ariz farzan bheel.docx

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WORKING CAPITAL MANAGEMENT 1

A

RESEARCH REPORT

ON

Working CapitalManagement with special

Reference

toBHEL

In partial fulfillment of the award of

MASTER OF BUSINESS ADMINISTRATION,

Degree

MTU, NOIDA,

SUBMITTED TO: SUBMITTED BY

Mr. Nitin shrivastva MOHD Ariz farzan(HOD) MBA 4

thSem

Bhagwant Institute of Roll No.: 1108470033Technology, Muzaffarnagar


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DD ee cc ll aa rr aa tt ii oo nn

I, Mohd Ariz farzan hereby declare that the research project report titled Working Captial

Management in BHEL, Submitted in Partial fulfillment for the award of the degree of

MBA to bhagwant institute of technology Muzzerfernagar, is my own effort and had not

been submitted earlier to any other University / Board / Institute.

Date:

Place: (MOHD ARIZ FARZAN)


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AA CC KKNN OO WW LL EE DD GG EE MM EE NN TT

I express my sincere thanks to the Management of BHEL, Ranipur, Haridwar Unit for

giving me an opportunity to gain exposure on matter related to Project under the esteem

guidance ofMr. Anil Malik (SR. MANAGER)

The first person I would like to acknowledge is my guide Mr.Nitin shrivastva (HOD) who

supported me throughout this project with utmost cooperation and patience. I am very much

thankful to them for sparing their precious time for me and for helping me in doing this

project. He was always there to guide me and correct me whenever I was wrong.

Finally I would like to thank all my friends & well wishers who have helped in all

possible ways in making this project presentable.

Last but not the least I would like to thankthe Almighty God for always helping me.


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PREFACE

As MBA program is research report oriented, it frequents to the students a lot of opportunities

to gather first hand knowledge from industries of repute through study of present working

problems and its shuns, preventive measures and probable path of future prospects. Research

report gives the students the opportunities to gather practical knowledge from the market,

besides bookish knowledge. Likewise that opportunity appeared before me and I had a

thorough study of working capital management industry in India.

(Mohd.Ariz Farzan)


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Executive Summary

The project which is under consideration and I have analyzed is the management

policies of BHEL with regard to the working capital Management.

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

soviet technical co-operation agreement in Sept.1959

The BHEL is committed to provide safe and healthy working place to employees as an

integral part of business performance through.

The project is based on secondary data, because the management of working capital totally

depends on secondary data.

The Management of Working Capital is refers to difference between the total current assets

and total current liabilities.

Gross Working Capital = Total Current Assets

Net Working Capital = Total Current AssetsTotal Current Liabilities

Current Assets are sum of Sundry Debtors, Bills Receivable, Cash at Bank, Inventory,

Marketable Securities and Parlimary Expenses.

Current Liabilities are sum of Sundry Creditors, Bills Payable, Bank Overdraft and Short-

term loan.

There are 3 steps using in these project report

1. Debtors Management

2. Inventory Management

3. Cash Management


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DABTORS MANAGEMENT: The Debtors Management is considering for

the credit policies of the Organization.

INVENTORY MANAGEMENT: The Management of Inventory is

considering for the so many policies for the Inventory Management, every

organization follow the different method of Inventory Management.

ABC Analysis

SDE Analysis

SIC Inventory Control

VED Analysis

JIT Analysis

CASH MANAGEMENT: The Management of cash consider for the managing

the liquidity of the organization The main aim of cash management is what

amount hold the organization for the future uncertainty.


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Contents

INTRODUCTION 7

INTRODUCTION ON THE BHEL

NEEDS AND OBEJECTIVE FOR THE RESEACH TOPIC WORKING

CAPITAL MANAGEMENT 23

RESERCH METHODLOGY 28


1. MEANING

2. CLASSIFICATION OF WORKING CAPITAL MANAGEMENT

3. WORKING CAPITAL MANAGEMENT IN BHEL

MANAGEMENT OF DIFFERENT COMPONENTS OF WORKING CAPITAL

63

1. DEBTOR MANAGEMENT

2. INVENTORY MANAGEMENT

3. CASH MANAGEMENT

LIMITATION OF THE STUDY 101

FINDINGS 103

SUGGESTIONS 104

CONCLUSION 105

BIBLIOGRAPHY 106


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BHARAT HEAVY ELECTRICAL LIMITED:-

BHEL is the largest engineering and manufacturing enterprise in India in the energy

related/infrastructure sector today. BHEL was established more than 40 years ago when its

first plant was set up in Bhopal ushering in the indigenous Heavy Electrical Equipment

industry in India, a dream that has been more than realized with a well-recognized track

record of performance. The Companys inherent financial strengths can be seen from its net

worth, Debt Equity ratio and cash surplus. The Company has a net worth of Rs.60,270

Million as on 31st March 2005. The Companys cash surplus stood over Rs.32,000 Million

as on 31st March 2005. The Debt Equity ratio of the Company is at 0.09. It has been earning

profits continuously since 1971-72 and achieved a sales turnover of Rs.103,364 Millions with

a profit before tax of Rs.15,816 Millions in year 2004-2005. In line with the excellent

performance, an all time high dividend of 80% (including 35% interim dividend) for the

financial year 2004-05 has been paid. With this BHEL has maintained its track record of

paying dividends uninterruptedly for the last 29 years.

BHEL caters to core sector of Indian economy viz. Power Generation and

Transmission, Industry, Transportation, Telecommunication, Renewal energy defense etc.

The wide network ofBHEL 's, 14 manufacturing divisions, 4 Power sector regional centers,

8 service centers ,18 regional office and a large numbers of project sites spread all over India

and abroad enable the company to promptly serve its customer and provide them with

suitable products, system and services at competitive prices.

BHEL has already attained ISO 9000 and all the major units/divisions ofBHEL have

been upgraded to the latest ISO-9001: 2000 version quality standard certification for quality


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management. All the major units/divisions of BHEL have been awarded ISO-14001

certification for environmental management systems and OHSAS-18001 certification for

occupational health and safety management systems.

BHEL occupies an all-important niche as evident by its ranking by CII amongst top

eight PSUs based on financial performance. Recently in survey conducted by business India,

BHEL has been rated as seventh Best Employer in India.


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International Business

BHEL has, over the years, established its references in over 60 countries of the world.

These references encompass almost the entire range of BHEL products and services,

covering Thermal, Hydro and Gas based turnkey power projects, substation projects, and

rehabilitation projects; besides a wide variety of products like: Transformers, Compressors,

Valves and Oil field equipment, Electrostatic Precipitators, Insulators, Heat Exchangers,

Switchgears, Castings and Forgings etc. Some of the major successes achieved by BHEL

have been in Gas-based power projects in Oman, Libya, Malaysia, Saudi Arabia, Iraq,

Bangladesh, Sri Lanka, China, Kazakhstan; Thermal Power Projects in Cyprus, Malta, Libya,

Egypt, Indonesia, Thailand, Malaysia; Hydro power plants in New Zealand, Malaysia,

Azerbaijan, Bhutan, Nepal, Taiwan and Substation projects & equipment in various

countries. Execution of these overseas projects has also provided.

BHEL the experience of working with world-renowned Consulting Organizations and

Inspection Agencies. The Company has been successful in meeting demanding requirements

International markets, in terms of complexity of the works as well as technological, quality

and other requirements viz. HSE requirement, financing package, associated O&M services

to name a few. BHEL has proved its capability to undertake projects on fast-track basis.

BHEL has also established its versatility to successfully meet the other varying needs of

various sectors, be it captive power, utility power generation or for the oil flexibility to

exhibited adaptability by manufacturing and supplying intermediate products.


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VISION

A world-class, innovative, competitive and profitable engineering enterprise providing total

business solutions.

MISSION

To be the leading Indian engineering enterprise providing quality products system and

services in the fields of energy, transportation, industry, infrastructure and other potential

areas.

VALUES

Meeting commitments made to external and internal customers.

Foster learning, creativity and speed of response.

Respect for dignity and potential of individuals.

Loyalty and pride in the company.

Team playing

Zeal to excel

Integrity and fairness in all matters.


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RECENT ACHIEVEMENTS OF BHEL

1. BHEL's R&D ops contribute Rs. 1,151 Cr to turnover in 2005-06 [May 19

2006]NEW DELHI: Bharat Heavy Electricals Ltd on May 18 said the company has

achieved a turnover of Rs.1,151crore during 2005-06 through products developed by

in-house research and development operations. This revenue was eight per cent of its

total revenue of Rs.14,410crore in 2005-06. This was the result of a constant thrust on

developing new technologies and products, improving existing products and systems

in terms of reliability, cost and quality through in-house R&D efforts. The company

invested about Rs.150crore on Research and Development of products and systems

during the year, which was among the highest in the country. The company also filed

for 84 patents, including three abroad, taking the total number of patents filed till date

to 339. Out of this, BHEL has been granted 26 patents and the rest are in various

stages of processing. Thirteen copyrights have also been filed. R&D and technology

development are of strategic importance to BHEL as it operates in a competitive

environment where technology is a major factor.

2. BHEL to manufacture 800 mw thermal sets [Apr 14 2006] Catching up with the

advancement in global technologies, Bharat Heavy Electricals Ltd (BHEL), through

the efforts of its corporate research and development division in Hyderabad, is now

equipped to manufacture 800 mw super-critical thermal power sets in the country.

Much sought-after by several players in power generation, including AP Genco, for

its fuel efficiency, the super-critical technology has been till now viewed as the sole

domain of developed world. As part of its effort to emerge as one of the global

technology players in power systems and other new technologies, the R&D division

of BHEL has started fresh initiatives by setting up centers of excellence for surface


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engineering (COE-SE) and intelligent machines and robotics (CIMAR). According to

the source, CIMAR would be set up at the Corporate R&D division in Hyderabad at

an initial investment of Rs.4.77crore. Among the new products, the BHEL Corporate

R&D has successfully completed design, supply and commissioning of automated

storage and retrieval systems for four of the 13 warehouses at the Central Ordnance

Depot, Kanpur.

3. BHEL inks agreement with IIT Madras for new courses [Apr 25 2006 ]

Chennai: Bharat Heavy Electricals Ltd and the Indian Institute of Technology-Madras

have signed a memorandum of understanding for collaborative research in the areas of

design of boilers, manufacturing, metallurgical engineering, mechanical engineering,

information technology and other areas of mutual interest. With the help of BHEL,

Tiruchi, IIT-M will establish a research centre at the BHEL campus for the purpose.

IIT-M will select MS/PhD research scholars to work as research associates/project

associates. BHEL on its part will make available its research facilities and laboratories

for the purpose. The collaboration has also given scope for IIT-M to start two new

courses one on energy engineering and another on welding engineering. The courses

will start from the academic year 2006-07. BHEL, which designs power plant boilers

for handling a variety of coals, is also interested in getting into coal research.

4. BHEL secures Rs.80 Cr export order from EETC [May 10 2006] NEW DELHI:

Bharat Heavy Electricals Ltd (BHEL) has bagged its largest ever export order for

transformers worth Rs.80crore from Egyptian Electricity Transmission Co (EETC).

BHEL will supply 14 transformers of 125 MVA to the state-run Egyptian company as

a part of the order. These transformers would be installed in eight sub-stations at

different locations in Egypt. The transformers, to be built at the company's Jhansi


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plant, would be installed and commissioned under BHEL supervision. The company

had earlier executed a boiler project at Al Arish in Egypt. With the order for

transformers, BHEL has also established itself in the transmission market in Egypt.

BHEL had earlier reported a six-fold increase in its export orders booking for the

fiscal ended March 31 at Rs.3,348crore. These orders contributed to one-fifth of the

company's total orders booked last year. With this BHEL is poised to achieve a

quantum growth in its export business driven by consolidation in existing markets and

widening its export base through expansion of existing basket of products and

services and entering new markets.

5. BHEL net profit up 62 percent (the tribune,3 June 2006)BHEL has posted a net

profit of Rs.867.95 crore for the quarter ended March 31,2006, as compared to

Rs.534.28 crore for the quarter ended March 31, 2005, an increase of 62.45 pc. Total

income has increased from Rs.4,518.94 crore in Q4 FY 04-05 to Rs.5728.96 crore for

Q4 FY 05-06.It has posted a net profit of Rs.1679.16 crore for the year ended March

31,2006(FY 05-06) as compared to Rs.953.40 crore for the year ending March

31,2005.Total income has increased from Rs. 9977.36 crore in FY 04-05 to

Rs.13820.02 crore for FY 05-06.The board of directors has recommended a final

dividend of 20 percent of equity of the company, making it to total of 145 percent of

the equity share capital of the company for the financial year 2005-06.This includes

the interim dividend of 40 percent and special dividend of 85 percent already paid

during the year.

6. Workers participation in management yields savings at BHEL, Hardwar

DEHRA DUN, Nov 16: Empowerment of employees through the "quality the areas of

import substitution, revamping of old machine tools and safety over the past two

decades based on the principle of people-building and mutual development, the


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"quality circle" was adopted by the BHELs Hardwar Plant in the year 1981 and has,

since then, yielded savings of nearly Rs. 5 crore, according to Mr. Ashwini Dhar,

Public Relations Officer of the organization. The quality circle guides the combined

efforts and knowledge of workmen of a particular section. There are more than four

hundred quality circles actively working to enhance the excellence on the process,

quality and delivery fronts, Mr. Dhar said. Coordinators and facilitators along with

other members of the workers groups identify problems and think of solutions

collectively to prevent defects and maintain overall quality. Mr. Dhar said upgrading,

renovation and modernization of hydro sets installed at various power stations

equipped with BHEL and non-BHEL equipment was being now undertaken by the

Hardwar unit through its research and development efforts. The Hardwar unit of

BHEL has received an order of Rs Eight crore from Power Development Corporation,

Jammu and Kashmir, to carry out renovation and modernization of the lower Jhelum

Hydro Electric Project. This project is equipped with turbine and operator equipment

supplied by BHEL and the project was commissioned in 1980. Another order, worth

Rs Thirty crore, was received by the BHEL plant for renovation, modernization and

up rating of the units of Ganguwal and Kotla Hydro Electric Projects under Bhakra

Beas.

7. Management Board and will ensure an increased output of the generating units by as

much as twenty per cent. Earlier, one unit each of the above machines was renovated

and up rated by the BHEL resulting in a similar output increase for these machines.

More than a hundred sets of different capacities supplied by BHEL, Hardwar, are

commissioned at various power stations all over the country. The hydro sets are tailor

made to suit varying hydro electric parameters. Mr. Dhar said that at the Hardwar

Plant, excellent engineering and manufacturing facilities are available to supply


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Kaplan, Francis, Pelt on and reversible hydro turbines along with matching generators

and associated equipment. (UNI)

Contribution of BHEL in various Core Sectors

Power Transmission & Distribution Sectors

In the T&D sector, BHEL both a leading equipment-manufacture and a system-integrator.

BHEL-manufacture T&D products have a proven track record in India and abroad.

In the area of T&D systems, BHEL provides turnkey solution of utilities. Substations and

shunt compensation installation set up by BHEL are in operation all over the country. EHV

level series compensation schemes have been installed in KSEB, MSEB, MPSEB and

POWERGRID networks. Complete HVDC systems and state-of-the-art Flexible AC

Transmission systems (FACTS) can be delivered by BHEL. In the area of power distribution,

BHEL provides turnkey solution for improving systems efficiency & reducing losses through

RPM of sub-stations, SCADA and Metering Solutions, IT Solutions etc.

Industry Sector

Since its inception in 1982, the Industry Sector business has grown at an impressive rate and

today, contributes significantly to BHEL turnover. BHEL, today supplies all major equipment

for the industries: AC/Dc machine, alternators, centrifugal compressors, special reactor

columns, heat exchangers, pressure vessels, gas turbine based captive co-generation and

combined cycle power plants, DC power plants steam turbine and turbo generator for process

industries, diesel engine based power plant, solar water heating system, solar photovoltaic

systems, electrostatic precipitators, fabric filters, etc. BHEL also provide solution for water

management system, coal & gas handling plants.


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Transportation sector

In the transportation field, BHEL product range covers: AC locomotive, AC/Dc dual-voltage

locomotive, diesel-electric shunting locomotive, traction motors and transformers, traction

electrics and control for AC,DC and dual voltage EMUs, diesel-electric multiple unit, diesel

power car and diesel-electric locomotive, battery powered vehicles and solution for urban

transportation system including electric trolley buses, LRT& MRTs.

A high percentage of trains operated by Indian railways are equipped with traction equipment

and controls manufactured and supplied by BHEL.

Human Resource Development Institute

BHEL has envisioned becoming "A World Class Engineering Enterprise committed to

enhancing stakeholder value". Force behind realization of this vision and the source of our

competitive advantage is the energy and ideas of our 44,000 strong highly skilled and

motivated people. The Human Resource Development Institute situated in NOIDA, a corner-

stone of BHEL learning Infrastructure, along with Advanced Technical Education Centre

(ATEC) in Hyderabad and the Human Resource Development Centre at the manufacturing

Units, through various organizational developmental efforts ensure that the prime resource of

the organization the Human Capital is Always in a state of Readiness, to meet the

dynamic challenges posed by a fast changing environment. It is their constant endeavor to

take the HRD activities to the strategic level of becoming active partner to the

(organizational) pursuits of achieving the organizational goals.


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The Heavy Electrical Equipment Plant (BHEL) located in Haridwar, is one of the

major manufacturing plants of BHEL. The core business of BHEL includes design and

manufacture of large steam and gas turbines, turbo generators, hydro turbines and generators,

hydro turbines and generators, large AC/DC motors and so on.

Heavy Electrical Equipment Plant, Hardwar of this Multi-unit corporation with 7467 strong

highly skilled technicians, engineers, specialists and professional experts is the symbol of

Indo Soviet and Indo German Collaboration. It is one of the four major manufacturing units

of the BHEL. With turnover of 140697 lacs and PBT of Rs.22961 lacs BHEL added 3000

MW of power to the National grid during 2004-05.

BHEL is engaged in the manufacture of Thermal and Nuclear Sets up to

1000MW, Hydro Sets up to HT Runner dia 6300mm, associated Apparatus Control gears,

AC& DC Electrical machines and large size Gas Turbine of 60-200 MW. BHEL Hardwar

contributes about 44% of Indias total installed capacity for power generation with total

capacity of Thermal, Nuclear & Hydro Sets of over 45000MW currently working at a Plant

Load Factor of 76% and Operational Availability of 86%. In spite of acute recession in

economy, BHEL Hardwar received recent orders for Mejia-5&6, Sip at, Bhatinda,

Chandrapura, Bakreshwar, Santaldih, Bhilai, Dholpur.


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HISTORICAL PROFILE:

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

soviet technical co-operation agreement in Sept.1959The first product to roll out from the

plant was an electric motor in January 1967.This was followed by first 100 MW Steam

Turbine in Dec.1969and first 100MW Turbo Generator in August 1971.The plants break

even was achieved in March 1974.BHEL went in for technical collaboration with M/s

Siemens, Germany to undertake design and manufacture to large size thermal sets up to a unit

rating of 1000 MW in the year 1976.First 200 MWTG set was commissioned at Obra in

1977.The continuum of technological advancement subsequently saw the commissioning of

500 MW TG Set in 1984 .The technical cooperation of Gas Turbine manufacture was also

signed with M/s Siemens Germany. First 150 MW ISO rating gas Turbine was exported to

Germany in Feb1995.Our 250 MW thermal set up at Dahanu Plant of BSES made a

history by continuous operation for over 150 days and notching up a record plant load factor

greater than 100%.

KEY COMPETITORS:

Power Sector Giant of the World viz. Siemens Germany, ABB, General electric of USA etc.

Are the major competitors of BHEL. All these are the MNCs and enjoy huge financial and

R&D backup.


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CORPORATE CITIZEN:

BHEL Hardwars Strategic plans and its policy & strategy are commensurate with BHEL

Corporate / strategic Plan . As first PSU to adopt Corporate Planning as a process . Board

meetings for long range development , BHEL has always guided other PSUs in their

Corporate planning process .Board meeting , monthly Management Committee meetings,

Annual Revenue Budget exercise , Mid term reviews , Apex TQ council reviews, Personnel

Heads Meet, Quality Heads Meet , Technology Meets , Product committees meetings, Inter-

Unit Quality Circle Meets etc. are the some of crore strengths of BHEL Corporations vast

network.

KEY CUSTOMERS AND SUPPLIERS

BHELs customer profile ranges from State Electricity Boards, Government

Power utilities like NTPC, NPC, and NHPC to IPPs like Reliance Energy.

BHEL has also supplied Gas Turbine sets to overseas customers in Libya &

Iraq. Power Sector Regions of BHEL are its key internal customers. In view of

expected market scenario, BHEL has strategically decided that BHEL will

concentrate on coal based Higher Rating Thermal Sets for domestic market to

fulfill the countrys vision of adding 107,000 MW capacity to achieve Power

on Demand by 2012. Our key customer, NTPC has drawn up plan for capacity

addition of 20,000MW by 2012. BHEL has planned for execution of

34,619MW by 2012.


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FAVOURABLE BUSINESS ENVIRONMENT:

Power Sector has to grow over 10% annually to reach the 7% GDP level. Thus, the

demand for thermal sets will remain high. Central Electricity Authority (CEA) is the guiding

authority for Power Sector strategies in our country. BHEL representatives, along with

representatives from various domestic customers, are an integral part of various committees

formed by CEA. This enables us to guide and understand the market requirements and future

challenges. To meet the 11th Five Year Plan target of adding 61,000MW, CEA has planned

addition of 23 nos. standardized 500MW sets for faster Project execution and cost reduction.

BHEL, including BHEL, is a part of this process. CEA has standardized for the next capacity

of 800MW sets and has asked BHEL to prepare itself for manufacturing and supply in the

11th Five Year Plan. BHEL has tied up with Siemens for up gradation of technology. Further

CEAs stress on R&M of ageing Power Plants is also providing business opportunity to unit.

MAJOR CHALLENGES:

The favorable business scenario has given the unit a major challenge of establishing Power

Infrastructure of the country in close co-ordination with its key customers. BHEL has

committed itself to meet the countrys requirements. To cater to the needs of higher rating

sets of 800MW, BHEL has collaboration with Siemens.


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STRATEGIC CHALLENGES

Key Business

Cycle time reduction

State of the art technology

Cost reduction

Operational

Timely delivery

Material cost reduction

Productivity improvement

Effective utilization of machines

Human Resource

Motivation of employees

Skill & Knowledge management

MAJOR MILE STONES

1975 Job Redesign concept launched for FIRST time in India.

1978 Well documented Suggestion Scheme launched.

1982 Launched Productivity Movement & Quality Circle. Concept

1993 ISO 9001 quality System.

1995 Adopted EFQM model of TQM for achieving Business

Excellence.

1997 BHELone of the 9 PSEs declared Navratna by Govt. of India .


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1997 National Productivity Award for BHEL 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

2001 CII Site Visit for CII-EXIM Business Excellence Award-2000

2003 Top Management TQM Workshop at Rishikesh and HRDC

2004 INSAAN Award for excellence in Suggestion for 11th consecutive year

2005 Launching of QTM & RCA at BHEL Hardwar by CMD

2006 Launching of delivery Index, Turnover Index and Manufacturing Index

2007 JBE Workshop of Apex TQM Group at Tehri to evolve Business

Policy

2008 Commendation for Significant Achievement in CIIEXIM Bank Award.

2009 Award given by Institute of Cost and Works Accountants of

India for "Excellent Work in the field of Management Accounting and Cost Concepts".


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TOTAL QUALITY FOCUS:

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

Government) in early 90s and to enter European market we moved towards ISO 9000

Certification. Concept of Business Excellence through EFQM. Model was launched in entire

BHEL on pilot scale in Oct.1995 In 1997 BHEL launched TQM in the entire Plant and

since then Self-Assessment is done every year in September. Based on feedback Report of

Assessment, critical success factors are identified. and TQ action plans are drawn. The

philosophy of ISO 9001, TQM and ISO 14001 has been integrated BHEL Hardwar for

ultimately achieving BUSINESS EXCELLENCE.

BHEL. Hardwar plant is accredited for ISO 9001 and ISO 14001 and is now on March

towards TQM.5-S was launched in March 1999 in a big way and now it has become a way of

life in the organization. In 2000 BHEL applied for CII-EXIM Business excellence award and

site visit was conducted Bu CII team in Seot.2000. CII feedback has gone a log way in

carrying out further improvement plans and giving a structured thrust to TQM movement In

July 2001, Units TQ Council reviewed the TQ Action Plans 2001-02 for its effectiveness

and impact on accelerating the pace of improvement and consequent TQ Score. Executive

Director laid the challenge of achieving the TQ score of 650.With an objective to bring

awareness about he CII-EXIM Business Excellence Model amongst the Sr. Executives, the

first Top Management TQM Workshops held at Rishikesh during oct.2001Executive

Director who is TQ Assessor also, himself steered the Workshop with assistance from some

experienced TQ Assessor of BHEL. It followed by second Top Management TQM Workshop

steered again by Ed was held at HRDC on Oct29 , 2001.Subsequantly the third Top

Management TQM Workshop was held in Nov2001, where-in Sr. Counselor, CII deliberate

the detail on Best practices of TATA STEEL-the winner of CII-EXIM Business Excellence

Award 2000. Simultaneously ,TQ Assessors training program for the select group of young


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managers(to be developed as Think Tanks)was organized in Nov2001.To give further boost

Apex Group was formed. Apex Group developed Roadmap to Business Excellence based

on Criteria Linkage of CII-EXIM Business Model and the initiatives taken at Hardwar was

drawn by the group and it was widely circulated amongst the employees through special issue

of Hardwar Current in April 2002.It followed by JBE workshop of Apex TQM Group held at

Tehri on June 30 and July 1,02 where-in following business policy and critical factors was

evolved.

BUSINESS POLICY:

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

growth with increasing positive Economic Value Addition and Customer focused business

leadership in the Power and Industry Sector and welfare of society.

CRITICAL SUCCESS FACTORS:

Strategic outsourcing of process components and assemblies.

Focused drive for all round productivity through employee involvement.

Focus on customer commitments.

Net saving in direct material and BOI by15 crore

Introduction of300-350MW sets and preparedness of 800MW thermal sets

Capacity building of 5250MW manufacturing through implementation of modernization

plan.

Bench marking.


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Improvement in internal customer- internal supplier satisfaction index by 20%.

Contribution to the welfare of the society

Effective Contract Management

Technology Up gradation.

Excellence triangle for each Critical Success Factor is now being drawn comprising

improvement projects. These projects will be centrally registered under On-line Central

Registration system to be developed for it. While CSF Champion will take the total stock of

position in the improvement projects undertaken in his respective CSF, progress of individual

projects will be reviewed by Area TQ Council (ATQC) and Functional TQ Council (FTQC).

One of the major strengths of BHEL Haridwar is its free, open and consistent work

culture for making continuous improvement evident from the participation of employees in

Suggestions and Quality Circles. To recognize their efforts various productivity drives and

competition are organized through out the year and Executive director awards the winners in

the special Award Distribution Functions. National Award for Excellence in Suggestion

Scheme for 11th consecutive year by INSSAN, National Award for excellence in Energy

Conservation as an Energy Efficient unit by CII, CMDs Rolling Trophy for 3rd

consecutive year Well known Forge Shop by Central Boiler Board etc. are some Vir Award

2001 15 employee honored with Prime Ministers shram award and 133 employees

honored with Vishwakarma Rashtriya Puraskarduring 2004-05, which is a record in

the organization.

The journey to excellence is unending .It is a continuous search with commitment and

belongings. Sky indeed is not the limit for perfection. The transition has strongly experienced


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a silent internalization with a blend of commitment of the existing human resource for

creating benchmarks for excellence. The emergence of role models and clear-cut driving

force at the top provide an anvil to unleash the potential, which remain unexplored in search

ofAttitude to perform. The surge has started and is being communicated down the. BHEL

today through TQM is on March towards excellence.

BHARAT HEAVY ELECTRICAL LIMITED is committed to provide safe and healthy

working place to employees as an integral part of business performance through:

Compliance with applicable legislation and regulation and standards

Designing all product and system safe to use and dispose off, recycable wherever techno-

economically feasible.

Adopting approach based on elimination/reduction control for prevention of pollution and

occupational health and safety risk in all operational activities.

Appropriate structured training to employees and generate awareness amongst customer,

contractor and supplier on environmental and OHS issues.


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NEEDS AND OBJECTIVES FOR THE RESEARCH TOPIC WORKING

CAPITAL MANAGEMENT

Every business needs some amount of working capital. The needs for working capital, arises

due to time gap between production and realization of cash from sales. There is an operating

cycle involved in sales and realization of cash. There are time gaps in purchase of raw

material and production, production and sales, and realization of cash.

Thus, working capital is needed for the following purposes: -

To study the working capital management of the concern so as to analyze and

interpret the inventory position of the BNEL.

To assess the strength and weakness of the concern in various areas.

To assess the overall efficiency and performance of the company.

For the purchase of raw material, component and spares.

To pay wages and salaries.

To incur day- to- day expenses and overhead costs such as fuel, power and office

expenses etc.

To meet the selling costs such as packing, advertising etc.

To provide credit facilities to the customers.

To maintain the inventories of raw material, work in progress, store, spares, and

finished stock

.


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MEANING OF WORKINGCAPITAL

Working Capital is commonly defined as the difference between current assets and

current liabilities. Efficient working capital management requires that firms should operate

with some amount of working capital, the exact amount varying from firm to firm and

depending, among other things on the nature of industry.

Capital required for a business can be classified in two main categories viz.

1) Fixed capital, and

2) Working capital.

Every business needs funds for two purposes-for establishment and to carry out its day-to-day

operations. Long-term funds are required to create production facilities.

Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc.

Investments in these assets represent that part of firms capital which is blocked on

permanent or fixed basis and is called fixed capital. Funds are also needed for short-term

purpose for the purchase of raw material, payment of wages and other day-to-day expenses,

etc. These funds are known working Capital. In simple words, working capital refers to

that part of the firms capital, which is required for financing short-term or current

assets such as cash, marketable securities, debtors and inventories. Funds thus invested in

current assets keep revolving fast and are being constantly converted into cash and these cash

flows out again in exchange for other current assets. Hence, it is also known as revolving or

circulating capital or short-term capital.


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CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified on two basis: -

a) On the basis of Concept: -

On the basis of concept, working capital can be classified as,

Gross Working Capital

Net Working Capital

b) On the basis of Time: -

On the basis of time, working capital can be classified as,

Permanent or Fixed Working Capital

Temporary or Variable Working Capital

Gross Working Capital: -

The Gross Working Capital is the Capital invested in the total current assets of the

enterprises. Current assets are those assets, which can be converted into cash within a short

period, normally an accounting year.


Net Working Capital: -

The term Net Working Capital refers to the excess of current assets over current liabilities, or

say,

Net Working Capital = Current AssetsCurrent Liabilities


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STRENGTH (S): -

Low cost producer of quality equipment due to cheap labor and fully depreciated plants.

Flexible manufacturing set up.

Entry barrier due to high replacement cost of its manufacturing facilities.

Comprehensive turnkey experience from product design to commissioning.

WEAKNESSES (W): -

High working capital requirement due to its exposure to cash starved SEBs (State

electricity boards) and High WIP.

Inability to provide project financing.

OPPORTUNITIES (O): -

High-expected growth in power sectors (7000 MW/ p.a. needs to be added).

High growth forecast in Indias index of industrial production would increase demand for

industrial equipment such as motors and compressors.

THREATS (T): -

Technical suppliers are becoming competitors with the opening up of the Indian

economy.

Fall in global power equipment prices can affect profitability.


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RESEARCHMETHODOLOGY

An exploratory research has been carried out to study the behavior of customers. To meet the

research objective researches format, to collect information from the respondents was made

and the information were collected through secondary data & the primary data.

In the case of exploratory research, the focus is on the discovery ideas. In a business where

sales have been declining for the past few months, the management may conduct a quick

study to find out what could be the possible explanations the sales might have declined on

account of a number of factors, such as the deterioration in the quality of the product,

increased competition, inadequate or ineffective advertising, lack of efficient and trained

salesmen or used to the wrong channels of distribution. In such a case an exploratory study

may be conducted to find the most likely cause.


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Research Problem

To Assess the customers requirement regarding BHEL products & services.

To evaluate the level of Customers satisfaction on BHEL products & services.

Research Objectives

The study has been designed to achieve the following objectives:

To assess the level of Customers satisfaction on BHEL product & services.

To identify the customers requirement regarding telecom products & service.

To compare BHEL with other company regard to their services, advertisement strategies, prices &

sales ratio.


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RESEARCH DESIGN

The following methodology was adopted for the study purpose:

Type of research:

Descriptive and Analytical type of study was adopted while conducting the project.

Sampling Design was taken by the researcher as the Research design.

The major purpose of the study is to describe the state of affairs as it exists at present.

The study was based on the facts or information already available, & analysis of this available information make

a critical evaluation of the material.

Research Method/Technique:

In the project report the researcher used following techniques while conducting his study:

Analysis of documents

Survey Method: A market survey was done other companies.

Interview (Personal): Both open and closed ended (structured and unstructured) questions were asked

while taking interview from the executives.

Questionnaire (Structured): A structured designed comprehensive questionnaire was framed and pre-tested


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A) PRESCRIBED READING

To get insight of the product, the research was involved in important discussion with the relevant people.

Researcher was also provided with Products catalogues, stickers.

C) SAMPLING DESIGN

Area of Sample:

The area covered up in this survey was Haredwar.

Sampling unit:

Sampling unit were the customers of

Teliar Ganj

Luker Ganj

Source list (Sampling Frame)

Business class: 20

Professional class: 25

Service class: 25

(Government, Semi-Government &Private Sectors)

Students: 30

Household Ladies: 10

Sample size: 100


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Sampling Procedure

On the representation basis, the sample may be probability sampling or it may be non- probability sampling.

Probability sampling: - Probability sampling is also known as Random sampling or Chance sampling. Under

this sampling design, every item of the universe has an equal chance of inclusion in the sample. (i.e., once an

item is selected for the sample, it cannot appear in the sample again.

Non Probability sampling: - Non probability sampling is also known by different names such as deliberate

sample, purposive sampling and judgment sampling. In this type of sampling, items remain supreme.

Non-Probabilistic Sampling procedure is adopted for the Project


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D) DATA COLLECTION TECHNIQUES

Data for this study has been collected primary sources for the collection of data CONVENIENCE

SAMPLING has Been used.

1. PRIMARY DATA: Primary data was collected with The help of:

(a)QUESTIONNAIRE METHOD: A Prepared questionnaire has been given to get the information. This

method helps in collecting the inner view of the respondent and their suggestion about the product.

(b)PERSONAL INTERVIEW: Personal Interview was conducted. A mixed type of questions was

asked.

2. SECONDERY DATA: Secondary data have collected through referred books, magazines, various

articles, Internet etc.


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MEANING OF WORKINGCAPITAL


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Working Capital is commonly defined as the difference between current assets and

current liabilities. Efficient working capital management requires that firms should operate

with some amount of working capital, the exact amount varying from firm to firm and

depending, among other things on the nature of industry.

Capital required for a business can be classified in two main categories viz.

1) Fixed capital, and

2) Working capital.

Every business needs funds for two purposes-for establishment and to carry out its day-to-day

operations. Long-term funds are required to create production facilities.

Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc.

Investments in these assets represent that part of firms capital which is blocked on

permanent or fixed basis and is called fixed capital. Funds are also needed for short-term

purpose for the purchase of raw material, payment of wages and other day-to-day expenses,

etc. These funds are known working Capital. In simple words, working capital refers to

that part of the firms capital, which is required for financing short-term or current

assets such as cash, marketable securities, debtors and inventories. Funds thus invested in

current assets keep revolving fast and are being constantly converted into cash and these cash

flows out again in exchange for other current assets. Hence, it is also known as revolving or

circulating capital or short-term capital.

CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified on two basis: -


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a) On the basis of Concept: -

On the basis of concept, working capital can be classified as,

Gross Working Capital

Net Working Capital

b) On the basis of Time: -

On the basis of time, working capital can be classified as,

Permanent or Fixed Working Capital

Temporary or Variable Working Capital

Gross Working Capital: -

The Gross Working Capital is the Capital invested in the total current assets of the

enterprises. Current assets are those assets, which can be converted into cash within a short

period, normally an accounting year.


Net Working Capital: -

The term Net Working Capital refers to the excess of current assets over current liabilities, or

say,

Net Working Capital = Current AssetsCurrent Liabilities

Net Working Capital can be positive or negative. When the current assets exceed the current

liabilities the working capital is positive and the negative working capital results when the

current liabilities are more than the current assets. Current liabilities are those liabilities,


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which are intended to be paid in the ordinary course of business within a short periodof

normally one accounting year out of the current assets of the income of the business. The

gross working capital concept is financial or going concern concept whereas net working

capital is an accounting concept of working capital. Both the concepts have their own

merits.

The gross concept is sometime preferred to the concept of working capital for the following

reasons: -

It enables the enterprise to provide correct amount of working capital at correct time.

Every managementis more interested in total current assets with which it has to operate

then the sources from where it is made available.

It takes into consideration of the fact every increase in the funds ofthe enterprise would

increase its working capital.

The concept is also useful in determining the rate of return on investments in working

capital.

The net working capital concept, however, is also important for the following reasons:-

It is a qualitative concept, which indicates the firms ability to meet its operating expenses

the short-term liabilities.

It indicates the margin of protection available to short term creditors.

It is an indicator of financial soundness of enterprise.

It suggests the need of financing a part of working capital requirement out of the

permanent sources of funds.

Permanent or Fixed Working Capital: -

Permanent or fixed capital is the minimum amount, which is required to ensure effective

utilization of fixed facilities and for maintaining the circulation of current assets. Every firm


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has to maintain a minimum level of current assets is called permanent or fixed working

capital as this part of working capital is permanently blocked in current assets. As the

business, grow the requirement of working capital also increases due to increase in current

assets.

Temporary or Variable Working Capital: -

Temporary or variable working capital is the amount of working capital, which is required to

meet theseasonal demands and some special exigencies. Variable working capital can further

be classified as seasonal working capital and special working capital.The capital required to

meet the seasonal need of the enterprise is called the seasonal working capital. Special

working capital is that part of working capital which is required to meet special exigencies

such as launching of extensive marketing campaign for conducting research etc.

Temporary working capital differs from permanent working capital in the sense that it is

required for short periods and cannot be permanently employed gainfully in business.

Calculate current assets to fixed asset ratio

A firm needs current and fixed assets to support a particular level of output.

However, to support the same level of output the firm can have different levels of current

assets. As the firms output and sales increases, the need for current asset increases.

Generally the current assets do not increase in direct proportion to output; current assets may

increase at a decreasing rate with input. This relationship is based upon the notion that it

takes a greater proportional investment in current assets when only a few units of output are

produced than it does later on when the firm can use its current assets more efficiently.

The level of the current assets can be measured by relating current assets to fixed assets.

There are three policies:-

1) conservative current assets policy:


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CA/FA is higher. It implies greater liquidity and lower risk.

2) aggressive current assets policy:

CA/FA is lower it implies higher risk and poor liquidity.

3) moderate current assets policy:

CA/FA ratio falls in the middle of conservative and aggressive policies.

Estimating working capital needs


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1. Liquidity vs. Profitability: Risk Return Trade Off.

The firm would make just enough investment in current assets if it were possible to

estimate working capital needs exactly. Under perfect certainty, current assets holdings

would be at the minimum level. A larger investment in current assets under certainty would

mean a low rate of return of investment for the firm, as excess investment in current assets

will not earn enough return. A small invest in current assets, on the other hand would mean

interrupted production and sales, because of frequent stock-cuts and inability to pay to

creditors in time due to restrictive policy.

As it is not possible to estimate working capital needs accurately, the firm must decide about

levels of current assets to be carried.

2. The Cost Trade Off:

A different way of looking into the risk return trade off is in terms of the cost of

maintaining a particular level of current assets. There are two types of cost involved:-

I. Cost of liquidity

II. Cost of illiquidity

--If the firms level of current assets is very high, it has excessive liquidity. Its return on

assets will be low, as funds tied up in idle cash and stocks earn nothing and high levels of

debtors reduce profitability. Thus, the cost of liquidity increases with the level of current

assets.


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--the cost of illiquidity is the cost of holding insufficient current assets. The firm will not be

in a position to honor its obligations if it carries to little cash. This may force the firm to

borrow at high rates of interests. This will also adversely affect the credit-worthiness of the

firm and it will face difficulties in obtaining funds in the future. All this may force the firm

into insolvency. Similarly, the low levels of stock will result in loss of sales and customers

may shift to competitors. Also, low level of debtors may be due to right credit policy which

would impair sales further. Thus the low level of current assets involves cost that increase as

this level falls.


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Policies for financing current assets

The following policies for financing current assets in BHEL, Hardwar:-

LONG TERM FINANCING:

The sources of long term financing include ordinary shares capital, preference share capital

debentures, long term borrowings from financial institutions and reserves and surplus. The

BHEL Haridwar manages its long term financing from capital reserve, share premium A/C,

foreign project reserve, bonds redemption reserve and general reserve.

SHORT TERM FINANCING:

The short term financing is obtained for a period less than one year. It is arranged in advance

from banks and other suppliers of short term finance include working capital funds from

banks, public deposits, commercial paper, factoring of receivables etc.

The BHEL, Haridwar manages secured loans as:-

1) Loans and advances from banks.

2) Other loans and advances:

(i) Debentures/bonds

(ii) Loans from State Govt.

(iii) Loans from financial institutions(secured by pledge

Of PSU bonds and bills accepted guaranteed by banks)

3) Interest accrued and due on loans

(a) From State Govt.

(b)From financial institutions bonds and other

(c) Packing credit


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The BHEL, Haridwar manages unsecured loans as:-

1) Public deposits

2) Short term loans and advances:

(1)From banks

(i) Commercial papers

(2)From others

(i) From companies

From financial institutions

3) Other loans and advances

From banks

From others

(i) From govt. of India

(ii) From state govt.

(iii) From financial institutions

(iv) From foreign financial institution

(v) Post shipment credit exam bank

(vi) Credit for assets taken on lease

4) Interest accrued and due on

(a) Post shipment credit

(b) Govt. credit

(c) State Govt. loans

(d) Credits for assets taken on lease

(e) Financial institutions and others

(f) Foreign financial institutions

(g)Public deposits


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SPONTANEOUS FINANCING:-

Spontaneous financing refers to the automatic sources of short term funds arising in the

normal course of a business. Trade Credit and outstanding expenses are examples of

spontaneous financing.

A firm is expected to utilize these sources of finances to the fullest extent. The real choice of

financing current assets, once the spontaneous sources of financing have been fully utilized,

is between the long term and short term sources of finances.

What should be the mix of short and long term sources in financing current assets?

Depending on the mix of short and long term financing, the approach followed by a company

may be referred to as:

1. matching approach

2. conservative approach

3. aggressive approach

Matching approach

The firm can adopt a financial plan which matches the expected life of assets with the

expected life of the source of funds raised to finance assets. Thus, a ten year loan may be

raised to finance a plant with an expected life of ten year; stock of goods to be sold in thirty

days may be financed with a thirty day commercial paper or a bank loan. The justification for

the exact matching is that, since the purpose of financing is to pay for assets, the source of

financing and the asset should be relinquished simultaneously. Using long term financing for

short term assets is expensive as funds will not be utilized for the full period. Similarly,


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financing long term assets with short term financing is costly as well as inconvenient as

arrangement for the new short term financing will have to be made on a continuing basis.

When the firm follows matching approach (also known as hedging approach) long

term financing will be used to finance fixed assets and permanent current assets and short

term financing to finance temporary or variable current assets. How ever, it should be

realized that exact matching is not possible because of the uncertainty about the expected

lives of assets.

The firm fixed assets and permanent current assets are financed with long term funds and as

the level of these assets in increases, the long term financing level also increases. The

temporary or variable current assets are financed with short term funds and as their level

increases, the level of short term financing also increases. Under matching plan, no short term

financing will be used if the firm has a fixed current assets need only.


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Conservative approach

A firm in practice may adopt a conservative approach in financing its current and

fixed assets. The financing policy of the firm is said to be conservative when it depends more

on long term funds for financing needs. Under a conservative plan, the firm finances its

permanent assets and also a part of temporary current assets with long term financing. In the

period when the firm has no need for temporary current assets, the idle long term funds can

be invested in the tradable securities to conserve liquidity. The conservative plan relies

heavily on long term financing and, therefore, the firm has less risk of facing the problem of

shortage of funds. The conservative financing policy is shown below. Note that when the firm

has no temporary current assets, the long term funds released can be invested in marketable

securities to build up the liquidity position of the firm.


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Aggressive Approach

A firm may be aggressive in financing its assets. An aggressive policy is said to be

followed by the firm when it uses more short term financing than warranted by the matching

plan. Under an aggressive policy, the firm finances a part of its permanent current assets with

short term financing. Some extremely aggressive firms may even finance a part of their fixed

assets with short term financing. The relatively more use of short term financing makes the

firm more risky. The aggressive financing is illustrated in fig below.


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Importance of working capital

1. Time devoted to working capital management:-

The largest portion of financial manager's time is devoted to day to day internal operation the

firm. This may be appropriately sum up under the heading "WORKING CAPITAL

MANAGEMENT".

2. Investment in current assets:-

Current assets represent more than half of the total assets of a business firm. Because they

represent largest investment and because this investment tends to relatively volatile, current

assets are worthy for the financial manager's careful attention.

3. Importance for small firm:-

Current assets are similarly important for the financial manager's of small firm. Further small

firm are relatively limited access to the long term markets, it must necessarily rely on the

trade credit and short term bank loan, both of net effect on net working capital by increased

current liabilities.


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FACTORS DETERMINING THE WORKING CAPITAL REQUIRMENT

1. NATURE OF BUSINESS :-

The requirement of working capital is very limited in public utility undertaking such as

Electricity, Water Supply and Railways because they offer cash sales only and supply

services not products and no funds are tied up in inventories and receivables. On the other

hand, the trading and financial firm requires less investment in fixed assets but have to invest

large amounts in current assets. The manufacturing undertaking requires sizable amount of

working capital along with fixed investments.

2. PRODUCTION POLICY :-

The determination of working capital needs depends upon the production policy of the

business. The demand for certain products is seasonal i.e.; such products are purchased in

certain months of a year. For such industries, two types of production policy can be

followed. Firstly they can produce the goods in the months of demand or secondly, they

produce for the whole year. If the second alternative were followed, it would mean that until

the time of demand finishes, product would have to be kept in stock. It would require

additional working capital.

3. LENGTH OF PRODUCTION CYCLE:-

The longer the manufacturing time, the raw material and other supplies have to be carried for

a longer time in the process with progressive increment of labor and service costs before the

final product is obtained. Therefore, working capital is directly proportional to the length of

the manufacturing process.


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4. RATE OF STOCK TURNOVER:-

There is an inverse co-relationship between the quantum of working capital and the velocity

or speed with which the sales are affected. A firm having a higher rate of stock turnover will

need lower amount of working capital as compared to a firm having a low rate of turnover.

5. CREDIT POLICY:-

Credit policy affects the working capital requirements in two ways:

(a) Terms of credit allowed by customer to the firm,

(b) Terms of credit available to the firm.

A concern that purchases its requirements on credit and sells its product/services on

cash requires lesser amount of working capital and vice-versa.

6. WORKING CAPITAL CYCLE :-

The speed with which the working cycle completes one cycle determines the requirements of

working capital. Longer the cycle larger is the requirement of working capital.

DEBTORS

CASH FINISHED

GOODS

RAW MATERIALWORK IN

PROGRESS


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Each component of working capital (namely inventory, receivables and payables) has two

dimensions ........TIME .........and MONEY. When it comes to managing working capital -

TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect

monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce

inventory levels relative to sales), the business will generate more cash or it will need to

borrow less money to fund working capital. As a consequence, you could reduce the cost of

bank interest or you'll have additionalfree money available to support additional sales growth

or investment. Similarly if you can negotiate improved terms with suppliers e.g. get longer

credit or an increased credit limit, you effectively createfree finance to help fund future sales.


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7. RATE OF GROWTH AND EXPANSION OF BUSINESS: -

The larger size businesses require more permanent and variable working capital in

comparison to small business. If a company is growing, its working capital requirements will

also go on increasing. Thus, the growing concerns require more working capital as compared

to the stable industries.

8. SEASONAL VARIATION: -

Generally, during the busy season, a firm requires larger working capital than in the slack

season.

9. BUSINESS FLUCTUATION: -

In period of boom, when the business is prosperous, there is a need for larger amount of

working capital due to rise in sales, rise in prices, optimistic expansion of business etc. On

the contrary in time of depression, the business contracts, sales decline, difficulties are faced

in collection from debtors and the firm may have a large amount of working capital idle.

10. EARNING CAPACITY AND DIVIND POLICY:-

Some firms have more earning capacity than other due to quality of their products, monopoly

conditions, etc. Such firms may generate cash profits from operations and contribute to their

working capital. The dividend policy also effects the requirement of working capital. A firm

maintaining a steady high rate of cash dividend irrespective of its profit needs more working

capital than the firms that retain larger part of its profits and does not pay so high rate of cash

dividend.


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11. PRICE LEVEL CHANGES: -

Price level changes also affect working capital needs. If the prices of different goods increase,

to maintain same level of production, more working capital is needed.

12. AVAILABILITY OF RAW MATERIAL: -

Availability of raw material on the continuous basis affects the requirement of working

capital. There are certain types of raw materials, which are not available regularly. In such a

situation firm requires greater working capital to meet the requirements of production. Some

raw materials are available in particular season only for example wool, cotton, oil seeds, etc.

They have to keep greater working capital.

13. MAGNITUDE OF PROFIT:-

Magnitude of profit is different for different businesses. Nature of product, control on the

market and ability of managers etc. determine the quantum of profit. If the profit margin is

high, it will help to arrange funds internally, which will also increase the working capital.

14. OTHER FACTOR: -

Operating efficiency

a) Management ability

b) Irregularities of supply

c) Import policy

d) Asset structure

e) Importance of labor


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MANAGEMENT OF WORKING CAPITAL

Management of working capital means management of all aspects of current assets and

current liabilities. Basically, Working capital management is concerned with the

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

the inter relationship that exist between them.

Financial management should determine the quantum and structure of current assets. It

should also see that current assets are financed from the proper sources. Management should

also see that current liabilities are paid in time, while managing the working capital.

The main objective of working capital management is to manage current assets and current

liabilities in a manner so that working capital can be kept in a satisfactory level. It is also

taken in to account that the working capital should be neither excessive nor inadequate. The

amount of current assets should be adequate to pay the current liabilities in time and adequate

security margin can be maintained. Accordingly, proper balance among the different

constituents of current assets is maintained so that no current has more than require amount

invested in it.

Management of working capital affects profitability, risk and liquidity of the business

significantly. Management should, therefore, maintain proper balance among these factors

while managing working capital. If the quantum of working capital is more, it will increase

liquidity, but decrease profitability and risk. If working capital relatively declines, it will

decrease liquidity but cause an increase in profitability and risk. If business wants to earn

more profit, it will have to bear higher risk. Risk means inability of the firm to pay current

liabilities in time.


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Working capital management is three dimensional in nature: -

1) It concerned with the formulation. It of policies with regard to profitability, liquidity and

risk.

2) It is concerned with the decisions about the composition and level of current assets.

3) It is concerned with the decisions about the composition and level of current liabilities.

Policies regarding to Profitability,

Liquidity and Risk.

Composition of level of Composition of level of

Current assets Current liabilities

Dimensions of working capital.

EXISTING SYSTEM OF WORKING CAPITAL IN BHEL, HARDWAR

To maintain the optimum level of working capital in such a big organization is really a

challenging task. The three basic components that determine the level of working capital in

any organization are: -

Cash

Debtors B/R

Inventory.


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On the basis of our research in the BHEL Haridwar, these basic components are managed in

the organisation, in the under mentioned manner.

TABLE OF WORKING CAPITAL

(Rs. in Lacs)

PARTICULARS YEARS

2004-05

ACTUAL

2005-06

ACTUAL

2006-07

ACTUA

L

2007-08

ACTUAL

2008-9

ACTUAL

2009-010

PROV.

Current Assets

Debtors 54076 50904 41417 55866 48552 64709

Inventory 47369 43461 32370 39214 58976 69798

Cash 17 23 527 10 9 9

Loan and Advaces 13367 6573 5730 5581 5299 5152

Total 114829 100962 80044 100671 112836 139668

Current Liabilities

Sundry Creditors 15701 15753 18630 19718 15562 16674

Adv.from Customers 31634 26695 27107 33275 29360 61889

Other liabilities 1687 826 2665 1966 1980 12370

Provisions 19129 17002 15963 16682 14473 19990

Total 68151 60276 64365 71641 14473 110923

Net Working Capital 24794 40327 50463 29320 18668 28745

Turnover 97100 81498 71799 108811 101335

Working Capital to

Turnover

256(D) 98(D) 67(D) 69(D) 34(D)


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Working capital to turnover=net working capital/turnover*365

D stands for no. of days

Graphical presentation of current assets of the company

Focusing on liquidity management

Net working capital is a qualitative concept. It indicates the liquidity position of the firm and

suggests the extent to which working capital needs may be financed by permanent sources of

funds. Current assets should be sufficiently in excess of current liabilities to constitute a

margin or buffer for maturing obligations within the ordinary operating cycle of a business.

0

10000

20000

30000

40000

50000

60000

70000

80000

2001-02

2002-03

2006-07

2007-08

2008-09

2009-010

Debtors

Inventory

Cash

Loan andadvance


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In order to protect their interests, short-term creditors always like a company to maintain

current assets at a higher level than current liabilities. It is a conventional rule to maintain the

level of current assets twice the level of current liabilities. However, the quality of current

assets should be considered in determining the level of current assets vis--vis current

liabilities. A weak liquidity position poses a threat to the solvency of the company and makes

it unsafe and unsound. A negative working capital means a negative liquidity and may prove

to be harmful for the companys reputation. Excessive liquidity is also bad. It may be due to

mismanagement of current assets. Therefore prompt and timely action should be taken by

management to improve and correct imbalances in the liquidity position of the firm.

Net working capital concept also covers the question of judicious mix of long-tar and short-

term funds for financing current assets. For every firm there is a minimum amount of net

working capital which is permanent. Therefore a portion of the working capital should be

financed with the permanent sources of funds such as equity, share capital, debentures, long-

term debt, preference share capital or retained earnings. Management must decide the extent

to which current assets should be financed with equity capital or borrowed capital.

Balanced working capital position

The firm should maintain a sound working capital position it should have adequate

working capital to run its business operations. Both excessive and inadequate working capital

positions are dangerous from the firms point of view. Excessive working capital means

holding costs and idle funds which earn no profits for the firm paucity of working capital not

only impairs the firms profitability but also results in production interruptions and

inefficiencies and sales disruptions.


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The dangers of excessive working capital are as follows:

1. It results in unnecessary accumulation of inventories thus chances of inventory

mishandling, waste, theft and losses increase.

2. It is an indication of defective credit policy and slack collection period. Consequently,

higher incidence of bad debts results, which adversely affects profits.

3. Excessive working capital makes management complacent which degenerates into

managerial inefficiency.

4. Tendencies of accumulating inventories tend to make speculative profits grow. This

may tend to make dividend policy liberal and difficult to cope with in future when the firm is

unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers:

1. It stagnates growth. It becomes difficult for the firm to undertake profitable project for

non-availability of working capital funds.

2. It becomes difficult to implement operating plans and achieve the firms profit target.

3. Operating inefficiencies creep in when it becomes difficult even to meet day to day

commitments.

4. Fixed are not efficiently utilized for the lack ofworking capital funds. Thus the firms

profitability would deteriorate.

5. paucity of working capital funds render the firm unable to avail attractive credit

opportunities etc,

6. The firm loses its reputation when it is not in a position to honor its short term

obligations as a result the firm faces tight credit terms.


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An enlightened management should, therefore, maintain the right amount of working

capital on the continuous basis. Only then a proper functioning of business operations will be

ensured. Sound financial and statistical techniques, supported by judgment, should be used to

predict the quantum of working capital needed at different time periods.

A firms net working capital position is not only important as an index of liquidity but it is

also used as a measure of the firms risk. In this regard means chances of the firm being

unable to meet its obligations on due date. The lender considers a positive networking gas a

measure of safety. All other things being equal, the more the networking capital a firm has,

the less likely that it will default in meeting its current financial obligations. Lenders such as

commercial banks insist that the firm should maintain a minimum net working capital

position.


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Graphical Representaion Of Working Capital In BHEL

Interpretation: -

If we see from the above table, it can be clearly seen that net working capital has

continuously come down to 13446 Lacs in 2008-09 from 50463Lacs in 2004-05.But in 2007-

08 it is increased but it is good for the company because of its turnover is also increased.

Moreover if we compare no. of days of net working capital to turnover, it has also comes

down to 99 days from 256 day in previous years.

This improvement does not come accidentally but considerable measures have been taken to

control working capital in organization. There is direct relation of working capital

50463

29320

18668 18475

13446

28745

0

10000

20000

30000

40000

50000

60000

2004-05 2005-06 2006-05 2007-08 2008-09 2009-10

WORKING CAPITAL(RS. in Lacs)


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requirement with Debtors and Inventory. Above data indicates that company has taken

certain strategic measures to manage its Debtor and Inventory.

Following are the measures: -

Special task forces were built up from debtors and Inventory Management at senior level.

Regular follow up at senior level.

A close contact with the customers.

Proper age- wise analysis of the debtors.

Proper classification between collectible Debtors and bad debts.

Bad debts written off as early as possible after making all efforts for its collection.

Product cycle minimized so that cost of the product does not become high to the agreed

amount because of time factor.

Formation of specific group in each area to identify the wastage elements and seek

participation of all.

Formulation of action plan to eliminate/minimize wastage.

Identification of corrective actions and their implementation.

.


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INTRODUCTION


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It is very difficult for the organization to sell always on cash basis in todays competitive

market. In almost every business, we have to sell on credit basis.

The basic objective of management of sundry debtor is to optimize the return on investment

on this asset. It is obvious that if there are large amounts tied up in sundry debtors, working

capital requirement would be high and consequently interest charges will be high. In such

cases, the bad debts and cost of collection of debts would be high. On the other hand if the

credit policy is very tight, investment in sundry debtors is low but the sale may be restricted,

since the competitors may offer more liberal credit term.

We have limited resources and therefore every resource has its own opportunity cost.

Therefore, the management of sundry debtors is an important issue and requires proper

policies and efficient execution of such policies.

Debtors and cost of debtors have direct relation; cost will increase due to increase in debtors

and vice versa. It depends on the credit sale of concern and credit period (collection period)

allowed to customer. It is in interest of customer to pay as late as possible, and company

whom made sales, would like to collect their debtor as early as possible. There is a conflict

between the two aspects.

Debtor management is the process of finding the equilibrium at which company agrees to

receive its payment without hampering or having any adverse effect on its sales and customer

agree to pay at their economical buying concept.

Sundry debtor level depends on two measure issues: -


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One is volume of credit sales and another is credit period allowed to customer. It is the

essence of every business that to sale on credit and allow credit period to the customer in

such a competitive market, following factors may be considered before allowing credit period

to the customer: -

Nature of the product

Credit worthiness of the customer, which varies from customer to customer.

Quantum of advance received from customers

Credit policy of company, say number of days allowed to customer for payment to the

customers.

Cost of debtors

Manufacturing cycle time of the product etc.

Debtors Management: -


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There are mainly three aspects of Management of Debtors

1. Credit Policy: -

The credit policy is to determine. It involves a trade off between the profits on additional sale

that arises due to credit being extended on one hand and the cost of carrying those debtors

and bad debts losses on the other.

2. Credit Analysis:-

This requires determining as how risky is to advance credit to a particular customer.

3. Control of Receivables: -

This requires to the firm to follow up debtors and decide about a suitable credit collection

policy. It involves both lying down of credit policy and execution of such policies.

There is a cost of maintaining receivables, which comprises Cost of: -


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The company require additional funds as resources are blocked in receivables which

involves a cost in the form of interest (loan fund) or opportunity cost (own fund).

Administrative cost which includes record keeping, investigation of credit worthiness etc.

Collection cost.

Defaulting cost or Bad debts.

DEBTORS MANAGEMENT IN BHEL - HARIDWAR

B.H.E.L Haridwar is engaged in the manufacturing business of heavy electrical equipments,

where cycle time of the product is 18- 24 months and most of the contracts take

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