and presenting the relationship of items and group of items

in the statements.

Ratio analysis can be used both in trend analysis and static analysis. A creditor

would like to know the ability of the company, to meet its current obligation and

therefore would think of current and liquidity ratio and trend of receivable.

Major tool of financial are thus ratio analysis and Funds Flow analysis. Financial

analysis is the process of identifying the financial strength and weakness of the firm

by properly establishing relationship between the items of the balance sheet and the

profit account

The financial analyst may use ratio in two ways. First he may compare a present

ratio with the ratio of the past few years and project ratio of the next year or so. This

will indicate the trend in relation that particular financial aspect of the enterprise.

Another method of using ratios for financial analysis is to compare a financial ratio

for the company with for industry as a whole, or for other, the firm’s ability to meet

its current obligation. It measures the firm’s liquidity. The greater the ratio, the

greater the firms liquidity and vice-versa.

A ratio can be defined as a numerical relationship between two numbers expressed

in terms of (a) proportion (b) rate (c) percentage. It is also define as a financial tool

to determine an interpret numerical relationship based on financial statement

yardstick that provides a measure of relationship between two variable or figures.

Meaning and Importance:

Ratio analysis is concerned to be one of the important financial tools for appraisal of

financial condition, efficiency and profitability of business. Here ratio analysis id

useful from following objects.

1. Short term and long term planning

2. Measurement and evaluation of financial performance

3. Stud of financial trends

4. Decision making for investment and operations

5. Diagnosis of financial ills

6. Providing valuable insight into firms financial position or picture

ADVANTAGES & DISADVANTAGES OF RATIO ANALYSIS :

Advantages:

The following are the main advantages derived of ratio analysis, which are obtained

from the financial statement via Profit & Loss Account and Balance Sheet.

a) The analysis helps to grasp the relationship between various items in the financial

statements.

b) They are useful in pointing out the trends in important items and thus help the

management to forecast

c) With the help of ratios, inter firm comparison made to evolve future market

strategies.

d) Out of ratio analysis standard ratios are computed and comparison of actual with

standards reveals the variances. This helps the management to take corrective action.

e) The communication of that has happened between two accounting the dates are

revealed effective

Action.

f) Simple assessments of liquidity, solvency profitability efficiency of the firm are

indicted by ratio analysis. Ratios meet comparisons much more valid.

Disadvantages:

Ratio analysis is to calculate and easy to understand and such statistical calculation

stimulation thinking and develop understanding. But there are certain drawbacks and

dangers they are.

i)There is a trendy to use to ratio analysis profusely.

ii)Accumulation of mass data obscured rather than clarifies relationship.

iii) Wrong relationship and calculation can lead to wrong conclusion.

1. In case of inter firm comparison no two firm are similar in size, age and product

unit.(for example) one firm may purchase the asset at lower price with a higher

return and another firm witch purchase the asset at asset at higher price will have

a lower return)

2. Both the inter period and inter firm comparison are affected by price level

changes. A change in price level can affect the validity of ratios calculated for

different time period.

3. Unless varies terms like group profit, operating profit, net profit, current asset,

current liability etc., are properly define, comparison between two variables

become meaningless.

4. Ratios are simple to understand and easy to calculate. The analyst should not

take decision should not take decision on a single ratio. He has to take several

ratios into consideration.

STANDARDS OF COMPARISION:

1. Ratios calculated from the past financial statements of the same firm.

2. Ratio developed using the projected or perform financial statement of the same

firm

3. Ratios of some selected firm especially the most progressive and successful, at

the same point of time.

4. Ratios of the industry to which the firm belongs.

IMPORTANCE OF RATIO ANALYSIS

In the preceding discussion in the form, we have illustrated the compulsion and

implication of important ratios that can be calculated from the Balance Sheet and

Profit & Loss account of a firm. As a tool of financial management, they are of

crucial significance. The importance of ratio analysis lies in the fact and enables the

drawing of inferences regarding the performance of a firm. Ration analysis is a

relevant in assessing the performance of a firm in respect of the following aspect.

CAUTION IN USING RATIOS:

1. It is difficult to decide on the proper bases of comparison.

2. The comparison rendered difficult because of difference in situation of two

companies or of one-company for different years.

3. The price level change make the interpretation of ratios invalid

4. The difference in the definition of items in the balance sheet and Profit & Loss

statement make the interpretation of ratios difficult.

5. The ratios calculated at a point of time are less informative and defective as they

suffer from sort term changes.

6. The ratios are generally calculated from the past financial statement and thus are

no indicators of future.

CURRENT RATIO : The relationship of current assets to current liabilities is

known as current ratio. It is also known as banker’s ratio or working capital ratio.

1. CURRENT RATIO

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

Current assets

Current ratio = _______________________________

Current liability

TABLE – 1

STATEMENT SHOWING CURRENT RATIO

Rs in

lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-09 2009-10

CURRENT

ASSETS

1633078 2106400 2770400 3690107 4293481

CURRENT

LIABILITIES

1032002 1442000 2002230 2833290 3244172

CURRENT

RATIO

1.58 1.46 1.38 1.30 1.32

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

The current ratio is a test of the short term solvency of the business enterprise since

this ratio assumes current assets could be converted into cash to meet current

liabilities.

It is often accepted that current assets should be 2times the current liabilities.

Current ratio during the year 2005-2006 was 1.58 and its come down in 1.46 at

2006-2007 and its again decreased 2007–2008 and 2008-09 and its slightly

increased in 1.32 at 2009-10. The standard norm for this ratio is 2:1 required.

BHEL should maintain sufficient amount of current assets in order to maintain the

standard form of current ratio.

CHART – 1

CURRENT RATIO

QUICK RATIO: It establishes the relationship of a company’s current assets

that can be quickly converted into cash and its current liabilities.

1. QUICK RATIO

It is relationship between liquid assets and current liabilities.

Liquid assets

Quick ratio = _________________________

Liquid Liabilities

TABLE –2

STATEMENT SHOWING QUICK RATIO

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-09 2009-10

LIQUID

ASSETS

1258640 1684600 2216978 2906405 3369935

LIQUID

LIABILITIES

1032002 1442000 2002230 2833290 3244172

LIQUID

RATIO

1.22 1.17 1.10 1.03 1.04

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

It is in fact the measure of the “Instant” debt paying ability of the business

enterprise.

The quick ratio in the year 2005-2006 was 1.22 and its decreased 0.04% at 2006 and

2007 (1.17) and in 2007-2008 get decreased 0.06% (1.10) and 2008-2009 get

decreased 0.063% (1.03) and its get increase in slightly on 2009-2010 at

0.001%(1.04). The standard norm for this ratio is 1:1, means for every 1 rupee of

current liability, company must have 1 rupee of quick assets.

CHART –2

LIQUID RATIO

CASH MANAGEMENT

Introduction:

Cash management is one of the key areas of working capital management. Cash is

the liquid current asset. The main duty of the finance manager is to provide adequate

cash to all segments of the organization. The important reason for maintaining cash

balances is the transaction motive. A firm enters into variety of transactions to

accomplish its objectives which have to be paid for in the form of cash.

Meaning of cash:

The term “cash” with reference to cash management used in two senses. In a

narrower sense it includes coins, currency notes, cheques, bank drafts held by a firm.

n a broader sense it also includes “near-cash assets” such as marketable securities

and time deposits with banks.

Objectives of cash management:

There are two basic objectives of cash management. They are-

To meet the cash disbursement needs as per the payment schedule.

To minimize the amount locked up as cash balances.

Basic problems in Cash Management:

Cash management involves the following four basic problems.

Controlling level of cash

Controlling inflows of cash

Controlling outflows of cash and

Optimum investment of surplus cash.

Determining safety level for cash:

The finance manager has to take into account the minimum cash balance that the

firm must keep to avoid risk or cost of running out of funds. Such minimum level

may be termed as “safety level of cash”. The finance manager determines the safety

level of cash separately both for normal periods and peak periods. Under both cases

he decides about two basic factors. They are-

Desired days of cash:

It means the number of days for which cash balance should be sufficient to cover

payments.

Average daily cash flows:

This means average amount of disbursements which will have to be made daily.

Criteria for investment of surplus cash:

In most of the companies there are usually no formal written instructions for

investing the surplus cash. It is left to the discretion and judgment of the finance

manager. While exercising such judgment, he usually takes into consideration the

following factors-

Security:

This can be ensured by investing money in securities whose price remains more or

less

stable.

Liquidity:

This can be ensured by investing money in short term securities including short term

fixed

deposits with banks.

Yield:

Most corporate managers give less emphasis to yield as compared to security and

liquidity of

investment. So they prefer short term government securities for investing surplus

cash.

Maturity:

It will be advisable to select securities according to their maturities so the finance

manager can maximize the yield as well as maintain the liquidity of investments.

Cash Management in BHEL:

The cash management is carried out in seaways by CTM (Corporate Treasury

Management). CTM is a commonly followed procedure in most of the companies.

Now we see the cash ratio / quick ratio in bhel

1. CASH RATIO

It is relationship between cash and current liabilities.

Cash

Cash ratio = _______________________

Current liabilities

STATEMENT SHOWING CASH RATIO

TABLE – 3

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

CASH 413398 580900 838600 1031467 979008

CURRENT

LIABILITIES

1032002 1442000 2002230 2833290 3244172

CASH RATIO 0.40 0.40 0.42 0.36 0.30

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

The Cash ratio of BHEL in the 2005-2010 was fluctuation in 2009-2010 it

was 0.30 times and in 2005-2006 it was 0.40 times and 2007-2008 it was reduced to

0.42.

The standard norms of absolute quick ratio are 0.5:1. From the above table

the firms not maintain the sufficient level of quick assets because of the day-to-day

expenses .It is fluctuating between the standard norms for this ratio is 1:2 means for

every 2 rupees of current Liabilities, Company must have 1 rupee of cash and bank

balance and marketable securities.

CHART- 3

CASH RATIO

RECEIVABLES MANAGEMENT

Introduction:

Receivables constitute a significant portion of the total assets of the business.

When a firm seller goods or services on credit, the payments are postponed to future

dates and receivables are created. If they sell for cash no receivables created.

Meaning:

Receivable are asset accounts representing amounts owed to the firm as a result of

sale of goods or services in the ordinary course of business.

Purpose of receivables:

Accounts receivables are created because of credit sales. The purpose of receivables

is directly connected with the objectives of making credit sales. The objectives of

credit sales are as follows-

Achieving growth in sales.

Increasing profits.

Meeting competition.

Factors affecting the size of Receivables:

The main factors that affect the size of the receivables are-

Level of sales.

Credit period.

Cash discount.

Costs of maintaining receivables:

The costs with respect to maintenance of receivables are as follows-

Capital costs:

This is because there is a time lag between the sale of goods to customers and the

payment by them. The firm has, therefore to arrange for additional funds to meet its

obligations.

Administrative costs:

Firm incur this cost for manufacturing accounts receivables in the form of salaries to

the staff kept for maintaining accounting records relating to customers.

Collection costs:

The firm has to incur costs for collecting the payments from its credit customers.

Defaulting costs:

The firm may not able to recover the over dues because of the inability of customers.

Such debts treated as bad debts.

Receivables management:

Receivables are direct result of credit sale. The main objective of receivables

management is to promote sales and profits until that point is reached where the ROI

in further funding of receivables is less than the cost of funds raised to finance that

additional credit (i.e.; cost of capital). Increase in receivables also increases chances

of bad debts. Thus, creation of receivables is beneficial as well as dangerous. Finally

management of accounts receivable means as the process of making decisions

relating to investment of funds in this asset which result in maximizing the overall

return on the investment of the firm.

Receivables management and Ratio Analysis:

Ratio Analysis is one of the important techniques that can be used to check the

efficiency with which receivables management is being managed by a firm. The

most important ratios for receivables management are as follows-

DEBTORS TURNOVER RATIO: -

Debtors constitute an important constituent of current assets and therefore the

quality of the debtors to a great extent determines a firm’s liquidity. It shows how

quickly receivables or debtors are converted into cash. In other words, the DTR is a

test of the liquidity of the debtors of a firm. The liquidity of firm’s receivables can

be examined in two ways they are DTR and Average Collection Period.

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

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

Total sales

Debtors turnover ratio = ______________________________

Debtors

TABLE –4

STATEMENT SHOWING DEBTORS TURNOVER RATIO

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

TOTAL

SALES

1337403 1723753 1930464 2621233 3286144

DEBTORS 716806 969582 1197487 1597550 2068875

DEBTOR

TURNOVER

RATIO

1.87 1.78 1.61 1.64 1.59

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

Debtors constitute an important constituent of current assets and therefore the

quality of the debtors to a great extent determines a firm’s liquidity. It shows how

quickly receivables or debtors are converted into cash. In other words, the DTR is a

test of the liquidity of the debtors of a firm. The liquidity of firm’s receivables can

be examined in two ways they are DTR and Average Collection Period. .The higher

the ratio, the better it is, since it would indicate that debts are being collected

promptly.

In the year 2009 - 2010 the debt is 1.59 comparing to the previous year came

downwards.

CHART- 4

DEBTOR TURNOVER RATIO

DEBT COLLECTION PERIOD

Debtor’s collection period is nothing but the period required to collect the money

from the customers after the credit sales. A speed collection reduces the length of

operating cycle and vice versa. The more quickly the customers pay, the less risk

from bad debts, the lower the expenses of collection and more liquid the nature of of

this asset.

It indicates the speed with which debts are collected.

Days/months in a year

Debt collection period = _______________________________

Debtor’s turnover ratio

TABLE – 5

Rs in

lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

DAYS 365 365 365 365 365

DEBT

TURNOVER

RATIO

1.87 1.78 1.61 1.64 1.59

DEBT

COLLECTION

PERIOD

195 205 227 223 230

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

The debt collection period of BHEL in the 2005-2006 was 195 days and in

goes to 2009 - 2010 it was increased in (0.18%) 230 days. Standard Debt Collection

Period of a firm is less than 90 days. But, above tables consists of increased of DCP

in rapidly.

CHART – 5

DEBT COLLECTION PERIOD

CREDITORS TURNOVER RATIO

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

during the year.

Credit purchase

Creditors turnover ratio = ________________________

Average creditors

TABLE – 6

Rs in

lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

CREDIT

PURCHASE709940 1018186 1182087 1762005 2067232

SUPPLIERS /

CREDITORS280409 353895 442400 585285 757980

CREDITORS

TURNOVER

RATIO

2.53 2.88 2.67 3.01 2.73

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

The Creditors turnover ratio of BHEL was fluctuating during the year 2005 –

2010. It was upward in (2008– 2009) was 3.01 times and it was downward in 2009 –

2010 is 2.73 times.

Greater the CTR the more time firm has to pay to their creditors.

CHART -6

CREDITORS TURNOVER RATIO

TABLE –7

CASH TO CURRENT ASSETS RATIO

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

CASH 413398 580900 838600 1031467 979008

CURRENT

ASSETS

1633078 2106400 2770400 3690107 4293481

CAS TO

CURRENT

ASSETS

RATIO

0.25 0.27 0.30 0.28 0.23

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

The Cash to current assets turnover ratio of BHEL was fluctuating during the year

2005 – 2010. It was upward in (2005– 2008) was 0.25 times to 0.30 times and it was

downward in 2008 – 2010 is 0.23 times.

CHART -7

CASH TO CURRENT ASSETS RATIO

TABLE –8

CASH TURNOVER RATIO

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

SALES 1337403 1723753 1930464 2621233 3286144

CASH 413398 580891 838602 1031467 979008

CASH

TURNOVER

RATIO

3.24 2.97 2.31 2.54 3.36

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

The cash turnover ratio in the years 2005-2010 it was on fluctuating ratios, in

the year 2009-2010 it was increased (0.037%) 3.36.

INVENTORY MANAGEMENT

Introduction:

Inventories are stock of the product a company is manufacturing for sale and

components. That makeup the products. The various forms in which inventories

exist in a manufacturing company are: Raw-materials, work-in-process, finished

goods.

Raw-Materials: - Are those basic inputs that are converted into finished

products through the manufacturing process. Raw-materials inventories are

those units, which have been purchased and stored for future production.

Work-In-Process inventories are semi-manufactured products. The represent

products that need more work before they become finished products for sale.

Finished Goods inventories are those completely manufactured products,

which are ready for sale. Stocks of raw-materials and work-in-process

facilitate production which stock of finished goods is required for smooth

marketing operations. These inventories serve as a link between production

and consumption of goods.

Stores and spares are also maintained by some firms. This includes office

and plant cleaning materials like soaps, brooms, oil, fuel, light, bulbs etc.

These materials do not directly enter in production. But are necessary for

production process.

Need to holding inventory

The question of managing inventories arises only when the company holds

inventories. Maintaining inventories involves tying up of the company's funds and

incurrence of storage and handling cost. It is expensive to maintain inventories, why

does company hold inventories? There are three general motives for holding

inventories.

1. Transaction Motive: - Emphasizes the need to maintain inventories to facilitate

smooth production and sales operations.

2. Precautionary motive: - Necessitates holding of inventories to guard against the

risk of unpredictable changes in demand and supply forces and other factors.

3. Speculative motive: - Influences the decision to increase or reduce inventory

levels to take advantages of price influences.

A company should maintain adequate stock of materials for a continuous supply to

the factory for the uninterrupted production. It is not possible for a company to

procure raw materials whenever it is needed. A time lag exists between demand for

materials and its supply. Also there exists uncertainty in procuring raw materials in

time on many occasions. The procurement of materials may be delayed because of

such factors as strike, transport disruption or short supply. Therefore, the firm

should maintain sufficient stock of raw materials at a given time to stream line

production.

Objective of Inventory Management

In the context of inventory management the firm is faced with the problem of

meeting two conflicting needs ;

To maintain a large size of inventory for sufficient and smooth

production and sales operations.

To maintain a minimum investment in inventories to maximize

profitability.

Both excessive and inadequate inventories are not desirable. These are two

dangerous points within which the firm should operate. The objective of inventory

management should be to determine and maintain optimum level of inventory

investment. The optimum level of inventory will lie between the two danger points

of excessive and inadequate inventories.

The firm should always avoid a situation of over investment or under investment in

inventories. The major dangerous of over investment are,

Unnecessary tie-up of the firms funds losses of profit

Excessive carrying cost

Risk of quality

The aim of inventory management thus should be to avoid excessive and inadequate

levels of inventories and to maintain sufficient inventory for smooth production and

sales operations. Efforts should be made to place an order at the right time with the

right source to acquire the right quantity at the right price and quality. An effective

inventory management should

Ensure a continuous supply of raw materials to facilitate uninterrupted

production.

Maintain sufficient stock of raw materials in periods of short supply and

anticipate price changes.

Maintain sufficient finished goods inventory for smooth sales operations and

efficient customer service.

Minimize the carrying cost and time.

Control investment in inventories and keep it at an optimum level.

Inventory management techniques :

In managing inventories the firm objective should be in consonance with the

shareholders' wealth maximization principle. To achieve this firm should determine

the optimum level of inventory. Efficiently controlled inventories make the firm

flexible. Inefficient inventory control results in unbalanced inventory and

inflexibility-the firm ma sometimes run out of stock and sometimes may pileup

unnecessary stocks. This increases level of investment and makes the firm

unprofitable.

To manage inventories efficiency, answers should be sought to the following two

questions.

1) How much should be ordered?

2) When should it be ordered?

The first question how much to order, relates to the problem of determining

economic order quantity (EOQ), and is answered with an analysis of costs of

manufacturing certain level of inventories. The second question when to order arise

because of determining the reorder point.

When the order is placed for raw material certain raw material is in transit, such raw

material is called as raw material in transit.

Example –Raw material on overseas.

The raw material can be transfer from unit to another unit or from one department to

another is called transfer-in –transit. It is nothing but to the transfer of raw material

among the inter firm units of BHEL.

The raw material, which is production process, is called work-in process. The work

in process becomes finished goods inventory. The finished should not be kept for a

longer time. They should be sold off to clear off the entire inventory. However,

finished goods inventory is not there for BHEL, since production is mainly done on

customer order and specifications. The raw material is purchased and the whole

process is repeated again which we call it as inventory cycle.

Inventory turnover Ratio:-

Inventory turnover ratio indicates the efficiency of the firm in producing and selling

its products. It is calculated by dividing the cost of goods sold by the average

inventory. The average inventory is the average of open and closing balance of

inventory.

TABLE –9

INVENTORY TURNOVER RATIO

It indicates the inventories turning into receivables through sales.

Sales

Inventory turnover ratio =__________________________

Inventory

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

SALES 1337403 1723753 1930464 2621233 3286144

INVENTORY 374437 421767 573640 783702 923546

INVENTORY

TURNOVER

RATIO

3.57 4.09 3.37 3.34 3.56

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORT

INTERPRETATION

This ratio indicates the liquidity of the inventory, that is, how quickly, on the

average, the inventory was sold during the year and consequently the significance of

the inventory for the debt paying purposes.

A high stock turnover ratio is generally considered desirable because it is indicative

of efficient performance since an improvement in the ratio shows hat volume of

sales has been either maintained or increased without additional investment in stock.

Inventory turnover of BHEL for 2006 – 2007 was 4.09. In 2007-2008 the inventory

turnover ratio was high up to 3.37 and it was high in 2009-20010 at 3.56.

CHART –9

INVENTORY TURNOVER RATIO

TABLE –10

INVENTORY HOLDING PERIOD

Rs in

lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

DAYS /

MONTH IN

YEAR

365 365 365 365 365

INVENTORY

TURNOVER

RATIO

3.57 4.09 3.37 3.34 3.56

INVENTORY

HOLDING

PERIOD

102 89 108 109 103

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

Inventory holding period of Bhel is varying on every year. In the year of 2005-06 to

2007-08 it’s increased in 0.06% (102 to 108) and 2009-10 it’s decreased by 0.047

%.

CHART –9

INVENTORY HOLDING PERIOD

TABLE-11

WORKING CAPITAL TURNOVER RATIO

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

SALES 1337403 1723753 1930464 2621233 3286144

NET

WORKING

CAPITAL

601076 664286 788388 856817 1049309

WORKING

CAPITAL

TURNOVER

RATIO

2.23 2.59 2.45 3.06 3.13

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

Working capital turnover ratio for the year 2009 - 2010 was 3.13 times. It is

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

improve by more concentration on collection strategies.

CHART-11

WORKING CAPITAL TURNOVER RATIO

TABLE –12

WORKING CAPITAL FOR TREND ANALYSIS

Rs in lakhs

YEAR 2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010

CURRENT

ASSETS1633078 2106297 2770472 3690107 4293481

CURRENT

LIABILITIES1032002 1442011 1982084 2833290 3244172

WORKING

CAPITAL 601076 664286 788388 856817 1049309

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

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

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

CHART – 12

WORKING CAPITAL FOR TREND ANALYSIS

TABLE –13

ANALYSIS OF VARIOUS COMPONENTS IN WORKING CAPITAL

CURRENT ASSETS

Rs in lakhs

Particulars2005 -

2006

2006-

2007

2007-

2008

2008-

2009

2009-

2010

inventories 22.93

43.90

25.30

0.52

7.35

20.03

46.03

27.58

0.95

5.41

20.71

43.22

30.27

1.52

4.28

21.24

43.29

27.95

0.95

6.57

21.52

48.18

22.80

0.95

6.55

Sundry debtors

C& B balance

Other assets

Loans and advances

Total 100 100 100 100 100

SOURCE: SECONDARY DATA

INTERPRETATION

In this period 2005 – 2010 Sundry debtors and other current assets was only maintained

in stable for the period of study. Bhel must be extra care about cash and bank balance in

future. In the period of 2007-2010 inventory ratios are increased. All about Bhel should

be very care and must maintain in adequate current assets in future.

CHART – 13

ANALYSIS OF VARIOUS COMPONENTS IN WORKING CAPITAL

GRAPH 13 .1 INVENTORY

GRAPH 13 .2 SUNDRY DEBTORS

GRAPH 13 .3 CASH AND BANK BALANCES

GRAPH 13 .4 OTHER CURRENT ASSETS

GRAPH 13 .5 LOANS AND ADVANCES

GROSS PROFIT RATIO :

Gross profit margin shows the company can return income at the gross level. This

ratio helps to control inventory usage and production performance and fixing unit

price of goods.

TABLE – 14

ANALYSIS OF GROSS PROFIT RATIO

Rs in lakhs

Particulars 2005-2006 2006-2007 2007 - 2008 2008-2009 2009-2010

Gross Profit /

Profit before tax256435 373607 443039 484885 659065

Total Sales 1337403 1723753 1930464 2621233 3286144

Gross Profit ratio 0.192 0.217 0.230 0.185 0.201

GRAPH 14 - GROSS PROFIT RATIOS

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

In the analysis of Gross profit ratio Bhel must control production expenses in future.

Comparison of 2007-08 to 2009-10 margin profit ratio will goes down in 2 %. Firm will

be control in production cost in next coming years, such as raw material, freight and

transport expenses. Otherwise, Bhel must increase in sales unit price.

NET PROFIT RATIO:

As every business is to earn profit, this ratio is very important because it measures the

profitability of sales. A business may yield high gross income but low net income

because of increasing operating and non-operating expenses. This situation can easily be

detected by calculating this ratio.

The profits used for this purpose may be profits after/before tax. To obtain this ratio, the

figure of net profits after tax is divided by the figure of net profits after tax is divided by

the figure of sales the ratio is also known as sales margin as we can ascertain with its help

the margin which the sales leave later deducting all the expenses. The unit of expression

is percentage, as is the case with profitability ratios.

TABLE – 15

ANALYSIS OF NET PROFIT RATIO

Rs in lakhs

Particulars 2005-2006 2006-2007 2007 - 2008 2008-2009 2009-2010

Net Profit /

Profit after tax 167916 241470 285934 313821 431064

Net Sales 1337403 1723753 1930464 2621233 3286144

Net Profit ratio 0.126 0.140 0.148 0.120 0.131

GRAPH 15 NET PROFIT RATIOS

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

In this period of research of study Net profit of the Bhel company goes

downwards from 2008 – 2010 comparing previous year achievements.

Gross Profit to Net Profit Ratio:

Analysis of ratio’s G.P. to N.P is very important in every firm. It helps to find out the

cost of expense increased in production or administrative level and other hand it helps to

control in overall financial expenses.

TABLE – 16

ANALYSIS OF G.P. TO N.P RATIO

Rs in lakhs

Particulars 2005-2006 2006-2007 2007 - 2008 2008-2009 2009-2010

Gross Profit 256435 373607 443039 484885 659065

Net Profit 167916 241470 285934 313821 431064

G.P. - N.P. RATIO 1.53 1.55 1.55 1.55 1.53

GRAPH 16 G.P. TO N.P. RATIO

SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS

INTERPRETATION

In this period of research of study Gross Profit and Net Profit are equal. Bhel control his

marginal and administrative cost in his control. There is no variation and its goes to

stable.

TREND ANALYSIS

Particulars 2006 2007 2008 2009 2010

Current Assets :

Inventories / Stock 100 112.64 153.20 209.30 246.65

Debtors 100 135.26 167.06 222.87 288.62

Cash and Bank Balances100 140.52 202.86 249.51 236.82

Other Current Assets 100 236.33 498.33 414.45 481.48

Loans & Advances100 95.08 98.87 201.99 234.50

Current Liabilities :

Liabilities 100 135.08 188.20 265.19 318.17

Provisions100 166.79 214.54 329.01 292.14

INTERPRETATION

Above Table Inventory and debtors goes to growth level in all the years. Loans and

Advances and Other Current assets show high level of improvement in all the years.

Cash and Bank balances are fluctuating ratio in the year 2008 – 2010. Current Liabilities

are increasing in all the years and Provisions are fluctuating in the year 2010 compared to

previous years.

FINDINGS

1) Standard current ratio is 2:1 and for industry it is 1.33:1. BHEL ratio satisfactory.

2) Acid test ratio is more than one but it does not mean that company has excessive

liquidity & firm quick ratio is declining from 2005-06 to 2009-10

3) Debtors of the company were high; they were increasing year by year, so more funds

were blocked in debtors. But now recovery is becoming faster.

4) Debtors turnover ratio is fluctuating from 2005-06 to 2009-10, which means inventory

is not utilized in better way so it is not a good sign for the company.

5) Inventory turnover ratio is improving from 2001-02 to 2005-06.increase in ratio is

beneficial for the company because as ratio increases the number of days of collection for

debtors decreases.

6) Working capital turnover ratio is continuously increasing that shows increasing needs

of working capital.

7) Production capacity is not utilized to the full extent

The study is basically done to have a deep knowledge about WORKING CAPITAL of

the BHEL industries limited. BHEL, Industries limited is having an appropriate working

capital management of the organizations. NET PROFIT growth rate is 13.10% in 2009-

10, it is showing a nominal increase in net profit as compared to last year. The GROSS

PROFIT of BHEL more or less is maintaining same margin of profit.

The firm DCP is rising every year which is major concern for firm as larger the DCP

greater the chances of bad debts. DTR is also decreasing in 2005-06 it was 1.87times now

it has drop down to 1.59times.

Current ratio is also below the standard norm. in the financial year 2005-06 it was 1.58

now it has decreased upto 1.32.The firm should maintain the adequate level of current

assets in order to discharge its current liabilities.

As far as cash ratio is concerned the firms not maintain the sufficient level of quick assets

because of the day-to-day expenses . It is fluctuating between the standard norms for this

ratio is 1:2 means for every 2 rupees of current Liabilities.

Company must have 1 rupee of cash and bank balance and marketable securities.

SUGGESTIONS

1)It can be said that overall financial position of the company is normal but it is required

to be improved from the point of view of profitability.

2) Net operating cycle is increasing that means there is a need to make Improvements in

receivables/debtors management.

3) Company should stretch the credit period given by the suppliers.

4) Company should not rely on Long-term debts.

5) Company should try to increase Volume based sales so as to stand in the competition.

Since the BHEL is a profit making company and the interests of the investors are also

safe so for making more profit and for increasing the net profit as well as gross profit the

organization should curtail its operating, administrative & non productive expense.

Company is having good marketability, profitability and liquidity so the company can

raise its fund. Company should not forget its ‘Quality Policy’ i.e. we at BHEL, should

aim to achieve and sustain excellence in all our activities.

We are committed to total customer satisfaction by providing producers and services

which meet or exceed the customer expectation.

Modernization of the manufacturing facilities, stress on technological innovation and

training of employees at all levels shall be continuous process in BHEL.

LIMITATIONS

The study does not consider the market fluctuations in all its calculations.

Analysis is very much dependent on the companies’ internal bulletin.

BIBLIOGRAPHY

Bibliography

Reports

Annual Report (2005-2010)

Bonus issue bulletin 2005

Websites

www.BHEL.com as on 20th July 2011

Books

Basic corporate accounting – CA Dr. Girish Ahuja, Page No. 110

Financial Management – R.P Rustagi, Page No. 56