A STUDY ON MAMAGEMENT OF WORKING CAPITAL With reference to Bharat ea!" P#ate$ %&e $$e#$ Li'ite( )BP&* A +r o,ect re+ort in the area of -Finance. $/0'itte( to BERHAMPUR UNIVERSITY f/#fi##'ent of the re1/ire'ent$ for the a2ar( of (e3 ree ofBAECLOUR OF BUSINESS ADMINISTRATION4 B" REYYA ISWA R REDDY5 Re3 no67 89:;:<=>8> Under the esteemed guidance ofMr 4 $4?4+a( h" Asst. ProfessorCollege of Business Administration, BerhampurPRESIDENCY COLLEGE’S COLLEGE OF USINESS !D"INIS#R!#ION ER$!"PUR%ORISS!
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8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
an( contro##in3 of fir'$ financia# re$o/rce$4 It 2a$ a 0ranch of econo'ic$ ti## 8:>
an( a$ a $e+arate (i$ci+#ine it 2a$ of recent ori3in4 Sti## it ha$ no /ni1/e 0o(" of ?no2#e(3e of it$ o2n an( (ra2$ hea!i#" fro' econo'ic$ for it$ theoretica# conce+t$
e!en to(a"4 Theor" of financia# 'ana3e'ent +ro!i(e$ conce+t/a# an( ana#"tica#
in$i3ht$ to 'a?e (eci$ion$ re#atin3 to the financia# a$+ect$ of or3aniation $?i##f/##"4
Definition$ of financia# 'ana3e'ent
-Financia# 'ana3e'ent i$ concerne( 2ith the efficient /$e of an i'+ortant
re$o/rce na'e#"5 ca+ita# f/n($.4 EHRA SOLOMAN
-Financia# 'ana3e'ent i$ concerne( 2ith the 'ana3eria# (eci$ion$ that re$/#t in
the ac1/i$ition an( financin3 of #on37ter' an( $hort7ter' cre(it$ for the fir'.4
PILLIPPATUS4
-Financia# 'ana3e'ent i$ that 0/$ine$$ acti!it" 2hich i$ concerne( 2ith the
ac1/i$ition an( con$er!ation of ca+ita# f/n($ in 'eetin3 financia# nee($ an(
o!era## o0,ecti!e$ of a 0/$ine$$ enter+ri$e.4 WEELER
The$e (efinition$ 2e can /n(er$tan( the f/nction$ of the financia# 'ana3e'ent4 Tho$e
are +roc/re'ent of f/n($ an( effecti!e /ti#iation an( +art of the$e f/nction$ /$e(ifferent techni1/e$4
OB@ECTI&ES OF FINANCIAL MANAGEMENT
/ite o0!io/$#"5 the o0,ecti!e of the fir' $ho/#( 0e the 'aJi'iation of it$ !a#/e of the
$hareho#(er$4 The +rice of $hare$ in the 'ar?et in(icate$ the !a#/e of the fir'4 Factor$
#i?e in!e$t'ent5 financin3 an( (i!i(en( eJerci$e an inf#/ence on the 'ar?et +rice of
the $hare$4 The 'ain o0,ecti!e$ of financia# 'ana3e'ent can 0e $ai( a$6
PROFIT MAIMIHATION
The o0,ecti!e of e!er" or3aniation i$ +rofit 'aJi'iation4 Profit MaJi'iation
'ean$ 'aJi'iin3 the r/+ee inco'e of fir'$4 Profit i$ con$i(ere( a$ the 'o$t
a++ro+riate 'ea$/re of a fir'$ +erfor'ance4
WEALT MAIMIHATION
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
BP& ha$ e'er3e( a$ one of the #ea(in3 hea!" en3ineerin3 In(/$trie$ after it$incor+oration5 in the "ear 8:;; to 'an/fact/re c/$to' B/i#t ca+ita# e1/i+'ent
re1/ire( 0" the +roce$$ in(/$trie$ #i?e ferti#ier$5 Petro che'ica# % che'ica#
in(/$trie$4
After it$ co''i$$ionin3 % co''ence'ent of +ro(/ction5 the Co'+an" ha$ 0een
contin/o/$#" /+(atin3 it$ techno#o3ie$5 0" enterin3 into Co##a0oration$ 2ith reno2ne(
confi(ence5 there0" earnin3 +o$iti!e financia# fi3/re$ an( on the 2a" of re3ainin3 +a$t
3#or"4
The i'+ortance of the $t/("5 Wor?in3 Ca+ita# Mana3e'ent in BP&5 &i$a?ha+atna'
+re$/++o$e$ that one !er" i'+ortant rea$on$ for 2hich P/0#ic $ector Enter+ri$e$ in
In(ia ha!e $/ffere( financia# $train$ in the #ate >$ an( in :>$ or earne( #o2 Le!e# of +rofit 'a" re#ate to the 'i$con$tr/in3 of the financia# a$+ect$4 a( the$e Enter+ri$e$
'ana3e( the o!era## finance o+eration$ in an efficient 'anner5 the" 2o/#( ha!e
3enerate( re$o/rce$ for it$ 3ro2th a$ 2e## a$ econo'ic 3ro2th4
OB@ECTI&ES OF TE STUDY
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
In the area of +roce$$ +#ant6 L%T5 GR En335 L#o"($ $tee#5 ISGEC5
@ohn Tho'$on5 Go(re, etc
In the area of cr"o3enic$6 ICCP5 INO5 Shan3hai$ oJ"3en5 L%T5Lin(a5 &@U5 E$$ar5 LINDE5 Air
+ro(/ct$5 Ko0e5 itachi5 OPM5 PraJair
In the area of co'0/$tion $"$te'6 ISGEC5 Ba0coc? Ther'aJ5 I3nif#/i( 0oi#er$5
ABL L%T KTI5 Ther'aJ etc
COMPANY PROFILE
EAD OFFICE67 &i$a?ha+atna'5 An(hra Pra(e$h4
BRANC OFFICE6 7 M/'0ai5 Chennai5 Ne2 De#hi
Bharat ea!" P#ate$ an( &e$$e#$ Lt(5 it i$ a +/0#ic Li'ite( Co'+an"4 It i$ a ,o0 or(er<
$ho+ +ro(/ction in(/$tr"4 Accor(in3 to c/$to'er $+ecification$ an( re1/ire'ent$ it
+ro(/ce$ !ario/$ +ro(/ct$4 Fore $eein3 the co/ntr"$ nee( for fa0ricatin3 e1/i+'ent of
an eJc#/$i!e Factor" 2ith the 'ain o0,ect of re(/cin3 (e+en(ence on forei3n $/++#ier$
an( 0eco'e $e#f $/fficient o/r$e#!e$4
Th/$ the 0irth of BP& in the "ear 8:;; to 'eet the (e'an($ of +roce$$ e1/i+'entfor core in(/$tr" #i?e Ferti#ier$5 +etroche'ica#$5 +etro#e/' an( other che'ica#
in(/$trie$ initia##"4 BP& /$in3 (ifferent t"+e$ of 'ateria#$ 'an/fact/re( an(
2e## a$ at the ti'e 2hen con$tr/ction 2a$ 3oin3 on4
In $+ite of a## tho$e o0$tac#e$ the ci!i# an( $tr/ct/ra# 2or? 2a$ co'+#ete( to a 'a,or
eJtent 0" the en( of 8$t March8:;4The #icen$e( an( in$ta##e( ca+acit" i$ ==8> MT4
The initia# ca+ita# o/t#a" 0ein3 R$4849 crore$4 Later after Co'+#etion of in$ta##ation
2or? BP& ha( recei!e( or(er$ for the 8$t ti'e fro' M<S BOKARO $tee# +#ant an(
Ferti#ier Cor+oration of In(ia #t(45 for fa0rication an( $/++#" of e1/i+'ent4
The factor" at initia# $ta3e$ ha( $/ffere( a #o$$ in fa0rication an( (e#i!er" of
e1/i+'ent to c/$to'er$ (/e to (e#a" in the +roc/re'ent of re1/ire( ra2 'ateria#4 The
factor" 2a$ $che(/#e( to 3o into +ro(/ction initia##" in @/#" 8:;5 0/t (/e to 0ac?#o3 of
$o'e /nco'+#ete( con$tr/ction 2or? the Co'+an" 2ent into co''ercia# +ro(/ction
on#" in 8:84 Sir K4C4Panth then the Mini$ter of State for $tee# an( hea!" en3ineerin3ina/3/rate( the initia# +ro(/ction in 8:> 2here $o'e +ro(/ction faci#itie$ ha(
Go!ern'ent$ +o#ic" to2ar($ PSU i4e4 i'+#e'entation of &RS an( +ro+o$a#$ for
(i$in!e$t'ent5 the Co'+an" ha$ $/ffere( h/3e #o$$e$ in =>>=7> an( =>>7>4 B" !irt/e
of thi$5 entire net 2orth of the co'+an" 3ot ero(e(4 Thi$ re$/#te( for reference of the
co'+an" to BIFR in A/3/$t =>>4
&ario/$ re!i!a# +ro+o$a#$ trie( after =>> for reha0i#itation of the co'+an" thro/3h
o/tri3ht $a#e5 'er3in3 2ith other PSU$5 $tan( a#one re!i!a# etc4 o2e!er5 (/e to
chan3e in Go!ern'ent +o#ic" after =>>9 an( con$i(erin3 the +otentia# of BP&5 GOI
ha$ fina##" 'a(e the co'+an" a$ $/0$i(iar" of BEL5 a Navaratna PSU4
AN O&ER&IEW OF TOP MANAGEMENT6
Fro' Ma" =>> the co'+an" 0eca'e $/0$i(iar" of BEL4 At Cor+orate #e!e# the
co'+an"$ affair$ are 'ana3e( 0" the Boar( con$i$t of f/## ti'e Mana3in3 Director
an( CMD5 BEL a$ the chair'an of the 0oar(4 In a((ition5 8 EJ officio Director fro'DI )a('ini$trati!e 'ini$tr"* % = f/nctiona# Director$ a#$o con$tit/te the Boar(4
Techno#o3" % Mar?et I$$/e$6
The +re$ent +#ant % 'achiner" % infra$tr/ct/re /ti#iin3 0" the co'+an" i$ of >
"ear$ o#( an( ha!e 0een f/##" (e+reciate(4 At +re$ent the interna# #ea( ti'e i$ hi3h
2hen co'+are to co'+etitor$4 Si'i#ar#" in the area$ of en3ineerin3 the #ea( ti'e
re1/ire( for (e$i3n an( (ra2in3$ i$ to 0e re(/ce( 2hich re1/ire$ i'+#e'entation of
$o+hi$ticate( +roce$$ (e$i3n $oft2are4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
it$ $/++#ier$ 2ho 'a" $/++#" ra2 'ateria#$ on cre(it an( the fir' 'a" not +a"
a## the eJ+en$e$ i''e(iate#"4 Therefore5 certain a'o/nt of f/n($ i$ a/to'atica##"
a!ai#a0#e to finance the c/rrent a$$et$ re1/ire'ent$4 o2e!er the re1/ire'ent$ for
c/rrent a$$et$ are /$/a##" 3reater than the a'o/nt of f/n($ +a"a0#e thro/3h c/rrent
#ia0i#itie$ 4 In other 2or($5 c/rrent a$$et$ are to 0e ?e+t at a hi3her #e!e# than the
c/rrent #ia0i#itie$4
CONCEPTS OF WORKING CAPITAL
There are t2o conce+t$ of 2or?in3 ca+ita#
)a* Gro$$ 2or?in3 ca+ita#
)0* Net 2or?in3 ca+ita#
Gro$$ 2or?in3 ca+ita#
Gro$$ 2or?in3 ca+ita# refer$ to the fir'$ in!e$t'ent in c/rrent a$$et$4 C/rrenta$$et$ are the a$$et$5 2hich can 0e con!erte( into ca$h 2ith in an acco/ntin3 "ear
Te'+orar" 2or?in3 ca+ita# re1/ire'ent of a concern 'a" 0e 'et fro' the $hort ter'$o/rce$ of ca+ita# #i?e
o Co''ercia# 0an?er$
o In(i3eno/$ 0an?er$
o Tra(e cre(itor$
o Accr/e( eJ+en$e$
o Co''ercia# +a+er$
o Acco/nt$ recei!a0#e$
Wor?in3 ca+ita# i$ !er" e$$entia# to 'aintain the $'ooth r/nnin3 of 0/$ine$$4 No0/$ine$$ can r/n $/cce$$f/##" 2itho/t an a(e1/ate a'o/nt of 2or?in3 ca+ita#4
o2e!er it '/$t a#$o 0e note( that 2or?in3 ca+ita# i$ a 'ean$ to r/n the 0/$ine$$
$'ooth#" an( +rofita0#" an( not an en( in it$e#f4 Th/$ conce+t of 2or?in3 ca+ita#
can 0e con(/cte( thro/3h a n/'0er of (e!ice$ $/ch a$
o Ratio ana#"$i$
o F/n($ f#o2 ana#"$i$
o B/(3et
RATIO ANALYSIS
A ratio i$ a $i'+#e arith'etic eJ+re$$ion of the re#ation$hi+ of one n/'0er to another4
The techni1/e of ratio ana#"$i$ can 0e e'+#o"e( for 'ea$/rin3 $hort ter'
#i1/i(it" or 2or?in3 ca+ita# +o$ition of a fir'4 Se!era# ratio$ #i?e c/rrent ratio 5
1/ic? ratio 5 in!entor" t/rno!er ratio 5 recei!a0#e t/rno!er ratio 5 +a"a0#e$
t/rno!er ratio 5 2or?in3 ca+ita# t/rno!er ratio5 ca$h +o$ition ratio etc4
=4FUNDS FLOW ANALYSIS
F/n($ f#o2 ana#"$i$ i$ a technica# (e!ice (e$i3nate( to $t/(" the $o/rce$ fro' 2hich
a((itiona# f/n($ are (eri!e( an( the /$e to 2hich the$e $o/rce$ are +/t4 It i$ an
effecti!e 'ana3e'ent too# to $t/(" chan3e$ in the financia# +o$ition )2or?in3
ca+ita#* of a 0/$ine$$ enter+ri$e 0et2een 0e3innin3 an( en(in3 financia# $tate'ent$
(ate$4 The f/n($ f#o2 ana#"$i$ con$i$t$ of6
)a* Pre+arin3 $che(/#e of chan3e$ in 2or?in3 ca+ita#
)0* State'ent of $o/rce$ an( a++#ication of f/n($4
4 WORKING CAPITAL BUDGET
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
in ti'e4 Th/$ it 2i## #oo$e it$ re+/tation an( $ha## not 0e a0#e to 3et 3oo( cre(it
faci#itie$4 it cannot 0/" it$ re1/ire'ent$ in 0/#? an( cannot a!ai# of (i$co/nt etc4
It 0eco'e$ (iffic/#t for the fir' to eJ+#oit fa!ora0#e 'ar?et con(ition$ an( /n(erta?e
+ro,ect$ (/e to #ac? of 2or?in3 ca+ita#4 The fir' cannot +a" (a" to (a" eJ+en$e$ of it$o+eration$ an( it create$ inefficiencie$5 increa$e co$t$ an( re(/ce$ the +rofit$ of the
0/$ine$$4 It 0eco'e$ i'+o$$i0#e to /ti#ie efficient#" the fiJe( a$$et$ (/e to non
7a!ai#a0i#it" of #i1/i( f/n($4 The rate of ret/rn on in!e$t'ent$ a#$o fa##$ 2ith the
$horta3e of 2or?in3 ca+ita#4
FACTORS DETERMINING TE WORKING CAPITAL REUIRMENTS
A fir' $ho/#( +#an it$ o+eration$ in $/ch a 2a" that it $ho/#( ha!e neither too '/ch
nor too #itt#e 2or?in3 ca+ita# 4 The 2or?in3 ca+ita# re1/ire'ent$ are (eter'ine( 0"
a 2i(e !ariet" of factor$4
Nat/re an( $ie of 0/$ine$$
Wor?in3 ca+ita# re1/ire'ent$ of a fir' are 0a$ica##" inf#/ence( 0" the nat/re of it$
0/$ine$$4 Tra(in3 an( financia# fir'$ ha!e a !er" $'a## in!e$t'ent in fiJe( a$$et$5 0/t
re1/ire a #ar3e $/' of 'one" to 0e in!e$te( in 2or?in3 ca+ita#4 Wherea$ +/0#ic
/ti#itie$ ha!e a !er" #i'ite( nee( for 2or?in3 ca+ita# an( ha!e to in!e$t a0/n(ant#" in
fiJe( a$$et$4
Their 2or?in3 ca+ita# re1/ire'ent$ are no'ina# 0eca/$e the" 'a" ha!e ca$h $a#e$ on#"an( $/++#" $er!ice$ 0/t not +ro(/ct$4 Wor?in3 ca+ita# nee($ of 'o$t 'an/fact/rin3
concern$ fa## 0et2een too eJtre'e re1/ire'ent$ of tra(in3 fir'$ an( +/0#ic /ti#itie$4
S/ch concern$ ha!e to 'a?e a(e1/ate in!e$t'ent$ in c/rrent a$$et$ (e+en(in3 /+on
the tota# a$$et$ $tr/ct/re an( other !aria0#e$4
The $ie of the 0/$ine$$ that i$ 'ea$/re( in ter'$ of $ca#e of o+eration$ a#$o ha$ an
i'+act on the 2or?in3 ca+ita# nee($4 A$ BP&$ $ca#e of o+eration$ i$ #ar3e5 the fir'
nee($ 'ore 2or?in3 ca+ita# then $'a## fir' (oe$4
Man/fact/rin3 c"c#e
The 'an/fact/rin3 c"c#e co'+ri$e$ of the +/rcha$e an( /$e of ra2 'ateria# in the+ro(/ction of fini$he( 3oo($4 A$ the fir'$ 'an/fact/rin3 c"c#e i$ #en3th" the 2or?in3
ca+ita# re1/ire'ent of the fir' i$ #ar3e4
Sa#e$ 3ro2th
The 2or?in3 ca+ita# nee($ of fir' increa$e a$ it$ $a#e$ 3ro24 C/rrent a$$et$ 2i## ha!e to
0e e'+#o"e( 0efore 3ro2th ta?e$ +#ace4 A 3ro2in3 fir' nee($ to in!e$t f/n($ in
fiJe( a$$et$ in or(er to $/$tain it$ 3ro2in3 +ro(/ction an( $a#e$ 4 Thi$ in t/rn
increa$e in!e$t'ent in c/rrent a$$et$ to $/++ort en#ar3e( $ca#e of o+eration$5 a
3ro2in3 fir' nee($ f/n($ contin/o/$#"4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
The 0/$ine$$ !ariation$ $/ch a$ $ea$ona# an( c"c#ica# f#/ct/ation$ in the (e'an( for
+ro(/ct$ an( $er!ice$ affect the 2or?in3 ca+ita# re1/ire'ent$4 When there i$ an
/+2ar( $2in3 in the econo'"5 $a#e$ 2i## increa$e4 Corre$+on(in3#"5 the fir'$
in!e$t'ent in in!entorie$ an( 0oo? (e0t$ 2i## a#$o increa$e4 D/rin3 0oo'5 a((itiona#in!e$t'ent$ in fiJe( a$$et$ 'a" 0e 'a(e 0" $o'e fir'$ to increa$e their +ro(/cti!e
ca+acit"4 The$e act a$ f/rther a((ition$ to 2or?in3 ca+ita#4
=4 Pro(/ction +o#ic"
To re(/ce 2or?in3 ca+ita# +ro0#e'$ ari$in3 (/e to chan3e$ in (e'an( for the fir'$
+ro(/ct$5 a $tea(" +ro(/ction +o#ic" 'a" 0e 'aintaine(4 If the fir'$ +ro(/cti!e
ca+acitie$ can 0e /ti#ie( for 'an/fact/rin3 !arie( +ro(/ct$5 it can ha!e the
a(!anta3e of (i!er$ifie( acti!itie$ an( $o#!e it$ 2or?in3 ca+ita# +ro0#e'$4
Price #e!e# chan3e$
Genera##"5 ri$in3 +rice #e!e#$ 2i## re1/ire a fir' to 'aintain hi3her a'o/nt of 2or?in3
ca+ita#4 o2e!er co'+anie$ 2hich can i''e(iate#" re!i$e their +ro(/ct +rice$ 2ith
ri$in3 +rice #e!e#$ 2i## not face a $e!ere 2or?in3 ca+ita# +ro0#e'4
O+eratin3 efficienc" an( +erfor'ance
The o+eratin3 efficienc" of the fir' re#ate$ to the o+ti'/' /ti#iation of re$o/rce$ at'ini'/' co$t$4 The /$e of 2or?in3 ca+ita# i$ i'+ro!e( an( the +ace of ca$h c"c#e i$
acce#erate( 2ith o+eratin3 efficienc"4 Better /ti#iation of re$o/rce$ i'+ro!e$
+rofita0i#it" an( th/$ he#+$ in (ecrea$in3 the +re$$/re on 2or?in3 ca+ita#4
A hi3h net +rofit 'ar3in contri0/te$ to2ar($ the 2or?in3 ca+ita# +oo#4 In fact5 the
net +rofit i$ a $o/rce of 2or?in3 ca+ita# to the eJtent it ha$ 0een earne( in ca$h4 A fir'
can enhance it$ 2or?in3 ca+ita# f/n($ 0" $a!in3 taJe$ thro/3h a++ro+riate taJ
+#annin34
Fir'$ cre(it +o#ic"
The cre(it +o#ic" of the fir' affect$ 2or?in3 ca+ita# 0" inf#/encin3 the #e!e# of 0oo?
(e0t$4 The cre(it ter'$ to 0e 3rante( to c/$to'er$ 'a" (e+en( /+on nor'$ of the
in(/$tr" to 2hich the fir' 0e#on3$4 The fir' $ho/#( 0e (i$cretionar" in 3eneratin3
cre(it ter'$ to it$ c/$to'er4 De+en(in3 /+on the in(i!i(/a# ca$e (ifferent ter'$ 'a"
0e 3i!en to (ifferent c/$to'er$4
A #i0era# cre(it +o#ic" 2itho/t ratin3 the cre(it 2orthine$$ of c/$to'er$ 2i## 0e
(etri'enta# to the fir' an( 2i## create a +ro0#e' for co##ectin3 f/n($ #ater on4 S#ac?
co##ection +roce(/re$ re$/#t in increa$e of 0oo? (e0t$4 The fir' $ho/#( fo##o2 a
rationa#ie( cre(it +o#ic" 0a$e( on the cre(it $tan(in3 of c/$to'er$ an( other
re#e!ant factor$4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
Net O+eratin3 C"c#e )NOC* i$ the (ifference 0et2een 3ro$$ o+eratin3 c"c#e an(
+a"a0#e$ (eferra# +erio(4
Net O+eratin3 C"c#e )NOC* Gro$$ o+eratin3 c"c#e Cre(itor$ (eferra# +erio(4
KEY AREAS OF WORKING CAPITAL
Genera##" in the 2or?in3 ca+ita# 'ana3e'ent there are three i'+ortant area$ 2hich
are !er" i'+ortant 4Tho$e are
Ca$h 'ana3e'ent
Recei!a0#e$ 'ana3e'ent
In!entor" 'ana3e'ent
MANAGEMENT OF CASMANAGEMENT OF CAS
Ca$h 'ana3e'ent i$ one of the ?e" area$ of 2or?in3 ca+ita# 'ana3e'ent4 The ter'Ca$h 'ana3e'ent i$ one of the ?e" area$ of 2or?in3 ca+ita# 'ana3e'ent4 The ter'
ca$h refer$ to ca$h 'ana3e'ent i$ /$e( in t2o $en$e$4 In a narro2 $en$e it i$ /$e(ca$h refer$ to ca$h 'ana3e'ent i$ /$e( in t2o $en$e$4 In a narro2 $en$e it i$ /$e(
(raft$ an( (e'an( (e+o$it$ in 0an?$4 The 0roa(er !ie2 of ca$h a#$o inc#/(e$ near(raft$ an( (e'an( (e+o$it$ in 0an?$4 The 0roa(er !ie2 of ca$h a#$o inc#/(e$ near
characteri$tic of the$e i$ that the" can 0e rea(i#" con!erte( into ca$h 4 Thecharacteri$tic of the$e i$ that the" can 0e rea(i#" con!erte( into ca$h 4 The
three +ri'ar" 'oti!e$ for 'ain ca$h 0a#ance are a$ fo##o2$6three +ri'ar" 'oti!e$ for 'ain ca$h 0a#ance are a$ fo##o2$6
Tran$action 'oti!e$Tran$action 'oti!e$
Thi$ refer$ to the ho#(in3 of ca$h to 'eet ro/tine ca$h re1/ire'ent$ to finance theThi$ refer$ to the ho#(in3 of ca$h to 'eet ro/tine ca$h re1/ire'ent$ to finance the
tran$action$ 2hich a fir' carrie$ on 5 in the or(inar" co/r$e of 0/$ine$$4tran$action$ 2hich a fir' carrie$ on 5 in the or(inar" co/r$e of 0/$ine$$4
Preca/tionar" 'oti!e$Preca/tionar" 'oti!e$
Thi$ 'oti!e of ho#(in3 ca$h i'+#ie$ the nee( to ho#( ca$h to 'eet /n+re(icta0#eThi$ 'oti!e of ho#(in3 ca$h i'+#ie$ the nee( to ho#( ca$h to 'eet /n+re(icta0#e
o0#i3ation$4o0#i3ation$4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
S+ec/#ation 'oti!e refer$ to the (e$ire of a fir' to ta?e a(!anta3e of o++ort/nitie$S+ec/#ation 'oti!e refer$ to the (e$ire of a fir' to ta?e a(!anta3e of o++ort/nitie$
2hich +re$ent the'$e#!e$ at /neJ+ecte( 'o'ent$ an( 2hich are t"+ica##" o/t$i(e the2hich +re$ent the'$e#!e$ at /neJ+ecte( 'o'ent$ an( 2hich are t"+ica##" o/t$i(e the
nor'a# co/r$e of 0/$ine$$4nor'a# co/r$e of 0/$ine$$4
Ca$h c"c#e6Ca$h c"c#e6
The ca$h c"c#e refer$ to the +roce$$ 0" 2hich ca$h i$ /$e( to +/rcha$e 'ateria# fro'The ca$h c"c#e refer$ to the +roce$$ 0" 2hich ca$h i$ /$e( to +/rcha$e 'ateria# fro'
2hich 3oo($ are +/rcha$e( an( then $o#( to c/$to'er$ to +a" 0i##$ #ater4 The fir'2hich 3oo($ are +/rcha$e( an( then $o#( to c/$to'er$ to +a" 0i##$ #ater4 The fir'
recei!e$ ca$h fro' c/$to'er$ an( the c"c#e re+eat$ it$e#f4recei!e$ ca$h fro' c/$to'er$ an( the c"c#e re+eat$ it$e#f4
Ca$h 0/(3et6Ca$h 0/(3et6
It i$ a (e!ice to he#+ a fir' to +#an an( contro# the /$e of ca$h4 It i$ a $tate'entIt i$ a (e!ice to he#+ a fir' to +#an an( contro# the /$e of ca$h4 It i$ a $tate'ent
$ho2in3 the e$ti'ate( ca$h inf#o2 an( ca$h o/tf#o2 o!er the fir'$ +#annin3 horion4$ho2in3 the e$ti'ate( ca$h inf#o2 an( ca$h o/tf#o2 o!er the fir'$ +#annin3 horion4
CAS MANAGEMENT SYSTEM IN BP&CAS MANAGEMENT SYSTEM IN BP&
Ca$h (i$co/nt i$ a re(/ction in +a"'ent offere( to c/$to'er to in(/ce the' to re+a"
cre(it a'o/nt 2ithin a $+ecifie( +erio( of ti'e 2hich 2i## 0e #e$$ than the nor'a#
cre(it +erio(4
COLLECTION EFFORTS6
Thi$ (eter'ine$ act/a# co##ection +erio(4 The #o2er the co##ection +erio(5 the #o2er i$
the in!e$t'ent in acco/nt$ recei!a0#e$ an( !ice !er$a4 Pro'+t co##ection i$ nee(e(
for fa$t t/rno!er of 2or?in3 ca+ita#4 Kee+in3 co##ection co$t$ an( 0a( (e0t$ 2ithin
#i'it$ an( 'aintainin3 co##ection efficienc" a#$o inf#/ence the 2or?in3 ca+ita# nee($ of
the fir'4
IN&ENTORY MANAGEMENT6
In!entor" i$ one of the 'a,or c/rrent a$$et$4 The ter' in!entor" refer$ to the
$toc?+i#e of the +ro(/ct a fir' i$ offerin3 for $a#e an( co'+onent$ that 'a?e /+ the
+ro(/ct4 The a$$et$ 2hich fir'$ $tore$ a$ in!entor" in antici+ation of nee( are ra2
'ateria#$5 2or? in +ro3re$$ an( fini$he( 3oo($4
The 'ain o0,ecti!e of in!entor" 'ana3e'ent i$6
84 To 'ini'ie the fir'$ in!e$t'ent in in!entor"
=4 To 'eet a (e'an( for the +ro(/ct 0" efficient#" or3aniin3 the fir'$
+ro(/ction an( $a#e$ o+eration$4
4 The 'a,or o0,ecti!e of in!entor" 'ana3e'ent i$ to 'ini'ie co$t4 The co$t
a$$ociate( 2ith in!entor" 'ana3e'ent fa##$ into t2o 0a$ic cate3orie$4
Or(erin3 < ac1/i$ition < $et7/+ co$t
Carr"in3 co$t
Man" $o+hi$ticate( 'athe'atica# techni1/e$ are a!ai#a0#e to han(#e in!entor"
'ana3e'ent +ro0#e'$4 The 'a,or +ro0#e' area$ that co'+ri$e the heart of in!entor"contro#$ are4 C#a$$ification +ro0#e' to (eter'ine the t"+e of contro# re1/ire(4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
D/rin3 the 9 "ear +erio(5 the 2or?in3 ca+ita# +o$ition of BP&L i$ (ec#inin34 D/rin3=>>;7> to =>8>788 on#" the 2or?in3 ca+ita# $ho2$ an Do2n 2ar( tren(4 Fro' the
a0o!e ta0#e 2e can o0$er!e that the net 2or?in3 ca+ita# i4e45 c/rrent a$$et$ an( c/rrent
#ia0i#itie$ i$ !er" #o2 in the "ear =>>7>: i4e45 =84: 2hen co'+are( to =>>7> an(
a3ain it 2a$ increa$e( 0" =;94> in the "ear =>>:78> an( (ecrea$e( in the "ear =>8>7
884 Thi$ $ho2$ that the fir' i$ not in a +o$ition to 'aintain it$ c/rrent a$$et$ an(
c/rrent #ia0i#itie$4 Beca/$e of thi$ rea$on the net 2or?in3 ca+ita# i$ f#/ct/atin34
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
Fro' the a0o!e ta0#e 2e can o0$er!e that In 0et2een =>>:78> an( =>8>788 the net2or?in3 ca+ita# +o$ition $ho2$ a Do2n 2ar( tren( i4e45 84 0eca/$e there i$ a
/ic? ratio i$ a#$o ?no2n a$ Li1/i( Ratio or Aci( Te$t Ratio4 The ter' #i1/i(it"
refor'$ to the a0i#it" of a fir' to +a" it$ $hort7ter' o0#i3ation a$ an( 2hen the"0eco'e (/e4 /ic? ratio 'a" 0e (efine( a$ the re#ation$hi+ 0et2een /ic? < Li1/i(
a$$et$ an( C/rrent < Li1/i( #ia0i#itie$4 An a$$et i$ $ai( to 0e #i1/i( if it can 0e
con!erte( into ca$h 2ithin a $hort +erio( 2itho/t #o$$ of !a#/e4
UICK ASSETS
UICK RATIO XXXXXXXXXXX
CURRENT LIABILITIES
UICK ASSETS CURRENT ASSETS )IN&ENTORIES PREPAID EPENSES*
Ca#c/#ation of 1/ic? ratio of BP&L fro' =>>;7> to =>8>788 )R$4 In #a?h$*
Year /ic? A$$et$ C/rrent Lia0i#itie$ Ratio
=>8>788 8>4;9 8=:94=8 84>>
=>>:78> 8>:4>9 8:=49= 84>=
=>>7>: 8:8>4=9 8=;4> >4=
=>>7> =88;;48 8=48; 8489
=>>;7> 89=>;4; 88>4>8 84
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
De0tor$ t/rno!er ratio in(icate$ the !e#ocit" of (e0t co##ection of fir'4 In $i'+#e it
in(icate$ the n/'0er of ti'e$ a!era3e (e0tor$ are t/rne( o!er (/rin3 a "ear4Genera##" the hi3her the !a#/e of (e0tor$ t/rno!er the 'ore efficient i$ the
'ana3e'ent of (e0tor$ < $a#e$ or 'ore #i1/i( the (e0tor$4 Si'i#ar#" #o2 (e0tor$
the a0o!e ta0#e 2e can o0$er!e that the +ercenta3e of chan3e in c/rrent a$$et$ $ho2 ane3ati!e tren($ in the "ear =>>:7=>8> %=>8>788 i4e4 8>4;=4%48> thi$ $ho2 that that the
fir' i$ not in a +o$ition to 'aintain it$ c/rrent a$$et$4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
Fro' the a0o!e ta0#e 2e can o0$er!e that the +ercenta3e of chan3e in ca$h % 0an? in$ho2 ne3ati!e ter' in the "ear =>>:7=>8> i4e4 84 4The hi3he$t +ercenta3e of chan3e in
the "ear =>>7> i4e45 89>4
BP&6 Tren($ in #oan$
Year #oan$ Percenta3e of chan3e
=>>;7> ;9:;4 7
=>>7> 88>:48 )>4=*
=>>7>: >>;4 4
=>>:78> =84>: 884>>
=>8>788 8>>4> )8>4:*
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
there0" to co'+ete 2ith the +ri!ate $ector an( 3#o0a# entre+rene/r$ an( $tan(
the'$e#!e$ in the nationa# a$ 2e## a$ internationa# 'ar?et$4
Go!ern'ent +o#ic" to2ar($ PSU$ a#$o enco/ra3e( the PSU$ to i'+ro!i$e the'$e#!e$4
A$ a +art of reha0i#itation +ro3ra''e5 GOI ha$ 2ritten off #oan$ an( 2ai!e( intere$t
!a#/in3 R$ 89 corer$4 Go!ern'ent of AP 2ai!e( !ario/$ $tate an( #oca# taJe$ to thet/ne of R$ chore$5 0e$i(e$ re3i$terin3 the #an( +o$$e$$e( 0" the co'+an" a$ a 3ift
(ee(4
Si'i#ar#"5 BP& a#$o 2ith the he#+ of Go!ern'ent +o#ic" co/+#e( 2ith chan3e in the
'ana3e'ent $tarte( $ho2in3 +o$iti!e re$/#t$4 The "ear =>> can 0e $ai( a$
T/rnaro/n( "ear or Re0irth "ear for BP&4
After ta?e7o!er of BP& 0" BEL5 the co'+an" i$ en,o"in3 3oo( 'onetar" $/++ort
fro' it$ ho#(in3 co'+an"4 With the $/++ort of the f/n($ +/'+e( 0" ho#(in3 co'+an"5
BP& c#eare( the o/t$tan(in3 #oan$ of con$orti/' 0an?$5 #i1/i(ate( 'o$t of the
$tat/tor" an( other #ia0i#itie$ an( en,o"in3 2or?in3 ca+ita# re1/ire'ent$4
It$ ho#(in3 co'+an" ha$ a#rea(" c#eare( the Ca+eJ +ro3ra' an( in the co'in3 t2o to
three "ear$5 an a'o/nt of R$ => core$ 2o/#( 0e in!e$te( to2ar($ Ca+eJ4
84 The c/rrent ratio of B44P4&4 in =>> i$ 848 an( it i$ (ecrea$e( to >4; in =>>;
an( it i$ (ecrea$e( to >49: in =>>7>4
=4 The /ic? ratio i$ >4 (/rin3 =>> (ecrea$e( in =>>5 >9 an( >; an( $too( at
>4: on 84>4=>>; an( it i$ (ecrea$e( to >49 in =>>7>4
4 The ratio of the fir' i$ >4>= in =>> an( it increa$e( to >4> in =>>7> an(
a3ain (ecrea$e( in =>>7>9 an( to 4>= in =>>97>;4
4 The (e0t of the co'+an" i$ !er" hi3h an( the Net 2orth of the Co'+an" ha$
0eco'e ne3ati!e an( ha$ increa$e( to R$4 )7* :4=>crore$ a$ on 84>4=>>;4 The
cre(itor$ of the co'+an" are in a hi3h ri$?" +o$ition4 In =>>7> a#$o the
co'+an" ha$ in a hi3h ri$?" +o$ition4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)
94 A #o2er $o#!enc" ratio i$ an in(icator of the fir' 2hich i$ in 3oo( +o$ition4 The
$o#!enc" ratio of the fir' i$ 849= in =>>=7> an( it increa$e( to =4 in =>>97>;4
The $o#!enc" +o$ition of the fir' i$ not $ati$factor"4
i3her o+eratin3 +rofit ratio i$ an in(icator of 3oo( financia# +erfor'ance of the
co'+an"4 The o+eratin3 +rofit i$ +o$iti!e in =>8>788 hence o+eratin3 +rofit ratio of the
fir' i$ 3oo(4
The hi3her the ret/rn on net 2orth ratio the 0etter i$ the financia# +erfor'ance of the
fir' fro' the +er$+ecti!e of the $hareho#(er$4 The net 2orth ratio of the fir' i$
ne3ati!e (/rin3 the a0o!e +erio(4 It in(icate$ the 0a( financia# +erfor'ance of the
fir'4
An In!entor" t/rno!er ratio of i$ con$i(ere( i(ea#4 The in!entor" t/rno!er ratio$ho2$ (ecrea$e in recent "ear$ in B44P4&4 Then the fir' i$ inefficient in!entor"
'ana3e'ent
A hi3her W4C4 t/rno!er ratio in(icate$ the efficient 'ana3e'ent of 2or?in3 ca+ita#4
The W4C4T4R4 i$ =49 in =>>=7> 2hich i$ !er" #o2 an( a$ the Wor?in3 Ca+ita# 0eca'e
ne3ati!e the ratio$ co/#( not 0e ca#c/#ate( fro' =>>7>4 It in(icate$ inefficient
'ana3e'ent of 2or?in3 ca+ita#4
The ratio in(icate$ the $ta0i#it" of efficient /ti#iation of o2ner$ an( #on3 ter'
cre(itor$ f/n($4 The ratio (/rin3 the "ear =>>=7> i$ 4=4 o2e!er a$ the Ca+ita#
e'+#o"e( ha$ 0eco'e ne3ati!e5 the ratio$ co/#( not 0e ca#c/#ate(4 It in(icate$
inefficient /ti#iation of f/n($4
SUGGESTIONS
The 'ar?etin3 (e+art'ent can 0e f/rther $tren3thene( for or(er 0oo? of 'ore #e3ac"
+ro(/ct$4
I'+#e'entation of SAP < ERP i$ i''e(iate re1/ire'ent in BP&4 Thi$ area '/$t 0e
concentrate( e$+ecia##" ?ee+in3 in !ie2 of hi3h tar3et$ $et 0" the co'+an" in the
co'in3 "ear$ an( a#$o ?ee+in3 in !ie2 of +ro+o$e( ca+eJ +ro3ra''e4
Intere$t free a(!ance$ $ho/#( 0e co##ecte( fro' the c/$to'er$4 With thi$ the #i1/i(it"
+o$ition i'+ro!e$4
8/10/2019 Working Capital Management PRJCT(Bhpv Vizag)